Israel Bank Regulator Signals Support for Mizrahi-Union Deal

Israel’s chief banking regulator said she would support the sale of Union Bank of Israel Ltd. to its bigger rival Mizrahi Tefahot Bank Ltd. because it would strengthen competition in the country’s financial sector.

Mizrahi is in negotiations to buy Union for about $405 million in a deal that would need approval in Israel’s tightly regulated business environment. Any deal would land on the desk of Hedva Ber, the Bank of Israel’s financial system supervisor, who said she “would look positively at the scenario in which Israel becomes a market of three big players” instead of two — Bank Hapoalim BM and Bank Leumi Le-Israel BM.

“It will increase competition,” Ber said in an interview from her Tel Aviv office. “Mizrahi has proven that it’s a competitive bank that can challenge the bigger banks in the mortgage sector, and that’s what we want to see in the whole industry.”

In recent years Israel’s government has been pushing hard to boost competition in the banking sector, forcing Hapoalim and Leumi to sell off credit-card units in a bid to bring in new players. The deal also would need approval from the country’s Antitrust Authority, Ber said.

In an emailed statement Wednesday, Union Bank workers accused Ber of “abandoning” 1,200 employees by supporting the deal. Union Bank shares rose 0.3 percent Wednesday to 17.47 shekels, while Mizrahi dropped 1.4 percent to close at 63.97 shekels.

Mizrahi has grown by aggressively targeting consumers in the mortgage-lending business as Israel’s housing market boomed over the past decade. A merger with Union could help Mizrahi compete in Israel’s corporate-loans sector, where Hapoalim and Leumi control 51 percent of the market to Mizrahi’s 8.1 percent, according to BOI figures. At the same time, because Union is one of the least efficient banks, Mizrahi would need to find synergies between the two banks to make the deal work.

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Ber said her efforts to improve competition aren’t limited to supporting consolidation. She’s also pushing banks to become more efficient and adopt new technologies, and is working with other regulators to allow new companies to lend in Israel.

“Ultimately it’s about the consumer benefiting from competition,” she said. “Our approach is that we have to further competitive pressure by strengthening the medium-sized banks, encouraging new efficient and digital players — among them the two credit card companies that will be separated from the large banks — and furthering the technological revolution in banking.”