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The combined effect of Israel's stable economy, the Middle East peace process, and the high-tech boom is to attract a high level of foreign investor activity, including that of foreign banks.
More than 10 foreign banks have representative offices in Israel, in addition to which, Citibank N.A. and HSBC Republic Bank (Suisse) S.A. have announced they will set up full operating branches in Tel Aviv before the end of the year.
According to Yehuda Levi, HSBC’s country head in Israel and future CEO of the Tel Aviv branch, these banks were attracted by Israel’s strong macro-economic indicators: lower inflation and government deficit, balance of payments stability, the lifting of foreign exchange controls, and the gradual improvement of the country’s international credit rating in recent years.
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"Foreign banks want a piece of the cake. Liberalization and economic growth have created economic conditions that allow them to do business here," said Maor.
HSBC’s Israeli branch will be full-service outlet, concentrating on three fields of activity: foreign securities asset management, including currency trading; commercial banking; and private banking, targeting individuals in Israel of high net worth, and members of the Jewish Diaspora with bank accounts in Israel. "Initially, we shall concentrate on private banking, but eventually our business will be one third private banking, one third commercial banking (or trade financing) and one third trading in currencies, foreign securities and options," Levi said.
He added that it was unlikely the bank would enter the retail market, where Israeli banks are highly competitive. Internet technology, however, could provide an entry to this market as well. "Israeli banks are well stationed and networked in their retail operations," he said. "It is highly unlikely that foreign banks will enter the retail field, except through Internet banking," Levi said. Israeli banks on the whole welcome this competition. They see it as yet another challenge, another feature of the enormous changes Israeli banks are undergoing, nationally and internationally, as world banking reacts to globalization, deregulation, and the introduction of new technology, such as the Internet.
"Israeli banks are exposed to these trends and have to deal with them," Maor said. "We hope that the opening of foreign banks will speed up reforms in the banking system, bringing it into line with the Western world, particularly with regard to distributing insurance and pensions."
"Apart from preparing to meet the challenge of foreign banks, Israeli banks are readying themselves to handle the enormous changes in the Israeli economy," said Eliezer Yones, head of the Bank Hapoalim’s finance division, and member of the board of management. Bank Hapoalim is Israel’s largest bank.
The opening of financial markets to foreign institutional investors, the convertibility of the shekel, the massive increase in the activities of foreign investors, and the local and international demand for Israeli derivatives and hedge instruments are all part of the new challenges facing Israeli banks. This is what Israeli banks are gearing up for," Yones said.
Cont.