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

Ladies and gentlemen, thank you for standing by. Welcome to Leumi's Fourth Quarter and Full Year 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded March 14, 2023. I would like to remind everyone that forward-looking statements for the respected 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. I would now like to turn the call over to Mr. Michael Klahr, Head of Investor Relations. Mr. Klahr, please go ahead.

Thank you, operator. Ladies and gentlemen, we thank you for taking the time to join us for Bank Leumi's Fourth Quarter and Full Year 2022 Results Conference Call. Joining me today is Mr. Hanan Friedman, President and CEO; Mr. Omer Ziv, Executive CEO and Head of the Capital Markets division; and [indiscernible], Head of the Finance Division. We are also joined by our colleague, Dr. Gil Bufman, Chief Economist. A presentation will be presented during the call for those joining by link and is also available on the IR section of the bank's website for those diving in. I would like now to turn the call over to Hanan.

Thank you, Michael. Good afternoon. Earlier today, we published our 2022 results. For the second year, Bank Leumi reported record revenues, net profit and ROE. Our net profit of ILS 7.7 billion is 28% higher than 2021 and reflects return of equity of 17%. Earnings per share of ILS 5.14 were up 25% year-on-year, even considering the successful equity capital raised that we completed in June and is more than doubled since 2019. Our strong results and strong capital position allow us to announce an increase in our dividend payout in the fourth quarter to 30%, equal to an annual yield of more than 6%. These results are the outcome of the dedicated segment growth strategy that we launched 3 years ago. This, combined with fast adoption of advanced technologies and the strong capital base is allowing Leumi to grow responsibly, focusing on targeted segments at a faster pace than the market and to report these outstanding results. Such results are impressive, given that they were achieved against the uncertain macroeconomic backdrop with high inflation, rising interest rates and volatile capital markets, both in Israel and abroad. While we continue to experience challenging market conditions, we are confident that the important steps we have taken in the last few years will continue to serve us well in 2023 and beyond. I would like to take this opportunity to highlight a number of key areas of focus for the bank that have contributed to our strong results. Our growth strategy is focused on the mortgage, middle market and corporate segments. Here, a significant part is real estate where loans are secured with good collateral, and we are comfortable with our credit exposure. We are recruiting new customers, taking market share, and winning mind share in each segment. In middle market and corporate, including real estate, we increased our loan portfolio by almost ILS 34 billion with existing customers and new customers. In mortgages, for example, where we set up a special purpose division in 2022 to support the group's record growth and to support the implementation of our strategy, we increased our share of new mortgages to more than 26% in December 2022 from less than 20% in mid-2020. The decision to merge our U.S. subsidiary, BLUSA with Valley National Bank which closed at the beginning of April is also bearing fruit. Valley, where Leumi holds 14.2% increased net loans by more than 15% in 2022, and we're targeting high single-digit growth in 2023. We are also participating with Valley in deals in the U.S. This is a win-win partnership, providing us additional growth with lower regulatory risk. On the funding side, we are focused on and succeeding in growing our deposit base from retail, institutional and corporate clients. Deposits are becoming an increasingly important source of profitability for the bank in a higher rate environment. Excluding BLUSA, we increased our depository portfolio by more than ILS 30 billion in 2022, representing an 8% increase from the previous year. More than half of this growth come from consumers and small businesses. Deposit growth is good for profitability, but also strengthen the liquidity, enabling us to grow. We differentiate ourselves from the competition via many initiatives. We offer a unique value proposition to all customers 24/7 through multiple channels. We are the first bank to bring our bank and brand into the customers [indiscernible] launching a new service where customers can meet bankers remotely on Zoom and complete any type of transaction, including all paperwork and signatures. Customers are able to engage with bankers on chat where they get a response within up to 1 business day. The customers successfully adopted this