Mizrahi Tefahot is aiming to achieve return-on-equity of 15 percent and increase retail lending by 8% to 10% a year by 2008 or 2009, Merrill Lynch said in a note to investors Wednesday. The long-term target for return-on-equity, or ROE, is part of Mizrahi Tefahot's five-year plan, which is being finalized by Chief Executive Eli Yones and will focus on the bank's competitive advantages in the retail and private banking sector and the middle market, said Merrill analyst Haim Israel in his report issued following a meeting with the bank - the country's fourth largest. Mizrahi declined to comment on the report. "The main goals of the new strategy are to maintain market dominance in the mortgage sector; increase market share and the average return per client in retail banking - increase private banking, both domestic and internationally - (and) increase internal efficiency through consolidating Tefahot and Mizrahi," Israel said . ROE shows how much profit a company generates with the money shareholders have invested in it. The bank achieved an ROE figure of 15.5% in the third quarter and 13% for the first nine months of the year. According to Israel, Mizrahi Tefahot wants to leverage its strength in the retail sector to help consolidate its ROE since 40% of its credit stems from that segment - the highest of the five large banks in Israel. In addition, the analyst said Mizrahi Tefahot is looking to strengthen ROE by generating savings of NIS 30m. and another NIS 5m. a year by closing seven or eight branches. Combining the senior management of the two banks could save another NIS 6m. to NIS 7m. annually. Merrill expects that following the amalgamation of Mizrahi and its Tefahot unit, which was completed earlier this year, the size of Tefahot's work force will fall. While the company's management didn't provide targets, Israel said market estimates are that Mizrahi Tefahot's total headcount will drop by more than half to 300 from 620. Israel noted that the bank expects merger efficiencies to start to benefit its earnings from the first quarter of next year and that there should be no-more charges related to staff costs. Tefahot Mizrahi's expenses have increased sharply this year, due to "umpteen" special provisions, Israel said. Nevertheless, Israel, who carries no investment rating on Mizrahi shares thinks the bank's earnings won't rise as fast as those of its rivals due, ironically, to its above average credit portfolio. "In contrast to the other banks, which should improve their profitability as a result of a decline in (loan-loss) provisions, Mizrahi has little room for improvement, so growth in its results will be slower in the near future," Israel said. Nine-month net profit rose to NIS 397m. from NIS 366m. in the same period a year earlier, while third-quarter net profit rose to NIS 150m. from NIS 129m.