International rating agency Moody's has indicated that it could change its ratings outlook for Israeli banks if conditions in the local economy continue to improve. "If economic growth improves over the next few months in line with current expectations, this would ease our residual concerns with regard to asset quality, prompting us to change Israeli banks’ rating outlooks back to stable," George Chrysaphinis, VP-Senior Analyst at Moody's says.
Moody’s downgraded Israeli banks’ standalone and supported ratings by one notch in the fourth quarter of 2008 and first quarter of 2009 to reflect the fallout from their direct exposures to mortgage-backed securities and failed US financial institutions and in recognition of the more difficult economic environment. It also changed the outlook on their ratings to negative to reflect the possibility of a further weakening in banks’ financial fundamentals given the uncertainty surrounding the duration and severity of the economic contraction.
"In fact," says Chrysaphinis, "the Israeli economy proved to be relatively resilient to the global financial crisis and economic slowdown in 2008 and 2009."
According to Chrysaphinis, the outlook for the Israeli banking system is stable, reflecting expectations of healthy economic growth in Israel in 2010, following a shallow contraction in 2008/2009. Israeli banks’ modest direct exposure to the global financial crisis, their sound liquidity profiles and adequate capitalisation meant that financial performance recovered in 2009, despite a moderate increase in provisioning expenses.
"The recovering Israeli economy and improving global economic context reduces the risk of a further significant deterioration in asset quality over the next few months and suggests that 2010 provisioning needs are unlikely to exceed 2009 levels. However, Israeli banks’ credit risk remains our primary concern over the short-to-medium term and will be our main focus as we consider whether to restore bank outlooks to stable," Chrysaphinis cautions.
Current ratings for Israeli banks for both local and foreign currency deposits are A1 for Bank Leumi (TASE: LUMI), Bank Hapoalim (LSE: BKHD; TASE: POLI), and Mizrahi Tefahot Bank (TASE:MZTF), and A2 for Israel Discount Bank (TASE: DSCT) and First International Bank of Israel (TASE: FTIN1;FTIN5). All five major banks are rated C- for financial strength, and currently have negative rating outlooks.
Published by Globes [online], Israel business news - www.globes-online.com - on March 1, 2010
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