The banks' financial reports for the second quarter of 2009 reflect the improvement in Israel's economic condition, rather than the concurrent problems of Lev Leviev's Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY). Signs of the exit from recession can be seenin the top five banks' aggregate net profit of NIS 1.5 billion, nearly double the amount for the first quarter. The average return on equity was 9.5%, and three banks achieved a double-digit return.
The banks' aggregate provision for doubtful debts was NIS 1.24 billion for the second quarter, 9% more than for the preceding quarter. Belying expectations that the provision would amount to 1-1.5% of total credit, it remained unchanged at 0.71%, not including the Africa-Israel effect, which will undoubtedly be reflected in the banks' financial reports for the third quarter.
Bank Hapoalim (TASE: POLI) was the only bank which increased its provision for doubtful debts for the second quarter, which was raised to NIS 538 million, 0.97% of total credit, from NIS 314 million for the preceding quarter.
Bank Leumi (TASE: LUMI) reduced its provision for doubtful debts to NIS 339 million for the second quarter from NIS 354 million for the preceding quarter. The provision amounted to 0.67% of the bank's credit portfolio, less than expected.
Israel Discount Bank (TASE: DSCT) reduced its provision for doubtful debts by 8% from the first quarter to NIS 231 million for the second quarter, 0.78% of its credit portfolio. Mizrahi Tefahot Bank (TASE:MZTF) reduced its provision for doubtful debts to NIS 67 million for the second quarter from NIS 119 million for the preceding quarter.
First International Bank of Israel (TASE: FTIN1;FTIN5) reduced its provision for doubtful debts by 31% to NIS 67 million for the second quarter, 0.56% of its credit portfolio.
Bankers are giving sighs of relief and showing cautious optimism. Bank Leumi deputy CEO Zeev Nahari said, "On the basis of accepted definitions, we've emerged from the recession and there is growth. Economic indicators are pointing to an improvement. I'm more optimistic now, but lets not get confused - as Governor of the Bank of Israel Prof. Stanley Fischer said, 'The worst is behind us, but we can still expect problems'."
Discount Bank president and CEO Giora Ofer agrees, "There were very bleak forecasts. I thought otherwise. Provision for doubtful debts of 0.8-1% of credit is a level that we'll continue to live with, though it appears to me that we won't reach 1%."
The most significant figure in the financials was the banks' capital adequacy ratios. A two-year struggle led by Supervisor of Banks Rony Hizkiyahu has borne fruit, and by June the banks, Discount Bank excepted, exceeded the Bank of Israel-mandated capital adequacy ratio of 12%. Discount Bank stated that its capital adequacy ratio eventually reached 12.08% after it raised capital in July and August.
The Bank of Israel considers the banks' capital adequacy ratios as a key element in the banks' stability and their ability to successfully weather the crisis. First International Bank has the highest capital adequacy ratio, at 13.95%, followed by Bank Leumi with 12.85%, Bank Hapoalim with 12.83%, and Mizrahi Tefahot Bank with 12.24%.
Published by Globes [online], Israel business news - www.globes-online.com - on September 1, 2009
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