News Column

Israeli banking - the money's on change

February 3, 2014

ZEEV GOLIN

I started working at Bank Leumi 33 years ago. Israeli banking in 1981 was done without Internet, PCs, cell phones, faxes or multifunction ATMs. Any financial transaction of note - including cash withdrawals above the measly limit allowed by single-function ATMs, loans and foreign exchange - required a visit to a branch.

Banks were feared and respected in those days. Popularly known as "the country's oxygen," they didn't have to put up with much public scrutiny. They were constantly expanding, opening new branches at home and abroad.

They were not particularly customer-centric. The best a customer could do was to plead with the bank manager to approve a loan or to ignore the overdraft and clear a check. But terms, conditions and interest rates were mostly dictated by the bank with little room for argument or appeal. The banks believed that in order to hold customer loyalty it was enough to be honest, fair and wise.

A generation ago, a position at Leumi and other banks was a "job for life." It was enough that the bank paid salaries on time and provided a pension plan that was generous by Israeli standards. Tenure was easily obtained. And not least, employees got a great deal on blocks of Bank Leumi shares, which always seemed to be rising.

In return, the bank management expected loyalty and deference. A new employee that thought himself - or herself - smarter than the boss dared not express this openly. With time, patience, hard work and initiative they could prove it. It was taken for granted that once you were granted tenure - immunity from being fired - you were in for the long haul. It was a job for life.

The bank was the center of social life for many employees. Firm friendships that endured for decades were formed during work hours. Employees from the same branch or department partied together, vacationed together, dined together and holidayed together - usually in a bank-sponsored framework.

Israeli banking has undergone a sea change since those days.

In October 1983, the bank shares collapsed and the truth came to light. In order to finance their expanding empires, a cartel of bank heads had fixed the value of their shares at inflated levels. The four major banks were broke, and the government became their owners. Eventually, the banks would revert to private control, but they would never regain their aura of invincibility in the eyes of the public.

In 1985, in the wake of triple-digit inflation and constant devaluation of the shekel, a national-unity government implemented a comprehensive economic stabilization program. Inflation was tamed; the shekel acquired real value; and large-scale privatization - including the banks - became the order of the day.

In 1986 Israel privatized its telephone system with the creation of the Bezeq company. Almost overnight, Israel made the transition from eight-10 year waiting lists for private telephones to the cutting edge of the telecommunications revolution. The Israeli public adopted mobile communications with amazing rapidity. Likewise, most Israelis were connected to the Internet within a few years of its introduction.

These developments swept the banking system forward technologically. It also made the banks more open to public scrutiny. Bank customers could monitor their accounts on a 24-hour basis, sniffing out suspicious charges and bombarding their branch manager with faxes, e-mails and texts.

The Basel Banking Accords had a tremendous impact on banking in the world and in Israel. On the one hand, they required banks to build an adequate capital base through investment in the capital market. On the other hand, banks had to control the risk this entailed. This required serious restructuring in the banks in Israel and abroad. Bank Leumi, for example, created Capital Markets and Risk Management divisions to manage these conflicting requirements.

How does banking in Israel look in 2014 compared with 1981?

FOR STARTERS, banks are more transparent. The change in public attitudes and the new international banking and accounting regulations have forced the banks to be more open about their operations. Annual reports are hundreds of pages longer than a generation ago, as they must now include detailed descriptions and tables relating to capital adequacy, risk control, capital market operations, environmental impact and corporate responsibility.

Banking has become digitally-driven, with computer professionals moving from the traditional role of auxiliary number-crunchers to a central role in bank management. The new and ever-changing financial instruments - swaps, options, futures, derivatives, exchange-traded funds, hedge funds and various hybrids are computerized capital- builders that required split-second timing to avoid excessive risk. Knowledge management - which is becoming critical to the banking industry - requires mastery of cyberspace via the Internet, social media and data-mining.

Banks are striving to become more customer-centric. With the rise of consumer consciousness, bank customers are much more sophisticated. They also have more leverage, now that foreign banks and non-banks offer services that once belonged exclusively to the local banks. The need to compete has resulted in the banks creating a wide variety of loans, savings and investment products which can be tailored to the individual needs of the customer.

In order to market these services, bank branches are becoming points of sale, with repercussions for organizational structure. Bank Leumi for one has shifted many core banking services - along with branch and other employees - to call and fax centers. Customers can transfer money, draw loans, open/close accounts, buy and sell shares, arrange standing orders and more without leaving their homes. This allows the branches to concentrate more on marketing.

Banks are increasingly staffed by professionals who are "outside employees": computer technicians and programmers; management consultants; financial advisors; communications specialists; and other professionals.

Today they happen to be working for a bank, tomorrow they may be working for a retail chain or a university. They are vital to the bank, but they have no desire to "join the family."

As such, loyalty and deference are no longer ironclad values in Israeli banking. A new generation of bank employees is arising. Those that feel themselves smarter than their superiors expect to be suitably promoted, posthaste. Job security is not a top priority for them. When it's time to move on, they are not afraid to move out.

It follows that banking is no longer a job for life. In 2011, I celebrated 30 years at Bank Leumi. There was a special luncheon at the exhibition grounds in Tel Aviv for "jubilee" employees - those who had worked in the bank for 20, 30 or 40 years. As at similar events in 1981, hundreds were present to be honored. In 2041, such an occasion will be held a much smaller venue - if at all.

The author, who made aliyah from Wilmington Delaware in 1980, is employed by Bank Leumi's Banking Expertise Center.

(c) Copyright Jerusalem Post. All rights reserved.


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Source: Jerusalem Post (Israel)


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