Bank Leumi posted a 22% drop in first-quarter net profit to NIS 431 million after the bank was forced to set aside higher provisions for doubtful debts.
The decline left Leumi with an annualized net return on equity of just 7.5%, making it the lowest of the five major banks this quarter. Like the other banks that reported yesterday, Leumi shares rose in Tel Aviv Stock Exchange trading to end 1.4% higher because results were better than had been widely forecasted.
Provisions for doubtful debt reached NIS 225 million in the three months, equal to 0.37% of Leumi's loan portfolio and an increase from an average of 0.3% over 2011. That was mainly due to loans to the bank's biggest borrowers, most particularly Ganden, the holding company Nochi Dankner uses to control the IDB Group.
Leumi had to make the set-aside after the value of IDB shares, which were serving as collateral for Ganden's loans, sank 83% in the past year.
Leumi wrote down NIS 59 million on its 4.96% in Partner Communications, which was worth just NIS 222 million at the end of the first quarter. Leumi took a loss of NIS 239 million on its Partner holding last year as well. But the problem isn't over. Leumi said that since the end of the quarter the value of the shares it holds in Partner and other companies has shed another NIS 102 million.
"We're talking about a weak earnings report. Profits before doubtful debt and before tax were lower than those of Bank Hapoalim. The low ROE means the bank can't increase its capital adequacy quickly," said Psagot senior analyst Terence Klingman. "That will hurt the bank's ability to pay dividends in the future."
