Bank Leumi CEO Sees Dividend Reinstated After Five Year Droughtby and
Lender to seek BOI approval in 2017 after capital target met
Leumi has cut jobs, sold loan portfolios to boost equity ratio
Bank Leumi Le-Israel Ltd. expects to end its five-year dividend drought in early 2017 as it’s “very close” to clearing the main regulatory hurdle standing in its way, Chief Executive Officer Rakefet Russak-Aminoach said.
The Bank of Israel is requiring lenders to meet a Tier 1 capital ratio of 10.25 percent by Jan. 1. The Tier 1 ratio is a measure of a bank’s financial strength, calculated as the percentage of equity and earnings not paid out to shareholders in relation to assets that bear credit risk.
“We will reach this next target in January 2017,” Russak-Aminoach said in an Oct. 5 interview at Leumi’s New York office. “Whenever we are there, we will be able to approach the regulator and ask for approval for a dividend.”
Under Russak-Aminoach, Israel’s second-largest bank has been aggressive in heeding demands by regulators that the nation’s banks solidify their capital bases to create a bulwark against potential downturns and reduce costs to protect profits from record-low interest rates. Israel’s central bank has made these requirements conditional with requests to reinstate or increase dividend payments.
Good for Leumi, Banking Sector
This year, Leumi has outdone its rivals by trimming staff, closing branches, and freeing up capital by selling off mortgages to insurance companies.
“Investors were waiting for such a sign and we expect that Leumi will announce a yearly dividend of 15 percent to 25 percent in the beginning of 2017," said Guy Cordovi, head of International Trading at Excellence Nessuah Brokerage Ltd. in Petach Tikva, Israel. "Returning to paying dividends is good for Leumi and the banking sector, and we are seeing increasing interest from international investors on Israeli banks."
Leumi shares rose 1.1 percent to 14.65 shekels on Sunday, the highest in more than a month in Tel Aviv.
Israeli regulators have also pushed banks to increase efficiency, something Russak-Aminoach is embracing with technology upgrades and a deeper push into digital banking. In December, she’ll unveil a new, separately-branded mobile banking app called “Pepper” that’s built on an open-source platform that allows for easy integration of new technologies, and personalized offers to clients. At the same time, Leumi will continue to trim branches, now at 200, for the next couple of years.
“I believe we’re at a crossroads, and if we don’t deal with it, someone else will disrupt us and then we are dead,” she said.
The combination of technological change, tougher capital requirements and a popular distrust in big banks sparked by the global financial crisis have made it critical that Leumi innovate to retain and attract new clients, she added.
The bank will send about 6 percent of its workforce into early retirement this year, shedding 700 jobs, according to a June filing. It has eliminated about 1,400 jobs in the three years through 2015, when the headcount reached about 12,500.
Leumi reported a Tier 1 Capital ratio of 10.4 percent as of June 2016, on pace to exceed the Bank of Israel’s target. It last paid a dividend in 2011, according to data compiled by Bloomberg.