Earnings call transcript: Bank Lumi’s robust Q4 2024 performance

Bank Lumi, with a market capitalization of $6.7 billion, reported strong financial results for the fourth quarter of 2024, showcasing a solid performance across key metrics. The bank achieved a net income of 9.8 billion NIS, with a return on equity of 16.9%. Despite flat expenses, revenue increased by 10%, reflecting efficient operational management. According to InvestingPro data, the company’s impressive revenue growth of 24.76% over the last twelve months significantly outpaced expectations. The stock remained stable, with no significant pre-market movement.

Key Takeaways

• Net income reached 9.8 billion NIS for 2024.
• Return on equity improved to 16.9%.
• Credit growth was robust at 8.6%.
• The cost-to-income ratio declined to 29.9% from 32.6% in 2023.

Company Performance

Bank Lumi demonstrated a strong performance in 2024, with significant improvements in key financial metrics compared to the previous year. The bank’s net income rose to 9.8 billion NIS, driven by a 10% increase in revenue while maintaining flat expenses. The return on equity also showed a positive trend, rising to 16.9%. These results reflect the bank’s successful implementation of strategic initiatives and operational efficiencies.

Financial Highlights

• Revenue: Increased by 10% year-over-year.
• Net income: 9.8 billion NIS for 2024.
• Return on equity: 16.9%.
• Cost-to-income ratio: Improved to 29.9% from 32.6% in 2023.
• Credit growth: 8.6% in 2024.
• Core Tier One Capital Ratio: Increased to 12.2%.

Outlook & Guidance

Looking ahead, Bank Lumi has set ambitious targets for 2025-2026. The bank aims for a return on equity of 15-16% and an annual net profit between 9 and 11 billion NIS. Credit growth is expected to continue at a rate of 8-10% annually. The bank also plans to focus on expanding its mortgage, middle market, and corporate segments while maintaining a stable net interest margin.

Executive Commentary

Hannan Friedman, CEO of Bank Lumi, emphasized the bank’s ability to increase revenue while keeping expenses flat, stating, "We increased revenue by 10% while keeping expenses flat." Deputy CEO Omeziv expressed confidence in maintaining the cost-to-income ratio, noting, "We believe we have the capabilities to maintain our cost income ratio around the current ratio and maybe even to improve it."

Risks and Challenges

• Potential margin pressures due to market competition.
• Economic uncertainties impacting interest rates and inflation.
• Real estate portfolio risk mitigation in a fluctuating market.
• Maintaining technological advancements to stay competitive.
• Adapting to changing regulatory environments.

Bank Lumi’s strategic focus on innovation and operational efficiency positions it well for future growth, despite potential challenges in the economic landscape.

Full transcript - Lumi Gruppen AS (LUMI) Q4 2024:

Conference Operator: Ladies and gentlemen, thank you for standing by. Welcome to Lume’s Fourth Quarter twenty twenty four Results Conference Call. All participants are present in listen only mode. Following management’s formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded 03/04/2025.

I would like to remind everyone that forward looking statements for the respected company’s business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development and the effect of the company’s accounting policies as well as certain other risk factors, which are detailed from time to time in the company’s filings with the various securities authorities. I would now like to turn over the call to Mr. Michael Kwaar, Head of Investor Relations. Mr.

Kwaar, please go ahead.

Michael Kwaar, Head of Investor Relations, Bank Lumi: Thank you, operator. Ladies and gentlemen, we thank you for taking the time to join us for Banque Lumi’s Fourth Quarter and Full Year twenty twenty four Results Conference Call. Joining me today is Mr. Hannan Friedman, President and CEO Mr. Omeziv, Deputy CEO and Head of the Capital Markets Division and Ms.

Raghita Gough, CFO and Head of the Finance Division. A presentation will be presented during the call for those joining by webcast. The presentation is also available on the IR section of the bank’s website for those dialing in. I would now like to turn the call over to Harnam.

Hannan Friedman, President and CEO, Bank Lumi: Good afternoon to everyone. Earlier today, we published our financial results for 2024. We also published for the first time key financial targets for 2025 and 2026 based on our strategic plan. Although 2024 has been a challenging year for Israel, I am very pleased to say that we have demonstrated another strong year with record results and profitability, the highest ever in line with our targeted growth strategy. Before presenting the highlights of Benkloni’s twenty twenty four results, I wish to share some points about the Israeli economy, which have the great impact on our business.

