Bank Hapoalim (TASE: POLI) may not have set aside any provision in the second quarter for a possible fine in the US tax probe but it has instead reached agreement with the Bank of Israel to freeze dividend payments for the second quarter.
Hapoalim, led by CEO Arik Pinto, said in an unusual announcement that it would not distribute a dividend on its profits due to the ongoing investigation that it allegedly helped US customers evade taxes. Bank Hapoalim, controlled by Shari Arison, has a policy of distributing 40% of its profit as a dividend, and the bank had been hoping to increase that to 50%. Hapoalim stressed that there is no change in its overall dividend policy.
Last week, Mizrahi Tefahot Bank (TASE:MZTF), which is subject to a similar investigation by the US authorities, rejected an offer to pay a $342 million fine, which was considerably higher than expectations.
All this aside, the bank reported strong second quarter results. Net profit was NIS 920 million, the highest profit in absolute terms of all Israel's major banks in the second quarter, and up 13% from the corresponding quarter of 2017. This profit reflects a return on equity of 10.5% compared with 9.5% in the corresponding quarter but lower than the return on equity of Israel's other major banks, which have already published their reports, and averaged 11%.
The good results were due to a significant rise in commercial operations. Income from non-interest financing was NIS 361 million - more than double the corresponding quarter. Also contributing to the good second quarter results was provisions for credit losses, which were a relatively low NIS 90 million compared with NIS 138 million in the corresponding quarter of 2017.
Income from core activities also grew. Income from financing was up 6.6% to NIS 2.21 billion and income from fees was up 4.5% to NIS 878 million. The bank's credit portfolio has grown 2.5% since the beginning of 2018 to NIS 272.5 billion, with the rise mainly due to mortgages and business credit.
Similar to Bank Leumi (TASE: LUMI), Bank Hapoalim has reduced its exposure in consumer credit and small business credit due to the higher risk in these sectors. Consumer credit has fallen 1% since the start of the year and credit to small businesses has fallen 1.7% since the beginning of 2018.
Published by Globes [online], Israel business news - www.globes-online.com - on August 16, 2018
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