Bank Hapoalim B.M. (POLI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Bank Hapoalim Fourth Quarter and Full Year 2021 Results Conference Call. For your convenience, this call will be accompanied by a PowerPoint presentation. May we suggest, if you have not yet done so, that you access the presentation on the bank's website, www.bankhapoalim.com, by clicking on the financial information on the Homepage and then click on the Annual Report Presentation. [Operator Instructions] As a reminder, this conference is being recorded March 8, 2022. With us on the line today are Mr. Dov Kotler, CEO of Bank Hapoalim; Mr. Ram Gev, Chief Financial Officer; Mr. Victor Bahar, Chief Economist; and Ms. Tamar Koblenz, Head of Investor Relations. I would like to remind everyone that forward-looking statements for the respective company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development and the effect of the company's accounting policies as well as certain other risk factors, which are detailed from time-to-time in the company's filings with the various securities authorities. Mr. Kotler, would you like to begin?

Thank you, everyone, on the call for joining us today. I am pleased to open up the call today and to summarize 2021 with excellent results for Bank Hapoalim. Annual profit of NIS 4.9 billion, return on equity of 11.8% and most notably an outstanding 16.8% growth in our credit growth. Reflecting what is probably the highest growth rate in the Israeli banking system. Yes, today, you will hear the word growth many times. I'm proud of this growth for the highly capable team of people that are behind me. This was a remarkable year for Bank Hapoalim, and I would like to take a few minutes of your time and tell you why. I joined the bank in October 2019, and it was clear to me that my first priority is to reorient the bank towards growth. 2021 results are reflecting a dozen of initiatives aimed at growing the income, controlling expenses and improving operational excellence. We significantly shortened the process of granting credit in our commercial and corporate division, we strengthened our capabilities in mortgages, centralized our advisory network, and most recently moved our critical back office operation away from the branches and into a newly formed dedicated banking service division. All while directing considerable investments towards securing our future technological advantage. The added capabilities enabled us to focus the organization on growth, yes, growth, and gave us increased capacity to absorb the high demand for credit of the Israeli economy in 2021. Alongside the robust growth in our traditional banking business in Israel, we dedicated attention to developing additional revenue streams. The most notable of these is Poalim Equity, which accounted for NIS 268 million in profit this year. We fixed portfolio of reaching NIS 3.5 billion and prospected to grow further. Foreign equity is expected to continue its positive contribution going forward. Another area of strong development over the past 18 months has been Poalim High Tech. During 2020, we relocated this important line of business from its historic place in the retail division and into our corporate division. Since then, we are seeing promising expansion both in the scope of our financing type companies and in our services for the strong Israeli high tech community. The strong growth was experienced together with over NIS 1.35 billion (sic) [ NIS 1.5 billion ] of dividend we distributed in 2021, brought us to the desired range of capital ratios. Looking ahead, with the Israeli market continuing to generate healthy and robust prospects for credit demand, our view is that our organic capital generation should be allocated first and foremost towards credit granting to maximize return on equity for our shareholders and to provide us added flexibility as market conditions continue to be dynamic. This is the main reason why we did not announce dividend payment in view of the fourth quarter profits. On bit, our leading payment and credit app, we expanded the volume and channels of activity. Over 2.7 million Israeli choose bit every day as their preferred needs for P2P. And this year, we made it even easier and more attractive for users, with over 10,000 businesses offering bit as a payment solution to customers. And as you can imagine, bit will continue to evolve also in 2022. Of course, the many initiatives we introduced into the organization this year and with many more in the pipeline would not be possible without significant adoption of our organizational culture to our business operation. Yes, culture is the main issue. Our vision, committed to growth through innovative fair banking for our customers was fortified this year. In closing, almost, I cannot avoid mentioning the darkening skies in Europe and the potential application for the bank. At this time, our examination and analysis indicate a limited impact on the bank. And we have taken measure to further reduce the possibility for future potential impact should the confident continues to intensify. I would like to conclude on a personal note before I hand over to Ram. A year ago on this same conference call, in English, I said that my goal was to increase the bank's market share and move away from stagnation into growth. Yes, growth. I am very proud in just how well we were able to realize this goal. I'm also aware that our work is far from being done. We look at the year ahead and aim to continue our momentum, making any necessary adjustments to competitive market condition. We will do so while keeping a close eye -- open eye on our operational efficiencies and further service improvement, and we will not compromise in ensuring Bank Hapoalim remain well ahead on the curve on its products and digital offering. With this, that said, let me hand over to Ram. Thank you very much.

