Naoi 2025: The Book Grew Fast, Now Comes the Proof Year

Company Overview

Naoi ends 2025 as a non-bank lender that is no longer just a discounting player. In practice, this is now a large business-credit platform with a clear emphasis on residential real-estate finance, secured transactions, and larger borrowers that already work with banks and the capital markets. The total credit book reached NIS 5.249 billion, 73% of it is secured, and 53% matures within 180 days. What works right now is scale, access to funding, tighter underwriting than in earlier years, and the ability to enter deals that smaller lenders struggle to carry.

A quick read can still miss the main point. The 2025 headline looks very strong: finance income of NIS 459.1 million, net profit of NIS 235.6 million, a 25.84% return on equity, and an equity market value of about NIS 1.717 billion in early April 2026. That is only half the picture. Inside that profit sits NIS 64.989 million of other income from the Isracard dividend and a debt-settlement distribution, while net finance income rose only to NIS 267.2 million from NIS 237.0 million, far below the growth rate of the book.

That is also the active bottleneck going into 2026. This is not a classic liquidity problem, not a debt wall, and not an immediate funding-access concern. Quite the opposite: Naoi has a large regulatory capital surplus, open credit lines, an ilA+/ilA-1 rating with a stable outlook, and proven access to both banks and the capital markets. The bottleneck is quality of expansion: can a book that grew by more than NIS 1.3 billion in a single year keep producing high returns without another investment dividend tailwind, and without the cost later showing up in provisions, margins, or heavier dependence on external funding.

That is why the story matters now. Naoi no longer screens like a small lender looking for capital. The market values it above book, short interest is only 0.03% of float, and the debate has moved from the basic question of whether the company can grow to the tougher question of whether it can digest that growth without harming earnings quality. Two newer growth lanes also sit on top of that story: Naoi et Luzon Mortgages, which only started operating in December 2025, and the post-balance-sheet permit to hold up to 9.99% of Direct Finance. Both create optionality. Neither has yet produced an earnings proof point.

Four points a fast read can miss:

• The total credit book jumped 33.2% to NIS 5.249 billion, but net finance income rose only 12.8% to NIS 267.2 million.
• The overall allowance ratio barely moved, 1.00% versus 0.99%, while Stage 3 balances jumped to NIS 145.3 million from NIS 32.4 million.
• Operating cash flow was negative NIS 861.5 million, but for a non-bank lender that is not a weakness signal by itself. It reflects aggressive book growth funded through NIS 840.7 million of financing inflow and unused facilities.
• Naoi et Luzon already sits on a NIS 90 million capital note and a purchased mortgage portfolio, but its 2025 contribution to profit was still negative and immaterial, minus NIS 702 thousand.

The economic map looks like this:

Events and Triggers

The Isracard exit cleaned up the story, but also distorted the comparison base

The biggest event in 2025 did not come from the credit book. It came from an older financial investment. Naoi sold the rest of its Isracard stake in July 2025 for total proceeds of about NIS 144.1 million, and after the sale it no longer held the shares. In addition, it received NIS 62.3 million of dividends during the year, so total proceeds from holding and monetizing the investment reached about NIS 206 million.

What matters here is not only the monetization itself, but where it sits in the report. The Isracard dividend ran through other income and boosted annual profit, while the gain from selling the shares mainly moved through equity via other comprehensive income. So anyone looking only at net profit can easily overread 2025 as if the entire jump came from lending. That is the wrong read. 2026 arrives without another dividend like that, which makes the comparison base materially tougher.

Naoi raised funding in almost every layer available to it

During 2025 the company increased bank funding by about NIS 507.1 million and capital-markets funding by about NIS 650.9 million. That included full repayment of CP series 5 through 7, expansions of series 8 and 9, issuance of CP series 10 and 11, and issuance of Series Z bonds in the amount of NIS 281.601 million par value. On top of that came a NIS 300 million long-term bank loan.

That matters for two reasons. On one side, it is clear evidence of funding access and of strong ties to both the banking system and the capital markets. On the other side, it also explains why equity as a share of the balance sheet declined. Naoi did not grow out of retained profit alone. It grew on a broader debt base, which means any discussion of return has to include the cost of funding as well.

