Israel Discount Bank (DSCT) Q3 2021 earnings summary

Executive summary

• 9M 2021 net profit attributable to shareholders was NIS 2,244m vs. NIS 711m; annualized ROE rose to 15.2% from 5.0%, driven chiefly by credit-loss releases and higher net interest income.

• Q3 net profit was NIS 722m, down 16.0% QoQ but up 179.8% YoY; annualized ROE was 14.5%.

• Recovery in Israeli economic activity supported credit quality, though pandemic effects and uncertainty about borrowers’ repayment capacity remained.

Financial highlights

• 9M net interest income rose 10.3% YoY to NIS 4,846m; total net financing income was NIS 5,431m, up 0.8%.

• 9M credit-loss expense was a release of NIS 683m vs. NIS 1,518m expense in 9M 2020; the release was described as highly exceptional.

• 9M non-interest income fell 5.6% to NIS 2,923m; fees and commissions rose 11.0% to NIS 2,316m, while non-interest financing income fell 41.1% to NIS 585m.

• 9M operating and other expenses increased 1.2% to NIS 4,919m; efficiency ratio improved to 63.3% from 64.9%.

• Adjusted 9M net profit excluding specified components was NIS 2,342m vs. NIS 866m; excluding credit-loss releases and using the 2016–2019 average loss rate, adjusted profit was estimated at NIS 1,528m.

Outlook and guidance

• The multi-year 2021–2025 strategy targets higher ROE, improved operating efficiency and market-share growth; prior-plan financial goals were deemed no longer relevant amid pandemic uncertainty and the new plan.

• Management estimated Israeli GDP growth of 6.5% for 2021, conditional on no renewed outbreak and economic restrictions.

• The Board restored the CET1 target range and set the target at 9.75% on November 22, 2021; it also approved a dividend equal to 20% of Q3 profits.

• CECL implementation is required from January 1, 2022; preparations progressed, but methodology and documentation remained incomplete and the initial run was not a reliable estimate of impact.