Bank Leumi le-Israel B.M. (LUMI) Earnings Call Transcript & Summary

Welcome, and thank you for joining Bank Leumi's 2021 Annual Results Meeting. With us today are Mr. Hanan Friedman, CEO; and Mr. Omer Ziv, CFO; also joining is Dr. Gil Bufman, Chief Economist. We have prepared a brief presentation, overviewing the bank's position in this year's results, and we'll then open up the line for questions. Hanan, please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining our annual call this time by Zoom. I'm very happy to be able to discuss our 2021 results and our strategy moving forward. Earlier today, we announced the 2021 results, which are the best ever for Leumi and this symbolically a week after we celebrated the 120th anniversary of Leumi. We achieved a net profit of ILS 6 billion and ROE of 15% and cost-to-income ratio of 46.8%. As we speak, Leumi is the bank with highest market cap in TASE. Before discussing the results that our CFO, Omer Ziv, will present, we would like to share with you a short clip we produced for the 120th anniversary celebrations. Please. [Presentation]

I would like to thank you again for joining us today. It's a pleasure for me to present Leumi results for 2021. I would like to start with a short review of the main macroeconomic parameters in Israel. It's important since more than 90% of Leumi activity is in Israel. The GDP pace of growth in 2021 was 8.1%, higher than most of the other countries. The expectation for the GDP pace of growth in 2022 are to a level between 5% to 6%, again, relatively higher compared to the other countries. The unemployment rate continue to improve consistently and reached to a level of 6.5% at the end of 2021. The expectations are that by the end of 2022, the unemployment rate will reach a level of 4.8%, very close to the level that it was pre-COVID. The CPI in Israel in 2021 was also relatively low compared to other countries, only 2.4%. The expectation for 2022 are for CPI in the level of 2.5% to 3.5%. As for the Bank of Israel interest rate, currently, it's at a level of 10 basis points. The expectation in the market are that we will see a first hike in the first half of the year for a level of about 25 basis points. And in the second half of the year, there will be additional hikes for a level between 50 basis points to 75 basis points. All of this parameter present the strength of the Israel economy, and the stronger the Israel economy, the better Leumi results, since over 90% of the Leumi activity are in Israel. Now I would like to go into the Leumi results for 2021. The results speak for themselves. We reached a net income of ILS 6 billion for the total year and ILS 1.5 billion for the fourth quarter. The ROE was 15% in the total year and 14.8% in the fourth quarter. It's worthwhile to mention that in Leumi, the ROE is equal to the ROTE since our intangible assets are negligible. The main driver for this excellent result is the consistent improvement in our cost-to-income ratio. Our cost-to-income ratio for the total year was 46.8%, the best ratio in the banking industry in Israel. In the fourth quarter, we reached a cost-to-income ratio of 47.9%. This result was, of course, a -- the results were positively affected by the release in the credit provision. The income that we wrote in this line in 2021 was 25 basis points in the fourth quarter, 10 basis points. I will elaborate on it later on in the presentation. The next slide presents a broad picture of our profitability in the last 4 years. Pre-COVID our ROE was around 9%. In this year, our ROE rose to 15%. The main driver for that was, as I mentioned, the release in the credit provision and the significant improvement in our cost-to-income ratio. This significant improvement was led mainly by the substantial increase in our income. And in spite of this significant increase, we were able to maintain our expenses more or less at the same level. The reason for that was the continuing streamlining in our activity. We were able, again, as in previous years, to reduce our workforce by hundreds of employees. In the last few years, we were able to decrease our employees numbers by more than 24%. So again, in this year, we were able to increase significantly our income while maintaining our expenses more or less at the same level. Now I would like to go deeper into the analysis of 2021 results. Our net interest income increased by 18.6%. This increase was driven by the significant increase in our credit portfolio and by the increase in the CPI. The CPI level for 2021 was 2.4% was 2.4%, while last year, it minus 0.6%. The NIM reached a level of 1.95%, slightly higher than last year. This ratio was affected positively by the increase in the CPI. The noninterest finance income increased by ILS 700 million. This increase is mainly due to our fully-owned subsidiary, Leumi Partners, which manage our nontraded investment. The results of Leumi Partners this year were excellent. In line with that, our fees and commissions increased year-over-year by 7%. This increase was led by the increase in activity. As for operating and other expenses, this year, there was a slight increase of 5.4%. This increase was mainly due to the provision for bonuses due to the high ROE. Regarding the other expenses, they were lower than last year due to the different streamlining process that we manage across the board. All of this, together with the release in our credit provision, led to an ROE of 15%. Now I would like to elaborate a bit about our credit provision. Our coverage ratio reached a level of 1.3%. The coverage ratio is the credit provision divided by the total debt. The level of 1.3% is still well above our level pre-COVID, which was 1.16%. Our loan loss expenses reached -- in 2021, we recorded an income of ILS 800 million from our loan loss expenses. 