Ladies and gentlemen, thank you for standing by. Welcome to Leumi's fourth quarter and full year 2023 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. As a reminder, this conference is being recorded, March 19, 2024. 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.
I would now like to turn over the call to Mr. Michael Klahr, Head of Investor Relations. Mr. Klahr, please go ahead.
Thank you, operator. Ladies and gentlemen, we thank you for taking the time to join us for Bank Leumi's fourth quarter and full year 2023 results conference call. Joining me today is Mr. Hanan Friedman, President and CEO, Mr. Omer Ziv, Deputy CEO and head of the capital markets division, and Ms. Hagit Argov, CFO and head of the finance division. We are also joined by our colleague, Dr. Gil Bufman, Chief Economist. A presentation will be presented during the call for those joining by link and will also be available on the IR Section of the bank's website for those dialing in. I would now like to turn the call over to Hanan.
Thank you, Michael. Good afternoon. Earlier today, we published our 2023 financial results. Although 2023 has been a challenging year on both the local and global macroeconomic landscapes, I am pleased to say that we have demonstrated strong results in accordance with our targeted growth strategy. Extreme appreciation from the value of Valley stock in the bank's financial statements. Our ROE reached 15.9%, a high rate considering the events of 2023. We have displayed significant growth in our net interest income, resulting in an increase of 22.9%. Income from fees and commissions increased by 7% while our expenses were almost flat, a moderate growth of only 3%. Our cost-to-income ratio continued its positive trend, reaching an annual rate of 32.6%, and remains the best in the Israeli banking system.
In line with our strategy, one of our goals this year was fast growth of our mortgage portfolio and the large-scale corporate segments, including residential real estate. While these lines of business may offer lower margins, they present much lower risk levels, which definitely is an advantage in the current situation. Since the beginning of the war, we have been well prepared with high liquidity levels and substantial equity reserves, positioning us well for the anticipated growth in the post-war period. Entering 2024, Leumi holds a clear strategy targeting specific areas that best serve our ROE objectives and are aligned with our risk appetite. The targeted growth potential is still far from being tapped. The leverage level in the Israeli market, households, and business segments are still low.
This, together with the potential of additional income from existing bank customers, leaves much room for growth and optimism for the post-war days. We proved this year that we have outstanding execution capabilities based on being focused and based on our technology capabilities, which together enable us to effectively and rapidly translate strategy into tangible results. An excellent example is our success in executing our growth strategy in the mortgage sector. It took us only two years to increase our market share significantly, and today our market share in new mortgages is over 30%. At the beginning of the process, it was just 14%. We did this without compromising on risk management while maintaining the lowest rate of high-risk mortgages in the market. For example, according to the Bank of Israel report of December 2023, our high-risk mortgages are 34% lower than the average of the market.
This can also be learned from our low NPL ratio in the housing segment compared with the rest of the Israeli banking system. In 2023, the total of our mortgage loans increased by more than 9%, much higher than our competitors, and we did it while maintaining prices at the average of the market. I must say that it's even more impressive given that this landmark was achieved against an uncertain macroeconomic backdrop with high inflation, high interest rates, and a slowdown of the activity in the real estate market. So how did we achieve this? We utilized our advanced digital platforms to offer flexible, user-friendly mortgage services, which allowed us to complete a mortgage transaction remotely in a matter of hours, like Mortgage by Zoom, while leveraging the mortgages to acquire new customers. The success in the mortgage sector is evidence of our excellent execution capabilities.
I am confident that we will attain similar success in other focus areas we are implementing now, all while keeping risk levels in line with our conservative risk appetite. Another enabler is our utilization of our technological edge in order to evolve into an efficient, lean, and agile organization. Integrating advanced technologies, including AI tools, and expanding the range of features available remotely have encouraged customers to shift towards our personalized digital services. This, combined with the automation of operational processes, has increased our productivity and enabled us to achieve more with fewer resources and to reduce our workforce. A recent example of this is the State- Guaranteed Loans Fund launched at the beginning of the war, where we obtained a market share that exceeds our general market share by more than 25%. Apart from our technological achievements, enhancing our operational flexibility has also played an important role.
We signed a four-year Collective Agreement that grants us additional leeway in managing our human capital moving forward. Moreover, this week, we completed the move of our headquarters to the new campus near Lod. This transition holds several upsides. First, it's great for cost streamlining. Second, we can now record the profit of over ILS 800 million from the sale of our previous headquarters that would be done in the first quarter. And third, the consolidation of units within the same campus will enable a further leap in synergies between lines of business. Based on current projections, Israel is expected to experience moderate growth in 2024. As commonly observed, markets often compensate for their underperformance by rebound in the post-war scenarios. Therefore, we have the perfect storm to execute our growth strategy in focus areas.
