Mizrahi Tefahot Bank Ltd. (MZTF) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Ltd. Third Quarter 2024 Business Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded November 21, 2024. With us online today are Mr. Adi Shachaf, CFO; and Mr. Menahem Aviv, Chief Accountant. We would like to draw your attention to Slide #1 of the financial statement for the third quarter 2024 presentation, which includes general comments regarding legal responsibility, including that; Number 1, the information contained in the presentation constitutes information from the bank's 2024 quarterly reports and/or immediate reports as well as the periodic quarterly and annual reports and/or immediate reports published by the bank in previous years. Number 2, accordingly, the information contained in the presentation is only partial, is not exhaustive, and does not include the full details regarding the bank and its operations or regarding the risk factors involved in its activity, and certainly does not replace the information included in the periodic annual and/or quarterly or immediate reports published by the bank. In order to receive the full picture regarding the bank's 2024 quarterly reports, the aforesaid reports should be pursued per used fully as published to the public. The bank's results in practice may be significantly different from those included in the forecasting information as a result of a large number of factors, including inter alia, changes in the domestic and global equity markets, macroeconomic changes, geopolitical changes, legislation and regulation changes and other changes that are not under the bank's control, which may lead to the estimations not realizing and/or to changes in the business plans. Number 4, the forecasting information may change subject to risks and uncertainty due to being based on the management's estimations regarding future events, which include inter alia, global and local economic development forecast, particularly regarding the economic situation in the market, including the effect of macroeconomic and geopolitical conditions, expectations for changes and developments in the currency and equity markets, forecasts related to other various factors affecting exposure to financial risks, forecasts with respect to changes to borrowers financial strength, public preferences, changes in legislation and the provisions of regulators competitors' behavior, the status of the bank's perception, technological developments and human resources development. Mr. Shachaf, would you like to begin?

Yes, please. Good afternoon, and welcome all to the Mizrahi Tefahot Third Quarter Analyst Call. Obviously, the first thing I'd like to talk about is the impact of the war on the markets and on the bank. From the first day of the war, the bank has taken a pro-client approach trying to offer immediate relief to it's clients, beyond the mandatory relief plan of the Bank of Israel, while adapting the COVID experience and best practice to the current situation. On the first day, we have seen a typical response of the market to the unfolding event with equities prices going down, yields on bonds goes up and the depreciation of the shekel vis-a-vis the U.S. dollar, rating agencies downgraded and/or put on a negative watch both the government and the bank. In the weeks after, we have seen equity prices going up, bond yields going down, later up again, and the dollar-shekel rate went back down to even below its pre-war level. As for the bank, you can see from the reports, the robustness of the results. As you can see, we took what we think is a prudent approach to provisioning, given the prolonged duration of the war. It is worth noting that most of the provisions are collected, and just to put it in the right context, in 2022, our provision for the entire year were around ILS 0.5 billion. And in 2023, our annual provisions were around ILS 1.5 billion. And again, to the most part, provisions were collected. As for the other items, I would like to disclose further highlights a couple of points. We've seen an increase in most of the major balance sheet items, and we think that our credit metrics reflect a balanced credit portfolio with adequate risk management. The net profit and the return on equity reflects the strong balance sheet, the CPI figures, the good efficiency ratio and the contribution of Union Bank to our results. You can see that financing revenues from current operations are on a positive trend. Commissions are, of course, affected from both the war and client-oriented relief approach the bank has taken. Our cost/income ratio for the quarter is well below 40%. And the reminder that our cost-to-income ratio target is published in the strategic plan is to be below 50% by the end of the plan in 2025. On the expense side, you can see the improvement vis-a-vis 2023, reflecting also the post Union Bank merger synergies, and that always, salaries are also affected from variable remuneration related to the bank's reserve. The results also takes into account the relative extra tax Israeli banks are paying in 2024 and 2025. Liquidity is very robust with high share of core deposits and the capital ratios are intended with profitability. Credit growth in the last quarter is healthy, both in mortgages and in corporate loans. Demand for mortgages is improving, and we continue to follow our strategy to retain our market share in the market. We think that it is reasonable to assume that today's balance sheet growth would materialize in the current quarter. We do expect to see further responsible credit growth following our strategic plan. And as can be seen from our results, we have already reached the main target of our strategic plan before 2025. We will distribute 40% of third quarter profit in dividends according to our dividend process. All in all, I think we are following the strategic plan and accommodating to the new environment. I think that's it. Thank you very much for your attention. And with that, I'll leave you with the hands of Mr. Menahem Aviv, our Chief Accountant.

Thank you, Mr. Shachaf. The main figures in our financial statements are as follows. Net profit in Q3 2024 reached ILS 1.425 billion. Net profit in the first 9 months of 2024 reached ILS 4.149 billion. Return on equity in Q3 2024 and in the first 9 months of 2024 reached 19%. The equity amounted ILS 30.4 billion. Cost/income ratio, which in Q3 2024, 33.9%. Financing revenues from current operations in Q3 reached ILS 2,847 billion. Our total revenues in Q3 reached ILS 3,797 billion. Operating and other expenses in Q3 totaled to ILS 1,289 billion. The ratio of provisions for loans in Q3 reached 0.15%. The ratio of Tier 1 reached 10.43% and the total ratio reached 13.58%. Shachaf?

Thank you very much. I think we can go to Q&A.

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

I wanted to touch on operating expenses. Given the 5 quarter strong decrease in OpEx, what's contributing to that? And how much more leverage do you see with reduction in expenses going forward?

Thanks. I think, as you can see, if you compare it to 2023, we're down a [indiscernible]. I would expect to see us coming forward with this new level with reasonable growth there. The main reason that we see this improvement is the finalization of all the post-merger activities of the merger with Union Bank and some internal efficiency activities, which are natural, not something that is big in this respect. So let's say, to the most part, it is because of the better synergies on the cost side we have after we have finished to merger the bank, the Union Bank.

Got it. And regarding provisions and loans, we've seen some shifts in provisions over the last year away from normalized levels, and loan growth has been quite resilient despite the lower growth environment due to the war. How should we be looking at these 2 items going forward?

So on the growth side, the main 2 areas that grew this quarter were mortgages and corporate. As I was saying, we saw the improvement in the mortgage market. And we think we should see a similar level. So we're not going back to where were in 2022, but also we have noted down of the fourth quarter of '23 or the first quarter of '24. On the provisions, we see that, in Q3, we've made a very big Q3, I mean last year, 2023, a very big provision due to the war, was close to ILS 700 million. To the most part, it was collective. And we see now we've made ILS 130 million this quarter, 0.15% for the quarter, 0.16% if you look at the 9 months. So I think this should be a more representative environment then what we saw in Q3 last year, which was very, very big because of the war.

There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd. Third Quarter 2024 Business Results Conference Call. Thank you for your participation. You may go ahead and disconnect.