60% of that was due -- were due to the decrease in our specific provision, mainly due to collections. ILS 300 million were due to release in our collective provision after the significant increase last year with the outbreak of COVID. On the right, we can see the significant improvement in our troubled debts. We can see that the troubled debts reached a low level of ILS 4.8 billion almost the same level as they were pre-COVID. As a matter of fact, the NPL reached a level of only 75 basis points, the same level as it was pre-COVID. All of these parameters trends to strengthen and solid and quality of our credit portfolio. I would like to point out that from January 2022, we will adapt a new method to measure our credit provision. The CECL method. The main difference between the CECL method and the current method is that in CECL method, we take into account events that might happen along the duration of the debts. According to the CECL method, we will increase our credit provision by ILS 600 million. The effect of that on our equity is only ILS 400 million, and the effect of that on our regulatory equity is negligible since this increase will be recorded into our regulatory capital over a 4-year period. Now we would like to go into the analysis of the fourth quarter of this year compared to the fourth quarter last year. Again, we see significant increase in our net interest income of 15%. This increase was led by the significant increase in our credit portfolio. The CPI level was similar to the CPI level in the fourth quarter last year. The noninterest finance income are lower than last year. In last year, in the second half of the year, we saw a rebound in the capital market after the outbreak of COVID. As for the loan loss expenses, we recorded an income of ILS 80 million in the fourth quarter. The was due to the specific provision, mainly due to collections. Regarding operating and other expenses, we see a slight increase of 2.8% again, due to the increase in provision for bonuses due to the high ROE. As for the other expenses, they are slightly less than the other expenses last year. As a result of the significant increase in income and the fact that our expenses are more or less at the same level, we've been able to reduce or to improve our cost-to-income ratio from a level of 51% to a level of slightly less than 48% in the fourth quarter. All of that reached a level of ROE of 15.8% in the fourth quarter, very similar to the level of ROE in the total year. Regarding commission, we increased our commission by almost 7% year-over-year. And when I compare the commissions in the fourth quarter to the fourth quarter of last year, the increase is 14%. The increase was mainly due to securities commissions, credit card commissions and finance commissions, mainly due to the increase in our activity. Our credit portfolio increased substantially. In 2021, we were able to increase it by 16.1%. As in previous years, this increase was focused mainly in middle market, mortgages and corporate, mainly real estate. The increase in our middle market portfolio in our mortgage portfolio was around 15% year-over-year. And in corporate, it was almost 20%. I would like also to mention that in 2021, we increased our unsecured retail portfolio by 10%. This increase was mainly due to the integration of advanced underwriting systems in our system. So the most -- the vast majority of loans that were granted in 2021 were granted via digital channels. This integration gave us the comfort to increase our unsecured retail portfolio as well. Hanan will elaborate on it later on in this part. Deposits. Our deposits increased since the outbreak of COVID by 43%. Half of it was in 2021. In 2021, we were able to increase our deposit by 20%. The loan-to-deposit ratio continues to be conservative, only 64%. On the right, you can see the well diversification of our deposit. This has been the picture for a long period. This morning, we announced a dividend of ILS 588 million, which is equal to 40% of our Q4 net income. This dividend is on top of ILS 2 billion that we announced in the second half of the year. So the total dividend that we announced in the second half of 2021 was ILS 2.6 billion, much higher than dividends pre-COVID. The next slide presents a solid and robust ratio across the board. You can see that regarding CET1, total capital ratios and the other ratios, we're well above our regulatory requirements. In conclusion, Leumi had a remarkable year in 2021. The high results were due to the significant improvement in our core business. Of course, the release of the credit provision affected positively on our result. But what is more important is the consistent improvement in our core business. You can see it in the increase in our credit portfolio. You can see it in the increase in our income across the board. You can see it in the very good figures that reflect the quality of our credit portfolio. And you can see again that in spite of the significant increase in our income, we were able to keep our expenses more or less at the same level. And this is not a [ minimal ] achievement. All of this, together with the strong parameters of the Israel economy puts us in a very good position looking forward. Before ending, I would like to mention that we are going to kick off 2022 with a net profit of around ILS 700 million from the strategic merger between Leumi USA and Valley National Bank. We received the last approval for this merger this week, and we are expecting to ride this profit in the first half of 2022. With that, I would like to give the floor back to Hanan. Thank you.