service, and we benefited from better customer satisfaction. We continue to leverage and expand the value proposition of our digital-only bank pepper, which continued to grow and recruit a significant amount of new customers year-by-year. Digital penetration level at Leumi continued to increase. In 2022, more than 80% of our customers performed transactions on digital channels, up from 72% in 2021. Our mortgage by Zoom provides customers with a faster and more flexible mortgage service, enabling them to complete the process end-to-end within a matter of hours. The offering is supplemented by the increased use of AI and models. The advanced underwriting and pricing models for business customers took our 48-hour SLA initiated in 2021, several steps forward and gave us winning differentiation. Again, the use of advanced data and automated models, allowing for quicker credit decision is a key enabler, also improving our risk management. We are the first bank in Israel to launch open banking, offering customers a service on our app that allows them to view their checking account and credit card information from other institutions. We leverage this as an opportunity to use the information to offer the customers stable financial products according to their personal needs. Investment in technology is at the core of our strategy and allows us to provide customers with innovative and better service offerings. We are doing so in all business lines, ensuring business use case with IRI for each and every initiative, upgrading customer service improving sales efficiency and upgrading the pricing and underwriting at the same time. Use of advanced technologies and data in the most efficient way is at the center of everything we do at the bank. For example, the case with our payment offer, we implemented into our bank app in order to make it safer, more convenient and with a positive ROI. Our extensive use of data analysis and models allows us to automate more and more processes. Substantial amount of retail loans granted in 2022 were fully automated with no human interaction on the part of the bank. We have worked hard to enhance customer journey capabilities in order to improve customer experience and increase retail sales. For example, using triggers from a customer's account metrics and activities to offer them a tailored loan or deposits. Our sales from customers' journeys have increased potentially over the last year and have become a significant part of our sales. The increased use of technology and models also enables us to simplify processes and to continue improving efficiency, achieving a best-in-class cost-to-income ratio. We have many more initiatives in the pipeline that will help us to continue improving in both customer service and streamlining in the coming years. ESG is an increasing important area of focus for the bank. Last year, the bank set its first Green Credit target of ILS 35 billion of outstanding Green Credit by 2030. In 2022, the bank increased its Green Credit portfolio by around ILS 6 billion to ILS 18 billion. We successfully placed $500 million in January of this year in our first international green bond offering, where proceeds will be allocated according to our new Green [ Bond ] framework. Just last month, we announced a $500 million loan from the EIB to support green investments by Israeli SMEs. This is the first targeted support for climate action business financing by the EIB in Israel. In addition, in today's report, we disclose that the total social credit outstanding at the end of 2022 was more than ILS 33 billion. Lastly, in the fourth quarter of this year, the bank will complete the move of its headquarters to the new, more environmentally friendly campus [indiscernible]. This move is good for the environment as well for cost streamlining. I conclude my section by saying that the remarkable results we announced today are very important. But even more important are the innovative tools and procedures we have built over the last few years. This gives us the confidence to continue our journey while facing the challenges and leveraging the opportunities we choose. Leumi is a bank that suits itself to the customer's pace. Leumi is a bank that expands year-by-year its tech capabilities that give us the flexibility to adopt any market changes. Therefore, we are a technology AI model and digital-based bank. We will continue to embed many more cutting edge innovative products and services for the benefit of our customers and to differentiate ourselves from the competition. I would like to take this opportunity of thanking our stakeholders, our employees, customers, and view our investors for your continued support in this journey. With that, I will turn the call over to Omer, who will walk you through the financial results.

