Changing needs of Israel’s international investors

To date, the needs and banking requirements of this overseas client group have been far from sophisticated.

Bank Hapoalim 311 (photo credit: Wikimedia Commons / "Avraham" / CC)
Bank Hapoalim 311
(photo credit: Wikimedia Commons / "Avraham" / CC)
For several decades, Israeli banks have been more than active in serving international residents who invest their wealth in Israel, whether in cash and financial assets or in real estate. Many of these banks have created luxurious office spaces and have commissioned qualified bankers to offer a level of banking service that the average local Israeli resident would only dream about.
To date, the needs and banking requirements of this overseas client group have been far from sophisticated. First and foremost, they need a banker who they can converse with, who understands their language and, more importantly, their culture, in order to carry out day-to-day transactions, perform basic investment activities and periodically help finance a real estate purchase in Israel. The vast majority of their complex banking requirements is performed in their country of origin.
The surging real estate market in Israel has attracted many overseas investors who, over the past 7 years, have acquired 17,000 apartments in Israel, representing 4% of the real estate transactions with the approximate amount of NIS 29 billion. These apartments are often bought with the help of bank financing, and the banking system in Israel quickly adapted itself to be able to assess these borrowers’ financial abilities and approve financing for their purchases.
In a constantly changing environment, the ability of these banking units to continue servicing their clients as they have in the past is in peril due to two main reasons.
The first reason is the change in the banking needs of these overseas investors. Over the past three years, the Israeli economy has shown stability and maturity. These two factors have enticed many overseas investors to look beyond purchasing single apartments in Jerusalem, Tel Aviv or Netanya, and enter large-scale deals in several sectors with widely varying projects including hotels, nursing homes, building projects, commerce, industry and hi-tech.
In order to be able to provide financing for these investments, banks have to offer more than plush offices and friendly English speaking staff. They need to equip themselves with banking professionals who are not only qualified business analysts, but who are also familiar with the overseas corporate culture and are able to deal with the unique tax implications regarding foreign investors. Only a few banks are geared to provide this type of service.
The second reason is the regulatory revolution that is currently transforming the world of off-shore private banking. The haven offered to off-shore investors is losing its luster as regulations such as FATCA become household names within the banking system. Investors will, over the next few years, look to restructure themselves with the assistance of professionals, utilizing tax treaties and trust laws in order to protect their wealth. The banking system will need to align itself with these changes in order to be able to offer their clients the services of sophisticated bankers with vast knowledge of this complex field.
For even the shrewdest foreign businessperson investing in Israel, there is an emotional side to the transaction. The financier also has to use emotional intelligence to recognize this aspect, for better or for worse, in order to team up with the client.
For several of the banks in Israel, their overseas divisions are a significant part of the bank’s income and balance sheets. In order to maintain and expand this side of the business, they will need to manage the change from within, rather than let the changes be dictated to them.
Matti Munk is the head of Mercantile Discount Bank’s international division.