Israel's top banks miss profit forecasts
Tough economic conditions, low interest rates hurt first-quarter profits at Hapoalim, Leumi banks
Hapoalim and Leumi both missed analysts' forecasts owing to lower financing income. The Bank of Israel cut its key lending rate to 1.75% in the first quarter from 2.75% in early 2012, and since May 13 lowered it further to 1.25%.
The central bank has been battling an appreciation of the shekel which threatens Israel's exports. Israel's economy has also been slowing – growth this year is seen at 2.8% from 3.2% in 2012.
Hapoalim profit fell to NIS 621 million ($168 million) from NIS 659 million ($179 million) a year earlier, slightly below expectations of NIS 629 million ($171 million) in a Reuters poll of analysts. Net financing income slipped to NIS 2.06 billion ($560 million) from NIS 2.15 billion ($580 million).
Leumi posted net profit of NIS 570 million ($155 million) from NIS 431 million ($117 million) a year earlier, below forecasts for NIS 610 million ($165 million). Net interest income fell 3.6% to NIS 1.76 billion ($480 million).
Both banks have reduced their exposure to large corporate debtors and increased credit to households and small business sectors in an attempt to bolster their bottom line.
But Psagot brokerage analyst Terence Klingman said a decline in demand for credit was still hurting the banks' ability to increase interest income while interest rate cuts exerted further pressure on margins.
"A further decline in economic activity and the Bank of Israel's interest rate will lead us to review our rating," said Klingman, who maintained a "buy" rating for Hapoalim, Israel's biggest bank.
Hapoalim also posted a one-time credit loss provision of NIS 84 million ($23 million) to comply with a Bank of Israel directive relating to loans in the housing sector.
Leumi's profit was boosted by a one-time gain of NIS 180 million ($49 million) from the sale of shares in Migdal Insurance.
Hapoalim's core Tier 1 capital ratio to risk-weighted assets rose to 9.1% at the end of the quarter from 8.9% at the end of 2012 while Leumi's core Tier 1 ratio increased to 8.84% from 8.55%.
The Bank of Israel has called on banks to hold core Tier I ratio of at least 9% by the end of 2014 as part of a global drive to strengthen the industry and prevent a repeat of the 2008 financial crisis.
Israel Discount Bank, the No. 3 lender, reported a 6.5% rise in quarterly net profit to NIS 263 million ($71 million) but its net interest income fell 4.9%.
