Strategic planStrategic plan20132013--20172017
Capital market presentationCapital market presentation
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July July 20122012Capital market presentationCapital market presentation
The following translation to English of the Presentation, is intended solely for the convenience of the reader. This translationhas no legal status and the bank does not assume any responsibility whatsoever as to its accuracy and its contents. Only the original Hebrew text is the official one, and readers are advised to consult the Hebrew text in all matters.
General Comments regarding Legal Responsibility
This presentation was prepared by Mizrahi Tefahot Bank Ltd. (the "Bank"), in connection with the Bank's new strategic plan for the years 2013-2017 (the "Strategic Plan"), for the purpose of the presentation thereof in meetings with various participants in the capital markets in Israel and abroad.
The information included herein is not exhaustive and does not include all information and data regarding the Bank and its business or the risk factors which its activity involves. For a full description of the Bank and its business and the risk factors which its activity involves, please see the reports which were published by the Bank, including its financial statements and immediate reports.see t e epo ts c e e pub s ed by t e a , c ud g ts a c a state e ts a d ed ate epo ts
The information included herein is based, inter alia, on information which is known to the Bank's management as of the date of preparing the presentation, including, public data, which were not examined by the Bank's management independently and for which the Bank is not responsible.
The information included herein does not constitute advice, recommendation, opinion or a proposal regarding an investment in any securities whatsoever.
The Strategic Plan describes the Bank's targets for the next five years, and should not be deemed to constitute a forecast, an estimate or an evaluation, with respect to achieving the said targets, and as such, by its very nature, the Strategic Plan may not be realized.It is hereby clarified that the information and the data which relate to a future date, are targets and objectives which the Bank set for itself within the Strategic Plan, and as such, they may not be realized.
The Board of Directors will monitor the implementation of the Strategic Plan which may be amended, from time to time, as required, p g y , , q ,including, as a consequence of factors which may affect the plan.
Without derogating from the generality of the aforesaid, insofar as the presentation includes forward-looking information, as defined in the Securities Law, 5728-1968, the information is based on assumptions, facts and data (collectively: "Assumptions") which may not be realized due to factors which are beyond the Bank's control and could cause the Strategic Plan to not be realized
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due to factors which are beyond the Bank s control, and could cause the Strategic Plan to not be realized.
For the avoidance of doubt, it is clarified, that the Bank does not undertake to update the information included herein.
The presentation does not constitute an offer for the purchase or sale of the Bank's securities, or an invitation to receive such offers.
Strategic Highlights
More of the sameMore of the same
F th tF th t 88 h t l dh t l dFor the past For the past 8 8 years we have set goals and years we have set goals and performed accordingly. It is the time for a performed accordingly. It is the time for a new plannew plannew plannew plan
The following plan aims to continue the The following plan aims to continue the success story. Our future growth path is success story. Our future growth path is embedded in our strategy and the required embedded in our strategy and the required i f t t d lt tii f t t d lt tiinfrastructure and culture supporting our infrastructure and culture supporting our growthgrowth
Even under tougher capital requirements we Even under tougher capital requirements we can produce the same and even better returns can produce the same and even better returns
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Strategic Highlights
The main engines and targets The main engines and targets
Continuing the organic growth while increasing the Bank’s market share
Credit portfolio mix of at least 60% households1
2 Continuing the organic growth while increasing the Bank s market share in core areas of activity
Growing while achieving operational efficiency (maintaining, and even improving our efficiency ratio)
3
2
Capital efficiency (the results of implementation of advanced models, and accordingly the capital reduction, was not taken into account in this
improving, our efficiency ratio)
4strategic plan)
Encouraging service oriented culture – internally and towards clients5
5
What you see is what you get!What you see is what you get!Strategic Highlights
HYoungest and most educated force in the
1Human
Resources
gbanking system*
2 4 CompetitiveAdvantageTechnology
Better relationshipsBetter understandingBetter achievements
Integrated CRM and efficient back office systems enable more than 3,000 employees of all divisions to be
