Ladies and gentlemen, thank you for standing by. Welcome to the Israel Discount Bank Third Quarter 2024 Results Conference Call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded, November 18th, 2024. If you have not yet done so, please access the presentation on the bank's website, investors.discountbank.co.il. I would like to remind everyone that forward-looking statements for the respective company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated.
Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effect of the company's accounting policies, as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. Now, I would like to pass the call to Mr. Assaf Pasternak, CFO. Mr. Pasternak, please go ahead.
Thank you, Yoni. Thank you all for joining us today. I extend my warm welcome to this investor call. As we mark the passing of 409 days since the onset of this conflict, we long deeply for the release of our hostages and looking for the moment they are free again. And in a passage to today's agenda, we are presenting today our financial results for the fifth time since the beginning of the war. Our financial reports for the third quarter indicate our continuous momentum in growing our loan book and balance sheet, demonstrating our stability and high-quality asset metrics, as evidenced by consistently delivering, throughout this time, stable and robust results. Our first quarter results underscore our steadfast stability and resolute ability to consistently generate value over time, with a net income of over ILS 1.1 billion and a return on equity of 14.9%.
I'm in slide three now. Demand for credits has grown across all sectors. Total credit grew by 3.2% this quarter and 7.2% year-over-year. Looking at our banking activity in Israel, combining Discount and Mercantile results, we present a return on equity of 18% and an efficiency ratio of less than 41%. While the Bank of Israel rate remained at 450, we have kept a mild growth in NII of 0.7% quarter-over-quarter, while the net interest margin was reduced to 3.06%. Given our strong and stable results and our confidence in the robustness of our core business, we have decided to issue a 30% dividend payout of net income and a share buyback of 10% of net profit, amounting to a total of 40% of net profit for the third quarter. The share buyback program is limited to ILS 500 million over the next four quarters.
Looking at the economy, we observe stability in macro factors, as I will elaborate on the next few slides. At slide four, delving into the macroeconomic landscape, following more than a year of military conflict and sovereign ratings downgrades to A-minus, the Israeli economy still demonstrates resilience and strength. On the left side, we show that the demand for housing remains stable, with over 8,000 units per month. On the right-hand side, we can observe the stable private consumption growth rate. On slide five, on the left side, we can observe that during 2024, the war has had a significant impact on GDP growth, reducing it to 0.4%. The bank projects GDP growth of 3.5% for 2025, but this estimate depends on the duration of the war, assuming tensions ease along the northern border early in the year and along the southern border later in the year.
On the right side, unemployment is stabilizing at low levels of less than 4% at the pre-war range. September numbers saw the jump to 3.9%, and we will have to see how it will behave in the coming months. Looking at the government fiscal deficit, which peaked to 8.5%. Sorry, I'm at slide six now. Looking at the government fiscal deficit, which peaked at 8.5% in September and gradually decreasing, our most recent forecast predicts a decrease to a total of 7.7% in 2024. These levels are still too high to maintain a healthy economy and a business environment for the long term. We hope to see the government taking strong measures in order to bring down the deficit in 2025. On the right side, the spread between 10-year U.S. and Israeli government bonds has lowered significantly over the past three months.
However, it remains volatile and is still elevated compared to Israel's current credit rating. Slide seven shows the most relevant macro parameters for the bank. We can see that the market expectations for the Bank of Israel rate are higher for longer, with rates expected to remain at current levels until the end of 2025. We do not anticipate that the Bank of Israel will lower interest rates in the near term, given the inflationary environment and the current government deficit. On the right side, following a year of high inflation, 3.9% through October, the market anticipates CPI rates to decline throughout 2025 and align with the Bank of Israel's upper target range. Now, we will begin the review of the financial results. Slide eight provides an overview of the group performances for the quarter. I will elaborate on each area in the upcoming slides.
On slide nine, we show our credit growth. As mentioned before, in the third quarter, our credit portfolio growth across all sectors and segments, mainly in the corporate segment, grew by 4.6%, and the small business segment grew by 3.6%. Credit spreads are narrowing across all sectors due to the high supply of credit in the market. Switching to slide 10, you can see that overall credit loss of 40 basis points was driven by an increase in collective allowances. The collective allowances provisions were affected mainly by the strong growth of our loan book and provisions in CAL. On the right-hand side, you can see additional asset quality metrics. The NPL ratio continues to decrease for the third consecutive quarter, down to 76 basis points compared to 83 basis points in the previous quarter. The allowance to loan loss provision from total credit is set at 1.52%.
Although we cannot trace any deterioration in our asset quality metrics, as can be seen in our specific basis provision and NPL levels, we do believe that further continuation of the war will have an impact on the risk levels of our loan portfolio. Moving to slide 11 to discuss our income. Total income grew to ILS 4.2 billion and increased by 5% quarter-over-quarter and 7.2% year-over-year. The interest rate in the third quarter remained at 450, as in the previous quarter. NII was 0.7% growth quarter-over-quarter. As you can see from the chart on the right-hand side, the income from regular financing activities, what we define as the financing income from current operations that does not include CPI, is remaining stable throughout the year.
