Earnings Call: Q4 2024

Feb 27, 2025

Summary

2024 net profit reached ILS 5.5bn and ROE was 18.5%, with mortgage and corporate lending growth. Provisions fell to ILS 0.5bn from ILS 1.5bn in 2023; plans call for further responsible credit growth without assuming NIM expansion.

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Ltd fourth quarter and full year 2024 business 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 Thursday, February 27, 2025. With us on the line today are Mr. Adi Shachaf, CFO, and Mr. Meno Aviv, Chief Accountant. We would like to draw your attention to slide number 1 of the financial statement for the fourth quarter and full year 2024 presentation, which includes general comments regarding legal responsibility, including that the information contained in the presentation constitutes information from the bank's 2024 quarterly reports and/or immediate reports, as well as the periodic, quarterly, and annual reports, and/or immediate reports published by the bank in previous years. Accordingly, the information contained in the presentation is only partial, is not exhaustive, and does not include the full details regarding the bank and its operations, 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 2024 quarterly and annual reports, the aforesaid reports should be pursued 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 risks and uncertainties due to being based on 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 effect of macroeconomic and geopolitical conditions, expectations for changes and developments in the currency and equity markets, forecasts related to other various factors affecting exposure to financial risks, forecasts with respect to changes to borrowers' financial strength, public preferences, changes in legislation and the provisions of regulations, competitors' behavior, the status of the bank's perception, technological developments, and human resource developments. Mr. Shachaf, would you like to begin? Thank you very much. Good afternoon, everybody, and welcome to the Mizrahi Tefahot annual 2024 analyst call. As you all know, 2024 was a very unusual year 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. For the bank, it's much more boring, and you can see from the report the robustness of the results. As you can see, we took what we think is a prudent approach to provisioning, given the prolonged duration of the war. Obviously, 2024 provisions are much lower than those of 2023. To put it in the right context, in 2023, our provisions for the entire year were around NIS 1.5 billion, and in 2024, our annual provisions are around NIS 0.5 billion. As for the other items, I would like to use this call to further highlight a couple of points. We have seen an increase in most of the major balance sheet items. We think that our credit metrics reflect a balanced credit portfolio with adequate risk management. Credit growth in 2024 is impressive to our opinion, not just because of the total number, but also due to the diversified composition. We managed to grow our mortgage book by around 9% and the corporate book by around 14%. Like always, mortgages are of course much bigger in absolute monetary terms, and this 2024 growth should help us to create a nice starting point for 2025. The net profits and the return on equity reflects the strong balance sheet and the good efficiency ratio. Commissions are still affected from both the war and client-oriented relief approach the bank has taken, but are still on a positive trend, and our cost-income ratio for the year and the quarter is well below 40%. I remind you that our cost-income ratio target, as published in the strategic plan, is to be below 50% by the end of the plan. On the expense side, you can see the improvement vis-à-vis 2023, reflecting also the post Union Bank merger synergies. As always, salaries are also affected from variable remuneration related to the bank's results. The results also takes into account the relative extra tax Israeli banks are paying in 2024. Liquidity is very robust, with high share of core deposits, and capital ratios are in tandem with profitability. Credit growth in the last quarter is healthy, both in mortgages and in corporate loans. Demand for mortgages is improving, and we continue to follow our strategy to retain our market share in the market. We think that it is reasonable to assume that today's balance sheet will materialize in the coming quarters. We do expect to see further responsible credit growth following our strategic plan. As can be seen from our results, we have already reached the main targets of our strategic plan before 2025. We will distribute 40% of Q4 profits as dividends according to our dividend policy. All in all, I think we are following our strategic plan and accommodating to the new environment relatively well. I would like to thank you very much for your attention. With that, I leave you in the hands of Mr. Meno Aviv, our chief accountant. Thank you, Mr. Shahar. I will review the main figures in the financial statements for the year 2024. The net profit in 2024 reached ILS 5.5 billion, compared with ILS 4,909 million in 2023. The return on equity in 2024 reached 18.5%. The equity amounted to ILS 31.3 billion. The total revenues in 2024 reached ILS 14.7 billion. The financial revenues from the current operations reached ILS 11.3 billion. The provision loans to the public, the ratio of the provision, reached 0.14%. The operating and other expenses totaled ILS 5.2 billion. The main balance sheet items development are as follows. Total assets grew by 8.3%, loans to the public by 10.1%, and the deposit from the public, 9.7%. The ratio of Tier 1 capital to risk elements reached 10.4%, and the total ratio reached 13.36%. Mr. Shahar. Thanks. I think we can go to Q&A now. 