Bethel Finance: Credit card cos profits up 10% in 2011

www.bethelfinance.com
Israel's three credit card companies reported another year of revenue and profit growth. Their aggregate profit was NIS 648 million in 2011, 10% more than in 2010, and credit card use rose 7.4% to NIS 198 billion.

The companies' aggregate revenue rose 6.7% to NIS 3.8 billion in 2011 from NIS 3.56 billion in 2010, according to the financial reports of Isracard Ltd., owned by Bank Hapoalim (TASE: POLI); Israel Credit Cards-Cal Ltd. (ICC-Cal) (Visa), owned by Israel Discount Bank (TASE: DSCT) with a 71.2% stake and First International Bank of Israel (TASE: FTIN) with a 28.8% stake; and Leumi Card Ltd., owned by Bank Leumi (TASE: LUMI), with an 80% stake and Azrieli Group Ltd. (TASE: AZRG), with 20%.

Despite the results, Isracard CEO Dov Kotler says, "The combination of the slowing economic growth rate and the drop in cross fees will erode profitability."

ICC-Cal CEO Israel David says, "Competition for business is intense, and margins are falling." Leumi Card CEO Tamar Yasur agrees, "We're in a defensive position."

The main threat to the credit card companies comes from the reduction in cross fees. After five years of talks, in late December, the companies reached a deal with the Antitrust Authority to gradually reduce cross fees to 0.7% in 2015, and keep them at this level until 2018. The current rate is 0.875%, down from 1.1% two years ago. Each 0.1% reduction in fees costs the companies NIS 200 million.

"For the first time since 2006, Isracard, the largest credit card company, reported the highest profit - NIS 231 million in 2011, up 11% on 2010. Turnover by its credit cards was NIS 97 billion, up 7.8%, giving a 49% market share. Revenue rose to NIS 1.73 billion in 2011 from NIS 1.58 billion in 2010. By law, Isracard brand credit cards will be open to cross clearing in May, which will affect the company's revenue" says Mr. Cedric Marmet from Bethel Finance Ltd.

ICC-Cal's profit rose 7% to NIS 230 million in 2011, and its revenue rose 2.4% to NIS 1.1 billion. Turnover by its credit cards rose 6.8% to NIS 49.4 billion.

Leumi Card's profit was NIS 177 million, after reporting the highest growth among the companies, of 12%. Revenue rose 7.1% to NIS 938 million. Turnover by its credit cards crossed the NIS 50 billion threshold, rising 7.3% over 2010 to NIS 51.4 billion in 2011.