Israel's banks are entering the economic slowdown with their best ever credit portfolios, which are in far better shape than in 2000, the year that preceded the last slowdown, according to a "Globes" analysis of the banks' financial reports for the first half of 2008. The decline in credit risk is expected to continue in the third quarter.
During previous slumps, there was a lag until the slowdown was seen in companies' performance, and even longer until financial difficulties began affecting the banks' provisions for doubtful debts. Their provisions for doubtful debts are therefore expected to begin growing only in the fourth quarter or even the first quarter of 2009.
During the first half of 2008, the banks' balance sheet and off-balance sheet provisions for doubtful debts improved. The aggregate provision for doubtful debts was NIS 42.8 billion at the end of June, 6.8% less than at the end of 2007, which was already 18.7% less than a year earlier. The banks' provisions for doubtful debts were less than their aggregate shareholders' equity of NIS 62 billion at the end of June.
The banks' balance sheet provisions for doubtful debts fell to 5.42% of their credit portfolios at the end of June from 6.06% at the end of 2007 and 8.32% at the end of 2006. The proportion of non-performing loans totaled NIS 8.6 billion at the end of June, 9.3% less than at the end of 2007, and accounted for 23.2% of total problem debt, a proportion that was unchanged from the end of 2007
Problem debt is the total credit risk for problem loans, both balance sheet and off-balance sheet. The banks reclassify the debts each quarter according to five categories: debts under special monitoring; debts in temporary arrears, including mortgages; restructured debts; debts slated for restructuring; and non-performing loans, which is the worst category.
Bank Hapoalim (TASE: POLI; LSE:80OA) recorded the best improvement in its credit portfolio. Its problem debt totaled NIS 12.2 billion at the end of June, 16.5% less than at the end of 2007. Bank Leumi's (TASE: LUMI) problem debt totaled NIS 15.5 billion at the end of June; Israel Discount Bank's (TASE: DSCT) problem debt totaled NIS 6.7 billion at the end of June, 9.8% less than at the end of 2007; and First International Bank of Israel's (TASE: FTIN1;FTIN5) problem debt totaled NIS 2.9 billion at the end of June, 4.9% less than at the end of 2007. Mizrahi Tefahot Bank (TASE:MZTF) is the exception; its problem debt totaled NIS 4.6 billion at the end of June, 5.5% more than at the end of 2007.
Published by Globes [online], Israel business news - www.globes-online.com - on October 5, 2008
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