At the beginning of 2024, early forecasts predicted negative performance of the Israeli economy. However, during the year, the economy showed its resilience with GDP growth of 1% in real terms. This performance not only defied early expectations, but also highlighted the strength of the Israeli economic fundamentals and the unique resilience of the Israeli population. This reinforces our confidence in Israel’s long term growth prospects. Based on our technology capabilities, data and AI based models, we reaffirmed the execution of our strategy, doing more and better with fewer resources.

We increased revenue by 10% while keeping expenses flat. We once again did so while attaining the best results in quality of our credit portfolio. We have one of the lowest NPLs in the market. And I remind you, NPL is the sole objective parameter for the quality of the credit portfolio. We also did better in our service revolution as part of our vision to be the bank that offers the best and the most convenient service.

The service revolution was a major catalyst for our rapid growth in the raising of retail deposits much more than our competitors. We obtained a net income of NIS 9,000,000,000, up approximately 40% on 2023. ROE was 16.9%. This was achieved against the backdrop of an ongoing war and a challenging macroeconomic environment. Notably, in 2024 and in previous years, we managed to responsibly grow our credit portfolio with improving credit quality metrics.

Our NPL and troubled debts as a share of gross loans have both declined and remained much lower than the industry average. Our expenses have remained stable despite continuing high inflation in recent years. We achieved this through the bank’s ongoing investments in technology. This led to improved customer experience and service, improved operational processes and reduced operational risks. Our cost to intermercial, which further declined to 29.9% is the best not only in the Israeli banking system, but also I’m proud to say one of the lowest globally.

We aim to maintain this strategy and keep it that way. Our strong report is a further demonstration of Bank Lumi’s excellent execution capabilities and their ability to deliver. Our core Tier one capital ratio of 12.17% at year end is comfortably the highest in the sector and about 2% approximately ILS10 billion above our minimum regulatory requirements, supporting asset growth and significant capital return. Today, we announced that we will distribute a payout of 40% of the earnings of Q4, totaling ILS1 billion. With the role winding down, we are optimistic that the regulator will permit us to distribute more of our excess capital to our shareholders in the near future.

Our leadership in technology continues. We continue to successfully execute our growth strategy in the mortgage sector, supported by our Zoom (NASDAQ:ZM) mortgage product. This has significantly increased our share of new mortgages to close to 30% market share. Lumi’s mortgages book has grown by more than 30% in the last three years, outpacing the market. We did this without compromising on price or risk management, maintaining the lowest rate of high risk mortgages and the lower mortgage NPLs than the market.

In addition, we are in the process of launching a new platform for deposits that will allow us to expand our offering to customers and increase deposits. In 2024, core deposits in our retail division increased by 5.1% greater than the competition. Customer service offerings defined by the bank as a strategic goal are being transformed by upgrading the application and the website by expanding products and services and by responding rapidly to customers within minutes and improving SLA. For example, Lumi customers today can message their branch manager directly or message my personal team if an issue is unresolved within one business day. Another feature is that English speaking customers can use our English language app, the first one on the local market.

These efforts and many more are highly appreciated by our customers who are making Bank Lumi their first choice. In the most recent Bank of Israel customer satisfaction survey published last month, we ranked first among the five large banks for service in five categories out of nine and in addition ranked second in another category. We are ranked number one in telephone banking, the mobile app application and our website. Aside from the clear revenue benefits, more satisfied customers also reduce customer friction and improve efficiency. At Paper, our digital bank, we are launching a new strategy following the migration to LUMIST CRO systems.

Paper is already a leading digital option for our younger customers, but these changes allow us to improve the customer interface and then many new products further to improving our offering. From now on, paper will play a material role in implementing our strategy for the retail sector, including in raising core deposits. Looking forward, following the recent ceasefire in Gaza and in the North, there has been a decrease in macro risks, credit risks and risks related to global market attitude towards Israel. We expect GDP growth of 4% in 2025 as the economy rebounds after the challenging seventeen months. In the fourth quarter of twenty twenty four, we already saw a peak in domestic consumption and higher fixed investment.

