Phoenix Gamma in the First Quarter: The Book Grew Fast, Profit Still Depends on Provisions and Funding

Phoenix Gamma opened 2026 with a better answer on funding access, but only a partial answer on earnings quality. Credit, facilities, and guarantees rose to NIS 7.49 billion, construction finance grew quickly, and the company closed an important checkpoint from the previous annual analysis: Series 4 commercial paper, about NIS 600 million, was repaid after the balance-sheet date without any sign of liquidity stress. Still, profit before tax fell 4.7%, the frequent-flyer club contribution declined to NIS 7.4 million, and credit-loss expenses almost doubled to NIS 6.9 million. Consumer credit is now growing fast enough to change the company's profile, but after credit losses it left only NIS 1.2 million before operating and marketing expenses. This is not a weak quarter, but it is an incomplete proof quarter: better funding access and strong construction finance on one side, loss-making consumer credit and spread pressure in business credit on the other. In the next reports, the focus should move from book size to whether the new book produces profit after provisions and funding cost.

What the Quarter Really Tests

Phoenix Gamma is the credit arm of its parent group, with four engines: credit cards, business credit, construction finance, and consumer credit. Its shares are not traded, so the market read comes mainly through Series D bonds, the commercial paper outstanding at the report date, ratings, and access to funding. In non-bank credit, book growth is not enough. Value is created only if spreads hold, credit losses do not consume growth, and the funding structure does not force frequent market returns on worse terms.

The first quarter sharpens that gap. The net credit book rose from NIS 4.24 billion at the end of 2025 to NIS 4.74 billion at the end of March, and reported profit was NIS 41.5 million versus NIS 40.5 million in the comparable quarter. The company also presents adjusted profit of NIS 50.6 million, but the adjustments include, among other items, a one-off expense related to ending the Diners and Cal arrangements for the FLY CARD and a general credit-loss provision. The more important read is not the difference between reported and adjusted profit, but whether new growth passes through to earnings without raising risk cost.

Funding Is More Available, but It Is Not Surplus Cash

The company passed the April checkpoint. In March it raised NIS 600 million in two private commercial paper series, Series 5 and 6, and added a NIS 150 million three-year bank loan. After the balance-sheet date, on April 23, 2026, it repaid Series 4 commercial paper of about NIS 600 million. That changes the immediate risk read: there is no visible liquidity event, and the high ratings remained stable.

But the improvement is based on access to sources, not on surplus cash generated by operations. Cash rose to NIS 184.3 million at the end of March from NIS 19.3 million at the end of 2025, mainly because of borrowings taken close to the reporting date. Negative working capital improved from NIS 380 million at the end of 2025 to NIS 270 million, again mainly because of longer-term financing. The capital ratio for the minimum capital requirement stood at 9.5% versus a 6% requirement, still comfortable but lower than at the end of 2025. That makes the next financing, including the company's stated plan to issue a new bond series, as important as the repayment already completed: it will show the price at which the company can lengthen sources for a fast-growing book.

Cash flow also needs careful framing. Operating cash flow was NIS 52.2 million, but in a credit company it is affected by short-term credit movements, card receivables, and the pace of loan origination. After NIS 9.6 million of investment in property, equipment, and intangibles, NIS 26.4 million of dividends, and NIS 1.2 million of lease principal repayment, about NIS 15 million remained before additional debt movements. This is not representative cash generation for a regular operating company, but a measure of what remained after the quarter's actual cash uses.

Growth Shifted to Construction Finance and Consumer Credit

The consolidated number hides an uneven segment mix. Construction finance carried the quarter: the segment's credit book reached NIS 2.24 billion, up 23% from the end of 2025 and 70% from March 2025. Net financing income rose to NIS 29.8 million, and operating profit rose to NIS 22.4 million. Business credit looks different. Its book barely grew versus the end of 2025, net financing income fell to NIS 19.2 million, and operating profit fell to NIS 4.0 million. Management attributes this to spread erosion in credit sales and guarantees, against high rates and competition.

Consumer credit is the sharpest proof point. The book rose from NIS 247 million at the end of 2025 to NIS 313 million at the end of March, and quarterly originations were NIS 98.6 million. Still, segment credit-loss expenses were NIS 2.7 million, the allowance rose to NIS 10.1 million, and the allowance ratio increased to 3.09% of gross balance from 2.86% at the end of 2025. Gross impaired consumer-credit balances rose from NIS 5.8 million to NIS 8.2 million. These are still small numbers at group level, but they are exactly where a new fast-growing activity proves whether it brings good customers or mainly volume.

The club adds another caution layer. After the company's share in the frequent-flyer club contributed NIS 60.1 million in 2025, the first-quarter contribution fell to NIS 7.4 million from NIS 10.1 million in the comparable quarter. The company also hedged USD exposure of about USD 65 million against the investment. The asset remains material and synergistic for cards and credit, but this quarter shows that it cannot by itself offset spread erosion in business credit and higher risk cost in consumer credit.

Conclusion

The first quarter of Phoenix Gamma improves the short-term funding position, but leaves 2026 as a proof year for the profitability of the new book. The Series 4 commercial paper repayment, private commercial paper raises, and bank loan reduce the pressure that was open at the start of the year. At the same time, cash increased mainly because of new debt, capital surplus narrowed somewhat, and the company still needs to show it can lengthen sources without eroding financial spread.

The business itself is broader, but earnings quality is not yet settled. Construction finance is providing growth and profit, credit cards are stable, and consumer credit is now large enough to affect the read. Three signs will determine the next few quarters: a lower operating loss and allowance ratio in consumer credit, stabilization of business-credit spreads, and financing terms that prove Series 4 repayment was a move toward a steadier funding stack, not only a replacement of one short-term debt layer with another.