Israel's banks will cease paying dividends, at least for the next year. Although Supervisor of Banks Rony Hizkiyahu has not yet issued explicit orders on the matter, he has sent a clear and unambiguous message that dividends are undesirable so long as the banks do not comply with the Bank of Israel mandated capital adequacy ratio criteria.
In order to meet the 12% capital adequacy ratio threshold, and given the slump in profits because of the economic crisis, the banks will reportedly distribute no dividends based on 2008 results, or in 2009. The banks have distributed an aggregate NIS 11 billion in dividends since 2005, including NIS 3.5 billion in 2007.
Traditionally, Bank Leumi (TASE: LUMI) distributes a dividend in February amounting to half the profit of the preceding year. It will not do so in February 2009 on its 2008 profits, even though the bank has a capital adequacy ratio of 12.08%, above the Bank of Israel mandated minimum.
Although Bank Leumi is not expected to officially change its dividend policy, set in 2005, to distribute 50% of its annual net profit as a dividend, it will utilize the escape clause, which stipulates that a dividend will be distributed "unless there is a worsening in the bank's profits or in its business situation, or in the general economic situation".
Bank Leumi could have been expected to distribute a dividend of NIS 700 million on its 2008 profit. However, the bank posted a net loss of NIS 84 million for the third quarter, its first quarterly loss in 17 years. Bank Leumi VP Zeev Nahari said, "In view of the economic situation, there is no place to take any decisions at this time."
Bank Hapoalim (TASE: POLI; LSE:80OA) will also not change its dividend policy, which calls for a quarterly dividend amounting to half its net operating profit. However, since the bank will probably report a loss, or only a token profit, in 2008, it is unlikely to distribute a dividend in 2009. It has not distributed a dividend since the third quarter of 2007.
Israel Discount Bank (TASE: DSCT) recently distributed a NIS 250 million dividend, its first in 11 years. The bank also announced that it would officially declare its dividend policy during the first quarter of 2009.
Sources at Discount Bank said that it will probably decide to distribute 30% of its net profit, on the condition that its capital adequacy ratio is above the mandated minimum of 12%. The bank is due to reach this target in late 2009, which means that no dividend will be distributed over the coming year.
Discount Bank said in response, "The policy will be set, as reported, by the end of the first quarter of 2009."
Mizrahi Bank has a dividend policy of paying 40% of ordinary profit, but will apparently not pay any further dividend based on 2008 results, after having paid out NIS 75 million in dividends in June.
Published by Globes [online], Israel business news - www.globes-online.com - on December 8, 2008
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