Thank you, Omer, for the presentation. I would like to share with you some highlights of our strategy. A few years back, we, at Leumi, realized that the banking industry will be significantly disrupted. We prepared for it in multiple ways. Based on our assessment on where the economy and banking were going, at the beginning of 2021, we adopted a growth strategy. Our strategy focused on areas where we have a competitive advantage and expertise. We leveraged our capabilities, strong technology, infrastructure, advanced data models and vast experience and knowledge of the customers' needs. These capabilities gave us the ability to differentiate ourselves in certain areas. Our growth strategy is focused on mortgages, real estate, middle market, high tech and on our private equity arm, Leumi Partners. These areas are growing fast in Israel, and Leumi is growing even faster than our current market share. In retail banking, we also planned a modest growth strategy, primarily focused on credit for target segments. We are doing this mainly by using our advanced digital and automatic underwriting capabilities, which gives us the reassurance that this growth is being achieved while maintaining our credit risk appetite, as Omer mentioned before. We believe that success in banking is based on 3 core elements: one, motivated skilled employees; second, advanced technology; and third, gaining and keeping the trust of our customers. Implementing our growth strategy includes making sure that we are truly addressing these elements. Regarding HR, we implemented cultural change, adapting the culture to our growth strategy. We are promoting a culture of excellence among all our people. We have changed our compensation policy to be closely linked to the business achievements of the employees. We have also invested more than ever in our workforce in advanced training and reskilling. We implemented remote work among most of our employees, and they work 1 day a week from home. This has positively impacted our operational flexibility and is expected to increase the cost saving while moving from Tel Aviv to the new headquarters in Lod. Advanced technology. We have made huge progress in embedding technology that allows us a unique value proposition for our customers in all business lines and improvement of our customer service. It also enables us to simplify processes and continue improving our efficiency. We have many more initiatives in our pipeline that will help us to continue improving in both customer satisfaction and, of course, streamlining. In order to achieve it, we focused on recruiting top tech talent even in the highly competitive tech market. Gaining and keeping the trust of our customers. We upgraded our service model and our focus on customer satisfaction. We did it by offering 48-hour underwriting service. This is a huge differentiator. We were able to achieve this, thanks to the fact that we improved our processes and used cutting-edge technology. These tools allows us to grow quickly without changing the risk profile of our portfolio. We also did it by changing our DNA from being responsive to being proactive, being able to quickly tailor-make an offering for the customers. In consumer and small business credit, we grew primarily using our advanced underwriting capabilities that are based on a rich set of KPIs. This was not possible when the bankers did the underwriting manually. These models are machine learning models that get better and better as we go. During 2021, as Omer mentioned, the vast majority of our consumer lending was done automatically. In mortgages, we also implemented a set of tools that differentiates us from the market and provides our customers a quick and flexible service, for example, by using Zoom. To make sure we continue our growth in this area, we recently established a new division focused on mortgages. In small business and mortgages, we recently implemented underwriting AI-based models. These AI models will improve as we increase the usage, and we expect that by the end of this year, the vast majority of the loans in these 2 segments will be executed automatically as well. We are also using this experience to build models for deposits and pricing. Due to these processes and models, we can do much more business with fewer resources, while improving our customer experience and satisfaction. We expect this trend to continue. Given