3 CultureDeep understanding of the Bank’s goals and comprehensive incentive plans created a culture of success
proactively engaged in relationships
6
* All comparisons included in this presentation referring to the Banking System are between UMTB and the following four banking groups: Bank Leumi, Bank Hapoalim, Israel Discount bank and First International Bank Israel, unless otherwise specifically stated
HRHuman Resources at UMTB*Human Resources at UMTB*
revenue growthfollowed. the growth 2005% since 35We grew our workforce by
3,8413,977 4,135
4,3874,636
3,439 3,6603,671
,
7
Jan 05 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09** Dec 10 Dec 11
SOURCE: banks’ financial reports * Not including Yahav Bank **From 2009 onwards – including Bank Adanim that was merged into the Bank
Composition of workforce is a powerful engine for being a Composition of workforce is a powerful engine for being a better bankbetter bank
HR
Management positions Academic employees Distribution by age and seniority
Highest rate among the banking system
Male Female * 76.4% including students Average seniority in years
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Constant improvement of the work force of UMTB
SOURCE :Mizrahi Tefahot. Data referring to Bank only
Comparison of the human infrastructure in the Israeli Comparison of the human infrastructure in the Israeli banking system banking system
HR
45.2
38.9
19.3
11.6
55%64%Average of the banking systemUMTB
Academic employees Average age Average seniority (years)
9
UMTB presents a superior work force composition in the banking system – youngest, shortest seniority and most educated
SOURCE: based on Globes magazine May 2012, graph relating to 2011
TechTechnology and operational efficiencyTechnology and operational efficiency
All the technological, logistical, educational and operational units of the Bank are moving to one location
UMTB is the only bank that moved its HO to the Diamond District, where local taxes are substantially lowerwhere local taxes are substantially lower
10
Efficiency ratioEfficiency ratioTech
The result of UMTB’s implementation of our plans in technology and HR made us the most efficient bank in the banking system
Cost to income ratio (Consolidated)*20042011
60%62%
71%
58%60%
≤55**
UMTB Average of the banking system
SOURCE: banks’ financial reports
* Cost to income ratio – Non-interest expenses divided by total pre provision income and operational income
** Future target for 2017
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We plan to improve efficiency ratios while growing the business
Hybrid banking and Live banking Hybrid banking and Live banking –– utilizing technology utilizing technology and operation to change culture and relationshipsand operation to change culture and relationships
Tech
Breakthrough banking products live side by side, in order to meet clients preferences
client preference:
Personal Technology A client that has
a personal banker andPersonal
relations with his
banker and
brings closer our client and their
LIVEHybrid banking
banker and understands the benefits
fbanker and proximity of the branch
personal banker
of geographical
flexibility
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Hybrid banking Hybrid banking –– instead of putting barriers between the client and the instead of putting barriers between the client and the banker, all channels are leading our clients to their personal banker banker, all channels are leading our clients to their personal banker Tech
Ideal combination between personal and digital banking
SMSInternetB kB kBankerBanker
BranchBranch team
IVR
Live banking Live banking –– focused on specific segments with common focused on specific segments with common characteristics but distant geographical locationscharacteristics but distant geographical locationsTech
LIVE
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CultureCompensation plans are closely tied to targets and Compensation plans are closely tied to targets and performanceperformance
Management has reached an agreement with the union which enables managing both cost and incentive plans
Top level management
Specific option plan (gave up bonus plan until 2013) closely tied to strategic plan and achieving ROE targets over time
Mid d l l l tMid and low level management
Option plan closely tied to strategic plan and achieving ROE targets over time
All employees (excld. Top management)
Bonus plan tied to performanceBonus plan tied to performance
- ROE targets according to strategic plan
- Annual business plan targets
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Annual business plan targets
- Division, department and personal performance
Two brands, one groupTwo brands, one groupCulture
In the world of growing public tension regarding cost of services, the group can provide a dual solution
Clients’ added value
The banking
“Value for money”“Price
Clients’ cost
banking system
focused service”
Yahav Mizrahi Tefahot
• Branded as low cost bank• Price focused
Bankcharacteristics
H h ld ith i l f
• Branded as premium bank• Service focused
Bankcharacteristics
• Commercial and retail clients in • Households with special focus on
