Direct Financing Profits Drop 26% Amid Rising Mortgage Defaults
Translated & summarized from Calcalist by baba
Direct Financing reported a 26% drop in net profit for Q3 2026, with revenues down 9% to NIS 442.5 million. While its vehicle financing sector saw improved profitability due to cost-cutting, its mortgage division experienced a 43% rise in loan volume but a 64% plunge in net profit. Defaults in the mortgage portfolio nearly doubled, and the company's stock has significantly underperformed the market.
The story in 5 lines · by baba
- Direct Financing's Q3 net profit fell 26% to NIS 49.3 million, with revenues down 9%.
- Mortgage loan defaults nearly doubled to NIS 186 million, up from NIS 88 million.
- Mortgage sector profits dropped 64% despite a 43% increase in loan origination.
- Vehicle financing profits rose 43% due to efficiency measures and cost reductions.
- The company's stock has gained only 1.4% in the last year, lagging the market.
Direct Financing, an Israeli credit company, reported a 26% decrease in net profit for the third quarter of 2026, falling to NIS 49.3 million from NIS 66.7 million in the same period last year. The company's financing revenues also declined by 9% to NIS 442.5 million.
Direct Financing operates in two main sectors: vehicle financing and mortgages/real estate-backed loans. While the vehicle sector experienced a stagnation in new loan volume, its profitability improved due to efficiency measures. The company's vehicle operations generated NIS 345.4 million in revenue, a 4% decrease year-over-year, but net profit in this segment rose by 43% to NIS 34 million. This profit increase was attributed to a 10% reduction in marketing, sales, and administrative expenses, amounting to NIS 15 million, implemented under CEO Eran Golan.
In contrast, the mortgage and real estate-backed loan sector saw significant growth in activity but a sharp decline in profitability. The company issued NIS 742 million in new mortgages and loans, a 43% increase. The total mortgage portfolio grew by 52% year-over-year to approximately NIS 3.4 billion. However, mortgage revenues dropped by 23% to NIS 97.1 million, and net profit in this segment plummeted by 64% to NIS 15.3 million. This profit decrease was partly due to the absence of a significant securitization deal that boosted earnings in the prior year's quarter.
Direct Financing is facing increased competition in the mortgage market, leading to a lower average interest rate charged to customers. The company's financing margin in this sector decreased from 4.18% in September 2025 to 3.99% in September 2026. The quality of the mortgage portfolio also showed signs of weakening, with credit losses rising to 0.34% from 0.14% year-over-year. Additionally, about 19.4% of the mortgage loan principal is secured by a second lien only, indicating higher risk for that portion of the portfolio. Defaults in the mortgage portfolio increased to NIS 186 million, up from NIS 88 million in the prior year's quarter.
Direct Financing, owned 45% by the Shindman family, has a market capitalization of NIS 1.7 billion. Its stock has risen only 1.4% in the past 12 months, significantly underperforming the TA Finance Index, which gained 25.4%.