Earnings Call: Q4 2025

Feb 26, 2026

Summary

2025 net profit reached ILS 5.63 billion, with 17% ROE and strong broad-based credit growth. Management expects continued responsible lending, targets a sub-35% three-year average cost-income ratio and will distribute 50% of Q4 profits as a dividend.

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Ltd fourth quarter 2025 business results conference call. All participants are at present in a listen-only mode. Following management's forward-looking 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 February 26, 2026. With us on the line today are Mr. Adi Shachaf, CFO, and Mr. Menahem Aviv, chief accountant. We would like to draw your attention to slide number 1 of the financial statements for the fourth quarter 2025 presentation, which includes general comments regarding legal responsibility, including that the information contained in the presentation constitutes information from the bank's 2025 annual and quarterly reports and/or immediate reports, as well as the periodic, quarterly, and annual reports and/or immediate reports published by the bank in the previous years. Accordingly, the information contained in the presentation is only partial and is not exhaustive and does not include the full details regarding the bank and its operation or regarding the risk factors involved in its activity, and certainly does not replace the information included in the periodic, annual, and/or quarterly or immediate reports published by the bank. In order to receive the full picture regarding the bank's 2025 annual and quarterly reports, the aforesaid reports should be perused fully as published to the public. The bank's results in practice may be significantly different from those included in the forecasting information as a result of a large number of factors, including inter alia changes in the domestic and global equity markets, macroeconomic changes, geopolitical changes, legislation and regulation changes, and other changes that are not under the bank's control, which may lead to the estimations not realizing and/or to changes in the business plans. The forecasting information may change subject to risk and uncertainty due to being based on the management's estimations regarding future events, which include inter alia global and local economic development forecasts, particularly regarding the economic situation in the market, including the effects of macroeconomic and geopolitical conditions, expectations for changes and developments in the currency and equity markets, forecasts related to other various factors affecting exposure and financial risks, forecasts with respect to changes to borrowers' financial strength, public preferences, changes in legislations and provisions of regulators, competitive behavior, the status of the bank's reputation, technological developments, and human resources development. Mr. Shachaf, would you like to begin? Thanks. Welcome all to the Mizrahi Tefahot 2025 annual analyst call. As you all know, the last two years were very unusual for Israel. From the first day of the war, the bank has taken a pro-client approach, trying to offer immediate relief to its clients beyond the mandatory relief plan of the Bank of Israel while adapting the COVID experience and best practice to the current situation. As for the bank, it is much more boring, as you can see from the report and the results. I think the most conspicuous item in this report is the very strong credit growth. This growth is across the board among most of the asset classes, including mortgages, corporate, and middle market, and is part of our strategic plan. We think that this growth should help us to create a nice starting point for 2026. We think that our credit metrics reflect a balanced credit portfolio with adequate risk management. As you can see, provisioning was relatively standard for this period. As for the other items, I would like to use this call to further highlight a couple of points. First may be the CPI contribution to financing revenues is traditionally low in Q4, and that was also the case this time with a negative CPI for the quarter. On top of the credit growth, we also witnessed a healthy growth in commission. We think that the net profit and the return on equity reflects the strong balance sheet and the good efficiency ratio. On the expense side, you can see the effective cost control that enables us to run the business in an efficient way. As always, salaries are also affected from variable remuneration related to the bank's results. It is also very noticeable that the results have been reached despite the relative extra tax Israeli banks are paying in 2025, and despite the extensive Bank of Israel client relief outline. Our implementation of the outline is targeting more financing interest paying or saving benefits to clients and less operational benefits. Liquidity is very robust with high share of core deposits, and capital ratios are in tandem with profitability and growth. Demand for mortgages is healthy, and we continue to follow our strategy to retain our market share in the market. During the year, we continue to build the portfolio for the expected rate reduction. We think that it is reasonable to assume that today's balance sheet growth would materialize in the coming quarters, and we do expect to see further responsible credit growth in coming quarters. We will distribute 50% of Q4 profits as dividend. To conclude, our key takeaways for 2025 are as follows. Strong financial results in line with the strategic plan, despite geopolitical environment and lower inflation. Significant credit growth across all segments. It is worth noting the credit to the public crossed ILS 400 billion for the first time. Solid balance sheet mix with credit quality metrics continue to be healthy, effective expense side control, and 50% dividend distribution alongside 17% return on equity in line with the strategic plan. All in all, I think we are following our effective path and accommodating to the new environment. I would like to thank you very much for your attention, and with that, I leave you with the hands of Mr. Menahem Aviv, our chief accountant. Thank you, Mr. Shachaf. I will review the main figures from the financial statement, and are as follows. The net profit in 2025 reached ILS 5,630,000, compared with ILS 5,455,000 in 2024. The return on equity in 2025 reached 17%. The equity amounted ILS 34.8 billion. The total revenue in 2025 reached ILS 14.6 billion. Financing revenue from current operations in 2025 reached ILS 11.3 billion. Provision for credit losses to the public, the ratio of provision to loans in 2025 reached 0.06%. Operating and other expenses in 2025 total ILS 5.2 billion. The main balance sheet items development are as follows. Total assets grew by 13.5%, loans to the public by 11.9%, and