Entering 2024, Leumi is committed to maintaining the quality of our credit portfolio in accordance with our conservative DNA. We have no substantial borrower groups, and our NPL ratio of 0.85% is significantly lower than our competitors. As a result of the war, we recorded an increase in collective provisions driven by external macroeconomic factors. However, our specific credit losses remained minimal, highlighting the quality of our risk management capabilities and the success of our strategy. Throughout 2023, Leumi distributed dividends and made buyback transactions amounting to ILS 2.35 billion. With significant equity reserves, we are optimistic that soon the regulator will allow us to increase our dividend distribution. On a personal note, on October 7th, Israel was cruelly attacked, leaving us all shocked. The chain of events since then has had significant impact on the Israeli society.
I would like to share with you how proud I am of our employees and the organization for pushing through from the beginning of the war and right up to today. In spite of everything, we were determined to lead initiatives for the benefit of our customers and the Israeli society. We granted benefits and waivers to the affected population. In addition, we launched several philanthropic initiatives, including supporting the rebuilding process of Kibbutz Be'eri, supplying much-needed workers to the farmers near Gaza by funding grants to students who came to replace the foreign workers. Recently, we also launched a plan to help young students overcome the gaps in order to successfully pass their matriculation exams. I would like to take this opportunity of thanking our stakeholders, our employees, our customers, and you, our investors, for your continued support.
With that, I will hand over to Hagit, who will walk you through the financial results.
Thank you, Hanan. Hello, everybody. Good afternoon. Before we discuss the bank's position in more detail, firstly, a few words on the macro situation and some key messages. Slide three shows some key economic indicators. While we expect lower economic activity in 2024 due to the war in Gaza, the Israeli economy started this period in strong health, and we are already seeing some small signs of recovery, for example, in consumption and employment since the start of the year. Bank Leumi estimates the GDP will grow at 1.8% this year and 5% in 2025, with an emphasis on government consumption, both civilian and defense, and also investments in fixed assets, including construction. We also expect that private consumption will rise as many displaced households start to rebuild their purchases of durable goods.
Slide four shows that despite the challenging environment, Bank Leumi was again able to report a strong set of full-year financials, continuing the positive performance of recent years. Over the last three years, we have grown our revenues by 42% while keeping our costs almost flat. Adjusted ROE in 2023 increased to almost 16%. On slide five are the key messages from the quarter. The Iron Swords War, which began in Israel on 7 October, resulted in, among other things, a decline in economic activity and an increase in economic uncertainty and risk. In addition to the government-aid package and the various Bank of Israel measures to soften the economic impact on households and corporates, further measures taken by Bank Leumi include exemptions and deferrals on loan payments and cuts to fees for affected customers.
The bank has also established an Aid Fund to support the rebuilding and rehabilitation of Kibbutz Be'eri on the Gaza border. Assuming that 100% of the eligible customers take advantage of these benefits, the bank estimates that the cost would be around ILS 575 million, which includes present and projected future claims for these benefits. In the first quarter of 2023, the bank reported net income of ILS 1.8 billion and ROE of almost 14%, despite the weaker economic activity due to the war and the high quarterly provision. The bank will distribute 20% of fourth-quarter profits as dividends in line with Bank of Israel directives. This brings the total dividend distribution for 2023 to ILS 1.75 billion, which, in addition to ILS 600 million buyback, is equal to a 33% payout and a yield of more than 5%.
Continuing with the result for the full year and Q4, let us turn to slide six. Net income for 2023 was ILS 7 billion, which includes the ILS 1.1 billion impairment of the bank's stake in Valley in the first quarter and the higher provisions in the second half of the year. ROE for 2023, excluding the value impairment, was 15.9% compared with 15.6% in 2022, which excludes profits from the sale of BLUSA that were recorded in the previous year. The cost-income ratio declined to 32.6% in 2023 from 37.2% in 2022. Here, I wish to point out that the credit expenses were 0.63% in the quarter and 0.58% for the full year, mainly due to an increase in collective provisions as a result of the geopolitical situation.
