Discount Bank Board Considers Full Merger of Mercantile Bank to Boost Efficiency

Discount Bank's board announced on Monday a strategic move to explore a full merger of its wholly owned subsidiary, Mercantile Bank, into the parent company. This step aims to accelerate CEO Avi Levi's strategic plan by enhancing competitiveness, improving operational efficiency, and adapting the bank's structure to technological challenges. The merger, if approved, will be gradual and subject to regulatory approvals, with a clear intention to preserve Mercantile's brand and expertise. Customers will initially continue to operate under the Mercantile brand to minimize disruption.

The decision stems from Discount Group's significant operational efficiency gap compared to other Israeli banks. In 2025, Discount's efficiency ratio stood at 49.2%, making it the least efficient bank in the system, compared to 29.3% for Bank Leumi, 34.2% for Bank Hapoalim, and 35.9% for Mizrahi Tefahot. Mercantile itself had a 47.4% efficiency ratio in 2025. The group believes that combining headquarters and eliminating operational redundancies will provide the necessary boost to meet the "Discount 2030" five-year plan target of reducing the efficiency ratio below 43%.

This move follows years of efforts to reduce duplications, with Mercantile's technology already largely integrated into Discount's systems. The appointment of Barak Nardi as Mercantile CEO in March 2025, who came from Discount, marked a shift toward integration. However, the final decision balances potential operational savings against the risk of losing Mercantile's unique business focus on Arab and Haredi communities, which some experts argue requires a separate banking entity.

Mercantile plays a vital role in the group, reporting a 13.1% return on equity in 2025 (14.9% adjusted for one-time expenses), outperforming Discount's overall 12.6% (13.7% adjusted). Mercantile's net profit was 776 million shekels (880 million adjusted) out of Discount Group's total 4.14 billion shekels (4.5 billion adjusted). Its credit portfolio of about 52.5 billion shekels represents roughly 18% of the group's total credit portfolio of 288.8 billion shekels. Mercantile operates 73 branches nationwide, with about half serving the Arab sector and a strong presence in the Haredi community and peripheral regions.

This evaluation continues Discount's recent trend of simplifying its organizational structure to create a leaner, more competitive banking group. Recent moves include acquiring full ownership of the PayBox payment app, bringing Gallatin Point Capital as a minority partner in Discount New York, and selling its entire stake in Cal credit card company to Harel and Union groups in September 2025. The potential legal merger of Mercantile represents the next phase in Discount Group's comprehensive internal restructuring strategy.