Hapoalim and Leumi Turn in Large Increases in Second-quarter Profits

Set-asides for bad loans fall as the banks make shift to household lending.

Israel's two biggest lenders, Bank Hapoalim and Bank Leumi, reported big increases in second-quarter profit from a year ago yesterday as they reduced the set-asides for bad loans.

Both banks have been reducing their exposure to large corporate debtors and increasing lending to households and small businesses. That has served to bolster their bottom lines and also to improve the quality of their loan portfolios.

The strong results helped lift bank shares on the Tel Aviv Stock Exchange yesterday, with the TA-Banking index up 2.6%. Shares of Hapoalim jumped 3.6% to close at NIS 16.83 while Leumi's advanced 2.7% to NIS 11.91.

Hapoalim posted a second-quarter net profit of NIS 655 million, up 8% from NIS 607 million a year earlier and well above the average forecast of NIS 597 million in a Reuters poll of equity analysts. Net financing income rose to NIS 2.18 billion from NIS 2.04 billion, while credit loss expenses dipped to NIS 301 million from NIS 344 million. Analysts had forecast net financing income of NIS 1.93 billion and credit loss expenses of NIS 258 million.

DS Brokerage analyst Meir Slater said he expects those loan provisions to drop further this year.

Hapoalim's core Tier 1 capital ratio to risk-weighted assets rose to 9.2% from 8.9% at the end of 2012.

The Bank of Israel is requiring banks to maintain a core Tier I ratio of at least 9% by the start of 2015 as part of a global drive to strengthen the industry and prevent a repeat of the 2008 financial crisis.

The bank declared a dividend of NIS 92 million for the quarter. Last month Hapoalim said it would reinstate a cash dividend on a regular quarterly basis for the first time since the global financial crisis in 2008.

Leumi, meanwhile, reported earnings of NIS 474 million in the second quarter, a 69% jump from NIS 280 million a year earlier but short of expectations of NIS 497 million in a Reuters poll of analysts. Net interest income dipped 4.4% to NIS 1.84 billion, while non-interest income jumped 25% to NIS 1.25 billion.

Credit loss expenses were cut by nearly three quarters to NIS 84 million, Leumi said.

Leumi's bottom line was also boosted by a NIS 86 million gain from the sale of shares it held in the quartz counter top maker Caesarstone. Its performance in the second quarter of 2012 was also hurt by the fall in the value of its investment in mobile phone operator Partner Communications.

Leumi's core Tier I capital to risk-weighted assets rose to 9.03% from 8.55 %t at the end of 2012.

Moti Milrod