The Israeli banking sector has enjoyed a number of years of growth and increasing profitability. Israel has five large banks and a number of small specialty banks. The large banks together earned NIS 9.1 billion last year in profits. The banks’ profits have steadily increased over the past five years, from NIS 5.9 in 2012, which represents an increase of 35%. The increase occurred, despite continued genuinely low-interest rates. Israeli banks have improved their efficiency by downsizing their workforces, and in the case of all of the banks — with the exception of Bank Mizrahi-Tefahot — decreasing the number of branches they operate. Over the last two year, the banks in Israel have closed 100 branches and decreased their combined workforce by 6,000 people. The banks have also steadily decreased their reserves for bad debts, as many of their most problematic loans to large lenders have been resolved. The banks have been reducing their loans to large customers and rely more and more on medium and small business loans.
At the end of 2017, the overall loan portfolio of the banks stood at NIS 957 billion. Israeli banks earned a total of NIS 28.4 billion from interest in the 2017 year, which is up 8.2% from 2016. Despite a drop in the total new mortgages issued this past year, the revenue banks earned on mortgages increased, thanks to a higher interest rate the banks have been able to charge.
In 2017, banks distributed NIS 2.8 billion in dividends to their shareholders.
Bank Leumi and Bank Hapoalim have both set up special divisions to manage startups. Bank Leumi started with Leumi-Tech, which today provides banking for all stages of a startup’s operations. It has also set up joint banking with a bank in Silicon Valley, as well as a bank in China, to supply all of the banking needs of new companies. Bank Hapoalim has created a similar operation.
There are a couple of significant challenges faced by Israeli banks. Bank Hapoalim endures continued problems with the US Justice Department, as a result of the charge it helped US customers avoid US taxes. This has resulted in Hapoalim writing-off a total of NIS 557 million this past year, on top of new write-offs, and that number is expected not to be final. In addition, all of the large banks have been required to sell off their interests in their credit card subsidiaries, an act that will decrease their profitability.
The US Justice Department offered Bank Mizrahi-Tefahot a settlement for the same problems faced by Bank Hapoalim. Mizrahi-Tefahot settled for $162 million
The following is a list of the largest Israeli banks, ranked by assets held and their 2018 profits:
Hapoalim: NIS 3.579 billion
Leumi: 3.257 billion
Mizrahi-Tefahot: NIS 1.347 billion
Discount: 1.5 billion
First International: NIS .675 billion