FIBI 2025: The Bank Still Earns, but Shareholder Value Is Still Trapped in the Structure

Getting to Know the Company

FIBI is not just another bank stock. It is a relatively clean holding company that sits above International Bank, owns about 48.34% of it, and as of the end of 2025 had no financial debt, no unused credit lines, and no guarantees for debt. That is why the superficial read, another good banking year that automatically flows upward, misses the core issue. At FIBI, the question is not only how much the bank earns, but how that value actually reaches FIBI shareholders.

What is working right now is fairly clear. Net profit attributable to FIBI shareholders reached NIS 1.089 billion in 2025, return on equity was 16.2%, public credit at the bank grew 13.1%, fees rose 14.4%, and problem credit fell 14.1%. The market is not signaling unusual suspicion either. FIBI's market cap stands at about NIS 10.9 billion, and short interest as a share of float was only 0.44% at the end of March 2026.

But what is not clean matters more. On February 3, 2026, FIBI invited International Bank to enter merger negotiations through a share-exchange transaction. On March 9, 2026, the bank approved roughly NIS 522 million of dividends to its own shareholders, of which FIBI's share was about NIS 247.5 million, yet FIBI's board decided not to distribute capital to its own shareholders at this stage. In other words, the excess capital exists, but it does not move automatically through the holding-company layer.

That is also why the story matters now. Anyone who reads 2025 only through the income statement gets the picture of a stable and profitable institution. Anyone who reads FIBI the way a holding company should be read will see that the active bottleneck is value access: a merger that may erase the holding-company layer, the CAL sale that may release capital and a one-off gain, and the question of FIBI's own capital policy.

The quick orientation map looks like this:

That map already sharpens the screening point. FIBI's main advantage is control of a high-quality banking asset through a parent company that is almost debt-free. Its main risk is that this same control layer also creates friction: tax, regulation, distribution decisions, and at least for now strategic uncertainty around a merger. This is not a weakness story. It is a structure story.

Events and Triggers

Trigger one: the merger invitation with International Bank

On February 3, 2026, FIBI invited International Bank to negotiate a tax-exempt merger through a share swap, under which FIBI would cease to exist and all of its assets and liabilities would be transferred to the bank. This is the point that turns 2026 from another dividend year into a year centered on structure.

The real story is not the idea itself, but the execution conditions. The deal is subject to agreement on terms, approval by the relevant corporate bodies at both FIBI and the bank, an amended control permit from the Bank of Israel, a tax ruling, and any other approvals that may be required. The company itself stresses that there is no certainty even around entering negotiations, let alone around signing or timing.

What matters is the signal. FIBI is not pursuing this out of financing stress. On the contrary, it has no debt. The very fact that it made the approach suggests that management sees the main friction not on the balance sheet, but in the holding-company layer. If the merger advances, it could shorten the path between the bank's profits and shareholders. If it stalls, the market will be left with an efficient holding company that is still not necessarily the optimal structure.

Trigger two: CAL moved from a profit source to a temporary source of uncertainty

At CAL, where the bank owns 28.2% of the equity and 21% of the voting rights, the bank's share of profit before tax fell in 2025 to NIS 33.4 million from NIS 87.9 million in 2024, a drop of 62%. That is too sharp to dismiss as noise.

The reason was not only weaker ongoing performance, but two material one-offs: a NIS 137 million expense, net of tax, related to the VAT assessment ruling, and another NIS 75 million expense, net of tax, from the revaluation of the phantom option granted to El Al. In other words, FIBI and International Bank absorbed CAL in 2025 mainly through the one-off layer, not through a clean operating trend.

On the other hand, that same asset may become a capital event in 2026. After the bank exercised its tag-along right in November 2025 in the sale of Discount's holdings in CAL, it estimated that if the sale closes it would record a net gain of up to about NIS 132 million, plus an additional future net gain of up to NIS 52 million depending on contingent consideration. On March 10, 2026, the deadline to complete the transaction was extended to April 19, 2026, and under certain conditions it can be extended until November 1, 2026.

This requires discipline. CAL cannot already be treated as released value. The more accurate reading is that it is an asset that temporarily went through a one-off hole, while also sitting on a real but not yet closed monetization option.

Trigger three: excess capital exists at the bank, but the move upward has stopped

On March 9, 2026, the bank's board approved a dividend of about NIS 256 million, equal to about 50% of fourth-quarter 2025 profit, and an additional dividend of NIS 266 million. That means about NIS 522 million of distributions were approved in March 2026 alone. At the same time, the bank is also examining an additional buyback of up to NIS 128 million tied to fourth-quarter profit.