Thank you, Hanan, and thank you all for joining us for the presentation of Leumi results for 2022 and the fourth quarter. So let's start with Slide #7. The net income of Leumi for 2022 reached a record level of ILS 7.7 billion, an increase of 28% compared to last year. After the strong year last year, this year was even better. The ROE for the full year of 2022 reached a level of 17%, and the ROE for the fourth quarter of 2022 was even higher, 19%. These strong results were led by a very low credit loss expenses for an annual basis and by significant improvement in our cost/income ratio. The cost/income ratio, as Hanan mentioned, for the total year of 2022 reached a level of 37.5%. The cost/income ratio for the fourth quarter was even better, 31.8%. This cost/income ratio puts Leumi in the first line with -- in the efficiency ratio in global terms. The preprovision net revenue increased year-over-year by 40%. The increase quarter-over-quarter in the fourth quarter was even higher, 88%. The ROA in 2022 improved significantly and reached a level of 1.2% for the total year and 1.3% for the fourth quarter. Before driving deeper into the analysis of 2022 I would like to present a wider picture of the improvement in our results in the last few years. Let's turn to Slide #8. In the last 4 years, we increased our revenue by more than 30%. In the same period, we decreased our expenses by 14%. This is a great achievement. As a result, as Hanan pointed out, our net income more than doubled itself to a level of ILS 7.7 billion for the total year of 2022. On Slide #9, we can see that as a result of this improvement, our ROE increased from a level of 10% in 2019 to the level of 17% in 2022. The EPS increased by almost 120% to a level of ILS 1.5 per share and the book value per share increased by 40% to a level of ILS 33 per share. On Slide #10, we can see the substantial improvement in our cost/income ratio to a level of 37.2% on an annual basis. In the bottom line, our core business improved significantly in the last few years. We increased substantially our credit base, our deposit base. And in the same period, we reduced significantly our employee numbers and our other expenses. All of this puts Leumi in a very strong position looking forward. And continue on to Slide #11. In 2022, we increased our finance income by 28%. This increase was driven mainly by the increase in our net interest income. The increase in the net interest income was mainly driven by a substantial increase in our credit portfolio, 18% increase, and by the increase in the CPI level and in the interest rate level. The NIM reached a level of 2.2%. Fees and commissions increased by slightly less than 5%. The increase was mainly in the finance commission due to the increase in our credit portfolio and in exchange [indiscernible] Commission. Despite the significant increase in the finance income, this year, as in previous years, we've been able to decrease our expenses by 2%. The decrease was in the salary expenses, mainly due to the reduction in our employee numbers and also in other expenses. The pre-provision net revenue, as I mentioned earlier, increased year-over-year by 40%. On Slide #12, we analyzed the fourth quarter. The trends were very similar. The final income increased by [ 66% ] compared to the fourth quarter in the corresponding period last year. The NIM reached a level of 2.44%. Fees and commissions dropped by 4%. Having said that, I must mention that the commission in the fourth quarter of 2021 were exceptional due to relatively very high security commission due to the rebound in the capital markets in the fourth quarter of 2021 as a result of the going out from COVID. Operating and other expenses were very similar to the operating and other expenses in the fourth quarter last year. We see a slight increase in the salary expenses due to increase in the provision for bonuses due to the high results, and the other expenses, we see a decrease of 3%. The PP&L increased, as I mentioned earlier, by 88% quarter-to-quarter. On Slide #13, we can see that on average, we were able to increase our commissions in the last 2 years by 5.6%. As I pointed out earlier, this year, the increase of focus in the finance commission due to the increase in our credit portfolio and in the exchange differential commissions due to the change in the exchange rates. I'm continuing on to Slide #14. As I mentioned earlier, this year, we decreased our expenses by 2% year-over-year and our cost-to-income ratio improved to a level of 37% on an annual basis and to a level of 32% on a quarterly basis. On the next slide, represent the significant reduction in our employee numbers in the last few years. As in previous years, consistently, also this year, we reduced our employee numbers by hundreds of employees. As a result, the income [indiscernible] increased significantly by 55% to 60% increase. I'm continuing on to Slide #16. This year, we increased our credit portfolio by 