On June 3, 2018, the Bank of Israel (the “BoI”) published a circular (the “Circular”) detailing an updated simplified process for parties wishing to establish a new bank in Israel (the “Policy”). The Circular is the latest development in the ongoing reform of Israel’s banking sector, through which the relevant authorities are attempting to spur competition in the sector, limit the influence of Israel’s largest banks and reduce borrowing costs for the customer. The Policy is specifically designed to provide regulatory clarity for establishing a new bank in Israel, and encourages new applicants by promoting a speedier and less costly process than the existing regime.
Until publication of the Circular, the BoI only contemplated applications for establishing full commercial banks, regardless of the proposed scale of operations. Under the terms of the new Policy, the BoI has introduced a process for licensing banks with limited scales of operations. In summary, an applicant must co-operate with a five-stage licensing process, as clearly described in the Circular, and then it may obtain a (limited) bank licence within six months of submitting a licence request. This limited licence will permit the bank to begin, among others, limited deposit and credit services. It is envisioned for banks conducting non-complex activity, such as retail.
One significant advantage for a new bank is that it is required to have initial capital of just NIS 50 million (approx. USD 14 million), with this figure only rising over time. When the bank’s risk-weighted assets reach NIS 600 million (approx. USD 168 million), it will then be required to meet a Tier 1 capital ratio of 8%, and a total capital ratio of 11.5 percent (lower than current mandatory rates for Israeli banks).
Upon receipt of a limited licence, the Policy provides that the applicant will be granted a period of time to complete all necessary further steps (e.g. raising capital, infrastructure investment, engaging employees etc.), perhaps with milestones to meet at certain junctures, in order to obtain a permanent licence within the timeframe and schedule set by the Banking Supervision Department.
The new Policy states that the BoI supports the establishment of digital banks, and applicants for digital banks may benefit from the Policy.
The Policy replaces the relevant previous guidance of the BoI on this topic and provides a framework for the creation of new banks in Israel for the first time in many years.
To view the Policy (in Hebrew) press here.