Discount Bank Reports Q3 Profits Hit by War-Induced Challenges: NIS 817 million

In the aftermath of the recent conflict, Discount Bank faced a notable dip in its third-quarter profits, reporting a decrease of 8.5% compared to the same period last year. The financial institution's net earnings for Q3 stood at NIS 817 million, attributed to heightened provisions for credit losses due to the impact of the recent war.

The decline in profit reflects a return on capital of 12%, down from 15% in the corresponding quarter of 2022 and 18% in the previous quarter of 2023. Nevertheless, this return on capital remains historically high for the bank, driven by the prevailing high-interest rates in the economy, which have bolstered the financing income managed by Avi Levy.

During Q3, Discount Bank allocated NIS 596 million for credit losses, a substantial increase from the NIS 106 million set aside in the same quarter of the previous year. This surge in provisions is largely attributed to a group provision anticipating an economic crisis and a potential surge in problematic loans resulting from the war.

Following the conflict and in response to guidance from the Bank of Israel, Discount Bank opted to reduce its dividend distribution to 15% of profits instead of the usual 30%, amounting to NIS 123 million.

At the onset of the war, the Bank of Israel implemented a loan freeze, and in tandem with other banks, Discount Bank introduced additional benefits for customers. Notably, residents of the Gaza Strip were granted a six-month exemption from mortgage payments. The bank estimates that the total cost of these benefits and concessions will reach NIS 350 million, with NIS 280-270 million stemming from reduced financing and commission income.

Discount Bank's post-war reports indicate that loans totaling NIS 13.8 billion entered deferred payments, resulting in payment deferrals of NIS 907 million. The primary impact was observed in mortgages and small businesses, with frozen mortgages amounting to NIS 4.3 billion and NIS 3.3 billion in small and tiny businesses - constituting 8.4% of the total credit in this sector.

Despite the economic slowdown and high-interest rates, the bank sustained credit growth in the first nine months of the year, with the credit portfolio increasing by 7.2%. However, the growth rate slowed to 2.2% in the third quarter, totaling NIS 258 billion. Notably, credit to medium and large businesses experienced a remarkable 12% growth in the first nine months of 2023, though the effects of the war may impede this growth in the coming quarters.