2021 was the best year in the history of the Israeli banking sector, as reflected in the record results presented by the banks, as well as in the stock market. Banks Index 5 Which includes the five largest banks, has jumped by almost 70% in the past year, which indicates the improvement in business activity in Israel, of which the banks are a mirror.
Now, with the publication of the annual reports of the last two banks that have not yet done so – Leumi and Discount – it has become clear that investors ‘confidence in the banks’ shares in Israel over the past year was indeed justified.
national Led by CEO Hanan Friedman, once again achieved the best results in the industry, with a record profit of more than NIS 6 billion, 187% more than the profit it achieved in 2020. Also Discount Managed by Uri Levin, presented record results, with a profit of NIS 2.8 billion, 184% more than in 2020.
Aggregate profit of NIS 18.3 billion in 2021
The profits of the two banks join the record profits also achieved by the other banks, and in total the five largest banks presented a combined profit of NIS 18.3 billion – compared to a net net profit of NIS 8.5 billion recorded by those banks in 2020, an exceptional year due to the outbreak of the corona plague. 2020 led to huge capital allocations on the part of the banks, which were prepared to deal with the expected consequences of the plague.
However, even in that exceptional year, the banks managed to approach their average multi-year profit, which stood at NIS 9.38 billion between 2017-2019. This means that the banks have managed to achieve double aggregate profit in the past year as well, than they presented in the three years preceding the corona plague.
The growth in credit was reflected in the fees charged by the banks
The most significant parameter that contributed to the banks’ huge profit last year is, of course, the tide in the mortgage market, which contributed almost NIS 3 billion to the banks. However, the banks have increased the credit they distribute to the public not only in the field of mortgages, but also in the other sectors of the credit world – loans to the private sector, the business sector and the commercial sector.
In total, the banks increased their credit portfolio by more than 14% compared to 2020, and it amounted to NIS 1.28 trillion at the end of December. Leading the growth in the credit portfolio were the two largest banks – Leumi, whose credit portfolio grew by 16.1%, andThe workers Whose credit portfolio, the largest in the market, jumped 16.8%.
Of course, the growth in the credit portfolio was also reflected in the total fees charged by the banks. For example, Hapoalim recorded financing income from current operations in the amount of NIS 10 billion, an increase of 6.2% compared to 2020. Leumi’s net interest income amounted to NIS 10.3 billion, an increase of 18.6% compared to 2020.
The wave of IPOs and high-tech salaries has increased deposits
Along with the interest charged on credit, banks’ interest income also affected the rise in the well-known index, known as the consumer price index. The index rose by 2.4% in 2021 and the change contributed to the banks aggregate income in the amount of more than NIS 2 billion. This is compared to a loss of NIS 374 million in the previous year, due to a negative index of 0.6%.
The banks already felt at the beginning of the year that the index would climb throughout the year, and therefore increased their exposure to assets. The main beneficiary of the increase in the consumer price index was Leumi, with revenues of NIS 802 million, followed by Mizrahi Bank And Hapoalim, with NIS 406-405 million.
A significant amount of this income comes from index-linked public deposits. When looking at the total deposits of the public (linked and unlinked), we also see here significant growth of the banks. Leumi and Hapoalim increased their total deposits by more than 20%, Discount by more than 15%, International About 8% and Mizrahi Tefahot about 3.5%.
The increases in total deposits were due, among other things, to the reduction in unemployment, which led to salaries flowing to banks, in parallel with the reduction of undeclared work and the use of cash, as well as the increase in high-tech salaries, money flowing to Israel as a result of IPOs and government payments. However, the banking market estimates that in 2022 the increases in total deposits will moderate.
Income from credit losses
There is also another side to the growth in the credit portfolio and the income it has brought with it. In order to provide credit to the public, banks must seize capital so that they can protect themselves in the event that borrowers are unable to meet loan repayments. These airbags, known as credit loss expenses, were significantly increased in 2020, due to the uncertainty caused by the corona, and led the banks to set aside huge sums of NIS 7.7 billion that year.
Last year, due to the economy returning to normal, the banks significantly reduced their seatbelts, and recorded aggregate revenues of more than NIS 3.2 billion. Bank Hapoalim is the bank that made the largest thaw – more than NIS 1.2 billion, which constitutes almost 40% of the total reduced credit losses. Leumi and Mizrahi Tefahot were much more conservative, leaving large pillows for security.
Real investments
Another leg that the banks have developed in recent years, and in the last year even more so, is the arm of their real investment. The extent to which this world beckons to banks can be understood from the fact that Mizrahi Tefahot has joined the investment arms of Leumi (Partners), Hapoalim (Equity) and Discount (Capital), and established a division for non-financial investments, which does not function as a subsidiary, but has already made more than 600 transactions. a million shekels.
Iron Source, IPO / Photo: YouTube Screenshot
The banks’ financial statements reveal that Discount Capital contributed a profit of NIS 212 million to Discount. Leumi Partners presented a net profit of NIS 742 million (an increase of 600% compared to 2020), a large part due to profit before tax from the sale of shares in Retailers and Iron Source in the amount of NIS 500 million. Poalim Equity contributed NIS 268 million to Bank Hapoalim’s profits.
Bank Hapoalim did not distribute a dividend in the quarter
The large profits recorded by the banks led them to distribute fat dividends to shareholders last year – and a total of about NIS 6.7 billion for the profits of the last two years. The distribution continued even after the publication of the fourth quarter reports, with the exception of Bank Hapoalim, which caused a stir when it decided to settle for a dividend of NIS 1.5 billion distributed in respect of the profits of previous quarters.
The bank explained that they prefer to channel profits to increase the credit portfolio, but market estimates are that the capital is intended to support credit specific to the construction industry, where the bank kisses the credit ceiling set by the Supervisor of Banks, which stands at 26% of the total credit portfolio.
In contrast, in the fourth quarter they led in everything related to national dividends, with a distribution of NIS 588 million, and Mizrahi Tefahot, with a distribution of NIS 275 million. Bank Hapoalim incidentally recorded the lowest return on capital in the industry (11.8%) as well as the smallest increase in profit in the last quarter of the year (although this is still the second profit in the industry). The highest return on capital is that of Mizrahi Tefahot Bank – 15.8%.