Naoi et Luzon moved from promise to first activity, but not yet to earnings

Naoi et Luzon Mortgages was set up at the end of 2024, received its license in September 2025, and in December 2025 already purchased the mortgage portfolio from Tria Kehila. At the same time, Naoi extended a NIS 90 million capital note to the joint venture, while two Israeli banks provided credit lines. By year-end this was no longer just a strategic headline. There was a licensed platform, there was financing, and there was an acquired book.

But it is still not a proven profit engine. The joint venture contributed only a NIS 702 thousand loss in 2025, and its independent origination activity was explicitly described as still immaterial because it started only in early December. The right economic reading is that Naoi opened a new growth lane in consumer secured lending and mortgages, but for now the move still sits in the investment-and-capital layer rather than the earnings layer.

After the balance sheet came two opposite signals

After year-end the board approved a NIS 11.493 million dividend from fourth-quarter profit. Together with the earlier distributions, the total distribution out of 2025 profit reaches NIS 100.632 million, about 43% of annual net income. In parallel, Series V bonds were fully redeemed, and the company signed agreements with a bank to expand credit lines, so by the report date credit facilities from three banks stood at about NIS 4.02 billion, in addition to NIS 680 million of committed backup lines for private CP.

On top of that came another layer of optionality: on March 26, 2026 the company received a permit to hold up to 9.99% of Direct Finance's issued and paid-up capital. That does not mean Naoi already holds such a stake, and it certainly does not mean there is new earnings here already. What it does mean is that, after exiting Isracard, the company has not closed the door on adjacent financial investments.

Efficiency, Profitability and Competition

What really drove profit

The core story of 2025 is a gap between growth in activity volume and growth in the core engine. Finance income rose to NIS 459.1 million, up 22.4%. Finance expense jumped to NIS 191.9 million, up 39%. So net finance income rose only to NIS 267.2 million, up 12.8%, at the same time the total book expanded by 33.2%.

This is the single most important number to understand. Naoi did not lose its earnings engine. It still generates high returns, and the average annual rate on the customer book stood at about 10.2%. But much of the balance-sheet growth came with a much higher funding bill. Put simply, to carry a much larger book, the company had to buy more funding, and that funding already costs more.

Above that sits a layer of profit that is not core lending. Other income jumped to NIS 65.89 million from NIS 4.93 million, almost entirely because of the Isracard dividend. That is why net profit jumped 50.2% to NIS 235.6 million, while the core measure, net finance income after credit losses, rose to NIS 249.7 million from NIS 223.3 million. That is still a good increase. It is just far less dramatic than the headline.

Price, volume, and mix

Volume clearly did the work. The average book balance rose to about NIS 4.5 billion from about NIS 3.2 billion, which explains the income growth. But the mix changed as well. The company continues to move away from third-party discounting and lean more on loans backed by self-checks and collateral, especially in residential real estate. The real-estate share remained 73% of the book, but not in a random way. The company emphasizes diversification among developers, geographic spread, and focus on larger names whose senior financing is usually provided by banks or institutions.

That creates an interesting competitive edge. Naoi is not trying to be the first-ranking financier of a project. It wants to be the complementary layer, in places where speed, flexibility, and the ability to provide larger tickets matter more than the lowest price of money. That edge relies on two conditions: strong access to funding, and credibility with larger borrowers. In 2025 both still worked.

But there is also a cost. As the mix shifts toward more secured and more collateral-heavy exposures, part of the growth moves into deals that may look safer, but also consume more analysis resources, more project monitoring, and often more funding. So it is not right to read better collateral as if it comes free of charge.

Earnings quality remains the key question

Credit-loss expense rose to NIS 17.559 million from NIS 13.717 million. On its own that does not sound dramatic relative to the pace of growth, but the inner picture is more complicated. Specific expense on the customer book rose to NIS 10.476 million from NIS 9.255 million, and general expense on the customer book jumped to NIS 7.059 million from NIS 860 thousand. At the same time, gross Stage 3 balances rose to NIS 145.330 million from NIS 32.350 million.

And yet the overall allowance ratio stayed at 1.00% versus 0.99% a year earlier. That is the real tension in the report. On one side, the model still points to control, a better-collateralized book, and a low level of returned items. On the other side, the absolute stock of troubled balances is already much larger. So the right debate is not whether 2025 was a weak year. It was not. The right debate is whether 2025 merely pushed the quality test into 2026, or has already started hinting at it.

