Bank shares have become one of the “safest” sectors on the Tel Aviv Stock Exchange in recent quarters, and it seems that the third quarter of 2021 has not deviated from the trend. Local banks are publishing their third-quarter reports this week, and are expected to continue to present strong data in July-September as well, albeit slightly less than in the second quarter.
A look at the Banks 5 index on the Tel Aviv Stock Exchange, which consists of the shares of the five largest banks, shows that since the beginning of the year it has shown a jump of 52.7%, and in the third quarter alone rose by 9.5%.
In light of the high results in the third quarter, the banks are expected to distribute dividends for 2021, and their shares will continue to rise as a result. So far, the banks have distributed dividends only for 2020, but recently the Supervisor of Banks approved them to distribute also for the current year, and they are expected to distribute dividends at a rate of 30% of profit.
There are a number of key factors behind the high figures. The first is the continued thawing of the reserves set aside by the banks last year to deal with the corona virus, provisions called credit losses, which are intended to produce for the banks a safety cushion in case the borrowers from them cannot meet the repayment of the loans they have taken. In view of the data on the reduction in morbidity published by the Ministry of Health, the banks can reduce the safety cushions – which still amount to hundreds of millions of shekels. In the second quarter, for example, the banks recorded an aggregate profit of almost NIS 1.6 billion on income from credit losses (recovery).
IBI: “The numbers will be moderate compared to the second quarter”
Lior Shilo, IBI’s banking analyst, notes that all banks are expected to present good reports. “Along with repayments from credit losses, other factors that pushed the results upwards are the relatively high price index, which contributes to most banks, and credit growth, which the Bank of Israel also noted was good, including mortgages. We seem to have slightly more moderate numbers than in the second quarter, “Sheila estimated.
When he talks about the index, he is actually talking about the fact that banks benefit from inflation, since they hold index-linked assets, and thus, when the consumer price index rises, the assets exposed to it gain. The aggregate profit of the five largest banks from a 1.3% rise in the index in the second quarter amounted to NIS 1 billion. In the third quarter, the index rose by 0.8%, so banks are still expected to post higher, but more moderate revenues.
At the same time, there was significant growth in the mortgage market in the third quarter, and mortgages totaled NIS 30.5 billion, compared with NIS 29.4 billion in the second quarter.
Leader: Leumi earned NIS 1.4 billion in the third quarter
According to Alon Glazer, VP of Leader Capital Markets, the bank that is expected to present the highest net profit in the third quarter, similar to its predecessor, is Leumi, with a profit that is expected to approach NIS 1.4 billion. Bank Hapoalim With more than NIS 1.2 billion, and later Mizrahi Tefahot (over NIS 800 million), Discount (about NIS 640 million) and International (more than NIS 300 million). According to this estimate, Mizrahi Tefahot will present the highest return on equity in the industry – 17.5%.
It should be noted that in recent months there have been a number of significant events for the banks in Israel, but the profits from them will be recorded in the coming quarters, probably in the first quarter of 2022. Among these events we will mention the US national merger into American Bank Valley Performed by Mizrahi Tefahot, as well as real estate sales conducted by Discount.