20 14 Bank Hapoalim Annual Report 2014 The Bank Hapoalim Group Major Subsidiaries & Affiliates Commercial Banks Asset Management Bank Hapoalim B.M. Poalim Sahar Ltd. Bank Hapoalim (Switzerland) Ltd. PAM - Poalim Asset Management (UK) Ltd. Bank Hapoalim (Luxembourg) S.A. Poalim Asset Management (Ireland) Ltd. Bank Pozitif Kredi Ve Kalkinma Bankasi a.s. JSC Bank Pozitiv Kazakhstan(1) Financial Companies Isracard Ltd. Investment House Poalim Express Ltd. Poalim Capital Markets - Investment House Ltd. (1) 100% owned by Bank Pozitif Trust Companies Poalim Trust Services Ltd. Underwriting Companies Poalim I.B.I. Managing and Underwriting Ltd. Portfolio Management Peilim – Portfolio Management Company Ltd. Hapoalim Securities USA, Inc. Consolidated Financial Highlights 2014 2013 2014 2013 NIS millions USD millions* Total Assets 407,794 380,020 104,858 97,717 Net Profit 2,740 2,548 705 655 Credit to the Public 263,980 251,600 67,879 64,695 Deposits from the Public 297,230 276,525 76,428 71,104 Shareholders' Equity 31,361 28,834 8,064 7,414 * US dollar figures have been converted at the representative exchange rate prevailing on December 31, 2014, NIS 3.889=USD 1.00 2 Bank Hapoalim B.M. and its Consolidated Subsidiaries Group Profile Israel’s largest and leading financial institution Since its founding in 1921, Bank Hapoalim has played a Global Private Banking led by Bank Hapoalim key role in the rapid growth of Israel’s economy. Today (Switzerland), serves high net-worth clients from Bank Hapoalim is widely known as Israel’s leading bank, around the world, through offices in Zurich, Geneva, its familiar red logo ubiquitous across a network of about Luxembourg, Tel Aviv, Miami and Hong Kong. In this 280 branches. Bank Hapoalim has all the benefits of a competitive market, clients are attracted to the Bank’s large, solid, financial services group. It has successfully very extensive wealth management expertise, stellar leveraged its size, stability and deep expertise to foster reputation and global spread. Global Private Banking innovation in the often slow-and-steady banking sector. activities are supported by PAM, a fully-owned subsidiary in London, which provides investment products In Israel, Bank Hapoalim operates 255 full-service through the world’s leading investment firms. retail branches, focusing on households, private Commercial Banking Services are provided to Israeli (affluent) banking & small businesses. The bank offers companies working abroad and local Middle Market a deep shelf of banking and payments products, customers, by the New York Branch, together with offices capital market and foreign trade facilities and a in Miami and Los Angeles. The Bank also serves as the full gamut of financial planning advisory services gateway to the Israeli financial markets for international including pension and retirement planning. customers investing and doing business in the country. Through its celebrated direct banking platform Building on its experience in structuring complex and state-of-the-art 24/7 call centers; the Bank trade packages, the Bank is promoting its overseas promotes convenient, interpersonal interaction, corporate services, primarily targeting Israeli providing customers the ability to bank through companies establishing or strengthening their whichever technological channel they choose. presence in established and growth markets. Bank Hapoalim is the lender of choice to Israel’s largest The Bank Hapoalim Group includes Isracard Ltd, corporations and is active in financing industrial and Israel's leading credit card company, as well as commercial enterprises, as well as major infrastructure financial companies involved in investment banking, projects. The bank runs a thriving foreign trade, foreign trust services and portfolio management. exchange, and brokerage & custody business. Hapoalim has also taken a leadership role in the Commercial and corporate clients are Israeli marketplace in contributing to, and benefitting professionally served through seven regional from, the communities in which it operates. business centers, business branches and specialized This combination – stability, innovation, and a deep industry desks for major corporate clients. commitment to the community – has been a powerful The Bank, which has long been the favored financial growth driver for the Bank and has positioned address for Israel’s leading corporations, is now Hapoalim at the forefront of Israeli banking. strengthening its middle market activities. A network of 22 business branches in significant commercial Bank Hapoalim is one of the most actively traded areas throughout the country offer more convenient stocks on the Tel Aviv Stock Exchange. In addition, and diversified services, as this sector plays an a Level-1 ADR is traded "over-the-counter" expanding role in the domestic economy. in New York, under ticker BKHYY. The Bank is rated by Moody's, S&P and Fitch. Internationally, the bank maintains a global presence, operating in some 30 locations throughout the world. The Bank is focused on two business segments: Global Private Banking and Commercial Banking. 