Hapoalim in 2025: Peak Earnings Are Here. Now It Has to Prove They Are Not Just a Rate Story

Getting to Know the Company

Hapoalim ends 2025 from a position of strength. Net profit reached NIS 9.802 billion, return on equity reached 15.9%, the credit book grew 13.4% to NIS 502.9 billion, and the bank kept the largest retail deposit base in the system. A superficial read can stop there and call it another bank that simply benefited from high rates. That is incomplete.

What is actually working now is not just the rate environment. It is a combination of four layers: broad credit growth across almost every segment, regular financing income that keeps growing even after excluding CPI volatility, expense discipline that stayed solid even after a restructuring year, and one unusually large digital asset, bit, with about 3.5 million active users, roughly two thirds of whom do not even keep their main account at Hapoalim. What is still not clean is that cheap funding is no longer improving, capital no longer inflates automatically, and quarterly earnings have become more sensitive to CPI, labor relations, and active liability management.

The bottleneck going into 2026 is not liquidity or market access. Liquidity coverage still stands at 130%, NSFR at 116%, the bank issued about NIS 16.5 billion of bonds, commercial paper, and subordinated instruments in 2025, and then another $2 billion abroad after the balance-sheet date. The bottleneck is the quality of the post-rate-peak transition: can the bank hold very high profitability once credit growth consumes capital, cheap deposits stop expanding, and reported earnings stop benefiting mainly from macro tailwinds.

That is why the story matters now. Market cap is around NIS 98.3 billion, daily turnover in the share is about NIS 155.9 million, there is no controlling shareholder, and short interest is negligible at just 0.05% of float with SIR of 0.22. This is not a bank the market fears for stability reasons. It is a large, liquid bank that already gets credit for quality, so the question has shifted from whether it is strong to whether 2025 earnings quality can really hold through 2026 to 2027.

The fast orientation map looks like this:

In practical terms, Hapoalim is still a broad Israeli bank selling credit, deposits, capital-markets services, and financial management through three core divisions: retail, corporate, and financial markets. It operates 159 branches, 14 Poalim Invest advisory centers, 3 mobile branches, and finished the year with 8,409 positions. That matters because despite the New York activity and despite the markets and treasury layer, the economic engine is still overwhelmingly local: households, mortgages, businesses, real estate, and the Israeli capital market.

Events and Triggers

Trigger one: Hapoalim decided in mid 2025 to raise the quarterly payout framework to up to 50% of net profit, from 40%, while also keeping room for supplemental distributions. By year end, the board had already approved a total NIS 1.239 billion distribution for the fourth quarter, made up of NIS 991 million of cash dividend and NIS 248 million of buyback. For the full year, total distributions reached NIS 4.859 billion, including NIS 4.085 billion of cash dividend and NIS 774 million of buybacks. That signals confidence, but it also underlines that the capital cushion is not meant to keep swelling on the balance sheet.

Trigger two: the bank materially widened its funding layer. During 2025 it raised about NIS 16.5 billion through commercial paper, bonds, and COCO instruments, and on January 14, 2026 it completed a private international bond issuance of $2 billion in two tranches after roughly $6.9 billion of orders. One tranche matures in July 2029 with a 4.722% coupon, and the other in January 2033 with a 5.252% coupon. This is not a distress move. It is the move of a bank that understands credit is growing faster than deposits and therefore wants a wider funding toolkit.

Trigger three: the external signal actually supports the stability reading. In early March 2026, both Midroog and S&P Maalot assigned top local ratings with stable outlook to the new Series 104. In plain language, the debt market is not reading Hapoalim as a bank approaching pressure. It is reading it as a bank that is organizing its liabilities in advance.

Trigger four: at the end of December 2025, the bank reported a non-material statutory merger of several wholly owned subsidiaries into the bank. The move itself is not expected to create a material accounting impact, but it continues a clear line of simplification, efficiency, and preparation for a leaner group structure. That matters mainly because it fits together with the planned 2027 HQ move and the future monetization question around existing properties.

What is interesting in those triggers is the combination. Hapoalim is not behaving like a bank sitting on passive excess capital. It is distributing more, opening new funding channels, simplifying structure, and setting new 2026 to 2027 targets at the same time. That is no longer about defending a good year. It is preparation for years in which the bank will need to prove that high profitability is not just a function of the rate environment.

