2010 Bank Hapoalim Annual Report 2010 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. Hapoalim (Latin America) S.A. Bank Hapoalim (Cayman) Ltd. Financial Companies Bank Pozitif Kredi Ve Kalkinma Bankasi a.s. Isracard Ltd. JSC Bank Pozitiv Kazakhstan(1) Poalim Express Ltd. Investment House (1) 100% owned by Bank Pozitif Poalim Capital Markets - Investment House Ltd. 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 2010 2009 2010 2009 NIS Millions USD Millions* Total Assets 320,876 309,555 90,413 87,223 Net Profit 2,228 1,316 628 371 Credit to the Public 225,288 215,788 63,479 60,802 Deposits from the Public 233,965 231,993 65,924 65,369 Shareholders' Equity 23,089 20,598 6,506 5,804 * US dollar figures have been converted at the representative exchange rate prevailing on December 31, 2010, NIS 3.549 = USD 1.00 Group Profile Israel’s leading financial institution Since its founding in 1921, Bank Hapoalim has played Internationally, Bank Hapoalim operates through a a pivotal role in the rapid growth of Israel’s economy. network of subsidiaries, branches and representative Today Hapoalim continues to be the leading financial offices in the United States, Europe, South America institution in Israel. The bank maintains a global presence, and Asia. The Bank’s thriving Global Private Banking operating in 20 countries throughout the world. services, led by Bank Hapoalim (Switzerland), serves high net-worth clients from around the world, with Bank Hapoalim is a universal bank in structure offices in Zurich, Geneva, Luxembourg, Tel Aviv, Miami, and operations. Singapore and Hong Kong. In this competitive market, The bank boasts a very strong retail banking business clients are attracted to the Bank’s very extensive wealth with the largest distribution network in the country. management expertise, stellar reputation and global Through a wide range of banking offerings it caters to spread. Global Private Banking activities are supported consumers, SMEs and corporations across Israel. by PAM, a fully-owned subsidiary in London, which provides investment products through the world’s Bank Hapoalim is the lender of choice to Israel’s leading investment firms. largest corporations and is active in financing industrial and commercial enterprises, as well as major Building on its experience in structuring complex infrastructure projects. trade packages, the Bank is promoting its overseas corporate services, primarily targeting Israeli companies The bank runs a thriving foreign trade, foreign establishing or strengthening their presence in established exchange, and brokerage & custody business and and growth markets. maintains a global private banking arm serving private clients across the globe. The Bank Hapoalim Group includes Isracard Ltd, Israel's leading credit card company, as well as financial In Israel, Bank Hapoalim operates over 270 full-service companies involved in investment banking, trust services branches, focusing on households, private (affluent) and portfolio management. banking & small businesses. The bank offers a deep shelf of banking and payments The Bank plays an active role in the community, products, capital market and foreign trade facilities and a contributing generously to educational, social and cultural full gamut of financial planning advisory services including projects, and encouraging personal volunteering among pension and retirement planning. its employees. Bank Hapoalim is currently strengthening its domestic Bank Hapoalim is one of the most actively traded stocks presence through “express branches” for retail banking on the Tel Aviv Stock Exchange. In addition, a Level-1 in high traffic areas, and “boutique” branches in affluent ADR is traded "over-the -counter" in New York, under neighborhoods. Through its celebrated direct banking ticker BKHYY. platform and state-of-the-art 24/7 call centers; the The Bank is rated by Moody's, S&P and Fitch. Bank promotes convenient, interpersonal interaction, providing customers the ability to bank through whichever technological channel they choose. Commercial and corporate clients are professionally served through eight regional business centers, business branches and specialized industry desks for major corporate clients. The Bank, which has long been the favored financial address for Israel’s leading corporations, is now strengthening its middle market activities. A growing network of business branches will make services more convenient and diversified, as this sector plays an expanding role in the domestic economy. 