JERUSALEM, Aug 14 (Reuters) - Two of Israel's largest banks reported on Monday sharp gains in second-quarter profit, boosted by rising interest rates that pushed up financing income and more than offset a spike in provisions against loan defaults.
Bank Hapoalim, Israel's largest bank by credit to the public, said it earned a net 1.92 billion shekels ($515 million) in the second quarter, up 43% from a year earlier. That resulted in a return on equity of 15.8%.
Israel's banks have been helped by aggressive Bank of Israel interest rate hikes aimed at fighting inflation. The benchmark rate has reached 4.75% but it was unclear whether there will be more hikes after rates were left unchanged in July.
Israel's fourth-largest bank, Discount Bank, reported a 75% rise in quarterly profit to 1.19 billion shekels, with net interest income jumping 42% to 2.93 billion shekels and credit loss expenses rising to 312 million.
In early trading in Tel Aviv, Hapoalim's shares rose 1% while Discount was up 1.6%.
Banks have come under fire from the finance ministry, lawmakers, the central bank and regulators for being quick to act to raise interest rates on mortgages and other loans while being slow in passing on the steep rise in rates to consumer bank accounts.
"Looking ahead, we estimate that the supportive macro parameters of the rise in interest rates and inflation are close to being exhausted," Bank Hapoalim said in a statement, noting that interest rates are expected to gradually decline in 2024.
"Investors are likely to focus on the direction of credit growth going against (that) comment," said Jefferies analyst Joseph Dickerson.
Hapoalim's net interest income rose 35% to 4.3 billion shekels as it recorded a provision for credit losses of 579 million shekels, up from a 91 million provision in the April-June period in 2022.
Hapoalim, whose credit portfolio rose 7.6% over the past year, said it would pay a second-quarter dividend of 769 million shekels, a payout of 40% of quarterly net income.
Discount Bank will pay a second-quarter dividend of 356 million shekels, 30% of profit. "Following the continuous improvement in results, it was decided to update the dividend payment policy and increase the distribution rate to up to 40% (next quarter)," said CEO Avi Levi.
Discount's Tier-1 capital ratio rose to 10.35% as of the end of June from 10.22% at the end of March. Hapoalim's ratio increased to 11.51% from 11.36%. ($1 = 3.7311 shekels) (Reporting by Steven Scheer; Editing by Subhranshu Sahu and Susan Fenton)
