Bank Leumi's AI-Fueled Efficiency Hits Historic High as Credit Growth Surges
Record 24.7% cost/income ratio and 9% H1 loan growth underscore a technology-led transformation that is now beating its own targets.
LUMI.TA · Earnings Call · 2026-08-12
The second quarter of 2026 marked a milestone for Bank Leumi: the bank posted its highest-ever quarterly net income of NIS 2.8 billion and an efficiency ratio of just 24.7%, the best ever recorded in the Israeli banking system. But behind these numbers lies a more durable story: a bank that has wholeheartedly embraced AI to transform its cost base, while financing the infrastructure that underpins a digital Israel.
The Efficiency Ratio That Mattered
The 24.7% cost/income ratio is not just a quarterly blip. CEO Hanan Friedman framed it as the result of a structural change: "Our second quarter efficiency ratio reached a record level, reflecting the strength of our operational model." He went on to say that they expect to remain among the most efficient banks globally, supported by “the consistent execution of our technology strategy and early adoption of AI tools.” This is a bank that has been building this capability for years, but the speed and the scale of the latest gains are striking. In November 2025, the bank had already begun to signal the impact of AI on headcount. In the March 2026 call, Friedman noted that project finance would be a major growth driver, and also referenced closing the operational division. Now, the division is closed, and the adoption of AI has moved from back-office to the front line, including the contact center and technology division.AI Is Not Just Cost Cutting
Hagit Argov, the CFO, attributed the decline in salary costs to "the decrease in headcount and other expenses, thanks to our advanced technology and AI." But this is not merely a cost story. The bank is also using AI to enhance its underwriting capabilities, which shows up in a remarkably low NPL ratio of 0.45%. Friedman emphasized that they measure every AI project against ROI targets, and the pipeline is full. This suggests that the efficiency gains are sustainable and may even accelerate.Growth Within Limits
The bank’s loan growth has already hit the top of its full-year target in the first half: 9% growth against an 8-10% target. The driver is infrastructure, particularly data centers, power stations, and transportation. Just last month, Leumi led a NIS 10 billion financing round for a light-rail project in northern Israel. This is exactly the kind of project that the global AI infrastructure buildout is fueling. While other banks are also chasing these deals, Leumi claims a unique advantage as the leader in Israeli project finance, having led the majority of large syndications in the past five years. The bank is also returning capital to shareholders—NIS 1.4 billion in dividends and buybacks, representing a 50% payout of quarterly income. Yet it still holds NIS 8.5 billion in excess capital above regulatory targets. The management’s stance is one of caution, preferring to preserve flexibility to pick up opportunities later this year. As Friedman said in the prior call, "We are -- we have a conservative approach. So in this matter, we also prefer to be conservative and to have a quite large buffer." That philosophy remains intact.The Israeli special tax, which hit net income this quarter, is a one-off. The CFO expects its impact to be negligible next year, amounting to NIS 40 million for Leumi. That removes a near-term headwind. In the context of a global market obsessed with AI capex and data center demand, Bank Leumi’s story is a reminder that the buildout isn’t just about chipmakers; it’s also about the banks that finance the fiber, power, and rail that make it possible. With the adoption of AI embedded in its own operations and the project finance engine running at full tilt, Leumi is both a beneficiary and a contributor to the AI era. This is a bank that is executing on a clear strategy, and the results are beginning to show in the most visible metric of all: its cost/income ratio. The question remains whether it can sustain this pace, but the evidence from this quarter is compelling.While the efficiency ratio may naturally change from quarter to quarter, we expect to remain among the most efficient bank globally, supported by our disciplined approach to operating efficiency and cost management as well as the consistent execution of our technology strategy and early adoption of AI tools.