Banking sources doubt that Bank Leumi (TASE: LUMI) will distribute a dividend in 2010. Sources close to the bank, say that the bank will prefer instead to be conservative, and increase its shareholders' equity and keep its capital adequacy ratio above 13.5%.
Two weeks ago, Barclays Capital analyst Joseph Wolf said that, following conversations with senior Bank Leumi executives, he had the impression that the bank would not distribute a dividend before 2011.
Bank Leumi's move not to distribute a dividend is reportedly welcomed by the Bank of Israel.
Sources said that Bank Leumi will want to review how Basel II - The New Basel Capital Accord of the Basel Committee on Banking Supervision, and a new procedure for accounting for problem debt's affect its shareholders' equity. Bank Leumi will also want to review the effects of the Basel II second pillar (operational risk) before deciding on a dividend policy.
Previously, Bank Leumi's policy was to distribute half of its net profit as a dividend.
Bank Leumi's current capital adequacy ratio is 14.14%, and its Tier-1 ratio is 8.39%. Basel II rules on problem debt and the amount of capital that banks have to set aside, will lower the capital adequacy ratio. Bank Leumi's reports say that Basel II guidelines would lower its capital adequacy ratio by about 0.8 percentage points.
Published by Globes [online], Israel business news - www.globes-online.com - on January 27, 2010
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