Bank of Israel has given its go-ahead to two local entrepreneurs to establish a digital bank in the country.

The digital bank will be formed by Marius Nacht and Amnon Shashua and will provide basic banking services to households.

They are the first in the last 40 years to receive an approval to establish a local lender in Israel.

The move by the central bank is aimed to boost competition in the banking sector largely dominated by a few lenders.

In a statement, Bank of Israel said that it has notified the entrepreneurs that it is prepared to grant a license to the bank and a permit to control it.

The authorisation was awarded following a comprehensive review of the proposal in consultation with the licensing committee.

Bank of Israel governor Amir Yaron said: “Changing technology enables the establishment of banks based on new models.  The digital banks model has started operating in various countries in recent years, and is now being implemented in Israel.

“I attribute great importance to new banks entering the system, which is made possible thanks to the significant steps by the Bank of Israel and the Ministry of Finance to remove entry barriers.

“The banks are vital to the Israeli economy, and the Bank of Israel will accordingly continue to support the stability of the banking system.”

The go-ahead from the central bank will now enable the entrepreneurs to advance with their plans to setup the digital lender. It includes establishing IT infrastructure, carrying out operational and regulatory preparations, as well as hiring staff among other works.

The new bank will operate under the Banking Supervision Department at the Bank of Israel. It will provide credit, receipt of deposits, management of bank account, and other services.

Customers of the new Israeli bank will also be able to make payment transactions via debit card, transfers and cash withdrawals.