Efficiency, Profitability and Competition

What really drove profit

The central story of 2025 is that the core business genuinely improved, but the headline line also received a one-off boost. Fees and other income rose to NIS 4.935 billion from NIS 4.051 billion. Of that, NIS 4.431 billion came from operating fees, up 11.3%, while NIS 504 million came from other income, versus only NIS 71 million in 2024, mainly because of about NIS 432 million of insurance reimbursement linked to the settlement of the derivative claim around the US investigation. That is why the presentation also shows adjusted net profit of NIS 9.422 billion, versus NIS 9.802 billion as reported.

That is not cosmetic. It means the year is truly strong, but slightly less perfect than the first line suggests. The tax line also benefited from the beginning of the Hapoalim Switzerland liquidation, so the bottom line enjoyed a few tailwinds that should not be treated as a permanent base.

Still, the operating picture should not be understated. Regular financing income excluding CPI rose to NIS 18.048 billion from NIS 16.505 billion. In the fourth quarter, reported financing income was hit by about NIS 194 million of negative CPI effect after a positive NIS 468 million impact in the third quarter, but regular financing income excluding CPI still increased to NIS 4.598 billion, versus NIS 4.558 billion in the third quarter and NIS 4.370 billion a year earlier. That is the critical point. It says the franchise engine kept working even when the quarterly headline became less friendly.

Who pays for growth

The credit portfolio grew 13.4% to NIS 502.9 billion. That growth was not concentrated only in mortgages. It was broad: corporate credit rose 25.8% to NIS 176.3 billion, commercial credit rose 11.3% to NIS 69.9 billion, small-business credit rose 11.6% to NIS 38.5 billion, private banking credit rose 6.8% to NIS 42.0 billion, and housing loans rose 6.8% to NIS 149.0 billion. On market share, the bank shows retail-credit share rising to 28.7% from 27.1%, and marginal mortgage market share rising to 21.3% from 20.0%.

But that growth did not come for free. Deposits from the public rose only 3.2% to NIS 592.7 billion. Demand deposits fell 1.9% to NIS 296.3 billion, while time deposits grew 8.8% to NIS 296.4 billion. The ratio of non-interest-bearing deposits dropped to 25% from 26% in the fourth quarter of 2024. The issue is not a funding collapse. It is a change in direction: the cheapest funding layer is no longer improving precisely as the bank wants to keep expanding credit.

Anyone reading growth only through the income line will miss that. The bank is making more money, but part of the future improvement will also need to fund a different liability mix and a thicker capital requirement.

Efficiency is high, but not automatic

Operating and other expenses fell to NIS 8.404 billion from NIS 9.007 billion, and the efficiency ratio fell to 34.2% from 41.0%. On the surface that looks like a dramatic efficiency jump. In practice, it needs to be unpacked: 2024 included about NIS 597 million of restructuring-program cost that did not repeat in 2025. Once that is adjusted for, the expense decline is far more modest. More than that, salary expense actually rose 4.1% to NIS 4.671 billion, mainly because of a roughly NIS 200 million provision related to the labor dispute.

The good news is that outside that item, the underlying expense base stayed fairly stable, and the bank is still pushing real efficiency. The efficiency plan targets a net reduction of about 770 positions, and expected annual pretax savings of about NIS 300 million once completed. Productivity is already visible in the numbers: income per employee rose to NIS 2.90 million, and net credit per employee rose to NIS 59.8 million. So Hapoalim is not only benefiting from the environment. It is also running the machine better.

bit is a strategic asset, but not yet a quantified profit bridge

Hapoalim keeps presenting bit as one of its core strategic theses, and that is understandable. The app serves about 3.5 million active users, holds roughly 76% of the person-to-person payments market, processes around NIS 30 billion annually, and reaches an audience of which a large part sits outside the bank. It now includes savings and deposit pockets, merchant and online payment capabilities, foreign-currency preorders, and additional services.

But there is an important caution point here: the filings still do not build a clear numerical bridge between bit and net profit, fee income, or deposit gathering at a scale that would justify calling it a proven earnings engine. For now, bit is more of a strategic acquisition and retention channel than a fourth reported leg of profit.

Cash Flow, Debt and Capital Structure

In a bank, it is wrong to read the story through free cash flow the way one would in an industrial company. The right frame here is total financial flexibility: how much capital is being built, how much liquidity remains, how the funding base looks, and what happens after distributions and risk-weighted asset growth. In that frame, Hapoalim ends 2025 strong, but not idle.

