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Bank Leumi on Thursday announced that it will distribute a dividend of NIS 318 million, a sum equivalent to 35 percent of the bank's net profit during the first nine months of 2003.

Leumi's major competitor, Bank Hapoalim, announced a NIS 474 million dividend about six weeks ago. Both banks had refrained from issuing dividends during the past two-and-a-half years following a demand from the Bank of Israel to improve their capital adequacy ratios. The central bank's supervisor of banks was concerned that the issuing of dividends during a period of economic recession and huge business losses would erode the banks' capital and reduce their margin of safety.

After the two leading banks succeeded in boosting their capital adequacy ratio to 10 percent (the minimum ratio is 9 percent), the supervisor of banks, Yoav Lehman, decided to allow them to issue dividends. But Lehman noted that issuing the dividends at this time would come at the expense of additional loans to major business customers.

The three mid-sized banks - Israel Discount Bank, United Mizrahi Bank and First International Bank of Israel - do not appear ready to follow the lead of the two big banks in issuing dividends, because their capital adequacy ratio is under 10 percent. Discount and Mizrahi even plan to raise money to improve their ratios.