Bank Hapoalim Reports 15% ROE in Q2 Amid Strong Credit Growth and CPI Tailwinds
Israel's largest bank posted a 17% quarter-on-quarter profit increase, driven by robust lending expansion and inflation-linked gains, while maintaining disciplined cost controls.
Strong Profitability Despite Tax Headwinds
Bank Hapoalim reported second-quarter net profit of ILS 2.5 billion, up 17.1% quarter-on-quarter, delivering a return on equity of 15% — or approximately 16.4% excluding the impact of Israel's special bank tax (earnings call, 2026-08-11). The results brought first-half ROE to 14%, or roughly 15.4% before tax adjustments, according to CFO Ram Gev.
Earnings per share reached ILS 1.9 for the quarter. The special bank tax is expected to reduce full-year ROE by 1.3% to 1.4% on an annual basis (earnings call, 2026-08-11).
Credit Portfolio Expansion Accelerates
The bank's total credit book reached ILS 536 billion, growing 3.3% in the quarter and 6.6% year-to-date — putting it within reach of the lower end of management's 8% to 9% full-year growth target (earnings call, 2026-08-11). On a trailing 12-month basis, credit expanded 14.3%.
Growth was "diversified across all segments and in various economic sectors," Gev said, including retail credit, mortgages, mid-market lending, and corporate portfolios. A portion of corporate growth consisted of balances from securities lending and derivatives transactions (earnings call, 2026-08-11).
Asset quality remained robust, with the non-performing loan ratio holding steady at 0.5%. The allowance coverage ratio stood at close to 3x NPLs, "providing a significant cushion," management noted (earnings call, 2026-08-11).
CPI Boost Lifts Financing Income
Income from regular financing activity surged 13.7% quarter-on-quarter, driven primarily by a ILS 431 million contribution from CPI-linked assets during the quarter (earnings call, 2026-08-11). Excluding CPI effects, regular financing income grew 3.4%.
The net interest margin expanded substantially to 2.70% from 2.49% in the prior quarter, "affected mostly by the CPI," though partially offset by Bank of Israel rate cuts averaging 11 basis points and lower credit margins (earnings call, 2026-08-11).
Non-regular financing activity contributed ILS 325 million, primarily from equity investments through the bank's investment platform.
Expenses Decline Year-Over-Year
Operating expenses remained flat quarter-on-quarter and declined 4.4% versus the same period last year, bringing the cost-income ratio down to 30.6% for the quarter and 33.3% for the first half (earnings call, 2026-08-11).
Salary expenses fell 7.3% year-over-year, "mainly due to a decrease in performance-based bonuses," while underlying salary expenses stayed stable (earnings call, 2026-08-11). An early retirement program announced in late 2024 is expected to generate annual savings of approximately ILS 300 million.
Capital and Shareholder Returns
The CET1 capital ratio stood at 11.3%, above the bank's 11% internal minimum target (earnings call, 2026-08-11). Total shareholder distributions maintained a 50% payout ratio, with ILS 1.2 billion declared for the second quarter — ILS 950 million in cash dividends (ILS 0.6 per share) and the remainder through share buybacks representing 20% of total distributions.
Deposits grew 2.5% in the quarter and 7.1% over 12 months, though retail deposits declined slightly as customers shifted funds to capital markets products (earnings call, 2026-08-11).
Outlook Reaffirmed
Management reiterated 2026 guidance for net profit of ILS 8.5 billion to ILS 9.5 billion with ROE between 13% and 14%. For 2027, the bank targets ROE of 14% to 15% with net profit of ILS 9.5 billion to ILS 10.5 billion, maintaining the 50% to 60% payout ratio (earnings call, 2026-08-11).
This article was generated by MarginX from the earnings call on 2026-08-11. It is not investment advice.