Leumi posts record $943 million quarterly profit as capital markets offset pressure on lending
Israel's largest bank increased its credit portfolio by 16% but saw almost no growth in net interest income. Strong non-interest income and tight cost controls drove the record result.
Bank Leumi presented a record quarterly profit for an Israeli bank: Net profit in the second quarter stood at NIS 2.83 billion ($943 million), an increase of 8.5% from the corresponding quarter last year. Return on equity stood at 16.3%, compared with 16.2% a year earlier. Excluding the impact of the special tax levy on banks, net profit would have reached approximately NIS 3.1 billion ($1.03 billion), while return on equity would have risen to 17.9%.
In light of the results, the bank's board of directors, led by Hanan Friedman, approved a distribution equivalent to 50% of quarterly net profit, totaling NIS 1.4 billion ($467 million). The distribution consists of a NIS 1.13 billion ($377 million) cash dividend and a NIS 283 million ($94 million) share buyback program.
Beyond the bottom line, however, the report presents a more complex picture of the bank's growth engines. Leumi's net public credit portfolio grew at a rapid 16% year over year and 9% since the beginning of the year, reaching NIS 567 billion ($189 billion). The bank has already achieved its full-year target for credit portfolio growth in the first half of the year.
Since the beginning of the year, the bank has continued to focus its lending growth on the business sector. Credit to large businesses jumped 16% to NIS 216 billion ($72 billion), while credit to small businesses grew 9% to NIS 101.6 billion ($33.9 billion). Credit to the commercial sector rose 7% to NIS 45.1 billion ($15 billion). By comparison, the mortgage portfolio grew by only 4% to NIS 160 billion ($53.3 billion).
However, the increase in lending volumes was barely reflected in net interest income, which remained almost unchanged at NIS 4.57 billion ($1.52 billion), up just 0.7% from the corresponding quarter. The pressure reflects the decline in interest rates and moderation in inflation, alongside continued erosion of credit and deposit spreads as customers gradually shift money from non-interest-bearing current accounts into interest-bearing deposits. The aggressive expansion of the credit portfolio largely "saved" the bank from a decline in financing income, but did not translate into meaningful growth.
The main profit driver in the quarter was non-interest income, which jumped 39.4% to NIS 2 billion ($667 million), compared with NIS 1.45 billion ($483 million) a year earlier. The increase was driven primarily by non-interest financing income, which surged 134% to NIS 960 million ($320 million). This included NIS 513 million ($171 million) in profits from nostro activity and exchange-rate differences, as well as NIS 164 million ($55 million) from the realization of shares and mergers in Leumi Partners, the bank's investment arm. Realized gains in the bank's equity portfolio also offset losses in its bond portfolio.
The bank also recorded a 2.7% increase in commission income, which reached NIS 1.04 billion ($347 million). The growth was driven mainly by a sharp increase in commissions from financing-related businesses, which reached NIS 279 million ($93 million) amid higher business activity. Commissions from securities and derivatives activities also increased, reaching NIS 213 million ($71 million), against the backdrop of strong financial markets.
The bottom line was further supported by tight control of expenses. Operating expenses increased by just 1.1% to NIS 1.63 billion ($543 million), enabling Leumi to report a cost-to-income ratio of 24.7%, its lowest-ever figure and the best among Israel's major banks.
The provision for credit losses in the second quarter amounted to NIS 291 million ($97 million), equivalent to 0.20% of the average credit portfolio, compared with NIS 223 million ($74 million) a year earlier. The increase was mainly due to a collective provision against the backdrop of double-digit growth in the credit portfolio and continued macroeconomic uncertainty. At the same time, the bank recorded income from individual provisions for borrowers who had actually defaulted.
Leumi's credit-quality indicators remained stable, with non-performing loans (NPLs) accounting for just 0.45% of the credit portfolio. However, the rate of debt write-offs increased to 0.1%, compared with 0.09% in the previous quarter and 0.08% in the corresponding quarter last year.
Non-interest-bearing current-account balances grew 3.9% to NIS 145 billion ($48.3 billion), while total public deposits increased 4.7% to NIS 719 billion ($239.7 billion).