that current banking is based on technology and data, we established a new division that combines data, including models, with digital product management and strategy. We recruited the top talent with vast experience to lead this division. This gives us the ability to make the next leap even in the present competitive landscape. We continue to expand our unique digital offerings, Pepper, the first full digital offering that was established in Israel. Pepper is #1 customer recruiter in Israel, targeting customers that are fully digital. Pepper Invest, the preferred trading platform among millennials. Videa, our robot advisers -- adviser for portfolio management. Digital investment advice for customers that prefer automatic investment advice tailor-made to the customers' appetite. To continue guaranteeing the embedding of innovation in Leumi, recently teamed up with a group of leading entrepreneurs and established the Garage. The main idea is to allow selected promising startups, direct access to our ecosystem and to the ecosystem of other strategic partners. The Garage can realize ideas for FinTechs products designed for the financial sector. Start-ups will be able to develop in their own environment, while gaining access to Leumi's ecosystem and experts. In turn, Leumi will benefit from the developments and from being a design partner that could easily implement the products in its systems. This will promote innovation and better service for our customers. Our strategy of credit-focused growth also applies to our business overseas. In the U.S., as Omer mentioned, we announced the merger of Bank Leumi USA with Valley National Bank, which is a growing yet conservative bank. This deal, which will be closing soon, enables us to continue growing in the U.S. and to serve our Israeli customers with fewer regulatory constraints. We plan to do many mutual credit deals with Valley Bank. This will provide us with extra growth abroad. In our U.K. subsidiary, as we announced this morning, we are also implementing this growth strategy focused on real estate and [ hotel ] credit, while minimizing regulatory risks. We have decided to seize the banking operation and transform our banking license in the U.K. to a credit company license. This will enable more rapid growth. We also significantly grew in our private equity investment through Leumi Partners. Leumi Partners is a material profit center for us. The current competitive landscape includes not only banks, but also institutional investors, FinTechs and of course, BigTech. Our answer to this competition is we compete where we have a competitive advantage, and we collaborate where we have relative advantage or knowledge. For example, in the payments world, we collaborated with Google and Apple using their B2B digital payment solution. We developed an infrastructure to collaborate with FinTechs, leveraging open banking, which we view as an opportunity more than a risk. Lately, we announced 2 deals with specialized credit companies, Or Shay that provides ABL credit for middle market companies and [indiscernible] that provides BNPL solutions for retail customers. ESG has been an area of focus for us. While we have been strong on the S and the G for years, this year, we adopted a clear strategy around the E. This strategy includes challenging long-term targets. We see this as an opportunity primarily around credit and investments. Our credit policy has already limited exposure to polluting companies, and our latest credit policy includes a fast track for financing and investments for green companies. We plan to finance green by 2030 to the sum of ILS 35 billion. In 2021, our Green Credit financing was roughly ILS 12 million. I will conclude by saying that the remarkable results we announced are very important. But even more important are the innovative tools and products we have built over the last few years. This gives us the confidence to continue with our journey to face the challenges and to leverage the opportunities we choose. Leumi is a bank that suits itself to the customer's taste. Therefore, we are a technology model and digital-based bank. We are on a rapid journey to embed many more cutting edge innovative products and services for the benefit of our customers. Leumi is leading the transition from traditional banking to new banking in Israel. I thank you again for your time and for being our investors.