Credit grew by 9% in 2023, while core deposits to private individuals, a key focus for the bank, grew by almost 7%. Slide 7 shows the breakdown of income and expenses for the full year. Pre-provision net revenue, bottom right-hand side chart, increased 27% year-over-year to ILS 14.3 billion, supported by higher financing income and higher fees. Operating expenses were up 3.2% year-over-year. Slide 8 shows a snapshot of income and expenses in Q4. While net interest income increased year-over-year and fees were also up strongly, pre-provision net revenue was down year-over-year, mainly due to lower non-interest financing income. Net interest income was negatively impacted by the weaker CPI in the fourth quarter versus Q4 2022. In slide 9, we can see the quarterly development of net interest income and margin when excluding the impact of the CPI.
Net interest income increased by more than 30% in 2023 to ILS 14.8 billion, while in the fourth quarter, it increased 8.7% to ILS 3.8 billion due to higher levels of activity and also helped by a strong NIM. I would like also to draw your attention to the fact that despite the macroeconomic environment, we were able to increase the NIM excluding the CPI in Q4 paired with Q3. Slide 10 shows the year-on-year increase and breakdown of fee and commission income. Fees were up 7.2% in 2023 and 8.7% in the fourth quarter, mainly due to an increase in financing transactions supported by the increase in credit activity. As you can see in the chart at the top right of the page, this is an ongoing trend.
On slide 11, you can see the continued improvement in the bank's cost-income ratio, which improved further in 2023 to 32.6% from 37.2% in 2022. Slide 12 shows the development of loan loss expenses. Q4 credit expenses on the right stood at 0.63% down from 0.95% in the previous quarter, with most of the cost coming from the collective provision, which reflects the slower economic activity and increased level of uncertainty. Credit expenses for the full year were 0.58% from 0.13% in 2022, with almost all the increase coming from the collective provision. The specific credit loss expense ratio for the total year of 2023 was only 0.08% out of the 0.58%. Indeed, as can be seen on slide 13, the bank prudently increased provision for doubtful debt by ILS 1.7 billion in 2023 to ILS 6.7 billion, or 1.58% of gross loans.
At the same time, let me highlight the NPLs of 0.85% on the left and total troubled debt of 1.78% remain at historically low levels and are among the lowest in the Israeli banking sector. I'm moving ahead now to slide 14. This slide shows that our loan book increased to ILS 419.5 billion in 2023, a 9% increase since the end of 2022. We continue to grow in all our target segments, which are mortgages, middle market, and corporate sectors. Slide 15 shows deposit trends. Here, we highlight the growth in core deposits, top left from private individuals, a key focus area of the bank. This increased by 7% in 2023. It is also important to note that our deposit base on the right is well-diversified and our liquidity ratios remain strong. Slide 16 shows the bank's solid capital ratios.
The core T1 capital ratio on the left was 11.66%, up from 11.3% at the end of the third quarter, giving the bank a significant buffer. The total capital ratio in the middle stood at 14.72%. The bank's leverage ratios have also been increasing, as can be seen in the graph on the right. Finally, slide 17 summarizes the key takeaways from the quarter. Bank Leumi was able to achieve a healthy meaningful ROE despite the challenging economic backdrop. Asset growth, together with strong margins, are driving higher net interest income and fees. We benefit from our best-in-class cost-income ratio. NPLs remain low with strong coverage, while our large capital buffer and strong liquidity provide us with lots of flexibility to grow or to increase capital return depending on the market conditions.
It is worth noting that the bank will record more than ILS 800 million of pretax profits in the first quarter of 2024 from selling two headquarters buildings. In conclusion, Bank Leumi continues to present consistent and strong financial performance, supported by best-in-class cost-income ratio and robust credit quality indicators. The bank's strong profitability and healthy capital buffer enable us to continue to grow market share in our target segments and put Leumi in a strong position for the future despite the effects of the war. With that, I will now open the call for questions. Operator?
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you are dialing via phone, please press star one to ask a question. If you wish to cancel your request, press star two. If you are using speaker equipment, kindly lift the handset before pressing the number. If you joined the call via Webex, please click on the raise hand button at the bottom of the screen. As you hear your name, please be sure to unmute your microphone and ask your question. For the benefit of the people in the room, please introduce yourself and share the name of the company you represent. The first question is from Ulle Adamson. Please go ahead.
Hi. Can you hear me now?
Yes. Thank you.
This is Ulle Adamson from T. Rowe Price. Thank you very much for this presentation. I have a question regarding the asset quality. Are you starting to see any pressures at all in any segments, perhaps specifically in construction, real estate, commercial real estate, where there are some issues with your workforce post the war started? So any comments on the asset quality outlook, and especially if this war was to carry on for several months, where do you expect to start seeing pressures? Thank you.
