Analysts expect strong Q4 bank earnings

Record dividends in '06 seen as major attraction to foreign investors.

Analysts expect the country's largest banks, with the exception of Israel Discount Bank, to present very good results for the fourth quarter next week, as provisions for doubtful debts are slashed and credit card activity booms. "The 2005 figures are only the beginning of what is to come this year. We expect record numbers for Bank Hapoalim and Bank Leumi about NIS 600 million in net profits for each in the fourth quarter," said Yuval Ben Ze'ev, banking analyst at Clal Finance Bitucha. Ze'ev added that an additional capital gain of NIS 40m. was expected at Bank Leumi, helped by an increase of commissions from credit activity and a decrease of provisions for doubtful debts. According to analysts' estimates, Israel Bank Discount will be report a net loss of between NIS 40m. and NIS 100m. due to two negative influxes, for which the bank will make provisions in the quarter. "The bank will be making a NIS 200m. provision for early retirement programs in addition to the provision for the money laundering case at its New York branch," Ze'ev said. First International Bank Israel, which was the first of the big banks to report this month, saw net earnings for 2005 increase by 87.2% to NIS 453m. compared with NIS 242m. in 2004. Net return on equity reached 12.2% in 2005 compared with 6.9% in 2004, while provision for doubtful debt was slashed by 36.8% to NIS 276 during the same period. "Year-on-year, FIBI has clearly been the winner of 2005," said Moshe Gury, analyst at Psagot Ofek. Clal Finance Bitucha trader Avi Weinreb added that for 2005, net income for the main five Israeli banks is estimated to be up 30% over 2004 at NIS 6.7 billion and up 37% in the fourth quarter of 2005 mainly due to an increase in operating income. Analysts pointed out that the 5.2% growth in Israel's economy and improvement in the capital market in 2005, led to strong contributions to the banks' revenues, which are expected to come from fees in the capital market including securities and mutual and provident fund management commissions, as well as from credit cards. "Credit card activity is booming. It has seen an increase of 10% and is more and more becoming a means of credit card provision," Gury said. Leader & Co. analyst Alon Glazer, was unrestrained in his enthusiasm for the main banks' earnings, set for release on Wednesday, saying he expected very good results. "The good news are lower expected provisions and growth of credit card activities," he agreed. Looking at 2006, the analysts see tougher competition in the banks' retail activity as a result of the recent shift in loans towards the retail segment. "In 2006, we will see a huge capital gain for the banks of about NIS 6.3b. from the net sale of the provident and mutual funds. We expect a dividend yield of 10.5%," Gury noted. "This will be the biggest dividend year ever and a major attraction for foreign investors. "