Limassol, April 18, 2011 -- Moody's Investors Service has today downgraded by one notch the
deposit ratings of the following five Israeli banks, primarily due
to the banks' weak underlying profitability:
(i) Bank Hapoalim to A2 from A1;
(ii) Bank Leumi to A2 from A1;
(iii) First International Bank of Israel to A3 from A2;
(iv) Israel Discount Bank to A3 from A2; and
(v) Mizrahi Tefahot Bank to A2 from A1.
Moody's has changed the outlook to stable from negative on the ratings
of Bank Leumi, Bank Hapoalim and First International Bank of Israel.
The ratings of Mizrahi Tefahot Bank and Israel Discount Bank have been
placed on review for possible downgrade.
In addition, Moody's has placed on review for downgrade the
Ba1 issuer rating of Israel Credit Card Limited, which is a subsidiary
of Israel Discount Bank.
The full list of affected ratings can be found below.
RATINGS RATIONALE
Moody's says that the rating downgrades are driven by its expectations
that the banks' underlying profitability will remain weak due to
their rigid cost bases. Their moderate earnings-generating
capacity prevents significant capital build-up which, in
turn, hinders loss-absorption capacity within the context
of (i) highly concentrated loan books; and (ii) concerns over the
performance of the housing market. Moody's also notes that
similarly rated global peers display a stronger mix of earnings and capital
cushions.
Moody's adds that notwithstanding the downgrades, Israeli
banks display healthy liquidity profiles and stable franchises operating
in a well-regulated environment. The rating agency also
notes that the deposit ratings of all five banks continue to benefit from
significant uplift as a result of its assumptions on systemic support.
The capacity and willingness of the authorities to support its banking
system, in case of need, remains strong.
Moody's says that the country's improved economic conditions
provide the basis to change the outlook to stable from negative on three
of the five banks. Israel Discount Bank and Mizrahi Tefahot Bank
will also benefit from the more favourable economic environment.
However, Moody's has placed their ratings on review for further
possible downgrade to assess the banks' more pronounced challenges
on cost efficiency (in the case of Israel Discount Bank) and on housing-market
exposures (in the case of Mizrahi Tefahot Bank).
BANK HAPOALIM
Bank Hapoalim's long-term local and foreign-currency
deposit rating has been downgraded to A2 from A1, due to Moody's
downward reassessment of the bank's standalone financial strength.
This is reflected in the lowering of the bank's baseline credit
assessment (BCA) to Baa2 from Baa1, the lower of two options within
the Bank Financial Strength Rating (BFSR) of C- assigned to the
bank. In addition the bank's Prime-1 short-term
deposit rating has been affirmed and the outlook on all the ratings has
been changed to stable from negative.
The following debt of Hapoalim International N.V.,
the wholly-owned special purpose vehicle of Bank Hapoalim,
has also been downgraded and the outlook was changed to stable from negative:
- Guaranteed Senior Unsecured Floating-rate Euronotes to
A2 from A1
- Guaranteed Global MTN Programme: Senior Unsecured to (P)A2,
from (P)A1; Subordinated to (P)A3, from (P)A2; Junior
Subordinated to (P)Baa3 from (P)Baa2
BANK LEUMI
Bank Leumi's long-term local and foreign-currency
deposit rating has been downgraded to A2 from A1, due to Moody's
downward reassessment of the bank's standalone financial strength.
This is reflected in the lowering of the bank's BCA to Baa2 from
Baa1, the lower of two options within the bank financial strength
rating (BFSR) of C- assigned to this bank. The bank's
Prime-1 short-term rating has been affirmed and the outlook
on all the ratings has been changed to stable from negative.
FIRST INTERNATIONAL BANK OF ISRAEL
The long and short-term local and foreign-currency deposit
ratings of First International Bank of Israel (FIBI) have been downgraded
to A3/Prime-2 from A2/Prime-1, due to Moody's
downward reassessment of the bank's standalone financial strength.
This was reflected in the downgrade of the bank's BFSR to D+
from C-, which now maps to a BCA of Baa3, instead of
Baa2 previously. The outlook on all ratings has been changed to
stable from negative.
ISRAEL DISCOUNT BANK
The long and short-term local and foreign-currency deposit
ratings of Israel Discount Bank (IDB) have been downgraded to A3/Prime-2
from A2/Prime-1, due to Moody's downward reassessment
of the bank's standalone financial strength. This was reflected
in the downgrade of the bank's BFSR to D+ from C-,
which now maps to a BCA of Baa3, instead of Baa2 previously.
