Bank of Jerusalem: How Much Capital Headroom Really Remains After Dividends, Growth, and Higher RWA?

The main article already showed that Bank of Jerusalem improved 2025 through capital release, loan sales, and a broader fee layer. This follow-up isolates the narrower question, and probably the more important one for 2026: how much capital headroom really remains once the headline 10.8% common equity Tier 1 ratio, CET1, meets three forces at the same time, a 40% payout, a higher internal target, and a continuing rise in risk-weighted assets, RWA.

On a superficial read, the numbers look comfortable. CET1 at 10.8% against a 9.4% regulatory minimum, a total capital ratio of 13.4% against 12.5%, and a leverage ratio of 6.8% against 4.5%. But that is exactly the read this continuation needs to unwind. Against the new 10.25% internal target, effective April 1, 2026, the gap is only 55 basis points. After the balance-sheet date, the board approved a 33.48 million shekel dividend for the second half of 2025, and on the year-end RWA base that is worth roughly 22 basis points of CET1. On a simple pro forma basis, before any new profit and before any further relief, the 10.8% headline already looks much less wide.

What keeps the picture from tightening faster is the operational-risk rule update that took effect on January 1, 2026 and added about 0.4% to CET1 and about 0.5% to the total capital ratio. But even here the easy read is too comfortable: 25 basis points of a higher internal target plus roughly 22 basis points of a post-balance-sheet dividend already absorb almost all of that benefit on a static base. So 2026 does not begin as a year of excess capital. It begins as a year of capital maintenance.

Four points need to stay in view from the start:

• The gap above the regulatory minimum is 140 basis points, but the gap above the new 10.25% internal target falls to only 55 basis points.
• The post-balance-sheet dividend, 33.48 million shekels, is worth roughly 22 basis points of CET1 on the year-end RWA base. On a simple pro forma basis, the ratio drops from around 10.8% to around 10.6%.
• The bank's own sensitivity table says that a 10% rise in RWA cuts CET1 by 1 percentage point. Put differently, the gap to the new target covers only about another 5.5% of RWA growth if nothing else changes.
• The bottleneck here is not leverage. Exposure for leverage purposes rose only 2.6% to 24.0 billion shekels, and the leverage ratio improved to 6.8%. The pressure sits in CET1 versus RWA, not in gross balance-sheet size.

Where The 10.8% Headline Misleads

The right way to read Bank of Jerusalem's capital is to separate three thresholds: the regulatory minimum, the internal target, and the practical operating threshold the bank is really trying to stay above. The risk report shows clearly that CET1 stood at 10.8% at the end of 2025 against a 9.4% regulatory minimum. It also states that the internal target had been 10.0%, and that on March 5, 2026 the board approved raising it to 10.25% effective April 1, 2026.

The same note also says the board and management operate with safety margins above the target, but it does not provide one updated number for the full post-increase operating threshold. So the most conservative clean read is to start from the stated 10.25% and remember that the practical internal hurdle may be higher still. That matters because it means the room an investor sees from the headline, 140 basis points above the minimum, is not necessarily the room the bank actually believes it has available to use.

The point of the simple pro forma is not that it predicts the first-quarter report. It does not. The point is different: it removes the illusion that 10.8% can be treated as a freely available starting point. After an already approved dividend, the new target is closer than it first appears, even before the next round of credit growth consumes more basis points.

In 2025 Capital Grew, But RWA Nearly Consumed It

Common equity Tier 1 capital rose from 1,486.6 million shekels to 1,628.6 million shekels. That is roughly 9.6% growth, a figure that looks strong on paper. But the CET1 ratio itself rose only from 10.7% to 10.8%. The reason is simple: total RWA almost kept pace, climbing from 13,929.1 million shekels to 15,054.7 million, an 8.1% increase.

Those numbers matter more than the headline because they show that the capital Bank of Jerusalem generates is not piling up on the side. It is being built and immediately consumed to finance growth and a denser risk load. This is not the picture of a bank sitting on an especially wide capital cushion. It is the picture of a bank running a close race between capital creation and capital consumption.

