Can a co-operative break the banking monopoly in Israel?

Banking co-op Ofek hopes to bring more competition to Israel’s financial sector if it can attract the 15,000 shareholders it needs to be viable.

The co-operative was founded in 2012 after 400,000 people took to the streets to protest against Israel’s high cost of living, with banks criticised for paying excessive salaries and charging high fees.

The country only has five banks  – compared with 120 in 1948 – with two dominant banks, Leumi and Hapoalim, controlling over 70% of the market. Critics argue this enables them to charge high prices for withdrawals or sending letters, and setting interest rates of 12-13% for individuals and small businesses. Customers even pay extra when making purchases.

This lack of competition leads to a lack of competition in other sectors, as new entrants cannot afford loans from banks due to high interest rates. In 2012 the Zaken committee, headed by David Zaken, supervisor of banks at the Bank of Israel, recommended increased competition in banking.

In contrast, Ofek expects to give customers interest rates of 2-3% on deposits and charge 6% or less on loans. The bank will simply charge what it needs to balance the books.

The bank is not-for-profit and is owned by its members, who must contribute a share of NIS 3,000 (£500), So far, 3,700 people have joined.

Yuhuda Talmon, chair of the bank’s executive committee, said there was talented team in place and he was confident they could create the country’s first social bank, “breaking the monopoly influence on our lives”.

Ofek representatives are in discussions with the Strum committee which is currently exploring ways to increase competition in the banking and financial services. The committee, headed by Dror Strum, was appointed by finance minister Moshe Kahlon and Bank of Israel governor Karnit Flug.

But the bank still faces hurdles. The government has to change the legislation to allow a co-operative to become a bank.

Furthermore, Israel has no credit scoring law, so banks do not know how risky a potential borrower is – a particular challenge for a small bank like Ofek. The co-op is campaigning for allowing information exchange between banks, to a facilitate credit rating system for private customers.

Ofek is also calling for legislation on deposit insurance, giving people a guarantee that their money is safe in a small bank. Until these changes are made, the co-operative bank’s future remains uncertain.