Bank Hapoalim, one of Israel’s two largest lenders, saw its net profit jump to NIS 2.01 billion ($551 million) in the first quarter of the year as net interest income surged 49 percent from a year ago on higher borrowing costs and rising inflation.
Hapoalim’s net profit in the first three months rose 21.3% from NIS 1.66 billion to NIS 2.01 billion during the same quarter last year. The bank’s quarterly earnings benefited from 39.1% growth in total income as net interest income soared 49% to NIS 4.04 billion from the same period in 2022.
Return on equity, a measure of a bank’s profitability, stood at 17% in the first quarter versus 15.6% in the same quarter last year. As a result, Hapoalim announced that it was lifting its dividend payout from 30% to 40% of quarterly net profit, or NIS 803 million, to be paid on June 14.
“The results in the quarter were supported by the continuous growth in business activity and a high contribution of the increase in central bank rates, as well as a high contribution of the consumer price index (CPI),” Bank Hapoalim said in a statement.
Hapoalim’s income from regular financing activity soared 51.2% in the first quarter over the same quarter last year to NIS 4.4 billion, as the Bank of Israel steadily hiked the benchmark interest rate from a low of 0.1% last April to 4.5% to battle rising inflation. This in turn has allowed banks to raise rates for borrowers and has rapidly fueled the costs of mortgage holders. The average cost of monthly mortgage payments has gone up by an estimated NIS 1,000 over the past year.
Most economists expect the central bank to raise its key lending rate by another 25 basis points to 4.75% later Monday in a bid to rein in inflation, which has been hovering above 5% in annual terms and is well above the government’s target range of between 1% and 3%.
A day before Monday’s interest rate decision, Hapoalim announced that it would not adjust mortgage rates upwards for more than 40,000 homeowners who face difficulty in repaying their mortgages. The mortgage rate freeze applies solely to Monday’s expected rate hike. Any further hikes going forward will be applied to monthly repayments accordingly, Hapoalim said. Earlier this year, the bank announced similar terms for hard-hit mortgage holders.
Moshe Gafni, head of the Knesset’s Finance Committee, said Hapoalim’s move was announced following a conversation he had with the bank’s CEO Dov Kotler. Gafni called on the heads of Israeli banks to follow in Hapoalim’s path and absorb the expected hike in monthly mortgage payments. In November, Gafni proposed a a freeze on climbing mortgage rates as borrowing costs went up.
Hapoalim said its net credit portfolio to the public in the first quarter increased 8.3% to NIS 394.4 billion, compared with NIS 364.3 billion in the same quarter last year. The volume of corporate credit in the first three months of the year rose by 5% from the end of 2022 and by 15% compared to the first quarter last year.
The bank’s housing loan portfolio grew by 7.9% compared to the corresponding quarter. Meanwhile, as higher interest rates makes loans more expensive, consumer credit growth stayed flat in the first quarter versus the previous quarter and declined by 1% compared to the same quarter last year.