Credit Shift From Banks to Card Companies Given 4 Years

Bank of Israel governor Karnit Flug appeared before a Knesset committee on Tuesday to explain the decision to allow more time than originally planned for the shift of credit lines from banks to credit-card companies over the next few years, Globes reported on Tuesday.

“We thought it was right to give the banks four years to reduce their lines of credit, instead of two years. In our opinion, the credit-card companies are incapable of absorbing a volume of lines of credit in only two years that is greater than what they are currently providing — neither their resources not risk-management capabilities are enough for that,” Flug told the Knesset Special Committee to Discuss the Bill for Increasing Competition and Reducing Concentration in Israel’s Banking Market.

Flug told the committee further that the new laws regulating the banking industry are aimed at promoting competition and greater efficiency, but that the far-reaching changes cannot be rushed.

“The changes in the law, and especially the recommendation to separate the credit card companies from the large banks, combined with the initiatives led by the Bank of Israel and its Banking Supervision Department, such as creating a credit database, a format for establishing new banks from scratch, promoting efficiency in the banking system, and promoting technology and innovation in banking, will create in the coming years an advanced banking system and generate more competition in retail banking and banking for small businesses.

“At the same time, it should be kept in mind that a change in the financial system requires wise, thorough, and long-term measures, as well as quite a bit of patience. The public will reap the benefits of the reform gradually over time,” Flug said.

She said that the transition period would leave the credit card companies maneuvering room for assessing the structure of their capital for the purpose of providing credit and establishing criteria for providing credit.