Israeli Banks Show Billions in Quarterly Profits Amid State Levy on Excess Earnings

The latest quarterly reports from Israeli banks reveal significant profit disparities within the sector. Bank Leumi, Israel's largest bank by assets, reported a net profit of 2.83 billion shekels for the second quarter of 2026. In contrast, Bank Hapoalim, one of the five major banking groups but smaller than Leumi, earned 583 million shekels, just over one-fifth of Leumi's profit.

Bank Hapoalim notably declared dividends totaling 558 million shekels, nearly matching its quarterly profit. About half of this dividend stems from current quarter earnings, while the remainder comes from accumulated past profits. This dividend payout highlights the banks' strong capital positions despite varying profit levels.

This year, a special levy imposed by the Israeli government on banks' "excess profits" has impacted reported earnings. After negotiations, banks agreed to pay a total of 3 billion shekels in 2026 and an additional 125 million shekels in 2027 to the state. This measure responds to the banks' exceptional profits in recent years, partly driven by rising interest rates, and the government's need to increase revenues and reduce the deficit.

Without this special tax, Bank Leumi's quarterly profit would have been approximately 3.1 billion shekels, with a return on equity (ROE) of 17.9%, compared to the actual 16.3%. Bank Hapoalim's ROE would have increased from 16% to 17.8%. Although the levy reduces profits by several hundred million shekels, banks continue to demonstrate strong profitability and distribute substantial dividends to shareholders.

The current earnings season began with Bank Hapoalim's report of a 2.49 billion shekel net profit and a plan to distribute half as dividends. Investors responded positively, with the banking sector index rising about 2.5%. In the coming days, Mizrahi Tefahot and Discount Bank are expected to release their quarterly results, completing the sector's financial picture for the period.