Hi. Good afternoon. I will answer as follows. First of all, we did see a slowdown in October and November, but since the end of December, we start to see an increase in pace of sales in almost all of our projects, and we start to see the economy in different sectors start to recover. When we talk specifically about construction loans, our mitigation to the increase of the risk in the geopolitical circumstances is mainly based on increasing the equity requirement in each project, making a different scenario in order to predict what can happen, and of course, tightening different parameters in our underwriting system. On average, I would say that the pace of sales in our project is around 17%. The pace of completion is around 60%.
When you look at our absorption rate, you will find that apart from one project with absorption rate, which is around 25%, the vast majority of the projects are with absorption rate. The vast majority of the other projects are with absorption rate. A much higher absorption rate means how much the price should go down or the cost should go up in order that we would start seeing problems when we pay our loan. When you look at the LTVs, you will find that the loans with LTV above 18% decreased significantly. In fact, for a couple of months, due to regulation, we are not granting any more loans with LTV above 80%, and by the end of the year, these loans are expected to be a negligible number. So overall, we don't expect a significant increase in our provision in construction loans.
As for office space, our appetite for office space loans for years was very moderate. The vast majority of our projects are pre-lease or pre-sale. So also in this area, we don't expect a significant increase in provision. And as for commercial real estate, the vast majority of the loans are around logistics centers or a small neighborhood commercial center, and also there, we see a significant increase in turnover of credit cards. So also there, we don't see a significant increase in risk. Just to give you more details from our total exposure in real estate, about 60% is related to constructions, 15% related to office space, and around 15% related to commercial real estate. The vast majority of our customers are very strong customers. Lots of loans are with personal guarantees, very strong collateral.
The bottom line is that we don't expect a significant increase in our credit loss expenses in the following quarters in real estate. I would like also to point it out what Hanan and Hagit mentioned, that if you look at the main parameters, which are objective and reflect the quality of our credit portfolio, so our NPL is 0.8%, one of the lowest in the industry. If you look at the ratio of the troubled debt out of the total debt, it's only 1.8%, the lowest ratio among our peers.
The next question is from Chris Reimer of Barclays. Please go ahead.
Hi. Thanks for taking my questions and congratulations on the solid results. I wanted to ask about building and other expenses, which have been up over the year. Given that you've completed the transition of the headquarters, can we expect an immediate reduction there, or will it take a little longer?
Hi, Chris. Good afternoon. I would say as follows. First of all, as Hanan mentioned, this year, despite the fact that our finance income increased by around 20%, the overall cost increased by only 3%. Now, when you look at other expenses, you should bear in mind that the other expenses include salary expenses because a significant part of the pension costs, which are in effect salary expenses, are recorded in other expenses. So as Hagit presented in your presentation, when you put the pension expenses together with the salary expenses, you will not find a significant increase in other expenses. I would also like to mention that the fourth quarter includes one-time expenses related to the pension liabilities of ILS 160 million, which is not expected to be repeated in the following quarter.
Also, I would like to point it out that the more we use our technology, the more you will see a transfer from salary expenses to IT expenses, as you saw in this year, because the more technology we are, we need more place in the cloud, for example, but we can be more efficient in our salary expenses. Overall, this year, as in previous years, we were able to increase significantly the income. In the same time, the expenses increase was very moderate, and this is the major reason why in this year, as in the previous years, we were able consistently to continue to decrease our cost-income ratio, which is below 33% for the total year of 2023.
Got it. Thanks for that. You gave some great commentary about the real estate segment of the loan book. How would you characterize the other various segments, if there's any changing trends, especially over the last three months versus the last six months?
Okay. So I would say like that. The most exposure sectors to the effect of the war with Hamas are, of course, the individual sectors, the unsecured retail, and the small business. And in these sectors, you will see in the financials that actually we decreased our credit portfolio, also this segment, in the year and in the fourth quarter. I would also say that from our total credit portfolio, only 13% is composed of unsecured retail and SME. So overall, these sectors, these segments, have, of course, the highest margins in the loan, but also the highest risk. And we are, at least in this period, as we were in previous years, but of course, in this period, it's more important, we were very cautious regarding our growth in this segment in the last few quarters. And looking forward, it really depends how the situation will develop.
We strongly believe, and we see it in the last couple of months, that gradually the economic situation in Israel is improving gradually.
Got it. Thanks again. That's it for me.
