For four years, Bank Hapoalim chairman Yair Seroussi has brought his experience in international banking, the Finance Ministry and the business world to Israel’s largest bank. To launch Bank Hapoalim’s “Gateway to Israel” column with The Jerusalem Post, Seroussi sat down for a special Rosh Hashana interview, laying out what the New Year has in store for Israel.
Tell me about the Israeli economy. What does Israel have to offer investors from abroad?
Israel’s economy offers a good mix of stability and growth. It sounds strange because we live in a politically unstable neighborhood, but economically it’s true. The way Israel navigated the global financial crisis of 2008 demonstrated its ability to move relatively calmly within a storm.
The Israeli economy offers investors a good return for the risk involved, in my opinion.
After a long period where people were investing on the defensive side, the world is looking for growth engines, and there are three such opportunities driving the Israeli economy right now.
The foremost opportunity for investors concentrates around Israeli technology.
We’ve really become one of the major hubs for technological innovation, and it’s surprising given the size of this country. Since the beginning of this year, $5 billion worth of Israeli start-ups were sold abroad, mainly to American corporations. Each exit of Israeli entrepreneurs fuels the next generation of start-ups in the country.
People wonder how we became so innovative. There’s no one answer; it’s a cultural issue, and, fortunately, we have it embedded in our culture of doing things. Israeli innovation is agile. It traverses a wide range of technological fields, from telecom infrastructure to mobile applications, from Internet security to 3-D printing or cutting-edge medical equipment. We often question the tenacity of Israeli technology as a significant growth engine, and we are as often positively surprised.
The second opportunity relates to the recent offshore gas findings. It influences the Israeli market on a macroeconomic level, which makes our economy more interesting for investors.
Our huge gas findings are a welcome novelty after many years in which we lacked in natural resources vis-à-vis our oil-rich neighbors. It presents significant investment opportunity in a host of companies putting up an infrastructure for a new industry. On the macro level, our industry stands to become more competitive as it reduces its energy costs, directly improving the bottom line.
The third opportunity is derived from the result of new regulations that would force many of the holding companies in Israel to sell assets. A significant number of good assets are likely to be soon on the market. Compared to previous years, the opportunities on the table are a lot more varied than in the past.
You mentioned how well Israel fared in the financial crisis. How did that happen?
Economic stability is an achievement attained through many years of disciplined government effort to bring the budget deficit under control. It also helped that the Israeli banking system had been traditionally very conservative.
In Israel, banks are more engaged with the real economy and less with “financial innovations,” as they were called at the time. Hence, we were less exposed to the various toxic instruments that were out there.
Israeli banks are funded mostly through retail deposits and are less exposed to capital markets volatility than their American or European counterparts.
Furthermore, the Israeli consumer is not as leveraged as in the US and therefore is less likely to default on his or her loans.
We were also far from the center; sometimes it causes difficulties, sometimes it has its advantages. In general, my view is that a bank should be very focused on its customers, with more traditional “relationship” banking. When I took my position, I called for a “back to basics” banking, which turned out to be a pillar of Bank Hapoalim’s success.
We were one of the first to understand that return on equity targets should be lower.
Post-crisis, banks should aim at low- to mid-teens return on equity due to the structural change to the banking system.
Because we were more conservative, we avoided some of the pitfalls that hurt other markets. The Israeli economy kept growing throughout the crisis and in its aftermath, except for a single negative growth quarter.
The world economy seems to be making a comeback. How does that affect Israel?
Currently, six years after the crisis, the US economy, which was first to slip into recession, is picking up encouragingly.
The European economy, on the other hand, is still struggling, especially the European Union’s periphery and Eastern Europe. The risk, however, to the entire global system has come down significantly. The political and regulatory systems in Europe are already adjusting to give certain protection to investors and support the markets. Emerging markets are currently slowing down, but long term they’ll continue to be the growth areas of the global economy.
In the coming 12 months, investors, analysts and policy makers will intensely watch and react to the careful retreat of the US Fed from its quantitative- easing policy. I expect the extraordinary long period of very low interest rates to slowly come to an end as modest uptick in interest rates accompanies the growth of America’s economy.