We expect this trend to continue at greater pace. Our customer focused model together with our high operating leverage, advanced capabilities in rapid production of tailor made solutions for our customers’ needs and our healthy balance sheet mean that we are best positioned to take advantage of this growth. These capabilities, the excellent execution of our recent strategy and our well proven performance give us the confidence to publish key financial targets for 2025 and 2026 based on our strategic plan. This strategy will accelerate our journey in the segments that we have already selected as part of previous strategy. In addition, the new strategy includes other segments that we will grow rapidly and many other new initiatives.

The key financial targets for 2025 and 2026 are ROE of 15% to 16% annual net profit of NIS 9,000,000,000 to NIS 11,000,000,000 credit growth of 8% to 10% annually and capital return of minimum 50%. In addition to publishing these key targets, we’ll also present our new strategy for the coming years at the local investors conference on March 20, followed by presentations to our foreign investors. I invite you to join us. On a personal note, the last 17 has been a very challenging time for the whole country. Everyone is affected.

I would like to share with you how proud I am with our employees and the organization for overcoming this difficult period. I would like to take this opportunity of thanking our stakeholders, our employees, our customers and you, our investors for your continued support and trust. With that, I will hand over to Hagrid, who will walk you through the financial results.

Michael Kwaar, Head of Investor Relations, Bank Lumi: Thank you, Hanan. Good day, everybody. I’m very happy to be here with you today and to present our excellent results for the fourth quarter and the full year 2024. Sanam just gave you the big picture for our really great year. Now, I will drill down to some of the details.

Before we discuss the Bank’s position in detail, a few words on the macro situation and some key messages. Slide eight shows some key economic indicators. The recovery began in the third quarter and continued into the fourth quarter with real GDP up 2.5% on an annualized basis. Credit card purchases and department sales both accelerated in the fourth quarter ahead of increases in VAT and other taxes at the start of this year. In February, the State of Israel raised $5,000,000,000 from international investors

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: in a

Michael Kwaar, Head of Investor Relations, Bank Lumi: well received and many times covered placement demonstrating Israel’s improved risk profile. Bank Lomi estimates that real GDP will grow by 4% this year with an emphasis on domestic demand and fixed investments. Slide nine shows a snapshot of the year and the quarter. Net income for 2024 was NIS 9,800,000,000.0. ROE was 16.9%.

Cost income ratio declined to 29.9% from 32.6 in 2023. Credit loss expenses declined to 0.16% from 0.58% in 2023. At the start of the war, the bank took a cautious stance and increased its collective provision significantly. While the consequences of the war have been less severe than initially expected,

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: we have

Michael Kwaar, Head of Investor Relations, Bank Lumi: not released any of these provisions yet. Credit growth was 8.6% in 2024, similar to 2023. Book value per share increased by 14.6%. The core Tier one ratio increased by 50 basis points in 2024 to 12.2%. In the fourth quarter, net income was NIS2.45 billion.

ROE was 16.2%. There were no one time items in the quarter and the cost income ratio was 30.9%. Slide 10 shows a snapshot of income and expenses in Q4. Financing income and fees both rose strongly, up 86% year on year respectively. Operating expenses were down mainly due to higher severance pay in Q4 twenty twenty three.

Pre provisioned revenue was up by 17% to NIS 3,800,000,000.0. Slide 11 shows the breakdown of income and expenses for the full year. Pre provision net revenue, bottom right hand side, increased 13% year on year to NIS 16,200,000,000.0, supported by higher financing income and higher fees. Operating expenses were flat year on year. In Slide 12, we can see the quarterly development of net interest income and margin.

Net interest income and NIM were both lower in the fourth quarter, mainly due to the lower CPI and also due to the fall in The U. S. Rates and the foreign exchange. Year on year, the NIM was down slightly due to the lower average interest rate and the shift from non interest bearing to interest bearing deposits. Slide 13 shows the year on year increase and breakdown of fee and commission income.

