Discount Bank Reports 8% Profit Rise to 1.2 Billion Shekels Amid Staff Cuts

Discount Bank, led by CEO Avi Levi, reported a net profit of 1.2 billion shekels in the second quarter of 2024, marking a 7.9% increase from 1.12 billion shekels in the same period last year. The bank's return on equity (ROE) rose to 14% from 13.6% in the previous year. Discount is the fourth Israeli bank to release quarterly results following Bank Hapoalim, Bank Leumi, and Israel Discount Bank. Its ROE remains the lowest among the four, but excluding subsidiaries Discount New York and CAL, the ROE matches Hapoalim’s at 15%.

Discount Bank announced a dividend payout of 40% of quarterly net profit, totaling 481 million shekels, lower than the 50% payout ratio of other banks. The board cited capital needs and the timing of CAL’s planned sale as reasons for the decision. Adjusting for special tax effects and CAL separation provisions, net profit increased by 3.9% to 1.32 billion shekels, with an adjusted ROE of 15.4%.

The bank’s credit portfolio grew 5.4% year-to-date to 304 billion shekels, driven mainly by a 12.3% rise in large business loans to 108 billion shekels and a 4.6% increase in mortgage loans to 83 billion shekels. Small and microbusiness credit declined by 2% to 38 billion shekels. Despite credit growth, net interest income fell 4.3% to 2.54 billion shekels due to lower prime rates, slower inflation, and margin compression. Non-interest income rose 10.9% to 923 million shekels, boosted by derivative activities, Nostro portfolio gains, and strong performance from Discount Capital investment arm.

Deposits totaled 361 billion shekels, with non-interest-bearing current accounts at 74.2 billion shekels. Fee income increased 7.8% to 589 million shekels, supported by securities, derivatives, financing fees, and currency exchange gains. Operating expenses and salaries dropped 5.3% to 1.52 billion shekels, improving operational efficiency ratios to 41.4% in Israel and 44% group-wide. This reflects accelerated cost-cutting under the Discount 2030 strategic plan, including AI integration and significant workforce reductions.

The bank expects to reduce staff by about 600 employees (8% of workforce) by the end of 2026, with 213 employees already retired and 264 more agreeing to voluntary departures in 2024. Annual savings from these reductions are estimated at 250 million shekels, with full effect by 2026-2028. Additionally, the board is considering fully merging Mercantile Discount Bank into Discount Bank to optimize resource allocation and create stakeholder value.

Credit loss expenses were 70 million shekels (0.09% of average credit portfolio), slightly higher than last year’s 60 million shekels but reflecting a sharp decline in collective provisions due to improved macroeconomic conditions. Asset quality remained stable, with non-performing loans at 0.65% and net write-offs at 0.13%.