Israel Banking Outlook Raised at Moody’s on Economic Growth

Moody’s Investors Service raised the outlook for Israel’s lenders citing improved economic growth and sound capital funding profiles.

The increase to stable from negative reflects expectations that the country’s economy will grow 3.4 percent this year driven by “resilient” domestic consumer demand and gradual economic improvement in the euro area, the country’s main export partner, Moody’s said in a report today. Credit growth will be modest as banks remain risk-averse to indebted corporates, while lenders will probably focus on further strengthening their capital to absorb unexpected losses, according to the report.

Bank Hapoalim Ltd. and Bank Leumi Le-Israel Ltd., the country’s two largest lenders, posted improved third-quarter profit as provisions for bad loans declined. Israel’s banks are introducing cost-cutting measures to spur growth as the central bank last year reduced its base lending rate three times to 1 percent. Finance Minister Yair Lapid said in August Bank Leumi should curb salaries and bonuses for its most senior managers.

“Israeli banks have strong capital adequacy ratios,” Adi Scop, financial services analyst at Tel Aviv-based I.B.I.-Israel Brokerage & Investments Ltd., said by phone. “Sound growth in Israel’s economy and cost-cutting steps by the banks have helped maintain decent profitability levels.”

The Tel Aviv Banking Index advanced for a sixth day, increasing 0.1 percent at the close in Israel as the benchmark TA-25 Index was little changed at 1,309.75.

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