3 Bank Hapoalim B.M. and its Consolidated Subsidiaries Letter from the Chairman of the Board and the CEO Dear Stakeholders, crisis. Gross domestic product grew by 4.6%, imports and exports of goods and services expanded, and foreign investments in Israel increased. Employment returned to On behalf of the Board of Directors pre-crisis levels, while the workforce participation rate and the Board of Management, and the employment rate showed continual gains. The we are proud to present the Bank of Israel interest rate rose gradually, reaching 2% in December 2010. Early in the year, the Israeli economy annual financial statements of won international recognition as a developed economy the Bank Hapoalim Group for and was invited to join the prestigious OECD club, 2010 – a year of achievements and along with European countries and the United States. Israel was also recognized as a developed market by the business momentum, during which MSCI indices, which are used by investors worldwide to the Bank achieved double-digit allocate investments. returns, in line with the trajectory Global Economy: Growth Amidst Uncertainty outlined in the multi-year strategic The global macro-economic environment improved plan we presented last year. in 2010, and corporate profitability rose from the low point of the crisis. Activity in the capital markets gained force, both in capital raising and in securities trading. A Year of Enhanced Focus and Strength Concurrently, the volume of global trade expanded and The past year was a time of great renewal and growth at foreign direct investments between world markets grew. Bank Hapoalim. During 2010, we took a leap forward from Despite the rebound, uncertainty has persisted in the both a managerial and financial standpoint. Determined and global markets due to the effects of the debt crisis that precise execution of our strategic plan put the Bank back began in the corporate sphere and evolved into an on the path of sustainable double-digit return on equity increase in sovereign debt risk in the Euro-zone. Global and profitability. For the Board of Directors and the Board economic and financial uncertainty has also increased of Management, it was a year of heightened focus, as we as a result of the geopolitical turmoil in the Middle East, worked to implement the Bank’s multi-year strategic plan, the rise in energy and food prices, and the earthquake bolstering growth engines and increasing synergies among in Japan. These events have heightened the risks to the the business divisions. global growth process and highlighted the importance The Bank ended 2010 with a net profit of NIS 2.2 billion, of managing risks based on an understanding of the up almost 70% year-over-year. Profit from financing activity developments in the global arena. after provisions for doubtful debts reached NIS 6.7 billion, a 44% increase year-over-year. The 10.3% return on Solid Performance and Stability equity reflects Bank Hapoalim’s deep commitment to its Bank Hapoalim’s performance in 2010 reflects the shareholders to produce returns commensurate with the commitment of the Board of Directors and the Board of Bank’s risk appetite and the macro-economic conditions in Management to grow the Bank's business while increasing Israel and in the global markets. and strengthening its capital. The Bank’s capacity to generate a double-digit return During the year, our profitable core banking activity served on equity while maintaining a substantial capital cushion, to enlarge the Bank's capital base. The total capital adequacy above regulatory requirements, demonstrates the quality ratio of the Bank was 14.1% at the end of 2010, significantly of earnings of Bank Hapoalim based on the strength of its higher than the 12.5% target set by the Board of Directors. core banking activity. In 2010, we maintained our lead in providing financing for our clients as they continued to grow and prosper, Leading Bank in a Growing Economy including leadership of key infrastructure and financing In 2010, the Israeli economy continued to display a high projects in the Israeli economy. Bank Hapoalim degree of resilience, providing fertile ground for Bank continues to be a leading force in the economy Hapoalim’s business activities. Most sectors of the Israeli and serves a key role in boosting the competitive economy have recovered from the effects of the financial power of the Israeli economy. 4 Bank Hapoalim B.M. and its Consolidated Subsidiaries During the year, the quality of Bank Hapoalim’s credit portfolio continued to improve, contributing to a decrease in the Bank’s provisions for doubtful debts. The rate of specific provisions for doubtful debts was 0.49% of total credit to the public at the end of 2010, compared to 0.9% in 2009. When necessary, we acted resolutely and expertly to lead debt (restructuring) arrangements, reflecting our responsibility to our shareholders, our clients, and all creditors. 2010: A Year of Initiatives During the year, we implemented internal processes to strengthen the Bank in several areas: • Growth in corporate credit: In 2010, we continued to lead the Israeli banking system in the area of credit, by financing the country’s largest deals Yair Seroussi while maintaining spreads and strictly managing risks.