Mizrahi Tefahot Reports Profit Decline Amid Mortgage Market Risks in Israel

Mizrahi Tefahot Bank concluded the second quarter of 2026 with a 1.7% decline in net profit to approximately 1.43 billion shekels and a return on equity drop from 17.8% to 16% compared to the same quarter last year. Despite a 0.54% increase in pre-tax profit to 2.43 billion shekels, the bank, led by CEO Moshe Lari, announced a 50% cash dividend payout totaling 714 million shekels. However, unlike peers Leumi and Hapoalim, a significant portion of Mizrahi’s dividend, about 295.8 million shekels, will go to its controlling shareholders, including Eyal Ofer and the Wertheim siblings.

Mizrahi Tefahot holds Israel’s largest mortgage portfolio at around 253 billion shekels, nearly 40% of the national mortgage market. While the portfolio grew 8.7% year-over-year, net interest income fell 2.6% to 3.01 billion shekels due to lower inflation and interest rates, which reduce the benefit of index-linked loans. The bank partially offset this through a fourfold increase in non-interest income and a 2.7% reduction in operating expenses. Mortgage refinancing surged by 38.8% as borrowers sought to adjust to falling interest rates, with only 17.9% of the portfolio linked to prime rates.

Credit quality concerns emerged as non-performing loans (NPLs) in the mortgage portfolio rose to 1.03%, higher than competitors Leumi and Hapoalim, reflecting a higher average loan-to-value ratio of 55.5%. Despite this, net write-offs remained at zero, supported by strong collateral. Additionally, Mizrahi expanded its exposure to real estate developers, with total credit risk surpassing 100 billion shekels, a 20.5% increase year-over-year. Problematic loans under special supervision rose 20.6% to 5.74 billion shekels, signaling early warning signs amid a challenging market with 84,000 unsold homes and prolonged construction times.

The report highlights a critical risk: the slowdown in new home sales could eventually impact mortgage growth, which has so far been sustained by pre-signed contracts from previous years. Developers’ use of 20/80 payment plans, requiring buyers to take large mortgages only upon receiving keys, has delayed risk realization. If the housing inventory glut persists, Mizrahi’s mortgage growth engine may face significant headwinds amid shrinking interest margins due to inflation moderation and rate cuts.