Thank you, Dov, and good afternoon. I'm happy to take you through our quarterly and annual results and also discuss strategy and our progress in its implementation. So let's start on Slide 8. As you all know, 2021 was clearly a year of rebound in the Israel economy. GDP grew at an impressive rate of 8.1% after a modest contraction of 2.2% in the year before. So the level of GDP is actually back to the trend growth of pre-COVID. This was due to several factors, and I will mention a few of those. The government strategy of an open economy, the accommodative monetary policy and obviously, the recovery in private consumptions. So in our view, Israel's economy once again proved its endurance. As in other countries around the world, inflation in Israel has begun to rise, but it's still lower comparing to the U.S. and Europe. One explanation for this is that Israel does not rely on imported natural gas. This day, this is an advantage. In addition, the strength of the shekel also mitigated the effect of global price pressures on local prices. However, 12 month inflation in the beginning of 2022 reached a level of 3.1%, which is above the Bank of Israel's target range. Though inflation is still not far from the target, recently, the Bank of Israel changed its monetary policy for guidance, and we now expect a first rate hike in the coming months. We believe that normalization of rates is going to be very gradual as the inflation is not so high. However, the markets are more hawkish, as we all know, and are now implying some 5 rate hikes in the next 12 months. The rebound of the economy in 2021 boosted the bank's credit portfolio and positively affected its balance sheet and P&L. In the next slide, you can see some of the main sources of the high demand for credit, like the shortage in apartments, elevated house prices and the increased activity in the commerce and industry sectors. Moving to Slide 10. 2021 the Bank Hapoalim was marked by a powerful business drive and strong results, leading to our ROE of 11.8% for the full year and 9.1% for the fourth quarter. The main drivers of our profitability were a positive job of a 9.2% increase in total income in 2021 versus a 4% increase in total expenses, reflecting our disciplined cost control. In addition, the good quality of our book allowed us to record an income from credit losses. Total income was boosted by our significant credit growth, which outpaced the market. We identified the high demand early in the year, quickly adapted to meet it and successfully grew our book by 16.8% this year. This growth was achieved while asset quality improved and problematic debt are down by 20%. We reversed most of the COVID-19 reserves in maintaining at an adequate level on the back of the improved economic environment. Talking about capital, our high buffers during 2021 were allocated first and foremost to credit growth, the main generator of our profitability and then to dividends to our shareholders. We have reached a level of 10.96% in CET1 capital ratio, reflecting a certain buffer over our internal target of 10.5% and over minimum regulatory requirement of 10.21%. We also strengthened our Tier 2 capital to the successful $1 billion green CoCo issuance that was finalized last October. I want now to elaborate on each of our profitability metrics. In Slide 11, we see the development in our net profit over the last 2 years, clearly affected mainly by credit loss provisions, but also by the positive jobs, as I have just mentioned. This led to 16.1% growth in profit before provisions and taxes. In Slide 12, we present the main lever of our increased profitability, which is credit growth. We grew our book by 16.8% this year, of which 5.2% in the fourth quarter. This growth came after a long period of moderate growth of 4.3% on average in the last several years. In late 2020, we realized that demand for credit, especially in the mortgage and corporate segment was about to solve. It was clear to us that there was an opportunity here for a leap forward to meet the increased demand, rebuild relationships and bringing new customers in line with our growth strategy. As Dov mentioned earlier, we have taken substantial steps to meet this demand, including the expansion of our capacity and quick adoption of new and efficient processes. The impact of this growth on profitability further emphasized its important. As can be seen in Slide 13. In this slide, we take a closer look at the commercial and corporate book. Commercial credit grew by almost 25%, and the corporate book grew by 23.3% in the last 12 months. As demonstrated in the bottom graph, in both segments, we can see the positive impact of this growth on the income by quarters. Let's move to the next slide. Here, we see a similar picture in the retail segment, where small businesses and consumer credits actually contracted in the last several years due to among other matters with consideration. Gladly, this year, we reversed the trend and moved from erosion to growth, bringing small business credit to 8.1% growth year-on-year and consumer credit to 5.1% growth in the last year. In the housing loans segment, we materially enhanced growth from a CAGR of 10% in recent years to over 16% in the last 12 months. And as you can see, the consequent growth in income was quick to follow, as presented in the bottom graph. In Slide 15, we present another expression of Bank Hapoalim's large customer base with a large deposit base, an advantage in view of the expectation for an interest rate rise. LCR and the new reported ratio, the net stable funding ratio, NSFR, are well above target at 124% and 141%, respectively. Let's have a look at Slide 16. Income from regular financing activity increased by 6.2% year-on-year. The increase mainly resulted from loan growth and the increase in the CPI. Margins in 2021 were materially impacted by the technical effects of the growth in deposits, and to a lesser extent, by