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're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be posed in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Reimer of Barclays. Please go ahead. Hi. Thanks for taking my questions, and congratulations on a good quarter. I was wondering if I could get your comments on the Bank of Israel announcement yesterday, regarding plans to alleviate certain customers who are going through hardships because of the war, and just how might that compare with your existing programs? Thanks. We just saw the news, like you, yesterday. I would guess that all banks will adopt the voluntary scheme proposed by the Bank of Israel. As for the exact details, I think it's a bit too early, and we'll have to learn the exact kind of mechanism. We saw the total number for the whole system. Still, we need to further learn, first internally, and then to discuss with the Bank of Israel to make sure we fully understand the mechanism. As I was saying at the beginning, and you actually mentioned it yourself, we do have a quite extensive our relief plan for clients. It's still a bit too early to compare exactly the two. As for participating in the scheme, I would guess banks will adopt it. But again, each bank is on its own. Got it. Yeah. On expenses, looking at the significant declines you've achieved over the last few quarters, how should we be looking at expenses going forward? Also, in light of the move of the headquarters, will we see any impact? Will we see a return to a more moderate growth range? I think the expense side in 2024 reflects a new base, a lower base, as you actually said, for expenses, when compared to the 2023 expenses. A lot of it is due to the fully completion of the merger with Union Bank. Yes, I think this new base will be the starting point for something relatively steady, with much lower growth on that side than on the income side, expectedly, of course. Nothing can be promised. Understood. Just one more, if I may. Will you be providing a new updated strategy plan, considering your achievements in already finishing this one? The old and current plan is ending in 2025. We are extensively considering to do it, but since we haven't finally decided and approved anything, then we cannot commit to it. But history shows that every five years, we initiate a new strategic plan for the next five years, so it is reasonable to assume the tradition will continue. Got it. Yeah. Okay. That's it for me. Thanks. Thank you. Thank you. The next question is from Valentina Stoykova of Barclays. Please go ahead. Good afternoon. Thank you very much for the presentation. My first question is on the outlook for your net interest income and margins trajectory. How do you see the margins developing this year, and what macro assumptions you bake into the numbers? Also, it will be great if you can share with us how you think about your Tier 2 call option, and do you see the market conditions good enough to refinance the bonds this year? Thanks a lot. Thanks. I couldn't fully understand the second question, so I'll start with answering the first one, and then if you can re-ask the second question regarding something on financing. Couldn't hear you right. Sure. We do not give forward guidance for future NIMs. But when we operate both on strategic plans and on each annual budget, we assume that all assumptions are unchanged, and we have to grow ourselves without expecting extra coming from a widening of NIM. I hope it answers the first question. And if you can please repeat the second one. Yes. It is basically on how you think about your call option on the Tier 2 that are calling this year. And how you see the market conditions currently- Sure with regards to refinance. Sure. Of course, market yields at the time is very important factor in the decision. Unfortunately, we are not allowed to give guidance, both because we don't know yet, but also if we did, we could not share it. I can say that the obvious usual suspects or conditions are considered, and one of the first is, of course, current or expected yield. But it could be too early. Thanks a lot, Sharon. Sorry. There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd. fourth quarter and full year 2024 business results conference call. Thank you for your participation. You may go ahead and disconnect.