[Operator Instructions]. Our first question is from [ Michael Klar ] of Excellence.

Can you hear me?

Yes, we can hear you.

Yes. Great. Okay. So well done on a very nice 4Q report and a strong year, and thank you for the thorough presentation. I've got a couple of questions. Firstly, I want to understand the cost trends a bit better. Obviously, your cost-to-income ratio is very impressive. I wanted to understand is the trend continuing to be lower in the coming years? What levers do you have there? Are there more branch closures? Are there further headcount reductions? Or there are other levers you have? And then also in that context, I wanted to understand what you think the impact perhaps of higher inflation will be on your cost base? And whether that could be a bit of a headwind perhaps in the coming years when we start to negotiate with your employee unions? That's my first question on cost. And my second question is to do with the releases. And look -- your credit metrics look very strong and whether you see further room for releases in the first half of the year of 2022?

Thank you, Michael. Thank you for the question. First, regarding the cost-to-income ratio. So the improvement was not only in 2021, it was in the last few years consistently. And as I pointed out in the presentation, this improvement is mainly due to the increase in our income. So when I'm looking forward, first, next year, we will enjoy the full benefit from the 16% growth that we had this year. So we will see the full effect of this increase next year. Also, the demand for credit continue to be high in Israel due to the strong parameters of the Israel economy. So when I'm looking forward next year, I expect that our income will continue to increase significantly, while our strategy is to continue to maintain our expenses more or less at the same level. So it means that we have all the capability to continue to improve our cost-to-income ratio. It doesn't mean that every year we will be able to do that. But when I look at our core business activity and when I look on what we are doing, this is -- the direction is very clear for me. We'll continue to increase our income, while keeping our expenses more or less at the same level. Now regarding inflation. First, inflation has a positive effect on Leumi results. I mentioned in the presentation, that part of the increase in our income, in the net interest income was due to inflation. Of course, inflation also increased cost partially. But when I'm looking at all of the picture, the inflation effect on our result is, at the end, positive. Regarding our provision, so we have a conservative provision. I would like to point out again that our coverage ratio is well above the coverage ratio pre-COVID. And also due to the CECL method, we even strengthened forward. So we are entering 2022 with a very strong position in our credit -- in a very strong position in our credit provision. And the number of 2022, of course, will not be negative as they were in 2021, but we do have a conservative buffer in our calculations.

And maybe I will add the one sentence. Michael, maybe I will add one sentence. As I mentioned in my brief, we implemented digital and AI-based models in the retail sector. And we are in the process of implementing same models in the mortgages and in the small business and also in the -- in one of the tiers of the middle market. That says that we could do much more with fewer resources, and therefore, the potential for additional streamlining, while growing, is something that you could imagine is significant.

Our next question is from Micha Goldberg of [indiscernible].

Congratulations on a stellar year and a strong quarter. A couple of questions. First of all, I mean, you mentioned your strong inflation sensitivity. I'm just wondering with the Ukraine-Russia war front out there and commodity prices going up, what are you looking for in inflation coming in Q1 and Q2?

Gil, would you like to take this question. Gil you're in mute mode.

Come on. Am I on?

Now I hear you.

Am I on? Are we good? Good. Okay. So I was just starting to say that we have been following the developments very closely. And obviously, there's a dramatic impact on commodity prices, shipping shortages. And we have revised our Q1, Q2 inflation forecast upwards. At the moment, taking the latest developments into account and also looking at the shekel in known terms, I would expect to see in the first quarter a CPI increase of well above 1%, somewhere in the area of about 1.1%, possibly more than that. And the bigger numbers will come into the second quarter. And there, I'd expect to see something in the area of about close to 2%. So there's a sizable increase, a sizable rise in the CPI that we're going to see during the first half of this year. And obviously, that's going to trickle into the Bank of Israel's steps as they go ahead as well.

Very supportive of number. Another question I would like to ask, if possible. I think you announced this morning that your internal target for common equity Tier 1 is 10.5%. I believe you ended the year at 11.5%. You mentioned that you will be recording around a ILS 700 million net income from your blue CECL, and I assume that the deconsolidation of the risk-weighted assets will further increase your common equity Tier 1 by another 0.3%, 0.4%. So looking forward, without any gains of profit, you're going to be over 12% common equity Tier 1, which is like 1.5% more than you need. Could we expect an increase in dividend payment? Can we expect something else that could provide cash back? How do you look at that gap, that excess supply -- surplus in your equity? .

Thank you for your question. First, as you indicated, we have a strong CET1 ratio as well as total capital ratio. We started the year with 11.5% dividend ratio. But when I look forward, there are a few elements that we have to take into account. First, there is still an instruction by the Bank of Israel that instructs us to be conservative at this stage in our approach to dividend. Secondly, I would like to mention that in the third quarter, we are going to implement another regulation. It's called the SA-CCR. This regulation mainly deals with the measuring of risk-weighted assets regarding derivatives. We didn't publish the amount of this implementation on our regulatory equity because it's still under calculations. But we should take it into account. And also, we should take into account the fact that currently, regarding geopolitical issue, there is a military confrontation, which at this stage is not expected to have a significant effect on the Israel economy. But if it will develop negatively, it might affect Israel as well. So I think at this stage, the 40% balance between all of this parameter as well as with our appetite to continue to grow much higher than the GDP pace of growth. So I think at this stage, a 40% dividend that we distributed and balance all of these parameters. And of course, we will consider it again when we will come to the end of the first quarter of 2021 when we will see how this parameter are developed.

