Overview
Bank Hapoalim B.M reported a 13% return on equity for the fourth quarter of 2025. Management noted that excluding a NIS 200 million provision taken in relation to a labor dispute, the effective quarterly ROE would be approaching 14%.
Balance sheet and capital metrics
The bank's tangible book value per share rose 13% year-over-year. Shares are currently trading at 1.6 times spot tangible book value, according to the disclosure accompanying the results.
New medium-term financial targets
Bank Hapoalim issued updated financial objectives for 2026-2027. The targets call for annual net income of NIS 9-10 billion and an annual return on equity of 14%-15%. Management also set an annual payout ratio goal of 50%-60% of net income, and projected loan growth of 8%-9% per year.
These targets are an upgrade from the prior guidance for 2025-2026, which had envisaged profit of NIS 8.5-9.5 billion and loan growth of approximately 7% annually.
In addition, the bank reaffirmed its plan to distribute 50% of net profit to shareholders through a combination of dividends and share buybacks. Management indicated expected pre-tax gains of NIS 800-900 million on bank-owned real estate beginning in 2027 associated with its relocation to new headquarters.
Credit and lending trends
Loan growth remained robust in the quarter. Total lending expanded 5% quarter-over-quarter and 13% year-over-year. Corporate lending was a primary driver, rising 8% quarter-over-quarter and 17% year-over-year.
Within business segments, medium business lending rose 8% quarter-over-quarter and 23% year-over-year. Small business and large business lending also expanded, increasing 7% and 19% respectively.
Revenues and margins
Net interest income fell 13% from the prior quarter but was up 1% compared with the same period a year earlier. The quarterly decline reflected a negative contribution from consumer price index (CPI)-linked effects of NIS 194 million in the quarter, compared with a positive CPI-linked contribution of NIS 468 million in the third quarter. Management said tighter credit spreads also weighed on net interest income, a headwind partially offset by loan growth and asset portfolio rollovers.
On a margin basis, the net interest margin excluding CPI effects increased by 10 basis points quarter-over-quarter to 3.55%.
Non-interest income declined 19% quarter-over-quarter but rose 14% year-over-year. Fee and other income fell 28% sequentially while gaining 12% year-over-year. The company reported that the sequential fee reduction included NIS 17 million in customer benefits granted in the quarter attributable to ongoing conflict, compared with NIS 3 million in the prior quarter. Non-interest financing income strengthened, up 23% quarter-over-quarter and 19% year-over-year.
Costs and provisioning
Total operating expenses increased 10% quarter-over-quarter but decreased 20% year-over-year. The quarter-on-quarter increase was mainly driven by higher salary-related costs, which rose 13% sequentially. The bank recorded a NIS 200 million provision connected to a labor dispute; management noted that without this provision, operating costs would have been flat quarter-over-quarter. The fourth quarter cost-to-income ratio was 39%, up from 31% in the third quarter. The year-over-year comparison was affected by a NIS 597 million early retirement charge recognized in the fourth quarter of 2024.
Credit-related items included a net credit charge of NIS 388 million in the fourth quarter, compared with NIS 347 million in the third quarter and NIS 350 million in the fourth quarter of 2024. The bank reported a cost of risk of 32 basis points, reflecting an increase in collective allowances to account for credit growth and ongoing economic uncertainty. The non-performing loan ratio stood at 0.48%, slightly improved from 0.49% in the prior quarter, with coverage at 310%.
Deposits and shareholder returns
Deposits were flat quarter-over-quarter and increased 3% year-over-year. Growth in the "corporations and others" deposit category contributed to the increase, rising 5% quarter-over-quarter and 9% year-over-year. These gains were offset by declines in institutional entities, which fell 7% quarter-over-quarter, and private individuals, who decreased 1% quarter-over-quarter. The non-interest bearing deposit mix stood at 24%, down 1 percentage point both quarter-over-quarter and year-over-year.
The board declared a fourth quarter dividend of NIS 0.75 per share, equivalent to a 50% payout ratio. The distribution comprises 80% dividend and 20% share buyback, representing Stage B of the buyback program announced in the third quarter and totaling NIS 248 million.
What management emphasized
Management highlighted upgraded medium-term profitability and loan growth targets, continued support for shareholder distributions at a 50% payout level, and forecasted real-estate related gains tied to a headquarters move beginning in 2027. At the same time, the results show near-term pressures on net interest income from CPI-linked effects and tighter spreads, offset by continued lending momentum across corporate and business segments.