Moody’s Credit Rating agency announced Tuesday that it had decided to downgrade the deposit ratings of five Israeli banks.
The long and short-term ratings of Bank Leumi, Bank Hapoalim, Bank Mizrahi Tefahot, Discount Bank and the First International Bank of Israel were all dropped from A2 to A3 and the outlook for the banks’ long-term deposit ratings was “negative.”
Moody’s cited “potential further weakening of the sovereign’s capacity to provide support, together with the potential for a significantly more negative impact on the economy in the event of an escalation in the ongoing conflict, which could lead to the banks’ standalone fundamentals being impacted more severely than is currently assumed.
“Furthermore social risks for the banks have increased because of the military conflict and the weakened security environment and are also a driver for the negative outlook.”
The announcement followed the agency’s decision earlier in the week to downgrade the State of Israel’s credit rating from A1 to A2, and to keep its outlook at “negative” due to the war.
Concurrently the rating agency also downgraded the five banks’ long-term Counterparty Risk Ratings (CRRs) to A2, their long-term Counterparty Risk (CR) Assessments to A2(cr) and IDB’s foreign currency senior unsecured debt rating to A3 with a negative outlook.
However, Moody’s noted that at the same time, the agency had affirmed the five banks’ baa2 Baseline Credit Assessments (BCAs) and Adjusted BCAs. The banks’ P-1 short-term CRRs and P-1(cr) short-term CR Assessments were also affirmed.
The agency’s actions conclude the ratings review that Moody’s initiated on 24 October 2023.
“The downgrade of the banks’ long-term deposit ratings to A3 is driven by a lower government support uplift incorporated in those ratings because of the downgrade of Israel’s sovereign ratings,” the agency explained in its statement.
“Moody’s continues to assume a very high probability of government support for the five large Israeli banking groups that it rates, given their systemic importance and the Israeli government’s long standing practice of supporting such systemically important banks, in case of need. Given the A2 sovereign rating, this now results in two notches, down from three previously, of government support uplift from their baa2 Adjusted BCAs to their long-term deposit ratings. The downgrade of the short-term deposit ratings to P-2 follows the downgrade of the long-term deposit ratings and reflects Moody’s standard mapping for long-term ratings to short-term ratings.”
