Credit Card Firms to Offer Cheaper Loans After Regulatory Fix
Translated & summarized from Calcalist by baba
Israeli credit card companies will soon be able to offer more loans at lower interest rates due to a regulatory fix approved by the Knesset Finance Committee. The change allows them to use "CoCo" bonds more effectively, saving millions in financing costs. This addresses a loophole created in 2017 when credit card firms separated from banks. The move is expected to eventually benefit consumers through increased credit availability and reduced loan rates.
The story in 5 lines · by baba
- Israeli credit card firms can now issue "CoCo" bonds more affordably after a regulatory fix.
- The change is expected to save companies millions and lower loan interest rates for consumers.
- A 2017 law inadvertently blocked credit card firms from using tradable "CoCo" bonds.
- The fix addresses a loophole that increased financing costs for companies like Max and Isracard.
- The amendment is being fast-tracked to align with 2027 budget planning.
Israeli credit card companies are set to expand their lending and lower interest rates for consumers and businesses, following a parliamentary committee's approval of a regulatory fix. The change, driven by the Finance Ministry, will allow these companies to save millions of shekels annually on their financing costs.
The adjustment addresses a bureaucratic "bug" that arose after credit card firms were separated from banks in 2017. The Knesset's Finance Committee on Wednesday approved allowing these companies to use a unique financial instrument called "CoCo" bonds (contingent convertible bonds) under more favorable and tradable conditions.
Credit card companies, supervised by the Bank of Israel, are required to maintain a financial "safety net" known as "Tier 2 capital." The more loans a company issues, the larger this safety net must be. CoCo bonds are an efficient tool for building this capital, as they include a mechanism where debt can be partially or fully written off, or converted to equity, in extreme financial distress, thereby protecting the company from collapse.
Previously, a 2012 law protected investors by allowing them to demand their money back if the company's situation worsened. This conflicted with the CoCo bond's purpose. Banks and insurance companies were exempted from this rule, enabling them to issue tradable CoCo bonds. When credit card companies were spun off from banks, they lost this exemption due to an oversight in the "Shaham Law" of 2017, forcing them to issue non-tradable CoCo bonds at higher interest rates.
This fix is significant for companies like Max, which has about 400 million shekels in CoCo bonds, and Isracard, with about 313 million shekels. Once these bonds are listed on the stock exchange as intended, their interest rates are expected to drop by 0.25%. This reduction in financing costs is anticipated to eventually benefit the public through increased credit availability and lower loan rates. The urgency to pass the amendment now is linked to the closing of budget cycles for 2027.