What does that mean for FIBI? On one hand, there is no sign of stress at the bank layer. On the contrary, there is enough excess capital to distribute. On the other hand, the parent company chose not to pass its share, about NIS 247.5 million, to its own shareholders at this stage. The official reason is various aspects of the possible merger transaction. From an investor's perspective, that is exactly the gap between value creation and accessible value.

That is also why the market may misread the report at first glance. The headline "strong bank that keeps distributing" is true. But at FIBI itself, the bigger trigger is not a distribution that has already been announced, but the question of the path: will the cash and the structure be simplified, or will the upper layer keep filtering value at its own pace?

Efficiency, Profitability, and Competition

Profit is already relying less on margin and more on volume and fees

Recurring financing profit from ongoing activity fell in 2025 to NIS 4.869 billion, from NIS 4.933 billion in 2024, a decline of 1.3%. That is not dramatic on its own, but it does change the reading. The bank is still growing, only now that growth no longer translates as easily into higher margin.

Net interest income rose from NIS 4.741 billion to NIS 4.823 billion, but the ratio of net interest income to interest-bearing assets fell to 2.12% from 2.29%. Lending margin fell to NIS 2.009 billion from NIS 2.073 billion, and the margin from deposit-taking activity fell to NIS 2.501 billion from NIS 2.614 billion. The bank itself ties this to the lower CPI effect, the shift in public deposit mix, and lower US dollar rates.

So 2025 was not a year of operating weakness. It was a transition year in which the pure financial engine was already less generous. That matters a lot, because when the bank is held through a parent company, it matters less that profit remains attractive and more whether that level of profit is sustainable without automatic tailwinds.

Capital markets supported the picture, but they also cost money

Fees rose in 2025 to NIS 1.777 billion, from NIS 1.553 billion in 2024. Within that, capital-markets activity fees rose to NIS 1.023 billion from NIS 827 million, a jump of 23.7%. Client securities portfolios also climbed to NIS 922 billion from NIS 624 billion at the end of 2024.

A reader could stop here and write down "strong fee income." But the story is less clean, and more interesting, than that. Other expenses rose 25.7% to NIS 940 million, partly because of higher commission expenses tied to capital-markets activity, alongside customer relief benefits under the voluntary Bank of Israel outline, advertising, clearing, and computing costs. In other words, the capital-markets boom helped revenue, but not for free.

That is exactly the discipline 2025 requires. Not every increase in fees is equal in earnings quality. Part of the jump is clearly real because activity volumes rose. But part of the cost came back through the other-expenses line. That does not break the thesis. It does mean International Bank relied more this year on capital-markets activity and volume, and less on a clean margin engine.

Credit growth came from the business end, and deposits shifted in a less friendly direction

The strongest part of the picture is credit growth. Net credit to the public rose to NIS 146.374 billion from NIS 129.416 billion. But the breakdown is the story. Credit to large businesses rose 22.8% to NIS 54.935 billion, credit to mid-sized businesses rose 25.9% to NIS 9.241 billion, and credit to institutional bodies almost doubled to NIS 2.225 billion. By contrast, household credit excluding housing rose only 2.8%, and mortgages rose 7%.

At the same time, deposits also moved. Public deposits rose to NIS 238.509 billion from NIS 214.755 billion, but the mix became less supportive for margin: deposits from institutional clients rose 28% to NIS 93.368 billion, and deposits from large businesses rose 36.9% to NIS 32.879 billion. On the other side, household deposits fell 5.4%, small and micro business deposits fell 5.1%, and private banking deposits fell 5.5%.

This explains a large part of the margin erosion and also part of the relative liquidity decline that shows up later. Growth is not only a question of how much. It is also a question of who the customers are. In 2025, International Bank grew nicely, but on a base of customers and funding sources that are less generous than old-style retail deposits.

Beyond that, the competition described in the business review did not remain abstract. In large corporate banking, competition is intense and shows up in pricing, fees, and financing terms. In private banking, the bank describes erosion in pricing and fee levels alongside investment in the service envelope. This is not a footnote. It is exactly why 2025 profit looks good, while the quality of the margin engine is already less clean.

Asset quality is strong, but the 2024 tailwind is gone

The good news is that credit quality still looks strong. Total problem credit fell to NIS 1.656 billion from NIS 1.927 billion at the end of 2024. The ratio to total public credit risk fell to 0.8% from 1.1%, and non-accrual credit declined to 0.44% from 0.51%.