The next question is from Irit Bar of Phoenix . Please go ahead.
Hi again, and thank you for taking my call. Congratulations for your great results. I have a couple of questions. I would start by your NIM trend. Excluding CPI, I see that your NIM was increased. So I would like to know what drove the increase. If I'm not mistaken, none of the other banks in the sector actually reported an increase in NIM this quarter.
Hi, Irit. Good afternoon. I would like to say that we were also surprised to see the increase in the NIM excluding CPI in the fourth quarter. I believe it's coming from a few components. First of all, the movement of money from current account to time deposit almost stopped in the last couple of months. Secondly, we took different measures in order to improve our profitability, both in terms of credit and in terms of deposit. Thirdly, the capital market was much better in the fourth quarter compared to the third quarter. So it's a combination of things. Now, looking forward, if you ask me whether we will be able to continue to increase our NIM in the following quarters, I will not say that.
I will say that we continue to invest a huge effort, as we did in the last quarter, in order to try to mitigate the expected decrease in NIM as a result of the decrease in the interest rate. We will be able to decrease this expected decrease to a minimum.
Yes. Thank you. So you mentioned the movement from the current account to time deposit. Do you think that it really stopped, or do you still see some money passing from non-interest-bearing current account to time deposit?
Looking back for the last few months, it's still relatively stable. If we expect, and we do expect, that the interest rate is in a downward trend, so it seems to me that the chance that we will see a significant additional movement from current account to time deposit is relatively low.
Yeah. Let's talk about Valley a little bit. Can you please, when I checked today, the market value, if I'm not mistaken, of your holdings in Valley is ILS 1.96 billion, whereas the book value of Valley in your books on, well, at the end of the year, was ILS 2.63 billion. Do you consider any write-down again in the coming months? And if yes, is it possible to see later on a write-up if things are getting better?
I would answer as following. First of all, you are right that since the beginning of the year, there was a significant decline in Valley stock price, as in other regional banks, due to what happened with NYCB. This bank has problems with this provision, and as a result, there was a negative effect on all of the regional banks in the U.S., including Valley. When we look specifically on Valley data, I will just mention a few data. The write-offs in Valley are only 14 basis points out of their total loans. The allowance out of their total loans is stable, around 93 basis points, even lower than 2022. So based on that data and other data, their total exposure to office space is only $3.3 billion. It's around 5%. And their exposure to Manhattan office loan is only $300 million.
So based on this data and other data, we believe that the market reaction to what happened with NYCB is a bit overreacted. But of course, we have to be patient and see how it will develop in the following month. On top of that, I would like to say that, as you mentioned, that Valley is recorded in our financials by only ILS 2.6 billion out of ILS 731 billion total balance sheet. So in terms of Bank Leumi Le-Israel B.M., Valley is important, but their effect on our result is not significant. And even if I will take into account a negative scenario in which their market value will not improve significantly in the following month, it means only a few hundred million ILS impairment, according to your calculation, which its effect on our ROE is less than 0.1%, even if I take an extreme scenario.
The bottom line is that we do expect that Valley stock price will improve. We should, of course, wait a few months and see whether our expectation will come into effect or not. The total effect of Valley on our results, as I mentioned, are not significant. Looking forward, the profits that we record from Valley are recorded in two lines: in the equity lines, as equity profit every quarter, in line with the profit that Valley reported every quarter, and in the net interest income due to participation that we are making with Valley.
Yes. Thank you. And the last question is regarding your dividends. I understand that the guidance from BOI or [inaudible] Bank was to control or maybe to reduce dividend payments. But as I see Bank Leumi Le-Israel B.M. and all other banks now accumulate too much or a lot of equity, a lot of liquidity. And so when you expect to resume normal dividend distribution again, are you in talks with BOI to, I don't know, resolve the situation?
I would say that you are totally right. Our equity buffers are quite increased. We have a Tier 1 of 11.7% total equity ratio of almost 15%. And we have all the ability, in terms of liquidity ratio as well as equity ratio, to increase our dividend distribution ratio. As you mentioned, due to the geopolitical situation, the Bank of Israel, as in the past, preferred to be more cautious and instructed the bank to be very cautious in their dividend return. It's obvious that this cannot be for a long period. I expect that, first of all, in Israel, the situation is improved month after month.
If we will not see any extreme negative scenario, which the chance that we will see it is relatively low, we expect that during 2023, I cannot put the finger during 2024, sorry, the Bank of Israel will enable the bank to pay dividends as they can do.
