Bank Hapoalim Ltd., Israel's biggest lender, is targeting a return on equity of 15 percent this year excluding any one-time gains as the country's economy posts a fourth year of growth.
The bank's net return on equity, a measure of profitability, may grow to 25% if it completes the sale of its provident and mutual funds businesses and its Bank Otsar Hahayal Ltd. unit, Tel Aviv-based Hapoalim said in an e-mailed statement Thursday.
"The Israeli economy will show continued improvement in 2006, which will lead to an increase in banking operations and further drop in provisions for doubtful debt," the bank said. "The bank expects to register significant profits from selling its mutual and provident funds and Otsar Hahayal." Hapoalim boosted its net income in the first nine months of last year by about 40% percent to NIS 2.3 billion as it increased lending and reduced its bad-debt provisions.
Israeli gross domestic product expanded a preliminary 5.2% last year and Hapoalim is forecasting 4.5% growth this year.
The bank had a net return on equity of 21.1% on an annualized basis last year because of a NIS 540 million gain from the sale of a controlling stake in its New York-based Signature Bank unit in the first quarter.
Israeli banks are selling mutual and provident fund units to comply with a law passed last July ordering them out of the business.
Hapoalim reached an agreement in October to sell a mutual fund unit for about NIS 950m. and it is in talks to sell a subsidiary that manages provident funds, which are long-term savings plans with tax benefits.
The company is also selling Otsar Hahayal under orders from the Bank of Israel and received a bid of $144m. a week ago from Mizrahi Tefahot Bank Ltd., Israel's fourth-biggest lender.
Hapoalim's directors have discussed their strategy for after the bank completes the fund sales and, like other banks, the lender will be limited by law to selling funds as investments and offering advice. The bank said it plans to develop an "open architecture" strategy toward the funds business, without elaborating.
The company's asset sales haven't been completed. Hapoalim said Thursday that if it fails to sell the fund units it may spin them off to shareholders, which won't yield it any gains. The bank also reiterated its policy of paying out at least 50% of its net income as a dividend.
Hapoalim resumed paying dividends in 2003 and announced a NIS 365m. payout this month after distributing NIS 1.65b. in 2005. (Bloomberg)