The capital cushion is comfortable, but growth absorbs a large part of it

CET1 rose only to 11.98% from 11.80%, despite NIS 9.802 billion of profit. The path matters more than the endpoint: net profit added 1.90 percentage points, OCI added another 0.17, but dividends and buybacks subtracted 0.82 points, and growth plus RWA consumption subtracted 1.07 points. In addition, the internal CET1 target was raised in November 2025 to 11.0% from 10.5%. In other words, capital is comfortable, but the distance above the internal line is no longer as wide as the annual profit figure might imply.

That means the bank is generating capital, but at the same time choosing to return a large part of it to shareholders and use another part to fund growth. That is reasonable as long as credit quality stays strong. It is less comfortable if rates fall faster, if capital allocation toward real estate becomes heavier, or if the regulator tightens further around non-linear housing-sale structures.

Liquidity stayed strong, but less excessive

The most important sign in the risk report is not the LCR level itself. It is the direction of the liquid-asset stock. Liquid assets fell by about NIS 21 billion versus the end of 2024, and the bank explicitly says the main reason was credit growth outpacing source growth. On a fourth-quarter average basis, the liquid stock stood at NIS 154.7 billion, versus NIS 175.9 billion in the comparable quarter. Even so, LCR remained 130%, well above the regulatory minimum.

That matters because it sharpens the distinction between stress and use. There is no liquidity problem here. There is a bank choosing to stretch its balance sheet more aggressively, and therefore also using part of its liquidity stock while widening its liability layer.

That gap is also visible in the balance sheet. Bonds and subordinated notes jumped 77.8% to NIS 35.9 billion. The risk report even notes that issuance still represents only about 5.5% of total sources, so the bank is not dependent on the capital markets as its main source of funding. That is true, but it is not the whole story. The market has nevertheless become an important working tool to support the pace of credit expansion and diversify sources.

The value created in the new HQ still does not sit in current earnings

In 2027 Hapoalim plans to move into its new headquarters in Tel Aviv. The asset purchased includes about 60 thousand square meters, another roughly 6 thousand square meters acquired through an option, and fit-out works contracted in 2024 to 2025 for about NIS 420 million. Management estimates that vacating part of the existing properties could generate pretax profit of NIS 800 million to NIS 900 million in 2027 to 2028.

That is real value, but it needs to be framed correctly. It is not a 2025 earnings engine, and it is not cash already accessible to shareholders. It is future real-estate value that depends on the move, planning, market conditions, and actual monetization. It can improve the long-term reading of the bank, but it should not artificially improve the reading of the current year.

Forward View and Guidance

Before getting to the 2026 to 2027 targets, four non-obvious findings need to be clear:

• Reported 2025 profit includes about NIS 380 million net of insurance reimbursement, so the true operating base is somewhat lower, even if still very strong.
• The fourth quarter already exposed a less forgiving environment, with negative CPI effect and a roughly NIS 200 million labor-dispute provision.
• Credit grew faster than deposits, so the 2026 story will run not only through credit demand but also through source management, issuance, and capital.
• Credit quality remained excellent, but the provision line was still driven mainly by growth in the collective allowance, not by the disappearance of risk.

The new 2026 to 2027 targets call for net profit of NIS 9 billion to NIS 10 billion, return on equity of 14% to 15%, credit growth of 8% to 9%, and distribution of 50% to 60%. The assumptions behind them are already less generous than 2025 reality: Bank of Israel rate of 3.25% at end 2026 and 3.00% at end 2027, inflation of 1.5% and then 2.0%, and the expectation that the special banking tax will keep affecting results at a level similar to the last two years.

The right translation of that is proof years, not breakout years. Management is not promising a new profit jump. It is effectively saying that even after rates ease somewhat, even after the special tax and customer relief continue to take a bite, and even after credit growth keeps consuming capital, Hapoalim believes it can stay in a very high profitability zone.

What has to happen for that to hold? First, regular financing income excluding CPI must keep growing, or at least erode more slowly than the market fears. Second, fees need to keep expanding enough to carry a larger part of the earnings load. Third, expenses need to stay disciplined even without the easy comparison to the 2024 restructuring charge. Fourth, credit growth must remain high quality enough not to create a sharp increase in provisions.

What the market may miss at first glance is that the fourth quarter looked weaker than the underlying business engine. Reported profit fell to NIS 2.078 billion, but that quarter also carried negative CPI and the labor-dispute provision. At the same time, regular financing income excluding CPI actually kept rising. If that is the pattern seen in coming reports as well, the market may discover that late 2025 weakness was more accounting noise than a basic deterioration in the franchise.