Competition is no longer only about price

In non-bank credit, price is only part of the game. Naoi is trying to differentiate through size, stability, collateral, speed of response, and analytical capability. That worked in 2025, and the company explicitly aims to be the largest, fastest-growing, and most diversified business-credit player in the sector. But from here competition becomes more layered, because the banks and the capital markets are not only indirect competitors for the borrower. They are also the funding suppliers for the platform itself. So any deterioration in funding terms will eventually come back to margins.

Cash Flow, Debt and Capital Structure

The right frame here is funding flexibility, not free cash flow

For Naoi, negative operating cash flow is not automatically a warning sign. It is part of the business model of a non-bank lender growing its book. So the right frame here is not industrial-style free cash flow, but all-in funding flexibility: how much room remains after actual book growth, dividends, and debt service, and how much of that room rests on equity versus banks and capital markets.

On that basis, 2025 looks like this: negative operating cash flow of NIS 861.5 million, driven mainly by a NIS 1.313 billion increase in customer credit; positive financing cash flow of NIS 840.7 million, including NIS 753.5 million of CP issuance, NIS 300 million of long-term bank debt, and NIS 279.7 million net from bond issuance; and at the same time actual cash uses of NIS 110.1 million of dividends and NIS 32.4 million of bond principal repayment.

The crucial point is that Naoi does not exit 2025 with a large cash pile. Cash on the balance sheet is only NIS 5.6 million. Flexibility comes from somewhere else: NIS 784 million of unused bank lines at year-end, NIS 1.184 billion of available lines near the report date, NIS 680 million of committed facilities backing private CP, and another line of up to NIS 200 million for purchasing tradable bonds. This is a flexible company, not a cash-rich one.

The funding structure became heavier

Total bank and capital-markets debt rose to NIS 4.317 billion from NIS 3.159 billion. Of that, bank debt stood at NIS 2.936 billion and capital-markets debt at NIS 1.381 billion. Equity did rise to NIS 1.015 billion, but its share of the balance sheet fell to 18.8% from about 22.1% at the end of 2024.

This move cuts both ways. On one side, it reflects a more mature platform with proven funding access, a stable rating, and the ability to layer sources across time. On the other side, it sharpens the fact that the next leg of growth will need to defend margin, because the margin for error is smaller when a bigger part of the book sits on debt.

Covenants and regulation do not look like the near-term risk

On the regulatory side the picture is comfortable. Required minimum capital at year-end 2025 was NIS 358.6 million, while actual capital for regulatory purposes stood at NIS 1.015 billion. That is a very large surplus over the requirement. In bank agreements, the company is also required to maintain tangible equity to assets above 15% and in any case above NIS 350 million, and it explicitly states that it meets the conditions agreed with the banks.

The book's maturity profile adds another layer of protection. 18% of the book matures within 30 days, 29% within 60 days, 53% within 180 days, and the part beyond one year stands at 33.9%. That does not make the story immune, but it does mean Naoi is not financing a very long book against very short sources with no room to move.

Outlook and Forward View

Before looking at 2026, four points need to be locked in:

• The 2025 jump in net profit is not a clean base for next year, because it included a large Isracard dividend.
• The rise in Stage 3 balances has already appeared, even if the total allowance ratio still looks calm.
• Funding flexibility is high, but it rests on banks and capital markets, not on surplus cash.
• Naoi et Luzon and the Direct Finance permit can expand the story, but for now they are still strategic optionality rather than proven earnings engines.

2026 looks like a proof year, not a breakout year

The company targets a credit book of about NIS 5.6 billion at the end of 2026 and about NIS 6.4 billion at the end of 2027. It also targets equity of about NIS 1.13 billion at the end of 2026 and about NIS 1.28 billion in 2027. The wording matters, because it says management is not expecting another year like 2025. It is expecting continued growth, but at a pace designed to digest the enlarged book rather than simply inflate it.

The right label for next year is a proof year. Not proof of demand, but proof of book economics. Can the larger book really produce cleaner core earnings without another investment dividend tailwind. Can provisions stay controlled even as the company sits deeper in real-estate-backed credit. And can the newer growth layers, Naoi et Luzon and perhaps new financial investments, add value rather than only consume capital.

What has to happen for the thesis to hold

The first test is margin. Net finance income needs to start reflecting the size of the book more clearly, even if not at the same speed as 2025 book growth. If funding costs keep rising faster than the core engine, the high profitability of 2025 will start to look like a cyclical peak.