3 Bank Hapoalim B.M. and its Consolidated Subsidiaries Letter from the Chairman of the Board and the CEO Dear Stakeholders, throughout the value chain in the financial industry. Return on equity stood at 9.0% and annual earnings On behalf of the Board of Directors reached NIS 2,740 million in 2014. This result reflects the Bank's deep commitment to its shareholders to and the Board of Management, we achieve returns aligned with its risk appetite and with are proud to present the annual macro-economic conditions in Israel and in global markets. financial statements of the Bank Global Economy – Variations in Growth Hapoalim Group for 2014. During Rates of Economies Around the World the year, Bank Hapoalim continued to The American economy left the great financial crisis of implement our strategic plan for the 2008 behind in 2014, displaying impressive resilience, in contrast to the brittle growth of the European economy years 2013-2015, attaining impressive and the severe weakness of the Japanese economy. In the business achievements and yielding emerging economies, growth rates fell slightly and the 9.0% return on shareholders' risk level of sovereign debt rose, continuing a trend from 2013. The differences in growth rates contributed to the equity, in line with our objectives. strengthening of the dollar against the euro and the yen. According to estimates by the International Monetary Fund, the overall growth rate of the global economy A New Strategic Plan: Continuity and Momentum reached 3.3% in 2014, the same as in 2013. The steep In 2014, the Bank continued to follow the drop in oil prices during the year benefited the global trajectories of the strategic plan and of the Board of economy but was damaging to oil producers. Directors' plans for 2013-2015, focusing the Bank Monetary policies in the developed countries on three key areas: efficiency, growth drivers, and remained highly expansionary, despite signs of technology. This plan is a direct continuation of the a change in trend at the central bank in the strategic plan of 2009, which solidified the Bank's US, expected to be expressed in 2015. position as Israel's leading financial institution. During the year, management successfully executed Economic Environment in Israel the strategic plan, while maintaining profitability under The Israeli economy posted 2.9% growth in 2014. changing market conditions in a low-interest rate Economic growth remains stable, although Operation environment. Concurrently, management continued to Protective Edge in the third quarter dampened growth drive the efficiency effort, which has become a way of significantly for that quarter, and probably caused life at Bank Hapoalim. The Bank's management acted slight deceleration in annual terms. Also, there were decisively, in recognition of the new competitive arena hopes that natural gas from the Tamar field and the emerging in the Israeli economy, which has placed banks achievements of the high-tech industry would lead in direct competition with existing and new players 4 Bank Hapoalim B.M. and its Consolidated Subsidiaries to a higher growth rate for the Israeli economy. Concurrently, the Bank continued to increase the The labor market stabilized at a low unemployment number of its retail banking customers, maintain rate of about 6%, with a high workforce participation its leadership in financing of infrastructures rate. Surveys indicate that the participation rate and corporations, and grow consistently in the in the ultra-orthodox (Haredi) and Arab-Israeli commercial banking segment, in which we raised sectors is rapidly rising – an important process of the Bank's market share and achieved impressive deep societal change with long-term implications. growth in revenues and in the number of clients. The real-estate market continued to seethe, The Bank continues to uphold its deep commitment following a partial calm while the market waited for to the small business sector, in recognition of the government solutions. Pent-up demand for housing importance of this sector to the Israeli economy. pushed prices of homes up by 4.5%, according to This is reflected in a stronger value offer, the creation a survey by the Central Bureau of Statistics. of innovative products, and ongoing guidance, The consumer price index decreased by 0.2% over the financing, and consulting for this client segment. last year. Inflation is currently low in most countries around In 2014, we focused on the commercial banking segment, the world, due to factors including the sharp drop in with great success; the bank's market share increased, prices of oil and commodities. In Israel, competition has with strong growth in revenues and in the number of intensified in several areas, such as telecommunications customers. The Bank's momentum in the Arab-Israeli and food, which led to lower prices. The government's community has changed the terms of competition in policy of lowering the cost of living also had an impact. this sector, bringing the power and excellence of Bank The Bank of Israel interest rate was lowered Hapoalim to the forefront.