the decline in interest rates. If we are looking on a quarterly basis, net financing profit and margins were slightly lower than in the previous quarter due to the lower CPI. On the bottom of this slide, we also present income from regular financing activity excluding the CPI, where we show impressive growth of 9.1% year-on-year. Another achievement that we are proud of is our fee growth as presented in Slide 17. Almost all types of fees benefited from the rebound in economy and the increase in the volume of business of the bank, bringing an increase of 6.3% versus 2020. The trend in fees strengthened during the year as reflected in the fourth quarter growth rate of 7.2% versus the previous quarter. Let's move to discuss expenses in Slide 18. Total expenses were 4% higher in 2021 due to an increase in salary costs, reflecting the performance-based bonus coupled with a special bonus for employees to mark the centennial of the bank. Excluding these costs, our underlying expenses reflect the ongoing efforts to restrain costs. This is an important achievement taking into account the double-digit rate of expansion in our activity. The next slide gives us another perspective on growth and productivity. We see a sharp increase in productivity this year as reflected in income per employee as well as credit per employee. These ratios were driven by the positive business trajectory, along with efficiency measures taken. These measures include the reduction in workforce, mainly resulting from the current early retirement plan, which is well on track. Another measure taken is the continued downsizing in the number of branches and overall building space as we have been aligning the operating model of the retail division to the current era in banking. And moving to the next slide to briefly discuss asset quality. 2021 was marked by a reverse of the COVID reserve during 2020. But even after we reversed most of it, the allowance remained high, both in absolute terms and as a percentage of the credit RWA. In addition, the allowance is more than double the NPLs and to complete the picture, NPLs as a percentage of the credit book are down to pre-COVID levels. The fourth quarter's figures reflect an increase in the collective provision, which resulted from the growth in our book, mainly in the real estate sector. Let's move ahead to Slide 21 and focus on the waterfall graph at the bottom of the slide. Our capital surplus coupled with the organic capital generated allowed us to achieve a leap forward in growth in short time, as we can see in the growth of RWA. While also distributing a NIS 1.5 billion dividend to our shareholders during 2021. The high demand for credit is also evident in early 2022. In order to utilize the capital to meet the continuing high demand for credit in line with our strategy, the Board decided not to declare an additional dividend in respect of 2021. The Board's cautious decision was also supported by the possible effect of the uncertainty and volatility in the market. This sums up the financial part of my presentation. I will now elaborate on our strategy and the outcome of its execution. In Slide 22, we present the 3 pillars that formed the foundation of our strategy. The first pillar, growth in core banking, covers all banking activities in all segments of operations. The second pillar is new ways to bank. Our digital assets and the bit app, our platforms to achieve this goal. The third pillar is building a growth supporting organizational infrastructure. Let's move to Slide 23. Our growth in credit was an outcome of several business initiatives we have taken. Let me share with you several of them. In the Corporate Banking division, we adapted our processes to the demand in the market, including shortening the time for loan approval and introducing new technological solutions and products. In mortgages, the main change was aimed at increasing capacity through upgraded IT systems, expansion in the number of advisers and establishment of call centers. We also introduced a new digital application. In consumer credit, we added advanced features in our communications channels, launched a new customer club and collaborated with third-parties to offer unique products. Moving to Slide 24, Poalim Equity, our investments arm is a developing revenue stream, and in 2021, its contribution to the bank's profitability was notable. You can see its impressive growth in portfolio and profits as well as some of its main interesting investments. The next slide presents some interesting data on bit. I will not go over all of it, but I recommend you to review it, to get a better understanding of bit's current offering, its future strategic directions and the payment industry. Before we conclude and open the call for the Q&A session, let me summarize the key takeaways from the quarter as shown in Slide 26. This was a good year for the bank in terms of profitability. We created growth momentum in our loan book and solidified our position in all segments. This growth brought us to a substantially higher level of income. We continue to believe that credit growth is the main value creator going forward. Our asset quality improved, showing pre-pandemic indicator levels. Moreover, capital was utilized to support both enhanced credit growth and the NIS 1.5 billion dividend distributed. We reached an efficient capital position, which, going forward, will support selective growth and improved profitability. And lastly, on bit, our aim is to expand the areas of activity of bit, in order to create a holistic payment service for customers of all banks. So to summarize, we are satisfied with the bank's performance this year, especially with the dedicated drive for business of our employees and managers. The growth we saw was not only essential to our profitability, but also for our organizational culture. With that said, let's open the call for your questions. Back to you, operator.

