Bank Leumi earned more money in three months than any Israeli bank ever has. The lender reported net profit of NIS 2.83 billion, roughly $940 million, for the second quarter, up 8.5% from a year earlier, when it released results on Aug. 12.

The reason is simple: Leumi is lending much more money while spending very little to run itself. Its loan book grew 9% since the start of the year to about NIS 566 billion, with corporate lending up 14% — enough that the bank has already hit its full-year growth target of 8% to 10% with half the year left. At the same time, its efficiency ratio, which measures how much of every shekel of income is eaten up by salaries, branches and technology, fell to 24.7% from 29.1% in the prior quarter. In plain terms, about 25 cents of every dollar the bank takes in goes to running the business, and the other 75 cents flows toward profit. That is among the lowest figures of any major bank in the world, and the bank credits its use of artificial intelligence for much of the improvement.

The record came despite a government surtax on Israel’s five largest banks totaling NIS 3 billion this year, of which Leumi absorbed NIS 293 million in the quarter. Without it, profit would have been about NIS 3.1 billion and return on equity 17.9% rather than the reported 16.3%.

Shareholders are getting a large share of the money back. Leumi is returning NIS 1.4 billion, about $470 million, split between a cash dividend of roughly NIS 1.1 billion and share buybacks — half of quarterly net income, and an annual dividend yield of about 5.5% at current prices.

Loan quality held up as the portfolio grew. Non-performing loans stood at 0.45% of credit, meaning fewer than one shekel in 200 is in trouble, against 0.43% a year ago. The bank set aside NIS 291 million for possible credit losses in the quarter, but said the entire provision was a general reserve tied to the pace of lending growth rather than any specific borrower going bad — the tenth consecutive quarter that has been the case. On individual problem loans, the bank actually recovered more than it wrote off.

For the first half, profit reached NIS 5.18 billion and return on equity 14.9%, at the top of the 13.75% to 15.25% band the bank set in its strategic plan. Capital remains well above regulatory minimums, with a core capital ratio of 11.65%.

The backdrop is an Israeli economy the Bank of Israel expects to grow 4% this year and 5.5% next, with interest rates easing and business borrowing picking up after two difficult years. Rival Bank Hapoalim posted a NIS 2.5 billion quarter, with credit growth of 6.6%, slower than Leumi’s.

Investors have noticed. Leumi shares are up 24% over the past year, giving the bank a market value of about NIS 110 billion and making it the largest bank in Israel by that measure.

JBizNews Desk | Tel Aviv

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