Fees were up 2.3% for the full year in 2024 and six point two percent in the fourth quarter compared with the corresponding quarter last year, mainly due to the higher securities transactions and higher credit card activity. These were weaker in the fourth quarter of twenty twenty three following the outbreak of the war. On Slide 14, you can see the continuing improvement in the debt in the derisk costing commercial, which improved further in 2024 to 29.9% from 32.6% in 2023. As Ronald mentioned earlier, we have successfully leveraged our technological advantage to accomplish more with fewer resources, which enhance our efficiency ratio. Slide 15 shows the development of loan loss expenses, which remain low through 2024 with ILS1 billion of total collective provision, partially offset by ILS320 million of specific provision income.

On a net basis, 2024 loan loss expenses were 0.16% versus 0.58% in 2023. Q4 credit expenses were at similar levels to the full year. As mentioned, the bank took a conservative stance due to the continuing uncertainty in Israel. With that in mind and turning to Slide 16, we can see that despite the war, a tough macroeconomic backdrop and the high interest rate, NPLs of 0.5% and travel debt of 1.45% remain at historically low levels and are among the lowest in the Israeli banking system. At the same time, the bank’s provision for bad debt stood at ILS6.9 billion covering NPS by three times.

This data illustrate the continuing higher quality of our credit portfolio. Moving ahead now to Slide 17 to our loan book. Our loan book increased to NIS 455,500,000,000.0 in 2024, up 8.6% and following a 9% increase in 2023. We continue to grow in our target segments of mortgages, middle market and corporate. Slide 18 shows deposit trends.

Total (EPA:TTEF) deposits increased by 9% in 2024 to ILS618.3 billion. The Unis retail deposits increased by more than 5% after 5% growth in 2023. It is also important to note that our deposit base on the right is well diversified and our liquidity ratios remain strong. And moving ahead now to Slide 19, which shows our very healthy capital ratios. The core Tier one ratio increased by 50 basis points in 2024 to 12.2%.

The bank’s capital buffer, the difference between the CET1 ratio and the minimum regulatory requirement now stands at almost ILS10 billion. Total capital at the end of the year was 14.8%. Turning to Slide 20, payouts. Today, we announced that we would distribute a cash dividend for the fourth quarter of ILS 700,000,000.0, which in addition to the last range of the existing share buyback plan will bring the total payout to ILS1 billion or 40% for the quarter. Together, this brings the total capital return for 2024 to ILS3.9 billion and significantly more than NIS 2,300,000,000.0 of capital return for the whole of 2023.

The fourth quarter return is equal to an annualized return at yesterday’s close of around 5.3%. In conclusion, Slide 21, let me summarize. The bank continues to present consistent and strong financial performance with high priority despite the challenging economic backdrop. Long term asset growth is driving higher revenues and profitability supported by best in class cost income ratio and strong credit quality indicators. The bank’s strong profitability and healthy capital buffer enable us to continue growing in our target segments, while also allowing us to share higher returns with shareholders through dividends and buybacks.

With that, I will now open the call for questions. Operator?

Conference Operator: Thank The first question is from Chris Reimer of Barclays (LON:BARC). Please go ahead.

Chris Reimer, Analyst, Barclays: Yes. Hi. Thanks for taking my questions and congratulations on a solid quarter. I was wondering if you could discuss the assumptions behind your targets and give any color on really what you think is driving the confidence in reaching those numbers?

Hannan Friedman, President and CEO, Bank Lumi: So maybe I will start by saying that we will elaborate regarding that and present a dedicated presentation for that before the conference of March 20 and following that meetings with our international investors. We have many initiatives, detailed initiatives that are part of this strategic plan for the coming three years and we published the figures for 2025 and 2026. As we said, it’s based on the capabilities that we build in the last years. We want to take advantage of these capabilities and take the next leap in leveraging those capabilities for the segments that we are already focused on and we performed rapid growth with very impressive quality of the credit portfolio. Together, we’ve continuing and make additional leap in the raising of the deposits, which will contribute a lot to our ROE.

And together with other segments that as I said, we prepared ourselves with the right products, the right processes, the right capabilities and most important with the right underwriting and the risk management capabilities. So this is in nutshell, more details will be presented later this month. So I build up the interest of that. But Ondo, please elaborate if you wish.

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: And maybe have you read a few comments about the financial assumption behind the numbers. First of all, as Fanon mentioned, we expect a credit basis growth of 8% to 10% a year. That’s right. Secondly, we base this stability, the ROE of 15% to 16% on interest rate, which will be in 2026 on average 3.75% and on inflation rate, which should be between 2.5% to 3%. So the bottom line is that as we present in the last two years, very strong ROE of above 15% in all of the last four years, we believe that even if the interest rate will decrease by almost 1% on average.