[Operator Instructions] The first question is from Tavy Rosner of Barclays.

This is Chris Reimer on for Tavy. I just wanted to follow-up on the dividend and with the -- combined with the strong loan growth. One, where are you particularly seeing the strongest demand in the credit? And 2, when do you feel you might reach the level of flexibility you're looking for in order to go back to paying a dividend?

I will start by answering new high. I'm sure [ it have been on ] the phone, but it surprised me. Welcome to the conversation gladly. I will address the first question and Ram will address the second question. I would say the majority of the growth during 2021 is from real estate and mortgages, which are highlighted. You can see it in the numbers, there is a demand by construction. On the other hand, there is a demand from the mortgage. Just to add, it's continuing during 2022 too. Ram, would you fair to address the second question?

Yes. Thank you, Chris, for the question. About dividend, it's important to mention that when we looked at 2020 a bit, of 2020, we saw a moderate growth in the bank portfolio growth, and we launch strategy. One pillar and the main pillar in that, like I mentioned in the beginning of the call was growth in core banking. And in 2021, we saw a good opportunity to meet the high demand in the market and execute our strategy. And actually, we outpaced the market in credit growth, like Dov mentioned and distributed also NIS 1.5 billion. And while entering in 2022, we see that demand for credit continues to be very strong. And these opportunities may not recur in the coming years. So we are very cautious in allocating the capital to growth, and we think that allocating it to growth will bring higher return to shareholders. And like I said, we see a high -- still high demand for credit at the beginning of 2022. So looking forward, you asked about the future, going forward, we will be able to resume dividends, obviously, subject to the pace of our growth. The demand is still high, we grew by more than 60% in 2021. We see a lower moderate growth in 2022, but still higher than, let's say, the long-term rate of GDP growth in Israel. So going forward, resuming of dividends will be subject to the pace of our growth, obviously, macroeconomic conditions and market developments among others.

And then just touching on provisions in your comments. You mentioned strong demand and the impact on the provisions, especially from real estate. Could we potentially be seeing higher provisions in the future? Or how we should be looking back going forward?

Okay. Thank you, Chris, I'll take that question. If you -- we are looking at 2021 at the first half of 2021, there is effect of the reverse of the reserve that we made for COVID effect. Obviously, when we look at write-offs and defaults that are low also comparing to pre-COVID numbers, you can see that our problematic debt is down by 20%. You can see that our NPL ratios are low, our coverage ratio is high. So overall, we still see low numbers of write-offs and defaults. Looking at the fourth quarter numbers, the main effect on the credit loss expenses line is the collective allowance we made, reflecting the growth in the fourth quarter and also an additional, let's say, additional buffer, additional collective allowance we made connected to real estate growth. This is part of our cautious approach towards the growth we saw in the recent months.

The next question is from [ Misa Rosner of Suburb ].

[indiscernible] First of all, I seem to be -- congratulations on a very strong year. A couple of questions. You've been growing credit very strongly and your NPLs did go down over the year. But I know that in the last couple of quarters, NPLs actually went up. So I'm just wondering is this growth, this accelerated growth. Is that something that increases the risk in the view, that over the near-term or longer-term your overall cost of risk is going to go up?

I'm not able to answer the question, because I'm not sure the details about NPL are in front of me. Basically, we did not took additional exposure and with certain parameters in order to [ enable ] growth of our portfolio, I don't have numbers in front of you, I'm not -- otherwise, we will complete it later on if we don't have -- if I don't have the numbers in front of us.

Yes, I can add to that. The market debt this year was down. NPL ratio was 0.81% for the year, and it's a little bit lower than September numbers and even second quarter numbers, that was 0.85%. As I recall, as for last year 2020, it was higher than 1%. So it's lower than before the NPL ratio. And like, sorry?

I agree that the ratio is lower, just looking at the actual NPLs which grew up by like 5% over the half year. And maybe -- and I'm just wondering [ if your ] deterioration, or is it that indicative?

No. As I said, in general, I don't see the change. And then back to previous question, again, we don't see the change in the market despite that we were awarded before, but the market is still strong. So the NPL, this is a small fluctuation.

Another question. I mean, could you...

Thank you very much for the complement at the beginning, stating that it was strong. Thank you very much, [ Misa ].

