March 6, 2018 / 8:16 AM / 16 days ago

UPDATE 1-Israel's Bank Leumi Q4 profit jumps, to buy back shares

* Q4 net profit 854 mln shekels vs 823.6 mln forecast

* To buy back up to 700 mln shekels of shares in coming year

* Tier 1 capital ratio rises to 11.43 pct (Adds details, analyst comments)

By Steven Scheer

TEL AVIV, March 6 (Reuters) - Bank Leumi, Israel’s second-largest lender, beat forecasts for fourth-quarter net profit and said it would start buying back some of its shares.

Leumi said on Tuesday it earned 854 million shekels ($247 million) in the quarter, up from 443 million a year earlier. It had been forecast to earn 823.6 million shekels, according to a Reuters poll of analysts.

The bank’s bottom line was impacted by the sale of property for 265 million shekels before tax as well as a 33 million shekel expense for its efficiency plan.

Leumi’s net interest income rose to 2.09 billion shekels in the quarter from 1.87 billion, while it had credit loss expenses of 26 million shekels compared with 46 million a year earlier.

It reduced salary and other expenses while decreasing its exposure to higher risk retail customers in favour of small businesses. Margins on its mortgage business, which comprises nearly one-third of total credit issuance, have grown.

“After years of careful capital build we see the bank as well positioned to return to accelerated growth,” said Barclays analyst Tavy Rosner, who has an “overweight” rating on Leumi shares with a price target of 22 shekels.

“We continue to like Leumi’s high quality portfolio which has allowed the bank to post the lowest level of loan loss provisions in the industry.”

Leumi declared a quarterly dividend of 342 million shekels, equal to 40 percent of net profit. Last March, Leumi adopted a dividend policy for the first time in six years.

It said it would buy back up to 700 million shekels of its own shares between April 1, 2018, and March 31, 2019, subject to meeting a Tier 1 equity ratio of no less than 10.9 percent. The amount of shares Leumi intends to buy back is 2.2 percent of its market value.

Leumi is the first of Israel’s banks to receive special permission from the banking regulator to buy back its shares.

The bank’s Tier 1 ratio, which measures equity capital as a proportion of total risk-weighted assets, rose to 11.43 percent at the end of December from 11.15 percent a year earlier.

$1 = 3.4632 shekels Additional reporting by Tova Cohen Editing by Mark Potter

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