public sector employeesClient profile Israel and abroad• Medium and high level
Client profile
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A dual branding strategy is aimed to lead to services and products tailored to client’s profile and differentiation between the brands
YahavYahav bank performancebank performanceCulture
12,701
14,16214,795
16,755
4,698
5,1955,432
5,820
Total assets
Loans to the public
2008 2009 2010 2011
,
2008 2009 2010 2011
14,309 10 4%11.8%
11,01312,020
12,572
,
6.0%
3.1%
5.3%
10.4%
Deposits from the public
ROE
2008 2009 2010 2011 2008 2009 2010 2011 Q1 2012
17SOURCE: Yahav ‘s financial reports * growth: 2011 compared to 2008
Yahav bank plans to continue to be a growth area, targeted to reach the Group’s ROE by 2017
Housing loans Housing loans –– market share, ROE and marginsmarket share, ROE and marginsCulture
Our backbone is keeping our #1 position in mortgage banking by assuring professional advice and quality service
0.84%
0.63%
0.32%
7.6%
14.7%
0.09%4.0%4.1%
Discount**Leumi**Hapoalim*UMTB*Market share margin ROE
UMTB* Hapoalim* LeumiLe’mashkantaot**
DiscountLe’mashkantaot**Market share margin ROELe mashkantaot Le mashkantaot
Market share MarginROE
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* Calculated based on business segments as reported in these banks’ financial results for 2011
** Margin = interest margin relating to revenue and expenses rate of the bank. Source: financial reports 2011
Corporate banking Corporate banking –– focusing on trade and trade financefocusing on trade and trade finance
UMTB th fi t i th b ki t th t ifi d ll t di fl d f d
Being there for our clients – with solutions tailored to their needs and where we can provide high value added services
Trading floorsUMTB was the first in the banking system that unified all trading floors under one roof and one management, to support its corporate and institutional client with quality and timely solutions
Unifying all trade finance, guarantees and factoring activities to one unit under one management, to best service exporters and importers in co operation with our international branchesTrade finance to best service exporters and importers, in co-operation with our international branches
Derivatives trading(NIS bil)Trade finance (excld. Diamonds) ($ mil)
Trade finance
(NIS bil)
12,344
5 937Cumulative growth
107 9% Cumulative growth5,937 107.9% Cumulative growth 92%
2004 2011Source: Bank ‘s systems SOURCE: bank’s financial reports 19
Competitive Advantage
All these led to our competitive advantageAll these led to our competitive advantage
superior human resourcesand flexible work relations
Harnessing technology and operations as tool to support relations with clients
Better relationshipsrelations with clients
Culture of success – the success of the Bank is the success of the
Better understanding
Better achie ements
Competitive advantage
the Bank is the success of the employees and vice versa
Better achievements
Superior credit mix
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Competitive Advantage
While keeping the best combination of high return with While keeping the best combination of high return with low risklow risk
Risk Adjusted Return On Capital - comparison between the five major banking groups and the system, average 2004 - 2010
Israeli Banking System
21SOURCE: Bank of Israel – Israeli banking system, annual review 2010
The group credit portfolio mix The group credit portfolio mix -- we are targeting to keep we are targeting to keep our unique credit profile and low risk associated with itour unique credit profile and low risk associated with it
UMTB (incl. Yahav) Average of the banking system 2012.3.31
Corporates30%
12331 12.3.31Households
39%
Households70%
Corporates61%
Corporates35%
Housholds65%
2017*
23SOURCE: banks’ financial reports * Future target for 2017
The target: we plan to continue our organic growth by The target: we plan to continue our organic growth by recruiting growing numbers of net new accountsrecruiting growing numbers of net new accounts
75,000
60,000
,
35,000
2008 2012* 2017
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SOURCE: bank’s systems
* 1-6/2012 in annual terms
Targeted loans to Targeted loans to the publicthe public
174
Loans to the public (NIS bil)
17 5%
market share–Loans to the public
119
15.1%
17.5%
119
2011 2017 2011 2017
Subject to the assumption that the banking system’s loans to the public growth rate will be similar to the rate in the past four years (about 4%) and considering regulatory limitations to risk weighted assets, the Group’s market share is targeted to reach approx. 17.5%
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g pp
SOURCE: bank’s financial reports
Targeted Targeted balance sheet credit risk to the public (in Israel)balance sheet credit risk to the public (in Israel)
Balance sheet credit risk to the public (in Israel) (NIS bil)*
Balance sheet credit risk to the market share–public (in Israel)
18.0%
16.5%
176
120
2011 20172011 2017 2011 20172011 2017
The Bank plans to strengthen its position as the third largest bank in credit to the public in Israel
26SOURCE: bank’s financial reports * including debentures and fair value of derivatives