I think a very strong year, the market seems to have a different opinion right now. Just on the exposure to Ukraine and Russia and the entire complex in Europe. Could you slightly elaborate on what the exposures are directly, indirectly and how you think you its expectation, obviously? How this could impact the bank?

The bank is analyzing from several aspects. And of course, we'll go over the parameter.

Yes. Thank you, [ Misa ]. This is a very interesting question globally. The answer is very simple from Bank Hapoalim. The bank has no direct significant exposure to Russia or Ukraine. Indirect exposure to our customers, it is still being examined, but our initial review points to immaterial exposure, indirect exposure, we can add that the direct exposure of the Israel economy as a whole to Russia and Ukraine is low. Victor can elaborate on that. But for example, exports to Russia and Ukraine constitute only about, I think, correct me if I'm wrong, Victor, a little bit more, but than 1.5% of Israel's total exports of goods and import about less than 1% of total imports of goods. And we believe that Israel is better positioned than most advanced economies with regard to the prices. So in short, the bank has no direct significant exposure. And indirect exposure, though still being examined for initial review points to immaterial exposure.

And my last question has to do with cost efficiency and additional efforts in the future. I mean it seems to me that you guys still have a lot more to do. And I'm just wondering if you could elaborate about what potential cost cutting could come forward in the next couple of years?

Look, our efficiency this year has improved from [ 66 to 64 ], and I'm sure we see that we have to improve going forward. At this stage, during 2021, we gave the expenses unchanged, thereby improving the P&L, the bottom line. And certainly, there same pace to be taken forward, but it's not that we have declared something specifically.

I understand.

And [ Misa ], I can add -- if I can add on what Dov...

You know better than me, move on, come on.

Thank you. If I can add on that, cost/income was affected, as you all know by income and the cost we are restraining costs to remain flat and investing a lot as part of our strategy in growth in the income line. So overall, you see progress in that. We are investing a lot in improving productivity. We grew by more than 60% in credit, but some activity grew in 20% and 30% in 1 year. So overall, productivity was improved, and this is very impressive while keeping cost line flattish. You can see we added a graph and a slide on that -- in Slide 19, reflecting the productivity ratio, for example and compare employee net grades per employee and also the reduction in headcount and branches. So combining the efficiency plans and efficiency measures with the growth in level of activity, not only credit reflects higher productivity that we are sure will help us keeping improving -- keep improving our CI ratio. And like I mentioned, the positive jobs that we see will have an effect this year and will have an effect on next year.

Maybe one last question. You mentioned the dividend and your risk weighted asset and credit growth are connected, obviously. And I'm just wondering, are there any efforts or any capacity for capital utilization to come through to reduce your risk weighted assets irrelevance of what's going on at your P&L? Is there anything that you can do in order to reduce risk weighted asset, it seems to me that some of your density is slightly higher than some of your peers.

Basically you are correct. And we certainly started and continue, I believe this is something that is raised, because we had a huge excess of capital, we were not trained properly, and this is something that will act better, it will include as we did moved in the fourth quarter already, but we just started. It will include the insurance, it will include syndication. I believe that the big banks in the states like JPMorgan, and I'm not comparing us at all [ before the state ]. Part of the advantage is such process that we are having as systematically to both indication in insurance constantly, and this is something massive that should be more active in Bank Hapoalim going forward, and we have started it in the fourth quarter.

The next question is from Michael Klahr of Excellence.

Can you hear me, okay?

Yes.

Yes, clearly, Michael.

Firstly, I wanted to ask about the -- your lending in the real estate and construction sectors. And I wanted to ask about the regulatory limitations there to continued growth. And what do those limitations mean for your -- for growth rates in 2020? That's my first question.

Michael, [ nothing to ] delivered in the previous [ contoured headwind ] there changed the road by increasing an additional 2% for infrastructure, and it's up to 24%. But excluding infrastructure [ '22 ], we are below this limit. And of course, we positively take care of being always little bit below that. It's a constraining energy...

Michael, like we disclosed in the report, obviously, to manage this limit taking into account the still high demand, we are using like all the market, different instruments or vehicles like syndications like insurance, et cetera.

So given that you were growing at a faster rate than the market in 2021, does that mean -- but limitations on you in 2022? Or because of your use of these disintermediation and perhaps syndication in insurance, you can continue to grow at a faster rate than the market.

Michael, I want to be clear. We have plans to grow during '22, but at a modest rate compared to 2021, such a pace of 16.8% is not sustainable on a long-term basis. So the plan is to continue the growth of the bank in all aspects, but at a lower pace than it was last year.

