Bank stocks indifferent to huge dividend payout

Last Thursday, Bank Hapoalim released its third quarter results, and reported a net profit for the quarter of NIS 2.8 billion, half of which it will distribute as a dividend. This concluded the quarterly reporting by the five major banks: Leumi, Hapoalim, Discount, Mizrahi Tefahot, and First International.

The banks have come under unceasing attacks in recent months from members of Knesset, the minister of finance, and others. Their huge profits largely stem from the high interest-rate environment (the Bank of Israel’s key rate is 4.5%, although it may start to decline tomorrow when the central bank announces its interest rate decision). The banks’ aggregate profit for the third quarter was NIS 8.7 billion, 17% more than in the corresponding quarter of 2024.

The Supervisor of Banks Daniel Hahiashvili decided to allow the banks to distribute up to 75% of their profits, but only two decided to do so: Leumi and First International. Nevertheless, the aggregate dividend payout is NIS 5.2 billion, or 60% of aggregate profits. This represents a 75% rise in the dividends paid by the banks within a year. Yet the Tel Aviv Banks5 index fell by just over 2% last week.

The banks’ results are good, but it’s important to pay attention to a change in the trend, according to Moty Citrin, VP and head of Financial Institutions and Structure Finance at Moody’s Israel affiliate Midroog. “On the basis of the financial statements that were published, it would appear that the trend in the banking system continues to be positive, characterized by double digit returns on equity and consistent growth in the credit portfolio, and impressive profitability, which is still impacted by wide financial spreads, along with fairly high revenue from commissions as activity on the capital market expands and the rally continues.”

Nevertheless, he says, “We should be aware of the possible erosion in asset quality and weaker results later on because of erosion of the financial spread as a consequence of moderating inflation and the expected interest rate cut by the Bank of Israel this month. Furthermore, there is the prevailing weakness in the real estate sector and erosion in the payment ethic in the economy as insolvencies become more common.”

From conversation we had with the banks themselves it emerges that the subsidence in the fighting is actually liable to result in economic difficulty. At the moment the situation looks good, they say, but they are readying for more negative scenarios. Bank Hapoalim took the most substantial step by raising its general provision for credit losses.

In this context Citrin says, “A significant reduction in transfer payments by the state to reserve soldiers, evacuated families, and businesses, is liable to intensify the erosion of the financial strength of borrowers. I don’t foresee dramas, but I certainly expect a certain decline in the banks’ returns on equity, even before taking into account the possibility of higher taxation of the banks.”

Published by Globes, Israel business news – en.globes.co.il – on November 23, 2025.

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