Leumi posts NIS 232m Q1 loss

Hanan Friedman

Bank Leumi's provisions for the effects of the coronavirus pandemic fell entirely in the first quarter.

After warning that it would post a loss of NIS 200-300 million for the first quarter, because of the coronavirus crisis, Bank Leumi (TASE: LUMI), headed by Hanan Friedman, reported a loss for the quarter of NIS 232 million this morning. This compares with a profit of NIS 1.09 billion in the corresponding quarter of 2019, when the bank's return on equity was 12.7%. Leumi's competitors Israel Discount Bank (TASE: DSCT) and Bank Hapoalim (TASE: POLI) both reported profits for the first quarter of this year.

It should be recalled, however, that Hapoalim was the last of the banks to release its 2019 financials, and is the only one to have made material provisions for the effects of the coronavirus pandemic spread over two quarters, in an amount higher than the profit it posted for the first quarter. Discount Bank too made a certain provision for the change in circumstances in the past few months in its 2019 financials, although it was lower than the profit that it reported for the first quarter. Leumi, by contrast, had to make all of its provision in the first quarter of this year. At any event, the bank reports good and robust liquidity and leverage ratios, even at the end of the first quarter.

Leumi posted a credit losses expense of NIS 860 million in the first quarter of 2020, which compares with income from recoveries reported in the first quarter of 2019 that added NIS 18 million to its pre-tax profit. The provision for the first quarter of this year represents 1.2% of the average balance of credit to the public over the quarter. Most of the provisions are group provisions, mainly because of "commercial risk" on loans to businesses. The bank also made individual provisions on certain loans on which recovery is in doubt, totaling NIS 104 million.

The rise in the credit losses expense largely stems from prudence on the bank's part in making general provisions in anticipation of a worsening in loan repayments later in the year. The expense offsets growth in interest income and commissions earned. In this context, the bank says, "The spread of the virus in the reporting period caused a rise in volatility on the markets, which led to a rise in transaction turnover. Demand for foreign currency also rose. Because of this, the bank recorded higher commissions on securities transactions and on conversion spreads, chiefly from institutional customers."

Bank Leumi also reports growth in credit to the public, which totaled NIS 294.5 million at the end of the first quarter, up 4.2% since the end of 2019. Deposits from the public shot up by 12% during the quarter to NIS 418.6, as the public fled the stock market and mutual funds. The gap between credit to the public and deposits from the public indicates conservatism on the bank's part, with credit representing just 70.3% of deposits at the end of the first quarter, compared with 75.6% at the end of 2019.

The banks states that a capital fund loss of NIS 632 million before tax on investments in securities has been substantially offset by a rise in the value of the securities since the end of the reporting period.

In accordance with Bank of Israel instructions, Bank Leumi has for the time being halted dividend distributions and share buybacks.

Published by Globes, Israel business news - en.globes.co.il - on May 27, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Hanan Friedman
Hanan Friedman
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