18%, and this is on top of an increase of 16% last year. As in previous years, consistently according to our strategy, we focus our growth in middle market, mortgages and corporate, including real estate. We didn't increase almost our credit book in unsecured retail and also in small business. We prefer to focus our growth in this segment, because the collateral in these segments are much stronger and because we [indiscernible] in this segment much better. Our main parameter that reflects the quality of our credit portfolio remains robust. The NPL improved significantly to a level of 49 basis points. The total trouble debt to gross loan ratio also improved significantly from a level of 1.9% to a level of 1.5%. The total provision to NPL increased to a level of 260%. The total provisions to gross loans remain at the same level as it was last year, 1.3%. On Slide #18, we present our [ core cost ] expenses. As I pointed out earlier, the credit loss expense ratio on an annual basis was very low, only 13 basis points. In the fourth quarter, we increased the credit loss expense ratio to a level of 32 basis points. This was driven by an increase in the specific provision due to lower collections and also by increasing the level of the credit of the collective provision due to the macroeconomic environment. We prefer to be more cautious to increase it to the level of 32 basis points. On Slide #19, we present the increase in our deposit base that Hanan mentioned earlier, 8% increase year-over-year. Our credit-to-deposit ratio remained very conservative, 69%. On the right, we can see our deposit base. You can see that -- we can see that it's very well diversified. We are not dependent on one segment. Our liquidity ratio remained strong at the level of 130%. As Hanan mentioned earlier, we announced this morning a dividend of ILS 700 million, an increase in our dividend payout ratio from a level of 20% to a level of 30%. This dividend reflects an annual yield of 6.4%. The total payout for 2022 was ILS 1.8 billion. I would like to draw your attention that even though this year, our dividend payout ratio in the previous quarter was 20% and in the fourth quarter rose to 30%. In terms of shekels, the dividend this year was ILS 1.8 billion, very similar to the level of the dividend in 2019 of ILS 2.1 billion, even though the dividend in 2019 reflects the dividend distribution ratio of 16%. This number reflects the significant improvement in our core profitability. On the next slide, we present the robust equity ratio and leverage ratio of Zoom. We are much above a regulatory requirement across the board. You can also see the significant increase in our pure common equity, in our total capital ratio during 2022. Before ending the presentation, I would like to review the main macroeconomic parameters in Israel. And I would like to say that despite the uncertainty in the market due to the global slowdown and the political debate in Israel around the legal reform Israel's main macroeconomic parameters remain strong. Israel GDP growth rate continued to outpace that of the OECD average. According to our forecast, Israel economy will grow by 2.7% in 2022. Growth is expected to be driven by ongoing rapid population growth, the rise in the residential construction in order to meet the demand, cybersecurity exports and a growing natural gas sector with exports to neighboring countries. This year, unemployment rates remained low at the level of 3.7%, and we expect that next year in 2023, it will reach a low level of 4.5%. Inflation in Israel was 5.3% in 2022, lower than in most countries, and market expectations for 2023 is for inflation rate of 3.3%. As for the Bank of Israel interest rate, it increased from a level of 10 basis points early this year to a level of 4.25% currently. I would like to end the presentation by concluding the Bank Leumi again present a very strong result and very robust results across the board. We present a 17% ROE for the total year and 19% ROE for the fourth quarter. On top of the significant increase in our credit portfolio last year of 16% we increased this year our trade portfolio by 18%. Within this growth, we present a very strong parameter that reflects the quality of our credit portfolio. Significant improvement in our NPLs and significant improvement in our [ foreign ] debt ratio. We present best-in-class income ratio, not only in the banking industry in Israel, but in global terms. We are not familiar with a lot of banks which present cost income ratio of 37% to 32%. As a result of all of that, we increased significantly our PP&L year-over-year and quarter-over-quarter. Our stronger -- our strongest core Tier 1 ratio in the sector will support us in the following quarter in our ongoing growth and with a capital return for our shareholders. All of these parameters put Leumi in a very strong position looking forward. I would like now to thank you again, and to open the line for questions. Operator?

