Naoi: Stage 3 Is Outrunning the Book and Collateral Still Is Not Mapped to Impaired Debt
Naoi's profitability still looks steady, but Stage 3 rose much faster than the customer book in the first quarter and the deeper delinquency buckets expanded. Aggregate collateral looks stronger on paper, yet the disclosure still does not show which collateral supports the impaired debt itself.
The follow-up read on Naoi now shifts from profitability to credit quality. The first quarter did not break the earnings engine: net financing income stayed around NIS 75.7 million, net profit was NIS 46.3 million, and the credit-loss expense still looks absorbable relative to the size of the book. But behind that stability, Stage 3 rose to NIS 176.7 million while the customer book before provisions barely moved. Stage 3 now equals 3.34% of the book, compared with 2.77% at the end of 2025 and only 0.80% at the end of the comparable quarter. Collateral at the broad portfolio level looks meaningful, with 78% of the total credit portfolio secured and collateral after safety factors of about NIS 4.96 billion against NIS 4.20 billion of secured debt. Still, the disclosure does not connect that collateral to the impaired debts themselves, so the reader cannot tell whether Stage 3 sits behind first-ranking mortgages, project surplus, securities, or weaker layers. Until that map is disclosed, the next read will depend less on reported profit and more on collections, collateral realizations, write-offs, and the composition of Stage 3 over the next few quarters.
Stage 3 No Longer Looks Like Quarterly Noise
The number replacing net profit as the key tracking point is Stage 3. The customer book at amortized cost before provisions rose in the first quarter from NIS 5.253 billion to NIS 5.294 billion, an increase of only 0.8%. Stage 3 rose in the same period from NIS 145.3 million to NIS 176.7 million, up 21.6%. That gap matters because the problem was not absorbed by book growth. It grew much faster than the book.
The yearly comparison is sharper. In the comparable quarter of 2025, Stage 3 was only NIS 32.4 million, so the current balance is roughly 5.5 times higher. Over the same period, the customer book before provisions grew by 31.4%. That does not prove a final loss, but it changes the weight of evidence: the question is no longer whether the book contains problematic debt, but whether provisioning and collateral are keeping pace with the expansion of impaired debt.
Naoi did increase accounting coverage inside Stage 3. The provision ratio in Stage 3 rose to 14.78% from 12.89% at the end of 2025, and the specific provision increased by NIS 7.4 million during the quarter. But that increase came from a base that had already fallen sharply from 44.59% in the comparable quarter of 2025. The quarterly credit-loss expense of NIS 8.0 million therefore does not settle the issue. It only shows that the company has begun paying a higher price for portfolio quality while profitability can still absorb it.
The Deeper Delinquency Buckets Expanded Inside Stage 3
The more troubling signal is not only the move into Stage 3, but the aging of debt inside that bucket. At the end of 2025, Stage 3 debt more than 180 days past due was NIS 73.9 million, about 51% of Stage 3. At the end of the first quarter, it had reached NIS 132.5 million, about 75% of Stage 3. Most of the increase came from the 181 to 365 day bucket, which rose from NIS 9.1 million to NIS 58.7 million.
That changes the quality of the problem. Debt that has just moved into Stage 3 can still be a specific collection event, especially when the company lends to businesses and holds collateral. Debt that ages inside delinquency requires stronger proof: payment plans that actually perform, collections, collateral realizations, or write-offs that show the loss has been absorbed. No debts were recognized as lost in the first quarter, so the rise in Stage 3 still sits mainly on the balance sheet and in provisions, not in a final loss resolution.
This also explains why net profit alone is less useful here. A NIS 46.3 million profit can coexist with weaker credit quality as long as the specific provision remains manageable. If the older part of Stage 3 continues to grow, the provision line will have to prove that it is not just preserving earnings, but also reflecting a realistic collection probability.
Aggregate Collateral Is Strong, but It Does Not Answer the Right Question
The positive argument is not weak. Some 78% of the total credit portfolio is secured, compared with 73% at the end of 2025, and collateral after safety factors stands at about NIS 4.96 billion against NIS 4.20 billion of secured debt. The collateral map includes first-ranking mortgages, second-ranking mortgages, residential project surplus, securities, vehicles, and third-party guarantees. The 74% real-estate share of the portfolio also comes with LTV and absorption-capacity detail.
The problem is that this detail remains at the portfolio level. It does not show how much of the NIS 176.7 million in Stage 3 is backed by first-ranking mortgages, how much relies on residential project surplus, how much is tied to securities, and how much sits in layers where recovery depends more on apartment sales, project value, or legal collection. That distinction is material because aggregate collateral surplus is not necessarily collateral surplus against the debts that have already become impaired.
The aggregate real-estate table itself leaves room for caution. Within real-estate credit, the mortgage tables include NIS 193 million at LTV levels above 100%, and the project-surplus table includes NIS 45 million with absorption capacity above 75%. This does not mean those amounts are Stage 3. The point is the opposite: the two tables are not connected. But the existence of different quality layers within the collateral base makes the missing map more important.
The Next Few Quarters Decide the Read
The current conclusion is not that Naoi's collateral is insufficient. It is also not that provisions are necessarily too low. The narrower and more important conclusion is that the first quarter did not close the credit-quality question. It made it more important: Stage 3 grew faster than the book, the deeper delinquency buckets expanded, and the disclosure still does not allow readers to test recovery quality at the impaired-debt level.
Over the next few quarters, one of three things needs to happen: Stage 3 stabilizes or declines, specific coverage rises alongside collection evidence that justifies it, or disclosure improves enough to map Stage 3 by collateral type, lien ranking, and LTV. If that happens, the argument that collateral reduces final loss will have a stronger basis. If Stage 3 keeps rising while disclosure remains aggregate, the market will have to treat Naoi's profitability as earnings that still pass through an unresolved credit-quality filter.
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