On the other hand, anyone treating 2025 as an automatic base could be making a mistake. The targets themselves already admit that the coming years will be less generous. If credit keeps growing, cheap funding does not expand, RWA keeps eating capital, and the special tax remains in place, then the 2026 to 2027 profitability range will require very active management. That is not impossible. It simply will not happen by itself.

Risks

Real estate and construction remain the main risk center

In the risk report, the bank ranks both overall credit risk and sector concentration in construction and real estate at medium-high severity. That is not just a verbal statement. Total exposure to construction and real estate in Israel already stands at about NIS 189.2 billion, of which about NIS 176.7 billion sits in the corporate division, meaning roughly 93.4% of total sector exposure. At the same time, the housing market remains complex: new-home sales fell about 25%, the stock of unsold new homes rose to about 83 thousand units, and banking supervision already tightened risk weights in April 2025 for projects with non-linear payment structures.

The subtle point is that current quality metrics still look good. Total problematic credit fell 9% to NIS 8.419 billion, the NPL ratio fell to 0.48%, and coverage rose to 310%. But the collective allowance is still growing, and allowance against Israeli construction and real-estate sectors remains high at about NIS 2.386 billion. In other words, the bank is not reporting immediate pressure, but it is also not behaving as if the risk has vanished.

Funding sources have become part of the thesis

The second risk layer is less dramatic and more structural. The bank is not dependent on the capital markets as a primary funding source, but it is using them more. In a year when deposits grew only 3.2% and credit grew 13.4%, the question is not whether sources exist. They do. The question is the price, how much flexibility remains, and how the quality of sources will look if the expansion pace continues in 2026.

The stock of liquid assets also fell by about NIS 21 billion versus the end of 2024. Again, that is not liquidity stress. It is a sign that the bank is already using the balance sheet more actively. If the rate and margin environment becomes less comfortable, that point will stand out more.

Regulation, tax, and macro still take a bite

The bank assumes the special tax on banks will keep affecting 2026 to 2027 at a level similar to the last two years. In parallel, the voluntary customer-relief framework implies grants and benefits of about NIS 400 million for a full year, and the bank already disclosed that benefits utilized by customers during 2025 reached about NIS 445 million. That is a real business and regulatory cost sitting inside the model.

Added to that is the capital sensitivity to the sovereign rating. A two-notch downgrade of Israel by S&P to BBB+ or below is expected to reduce CET1 by about 0.35 percentage points and total capital by about 0.45 points. As long as the sovereign backdrop stabilizes, that stays as a background risk. If macro conditions worsen again, it moves very quickly from the footnote layer to the center of the thesis.

Conclusions

Hapoalim ends 2025 as a strong, profitable, well-funded bank. What supports the thesis right now is the combination of credit growth, a broad deposit base, operating discipline, and active capital management. The central friction is that to preserve that same earnings quality in 2026 to 2027, the bank can no longer lean mainly on the rate environment. It will have to prove that the franchise itself is strong enough to do more of the work.

The current thesis in one line: Hapoalim has already moved from a story driven mainly by rate tailwinds to a story driven by active management of credit, sources, and capital, and now the market needs to see whether that transition truly holds.

What changed versus the older reading of Hapoalim: in 2025 the story no longer sits only on peak rates. It sits on the bank’s ability to replace that tailwind with a mix of growth, fees, efficiency, and a wider funding structure.

The strongest counter-thesis: one can argue the caution is overstated because even after normalizing the one-off items, Hapoalim still shows very high profitability, liquidity, and capital, so 2025 is not a passing peak but a new base.

What could change the market’s reading in the near to medium term: continued growth in regular financing income excluding CPI, a high payout pace without capital erosion, and proof that corporate and real-estate credit can keep growing without a jump in provisions.

Why this matters: in a bank as large as Hapoalim, the difference between peak profit supported by a friendly macro backdrop and high profit supported by franchise quality, source management, and capital discipline is a material difference in business quality.

What must happen over the next 2 to 4 quarters for the thesis to strengthen: regular financing income excluding CPI must stay firm, capital ratios must stay above the internal target even with high distributions, and credit costs must remain low despite expansion. What would weaken it is a combination of sharper funding pressure, rising risk in construction and real estate, or a situation in which capital is consumed faster than profit rebuilds it.