The second test is credit quality. Management emphasizes a low level of returned items, stronger collateral coverage, and an external validation of the general allowance model in the fourth quarter. That matters, but the model itself places heavy weight on the pace of new home sales and is highly exposed to real estate. So if the sales and execution environment for developers weakens, the impact will come through both the model and the live book.

The third test is funding. As of the report date the picture still looks calm: a large capital surplus, open lines, a new bond series, and long-term bank debt. But in 2025 both capital-markets debt and bank debt grew as shares of funding. So the right question is not whether sources exist. It is at what price, and with what effect on returns.

The fourth test is whether Naoi et Luzon can move from a legal and balance-sheet framework into a real economic engine. At the end of 2025 its independent activity was still not material. If 2026 shows a growing book, visible independent origination, and an initial contribution to results, it will change the way the market reads Naoi. If not, it will remain mainly a strategic direction for now.

What the market may miss on first read

The first point is that the fourth quarter was less weak than a plain comparison with the third quarter suggests. Net profit fell to NIS 46.0 million from NIS 106.1 million in the third quarter, but the third quarter included about NIS 62.3 million of dividend income. Excluding that, fourth-quarter profit was actually about 5% higher than the third quarter. In other words, the core engine did not break in Q4.

The second point is that the market may look at the total allowance ratio and relax too quickly. The ratio stayed at 1.00%, but that is a flat reading. Inside the book, Stage 3 is already much bigger, and the general provision charge jumped mainly because of book growth. As the book keeps expanding, stability in the percentage will no longer be enough. The market will want to see stability in the absolute numbers as well.

The third point is that the permit to hold up to 9.99% of Direct Finance may be overread too quickly as a value-creating move. Right now it is only an option, not an earning asset. The real economic meaning starts only if the company actually uses the permit, and under what conditions.

Risks

Real-estate concentration remains high

73% of the book sits in real estate. The company tries to protect itself through collateral, borrower diversification, and geographic spread, but the concentration has not disappeared. It is simply better managed. In the general allowance model, the company also gives high weight to the pace of new home sales, which shows how central real estate still is to the thesis.

The funding layer is already less forgiving

When the book grows faster than equity, and part of reported profit leans on relatively non-recurring items like the Isracard dividend, the company becomes more dependent on keeping funding channels open at a reasonable price. So far that still works. If funding terms tighten, the damage may arrive first through margin rather than through outright credit stress.

The stability of the allowance ratio can mislead

An allowance ratio of 1.00% looks comfortable. But internally, the book is already showing more impaired balances, a bigger general charge, and more macro sensitivity to construction and housing sales. This is not a risk that demands immediate drama. It is a risk the market is likely to test much more closely in the next report.

New growth lanes can also consume capital

Naoi et Luzon is currently funded through a capital note and bank debt, and its independent activity is still at a very early stage. The Direct Finance option also sits, for now, in the optionality layer. If those moves become real profit engines, the thesis strengthens. If they remain capital-consuming moves without clear contribution, they will weigh on the read of the story.

Conclusions

Naoi ends 2025 in a position of operating and funding strength, but also with a much harder test than the bottom line alone implies. What supports the thesis today is the size of the book, the collateral layer, proven access to funding, and the fact that the company still delivers high returns on equity. The main blocker is that the core engine did not grow at the speed of the book, and the platform is now large enough that even a small deterioration in credit quality or funding cost will show up faster. In the short to medium term the market is likely to react mainly to whether 2026 shows real improvement in margin and book quality, not only more volume growth.

Current thesis: In 2025 Naoi built a larger and better-funded credit platform, but 2026 is the proof year for whether that enlarged book really produces clean core earnings rather than accounting profit or profit supported by investment dividends.
What changed versus the earlier read of the company: Naoi now looks less like a fast discounting player and more like a broader credit platform with real-estate, mortgage, and adjacent financial optionality. That improves the platform, but also requires more capital, more funding, and more discipline.
Strong counter thesis: One can argue that Naoi has already proven enough: borrower concentration remained controlled, a large share of the book is secured, regulation is not binding, and funding access stayed very strong. In that reading, 2025 is not a distorted year but the start of a higher earnings tier.
What could change the market reading in the short to medium term: updates on funding cost, line utilization, the pace of specific provisions, and whether Naoi et Luzon starts to show a real first contribution.
Why this matters: in a non-bank lender, value does not come from book size alone. It comes from the spread between asset yield, funding cost, collateral quality, and the ability to grow without consuming the equity base.