Discount opens a mortgage-backed debt route for offshore investors
The program could allow Discount to issue up to EUR 1.5 billion of covered bonds in the future, backed by a dedicated residential mortgage pool. It has not raised cash yet. The value depends on issuance pricing, collateral treatment, rating and approvals.
Discount Bank did not receive EUR 1.5 billion today. It signed a program that may allow it, at its discretion, to issue covered bonds in the future to institutional investors outside Israel, backed by a dedicated residential mortgage loan pool. If an issuance takes place, ownership of the mortgage pool will be transferred to a dedicated subsidiary that will guarantee the bank's obligations to bondholders, and the securities are expected to be registered on TASE UP subject to exchange approval. The current event therefore changes Discount's funding toolkit, not its cash balance. The economic value will appear only if Discount can issue at a spread and tenor that justify encumbering a mortgage pool, with reasonable regulatory and rating treatment. The context matters: the group's mortgage book was about NIS 79.5 billion at the end of 2025, while the bank already uses deposits, bonds, subordinated notes, commercial paper and repo transactions as funding sources. The right read is a potentially meaningful conditional funding route, not completed funding.
The framework is an issuance ceiling, not cash in the bank
The headline number in the filing is up to EUR 1.5 billion, but this is the maximum program amount rather than proceeds already raised. The bank states that, as of the filing date, it is not issuing covered bonds, no issuance date, amount or terms have been set, and there is no certainty that an issuance will occur. Execution depends on the bank's discretion, suitable market conditions, required legal approvals and additional factors.
That boundary matters because covered bonds can sound like a funding event that has already solved a liquidity need. In practice, this is an operational and legal option that prepares the bank to approach institutional investors outside Israel. If European market conditions or foreign investor demand are not attractive, or if collateral requirements are too costly, the framework may remain unused.
The target investor base is also part of the story. The bonds will not be offered or sold in Israel or to Israeli persons and entities, and the offering is aimed at institutional investors outside Israel under Section 15A(b)(2) of the Securities Law. That clarifies the purpose of the move: opening a new demand channel for bank funding, not another routine expansion of local debt.
The mortgage pool is meant to become collateral for a new funding route
The unusual part is the residential mortgage loan pool. If Discount issues under the program, ownership of a dedicated mortgage pool will be transferred to a dedicated subsidiary, which will act as guarantor for the bank's obligations to covered-bond holders. The foreign investor is therefore not receiving only ordinary bank debt, but debt backed by mortgage assets selected for this structure.
The program should therefore be read alongside Discount's mortgage book. At the end of 2025, the group's residential mortgage portfolio stood at about NIS 79.5 billion, compared with about NIS 73.8 billion a year earlier. In 2025, new residential mortgage originations totaled about NIS 12.7 billion, the average LTV in the book was 55.0%, loans with LTV above 75% represented 0.5%, and problematic mortgage debt was about NIS 673 million, or 0.8% of the portfolio.
Those figures do not make an issuance certain. They explain why the mortgage book can serve as the basis for a secured debt channel: it is large, diversified, linked to housing assets and familiar to institutional investors as potential collateral for covered or asset-backed debt. The value for Discount will arrive only if the pool composition, overcollateralization, rating and regulatory treatment allow a funding cost that is attractive relative to alternatives.
The new channel sits above an already diversified local funding base
Discount is not short of liquidity. At the end of 2025, the group reported an average liquidity coverage ratio of 120.8%, and the investor presentation showed an NSFR of 117.2%. Public deposits remain the bank's main funding source, with a meaningful retail component. At the same time, the banking balance sheet creates a natural maturity gap: much of the deposit base is shorter than the credit and mortgage portfolio.
The bank already operates beyond deposits. At the end of 2025, bonds and subordinated notes totaled about NIS 25.9 billion, compared with about NIS 20.0 billion a year earlier, and commercial paper totaled about NIS 4.5 billion. During 2025 and January 2026, Discount carried out several bond, subordinated-note and commercial-paper issuances and expansions. In December 2025, it also completed a NIS 500 million Credit Linked Note transaction against a residential construction-financing portfolio, reducing credit exposure, risk-weighted assets and sector exposure while improving liquidity.
That is where the distinction between more debt and mortgage-backed debt matters. Discount's shelf prospectus says the debt certificates of its issuance company are not secured by collateral. The new framework opens a different route: debt to offshore investors, supported by a dedicated asset pool and a guarantor company. It does not replace deposits or the local debt market, but it can add flexibility when the bank wants to lengthen tenor, diversify investors or tap foreign demand for debt backed by housing assets.
| Component | What is known | Economic read |
|---|---|---|
| Program amount | Up to EUR 1.5 billion | Future ceiling, not cash received now |
| Collateral | Dedicated residential mortgage loan pool | Use of the mortgage book as secured debt collateral |
| Structure | Dedicated subsidiary guarantees obligations | Asset transfer requires review of balance-sheet flexibility |
| Investors | Institutional investors outside Israel | Demand diversification beyond the domestic market |
| Status | No date, amount or terms | Value depends on pricing, tenor, rating and approvals |
The details that will determine whether the route is useful
The next important disclosure is an actual issuance. That is where the amount, currency, tenor, spread, rating, mortgage-pool composition, overcollateralization and accounting and regulatory treatment will be set. Without those details, there is no way to know whether the framework lowers funding cost or only adds a costly and complex option.
The second proof point is collateral flexibility. Discount already has encumbered assets and assets used for liquidity, clearing, Bank of Israel activity and repo transactions. A dedicated mortgage pool for covered bonds can be efficient if it opens cheaper and longer demand. It may be less useful if the collateral limits balance-sheet flexibility or if spreads do not compensate for the legal, rating and operational work.
The third proof point is comparison with alternatives. Discount raised local funding over the past year through bonds, subordinated notes and commercial paper, and its liquidity ratios were above requirements. The covered-bond route should therefore be evaluated as another tool in the bank's funding price, not as emergency funding. A longer and cheaper source from foreign investors can become an important part of the mix. Terms similar to or more expensive than domestic alternatives would leave the framework mainly as strategic preparation.
At this stage, Discount has created a capability that was not visible in its regular funding mix: a link between a large Israeli mortgage portfolio and offshore institutional demand for secured debt. That matters because it may broaden the investor base and create a secured funding source that does not rely only on deposits or local debt issuance. It does not change liquidity ratios, capital or profitability today. The move will become financially meaningful only when Discount shows an issuance, pricing, rating and mortgage-pool composition that justify using mortgage assets as collateral.
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