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The Israel Antitrust Authority announced today its objection to the merger between Bank Mizrahi and Bank Igud

Date of Publication:

‏ט"ז סיון, תשע"ח

30th of May, 2018

-Press Release -


 The Israel Antitrust Authority announced today its objection to the merger between Bank Mizrahi and Bank Igud
 The disappearance of Bank Igud as a competitor likely would  harm the already limited competition over private customers in the banking sector

The acting Antitrust Commissioner, Adv. Ori Schwartz, announced today (May 30th 2018) his objection to the merger between Bank Mizrahi-Tefahot and Bank Igud.

The Israeli Banking sector is a highly concentrated sector with multiple competitive problems, one of which is extremely high barriers to entry. For decades, no new banks have been established in Israel, and the number of operating banks has decreased. Today, only six active banking groups continue to provide checking account services for private customers, with additional ancillary banking services. Bank Igud is the only small bank among the abovementioned six banking groups. The examination conducted by the Israel Antitrust Authority concluded that the incentives and the competitive actions of Bank Igud differ from those of the other five banking groups.

The costs of switching banks for private customers are extremely high, and are perceived by the customer as a significant barrier to switching banks. Customers in Israel rarely switch banks; According to Authority's examination, the yearly average rate of transition for active customers does not exceed 2%. The banks are aware of the market power in their hands in addition to the current reality of significant switching costs. Bearing those facts in mind, the banks make use of their ability to discriminate between various customers in order to extract from them the highest charges possible. Rarely are customers able or ready to try to improve their contractual agreements with their respective banks compared to other customers, whether by bargaining or by threatening to switch to another bank. In these circumstances, the banks also try actively to identify   customers who might leave them for a competing bank, in order to conduct customer retention actions.

Since a large portion of the customers in the banking system are "captive customers", the competition over existing customers who maintain active accounts in banks is limited only to those customers who are not effectively captives of their respective banks. In competition over these customers, the size of the bank directly affects its incentives and the bank's strategy. The larger banks strive to preserve their existing status in the market, while amongst the medium sized banks, Bank Mizrahi is the only bank which emphasizes in its marketing strategy the possibility to switch to the bank, although even this offer refrains from providing to the public a clear value offer. In contrast, Bank Igud, as the only small bank not owned by a larger bank, offers customers who are considering switching a simple and attractive monetary value offer compared to the offers made by the other banks. The explicit and public fashion in which Bank Igud markets its value offer to the general public is exceptional compared to the rest of the banks in the system, and it is unlikely that a larger bank or a small bank owned by another bank would choose to exercise a similar strategy.

The unique competitive strategies of Bank Mizrahi and Bank Igud were evident throughout the examination into the merger conducted by the Authority.
The Authority further conducted a broad statistical examination of the subject of active customer transitions between the banks, which showed that Bank Igud's share of customer transitions between banks is significantly larger than its market share in the banking sector. In areas in which Bank Igud operates, its share of customer transitions is larger than those of either of the two largest banks. From specific examination of the transition data in the 26 cities in which Igud operates, the conclusion is that in 20 cities Igud's share of the  transitions  is 10% or higher, and in 6 cities its share of the  transitions is 30% or higher.

As a result of the proposed merger, it is likely that the unique strategy taken by Bank Igud, as the last small bank in the system which is not owned by another bank, will disappear and prices will rise. No other bank, including Bank Mizrahi after the merger, would have an incentive to offer in such explicit and straightforward manner an attractive monetary offer to customers contemplating switching from their present  bank. The larger a bank is, the less interested it would be in offering similar offers due to fear of reducing its profits (cannibalization) and due to fear of initiating "price competition" which would eliminate excess profits. The result of a price increase would harm Bank Igud's customers as well as the other customers in the banking sector that would be unable to switch to Bank Igud or make use of its value offer in order to improve the conditions of  their checking accounts in their respective banks.

Increasing Bank Mizrahi's market share, by a merger, not only does not contribute to competition, but might also make the bank's incentive structure resemble that of the larger banks and reduce the bank's incentive to take competitive actions which disrupt the equilibrium between the banks.

The Authority also examined the activity of the merging banks in a variety of other fields, amongst which is the field of issuing credit for the diamond market. With respect to this field, the merger is between the two largest competitors while only two additional competitors are active in the field. The examination of this field showed that credit extended to the diamond industry is a distinct product, and the scope of this credit is several billions of NIS a year. The activity in this field requires specific expertise as well as maintaining a branch in the diamond stock exchange compound in Ramat Gan. In this field too the merger raises concerns that the merged bank will exercise market power in order to increase the price of credit.  This concern is not expected to be alleviated, due to the high barriers to entry into the banking market in general, and due to the unique characteristics of the diamond market in particular.

The merger between Bank Mizrahi and Bank Igud was brought before the Authority at a time at which numerous reforms aimed at improving the competitive attributes of the banking field are under consideration. Therefore, the importance of a bank with unique incentives and a unique strategy compared to the other banks is expected to grow, as is the potential damage to competition as a result of the proposed merger.