Release Date: August 14, 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 profit with a second-quarter 2024 ROE of 15.9%, which would have been 20.2% excluding the ILS0.6 billion impairment of the Valley Bank stake.
- The bank saw a meaningful decrease in troubled debt and non-performing loans (NPLs), resulting in much lower loan loss expenses.
- The cost-to-income ratio improved significantly to 28.7%, making it the best in the sector.
- Net income for the second quarter was ILS2.3 billion, with a reported ROE for the first half of 2024 at 18%.
- Core deposits grew by 3.4% year-to-date, continuing the strong growth recorded in 2023.
Negative Points
- Consumer confidence remains low due to the ongoing war, despite a modest economic recovery.
- Geopolitical risks remain high, which could impact future financial performance.
- Net interest income and fee income increased only by 2% compared to the parallel quarter last year, affected by lower net interest margins (NIMs) and higher funding costs.
- Total expenses declined by only 2%, mainly due to lower bonuses, indicating limited cost-cutting measures.
- The bank has not released any collective provisions despite improvements in credit quality, maintaining a conservative approach due to geopolitical uncertainties.
Q & A Highlights
Highlights from Bank Leumi Le-Israel BM (BLMIF) Q2 2024 Earnings Call
Q: What is the scope of mortgage repayment deferrals due to the war?
A: The total deferrals at the end of June are negligible, with only ILS2 billion in deferred payments and ILS9 billion in total credit involved. This is a significant decrease from the end of 2023, indicating an improvement in the quality of our credit portfolio. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
Q: Should we expect further reversals in provisions if the macro and geopolitical situation remains stable?
A: If the geopolitical situation remains stable and the main trade parameters continue to improve, the credit loss expense ratio for the following quarters will continue to be low. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
Q: Is the current dividend payout the maximum allowed by the Bank of Israel, and could it increase in the future?
A: Yes, the current 40% payout is mainly due to the geopolitical situation. With our CET1 ratio above 12% and total capital ratio above 15%, we have the ability to increase it and will consider doing so when possible. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
Q: Have there been any changes in loan demand patterns since the end of the second quarter?
A: No significant changes have been observed since the beginning of July. The demand for loans is seasonally lower during the summer, but nothing significant has changed. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
Q: What are the criteria for releasing war uncertainty provisions, and are there any areas of concern in the loan book?
A: We look at various parameters, including collections, prepayments, and macroeconomic factors. The most exposed segments are unsecured retail and small businesses. In real estate, the NPL is improving, and the absorption rate in construction loans is above 40%, indicating strong mitigation. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
Q: Why was the fee income lower this quarter, and what should we expect in the coming quarters?
A: The decrease in fee income was mainly due to benefits granted to customers because of the war, but the decrease is insignificant. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
Q: Why was the tax rate lower this quarter, and what should we expect in the future?
A: The lower tax rate was mainly due to the improvement in deferred tax related to pension liabilities. For the next one and a half years, expect a tax rate between 37% to 38% due to additional taxes imposed by the government. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
Q: Is the Bank of Israel allowing the release of group provisions, and when might it be appropriate to release some of the excess provision?
A: There is no prohibition from the Bank of Israel on releasing collective provisions. We have not released any yet and will consider doing so when the geopolitical situation improves. - Omer Ziv, Deputy CEO and Head of Capital Markets Division
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