Okay. It's very clear. Just on that same issue. I noticed that Israeli banks and Leumi specifically has still a relatively high risk-weighted asset density, around 60%. A lot of the European banks and global banks have significantly lower. Is there anything that you can and would consider doing to reduce that density, allowing you to have more excess capital growth for growing and paying out dividends? Or is that something that is just implied in how accounting works in Israel?

Micha, I think you mentioned a very important point in Israel, and you're completely right. In Israel, the density are much more conservative than most of the European bank. And this is due to regulation. The regulation in Israel is conservative. Everybody knows that. It has advantage and disadvantages. At this stage, this is the decision of the regulator, and I'm not expecting that it's going to be changed in the near future.

Okay. Another question is, you mentioned that your credit grew very significantly over the year. And you mentioned that one of the components was real estate, not a mortgage as just regular corporate real estate. And I'm just wondering, obviously, this is historically considered to be slightly higher risk. Are you seeing this as a more risk kind of credit? Are the margins here much lower? And how do you view this as an overall profitability factor looking forward?

Okay. First, you're right, again, that the margin in real estate are relatively low, for example, compared to unsecured retail, but we should take into account also that the real estate -- the risk in real estate transaction is relatively low. First, we have a strong collateral in most of these transactions. And secondly, more than half of the increase was regarding the residential area. And with regard to the residential area, we have lots of not only the collateral, but it's managed based on a closed account. It's very, very close supervision about flowing out and in to the transaction. So our analysis and our perspective is that those transactions have lower risk than other transactions. This is the reason why we -- why the margin in those transactions are lower than, for example, small business or in unsecured retail business.

Very clear. My last question is to peculiarity that I saw in the last couple of months. Leumi has been raising significant amount of sum in the bond market locally. Most of it is CPI-linked. And against the rising inflation, I'm just wondering, a, what are the needs for that, the uses of that? Are you planning to carry on? And the fact that you're raising it in CPI link, does that mean that your CPI sensitivity is falling looking forward just when inflation is rising?

Okay. This issuance of CPI-linked bonds is mainly due to the fact that Bank Leumi's long position regarding CPI. So when the CPI is higher, we thought it would be worthwhile to reduce a little bit the CPI position. I would like to mention that when the CPI was lower, we increased the CPI position. So it's just the way that we are managing our CPI exposure. In these rates of CPI, we thought it will be worthwhile to decrease a little bit, a long position regarding those CPI.

Next on the line, we have Borja Ramirez of Citibank.

Can you hear me?

Yes, we can hear you.

Perfect. I have two quick questions, if I may. Firstly, I would like to ask for your expectations for the Bank of Israel interest rate going forward? And also the potential benefit to your net interest income? And then my second question would be, if you could please provide some color on the expected loan demand from clients in both corporate and mortgages. And also, what is the potential opportunity in the volume growth from the Green Credit that you provided in your ESG targets.

Gil, would you like to take the question about interest rate.

Anyways, we believe that the Bank of Israel is going to start lift off of the interest rate in its April meeting. That will mean a 10 to 25 basis point increase -- so a 15 basis point increase going from 10 to 25. And after that, it looks like 0.25% every quarter over year. So that would put us somewhere in the area of about 75 basis points at the end of this year and possibly a year from now or maybe a little bit longer than that, but say, next April, April 23, somewhere in the area of about 1%. Now when thinking about things in kind of the longer term, what is the terminal rate that the Bank of Israel will be aiming for, I do not believe it's going to be as high as the Fed will be aiming for. I think that the terminal rate will be somewhere in the area of about 1.5%, but that assumes that after a high inflation year in 2022, '23 onwards, we start to see inflation dropping back to lower numbers and then eventually the Bank of Israel is going to try to converge to about 1.5%, which will give them a real term interest rate that is positive and not negative as now. So in other words, lift off pretty soon, 1 quarter per quarter and, let's say, going to 75 basis points by the end of this year.

