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By Amit Sharvit

Citibank

, which provides corporate services in Israel, will not start retail banking services in the second quarter of 2001 as management had previously said, according to banking sources. However, the bank said it is proceeding as scheduled.

Senior banking sources said Citibank probably backed out because the local economy is now in a substantially worse state than a year ago.

A year ago Citibank said it would open several branches in Israel for private accounts. The management clarified that Citibank will start providing retail services this year and preparations are under way. It said Citibank will soon offer several banking services for household accounts.

Competition in retail banking is relatively low. Moreover, interest rates on savings in this sector are lower than in other sectors and interest rates on loans are higher, making this a significant source of revenues for banks. For example, the largest banks in Israel,

Bank Hapoalim

and

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Bank Leumi

, control about 80% of the market - retail banking made up 41% of Bank Hapoalim's gross profits in 2000 and 54% of Leumi's.

Citibank has been mentioned as a potential bidder for the controlling interest in bank Leumi, although this was never officially confirmed. Also, Citibank has denied negotiating an acquisition of the

Mizrahi Bank

Citibank first appointed a representative in Israel in 1996, and opened its branch in Tel Aviv in 1999. Citibank was part of the consortium that financed the establishment of cellular provider

Partner Communications

(Nasdaq, LSE:PTNR) and

El Al

's $250 million aircraft deal, just two of several big deals involving the bank in Israel.