May 24, 2018 / 9:35 AM / a month ago

UPDATE 1-Israel's Bank Leumi Q1 profit up, to start share buyback next week

(Adds details on buyback plan, share reaction)

By Steven Scheer

JERUSALEM, May 24 (Reuters) - Bank Leumi, Israel’s second-largest lender, reported a smaller-than-expected 17 percent rise in first-quarter profit, and said it would start a share buyback plan next week.

The bank said it had completed preparations for a buyback of shares of up to 700 million shekels ($196 million) and would start buying next week until March 31, 2019, subject to meeting a Tier 1 equity ratio of no less than 10.9 percent.

It noted that once the programme was completed, it would likely seek regulatory approval for another buyback round, which it believes is equivalent to a dividend payout of about 65 percent of profit.

The central bank currently allows bank dividends of up to 40 percent of profit. As such, Leumi declared a 292 million shekel dividend for the first quarter.

Leumi said on Thursday it earned 730 million shekels in the quarter, up from 622 million a year earlier. It had been forecast to earn 769 million shekels, according to a Reuters poll of analysts.

Net interest income rose 7.1 percent to 2 billion shekels, although non-interest income dipped 13.4 percent due to an appreciation of the shekel and weak capital markets during the first three months of the year.

Credit loss expenses grew 28.7 percent to 130 million shekels due to more risky loans.

Still, the bank noted it has become more conservative in its lending policies and is opting not to increase its retail activity. Rather, it has increased lending to small and mid-sized businesses.

Part of Leumi’s growth is coming from its launch last year of digital bank Pepper, which has tens of thousands of customers.

The bank’s Tier 1 ratio, which measures equity capital as a proportion of total risk-weighted assets, fell to 11.11 percent at the end of March from 11.43 percent at the end of 2017.

Later this year, Leumi expects to post a pre-tax profit of 118 million shekels from the sale of 65.72 percent of Avgol Industries to Bangkok-based petrochemical producer Indorama Ventures.

Leumi rival Hapoalim, Israel’s largest bank, on Thursday posted lower quarterly profit, weighed down by a provision related to an ongoing U.S. tax evasion investigation.

Leumi’s shares were up 0.2 percent at midday in Tel Aviv.

$1 = 3.5701 shekels Additional reporting by Ari Rabinovitch; Editing by Adrian Croft

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