Thank you. Okay. We just add to that, that the higher the interest rate, the better Leumi results, since there is a positive linkage between the interest rate level and the results of Bank Leumi. There is a sensitive test in our financials, which, according to that, 1% increase in the interest rate effect positively our finance income by around ILS 1.3 billion. Of course, this is not linear. It's not that the first hike is the same as the following hike. But this is more or less the impact of increase in the interest rates. Now as for your second question, the demand for loans, at least at the beginning of 2022, is still high. I mentioned in my part that the GDP expectation in Israel for next year are 5% to 6% at this stage. And we expect our loan growth to be well above this pace of growth. The demand continues to be strong in mortgages, real estate, the same area that we had in this year and it's following our strategy -- our strategy. And regarding green loan, I will give you just an example, for example, loan for firms or create energy based on -- clean energy and not the energy that they used in the past. I mean that.

We set the targets regarding the Green Credit after reviewing the governmental plans together with our main customers' plans to invest money in order to be -- or to use green energy to use other advanced technology in order to limit their pollution in many lines of business. So we set this target after we check the market.

Our next question is from Tavy Rosner of Barclays.

Congrats on the very strong results. Most of have been asked. I wanted to ask about your stake in Valley National Bank. So you're now holding a little bit over 14%. Can you remind us if there is any lockup period, whereby you committed to holding on to those chairs or converse? So if yes, what are those? And conversely, are you free to kind of divest stock over time as you see fees based on market conditions?

Okay. Our stake in value is, as you mentioned, 14.2%. I would just mention -- I would like to mention that we are going to record this company to apply the equity method with regard to our investment in Valley. So it will not be affected by fluctuation in the capital market. We have a lockup period of 4 years that -- but it's released 20% every year. So the total release will be over a 4-year period, 20% every year, but we see Valley as a partner. We have no intention to reduce our investment in Valley. We have intention to increase the cooperation in Valley, as Hanan mentioned in his part, and to do lots of cooperation with Valley. And by that, increase our activity also outside of Israel.

And of course, we serve our Israeli customers that are doing business in the state via cooperation with Valley.

Right. Understood. And then moving on to Pepper. You showed it during the -- your video presentation and you mentioned that it's the #1 in terms of customer acquisition. So I guess, is there any color you can share with regards to the active subscriber base? And second of all, I mean, we've seen the reports about One Zero Bank, new digital bank coming online or soft launching. Do you see it as a threat to Leumi in general and to Pepper in particular.

First, regarding Pepper, what I can say is that Pepper is part of our unsecured retail business. And as I mentioned, we increased our unsecured retail business in 2021 by 10%. Pepper, of course, is part of it. And Pepper is not dealing only with credit, it's also dealing with the investment for millennials, as Hanan mentioned. And this activity is very successful regarding the millennials. Now regarding the competition from the Zero One Bank (sic) [ One Zero ] Bank, we bless for competition. I think competition makes the other banks more sharp. And it makes us to improve our business even faster. So the more competition there is, the better Leumi will act, and we will have to wait to see what this competition will do for all of the market. I'm sure that for Leumi, the advantage on this competition will be high.

And of course, we prefer ourselves for that, and we are ready to expand the products that we offer our customers in Pepper. So we believe we are ready for the next type in the competition in this segment.

Right. Understood. And then there's my last question, which I like to ask on a yearly basis with the year-end results with regards to the forward-looking guidance or like thereof. I mean, we speak about it once a year, but I always like to bring it up because it's something investors often ask me, like we see -- we saw this company give targets today for '25. Leumi Bank is giving targets. And when you hear the other questions from analysts, it's very clear that you guys have a very, very clear vision of the coming years. So what prevents you guys from sharing some of those targets with the Street? Is that a Board decision? Is that management decision? What's the update this year?

It's something that is on our table. We consider the advantage and disadvantage of it. It's something that we are considering.

Yes.

[Operator Instructions]. At this time, we will move to a short clip about Bank Leumi and then come back for final remarks. [Presentation]

Okay. So thank you, everyone, for joining us today and for your support. And I just want to clarify that we screened the clip again because some of the participants asked for that. So I hope you enjoyed it again. So again, thank you, and have a nice evening. Goodbye.