Israeli Bank Stocks Surge in July Ahead of Earnings Reports
After a sluggish performance for most of the year, Israeli bank stocks experienced a significant rally in July, with the banking sector index rising nearly 10%, outperforming the broader Tel Aviv 35 index which increased by only 2%. Since the start of 2026, bank stocks had risen 16%, compared to a 38% jump in the TA-35, but the July surge marked a notable turnaround. This rally comes just before the banks begin releasing their second-quarter earnings reports starting next week.
Market analysts attribute the recent strength in bank shares to a combination of relative calm in the regional conflict and expectations of strong financial results. However, some experts, including Amit Federman of Midroog, caution that the gains mainly reflect a correction after previous declines rather than a fundamental shift in the sector’s outlook. Banks continue to face challenges such as declining interest rates, inflation, increased taxation, and rising competition, which are expected to pressure profitability. Positive developments in the housing market and stabilization of property prices could support sentiment toward banks, which are heavily exposed to real estate and construction sectors.
Among the top performers in July were Mizrahi Tefahot, which surged 12.5%, and Bank Hapoalim International, up 10%. Both banks have controlling shareholders and significant exposure to the mortgage market, which recently saw record demand. Mizrahi Tefahot is valued at approximately 58 billion shekels, while Bank Hapoalim International trades at about 23 billion shekels. The latter is also undergoing a managerial downsizing initiative expected to reduce costs and improve returns.
Leading Israeli banks Leumi and Hapoalim posted more moderate gains of nearly 7% and 6%, respectively, with market capitalizations of 106 billion and 97 billion shekels. Discount Bank lagged behind, rising only 5% in July and down 3.85% year-to-date, partly due to disappointing first-quarter results and concerns over restructuring costs amid plans to merge with Mercantile Bank. Despite this, some analysts see Discount Bank as a buying opportunity given its lower price-to-book ratio compared to peers and ongoing efficiency measures.
The upcoming earnings season, starting with Bank Hapoalim on Tuesday, followed by Leumi, Bank Hapoalim International, Discount, and Mizrahi Tefahot, is expected to provide clearer insights. Liran Lublin of Total Capital hedge fund forecasts a strong quarter for banks, with double-digit return on equity around 14%-15%, and no immediate signs of significant loan loss provisions. Investors remain cautious but hopeful that the sector’s recent rally will be supported by solid financial results.
