There may be a slowdown, tighter regulation and major streamlining but none of this seems to be reflected in the results of Israel's biggest banks for the third quarter of 2012 (in most cases). Israel's five largest banks posted NIS 4.97 billion in profit in the first nine months of 2012, 1% down on the corresponding three quarters of 2011. Despite the slowdown, there is stability in funds set aside for credit losses at most of the banks, at less than 0.5% of total credit - a level indicative of an economy that is in good shape.
The highest profit among the big five was posted by Bank Hapoalim (TASE: POLI), which reported NIS 1.89 billion profit in the first nine months of the year, down 8.8% on last year. Mizrahi Tefahot Bank (TASE:MZTF) had the best return on capital of 13.5% despite a tepid third quarter.
Bank Leumi (TASE: LUMI) had the best financial report, tripling its profit in the third quarter to NIS 479 million from just NIS 150 million in the corresponding quarter of 2011. This despite making a provision of NIS 150 million for the early retirement of 250 Bank employees as part of the streamlining program that it announced in February. Without this provision, Leumi would have reported higher profits than Hapoalim. In total Leumi plans to shed 800 jobs with an emphasis on veteran employees with higher salary costs. Provisions on such a scale are not expected in the coming quarters.
Income from net financing rose to NIS 1.87 billion in the third quarter, up 1.7% from the corresponding quarter and down 3% from the preceding quarter, and income from fees was NIS 1.05 billion up 4.5% from the corresponding quarter. Most of the rise was from banks operating abroad and in particular Banque Safdie in Switzerland, which Leumi bought at the end of 2011.
Bank Leumi's credit portfolio has grown 0.2% from the start of the year, while credit to large firms fell 5.2% in the third quarter and 8.7% since the start of the year. This trend is expected to continue with Leumi preferring to spread its risk and grow its retail sector. Indeed credit to households including mortgages grew 3.3% in the third quarter.
Credit losses in the third quarter amounted to NIS 292 million compared with NIS 378 million in the corresponding quarter. Provisions for losses represent 0.47% of the credit portfolio.
Bank Hapoalim's financial report was more straightforward with no exceptional matters. There was moderate growth in regular banking activities with NIS 625 million profits in the third quarter, up 3% from the corresponding quarter of 2011. Profit totaled NIS 1.89 billion in the first nine months of the year, up 9% from the same period last year. Return on capital was 10.3% and core capital adequacy was 8.5%.
Profit from financing was NIS 2.02 billion in the third quarter similar to the corresponding quarter. Income from fees stood at NIS 1.31 billion, up 3% from the corresponding quarter mainly from higher credit card use and overseas activities. The bank's credit portfolio grew 1.5% since the start of 2012 to NIS 249.9 billion, and credit losses in the third quarter amounted to NIS 286 million in the third quarter, compared with NIS 344 million in the corresponding quarter. Provisions for losses represent 0.45% of the credit portfolio.
As with the other banks, most of the money set aside by Hapoalim was for individuals rather than for groups. While for most of the banks problem credit has risen since the start of the year, at Bank Hapoalim it has actually fallen slightly by 1%. This fall stems from a relatively aggressive classification of problem debt in 2011. This gives the bank some breathing room to raise this category despite the economic slowdown.
Published by Globes [online], Israel business news - www.globes-online.com - on November 29, 2012
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