Israel Discount Bank (TASE: DSCT) subsidiary Discount Mortgage Bank (TASE: DMBK) published a profit warning yesterday. Discount Mortgage Bank announced a significant rise in its allowance for doubtful debts in its 2004 financial statements, which will push the bank into a loss for 2004 as a whole. Discount Mortgage is currently preparing its financial report, which is due for publication soon.
Discount Bank controls Discount Mortgage Bank, one of the smaller mortgage banks, with a 65% stake. Tefahot Israel Mortgage Bank, which has been merged into United Mizrahi Bank (TASE: MZRH); Bank Hapoalim (LSE: BKHD; TASE: POLI) subsidiary Mishkan Hapoalim Mortgage Bank; and Bank Leumi (TASE: LUMI) subsidiary Leumi Mortgage Bank Ltd., the largest mortgage banks, control the mortgage market.
Discount Mortgage Bank’s profit has been low in recent years. The bank reported a NIS 10 million net profit in January-September 2004, reflecting an annualized 1.6% return on capital. The bank earned a NIS 27 million net profit in 2003.
The rise in allowances for doubtful debts began early in 2004. Allowances for doubtful debt in January-September 2004 totaled NIS 78 million, 60% more than in the corresponding period in 2003.
The rise in allowances for doubtful debts was apparently caused by a combination of the real estate recession and Discount Mortgage Bank’s new CEO, Anat Keinan. Keinan is cleaning house by transferring problem loans to the legal department, a measure that causes high allowances for doubtful debts.
Discount Mortgage Bank’s loss in 2004 will obviously affect the results of parent company Discount Bank, slated for publication in late March.
Published by Globes [online] - www.globes.co.il - on February 24, 2005