The RWA breakdown also shows where the pressure sits:

Market risk did jump sharply, but from a very small base, so it is not the core of the story. The core is elsewhere: credit risk and operational risk keep rising, so every shekel of earnings that becomes capital has to work hard just to preserve the ratio. That also explains why leverage actually improved. Exposure for leverage purposes rose only to 24.0 billion shekels, while Tier 1 capital rose faster, so the leverage ratio improved from 6.4% to 6.8%. Leverage is not the constraint. Risk weighting is.

2026 Opens With Regulatory Relief, But Not With A Comfortable Cushion

Page 45 of the annual report gives the bank two regulatory developments that are very different in nature. The first is helpful: the operational-risk update, effective January 1, 2026, added about 0.4% to CET1 and about 0.5% to the total capital ratio. The second clarifies what is not driving material pressure right now: the updated housing-finance rules did not have a material effect on capital ratios, and the bank also states that it does not originate the kind of balloon loans covered by the second restriction.

That matters because it removes noise. Anyone trying to read Bank of Jerusalem mainly through housing-finance regulatory fears could miss the real point. In this filing set, the capital pressure is not coming from that rule change. It is coming from the ordinary life of a bank that is growing, paying out more, and raising its own internal discipline.

On a static starting-point basis, the roughly 40 basis points of CET1 relief are almost fully absorbed by two other forces: a 25 basis point increase in the internal target and a dividend already approved that is worth roughly 22 basis points. So even after the regulatory change, the core question for 2026 remains the same: can earnings, capital release, and distribution transactions rebuild the margin faster than RWA growth consumes it?

This is where the bank's sensitivity table becomes especially useful. The bank states explicitly that a 10% increase in RWA reduces CET1 by 1 percentage point. The practical meaning is straightforward: if the gap to the new target is only 55 basis points, there is not much room for unoffset growth. 2025 already delivered 8.1% RWA growth. If a similar pace continues in 2026 without enough retained earnings, further capital release, or a change in risk mix, the capital buffer will tighten quickly.

Why The February 2026 Deal Matters More To Capital Than To The Earnings Headline

The immediate report dated February 24, 2026 is easy to read through its accounting headline: a 90% sale of a roughly 680 million shekel real-estate-collateralized loan portfolio, with an expected gross profit of about 38 million shekels in the first quarter of 2026. But in the context of capital headroom, this is a more important story than the earnings number alone.

First, the transaction arrives immediately after a 40% dividend on second-half 2025 profits and just before the new internal target takes effect. For the capital read, that timing matters. Second, the filing makes clear that the bank sells 90% of the rights and obligations in the portfolio and keeps only 10%, about 68 million shekels, on equal priority. Third, it remains the servicer and operator of the sold portfolio.

The immediate report itself does not quantify exactly how much RWA is released by the deal, so there is no clean one-number capital-release bridge to cite here. But the direction is clear enough: Bank of Jerusalem cannot treat transactions like this as a bonus. They are part of the maintenance mechanism for its capital room. The accounting gain helps rebuild capital, and moving 90% of the exposure out should point in the same direction, even if the filing does not quantify the full ratio effect in one place.

That is exactly why the market should read the first-quarter report through three numbers rather than one. The first number is the roughly 38 million shekels of pre-tax gain. The second is CET1 after the dividend and after the transaction. The third is the new pace of RWA. If the last two do not improve, the accounting headline alone will not solve the capital-headroom question.

Bottom Line

Current thesis: Bank of Jerusalem's capital headroom exists, but it is much narrower than the 10.8% CET1 headline suggests.

The key conclusion here is not that the bank faces an immediate capital problem. The filings do not say that. They say something more precise: the bank has room, but it is already working hard to preserve it. In 2025 capital grew, but RWA rose at almost the same pace. In 2026 regulatory relief gives the bank some air, but a higher internal target and a 40% payout absorb most of it. So the question is no longer whether the bank can both grow and distribute. The question is how long it can keep doing both without having to refresh the margin through more sales, syndication, and securitization transactions.

The right read for 2026 therefore does not run through leverage, and not through the first-quarter earnings headline by itself. The right read runs through CET1 after the dividend, the pace of RWA growth, and the ability of new transactions to rebuild the bank's margin faster than ordinary growth consumes it. If those three numbers move in the right direction, capital room will remain reasonable. If not, 10.8% will prove to be a much less comfortable number than it looks on first read.