Barkat Capital in the First Quarter: Covenant Relief Meets Rising Credit Provisions

Barkat Capital opened 2026 with a quarter that looks strong at the activity level: managed credit rose to NIS 2.231 billion, net financing income jumped 41%, and net profit rose to NIS 4.5 million. But the report does not close the question left open at the end of 2025. It moves it to a sharper place. On the funding side, Bank A extended and increased its facility, and both banks agreed to lower the equity-to-balance-sheet covenant to 15%. On credit quality, the allowance for credit losses almost doubled to NIS 4.2 million, a NIS 64.5 million loan is already in enforcement and asset-sale proceedings, and two extended loans received NIS 2.6 million of specific provisions together. This is a mixed picture, but not a neutral one: the business machine is still growing, the banks gave it time, and the financing spread still works, yet a meaningful part of the portfolio remains extended or deeply delinquent. In the next two quarters, the market is likely to focus less on the existence of demand for real-estate credit and more on whether collections, provisions, and bank funding can support the pace of expansion without eroding equity.

Company Snapshot

Barkat Capital is a non-bank real-estate credit company. It finances land-owner groups, developers, and interim stages in projects, mainly through bridge loans, equity-completion loans, and construction accompaniment. Its economics are not those of a property company that owns assets, and not those of a classic bank with a deposit base. Each deal requires four links: sufficient collateral, available funding, an interest spread that stays with the company, and a collection timetable that does not keep rolling forward.

That is why the first screen can mislead. The share trades at a market value of about NIS 183 million, while managed credit has already reached NIS 2.231 billion. That gap highlights the platform's scale, but it does not mean the whole portfolio belongs economically to shareholders. Of the managed credit, NIS 1.209 billion has already been derecognized from the balance sheet, mainly because external funding providers carry part of the risks and economic rights. Shareholder value comes from the spread, fees, and retained economic exposure, not from the headline size of the portfolio.

In the first quarter, the group originated NIS 144 million of loans and NIS 80 million of loans were repaid. Managed loan facilities reached NIS 4.291 billion, and the fastest growth came from the layer derecognized from the balance sheet. A new facility of up to NIS 380 million for land on Einstein Street in Tel Aviv shows the mechanism: non-recourse institutional funding, a NIS 24.3 million continuing-involvement asset, and a matching related liability. That increases scale, but it also requires separating project size from the economics retained by the public company.

The previous Deep TASE coverage of credit facilities and covenants identified short bank funding and the equity-to-balance-sheet ratio as the near-term checkpoint. The first quarter gives a partial answer: Bank A increased its facility from NIS 250 million to NIS 300 million and extended it to the end of March 2027, and Bank B was extended after the balance-sheet date to the end of June 2026. But this is not a full answer. Bank B is almost fully utilized, and the actual ratio against the new threshold is around 16.1% to 16.2%, not far above the new 15% minimum. The improvement is real, but mainly buys time for growth and collection.

Bank Relief Changed the Checkpoint

The first quarter brought an important development in funding: a pressure point that could have been immediate moved further out. Bank A extended its utilization period to March 2027, increased the facility by NIS 50 million, and agreed to amend the equity-to-balance-sheet ratio so that it will not fall below 15% instead of 18%. Bank B also agreed to amend part of the financial covenants and the calculation method, and the directors' report shows an extension after the balance-sheet date to the end of June 2026. That changes the short-term risk profile because the company is not entering the second quarter with the same funding pressure seen in the annual report.

But the relief does not make the funding structure comfortable. Bank debt stood at NIS 479.3 million at the end of March, compared with NIS 417.6 million at the end of 2025. Of that, NIS 429.3 million is short-term bank credit, with another NIS 50 million long term. Alongside the banks, the company has NIS 359.3 million of loans from other lenders and NIS 99.4 million of bonds. In other words, activity is growing while the company still depends on funding sources that require close management of maturity, covenants, and collections.

The gap between the bond and bank layers matters. Against bondholders, equity under the trust deed is NIS 145.1 million and the equity-to-balance-sheet ratio is 19%, above a 13% threshold. Against the banks, the new threshold is 15%, while actual ratios are around 16%. The risk focus is therefore not in the public bond deed, but in the bank layer, where the facilities provide flexibility while requiring the company to keep equity and the balance sheet disciplined.

The coming-year schedule shows why this is still an execution year rather than a comfortable year. Against about NIS 833 million of contractual financial liabilities due within one year, the company shows expected customer principal repayments of about NIS 845 million and expected interest receipts of about NIS 74 million in year one. At the same time, it has already committed to provide another NIS 322 million of principal credit to existing customers over the coming year. These numbers should not be compared as if they were a clean amortization table, because in a credit business drawdowns, repayments, and early repayments move constantly. But they do show what will decide 2026: not the cash balance alone, but whether customer repayments arrive on time and whether banks keep providing working room while managed credit grows.

