(Repeat for additional subscribers)
June 12 (The following statement was released by the rating agency)
Fitch Ratings says in a new report that the two major Israeli banks, Bank Leumi Le-Israel
B.M (A-/Stable) and Bank Hapoalim B.M. (A-/Stable), have been reporting
stable underlying performance but remain exposed to concentration risk by sector and by
Leumi and Hapoalim hold about 30% each of the Israeli banking system's assets,
with the other three banks covered in the report (Israel Discount Bank, Mizrahi
Tefahot and First International Bank of Israel, none of which are rated by
Fitch) accounting for a further 40%. High barriers to entry have ensured
revenues remain strong despite low domestic interest rates. Costs are generally
high but overall profitability has remained fairly stable, with returns on
equity in the high single/low double digits.
Although Israeli households are not highly indebted and mortgage loans have
performed well so far real estate prices have been rising rapidly and declining
affordability could become a stress on the system as interest rates rise.
Exposure to the construction and real estate sector, often to highly leveraged
corporates, remains large and could become problematic. However, the supply of
land and the release of construction permits are tightly controlled. Demand for
housing by the rising population is closely monitored by the authorities.
Possible risk also remains in legacy exposure to highly leveraged holding
companies. Not all banks are affected by the same extent, however. Domestic
banks benefit from large volumes of stable retail and corporate deposits;
loan-to-deposits in the system are below 100%. Liquidity is supported by large
reserves of liquid assets (in both foreign and domestic currencies) and the
absence of wholesale funding maturities.
Capitalisation is improving at both Leumi and Hapoalim, as they need to reach a
Basel III core Tier 1 ratio of 10% by 2017. Given the high levels of
concentrations in the system, Fitch views capitalisation as just moderate.
Leumi's and Hapoalim's Issuer Default Ratings are support-driven. The
probability of support from the Israeli authorities remains high despite the
planned introduction of a resolution law, in Fitch's view. However, we do not
expect the law to be implemented in the short-term. The country does not operate
a deposit guarantee system and the practical implementation of resolution tools,
such as bail-in of senior creditors, is unlikely in the short- to medium-term.
The report "Peer Review: Israel's Banks" is available on www.fitchratings.com.
Link to Fitch Ratings' Report: Peer Review: Israel's Banks