But there was an important shift in the provision line. In 2024, International Bank recorded income of NIS 16 million from credit losses. In 2025, it recorded an expense of NIS 19 million. That is still a very small number relative to the book, but the direction changed. The group provision expense rose to NIS 69 million from NIS 32 million, due to growth in the credit portfolio and deterioration in some macro assumptions. In the fourth quarter alone, it recorded an expense of NIS 29 million, entirely group provision.

That does not mean credit is deteriorating. On the contrary, credit is still very clean. What it does mean is that readers can no longer enjoy both a growing book and provision releases. In 2026 and 2027, if growth continues with the same profile, the market will have to assume that in the best case provisions stay normal rather than add to profit.

Cash Flow, Debt, and Capital Structure

At FIBI itself, the issue is not debt but the holding-company layer

FIBI reaches the end of 2025 in a position that is relatively rare for a holding company: it has no financial debt, no unused credit lines, and does not guarantee any debt. In its own assessment, it is also not expected to need material financing in 2026 for ongoing operations. In addition, the board has had a policy in place since 2003 under which leverage at the company level should not exceed 30% of total balance-sheet assets, and as of the end of 2025 there is no real need to get close to that limit.

This is a clear strength. It means FIBI is not forced to push for a sale or a merger out of pressure. It can wait. But that is also the heart of the public-shareholder disadvantage. When the company is not under pressure, it has no obligation to move value upward quickly.

The report adds another important reminder: if FIBI had sold its bank stake at the bank's market price at the end of 2025, the estimated tax it would have had to pay would have been about NIS 1.332 billion. That is a key number. It makes clear that any discussion of value at FIBI has to separate asset value from value that is actually accessible after tax friction.

At the bank level, there is excess capital, but the cushion narrowed

The bank's CET1 ratio stood at 11.10% at the end of 2025, compared with 11.31% at the end of 2024. The total capital ratio stood at 13.19%, compared with 13.55%. These are still good ratios, but they need to be read against the minimum requirements of 9.23% and 12.50% respectively. That means the CET1 cushion is 1.87 percentage points above the minimum, while the total-capital cushion is only 0.69 percentage points.

The bank's total capital actually rose to NIS 17.628 billion, but risk-weighted assets rose faster, by 10.6%, to NIS 133.604 billion, mainly because of growth in credit to the public. That matters because 2025 shows that the bank has enough excess capital to keep distributing, but not capital that automatically opens up as credit keeps expanding.

There is also an important outside signal. The bank estimates that a two-notch downgrade of Israel by S&P would reduce the CET1 ratio by 0.47 percentage points and the total capital ratio by 0.56 percentage points. This is not a forecast, but a sensitivity test. Its meaning is clear: the cushion exists, but it is not unlimited, especially if the macro backdrop worsens and credit keeps growing.

Liquidity is still far from stress, but the direction is less comfortable

The consolidated liquidity coverage ratio fell to 129% in the fourth quarter of 2025, from 165% in the fourth quarter of 2024. The net stable funding ratio fell to 127% from 140%. In both cases the bank remains well above the 100% regulatory minimum, but here too the direction matters.

The bank's explanation is direct: growth in credit to the public, higher short-term deposits from financial clients, and lower retail and small-business deposits. In other words, the same mix shift that hurt margin also reduced the relative generosity of liquidity.

The reassuring side is that International Bank still holds a meaningful liquid-asset cushion. Main liquid assets totaled NIS 119.2 billion, of which about NIS 83.8 billion was cash and deposits with banks and about NIS 35.4 billion was invested in securities, mainly Israeli and US government bonds. So this is not a stress signal. It is a reminder that 2025 moved the bank one step away from the model of growth, strong margin, and abundant liquidity all at once, toward a tighter model.

Outlook

Before going deeper, here are four less obvious conclusions to carry into 2026:

• Finding one: 2026 looks like a structural transition year, not just another earnings year. The bank may keep earning well, but the focus shifts to structure, distributions, and value access.
• Finding two: FIBI can afford to wait because it has no debt. Precisely for that reason, shareholders cannot assume the cash will automatically move up.
• Finding three: CAL may move in one step from an asset that weighed on 2025 profit to a 2026 capital event, but only if the transaction closes and the economics hold.
• Finding four: If margin keeps eroding and deposits remain more skewed toward institutions and large businesses, International Bank will need to rely even more on fees, expense discipline, and credit quality to preserve earnings.

That also defines the next year. 2026 is a structural transition year. Not because the banking activity is breaking, but because the report no longer answers the most important question on its own. What will drive the reading of FIBI over the next 2 to 4 quarters is not another good quarter from International Bank, but whether the holding-company layer becomes clearer.