[Operator Instructions] The first question is from Chris Reimer of Barclays.

Congratulations on the strong results. First, just looking at asset quality, is there any segment in your portfolio that you see most at risk when it comes to repaying their loans?

Chris, thank you for your question. As I mentioned in the presentation, we focused our growth in middle market and corporate, mainly real estate, because of the strong collateral and because we know the customer in this segment very well. The segment that we prefer not to focus on is the unsecured retail and small business, which are the most exposure segments for a slowdown in economy. And this segment has the lowest collateral. This is the reason why we prefer as in previous years to focus our growth in the sectors that I just mentioned. And this is the reason why you see a consistent improvement in our NPL as well as in our problematic debt.

Got it. Yes. And -- looking at the global market, it seems that investors are kind of concerned about the impact of the failure of Silicon Valley Bank. Do you have any general thoughts you can share around the bank's collapse?

We prefer to focus on this call on our new results and not in other banks. But I can see -- I can say clearly that when you look at the Leumi deposit base, when you look at the -- not only Leumi, all the banking industry in Israel, they are acting in a completely different way than Silicon Valley Bank. Silicon Valley Bank was focused only on the IT sector. Silicon Valley Bank was exposed significantly to interest rate risk. In the Israel economy, it cannot happen. I presented earlier in the presentation, our deposit base, which is very, very diversified. There is not even one segment that is more than 1/3 than the total deposit. And the biggest exposure in our deposits is for retail which is a very, very small number in huge amount of customers. So the banking industry in Israel is completely different than in the banking industry in the U.S. I can elaborate much more, but I would rather to prefer on Leumi's results in this presentation. Also maybe I will mention the [indiscernible] what I mentioned earlier, which are very strong demand for me, [ 120% ] also the regulation instructions in the U.S. are completely different then the regulation instruction here in Israel in terms of what you write to the regulatory capital, what you not write. So it's completely different, and it put the banking industry in Israel in a completely different place from the U.S. bank. And we are very proud that within this conservative approach that the Bank of Israel takes in the Israeli bank, we are able to present very high ROE.

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

Congratulations on your outstanding quarter and year. A couple of questions for me if possible. First of all, I mean, [indiscernible] the 30% dividend this quarter. I'm just wondering, you said that GDP next year is going to grow around 2.7%. Your loan growth in this quarter was significantly lower than in previous quarters. So if you have 11.5% common equity Tier 1, which is over 1% above what the bank provision is requiring, when will you consider increasing that payout to above 30%?

Thank you for the questions. I would say, first, we expect next year GDP pace of growth of 2.7%. This is in real terms. So in nominal terms, if you add to that, the -- these are expectations that I just mentioned, we are talking about the 6% increase in nominal GDP. You mentioned the pace of growth in the fourth quarter, which I agree was lower than in the previous quarters. But if we put aside the capital market, which its technical reduction, the pace of growth in the fourth quarter reflects a pace of growth of 8% on an annual basis. But this is regarding the pace of growth. Of course, we don't expect the pace of growth to be higher as it was in the last 2 years of high double-digit numbers. But we expect our pace of growth to be more than GDP, which is -- the [ nominal ] GDP is 6% as just mentioned. Now you are completely right that our Tier 1 equity ratio, which is currently 11.5% enable us if we want -- if we would like to increase our dividend distribution ratio. Having said that, I would just like to mention, again, that the ILS 1.8 billion that we distributed in 2022 in terms of shekels, it equals the 60% that we distributed in 2019. And also, I would like to say that you are right that our equity levels allow us to increase our dividend payout ratio. But because of the uncertainty in the market, we prefer that this stage to be more cautious and to increase it to 30% in the following quarters according to the macroeconomic environment, of course, it is considering again.

Okay. Another question, if I may. I noticed that when I compare the margin expansion, that meaning both for the quarter and over the year, to some of the other banks, it's significantly lower. And I'm just wondering why that is.

