Already in the middle of 2020 and throughout the second half of 2020 you read here in BizPortal a lot of items about the convenient pricing of bank shares (here, here, here, here and there is more). Talks with analysts, with the bank managers themselves, with the Treasury, led us to estimate that the Kavernas’ impact on the banks would not be fatal. We wrote this even when the banks’ shares were sold without a break, even when the capital multiplier fell to 0.6 (the market value of the shares of equity). No one will predict, but it’s a matter of probability, and the odds were in favor of bank shares. These stocks jumped 40% -50% from the low within 4-5 months. Banks have been hit by the corona, but at the same time they have streamlined faster than they expected (including accelerating layoffs / departures) and becoming more digital. They are prepared to go back and increase profits. There are no small threats – the superpowers of technology and digital banking are competitors that can be tough. But when the Supervisor of Banks oversees that the profitability of the banks is high, it is likely that the banks can sleep peacefully (relatively). However, after the jump in stocks, investing in them is no longer a crazy opportunity.
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Reports good results – The net profit in 2020 amounted to NIS 2,102 million, compared to NIS 3,522 million in the corresponding period last year. The decrease in profit is mainly due to the significant increase in expenses for credit losses, mainly in the group provision, and a decrease in non-interest financing income, which last year also included income from the sale of Leumi Card in the amount of NIS 314 million. And yet – this is a decrease in profit that is definitely “tolerable” in light of the corona. At the beginning of the plague the expectation was for a more dramatic decline in the profits of the banks.
Net income for the fourth quarter of the year amounted to NIS 890 million, compared with NIS 742 million in the corresponding quarter last year.
The return on equity in the fourth quarter of 2020 was 9.8%, compared to 8.7% in the corresponding quarter last year (although the expense ratio for credit losses in the fourth quarter of 2020 was 0.37%, compared to 0.22% in the fourth quarter last year). The expense ratio for credit losses in the fourth quarter of the year is significantly lower than the expense ratio in the third quarter of the year – 0.76%, and from a rate of 1.19% in the first half of the year.
The return on capital for 2020 amounted to 5.7%, compared with a return of 9.8% in 2019 (9.2% excluding the effect of the sale of Leumi Card last year), mainly due to the increase in credit loss expenses due to the corona crisis.
Expenditure on credit losses in 2020 amounted to NIS 2.6 billion, compared with NIS 609 million in the corresponding period last year. Approximately 74% of the expense for credit losses was due to an increase in the group provision, against the background of the corona crisis. The expense ratio for credit losses for 2020 amounted to 0.88%, compared to 0.22% in the corresponding period last year.
Non-interest financing income for 2020 amounted to NIS 1,026 million, compared with NIS 1,866 million in the corresponding period last year (NIS 1,372 million last year, net of the effect of the sale of Leumi Card). Most of the change stems from losses recorded in this item in the first quarter of the year against the background of declines in the capital markets, and from the effect of derivatives and exchange rate differences.
The efficiency ratio improved in 2020 – 53.8%, compared with 58.1% last year (excluding the effect of the income from the sale of Leumi Card). The improvement is due to a decrease in salary expenses and other operating expenses. Operating and other expenses in 2020 amounted to NIS 7 billion, a decrease of 10.9% compared with the corresponding period last year. Salary and related expenses decreased by 13.5%, mainly due to the lack of provisions for grants, given the financial results, and a decrease in the number of employees.
The efficiency ratio for the fourth quarter of the year was 50.7%, compared to 61.7% in the corresponding quarter last year.
Remarks by the Chairman of the National Board, Dr. Summer Haj Yahya: “These days, we are witnessing significant progress, with international leadership, in a vaccination campaign in the country, which together with hope for continued compliance with the precautionary rules, gives us a light edge of optimism for the potential to emerge from the corona crisis that befell the past year, 2020.
“In the early stages, Leumi identified the signs of the impending crisis, and pioneeringly in the country, it moved to a state of its management as early as February 2020 – even before instructions were received in the economy, and made dynamic adjustments to the service, work, management, and strategy model.” On the health of bank employees and customers.
“Leumi met the corona crisis with financial strength in capital adequacy and liquidity, professional and dedicated workers, and technological progress. This helped us lead in the resurgence of the Israeli economy; and already during the first months of the crisis, Leumi provided diverse, creative solutions to the changing needs of all its customers. Leumi employees demonstrated astonishing harnesses, dedication, and professionalism in providing service and banking solutions to all customers who faced a complex and changing reality.
Leumi CEO Hanan Friedman said against the background of the results: “In the past year, in which we experienced an epidemic that created a global economic crisis, the importance of a strong banking system, which can support the Israeli economy and households in the success of the deep economic crisis, has greatly sharpened. Leumi has worked hard throughout the year and benefited its customers, private and business. In the balance sheet data we publish, we will continue to support our customers also in the exit stages of the crisis, while providing tailored financial tools, so that they can benefit from the accelerated growth rate and increase in consumption, which are expected as part of the crisis exit process.
“We anticipate that the vaccination campaign will lead us through 2021 to a gradual exit from the health crisis, and consequently also to an exit from the economic crisis. The many challenges are still here and will accompany us for another long time, but the insights from the crisis are very strong and clear.” We will take it, our artificial intelligence capabilities and smart models many steps further, to ensure Leumi’s technological leadership, even in the era of tomorrow’s banking.
“We will continue to leverage our capabilities in crisis – and our employees’ commitment to bank success – for accelerated growth in areas that match our strategy. We will do this through our digital and innovation capabilities; a service model tailored to customer characteristics; rapid closing of customer care, including credit underwriting And through the use of robotics and other advanced technological tools. We have seen that these are the most important parameters for customer satisfaction, and they are the main engine for healthy and smart growth.
The age of open banking, along with our digital underwriting capabilities, based on AI, and the infrastructure for collaborating with fintechs, creates opportunities for us to offer our products in an informed manner and directly – to customers of all banks. We see this as a significant potential for continuation. ”