Targeted deposits from the publicTargeted deposits from the public
176
Deposits from the public (NIS bil) market share–Deposits from the public
13.5%
16.0%
119
176
119
2011 20172011 2017
In line with the increase of loans to the public, the Bank plans to increase its market share in deposits from the public
Subject to the assumption that the banking system’s deposits from the public growth rate will be similar to the
27SOURCE: bank’s financial reports
Subject to the assumption that the banking system s deposits from the public growth rate will be similar to the rate in the past four years (3.2%), the Group’s market share is targeted to reach approx. 16%
Targeted market share Targeted market share
2011 2017
M k t h M k t hMarket share Market share
Total loans to the public 15.1% 17.5%
Balance sheet Credit risk to the public in Israel 16.5% 18%
Mortgages (new initiations) 34% 35+%
Corporate and SME credit 9.1% 11.5%
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Based on a main macroeconomic scenario of average GDP growth of 3.5%
2013 2013 –– 2017 2017 strategic plan strategic plan –– YahavYahav bank targetsbank targets
• launching new product utilizing UMTB’s platformSynergies launching new product utilizing UMTB s platform• continuing integrating mortgage representatives in the branches• receiving operational services from the Group
Synergieswith the Group
Internal • preserving the perception and branding of Yahav bank by its improvement customers
• capital efficiency• upgrading and branding the direct channels
F i• leveraging on the competitive position in the public services
tFocusing on clients
groups
segment• geographical focus for recruiting and preserving clients• segmentation of clients
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2013 2013 –– 2017 2017 strategic plan strategic plan –– efficiency as a focal pointefficiency as a focal point
Ongoing and strict managing of the budget
Back office – continuing transferring areas of activities
The technology and logistics center in Lod – functional efficiency and
Culture of efficiency and improvement
gy g ycost saving
New incentive plan based on performance (in the process by the Bank)
Yahav – continuing the co-operation within the group while cutting cost and improving
More efficient IT operation
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Efficiency ratio targeted to be below 55%
2013 2013 –– 2017 2017 strategic strategic plan targets plan targets
Incom Expenes
4,6104 3264,326
3,8493,518
2,5622,4702,153
2,667
2008* 2009** 2010 2011 2017E
ROE based on core tier 1 ratio of at least 9% (gradual increase) 14.5%
601 802 1,046650
10.4% 11.7% 14.6%10.4% 17%ROE
Net profit
ROE based on core tier 1 ratio of at least 7.5%
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≤55%61% 59% 58%64%
* July 2008 onwards including Yahav ** excluding provision for retirement plan
Cost/income
Dividend policyDividend policy
We will keep current dividend policy and resume dividend distributions accordingly, subject to the Board of Directors resolutioninstructing the Bank’s management to make all efforts to reach core tier 1 level of at lest 9%, if possible, early 2014
Distributed dividend
Payment year Total dividend paid (NIS mil)y y p ( )
2004 130
2006 325
2007 400
2008 150
2010 200
2011 120
Total 1,325
Dividend distribution policy (April 2006):40% of the net operating profit
ota ,3 5
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40% of the net operating profit80% of the profit from extraordinary items
Strategic principles
2013 2013 –– 2017 2017 strategic plan strategic plan –– risk factorsrisk factors
Regulatory risks
Some major risk factors that may fundamentally influence the group’s financial results
Global economy risks
The assumption
Regulatory orders that will substantially change the business environment in Israel are not expected , other than decisions already known now
The assumption
World economic growth is expected to at least on or close to zero growth per capita
The riskEuro zone crisis may deteriorate and drag global economy to a deep and long recession The risk
• Regulatory orders can effect the Group’s business environment
• Legislative initiatives may reduce the Group’s ability to provide certain services in the future
Geo political risks Domestic economy risks
• Supportive economic environment – Domestic The
assumptionThe
assumption
ppaverage annual growth of at least 3.5%
• Inflation will be within government current target and interest rates will correlate with this level
• As a result of the global economic situation, the
Geo political situation is not expected to change materially
• Deterioration of the geo – political situation may
The risk
g ,Israeli economy may get into a recession, and this in turn will influence the business environment
• Low interest level for a long period of time may jeopardize the Groups revenues
The risk
g p yresult in a local recession
• The isolation of Israel may damage the business environment
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jeopardize the Groups revenues
Exogenous factors, that are not under the group’s control, can affect the group’s targeted growth path
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