Bank Leumi Reports Quarterly Profit Gain, as Discount and FIBI Post Declines

Leumi beats forecasts but market reaction is muted.

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Protesting in front of Bank Leumi's Tel Aviv headquarters, May 18, 2013.
Protesting in front of Bank Leumi's Tel Aviv headquarters, May 18, 2013.Credit: Tomer Appelbaum

Bank Leumi, Israel’s second-largest lender, reported Thursday a rise of nearly 11% in third-quarter net profit, while two smaller rivals reported double-digit declines.

Leumi earned a net profit of 704 million shekels ($181 million), up 10.7% from 636 million shekels a year ago and above a forecast of 613 million shekels in a Reuters poll of analysts. No. 3 lender Israel Discount Bank, meanwhile, reported an 18% drop in quarterly profit to 168 million shekels from 206 million shekels. Profit was well below a forecast of 206 million shekels in a Reuters poll of analysts.

First International Bank of Israel, the country’s fifth-largest bank, reported a drop in quarterly profit on Thursday due to one-off provisions. FIBI posted a net profit of 86 million shekels in the third quarter, a 36% drop from 135 million shekels a year earlier.

Stock market reaction was muted, with Leumi posting a small 0.2% gain to end at 14.61 shekels while Discount lost 0.08% to 7.57 shekels and FIBI slid 0.4% to 47.73 shekels. The three were the last of Israel’s big banks to report after No. 1 Bank Hapoalim turned in a 11% profit gain earlier in the week and Mizrahi Tefahot saw earnings little changed.

Leumi shares have underperformed since August, which Barclays analyst Tavy Rosner attributed to concerns about a government committee seeking to increase competition in the banking sector, mainly by forcing the larger banks to divest credit card subsidiaries.

“However, we view this risk as largely priced-in and remind that credit cards account for less than 10% of Leumi’s net profits,” said Rosner, who is “neutral” on the banking sector and rates Leumi shares “overweight.”

Hapoalim has been scheduled to releases its results Thursday with the other three lender, but it was forced to move up the date after it accidentally sent a press statement with the figures to analysts.

Leumi’s profit was boosted by higher noninterest income and lower expenses. Net interest income fell 1.3% to 1.875 billion shekels, while noninterest income rose 5.4%. It had expenses in respect of credit losses of 73 million shekels, up from 56 million shekels a year ago. Operating expenses fell 14.6% to 2.1 billion shekels.

Leumi’s Tier 1 ratio, which measures equity capital as a proportion of total risk-weighted assets, rose to 9.3% at the end of September from 9.09% at the end of December.

Discount’s profitability was hurt by higher credit loss expenses and lower noninterest income. Credit loss expenses more than doubled to 85 million shekels from 40 million shekels a year ago while net interest income edged up 0.6% to 1.067 billion shekels and noninterest income fell 9.8% to 722 million shekels.

Discount’s core Tier 1 capital adequacy ratio rose to 9.5% from 9.4% at the end of 2014.

FIBI profit was hit by 52 million shekels in provisions for a lawsuit and pension costs following its merger with UBank. Net interest income fell to 497 million shekels from 519 million shekels. FIBI recorded a credit loss expense of 9 million shekels, versus recoveries of 11 million shekels a year earlier.

Its core Tier 1 ratio edged up to 9.73% from 9.69 %.

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