Yes. Thank you very much.
I would just like to remind Irit, just one last point. I would like just to emphasize that in previous years, with this equity ratio, we were able to maximize the dividend not only by dividend, but also by buyback plan. So there were years not long ago that we distributed above 60% payout ratio every year.
Yes, but we haven't completed the full program, yes? You had to cut it.
Yes. Yeah. This program is finished, but of course, we have the ability to approve another plan when it's possible.
Thank you. Thank you very much.
It's worth to mention that the current guideline of Bank of Israel was just, it was two guidelines. First was at the beginning of the war for the previous quarter, and recently we got for this quarter. So I assume that soon we will push hard Bank of Israel not to issue additional guidelines like they did last quarter.
I understand. Thank you. Thank you.
Thank you, Irit.
If there are any additional questions, please press star 1. Or if via WebEx, please click on the raise hand button at the bottom of the screen. The next question is from Valentina Stoykova of Barclays. Please go ahead.
Thanks. Thanks very much for the presentation. I was just wondering whether you can give us some color on the deferred loans portfolio. What trends do you see in the first months of this year? And also, if you can share whether you have made some provisioning gains in deferrals and how much you expect extra provisioning to take this year for the deferrals. And my last question is on the bank levy. If you can share a bit more color on the bank levy and the impact for Leumi Le-Israel B.M.
Can you repeat the last sentence? What was the last question?
On the bank levy and the impact on the bank.
I understand. I understand. Okay. Okay. I will say like that. First of all, in the financial, we report that the total grace in our loan is ILS 1.6 billion out of a portfolio of ILS 426 billion. So it's negligible. And as I mentioned earlier, we are not expecting an increase in our credit loss expense ratio in 2024 unless we'll be in a very negative extreme scenario. But currently, it doesn't seem reasonable. That's first. Now, regarding the tax that you mentioned, the tax on banks that was put on hold last week. So according to this legislation, in 2024 and in 2025, there is an additional tax on bank of 6%. It's like a tax. Actually, in 2024, it's only 5.5% due to the fact that the legislation just passed a week ago.
There is a ceiling of total payment of the total industry of ILS 1.2 billion in 2024 and ILS 1.3 billion in 2025. So based on this ceiling and based on the fact that Bank Leumi Le-Israel B.M. is unique by this respect because we have a relatively high pension liability with high deferred tax assets. So it means that because of this increase, we will record the benefit in our deferred tax that is related mainly to this pension liability. The total effect on our results in 2024 as well as in 2025 is not expected to be significant. We assume that it might be around 0.5% of our ROE at most.
Thanks a lot. Thanks a lot.
Thank you, Valentina.
The next question is from Ulle Adamson. Please go ahead.
Hi. This is Ulle Adamson from T. Rowe Price again. I just have a couple of follow-up questions. Bank Leumi Le-Israel B.M. has two Tier 2 instruments, Eurobonds, outstanding, which seem to be pricing in a potential extension risk. Just as much as you can comment, what would be the bank's sort of policy of calling its Tier 2 notes at the first call date? And especially as you also talked about the dividends and the capital buffers, how comfortable you would be potentially doing that? And secondly, are you concerned about losing their BB ratings on the Tier 2s and A ratings on the bank itself? Thank you. Thank you.
Hi. Good afternoon. Regarding the call of Tier 2, when you look backward, we issued already a few Tier 2 vehicles, and we paid them back at their call date. We prefer to pay them at their call back. For two reasons. First of all, we understand that this is the expectation of our investors, and we respect that. It's very important to us to keep a long-term relationship with all of our investors. We did it in the past. There is no reason that we will not do it in the future. Secondly, if we don't call it, it means that even though we paid their higher interest rates, the benefit that we see in the equity from that reduced significantly. We have already a significant buffer in our equity ratio. It's too early now. We are just at the beginning of 2024.
But we don't expect, at least at this stage, not to call them in the call date in two years from now. The second question was what was the question? The rating. The rating. Well, the rating of the bank the rating of the bank in Israel is affected by the geopolitical situations. It's very hard to predict how the geopolitical situation will develop. We do see improvement in the last couple of months, and we expect this improvement to continue. But we have to be more patient. Till now, only one rating agency decreased the rating. So we are still rated A, I would say, across the board. The chance that we will see a significant decrease in rating according to our expectation is relatively low.
Great. Thank you very much.
Thank you very much.
Thank you.
There are no further questions at this time. This concludes Leumi Le-Israel B.M.'s fourth quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.