Operating cash flow was negative NIS 5.2 million, mainly because of the change in loans provided, but that is a sharp improvement from negative NIS 98.7 million in the parallel quarter. All-in cash flexibility should also be read against NIS 6.6 million of cash at the end of March and an NIS 8 million dividend paid after the balance-sheet date. The distribution signals confidence, but it also reduces equity in a quarter in which the banks had already lowered the equity-to-balance-sheet threshold.

Profit Improved, but Credit Pressure Became Visible

At the profit level, the first quarter looks better than the parallel quarter. Financing income rose to NIS 27.0 million, up 9.7%, financing expenses fell to NIS 14.7 million, down 7.5%, and net financing income rose to NIS 12.3 million. That is a more meaningful improvement than top-line growth alone, because it means the cost of funding fell enough to expand the gross economics of the credit activity.

Still, much of the improvement was absorbed before the bottom line. General and administrative expenses rose to NIS 4.5 million, mainly because of headcount and salary costs, and the credit-loss provision was NIS 1.9 million compared with a small provision income in the parallel period. Net profit rose to NIS 4.5 million, up 14%, but that profit is already paying a higher price for portfolio quality.

The sharper point sits in the loan note. Total credit-loss allowance rose from NIS 2.4 million at the end of 2025 to NIS 4.2 million at the end of March 2026. Within that, Stage 3 allowance rose from NIS 923 thousand to NIS 2.7 million. This is still small relative to a portfolio of more than NIS 1 billion, but the direction matters more than the absolute level: the first quarter is no longer only saying that collateral is strong. It shows several exposures moving into an actual credit-cost line.

The portfolio is still collateral-backed, but the extensions and delinquencies are too large to remain a footnote. Of NIS 1.103 billion in loans, NIS 362.6 million are loans whose maturity date arrived and was extended by agreement, and another NIS 64.6 million are more than one year past due. Together, that is about 39% of the portfolio. This does not mean the company is expected to lose that amount, because collateral and liens are central to the underwriting. But it does mean the read on portfolio quality now depends on collection speed and actual realization value, not only on reported LTV.

The large delinquent loan illustrates that shift. A NIS 64.5 million loan was not repaid on time, the company continues enforcement proceedings, has begun asset-sale proceedings, and deposited a NIS 150 thousand bank guarantee at the court's request. The company recorded only a NIS 124 thousand specific provision because it still relies on the collateral value after repayment-scenario analysis. That may prove conservative enough if realization moves quickly and close to the expected value. If the process stretches or realization value weakens, this is exactly the exposure the market will reprice.

The developer accompaniment portfolio also shows targeted deterioration. Three loans already identified in the annual report as having increased credit risk remain unpaid. For two of them, the company recorded specific provisions of NIS 1.2 million and NIS 1.4 million, and their balances after provision are about NIS 3.9 million and NIS 2.7 million. No specific provision was required for the third loan. These amounts are not as large as the NIS 64.5 million exposure, but they show that the issue is not only one loan. Execution pressure in projects, engineering delays, and lower absorption capacity have already reached the provision line.

Conclusions

In the first quarter of 2026, Barkat Capital does not look like a company that has stalled. Managed credit grew, the financing spread still supports profit, and the banks gave relief that pushes away immediate pressure. The current conclusion is that growth received more time, but credit quality became the central checkpoint. Compared with the end of 2025, the discussion moved from short funding alone to a combination of funding, collection, and actual provisions.

The intelligent counter-thesis is that the market may be over-penalizing the extensions and delinquencies. In real-estate credit, extensions are part of the business, collateral is mostly first-ranking, and lower funding costs prove that funding channels are still open. That case remains strong as long as realizations and collections arrive without material erosion. But after a quarter in which total credit-loss allowance almost doubled, a large loan moved into asset-sale proceedings, and two additional extended loans received specific provisions, the burden of proof has moved to execution.

What needs to happen now is simpler than the numbers in the report: Bank B has to become more stable than an extension to June, the NIS 64.5 million loan has to be resolved without material damage, and the activity derecognized from the balance sheet has to show more visible economics for the company, not only managed volume. If all three move together, the first quarter will look like a successful bridge year toward a larger machine. If collection stretches, provisions keep rising, or the company remains too close to the bank equity threshold, the market will read the growth as balance-sheet risk rather than platform advantage.