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

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Ltd. Fourth Quarter and Full Year 2024 Business Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, February 27, 2025. With us on the line 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 fourth quarter and full year 2024 presentation, which includes general comments regarding legal responsibility, including that 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. 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 and annual reports, the aforesaid reports should be pursued 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. The forecasting information may change subject to risks and uncertainties due to being based on 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 regulations, competitors' behavior, the status of the bank's perception, technological developments and human resource developments. Mr. Shachaf, would you like to begin?

Thank you very much. Good afternoon, everybody, and welcome to the Mizrahi Tefahot Annual 2024 Analyst Call. As you all know, 2024 was a very unusual year for Israel. From the first day of the war, the bank has taken a pro-client approach trying to offer immediate relief to its clients beyond the mandatory relief plan of the Bank of Israel, while adapting the COVID experience and best practice to the current situation. As for the bank, it's much more boring and you can see from the report, 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. Obviously, 2024 provisions are much lower than those of 2023. And to put it in the right context, in 2023, our provisions for the entire year were around ILS 1.5 billion. And in 2024, our annual provisions are around ILS 0.5 billion. As for the other items, I would like to use this call to further highlight a couple of points. We have seen an increase in most of the major balance sheet items. We think that our credit metrics reflect a balanced credit portfolio with adequate risk management. Credit growth in 2024 is impressive to our opinion, not just because of the total number, but also due to the diversified composition, we managed to grow our mortgage book by around 9% and the corporate book by around 14%. Like always, mortgages are, of course, much bigger in absolute monetary terms. And this 2024 growth should help us to create a nice starting point for 2025. The net profit and the return on equity reflects the strong balance sheet and the good efficiency ratio. Commissions are still affected from both the war and client-oriented relief approach the bank has taken, but are still on a positive trend. And our cost to income ratio for the year and the quarter is well below 40%. I remind you that our cost to income ratio target as published in the strategic plan is to be below 50% by the end of the plan. On the expense side, you can see the improvement vis-a-vis 2023, reflecting also the post Union Bank merger synergies. And as always, salaries are also affected from variable remuneration related to the bank's results. The result also takes into account the relative extra tax Israeli banks are paying in 2024. Liquidity is very robust with high share of core deposits and capital ratios are in tandem with profitability. Credit growth in the last quarter is healthy, both in mortgages and in corporate loans, and demand for mortgages is improving, and we continue to follow our strategy to retain our market share in the market. And we think that it is reasonable to assume that today's balance sheet will 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 targets of our strategic plan before 2025. We will distribute 40% of Q4 profit as dividend according to our dividend policy. And all in all, I think we are following our strategic plan and accommodating to the new environment relatively well. I would like to thank you very much for your attention. With that, I leave you with the hands of Mr. Menahem Aviv, our Chief Accountant.

Thank you, Mr. Shachaf. So I will review the main figures in the financial statements for the year 2024. The net profit in 2024 reached ILS 5.5 billion compared with ILS 4.9 billion in 2023. The return on equity in 2024 reached 18.5%. The equity amounted ILS 31.3 billion. The total revenues in 2024 reached ILS 14.7 billion. The financial revenues from current operations reached ILS 11.3 billion. The provision loans to the public -- the ratio of the provision reached 0.14%. The operating and other expenses totaled ILS 5.2 billion. The main balance sheet items development are as follows: total assets grew by 8.3%, loans to the public by 10.1% and the deposits from the public 9.7%. The ratio of Tier 1 capital to risk elements reached 10.4% and the total ratio reached 13.36%. Mr. Shachaf?

Thanks. I think we can go to Q&A now.

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

Congratulations on a good quarter. I was wondering if I could get your comments on the Bank of Israel announcement yesterday regarding plans to alleviate certain customers who are going through hardships because of the war. And just how might that compare with your existing programs?

Thanks. So we just saw the news like you yesterday. I would guess that all banks will adopt a voluntary scheme proposed by the Bank of Israel. As for the exact details, I think it's a bit too early. We'll have to learn the exact kind of mechanism. We saw the total number for the whole system. But still, we need to further learn first internally and then to discuss with the Bank of Israel to make sure we fully understand the mechanism. But as I was saying at the beginning, and you rightfully mentioned it yourself, we do have quite extensive current relief plan for clients, but it's still a bit too early to compare exactly the 2. And as for participating in the scheme, I would guess banks will adopt it, but again, each bank is on its own.

Got it. Yes. And on expenses, looking at the significant declines you've achieved over the last few quarters, how do you -- how should we be looking at expenses going forward? Also in light of the move of the headquarters, will we see any impact? Will we see a return to a more moderate growth range?

So I think the expense side in 2024 reflects a new base, a lower base, as you rightfully said, for expenses when compared to the 2023 expenses. A lot of it is due to the fully, fully completion of the merger with Union Bank. And yes, I think this base -- new base will be the starting point for something relatively steady with much lower growth on that side than on the income side expected, of course, nothing can be promised.

Understood. And just one more, if I may. Will you be providing a new updated strategy plan considering your achievements and already finishing this one?

So the old and current plan is ending in 2025. So for sure, we are extensively considering to do it. But since we haven't finally decided and approved anything, then we cannot commit to it, but history shows that every 5 years, we initiate a new strategic plan for the next 5 years. So it's reasonable to assume that the tradition will continue.

The next question is from Valentina Stoykova of Barclays.

My first question is on the outlook for your net interest income and margins trajectory. How do you see the margins developing this year? And what macro assumptions you bake into the numbers? And also, it will be great if you can share with us how you think about your Tier 2 call option? And do you see the market conditions good enough to prefinance the bonds this year?

Thanks. So I couldn't fully understand the second question. So I'll start with answering the first one, and then if you can reask the second question regarding something on financing I couldn't hear you. So we do not give forward guidance for future NIMs. But when we operate both on strategic plans and on each annual budget, we assume that always NIMs are unchanged, and we have to grow ourselves without expecting extra coming from a widening of NIM. So I hope it answers the first question. And if you can please repeat the second one.

Yes, it is basically on how you think about your call option of the Tier 2 that the call option for last year? And how you see the market conditions currently with regards to prefinancing?

Sure. So of course, market -- core market yields at the time is a very important factor in the decision. Unfortunately, we are not allowed to give guidance, both because we don't know yet, but also if we did, we could not share it. I can say that the obvious usual suspects or conditions are considered. And one of the first is, of course, current or expected yield, but it's a bit too early.

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