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Israel's banks least efficient among Middle East peers despite improvements


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Middle East Africa MA by the Numbers: Q3 2021

Israel's banks least efficient among Middle East peers despite improvements

Israeli banks remain the least efficient among lenders in the Middle East region despite improving their efficiency ratios since the start of the pandemic.

For an S&P Market Intelligence ranking of European banks' cost-to-income ratios, click here.

The five largest lenders in the country placed at the upper end of a ranking of cost-to-income ratios at select large Middle East and Africa banks compiled by S&P Global Market Intelligence. Israel Discount Bank Ltd. reported the highest ratio of 61.99% as of the end of the second quarter. First International Bank of Israel Ltd.'s 58.58% ratio was the second-highest, while Bank Hapoalim B.M. and Mizrahi Tefahot Bank Ltd. had the third- and fourth-highest. The cost-to-income ratio measures the cost of running a business as a proportion of operating income, and lower ratios indicate a more profitable business.

Meanwhile, Bank Leumi le- Israel B.M.'s second-quarter cost-to-income ratio of 43.15% was toward the top of the list but lower than those of its Moroccan and Jordanian peers. The lender said in its second-quarter earnings release that the improvement was driven by a significant increase in income during the period. The list of individual banks omits those in certain countries such as South Africa due to accounting differences.

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On an aggregate basis, Israel's average banking sector cost-to-income ratio was 56.51% at the end of 2020. This was lower than South Africa's 60.16%, Nigeria's 63.06% and Iran's 85.91%, but higher than those of Morocco, Algeria, Egypt, Iraq, Saudi Arabia, Qatar, Kuwait and the United Arab Emirates.

Israeli banks have been engaged in various streamlining plans to increase efficiency since 2016 and have improved in recent months. First International Bank of Israel approved an early retirement program in June to cut costs by reducing head count. Hapoalim has also engaged in similar streamlining. It has reduced its head count by 500 over the last three years and plans to continue offering employees early retirement plans.

Israel and Nigeria have both improved their ratios on an annual basis. At the end of 2019, the former's average bank cost-to-income ratio was 61.33%, while the latter's was 63.64%. Average bank efficiency for South Africa and Morocco rose year over year from their respective ratios of 57.10% and 52.43% at the end of 2019.

Two Qatari banks had the lowest cost-to-income ratios at the end of June: that of Qatar Islamic Bank QPSC, which said its efficiency improved year over year on the back of strict cost controls and higher operating revenues, was 18.02%, and that of Qatar National Bank (QPSC), the Middle East region's largest bank, was 22.74%.

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