Financial Reports 1st Quarter 2020
Net profit in first quarter: NIS 357 million
Compared to NIS 404 million in the corresponding period last year
Decrease of 11.6%
Return on equity: 9.1%
Net profit from current operations*: NIS 303 million
Compared to NIS 404 million in the corresponding period last year
Decrease of 25.0%
Return on equity from current operations*: 7.7%
Financing revenues in the first quarter: NIS 1,411 million
Compared to NIS 1,288 million in the corresponding period last year
Cost-income ratio: 52.4%
Cost-income ratio from current operations*: 54.7%
* Excluding revenues of NIS 82 million with respect to agreement with insurers to conclude derivative proceedings.
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Continuous service and assistance to clients during crisis period
Along with the severe health implications, the rapid outbreak of the Corona Virus sent a sizable economic shock throughout the world. Israel, as most countries in the world, experienced within a short period sharp decline in economic activity, significant increase in unemployment rate and severe fluctuations in financial markets.
In order to comply with directives of the Ministry of Health and of the Bank of Israel, while maintaining continuous service available to clients, the Bank went into emergency operation mode with limited staff, while taking all necessary precautions to provide maximum protection to the health of employees and clients alike.
Operating format during emergency
In order to provide optimal response to clients under these special circumstances, the Bank ensured that phone banking centers and diverse direct channels of the Bank were available to clients, allowing them to obtain information, execute transactions and schedule meetings with bankers at branches. Some Bank branches were designated as "special branches" and were open to the public. Other branches provided service to the elderly, to persons with disabilities, to pension recipients and to clients by appointment.
Critical headquarters units worked in split teams, so as to ensure operational continuity, and some employees worked from home. Non-critical employees were place on paid holiday for a limited duration.
As the economy gradually resumed normal operations as from early May, Bank branches and units also resumed full operation with service to the public at all branches, while adhering to directives of the Ministry of Health.
Response to diverse client needs
The national effort to contain the pandemic resulted in immediate closure of hundreds of thousands of businesses and in dramatic surge in unemployment. Many clients, both salaried employees and self-employed, faced a cash flow crunch and required urgent solutions to help them get through these challenging times.
Thanks to optimal operational preparations, the Bank's mortgage headquarters received and approved, within a short time, applications from 55 thousand clients who asked to defer their mortgage payments for several months. The Bank provided similar response to both individual and business clients whose income was impacted by the crisis.
Concurrently, the Bank rapidly and efficiently prepared to provide loans to small, medium and large businesses from State-guaranteed funds. The success of Mizrahi-Tefahot in standing out in the fast processing of the numerous applications, compared to performance of the banking system, resulted in the State increasing the allocation to the Bank in the fund for small and medium businesses to over NIS 3 billion – more than the Bank's share of these operating segments. Bankers at branches and business units continue to maintain constant communication with their clients, providing them with diverse solutions customized for their specific needs at this time.
Eldad Fresher: The Bank's two major growth engines – mortgages and our business focus – give us an advantage in facing the Corona Virus crisis
"The unique balance sheet structure of Mizrahi-Tefahot, which includes a mortgage portfolio with a low risk profile, accounting for 65% of the Bank's loan portfolio; the key steps we took in recent years to enhance the Bank's business focus and low exposure to sectors more vulnerable to implications of the Corona Virus crisis: aviation, tourism and leisure, give us a relative advantage in being better able to handle the current situation.
The Bank's mortgage portfolio is highly diversified, with low LTV and payment to income ratios with a high underwriting standard. Along with these qualitative attributes, the Bank has an optimal branch network and professional operating infrastructure, skilled on providing fast, efficient response to client needs. This is evidenced by the outstanding processing provided by the Bank to 55 thousand clients who asked to defer their mortgage payments for a few months. Mizrahi-Tefahot's share of these applications for deferred mortgage payments was at 50% of the entire banking system.
The steps taken by the Bank in recent years to enhance its business focus also had an effect during this crisis. The significant increase in loans to businesses in various segments, along with creation of outstanding infrastructure that allowed for availability and fast response, resulted in large demand for loans from the State-guaranteed funds for businesses. MizrahiTefahot provided more than 21% of credit in these funds, beyond our market share in these segments.
Our unique hybrid service concept, which optimally combines human service and digital channels, assisted the Bank in overcoming all restrictions and objective challenges, providing its diverse client base with continuous, available service. Thanks to our dedicated and committed employees, all Bank branches were in operation, and even those not designated as "special branches" provided personal service to special audiences and to clients by appointment.
Despite the unique balance sheet structure and the low risk profile of our loan portfolio, we have taken a risk-based approach with regard to the provision for credit losses and have increased the qualitative provision factor, based on our assessment of the risk of impact to various economic sectors. Consequently, the Bank recognized in the first quarter alone, expenses with respect to credit losses in the same amount as for all of 2019. In view of the uncertainty associated with periods of crisis, this provision would be regularly reviewed and revised in line with developments", said Bank President & CEO Eldad Fresher.