In Israel, economic growth of 5.1 percent in the recent quarter was a pleasant surprise for all of us. It was led by consumption; that means higher consumer confidence than we expected.
The Israeli industrial sector, affected by the world slowdown, is experiencing difficulties.
As world growth picks up again, I expect exports to be growing fast again. Our expectation is that we’ll see 3.5% overall growth in 2013.
Israel’s growth potential is higher. I believe we could maintain an annual, sustainable growth of 4%-5%. The demographics are there: We’re a young country with a young population, a society of immigrants, motivated to move up and succeed, and that’s the key to economic growth.
Israel has a new finance minister and the Bank of Israel is in a transition period. What do you think about the current state of Israeli economic policy?
Coming out with a budget that brings the deficit back under control is an important achievement of the new government.
In my opinion, closing the gap in the budget deficit was crucial. It signals stability.
Looking forward, they will really have to work on specific programs focusing on two issues. One is the cost of housing, working on the supply side to increase the number of housing units going onto the market. That’s a managerial issue, mostly about execution, and it can be done. The second is growth. We must have full employment – that’s the key to the success of this society.
We’re seeing the end of a period of defensive measures, a period characterized by heavy regulation and concerns over cost of living. I think now is the time to help businesses grow and expand, putting more efforts on stimulus than regulating every aspect of the market.
The Bank of Israel is indeed going through a period of transition.
Still, it should not be long before a new and capable governor will be elected by the government.
What do you think sets Bank Hapoalim apart?
I’m glad that Bank Hapoalim is the leading bank in this country. We’re the largest and the most profitable bank. Our hi-tech infrastructure is second to none in the market. Behind the results, you would find highly skilled and devoted managers and employees and a working culture that was built through decades of financing the Israeli economy.
Excellent relationships and communication channels at all levels are a prominent characteristic of Hapoalim. We invest in our employees and celebrate their development. The main thing that is important for me is to instill the sense of shared mission and purpose so that the whole bank will feel like we’re part of a team.
An integral part of that mission is helping and advancing our community. We strongly believe that being the largest bank entails additional responsibilities to the community in which we operate.
Each of the 300 branches of the bank is an effective point of contact in its community with an independently chosen social project the branch advances in the community.
This massive volunteering effort makes people feel they’re a part of something that is more important than just their job. I believe this should be an integral commitment of every worker and manager who lives and works amid the complex but closely knit Israeli society.
Two important strategic aspects of Hapoalim are worth mentioning as setting us apart from other players. Hapoalim is investing significant resources in cultivating sectors that we identified as pockets of growth with particular contribution to the economy and society at large. Hence, our strong focus on small businesses – a vital, fast-growing part of every business value chain, providing diversity and sense of ownership to the economy. We engage small businesses in many ways and forms, providing them professional and banking advice. We work closely with small businesses to help them make the right decisions that are crucial to their success.
The same strategy drives our effort to work more with the Israeli Arabs and the ultra- Orthodox sectors. Both of them are key growth areas that we are working and spending a lot of time with.
Israeli Arabs represent a sector that is fast-moving economically due to advances in education and motivation to improve their standards of living.
We view our focus on Israeli Arabs as a good business opportunity as well as an important contribution to the Israeli economy and society.
Bank Hapoalim is also focusing efforts in terms of hiring people – there are hundreds of Arab Israelis working at the bank – and leveraging that to penetrate the market more and cover it better.
The ultra-Orthodox sector presents an opportunity to work with one of the largest reservoirs of the Israeli... workforce.
We already see more women going to work, and more education is opening for women – many are even studying engineering. We detect signs that more men will be going to work, too. This is a population that would surely increase their income as they move up to take their place in the vibrant Israeli economy.
We’re trying to give them financial education and ideas for savings that will fit their needs.
Any special comments for Rosh Hashana?
Yes. The relationships with the Diaspora are very important.
There is economic strategic importance in how we engage our friends in the Diaspora and increase the base of our network and bringing in all the people willing to work on the mission of building a stronger Israel.
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This article was produced in conjunction with Bank Hapoalim.