Bank Leumi Posts Record Quarterly Profit, Achieves 'Best Efficiency Ratio Globally'
Israel's second-largest bank reported net income of ILS 2.8 billion in Q2, driven by aggressive AI adoption and cost discipline that CEO says produced a 24.7% efficiency ratio unmatched in global banking.
Record Profitability Amid AI Push
Bank Leumi le-Israel B.M. reported net income of "above ILS 2.8 billion" in the second quarter, which CEO Hanan Friedman described as "the highest quarterly net income ever recorded by an Israeli bank" (earnings call, 2026-08-12). The bank's return on equity reached 16.3% for the quarter, among the highest in Israel's banking sector.
The standout metric was the bank's efficiency ratio of 24.7%, which Friedman called "the best efficiency ratio ever recorded in the Israeli banking system and one of the best globally, if not the best globally" (earnings call, 2026-08-12). The figure reflects operating expenses as a percentage of revenue, with lower numbers indicating greater efficiency.
Friedman attributed the record efficiency to "the consistent execution of our technology strategy and early adoption of AI tools," noting that the bank was recently ranked by research firm Evident as "the leading bank in Israel for AI adoption and one of the leaders globally" (earnings call, 2026-08-12).
Tax Impact and Shareholder Returns
The quarterly results were affected by a special Israeli tax imposed on all banks. Excluding this levy, Leumi's ROE would have reached 17.9%, Friedman said. The tax is expected to have its main impact in 2026, with a negligible effect next year of approximately ILS 40 million for Leumi's portion (earnings call, 2026-08-12).
The bank announced a dividend distribution and buyback totaling ILS 1.4 billion, representing 50% of quarterly net income and a dividend yield of 5.5%. This payout reflects what management characterized as "the right balance between consistent shareholder return and capturing the growth opportunities" (earnings call, 2026-08-12).
Leumi reported excess capital of approximately ILS 8.5 billion above regulatory requirements, with core Tier 1 capital ratio at 11.65%, well above the 10.23% regulatory minimum.
Loan Growth Exceeds Annual Target
The bank's credit portfolio grew 3.4% in the quarter, adding ILS 19 billion in loans. For the first half of 2026, credit grew 9%, already surpassing Leumi's full-year target of 8% to 10% set in January (earnings call, 2026-08-12).
Growth was particularly strong in corporate lending, which increased 14% in the first half, with strategic focus on infrastructure, real estate, and mortgages. Friedman highlighted a consortium led by Leumi that "reached a financial close of nearly ILS 10 billion of financing for the Light rent project in the north of Israel" (earnings call, 2026-08-12).
CFO Hagit Argov noted that net interest income reached ILS 4.6 billion in the quarter, with net interest margin at 1.9% excluding CPI effects, down slightly from 1.95% in Q1 due to lower interest rates and spread compression.
Credit Quality Metrics
Credit quality remained strong, with the non-performing loan ratio at just 0.45% of gross loans. The bank recorded income from specific provisions for credit losses for the tenth consecutive quarter, "reflecting the high quality of our credit portfolio conservative risk management and advanced underwriting capabilities," Friedman said (earnings call, 2026-08-12).
Total deposits grew 4.7% in the first half, with the liquidity coverage ratio at 122%, exceeding the 100% regulatory requirement.
This article was generated by MarginX from the earnings call on 2026-08-12. It is not investment advice.