US investment house Merrill Lynch has raised its price objective for Bank Hapoalim (LSE: BKHD; TASE: POLI), Israel's largest bank, to NIS 26.50. This is 20% higher than Bank Hapoalim's current stock price on the Tel Aviv Stock Exchange of NIS 22.00.

Merrill Lynch analyst Haim Israel sees retail lending as the main area in which Bank Hapoalim has potential to expand. "Israel's loan-to-GDP ratio is the highest in EMEA and emerging LatAm (112%). Israeli corporate credit as a percentage of GDP, at 61%, is higher than in EEMEA, LatAm and the key G7 countries. With retail lending equating to only 11% of GDP (slightly above the EEMEA average, but slightly below LatAm), we see the potential in that are for expansion, especially considering Israel's GDP per capita," he writes.

Israel believes that the bank will be able to make up much of the revenue lost through its forced sale of provident and mutual funds. "The 2006 dividend that will result from the sale of key Hapoalim assets should be regarded as a one-time occurrence. Still, when Bank Hapoalim was ordered to sell its asset-management business, it was left with "sufficient meat on the bones" in the form of distribution fees to make up 33% of total past management fees. In addition, operating commissions, custodian fees and various brokerage commissions should help the bank to preserve 40% of total income," his report says.

As far as the bank's first quarter results are concerned, Israel expects a strong quarter, with a net profit of NIS 661 million, giving a 16.7% return on equity. Bank Hapoalim is due to release its first quarter financials on May 25.

Published by Globes [online], Israel business news - www.globes.co.il - on May 22, 2006

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