And a related question, obviously, you've -- you're not paying out a dividend in the quarter, and you said you're using the money to fund growth or you're using the capital to fund growth. So if we look through 2022, as you see it currently, should we expect strong growth in the first quarter, perhaps the second quarter and a slower rate of growth in the second part of the year?

Michael, let me be polite, what that is good as mine. I know the banks plans. But I'm trying to be so accurate in specific quarter, of course, I was joking, but I cannot evaluate if it will be faster or slower. Again, I want to answer to the previous answer. We do plan to continue growing, but at a slower pace than last year, how does it spread between the quarters? I'm not sure I can be accurate with the answer.

Okay. So like coming back on to your dividend policy. Firstly, could you clarify again what the -- I understand the policy is 40% or up to 40% payout. Could you clarify a bit what that means in practice? Obviously, the stock sold off today quite aggressively. I think partly because of the lack of the dividend, I wanted to understand how you interpret that and also how you think about -- or how we should think about dividends through 2022?

Like you mentioned, our dividend policy is distributing up to 40%. When I talked or answered Chris' questions, I mentioned that looking forward, we want to maintain flexibility in addressing trade demand and serve growth. So overall, to say when will be resumed dividend payments, it depends on the growth, it depends on the market developments, but we say very clearly that our strategy is to improve the core banking capabilities and growth in core banking. So like we did in 2021, we grew in core banking, and it's reflected in our balance sheet and also reflected in the top line and bottom line. So going forward, we think that allocating capital to growth should bring higher returns to shareholders. Of course, obviously, we want in the future to balance between this and dividend there. Like Dov said, we assumed the growth in 2022 will be at a slower pace than 2021. How it will spread over the quarters, obviously, we can't project accurately, but that obviously affects what flexibility we will keep to growth compared to dividend distribution.

Okay. So would I be right in saying if the growth -- the dividend payout in 2021 was 30% of earnings. Did you grow...

It’s [ NIS 1.5 billion ] in total out of NIS 4.9 billion. So it's a little bit less.

Okay. So if growth is a bit slower then perhaps there's potential for the dividend payout to be a bit higher -- to be higher. Is that correct?

This is mathematically correct, but let's not see if you know what Ram just explained.

And take into account that starting -- the end of 2022, we have buffers that could serve the growth and the dividend as well. But the balance like...

I'm not [ targeting ] mathematics.

And then lastly, as Victor is on the line, I just wanted to understand from him on, what is in current inflation and interest rate expectations are? And whether he sees perhaps any aside from Ukraine and Russia, and obviously, global trade, what are the issues or risk he sees to his growth forecast as well?

Michael, let me give a business advice, next time ask Victor first, because he is the most important strategic economist in Bank Hapoalim and in the investments, you better stick with him first before [ asking ].

Next time.

Hello, Michael, thanks for your question. Well, that depends on the scenario, of course, what you assume is going to be in the conflict in Ukraine. Let's say the prices of commodity and oil and commodity prices are stabilized at the current level. I believe that inflation in the next 12 months is going to be close to even 4%. But that -- I wouldn't say that's a reasonable scenario. So in a different scenario in which, for example, the prices are going to cool down and then go back, for example, for $100 for Brent barrel. Probably inflation is going to be a bit above 3%. Now you can get as good as see what is going to be the oil prices in the next 12 months. As regards to the monetary policy, I think that Ram mentioned that the markets right now are quite hawkish and they expect some 5 rate hikes in the next 12 months. Personally, I believe that the Bank of Israel is going to be more gradual as inflation is not so high as in the U.S. or in Europe, but some rate hikes are on the horizon and probably some 2 or 3 rate hikes for this year. Inflation and rate hikes as you know are very positive for the bank at least at the short term.

Thanks, Victor. In terms of the risks, the main risks you see, obviously, is it...

In terms of the risk right now, if you look, for example, at the [ yield curve ] in the U.S., they probably -- they implied a high risk of a global crisis and even recession. Personally, I believe that Israel is in a better position than Europe and even the U.S. since we don't rely on foreign natural gas and private saving rate is high, public deficit, today, they published the 12 months -- in the last 12 months, the deficit was only 2.2% of GDP. So the government has a lot of tools to fight kind of a slowdown. So I think that Israeli position is right now quite good compared to other economies.

Thank you. [Operator Instructions] There are no further questions at this time. This concludes the Bank Hapoalim Fourth Quarter and Full Year 2021 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.