Bank Hapoalim's Strong Q1 Profit Defies Wartime and Tax Headwinds

TEL AVIV, Israel – May 14, 2026 – Bank Hapoalim (TASE: POLI) today announced robust financial results for the first quarter of 2026, demonstrating significant profitability and growth that outpaced expectations, even as it navigated the dual pressures of a wartime economy and new government levies on the banking sector.

Israel's largest bank reported a net profit of NIS 2.124 billion for the quarter, achieving a return on equity (ROE) of 13.0%. The performance underscores a theme of resilience that has characterized Israel's economy, a point emphasized by the bank's leadership.

"Bank Hapoalim's performance reflects the resilience and financial strength of the Israeli economy which has continued to show stability, even during the period of war," said Yadin Antebi, the bank's Chief Executive Officer. "In the first quarter, the Bank continued to demonstrate strong business growth, while maintaining high credit quality. Looking ahead, Bank Hapoalim will continue to play a leading role in supporting Israel's growth trajectory. We see excellent growth opportunities in the Israeli market."

Navigating a Complex Economic and Regulatory Climate

The strong results were achieved against a backdrop of considerable uncertainty. The ongoing regional conflict has led institutions like the International Monetary Fund and the Bank of Israel to revise GDP growth forecasts for 2026 downwards, with projections now hovering between 3.5% and 3.8%. The economic strain is visible in reduced consumer spending and labor market disruptions due to extensive military reserve call-ups.

Adding to the pressure was the introduction of a new government tax on banks. Initially proposed as a 15% levy on excess profits to help fund the state's wartime budget, the measure sparked intense debate. The finance ministry argued it was a necessary step to redistribute profits generated during a period of high interest rates, while the banking industry warned of potential harm to credit markets. After considerable negotiation, an agreement was reached in March for the country's banks to make a one-time payment of ILS 3 billion in 2026, in exchange for withdrawing the proposed tax law.

Bank Hapoalim's first-quarter results reflect the impact of this new fiscal environment. The bank noted that a special banks tax reduced its ROE by an estimated 130 to 140 basis points on an annualized basis. Excluding this effect, the bank's ROE would have exceeded 14%, pointing to the underlying strength of its core operations.

Furthermore, the bank adeptly managed a shifting interest rate environment. Despite two rate cuts by the Bank of Israel since November 2025, which lowered the average rate, income from regular financing activity still grew by 2% from the previous quarter, buoyed by strong business growth and a more moderate impact from the Consumer Price Index (CPI).

A Deeper Dive into the Financials

A closer look at the numbers reveals a story of disciplined growth and prudent risk management. Credit growth was a standout performer, expanding 3.3% in the quarter and a remarkable 14.0% year-over-year. This growth, described as well-diversified, significantly outpaced the bank's own targets and signals strong demand across the economy.

Crucially, this expansion did not come at the expense of quality. The bank's asset quality metrics showed marked improvement. The non-performing loan (NPL) ratio declined to a low 0.44%, while the coverage ratio—a measure of funds set aside to cover bad loans—stood at a formidable 330%. Credit loss expenses were minimal at just 0.03% of the portfolio, a testament to effective risk assessment and recovery efforts.

The bank also demonstrated strong cost discipline. Total expenses fell 10.3% compared to the prior quarter, or 1.6% when excluding a one-off expense from late 2025. This efficiency helped drive the cost-to-income ratio down to a lean 36.6%.

Shareholders were also rewarded for the bank's performance. The Board of Directors approved a distribution of 50% of the net profit, comprising a cash dividend of NIS 850 million (NIS 0.65 per share) and a share buyback program of NIS 212 million, consistent with its stated payout targets.

Fortified Balance Sheet and Future Outlook

Bank Hapoalim enters the second quarter from a position of strength, with a balance sheet fortified to withstand further volatility. Its Common Equity Tier 1 (CET-1) capital ratio, a key measure of financial resilience, stood at 11.71%. This is comfortably above both the regulatory minimum of 10.23% and the bank's internal target of 11.0%. The Liquidity Coverage Ratio (LCR) was also robust at 128%.

The bank's total allowance for credit losses reached NIS 8.9 billion, representing 1.68% of its total credit portfolio. This substantial buffer underscores a cautious approach to potential future economic headwinds, particularly as rating agencies like Fitch have noted that sectors like real estate could face pressure from the higher-for-longer interest rate environment, despite recent cuts.

While direct first-quarter comparisons with competitors like Bank Leumi are not yet possible—with their results due later this month—the industry as a whole has been praised by analysts for its resilience. Ratings agencies have maintained a broadly stable outlook on the Israeli banking sector, citing strong profitability and capital buffers as key shock absorbers.

Despite the positive results, significant risks remain on the horizon. The primary threat continues to be a potential escalation of the regional conflict, which could have a more severe and prolonged impact on the domestic economy. While the first quarter results paint a picture of a robust institution, Bank Hapoalim, like the wider Israeli economy, continues to navigate a path where financial strength is constantly tested against a backdrop of regional volatility.