FIBI in the first quarter: credit is growing, but margin and capital are tighter

FIBI entered 2026 with figures that keep the positive story alive at first glance: public credit grew 16.0% year over year, capital-markets fees continued to support revenue, credit quality remained clean and the board approved a payout of 50% of quarterly profit. But the first quarter also sharpens the main constraint that had already appeared at the end of 2025: loan growth is not enough when lending and deposit margins are narrowing, and when capital is absorbing large distributions. Financing profit from ongoing activity fell to NIS 1.104 billion, down 7.0% year over year, despite double-digit credit growth. The CET1 ratio declined to 10.82%, and that figure already includes a positive regulatory contribution of about 0.21 percentage points from the new operational-risk calculation. Cal can still create a gain and liquidity for the bank, but it is no longer a clean approvals-only event: timing, closing conditions and El Al's exit from Diners club cards add a new layer of uncertainty. The current read is mixed but clear: FIBI remains a profitable and high-quality bank, but 2026 starts as a proof year for margin, credit quality and the ability to keep returning capital without shrinking the safety buffer too much.

Company Snapshot

FIBI is a commercial bank whose earnings are driven mainly by interest spreads, activity fees and financial services for private, business and institutional clients. That means it is not just a loan-growth story. Its economic machine combines financing margin, credit quality and cash return to shareholders.

The quick map of the quarter is straightforward: the bank is growing credit, maintaining good portfolio quality and continuing to distribute cash, but the profit sources are shifting. Retail clients, historically a steadier source of deposits and margin, are not growing at the same pace. Business, institutional and capital-market activity is taking more weight. That can support income, but it also makes profitability more sensitive to deposit pricing, capital-market activity and credit concentration.

In the previous annual analysis and the capital-focused analysis, the key checkpoint was whether growth could arrive with stable margins and enough capital room for distributions. The first quarter does not close that question. It shows that FIBI can grow, but it also shows that the market should look less at the loan-growth rate and more at the price paid for that growth.

Credit Is Growing, But Margin Is No Longer Doing The Same Work

Gross public credit reached NIS 155.1 billion, up 4.8% from year-end and 16.0% year over year. Most of the acceleration came from the business side: credit to large businesses rose 29.2% year over year, and credit to institutional bodies almost tripled from a relatively low base. Mortgages also grew, but at a more moderate 9.0%.

That growth did not fully reach financing income. Total financing profit fell 4.7% to NIS 1.184 billion, while financing profit from ongoing activity, after items not attributed to ongoing activity, fell 7.0% to NIS 1.104 billion. The reason is not only a negative CPI contribution in the quarter. The deposit-taking margin declined to 1.0% from 1.2% in the comparable quarter, and the lending margin declined to 1.7% from 1.8%.

Deposits explain why this is not just a normal interest-rate swing. Total public deposits fell 2.9% from year-end, even though they were still 4.8% above the comparable quarter. Within that, household deposits fell 4.1% year over year, while deposits from large businesses rose 59.5%. When the relatively cheaper and steadier source is not growing at the same pace as business and institutional funding, the bank can still expand activity, but each shekel of activity leaves less margin.

Fees soften the picture. Total fees rose 9.2% to NIS 464 million, mainly because capital-markets fees rose to NIS 283 million. That is positive, and customer assets increased to NIS 1.173 trillion. Still, capital-markets fees are an important earnings engine but a less stable one than a wide deposit margin. They help the quarter, but they do not replace the need to see financing margins stabilize.

The Payout Remains High While Capital Is Working Harder

FIBI continues to behave like a cash-return equity. After quarter-end, the board approved a NIS 240 million dividend, equal to 50% of first-quarter profit. In March, the bank had already paid a NIS 512 million dividend and carried out a NIS 9 million buyback intended to offset future dilution from employee and officer options, not to launch a broad repurchase plan.

The all-in capital picture is less comfortable than the headline 50% payout. Equity attributable to shareholders fell from NIS 14.614 billion at the end of 2025 to NIS 14.465 billion at the end of March. Quarterly profit added NIS 480 million, but the dividend, buyback and fair-value loss on available-for-sale bonds more than offset that addition.

The CET1 ratio declined to 10.82% from 11.10% at the end of 2025. The total capital ratio declined to 13.04%, only 0.54 percentage points above the 12.50% minimum requirement. This is not a stressed capital picture, but it is less generous. More importantly, the CET1 decline happened even though the new Basel operational-risk calculation added about 0.21 percentage points to the ratio. Without that relief, the erosion would have looked sharper.

The tax environment is also becoming heavier. The 2026 estimate includes a NIS 210-240 million payment under the special bank tax, mainly from the period beginning in April. The next quarters therefore need to be judged not only by accounting profit, but by the ability to preserve capital while tax, credit growth and distributions all pull in the same direction.

Cal, Credit Quality And The Next Checkpoints

Credit quality still looks clean. The first quarter included no net credit-loss expense, the ratio of nonaccrual loans or loans more than 90 days past due declined to 0.42%, and the total allowance stood at 1.18% of the credit portfolio. That is part of FIBI's strength: so far, growth has not come with visible deterioration in the portfolio.

But zero provisions are not immune. Under a more pessimistic macro scenario, the group allowance could increase by up to NIS 75 million. In addition, exposure to financial services and holding companies reached NIS 50.4 billion, 23.6% of public credit risk, and exposure to construction and real estate reached NIS 34.6 billion. One of the six largest borrowers is now from construction and real estate, after all six were financial-services borrowers at the end of 2025. This is not credit deterioration, but it is a concentration signal that makes the next quarters more important.

Cal is the value layer that is still not fully accessible to shareholders. FIBI's stake in Cal is carried at about NIS 896 million, and completion of Discount Bank's controlling-stake sale could generate for FIBI an after-tax net gain of up to about NIS 113 million, plus up to about NIS 52 million in future contingent gain. But the deal depends on regulatory approvals, timing and closing conditions, and the El Al issue has now been added: the frequent-flyer club gave notice that it will exit the agreement at the end of 2026, and the club cards represent about 381 thousand active cards, about 9.3% of Cal's active cards and a very material share of Diners activity.

That defines the 2026 test. The next quarter needs to show whether financing profit stabilizes after margin compression, whether credit growth remains clean despite business and real-estate concentration, and whether the payout remains consistent with total capital, not only with net profit. Progress on the Cal deal can improve the capital and accessible-value picture, but another delay or a hit to Diners activity would make the monetization less clean. FIBI is still showing a good bank, but the first quarter reminded the market that a good bank with a high payout has to prove that margin, capital and credit quality continue to work together.