Small Banks Gain Edge as Israel's Finance Ministry Excludes Big Banks from Savings Reform
Israel's Finance Ministry has launched a savings products reform that initially excludes the country's five largest banks, Leumi, Hapoalim, Mizrahi, Discount, and Bank of Jerusalem, from a new investment account platform. This exclusion, termed a "baby protection" measure by the arbitration committee, will last three years to allow smaller banks and investment houses to establish themselves in the market. The exception is Bank Hapoalim, controlled by Bino Tzadik, which is allowed to participate in the reform and thus can expand its customer base without facing strong banking competitors.
The reform consolidates provident funds, savings policies, and mutual funds into a single investment account platform. Traditionally, Israel's banking system has been dominated by five major banks, reflected in the banking index on the Tel Aviv Stock Exchange. However, the rapid growth of investment houses and insurance companies has shifted market dynamics. For example, Phoenix Insurance, which owns Excellence Investment House (a non-bank brokerage), is valued at 41.5 billion shekels, nearly double Bank Hapoalim's market cap of 21.1 billion shekels. Other insurers like Harel and Menora also have higher market values than the fifth-largest bank.
Given this landscape, excluding Bank Hapoalim from the reform would have been difficult to justify. The ministry's decision effectively grants the bank a competitive advantage by allowing it to operate as a smaller player in this new framework. This move aims to balance competition and foster diversity in Israel's financial services sector.
Separately, the article notes that capital gains tax exemptions on provident funds will be capped at 200,000 shekels. Despite a weak month on the Tel Aviv Stock Exchange dragging down provident fund returns, the S&P 500 investment track performed strongly. Public interest in equity pension tracks is rising, though caution is advised to avoid costly mistakes.