And even if we will see a lower inflation rate, we still have the capabilities to maintain our strong ROE of 15% to 16%. This is the most important financial number in our expectation. Even if interest rates go down, we’ll be able to maintain our total visibility above 15%.

Chris Reimer, Analyst, Barclays: Thanks, Pat. That’s really great color. One more, if you could just maybe comment any of your thoughts on last week’s Bank of Israel announcement, which suggests a framework to provide additional relief to customers and how might that compare with programs you already have in place?

Hannan Friedman, President and CEO, Bank Lumi: Again, thank you for the safe question as well. First of all, it’s quite new. We are still on the process of calculating the final outcome of it. But at the end of the day, it is since it’s totally ILS1.5 billion for the industry for a year and our market share in retail, as you probably remember, is lower than our total market share. So our first reaction and our first assumption is that it will not be immaterial.

It will have some impact,

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: but we first of

Hannan Friedman, President and CEO, Bank Lumi: all, we are still targeting it, but we believe and we are working to make the right steps to compensate these expenses by increasing other revenues. So at the total, we believe that we believe and it’s more than belief that we will be able to execute the figures that we published, taking into consideration the last regulatory expectation that Bank of Israel published.

Chris Reimer, Analyst, Barclays: Great. Okay. Thanks for that. That’s it for me.

Hannan Friedman, President and CEO, Bank Lumi: Thank you.

Conference Operator: The next question is from Anad Dembo of Citigroup (NYSE:C). Please go ahead.

Hannan Friedman, President and CEO, Bank Lumi: Hi, thank you for taking my questions. First question is, which segments do you see the most opportunity for credit growth in 2025, ’20 ’20 ’6?

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: Okay. So in the last two years, as Panane pointed out, we will focus in our strategic sectors, I mean mortgages, middle market, top rate including real estate. As a matter of fact, we didn’t increase at all our almost at all our freight portfolio in unsecured retail and in SME. As Thomas mentioned, we will elaborate on it more in our conference on March 20, but we are in a position in which we are looking also at the other segment that I mentioned. And we are looking what we examine what would be the best point in time to start increasing our market share also in these areas.

Hannan Friedman, President and CEO, Bank Lumi: Okay. Thank you for that. I have one more question. As we have already taken significant collective provisions over the last six quarters, What is the reasonable allowance level going forward?

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: So, first of all, I would like to mention again that the specific provision in the last few quarters was negative. Also on annual basis, it was negative. So on the one hand, we cannot maintain the specific provision at a negative level forever. So I expect that somewhere along the way, we’ll start to see some increase in the specific provisions, so it will be a positive number. On the other hand, the collective provision that we build a very conservative buffer in our collective provision without the October war in 2023.

We didn’t solicit it yet because we are cautious. So on the other hand, we expect that the collective provision will remain low. So the bottom line is that we expect the credit loss expense ratio to remain low in the next week.

Hannan Friedman, President and CEO, Bank Lumi: And maybe

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: if I may, I

Hannan Friedman, President and CEO, Bank Lumi: will add additional sentence. In Israel, there is a direct and strong connection between the rate of unemployment and specific provisions. The expectation, the forecast for the coming years is that the label industry will be very sticky. So expectation is for almost zero unemployment rates, which means lower risks in this respect. Thank you.

If I may, one final one. As all banks are now mostly sitting on excess capital, are you seeing any margin pressure anywhere?

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: Well, there is competition all over. But as you see, we are the result. We have already to deal with that because at the end, the choice of the customer is not based only on the price. It’s based on the service. It’s based on your appetite for business, it’s based on technology, on our different AI vehicles.

So at the end, the competition is there already. And if you look at the margin, excluding the CPI effect, you will find that in the you can see that in the last few quarters, the NIM is quite stable. Of course, if the interest rate goes down or the CPI goes down, it will have a negative effect on the NIM. On the other hand, the NIM is also affected by the mix of the credit portfolio. And as I mentioned earlier, we were very cautious in the segment that pay IRUs, but higher credit losses.

