How might macro‑economic factors in Israel (interest rates, inflation, GDP growth) influence the sustainability of this profit growth?
Macroeconomic backdrop and profit sustainability
First International Bank of Israel’s Q2‑2025 record profit hinges on three Israeli macro‑variables:
Interest‑rate trajectory – The Bank of Israel has kept the policy rate in the 3‑3.5 % band for the past six months, a level that still allows banks to earn a healthy net‑interest margin (NIM) on a still‑elevated loan‑book. If the central bank begins a tightening cycle to curb inflation, a higher policy rate will push funding costs up faster than loan‑rate hikes, compressing NIM and eroding the “accelerated growth” driver of FIBI’s profitability. Conversely, a pause or modest cuts would preserve current spreads and support continued profit expansion.
Inflation pressure – Core CPI has been hovering around 2.8 % – just above the 2 % target. Persistent inflation raises the cost of living, which can dampen consumer‑credit demand and increase credit‑risk‑weighted assets. However, the bank’s relatively low exposure to high‑‑LTV mortgages and its strong capital ratios (as highlighted in the earnings release) give it a buffer. A breakout of inflation above 3.5 % could trigger higher default rates, especially in the SME segment, threatening the sustainability of the profit surge.
GDP growth – Israel’s Q1‑2025 real GDP grew 4.1 % YoY, driven by tech exports and a rebound in construction. Robust growth fuels loan demand, deposit inflows, and fee‑based income—key components of the “high profitability” narrative. A slowdown to sub‑2 % growth would likely curtail new lending and compress the bank’s operating leverage, making the profit momentum more vulnerable.
Trading implications
Fundamentals: The earnings beat, strong capital buffers, and a diversified income mix suggest the profit trend can be sustained provided the macro environment remains supportive (stable rates, contained inflation, continued GDP expansion). Any sign of a rate‑hike cycle or inflation‑driven credit stress should be viewed as a downside catalyst.
Technical: FIBI’s price has broken above its 20‑day SMA and is testing the upward‑trend line drawn from the 2024 low (≈ 15 ILS). The breakout coincides with the earnings release, creating a bullish momentum bias. However, the 50‑day SMA (≈ 16.2 ILS) still acts as a near‑term resistance. A pull‑back to the 20‑day SMA (~15.8 ILS) with volume support could offer a lower‑risk entry; a clean retest above 16.2 ILS would signal continuation of the rally.
Actionable view:
- Long on a breakout above 16.2 ILS with a stop just below the 20‑day SMA (≈ 15.6 ILS).
- Scale‑out or tighten stops if upcoming macro data (e.g., the Bank of Israel’s rate decision or the Q2 GDP release) indicate tightening or inflation acceleration.
In short, the profit growth is macro‑dependent; a stable interest‑rate environment, moderate inflation, and continued GDP expansion underpin the upside, while any shift toward higher rates or inflation‑driven credit risk should prompt defensive positioning.