deposits from public by 14%. The ratio of Tier 1 capital to risk assets reached 10.24%, and the total ratio reached 13.05%. Thank you very much. We can go 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 mute the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your question. The first question is from Chris Reimer of Barclays. Please go ahead. Yeah. Hi. Thanks for taking my questions, and congratulations on the strong results. First, I'd like to touch on the credit growth. Very impressively strong. When you look at the credit growth, where do you think this is really coming from? Is it that you're just offering more competitive rates, or is it demand that just previously hadn't been picked up? Any comments around what you're seeing there? Sure. Let's start with the demand. We do see a very strong demand for credit, in the Israeli market, not just for ourselves. Like I was saying before, we see it along almost all asset classes. For us, it comes from the mortgages from one side and even more so from the credit side, both big corporates and middle market. We do see prices, in the current environment, behaving in a very competitive environment. As I was saying, we see demand from all banks. We are happy we were able, in 2025, to retain our market share in the mortgage market, even slightly increase it, but our strategy was to retain our market share. On the corporate side, we grew around 20% on the corporate credit. We haven't seen the other guys' results, but we assume that during 2025, we were able to increase slightly our market share. How do you feel your position now with your market share in the business segments, given that you had previously announced that was one of your target areas to gain share there? How do you feel your position there now, and do you feel you have farther to go to increase this segment? Yes. As noted in our strategic plan, we do plan to further increase our market share in the corporate credit arena. Again, increasing our market share, still we would not be the biggest market share holders in corporate credit. But we do think we will be able to increase our market share on the corporate side while retaining our market share on the mortgage side. Thanks. That's helpful. Just one last one. How should we be looking at the special tax, going into this year? Yeah, because I don't think it's been decided yet. Will you be making a provision or is there a wait and see kind of approach? If anything, you could clarify on the special tax going forward. No, we haven't made a provision. We'll have to wait and see what would be decided on the parliament and once, if a new law would be legislated, then of course, we will behave accordingly. Great. Thanks. That's it for me. The next question is from Canberk Benning of Citigroup. Please go ahead. Hello. Just two questions from me. Number one on cost efficiency. One of your targets is to bring the average cost income ratio down to below 35% over the three-year plan. I'm just wondering, you were a little bit above that in 2025. I'm just wondering, what sort of plans do you have to implement cost efficiencies going forward, to ensure that target does fall below the 35% average? And then the second question, just the evolution of the NIM. I'm wondering, as bank rates come down, the policy rate comes down, inflation comes down, do you see that NIM being compressed going forward? And how will that sort of affect the profitability going forward? Thank you. Sure. As for the first question regarding the cost income ratio, you are absolutely right. Our target is to be on below 35% hurdle for the average of the 3-year. We finished this year at 35.9%. We do see room for further improvements there in the next 2 years. We will, of course, try as hard as we can to achieve our average target. I can say that we are quite happy with the expense side control for this year in 2025, if we compare it to 2024. As for the second question on the NIM. What you have seen in 2025 is that NIM were lower. We do look also on adjusted NIM, without CPI, in order for us to better see where are the sources of the NIM compression. Of course, CPI, not just in a quarter in 2025, was lower than 2024, so it contributed less. On the other side, we got compensated by the growth. Another aspect that affected the NIM and maybe would affect also in 2026 would be the amount of rate reduction. So far it is in line with what we assumed in the strategic plan, but we will have, of course, to wait and see where will 2026 end. All in all, there are a couple of vectors going there. We see a similar phenomena also in the corporate bond market, that when rates were high, spreads were lower, and then they get to a certain point and sometimes, when rates go lower, then you see partial compensation. We will have to wait and see how the market will behave there. Brilliant. Thank you. There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd fourth quarter 2025 results conference call. Oh, I am sorry, we have another question now. The next question is from Valentina Stoykova of Barclays Capital. Please go ahead. Yes. Hello. Thank you very much for the presentation. I have two follow-up questions, actually. One is on your CET1 ratios. I have seen that your CET1 has fallen quite a bit year-on-year. The buffers are on the thinner side now. I was wondering where you see your optimal capital buffers and how you plan to get there. My other question is regarding your asset quality and cost of risk trends. If you can give us a little bit color on how you see cost of risk developing this year, where you see cost of risk this year and how it compares with your normalized cost of risk. As for the T1 capital ratio, we went up from last quarter to this quarter. Now we are at 10.24%, which is the area between 10.1% to 10.0% are our typical areas in the last couple of years, and we feel comfortable there. We do, because of our big mortgage tilt in the balance sheet and the way in Israel, we have to account for risk assets on mortgages, which is much more conservative than in typical European countries. We feel very comfortable staying with this region where we used to be. As for your second question regarding the asset quality. As you can see from provisioning and even from the reduction on the mortgage side, of non-performing loans, we feel quite confident. So far, during the entire 2 years plus of the war, we have not seen any material risk credit deterioration. We were allocating, since the beginning of the war, I think very conservative collective provisioning. You can see from the provisioning now that so far, the asset quality has been in place. Thank you. Thanks a lot. There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd fourth quarter 2025 business results conference call. Thank you for your participation. You may go ahead and disconnect.