And also, in the last two years, there was a significant movement from client account over time deposit. And if the interest rate goes down, I assume that we will see maybe some turnaround in this trend. So the bottom line is that and the need is a small composition of the margin on loans and the interest rate on our deposit. So the bottom line is that we were able to keep the NIM quite stable in the last few quarters, and we believe that also when we look forward into 2025, we have the capabilities to keep it quite stable.

Hannan Friedman, President and CEO, Bank Lumi: Thank you. That is it from me. Thank you.

Conference Operator: The next question is from David Kaplan of Tagovt. Please go ahead.

David Kaplan, Analyst, Tagovt: Hi, everyone. I have two, I think probably quick questions. On your guidance for capital return of a minimum of 50%, that’s up from the current 40%. The additional 10% you are also planning to split between cash and buyback or are you planning on leaning more towards one of them?

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: First of all, now for years, we combined the dividend by buyback and dividend and cash. So when we increase the ratio, the minimum was 40%, of course, subject to the limitation of the bank of business. Our preference is to mix it and to split it between buyback and cash.

Hannan Friedman, President and CEO, Bank Lumi: We believe there is also the preference of most of our investors and then of the day we hear them. We are not able to reach a consensus among them. So we believe that we make the right balance and we will continue with similar balance going forward.

David Kaplan, Analyst, Tagovt: Okay, great. Thank you. And on the second question, the how do you see the sustainability of your cost to income ratio? What you produced in 2024 was quite impressive, seemingly mostly driven by top line expenses stayed kind of flat over the course of 2024 versus 2023. So going forward, do you think that’s a sustainable cost income ratio?

Or do you expect if there’s contraction of either interest rates or of inflation that you expect a cost to income ratio to range back towards the mid-30s?

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: Okay. So first of all, as Fernand pointed out, this year, again, as we did consistently in the last few years, we were able to increase our income significantly by around 10%, while maintaining our expenses at the same level. That’s what we did in 2024, that’s what we did in 2023, that’s what we did in the last few years. We believe we have the capability to continue increasing our income and maintaining our both more or less at the same area. As you mentioned, of course, if interest goes down, it has a negative effect on income.

But we have other ways to increase the income by increasing our business. So we believe we have the capabilities to maintain our cost income ratio around the current ratio and maybe even to improve it.

Hannan Friedman, President and CEO, Bank Lumi: Yes. On the expenses side, we have many more initiatives in the pipeline and we strongly believe that it’s not just a matter of efficiency and cost reduction, it’s also a matter of risk management, operational risk management and on top of it is a matter of making the customer experience and the bankers experience much better, which has a material impact on our ability to make our business much healthier and much stronger.

Conference Operator: The next question is from Valentina Soikova of Barclays. Please go ahead.

Valentina Soikova, Analyst, Barclays: Thank you very much for the presentation and congratulations on the good results. My first question is regarding the implications for capital. So you’re targeting faster, longer than 2024 and high distribution from profits. So I was wondering what is needed for your Tier one buffers? And is there any minimum target level that you can share with us?

And then my next question is on your Tier two. It will be great if you can share your thoughts on the Tier two call option and also any bond issuance plans that you have budgeted for this year.

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: Okay. Ivan and Tina, thank you for your question. First of all, regarding our equity surplus, so as Sargine and Panan pointed out before, currently, we are at the level of 12.2%, much, much higher than our regulatory requirements, which are 10.2%, so it reflects around NIS ten billion tonsils. Now we have different buffer and limitation above the 10.2%. First of all, we have internal buffer of at least 10.6% in our CET1.

On top of it, we have in our buyback plan a threshold in which if the CET1 goes below 10.8%, so we stop the Vibra plan. We have different threshold regarding dividend. So it’s not one answer. We have different threshold, which has the capability to respond to any eventuality. But currently, our CET1 is significantly higher above this buffer.

Now as for our Tier two series, our preference, of course, is to call it on time. We had a few local series till now that we call them on time. But of course the final decision will be taken in the second half of the year.

Conference Operator: The next question is from Liran Loublin. Liran, please go ahead. Open your mute.