In addition, the bank's A3 long-term deposit rating
has been placed on review for possible further downgrade due to concerns
regarding the bank's high cost structure. The bank's cost
to income ratio was 75% in 2010. This materially hinders
the build- up of a capital cushion to protect the institution against
event risks that can stem from its high single-party exposures.
The purpose of the review is to assess management's plan to strengthen
efficiencies and reduce its expenditure base to improve profit generation.
MIZRAHI TEFAHOT BANK
Mizrahi Tefahot Bank's (MTB) long-term local and foreign-currency
deposit rating has been downgraded to A2 from A1, due to Moody's
downward reassessment of the bank's standalone financial strength.
This is reflected in the lowering of the bank's BCA to Baa2 from
Baa1, which is the lower of two options within the BFSR of C-
assigned to this bank. In addition, MTB's A2/Prime-1
long and short-term deposit ratings and its BFSR of C- have
been placed on review for possible further downgrade.
In placing the bank's ratings on review for possible downgrade,
Moody's is highlighting the risks associated with the bank's
elevated exposure to the housing market (58% of total loans) in
a context of rapidly rising house prices in recent years (up 60%
in nominal terms since the middle of 2007). During the review period,
Moody's will assess the bank's resilience to these risks and
will examine whether they are fully captured by the C- BFSR category,
currently shared with the two largest banks in Israel.
ISRAEL CREDIT CARD
Israel Credit Card's Ba1 issuer rating has been placed on review
for possible downgrade, in line with the downgrade and ongoing review
on the ratings of its controlling shareholder, Israel Discount Bank.
Moody's says that the company's Ba1 issuer rating incorporates
some rating uplift based on assumptions of support from its parent bank.
Therefore, any further downward adjustment in the parent's
rating may lead to a lowering of Israel Credit Card's rating.
PREVIOUS RATING ACTIONS AND METHODOLOGIES
The principal methodologies used in this rating were Bank Financial Strength
Ratings: Global Methodology published in February 2007, Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2007, and Moody's Guidelines for
Rating Bank Hybrid Securities and Subordinated Debt published in November
2009.
Moody's previous rating action on Bank Hapoalim was on 12 March
2009, when the outlook on the bank's senior and subordinated
ratings was changed to negative.
Moody's previous rating action on Bank Leumi was on 12 March 2009,
when the bank's deposit ratings were downgraded, and retained
their negative outlook.
Moody's previous rating action on First International Bank of Israel
was on 12 March 2009, when the bank's ratings were downgraded
and retained their negative outlook.
Moody's previous rating action on Israel Discount Bank was on 12
March 2009, when the bank's ratings were downgraded and retained
their negative outlook.
Moody's previous rating action on Mizrahi Tefahot Bank was on 16
December 2008, when the bank's outlook on the bank's
deposit ratings was changed to negative from stable.
Moody's previous rating action on Israel Credit Card Limited was
on 21 January 2008 when ratings were first assigned to the company.
Headquartered in Tel Aviv, Israel, Bank Hapoalim reported
total consolidated assets of NIS320.9 billion (US$90.0
billion) as of end December 2010.
Headquartered in Tel Aviv, Israel, Bank Leumi reported total
consolidated assets of NIS328.2 billion (US$92.1
billion) as of end December 2010.
Headquartered in Tel Aviv, Israel, First International Bank
of Israel reported total consolidated assets of NIS100.68 billion
(US$28.3 billion) as of end December 2010.
Headquartered in Tel Aviv, Israel, Israel Discount Bank reported
total consolidated assets of NIS185.8 billion (US$52.16
billion) as of end December 2010.
Headquartered in Tel Aviv, Israel, Mizrahi Tefahot Bank reported
total consolidated assets of NIS133.3 billion (US$37.4
billion) as of end December 2010.
Headquartered in Tel Aviv, Israel, Israel Credit Card reported
total consolidated assets of NIS8.6 billion (US$2.4
billion) as of end December 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
The rating for Mizrahi Tefahot Bank was initiated by Moody's Investors
Service and was not requested by the issuer.
Mizrahi Tefahot Bank participated in the credit rating process.
The rated entity or its related third party, if any, did provide
the rating committee access to the books, records and other relevant
internal documents of the rated entity.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entities or its designated
agents and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Limassol
George Chrysaphinis
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
JOURNALISTS: 44 20 7772 5456
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London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's Investors Service Cyprus Ltd.
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Moody's downgrades five Israeli banks due to weak profitability
