Discount Bank's net profit jumps to 1.2 billion shekels, but dividends trail competitors
The bank recorded an 8% profit growth compared to the same quarter last year. Excluding the special bank tax, net profit would have risen by 4% to 1.3 billion shekels. The board of directors approved a dividend distribution of 40% of second-quarter profits.
Discount Bank, led by CEO Avi Levi, recorded a sharp increase in net profit for the second quarter. The bank reported a net profit of 1.2 billion shekels, an 8% increase compared to the same quarter last year. If the special tax imposed by the Treasury on banks is neutralized, net profit would have climbed by 4% to 1.3 billion shekels.
Net interest income decreased by 4% to 2.5 billion shekels, amid the current lower interest rate environment. Return on equity (ROE) in the second quarter stood at 14%, an improvement from 13.6%. Excluding the special tax, the figure would have been 15.4%, compared to 15.6% last year.
Discount's board of directors decided to distribute a dividend of 40% of the second-quarter 2026 profits, totaling approximately 481 million shekels. This is a lower payout ratio than the three banks that reported earlier: Leumi and Hapoalim distributed 50%, while Beinleumi distributed 96% of its quarterly net profit. Discount stated that the conservative policy was adopted "after assessing expected capital needs and group capital planning, while also considering the timing of the CAL sale."
In the first half of the year, net interest income totaled 4.8 billion shekels, a 4.4% decrease. At the end of this period, ROE stood at 12.4%, compared to 13.3% in the same period last year. Excluding the special tax, ROE was 13.8% versus 14.6% in the previous year. ROE from operations in Israel was 13.1% in the first half, compared to 15.5% last year.
Discount continues to improve its efficiency, although processes such as the potential merger with Mercantile Bank are still under review. The bank recorded an efficiency ratio of 44%, an improvement from 46% in the same quarter last year. Activity in Israel reached an efficiency ratio of 41.4%, also an improvement from 42.9%. While these figures are higher than Leumi's exceptional ratio (below 25%), Discount is no longer the least efficient bank in the system, as Beinleumi reported an efficiency ratio of 46.1% this quarter.
Credit Growth and Quality
Regarding credit quality, the bank recorded credit loss expenses of 70 million shekels in the second quarter, compared to 60 million shekels in the same quarter last year. The quarterly expense rate for credit losses stood at 0.09%. In the first half of the year, credit loss expenses jumped by 125% to 252 million shekels, representing 0.17% of the average credit balance, compared to 0.08% last year. The bank noted that these expenses reflect group-level provisions due to increased credit balances and accounting write-offs.
Total net credit to the public as of the end of June stood at 304 billion shekels, a 5.4% increase since the beginning of the year. Growth was driven primarily by large business loans (+12.3%) and general business sector credit (+7.6%). Household credit (excluding mortgages) grew by 3.6%, and mortgage lending increased by 4.6%.
Avi Levi, CEO of Discount Group, stated: "The second-quarter results reflect a consistent and determined implementation of our strategic plan. Alongside accelerating broad efficiency measures, we are conducting an in-depth examination of the group's structure to strengthen our competitiveness. In parallel, we continue to promote AI-based digital transformation to accelerate our growth."
The bank continues to pursue significant strategic moves, including an efficiency project involving early retirement, which aims to reduce the group's workforce by approximately 8% by the end of 2026. Additionally, the bank is expected to decide on the potential merger of Mercantile Bank into Discount Bank to adapt the group's structure to the banking system's operational and technological challenges.