The stability was achieved despite the growth in loan book and balance sheet, as our margin on loans and deposits are lowering. NIM was reduced to 306 from 319 in the previous quarter. In addition, fee income grew by 5.7%, mainly from credit card fees in CAL, and non-interest financing income increased by ILS 135 million. I will move to slide 13 to discuss expenses and cost-to-income ratio. In the last quarter, we have managed to stabilize our salary maintenance and depreciation expenses after relocation to our new campus. Other expenses are stable compared to the second quarter, but excluding and increasing the clearing fees expenses in CAL, as activity in credit cards expanded, it represents a reduction of over ILS 30 million. Moving now to slide 13, you can observe our ample liquidity and diversified deposit base.
On the left, you can see that 42% of our local deposits are from retail and private customers, 18% from SMEs, 19% from large corporates, and 22% are from institutionals. On the right-hand side, our Tier 1 capital ratio after the S&P sovereign downgrade in April stands at 10.57%, well above the 9.75% board limit. Our liquidity ratios are well above the regulatory demand, presenting a solid LCR of 130% and NSFR of 121%. Moving to slide 14, I will briefly touch on our main subsidiaries, starting with Mercantile Bank, which presents a net income of ILS 226 million and a return on equity of 17.1%. The cost-to-income ratio reached 38.5%. Mercantile grew its loan book by 7.3% year-over-year by a well-balanced growth across most segments.
IDB Bank, New York, in this quarter, the bank has presented a net income of $21.3 million and a return on equity of 6.7%. The bank grew its loan book by $560 million and total assets to $13.2 billion. Working with our new partners from Gallatin Point Capital, we are dedicated to enhancing the bank performance and overall efficiency. CAL is presenting strong results in the third quarter, with a net income of ILS 90 million and a return on equity of 13.6%. Consumer credit grew by 4.9% year-over-year, and transaction turnover is growing by 11.4% year-over-year. The future separation of CAL is expected to have a limited impact on Discount Group ongoing profitability and almost no impact on the group return on equity, while it will improve the efficiency ratio by 5%.
To summarize my overview, on slide 15, I would like to emphasize the key takeaways from these quarter results. First, we deliver solid results with a net income of over ILS 1.1 billion and a return on equity of 14.9%. Second, we present a continuous and solid credit growth of 3.2% this quarter, as the economy and the housing market remain stable. Third, our conservative risk approach continues to dictate our strict underwriting policies, with sufficient coverage ratio at 1.52%, while the NPL ratio is down to 0.76%. Fourth, we remain focused on containing our costs. Salary expenses and maintenance and depreciation are contained. Other costs remain stable for the expense of the activity in CAL. And lastly, the bank announced a dividend payout of 30% and a share buyback of 10% of the net profit, amounting to a total of 40% of the net profit of the third quarter.
With this, I will finish and would like to open to Q&A.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Please stand by while we poll for your questions. The first question is from Tavy Rosner of Barclays. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. First, I wanted to ask how we should think of the coming quarters in terms of modeling for provisions and loan growth, assuming there's no deterioration in the military situation.
Well, I think that the loan growth surprised us a little bit. The last two quarters were. The last one was 2.5%. The previous quarter was 2.5%.
The last quarter was 3.2%. This is a strong pace. I think the next quarter will be a little bit slower so long as the war is not finished. If we have a much better situation, I think we will have the same pace and even stronger for going into 2025. As for the provisions, so far, we see stable numbers. I think that if the situation in the north keeps on going, we will see some more specific provisions greater than they were in the last two quarters towards mid-2025, not in the first quarter. But as long as the situation continues, we might see a little bit greater numbers. If the situation is resolved, it's a completely different story, and probably we will be able even to turn down some of the allowances we have done in the past.
Okay, that's helpful.
I wanted to ask also about IDB New York. So you mentioned the prospect of turning the company around, delivering better returns. I was wondering, what areas are you focusing on? Is it mostly on the business refocusing or cost-cutting or streamlining? I just wanted to get a sense of the scope of what you're doing there.
Yeah, so we see two directions here. One is cost, of course. The efficiency ratio is not good enough. And the second is growing the balance sheet on both sides, both on the loan side and deposit side. And in both sides, I mean, the market is not so easy right now, but I think that together with Gallatin, we will be able to build a new program and find new markets to expand the balance sheet.
Okay, and very lastly for me, I saw a directive from Bank of Israel talking about allowing new players to enter the market. I think specifically it was targeted for the insurance companies. Do you see a spread there, or it's more anecdotal at this stage?
I think it's early to declare. Of course, there is a threat there in general. I mean, if this proposition will take place, there are new players that will be able to gather deposits, and we'll have more competition on the deposit side. Probably it will affect the market. So I think there is a threat, but it's too early to know how it will evolve in the next coming quarters.
Understood. Thank you for taking my question.
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Please stand by while we poll for your questions. There are no further questions at this time. Thank you. This concludes the Israel Discount Bank third quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.