Okay. This is a great question, Micha, and I would like to elaborate on it. First, the structure of Leumi's balance sheet is a little bit different from the structure of most of our competitors. As I mentioned in the presentation, our credit to deposit ratio, we preserve it at a very conservative level of 69%. That means that the other 30% are -- is invested in our investment portfolio. And if you will look at our investment portfolio, this is a very conservative investment portfolio. I mean, more than half of it is the policy in the Bank of Israel and the other is, I don't know -- around 90% is either a government bond and the treasury bond. So because of this structure, because our loan-to-deposit ratio is very conservative. When you look at the NIM, it's a mix of the credit in which we have credit risk and the investment portfolio in which the return [ although ] because you don't have a credit risk in the investment portfolio that I just mentioned. That's first. Secondly, when you look at the mix of our credit portfolio, you will see that more than 1/3 is in mortgages. In mortgages, the yields are very, very low, but the risk is very, very low as well. The LTV is 48%. The loans that are in arrears of over 90 days are less than 0.5%. But because of the very low -- because of the low -- low risk, the ROE in the mortgages is very high because the equity requirement regarding mortgages are relatively low. So when you look at the NIM, from my perspective, first, you should differentiate between the investment, which is very conservative and don't have credit risk and the credit portfolio. And when you look at the credit portfolio, you must look at the mix of the credit portfolio. We prefer to be focused on the segment that I mentioned, which has a lower margin but much lower credit loss expenses. If you compare our credit loss expenses in the fourth quarter with the other banks, you will find that our credit loss expense [indiscernible]. This is because we focus on lower risk segments. So when you look at all of the picture and if you look segment by segment, you will not find that our margins are lower than our competitors.

Very clear. Another question, if I may on -- you're very strong and made the case for a very good cost-to-income ratio, really impressive. And I'm just wondering towards '23 and maybe '24, I mean you guys are ahead of a new rate agreement. And inflation obviously is significant. Your profits were very high. So I think it's probably logical to assume that there's going to be a nice [indiscernible] agreement. And I'm just wondering how much of that cost-to-income ratio is sustainable when you look forward?

Okay. So I would say like that, first, you are right. There are pressure on costs on 2023 due to the CPI across the board, not only on the rate that we just mentioned, because of the CPI, which was 5.3% in 2022 and is expected to be 3.3% in 2023. But I would like to mention a few other factors. First, regarding the income. As for the income, we increased our credit portfolio by 18% this year. The impact of that on our income is only partially in 2022. You will see the total effect on that mathematically only in 2023. So this will increase the income. Secondly, the interest rate level is expected to be significantly higher next year than this year. The -- we started this year, it looked like a year ago. But we started this year with 10 basis points interest rate. So the average interest rate in 2022, I don't know, it's around 1.6, 1.7, something like that. Even if we will not -- further increase in the interest rate, the interest rate next year is expected to be significantly higher the average interest rate than the average interest rate in 2022. So this is also impacting positively the income. Now when we're talking about credit growth, we discussed it earlier and the GDP nominal pace of growth is expected to be 6%, this is -- also will contribute to the income. Going back to the expenses. So on the one hand, we will see the CPI pressure. There is a collective wage agreement that we are going to renew at the beginning of this year. We are in a progressing negotiation with union. And of course, it will impact the expenses as well. But when I take all of these parameters, and maybe I -- we mentioned another parameter. We are moving to our headquarters from Tel Aviv to the -- near the airport by the -- in the fourth quarter. This is going to decrease significantly our office space cost. We moved only partially this year to a hybrid model of working, 20% have to work from home every day, every day. So next year, we see the full effect of that. So there are different parameters in the bottom line, of course, to improve our cost-to-income ratio from a level of 37% is very high because they are not lots of banks in the world with this cost income ratio. But according to our expectation, we will be able to even improve it not significantly, but we will continue to go towards the 35%, 34% on a -- for a long term. So the 32% for the fourth quarter doesn't reflect yet our position. The 37%, we are there. And because we continue to reduce our employee numbers as we did consistently in the last few years. And because all of the other parameters that I just mentioned, I expect that we will be able to preserve the 37% and even to improve it slightly next year.

