Israel's Knesset Approves Bill to Lower Credit Costs
Translated & summarized from Cursorinfo by baba
Israel's Knesset Finance Committee approved an amendment allowing credit card companies to issue publicly traded "CoCo" bonds, similar to banks. This change is expected to reduce borrowing costs for these companies, potentially leading to lower interest rates for consumers and businesses. The amendment addresses a loophole from a 2017 reform and is anticipated to save companies like Max and Isracard millions of shekels annually. While welcomed by the industry, the actual reduction in consumer loan rates is not guaranteed and will depend on market factors.
The story in 5 lines · by baba
- Israel's Knesset approved an amendment to lower borrowing costs for consumers and businesses.
- Credit card companies can now issue publicly traded "CoCo" bonds, previously restricted to banks.
- The change is expected to save companies like Max and Isracard millions of shekels annually.
- The amendment aims to increase competition between banks and credit card companies.
- Lower consumer loan rates are a potential outcome but not guaranteed by the new law.
The Israeli Knesset's Finance Committee has approved an amendment aimed at increasing competition within the financial sector and potentially lowering borrowing costs for individuals and businesses. The change addresses a legislative gap created by a 2017 reform that separated credit card companies from banks, forcing them to raise capital under less favorable terms.
Previously, credit card companies, unlike banks and insurance firms, could not issue publicly traded "CoCo" bonds, which are designed to absorb losses during financial crises. This restriction meant they had to use less liquid, non-tradable debt instruments, leading institutional investors to demand higher interest rates. The amendment rectifies this by allowing credit card companies to issue these bonds on the stock exchange, similar to banks.
This legislative adjustment is expected to reduce capital-raising expenses for companies like Max, which has approximately 400 million shekels in CoCo bonds, and Isracard, with 313 million shekels. The change is projected to save these companies about 1.8 million shekels annually through a 0.25 percentage point interest rate reduction on existing bonds alone, with further savings anticipated from future debt issuances.
The amendment, which has been in development for about 18 months and is expected to be signed by the Finance Minister soon, aims to foster greater competition between banks and credit card companies. While the reform is intended to create conditions for more favorable lending, it does not mandate a reduction in interest rates for consumers. Whether these savings will be passed on to borrowers depends on the companies' decisions, market competition, and overall economic conditions.
Industry representatives from credit card companies and fintech organizations have welcomed the decision, viewing it as a step towards strengthening competition and expanding non-bank lending. The bill garnered support from both the ruling coalition and the opposition, signaling a shared political interest in developing the financial sector.