What has to happen for the thesis to strengthen

The first thing is clarity on the merger. It does not need to be completed immediately to improve the story, but it does require real movement: a shift from an invitation to negotiate toward a concrete path, or alternatively a clear statement that the merger is not happening and that a more direct distribution policy at FIBI will return instead.

The second thing is the closing of the CAL sale. If it closes, the bank may record a net gain of up to about NIS 132 million, and perhaps another up to NIS 52 million later on. Beyond the number, that would prove that non-core holdings can be turned from accounting value into realized value.

The third thing is that the bank needs to show that margin erosion remains controlled. In 2025 it already proved that part of the pressure can be offset by fees and growth. 2026 will test whether that is durable or temporary.

The fourth thing is continued credit cleanliness. Credit growth of 13.1% alongside a 0.8% problem-credit ratio looks excellent. If credit quality holds, the bank will preserve room to distribute capital. If it does not, any discussion of merger or accessible value moves backward.

What the market may miss at first glance

The market may look at FIBI and say: debt-free parent, strong bank, low short interest, why complicate the picture. That is too comfortable a reading. The issue is not the strength of the asset, but the route to it.

At first glance, the market could also make the opposite mistake and think the merger already solves everything. That is wrong too. At this point there is only an invitation to negotiate, plus meaningful regulatory and tax conditions. So the upside in the structure is still unproven.

The practical conclusion is that in 2026 the market will watch three things at once: whether capital keeps moving up from the bank, whether the holding structure actually shortens, and whether CAL closes. Any of those can change the read even without a material change in routine quarterly earnings.

Risks

The merger may not happen, and then the holding-company layer remains exactly where it is

This is the first and most obvious risk. The company itself stresses that there is no certainty around negotiations, agreements, approvals, or timing. If the process stalls, FIBI will remain with the same layer of friction it is currently trying to solve. In that scenario, even if International Bank keeps earning well, the question of value access remains open.

The CAL sale still depends on approvals, timing, and final consideration

Here too there is no certainty. The transaction depends on a control permit, approval from the competition authority, and third-party consents. In addition, part of the consideration depends on CAL's performance in 2027 and 2028. So even if the sale closes, the final amount of value is not fixed. If it does not close, FIBI remains with an asset that weighed on 2025 and is still subject to regulation and Discount's timetable.

Bank margins may keep eroding faster than fees can offset the pressure

This is a classic banking risk, but in FIBI's case it hits twice: once through International Bank's earnings, and again through the bank's ability to keep distributing capital. The shift in deposit mix toward institutional and large-business clients is already visible in the report. If that trend continues alongside lower rates, the bank will have to work harder to maintain the same return on equity.

Growth came from the business end, and that end is always more sensitive

Credit to large businesses, mid-sized businesses, and institutional bodies drove growth. That can be very positive, but it also means a larger share of growth sits in places where competition is more aggressive and terms are less generous. For now, credit quality remains good. The risk is that this becomes the first area to weaken if the environment turns.

Conclusions

FIBI ends 2025 as a very strong holding company above a very strong bank. What supports the thesis right now is a high-quality core asset, a debt-free parent company, good credit quality, and excess capital that still allows distributions at the bank. The main blocker is that this value still passes through a structure that filters, delays, and at times freezes it. In the short to medium term, the market is likely to react less to another decent quarter from International Bank and more to whether the holding structure actually becomes shorter.

The current thesis in one line: FIBI is no longer a story of just another good bank, but a story of high-quality value that still needs a cleaner route to reach shareholders.

What changed versus the simpler read of the company: in 2025 International Bank again proved the quality of the franchise, but 2026 already shifts the discussion away from the bank's numbers and toward structure, CAL, and upstream capital policy.

The strongest counter-thesis is that structure may matter less than it seems, because FIBI has no debt, International Bank keeps distributing, and the value of the banking asset can keep working its way upward even without a merger. That is a serious argument, but as of now it still does not solve the fact that cash already approved at the bank has stopped at FIBI.

What may change the market's interpretation in the short to medium term: real progress on the merger, closing of the CAL sale, a return to direct distributions by FIBI, or alternatively proof that International Bank can sustain profitability even as deposit margin erodes.

Why this matters: the difference between a bank that earns well and a holding company that can actually deliver that value to its shareholders is the whole story here.

What has to happen over the next 2 to 4 quarters for the thesis to strengthen: a clearer path on the merger or on direct distributions, closing or greater visibility on CAL, continued good credit quality, and controlled margin erosion. What would weaken the thesis is a prolonged delay in both structural triggers alongside growing pressure on the bank's profitability.