Liran Loublin, Analyst: Hi. Thanks for taking my question. Congratulations on very impressive results. We’re seeing price pressure building up in the housing sector in Israel and you’re obviously your exposure to real estate is obviously material. How do you see that risk profile developing in the coming years?

Hannan Friedman, President and CEO, Bank Lumi: So maybe I will start and Nominal will elaborate. At the end of the day, we are focusing on housing. And in Israel, we still have a greater and greater buffer between demand and supply, a shortcut between demand and supply. And they will make it even worse because the timeframe between starting a project and completing a project became longer and longer. Part of it is lack of employees and there are other issues.

And the Israeli population is increasing by almost 2% year after year. So the expectation for the at least for the coming decade is that the shortage will not be closed and will keep at least on the level that we have today. Now it’s true that the price of apartments cannot increase every year by eight percent like it happened in the year of 2024. But still, the demand creates a pressure and creates psychological pressure on young couples to buy a partner as soon as possible, otherwise they will pay much more. Now regarding our portfolio, so we don’t have any project with affordability percentage of less than 25% and over 82% of our portfolio.

The observation rate is greater than 50%. So even if those come to worse and prices decrease by 20%, we are still we still are not expected to suffer any losses. And as I mentioned, for 82% of the book even 4045% will not harm us. And you see it also not just from these figures, you see it from the impressive NPS that we have for a long period of time Since we underwrite each and every project carefully and we are supervising each and every project carefully, we prove year after year the quality of our loan portfolio, mainly in the real estate segment. And I believe that you will not find banks with so strong affordability ratio that again, I repeat the figure.

We don’t have even one project with less than 25%. And so on, please Maybe

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: I have a few more comments, one of which I’ll mention. First of all, when you look at the NPL, the NPL in EBITDA is 0.4% lower than our average NPL. When you look at the public debt ratio, it’s 1% lower than the average ratio is 1.45%. And as far as I remember, the best in the market despite the fact that we have the biggest market share and the biggest pace of growth in real estate. Now when you talk about real estate, the vast majority of our exposure is, as you’ve mentioned, to residential construction real estate.

And we have lots of mitigation around that. Panam mentioned a few of them, the adoption rate, which is very strong in this area. There is even no one project with the absorption rate below 25%. It’s very well diversified, very well geographically diversified, almost very little exposure to high end and luxury apartments. We have very strong guarantees in lots of cases, even personal guarantees, very strong collateral.

And also the way it works in Israel is very different from the way it works outside of Israel because in Israel, when the settlement is final and binding and the customer pay payment over the period of the project. So the risk involved in infrastructure real estate are relatively low. You see it here the number. The number are very clear. The NPLD is low for a long period and the charges that are low also for a long

Liran Loublin, Analyst: Thank you very much. That’s very helpful.

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: Thank you, Vedant.

Conference Operator: The next question from the chat from Vinod Surendran. Can you please comment on your funding plans? Any plans to approach euro bond market to issue USD senior UNSEC notes or capital instruments including AT1s and T2s? Second question, update on asset quality, which sectors are expected to see deterioration in 2025 and ahead?

Omeziv, Deputy CEO and Head of Capital Markets Division, Bank Lumi: Okay. So for the first question, in Israel, we are not allowed to hold the AT1, none of the bank issue AT1. As for senior or Q2, first of all, every year, we do a few issuance of senior and also almost every year, we take the Tier two Syria. And every time we look at it on we look very better or more efficient to do it either in Israel or outside of Israel. It’s part of our regular way of business in this year.

And we already issued a few series in Israel and we intend to issue more senior and maybe two in the next following quarters and we will decide based on the circumstances and the numbers in the field whether to do it locally or internationally. Of course, we have interest to do it both to meet it because we want to build our tier also outside the Omidor. Now as for the asset quality, I think the numbers fit for themselves. As we mentioned, the NPL is the lowest in the market, 0.5%. The travel debt ratio is the lowest in the market.

Now, Of course, the sectors that are most exposed to any deterioration in the economy are the unsecured retail and the SMEs. And I would like to mention that these two sectors are only 13%, one point three % of our total credit portfolio. In the last few years, we were very cautious regarding this segment because of the risk involved in this segment and despite the fact that these sectors have higher margin. So this sector, which pays the highest margin of those are the most exposed 20 deterioration in economy and are only 13% of our total trade.

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