CEO Statement
Dear Investor
The date of publication of the financial results of the First International Bank for 2020 marks one year of the Corona crisis, a global health crisis, the impact of which on society and on the economy has been highly significant. Despite the improvements brought about by the significant immunization process going on here in Israel, uncertainty still remains high.
The First International Bank faced the current crisis by being preparing to provide optimal service to its customers which is demonstrated by the growth that is noted in the credit portfolio and in the customer asset portfolio. Throughout the crisis, the Bank has demonstrated its stability and its solidness, due to its qualitative and diverse credit portfolio, high liquidity, adequate capital cushions, high quality customers, and diversified growth from various market sectors. The Bank continues to implement efficiency measures, and notwithstanding the above, and in consequence of the uncertainty – has increased significantly its collective provisions for credit losses, increasing its security cushions for the future.
Throughout the crisis period, the Bank has provided customers with support and service across all areas of operation, providing credit guaranteed by the State, and allowing its customers to defer repayments of loans and mortgages. Since the beginning of the crisis, the Bank has acted for the benefit of its private and business customers, it has located and identified those who had been affected by the crisis, and provided them with solutions that would help them in overcoming the difficult period.
Another facet of the Corona epidemic has been the accelerated use of digital banking. Over the past few years, the First International Bank has updated its technological infrastructure, allowing it to show leadership in providing digital services across all banking areas. The Bank met the crisis, which created an ever-growing need for digital banking services, with advanced digital capabilities. In the current year, these capabilities have made it possible for us to create a series of breakthrough developments in all areas of operation, some of which are unique and exclusive in the capital markets, where we have made available: investment consulting, pension consulting and self-trading by digital means, enabling our customers to operate in the markets conveniently and efficiently.
Financial Highlights:
• Net earnings of NIS 750 million in 2020;
• Return on equity: 8.6%;
• Net earnings of NIS 210 million in the fourth quarter;
• Return on equity: 9.6%;
• Growth in credit - the average balance of credit to the public grew by 5%;
• The average balance of deposits from the public grew by 13.1%;
• The average balance of private customer's deposits grew by 15.9%;
• The Bank continues to increase efficiency: operating and other expenses decreased by 3.2%;
• Ratio of Tier I equity capital to risk assets: 11.18%;
• High quality credit portfolio: low rate of loan payment deferrals standing at 1.9% at December-end and 1.0% at end of January;
Profitability
Net earnings in 2020 of the First International Bank Group amounted to NIS 750 million, as compared to NIS 865 million in 2019. Return on equity was 8.6%. In the fourth quarter of the year, net earnings amounted to NIS 210 million, as compared to NIS 201 million in the third quarter, and fourth quarter return on equity was 9.6%.
Implications of the Corona Crisis on the Bank's Financial Statements
Given the background of the Corona pandemic, its impact on the macro-economic environment and the considerable uncertainty that followed, the Bank increased expenses in respect of credit losses. Total Credit loss expenses in 2020 amounted to NIS 464 million, in contrast to NIS 138 million in 2019, an increase of NIS 326 million. All expenses for credit losses stem from the growth in the collective provision. The total amount of credit loss expenses includes expenses of NIS 402 million, were recorded in respect of the uncertainty following the widening Corona pandemic and its implications on the macro-economic environment. The ratio of credit loss expenses to total credit to the public in 2020 amounted to 0.52% compared with 0.16% in 2019.
The provisions in the fourth quarter of the year amounted to NIS 51 million, (collective provisions) compared with NIS 46 million in the corresponding quarter last year. The ratio of credit loss expenses to total credit to the public was significantly reduced compared with earlier quarters of the year, and amounted to 0.23% in the fourth quarter as compared to 0.22% in the corresponding quarter last year.
The volume of loan repayment deferrals showed an improved and steep downward trend, which indicates the quality of the credit portfolio and the quality of the Bank's borrowers. The amount of credit, under which repayments had been deferred, declined by 75% in the period from June 30, 2020 to December 31, 2020, and until January 31, 2021, by 86%. The ratio of deferred repayments to total credit reached 1.9% at the end of December and 1% at the end of January, a low ratio when compared with the Israeli Banking system as a whole.
Growth
Net interest income increased by 1.3% in comparison to that of 2019, and amounted to NIS 2,637 million, with the increase due mainly due to the growth in volume of operations. Commission income demonstrated growth at the rate of 6.6% in 2020, amounting to NIS 1,371 million. Most of the growth was due to growth in income from capital market activity and currency exchange, the increase explained by growth in operations. The growth in activity of the Group is also demonstrated by the balance sheet data, both on the loan and deposits sides: the average balance of credit to the public increased by 5% reaching NIS 89,742 million. The accelerated growth rate was characterized by the continuous diversity of credit and is evident in the corporate market business segment, which has grown by 5%, in the small businesses segment, which has grown by 7% and in the residential loan segment, which has grown by 8.4%.
The average balance of deposits from the public grew by 13.1% to NIS 129,859 million. The average balance of deposits by private customers grew by 15.9% to NIS 67,817 million.
The customer assets' portfolio grew by 14.7% to a total amount of NIS 530 billion, when compared with that of December 31, 2019.
Financial stability
The Bank has a significant capital surplus: the growth trend continued with respect to capital attributed to shareholders of the Bank, which grew by 6.7% (NIS 573 million) to NIS 9,141 million. The Tier I equity capital ratio reached 11.18% as compared to the required regulatory ratio of 8.3%.
Efficiency
The First International Bank continued to improve efficiencies in accordance with its strategic plan and in 2020 the efficiency ratio improved to 61.8%, in comparison to 64.4% in 2019.
Operating and other expenses in 2020 amounted to NIS 2,569 million, a decrease of 3.2% when compared to that of 2019. The decrease in expenses was due to efficiency measures applied by the Bank and is noted across all expense items. The efficiency trend is reflected by the decrease in the number of employee positions, which declined by 5.3% in 2020, due to efficiency measures taken, which, among other activities, included a voluntary retirement plan implemented towards the end of the year. Settlement expenses in respect of this plan were recorded in the fourth quarter, and the outcome of this plan is expected to be reflected in reduced expenses in the upcoming years.
Digital
The social distancing imposed by the Corona pandemic led to a significant increase in the use of digital. The Bank has invested in the development of new digital services, which led to a continuation of progress and technological growth at the Bank. A sharp increase has been noted in the use of digital banking by the public, including the use of the many advanced innovations introduced by the Bank. Among these include FibiPay - the new digital wallet of the First International Bank, the opening of an account digitally, digital pension consulting as well as further unique services, such financial consulting over Zoom, among others. These have come in addition to innovative developments such as the digital consultation system Advise.me, and the unique trading system allowing independent traders to conduct advanced investment strategies – SmarTrade.
Smadar Barber-Tsadik