Michael, it's Hanan. Maybe one more comment regarding this -- Micha, sorry, regarding this question. As I mentioned in my remarks, we invested a lot in technology and using technology enable us to do much more with fewer resources. So our streamlining journey is expected to continue even though we are expanding our activities and our portfolio. So this, together with all the parameters that Omer mentioned, gives us the confidence that we will continue with this journey. As Omer said, the 32% is not reflecting yet our position, but we are aiming to continue the journey and reducing the cost-to-income ratio from the 37% that is our yearly ratio and make it better going forward.

The next question is from the chat from David Coyne of Setanta Asset Management. What was the NIM in Q4? And can you give an outlook for NIM in 2023? Also, can you comment on the slowdown in new home sales and whether you need to adjust your lending strategy to the residential construction sector? Lastly, what level of deposit you have through Leumi tech?

Thank you for your question. First, as I pointed out in the presentation, the NIM for the fourth quarter was 2.44%. As I mentioned, also as I pointed out earlier, the interest -- the average interest rate next year is expected to be significantly higher than the interest rate -- the average interest rate this year. Having said that, with any additional interest in the interest rates, the portion that we will be able to preserve in Leumi will be lower. Because when the interest rates go up, you see immediate effect on our loan because the vast majority of our loan book is in variable rate. And the effect of that, the negative impact on the results, which coming from increased interest on the deposit, it takes a little bit time to happen. It's mainly happened because of the movement from current account to deposit, which takes its time. And this -- in this interest rate level, as you can understand, more and more customers will prefer to move their money from current account to deposit base. So we expect increase in the -- from the 2.44. It's very hard at this stage to -- and I don't want to go into a specific number, of course, in this call. Now regarding the residential construction. Maybe it's worthwhile to mention that the natural demand for a new unit in Israel, is around [ 65,000 ] units per year based on the high pace of growth of the population in Israel, more than 2% per year. Now when you take into account the fact that we are currently in the lack of supply of around 200,000 units, you can understand that for sure in 2023 as well as in 2024, this lack of supply is not going to be changed immediately. So because of the lack of supply, there is a real demand in the market. Of course, the interest rate -- the high interest rate levels pulled down the demand. But still, there is a strong demand because of the figures that I just mentioned. So we expect that if we talk about mortgages or the residential construction model, it doesn't matter it's the same answer. So -- yes, next year, we will see a decrease in the total market of about, I don't know, 15%, 20%, depends. But as Hanan mentioned in his opening remark, we've been able this year to increase significantly our market share in mortgages. So this will take it to the other side. Now there was the third question. I don't remember -- I missed it. In the presentation, there is a slide about that, that the total commercial -- the deposits of Bank Leumi are around 10% of our total deposits and only part of it is related to [ low metric ]. So it's not significant portion of the total revenue deposits.

[Operator Instructions] The next question is a follow-up question from Micha Goldberg.

Just a short question about your exposure to real estate financing. In your report, you provide some significant numbers on [ ILS 14 billion ] to [ ILS 15 billion ] for any exposure to development. And I'm just wondering -- LTVs of over 80%. And I was wondering, according to what's going out right now outside in the market where prices are coming down significantly. Is this something we should be worried about? Is there additional collateral that is not included in the LTV. How should we look about that? And what's your risk to -- cost of risk?

Micha, thank you again for your question. I would just say that the numbers that we mentioned are according to the very conservative approach of the Bank of Israel. This approach doesn't allow us to take into account other significant collateral that we have regarding this project. So because at the end, we have recourse to other project assets, accounts. Also, the LTV was measured on the day that we granted the loan. And since then, as you know, the land price and the apartment price in Israel increased significantly so the economic LTV is much, much lower than 80%. And if you would like, you can see the effect of this loan on our requirements -- on our equity requirements. And you will find out that it's very similar to other banks, which we reported on that in a different way. So there is nothing to worry about it. Nothing significant.

There are no further questions at this time. This concludes Leumi's Fourth Quarter and Full Year 2022 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.