A week after "Globes" reported on the restrictions that Bank Leumi is placing on deals involving contractors’ loans to homebuyers, the bank’s third quarter financials released this morning contain indications of the reasons for the decision. The bank’s mortgage loan portfolio was 10% larger at the end of September this year than it was a year previously.
Leumi is currently the most aggressive of the banks in the real estate market, and the mortgage numbers reveal to what extent. The bank’s mortgage portfolio totaled NIS 143 billion at the end of September, making it larger than the commercial credit portfolio (NIS 136 billion). While the mortgage portfolio grew 10% year-on-year, credit to private customers fell 2.6%, credit to small businesses rose by 5.1%, and commercial credit rose 0.2%.
On the bottom line, Bank Leumi posted a 30% rise in net profit in comparison with the third quarter of 2023, to NIS 2.3 billion. Net interest income rose 15.5% in the quarter to NIS 4.54 billion.
Another factor that boosted profit in the quarter was a reduction in the credit loss expense, which was 68% lower than in the corresponding quarter, when the Bank of Israel instructed all the banks to make a general credit loss provision. The third quarter credit loss expense was however higher than in the second quarter of this year (when in fact the bank recorded net income on this item).
Bank Leumi’s return on equity in the third quarter this year was an annualized 15.5%, which compares with 13.6% in the corresponding quarter.
At the end of October, the Supervisor of Banks convened a meeting of the heads of the banks’ business divisions and instructed them to examine in depth the risk from housing contractors’ special offers to homebuyers, which typically consist of a 20% down payment and 80% payable on handover. In the coming months, the banks will probably raise their credit loss provisions, as a result of that examination and also in order to be prepared for negative scenarios as the war continues.
Bank Leumi states that its third quarter credit loss expense represents 0.28% of the average balance in credit to the public. It says that the entire expense is a general provision, "reflecting a continuation of the conservative and responsible approach as the war continues. The general expense was partially offset by income from individual loans that were collected."
Leumi’s board has declared a dividend of 40% of the third quarter profit, amounting to NIS 917 million. NIS 688 million will be paid in cash and the remainder in the form of a buyback of the bank’s shares. Share buybacks have become common among the major banks in the past year, after the regulator permitted them. Israel Discount Bank announced yesterday that it was joining the trend. So far this year, Bank Leumi’s cumulative dividend is NIS 2.9 billion, of which NIS 2.2 billion is cash and NIS 726 million is in the form of share buybacks.
Published by Globes, Israel business news – en.globes.co.il – on November 19, 2024.
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