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issued debentures) in many of the credit default cases that have drawn public and
media attention.
Due to the increasing capital requirements imposed on the banks, there has been a
significant increase in the number of transactions offered by banks as syndicated
loans, including transactions that previously would have typically been offered by a
bank on single lender terms. Furthermore, institutional lenders appear more frequently
as arrangers, and not just as participants. In addition, there has been a significant
increase in the secondary market activity concerning non-public loans, as banks offer
institutional lenders diverse methods of participation in loans, whether as a straight
forward assignment or through derivatives, including the issuing of credit linked notes
and purchasing protection under credit default swaps. We anticipate that this trend will
grow, and that bankswill continue to invite institutional lenders to participate in the loans
originated by the banks, both in respect of new transactions – as syndicated loans, and
in respect of the existing loan portfolio of the banks, by way of assignment or derivative
transactions. This trend, in combination with evolution of the regulatory requirements,
will probably reduce the gap between banks and institutional lenders.
Commercial and Consumer Segments
The increasing competition between banks and institutional lenders has had limited
influenceonthecommercialmarketsegment,andalmostnoneontheconsumersegment.
In these segments the strength of the banks is based on the physical accessibility of
their branches, as well as their long-termbanking relationships with borrowers.However,
a couple of recent developments may present a threat to the prominence of banks in
these segments: (i) the introduction and development of financing firms, specializing
in short term financing for commercial businesses (including factoring and similar
financing models); (ii) peer to peer financing schemes and initiatives; and (iii) attempts
to establish "social" banking corporations (such as consumers credit unions).
Short term financing firms, offering factoring and similar financing models, operate in
Israel. However, these firms face the challenge of raising funds in order to finance their
activities. Under current Israeli legislation, these firms are barred from raising debt in the
capital markets by public issuance of debentures, since raising such debt and extension
of credit as one requires a banking license.Therefore,these short termfinancingfirms are
reliant on other sources of finance (including loans from banks and institutional lenders,
with whom these firms are to compete). In order to enable these firms to develop their
financing operations and increase their market share, an amendment of the law has been
suggested, allowing these firms to raise up to NIS 2.5 billion by public debt issuance. The
proposed amendment faces the objection of the Bank of Israel and the chances of its
success are currently unclear, and, as always, the details which will be included in such
amendment are not final. In any event, even if the amendment passes, it will limit the
potential development of these firms, as their portfolio will be capped, at any given time,
practically, to the amount of debt they can raise (in addition to their equity).
Until now, the attempts to establish credit unions have not been successful. Such credit
unions require a banking license, and, despite public support, the Bank of Israel has been
reluctant in waiving, or easing, the regulatory requirements applying to any candidate
to obtain a banking license. A major threshold relates to the minimum equity required,
which, even after concessions by the Bank of Israel, is set at NIS 75 million, a level which
such entities have not been able to reach.
Several initiatives to establish peer to peer lending schemes operate in Israel, inspired
by the success of such schemes in other countries. Presently, the influence of these