International ratings company Moody's has cut its ratings for four Israeli banks: Bank Leumi (TASE: LUMI), Bank Hapoalim (LSE: BKHD; TASE: POLI), First International Bank of Israel (TASE: FTIN1;FTIN5), and Israel Discount Bank (TASE: DSCT).
Moody's has downgraded the long-term local currency deposit rating of Bank Leumi to A1 from Aa3. The Baseline Credit Assessment (BCA) was lowered to Baa1 from A3 and the bank financial strength rating (BFSR) was downgraded to C- from C. The bank's A1 long-term foreign currency deposit rating and Prime-1 short-term deposit ratings were affirmed. The outlook on both the long-term local and foreign currency deposit ratings and on the BCA is negative, while the outlook on BFSR is stable.
For Bank Hapoalim, Moody's has changed the outlook on the A1 long-term domestic and foreign currency deposit ratings, A1 senior and A2 subordinated debt ratings to negative from stable. The outlook on the C- bank financial strength ratings (BFSR) remains stable.
For Discount Bank, Moody's has downgraded the long-term deposit ratings to A2 from A1. The Baseline Credit Assessment (BCA) was lowered to Baa2 from Baa1. The bank's C- bank financial strength rating (BFSR) and Prime-1 short-term deposit ratings were affirmed. The outlook on both the long-term local and foreign currency deposit ratings, the BFSR and the BCA is negative.
Finally, for First International Bank, Moody's has downgraded the long-term deposit ratings to A2 from A1. The Baseline Credit Assessment (BCA) was lowered to Baa2 from Baa1. The bank's C- bank financial strength rating (BFSR) and Prime-1 short-term deposit ratings were affirmed. The outlook on both the long-term local and foreign currency deposit ratings, the BFSR and the BCA is negative.
Moody's Moody's Associate Analyst Christos Theofilou, based in Limasssol, cites similar factors in all four cases: (a) accelerated deteriorating economic and operating conditions in Israel, which is expected to lead to higher default rates among borrowers, (b) the ongoing financial crisis which continues to weigh negatively on capital markets, suggesting further impairments of financial assets held, (c) reduced profitability due to elevated credit costs, the realisation of financial asset impairments, a lower interest rate environment and perhaps a weaker business expansion, and (d) exposure to sectors that Moody's expects to face severe financial stress during this economic downturn, such as construction and tourism.
"The Israeli economy contracted by 0.5% in the last quarter of 2008 and forecasts for 2009 point to a further economic contraction, with a number of economic sectors, and hence corporations, facing significant stress. Furthermore, the prospect of higher unemployment rates could also lead to a rise in default rates in retail lending, necessitating elevated provisioning expenses. In tandem, relatively high single borrower concentrations are a challenge for most Israeli banks, resulting in potentially rapid asset quality deterioration during an economic downturn," Moody's notes.
The ratings agency adds that "all Israeli banks are net providers of credit abroad, therefore the ongoing financial crisis has negatively affected the value of their investments and has not resulted in a liquidity squeeze, thus far," and that "in current market conditions, liquidity and retail funding are considered key strengths of the Israeli banking system."
Published by Globes [online], Israel business news - www.globes.co.il - on March 12, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009