Our financial stability, our measured and conservative risk management policy, our quick response as well as our advanced digital channels, have enabled the First International Bank to stand against the ongoing crisis brought about by the global pandemic, while continuing its growth and providing optimal service to its customers.
"Since the beginning of the crisis, the Bank has adopted a series of measures intended to be responsive to customer needs, helping them confront the new reality. This includes extending loans in large volume while providing a quick and professional response within the framework of State funds, deferral of loan and mortgage repayments, and increasing accessibility for customers through digital and telephonic means. Our focus toward technological innovation is reflected in a series of new initiatives: the opening of accounts online, obtaining investment consulting services by digital means advanced digital consultation, and a range of digital innovations that will be introduced in the near future.
In addition, the Bank continues its efficiency strategy with the efficiency ratio of the Bank improving significantly to a level of 60%.
Recently, the Bank achieved leadership in a competitive survey conducted among bank customers in Israel, reaching first place in a series of categories, in which customers rated the First International Bank in first place with regard to satisfaction from service. The Ministry of Finance also rated the First International Bank in first place among banks in Israel based on loan sizes granted to small businesses within the framework of the State secured fund guarantee.
The implications of the current crisis are reflected primarily in the increase in the collective provision, creating a reserve cushion, and in the reduction in the shekel and dollar interest rates. Despite these implications, the Bank succeeds in offsetting a part of these implications on profitability, by means of the continuing reduction in expenses and improvement in the efficiency ratio, which has reached 60%, presenting a return of 8%.
The First International Bank continues its preparedness given the ongoing crisis, while strictly maintaining high financial stability, efficiency, quality of assets and high capital and liquidity ratios.
• Net earnings of NIS 168 million and return on equity of 8.0% for the second quarter of 2020;
• Net earnings of NIS 339 million and return on equity of 8.1%;
• Earnings from current financing operations increased by 1.8% to NIS 1,409 million;
• Efficiency ratio reached 60.5%;
• Ratio of Tier I equity capital: 10.71%;
• Ratio of comprehensive capital: 14.01%;
First International Bank Group's Net earnings amounted to NIS 168 million in the second quarter of the year, in comparison to NIS 224 million in the corresponding period last year. Return on equity reached 8.0%. In the first half of the year, net earnings amounted to NIS 339 million and return on equity reached 8.1%.
Earnings in the first half of the year were impacted by the Corona pandemic crisis, mostly due to the steep increase in credit loss expenses primarily because of the crisis.
Impact of the Corona Crisis on the Financial Statements of the Bank
Expenses due to credit losses amounted to NIS 165 million in the second quarter of the year, compared to NIS 23 million in the corresponding period last year, a growth of NIS 142 million. The rate of the provision for credit losses in the second quarter amounted to 0.74%, as compared with 0.11% in the corresponding period last year.
Credit loss expenses in the first half of the year amounted to NIS 322 million, compared to NIS 59 million in the first half of last year, a growth of NIS 263 million. The rate of the provision for credit losses in the first half of the year amounted to 0.72%, as compared to 0.14% in the corresponding period last year.
The growth in credit loss expenses was primarily due to the impact of the changes in the macro-economic environment as a result of the Corona pandemic and the uncertainty affecting the condition of borrowers. Due to this uncertainty in the current environment, the Bank decided to increase the collective provision, which amounted to NIS 265 million in the first half of the year, with the majority of it amounting to NIS 234 million, in respect of the crisis.
In the first half of the year, due to the economic situation, the Bank recorded losses on investment in shares of NIS 44 million, most of it in unrealized losses due to a decline in the fair value of shares due to the Corona crisis. Likewise, a provision of NIS 17 million was recorded in respect of an impairment of bonds. Most of the losses and the decline in values were recorded in the first quarter of the year, while price increases in the capital markets were recorded in the second quarter.
Following the growth in customer activity in the financial markets, it is noted that there was an increase in income from capital market and foreign currency operations.
Financing profit from current operations increased in the first half of the year by 1.8%, in comparison with the corresponding period last year, and amounted to NIS 1,409 million.
The profit from financing operations was negatively affected by a reduction in income from differences in the CPI linkage, totaling NIS 43 million, in comparison to the corresponding period last year.
Total commission income increased by 8.8% (approximately NIS 56 million) to NIS 691 million. Most of the growth was due to the increase in activity on the capital and foreign currency markets, areas in which the Bank specializes. However, the growth was partly offset by the reduction in income from ledger fees and credit cards, which was due to the decline in the volume of activity as a result of the crisis.
The growth in the activity of the Group is noted also in the balance sheet data, both on the credit side and on the deposit side. Deposits from the public increased by 7.6% in the first half of the year amounting to NIS 129,160 million; of which, household and private banking deposits increased by 26.8% amounting to NIS 69,261 million. The average balance of credit to the public amounted to NIS 89,465 million in the first half of the year, a growth of 1.7% in comparison with that of the end of 2019 and a growth of 5.2% in comparison with the end of the corresponding period, last year.
The Bank continues to improve efficiency in accordance with its strategic outline, with the efficiency ratio improving in the first half of the year to 60.5% as compared with 64.4% in the corresponding period last year. Operating and other expenses amounted to NIS 1,254 million, 7.2% lower when compared with the corresponding period last year. This also represents a reduction of 1.9%, when excluding employee bonuses, employee severance and efficiency measures taken last year. The reduction in expenses is noted in most of the expense items, including payroll and related expenses, which declined by 3.6% after elimination of the employee bonuses, and maintenance and depreciation of buildings and equipment expenses, which decreased by 4.4%.
The capital attributed to the shareholders of the Bank reached NIS 8,712 million. The Tier I equity capital ratio reached 10.71% (2.4 percentage points over the regulatory requirement) in comparison to 10.81% at December 31, 2019, and the comprehensive capital ratio reached 14.01%.
During the crisis period, the local credit rating companies recently ratified the rating of the First International Bank, at AAA, the highest rating in the banking system, similar to that of the other major banks.