Bank Leumi's 1Q 2025 Results: Navigating Geopolitical Crosswinds Amid Strong Fundamentals

Bank Leumi, Israel’s second-largest banking group, is set to report its first-quarter 2025 financial results on May 20, 2025. The earnings release will provide critical insights into how the bank is balancing its robust 2024 performance with escalating geopolitical risks and macroeconomic headwinds. Analysts will scrutinize whether the bank can maintain its profitability trajectory while navigating sanctions-driven provision spikes and shifting lending dynamics.

2024: A Year of Record-Breaking Growth

Bank Leumi’s 2024 results showcased exceptional resilience. Full-year net income surged 40% to ILS 9.8 billion ($2.7 billion), driven by a 33% jump in non-interest income and a 70% decline in loan loss provisions (to 0.16% of loans). The bank’s cost-to-income ratio hit 29.9%, one of the lowest globally, while its CET1 capital ratio rose to 12.17%, exceeding regulatory requirements. Mortgage lending grew 11%, and deposits increased 9%, underpinning a record 8.6% credit expansion for the year.

Strategic Targets for 2025–2026: Ambitious but Achievable?

The bank has set ambitious targets for the next two years:
- Net income: ILS 9–11 billion annually.
- ROE: 15–16% (vs. 16.9% in 2024).
- Loan growth: 8–10% annually.
- Capital return: At least 50% of net income via dividends and buybacks.

To meet these goals, Bank Leumi is relying on its strong capital position, cost discipline, and strategic focus on high-margin segments like mortgages and corporate real estate. However, the first quarter of 2025 has already introduced significant challenges.

Q1 2025: Geopolitical Crosswinds Emerge

Recent data reveals that geopolitical tensions have begun to weigh on the bank’s performance:
1. Provisions Rise: Provisions for potential defaults jumped 12% quarter-on-quarter due to sanctions-related risks in Eastern Europe and the Middle East. Cross-border lending to these regions fell 7%, with provisions for these portfolios surging 18%.
2. Corporate Lending Retreat: Business clients cut borrowing by 5% as supply chain disruptions and currency volatility dampened risk appetite.
3. Domestic Strength Persists: Mortgage and consumer lending grew 8%, supported by Israel’s accommodative monetary policy and low interest rates.

The bank’s management emphasized that these challenges are “manageable” due to its diversified loan book and robust collateral quality. However, the spike in provisions underscores the vulnerability of its cross-border operations to global instability.

Key Metrics to Watch in the Q1 Report

1. Net Income: Analysts expect a sequential dip from Q4 2024’s ILS 2.5 billion due to seasonal factors and geopolitical pressures, but growth compared to Q1 2024 remains likely.
2. Provision Coverage: Whether the 12% QoQ rise is a one-off or a trend will signal the bank’s risk exposure.
3. Loan Growth: A slowdown in corporate lending may offset domestic gains, testing the 8–10% annual target.
4. Efficiency Ratio: Maintaining sub-30% efficiency (Q4 2024: 30.9%) will be critical to preserving margins.

Conclusion: Resilience Amid Uncertainty

Bank Leumi’s 2024 results demonstrate its ability to capitalize on strong domestic demand and operational efficiency. However, the Q1 2025 report will test whether these fundamentals can withstand escalating geopolitical risks. With a CET1 ratio of 12.17% and a track record of conservative risk management, the bank is well-positioned to weather short-term headwinds.

Crucially, the bank’s 8.6% credit growth in 2024 and 39% net income growth provide a solid base for 2025 targets. While cross-border lending may remain volatile, domestic segments like mortgages—up 11% in 2024—offer a stable growth engine.

Investors should prioritize two questions:
1. Can provisions stabilize post-Q1? A one-time spike would be less concerning than a trend.
2. Will capital returns remain robust? The bank’s ILS 4 billion in capital returns in 2024 (including buybacks and dividends) must continue to satisfy shareholders despite macro challenges.

If Bank Leumi delivers Q1 net income above ILS 2.2 billion and maintains its CET1 ratio above 12%, it could reaffirm its status as a resilient regional banking leader. Conversely, prolonged geopolitical instability could test its ability to meet the upper end of its ILS 11 billion annual net income target.

For now, the bank’s fundamentals—strong capital, disciplined cost controls, and domestic growth—suggest cautious optimism. The May 20 results will reveal whether this optimism is warranted.