Bank Hapoalim's (TASE: POLI) first quarter net profit was up 31% to NIS 821 million. If a provision in the first quarter of 2018 against the investigation of the bank in US is excluded, however, the net profit for that quarter is NIS 688 million, making the year-on-year increase 19%.
Hapoalim's annualized return on equity in the first quarter of this year was 8.97%, which compares with 7.16% in the corresponding quarter of 2018. Were it not for the US investigation provision, return on equity would have been 7.9% in that quarter.
Bank Hapoalim's financials for the first quarter of 2019 do not contain further provisions for the US investigation. The bank is trying to negotiate a settlement with the US Department of Justice in the affair in which it is accused of aiding US citizens to evade tax. Its provision for the outcome of the case stands at $611 million, or NIS 2.2 billion. The bank did however record an expense of NIS 120 million in the first quarter for legal costs in the case, which so far amount to some NIS 950 million.
Since the start of 2017, Bank Hapoalim, which is currently searching for a new CEO to replace the outgoing Arik Pinto, has had a policy of distributing 40% of its net profits on regular activity as a dividend. For the first quarter of 2019, the bank has not reported a dividend. In the first quarter of 2018, it paid a dividend of some NIS 250 million.
The bank does however state in its report that "as a result of the sale of 65% of the shares in Isracard in the second quarter of 2019 the bank has accumulated surplus capital of NIS 1.3 billion." It goes on to state: "Further to liaison with the Supervisor of Banks, the bank's board of directors instructed the management to formulate a plan for buying back its shares against this surplus capital over a period, subject to the provisions of the law and the guidelines of the Supervisor of Banks in this matter. Implementation of the said plan, its scope and terms, are subject to a decision and approval by the bank's board of directors." The bank will record a net gain of NIS 210 million in its second quarter financials from the sale of its stake in credit card company Isracard on the stock exchange.
Bank Hapoalim's credit portfolio total was almost unchanged in the first quarter of this year, rising by about NIS 500 million, or just 0.2%, in comparison with total credit to the public at the end of 2018. In comparison with the end of the first quarter of 2018, credit to the public is up 5%. Credit to the public amounts to 80% of deposits from the public.
The bank explains that the stagnation in its credit portfolio in relation to the end of 2018 is due to the fact that while credit grew in certain segments, such as home-loan mortgages, the bank reduced consumer credit to private clients and to industry. The bank's credit loss expense shrank by 44% in the first quarter to NIS 121 million, the improvement being mainly attributable to write-offs in the first quarter of 2018.
Net interest income grew 9% in the first quarter of this year in comparison with the first quarter of 2018, although the interest expense grew by more than interest income. At the same time, Bank Hapoalim, like other banks in Israel, has seen its fee income decline in almost all its areas of business. Fee income fell 5% in the first quarter to NIS 785 million.
The bank presented improvement in efficiency, with the ratio of expenses to income standing at 59.2% in the first quarter, which compares with 62.1% in the corresponding quarter. Excluding the provision for the US investigation, the efficiency ratio in the corresponding quarter was 60.3%.
The bank also states in its report: "In January 2019, the bank received a letter from the Bank of Israel concerning its unit in Turkey, Bank Pozitif, in which the Bank of Israel states that the activity of the bank in Turkey exposes it to substantial risks." Bank Hapoalim says that it is therefore examining possibilities for the sale of the unit.
Published by Globes, Israel business news - en.globes.co.il - on May 29, 2019
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