Release Date: November 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bank Leumi Le-Israel BM (BLMIF, Financial) reported a strong third quarter with a net income of ILS2.3 billion and a return on equity (ROE) of 15.5%.
- The bank's credit position remains robust, with non-performing loans (NPL) declining to 0.52% of gross loans and problematic loans decreasing to 1.44%.
- Core Tier 1 equity increased to 12.07%, providing a significant buffer above the minimum regulatory requirement.
- Net interest income increased by 16% compared to the same quarter last year, driven by an increase in the credit portfolio and higher CPI.
- The bank declared a cash dividend of ILS688 million for the third quarter and initiated a share buyback plan, reflecting a 40% total payout.
Negative Points
- The bank's ROE was negatively impacted by losses from derivatives used to hedge the securities portfolio, with profits reported in other comprehensive income (OCI).
- Inflation remains slightly elevated at 3.5% year-on-year, and the Bank of Israel is not expected to cut rates in the near term.
- The fiscal deficit, although declining, remains a concern, having only recently decreased to below 8%.
- The level of GDP in the third quarter of 2024 is still 1% lower than the corresponding period in 2023, indicating a slow recovery.
- The geopolitical situation, including the ongoing war, continues to impact the bank's operations and economic environment, leading to increased collective provisions.
Q & A Highlights
Q: Congratulations on a strong quarter. How should we be looking at provisions and loan growth going forward, considering the recent trends?
A: Despite geopolitical challenges, we increased our credit portfolio by 6.5% in the first nine months of 2024. The demand for credit, especially in corporate, real estate, and middle market, has been strong. We expect a rebound in the economy post-war, which should further drive loan demand. As for provisions, the credit loss expense ratio remains reasonable at less than 0.3%, with collective provisions impacted by geopolitical circumstances. We continue to maintain strong credit quality with declining NPLs and troubled debts.
Q: Can you provide more color on your net interest margin (NIM) performance and expectations?
A: Our NIM has been increasing due to asset mix optimization, despite a shift from current accounts to time deposits. We focus on pricing loans and deposits effectively, considering factors like duration and currency. We have managed to improve NIM even in a competitive environment, and we aim to continue this trend.
Q: With a strong capital buffer, what are your plans for capital return, especially considering the geopolitical situation?
A: We have the highest CET1 ratio in the market at 12.07%, allowing us to consider increasing our payout ratio. Current geopolitical circumstances limit our dividend and buyback capabilities, but once these restrictions are lifted, we will evaluate options for higher capital returns.
Q: How are you handling competition in the market, particularly regarding pricing?
A: There is strong competition on both the loan and deposit sides. We offer comprehensive solutions to our customers, which gives us an advantage. We continue to handle competition effectively by providing competitive pricing and maintaining strong customer relationships.
Q: Regarding your investment in Valley National, are there ways to capitalize on the recent market value increase?
A: Valley's market cap is now almost 40% above our book value. We use the equity method for this investment, but we could consider moving to a mark-to-market approach to record profits immediately. We are satisfied with the current economic potential of this investment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
