Return on Equity: 16.4% for the first quarter. Net Profit: NIS2.4 billion, up 25% versus the corresponding quarter. Earnings Per Share (EPS): NIS1.83. Cost to Income Ratio: 35%. Credit Growth: 2.7% in the last quarter, 10.8% in the last 12 months. Total Income Growth: 3.2% versus the fourth quarter, 11.8% versus last year. CET1 Ratio: 11.74%. NPL Ratio: Dropped to 0.52%. Liquidity Coverage Ratio (LCR): 128%. Financing Income Growth: 2.3% in the quarter. Fees Growth: 6.2% in the last quarter, 9.2% in the last 12 months. Operating and Other Expenses: Dropped by 29.1% compared to the previous quarter. Provision for Credit Losses: NIS262 million or 0.23% of the credit book. Dividend Distribution: NIS720 million cash dividend, NIS0.55 per share, and NIS250 million share buyback. GDP Growth: 3.4% annual rate in the first quarter. Inflation: 3.6%.

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Release Date: May 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Bank Hapoalim BM (BKHYY) reported a strong return on equity of 16.4% for the first quarter, indicating robust profitability. Net profit increased by 25% compared to the corresponding quarter, showcasing significant financial growth. The bank achieved a cost-to-income ratio of 35%, reflecting efficient cost management. Credit growth was recorded at 2.7% for the last quarter and 10.8% over the last 12 months, driven by demand across various segments. The CET1 capital ratio stood at 11.74%, well above the minimum regulatory requirement, indicating a strong capital position.

Negative Points

The bank recorded a special war tax expense, which impacted overall profitability. Provision for credit losses amounted to NIS262 million, reflecting potential impacts from economic and political uncertainties in Israel. The dividend payout ratio is capped at 40% due to ongoing geopolitical uncertainties, limiting shareholder returns. Operating and other expenses were previously high due to a NIS597 million expense for an early retirement plan. The economic environment remains uncertain, with inflation at 3.6% and potential risks from geopolitical tensions affecting future performance.

Q & A Highlights

Q: You mentioned the current limitations regarding dividends and buybacks. When might the Bank of Israel lift these restrictions, and what conditions need to change for this to happen? A: The Bank of Israel currently caps the dividend payout ratio at 40% due to geopolitical uncertainties. The lifting of these restrictions depends on a reduction in these uncertainties and improved economic performance. The Bank of Israel evaluates the situation quarterly, so the timeframe for changes is uncertain.

Story Continues

Q: Given the current geopolitical situation, do you expect to maintain the same level of loan growth in the coming quarters? A: We achieved a 2.7% growth this quarter, and our guidance suggests an average annual growth of 7% for 2025 and 2026, based on GDP and inflation trends. If the economy performs well, we are prepared to seize opportunities, supported by our strong capital and liquidity positions.

Q: Can you provide more details on the factors driving your financing income growth? A: Financing income grew by 2.3% this quarter, driven by credit book growth, asset portfolio repricing, duration extension, and a higher CPI contribution. This growth is sustainable even without the CPI effect.

Q: How has the geopolitical environment affected your credit quality metrics? A: Despite the geopolitical challenges, our credit quality has improved, with the NPL ratio dropping to 0.52%. The allowance for credit losses increased to NIS8.1 billion, primarily due to collective allowances reflecting potential economic impacts.

Q: What are your expectations for the macroeconomic environment and its impact on your operations? A: The GDP expanded at an annual rate of 3.4% in the first quarter, with inflation at 3.6%. The labor market remains tight, and market expectations suggest potential interest rate cuts by year-end. These factors position us well for continued strong performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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