Bank Leumi Le-Israel Ltd., Bank Hapoalim Ltd. and Israel Discount Bank Ltd., Israel’s three biggest lenders, reported declines in third-quarter profit as the economy slowed and they set aside more money for bad loans.
Net income at Leumi fell 74 percent to 155 million shekels ($40.8 million) from a year earlier, missing the average 208 million-shekel estimate of four analysts on Bloomberg. Profit at Hapoalim dropped 9.1 percent to 471 million shekels, the Tel Aviv-based bank said, matching analyst estimates.
The Bank of Israel on Nov. 28 cut its benchmark interest rate for the second time in three months to cushion the economy from the impact of a European debt crisis that it said is “becoming more severe.” All three Tel Aviv-based lenders boosted bad-loan provisions during the third quarter.
“We see a decline in profitability which reflects a slowdown in economic activity,” said Adi Scop, a financial-services analyst at IBI-Israel Brokerage and Investments Ltd. in Tel Aviv. While the position of the country’s banks is “sound,” a base scenario would see the economy slipping into a recession, Scop wrote in a note released Nov. 27.
Provisions at Bank Leumi rose more than eightfold to 378 million shekels, while those at Hapoalim climbed 72 percent to 498 million shekels in the quarter.
Discount Bank said net income fell by more than half to 121 million shekels in the quarter as it increased provisions by a third to 226 million shekels. First International Bank of Israel Ltd., which also reported earnings, said profit slumped 84 percent to 21 million shekels from a year earlier.
A 37 percent drop over the past year has left Leumi valued at an average 7.1 times estimated earnings, while Hapoalim, down 25 percent in the period, is valued at 6.35 times. That compares with 8.38 times for the STOXX 600 Banks Index of European banking companies.
Leumi shares jumped 7.7 percent to 10.90 shekels at the 4:30 p.m. close in Tel Aviv. Hapoalim gained 7.8 percent to 12.82 shekels. Discount Bank rose 7.4 percent to 5.50 shekels, while First International added 6.4 percent to 37.26 shekels.
The shares also gained as the world’s most powerful central banks lowered the cost of emergency dollar funding in response to Europe’s sovereign-debt crisis.
Profit at Leumi and Discount exceeded guidance provided Nov. 14 when Leumi said net income would range from 50 million shekels to 100 million shekels and Discount forecast earnings of 100 million shekels. First International said it would be “marginally profitable.”
“People feel the underlying earnings are not as bad as the profit warnings,” Dan Harverd, a Tel Aviv-based analyst at Deutsche Bank AG said by phone. “The stocks are trading on quite low multiples and that is why investors are coming back.”
Clal Finance Batucha Brokerage Ltd. raised Leumi, Hapoalim and Discount to “outperform” from “market perform” after the results.