Moody’s left Israel’s credit rating unchanged as it called Israel’s economy “resilient and dynamic”.
The credit rating Moody’s reported last week on its economic analysis of Israel and announced that the Israeli economy remains strong and as such left its credit rating at A1. Nonetheless at the same token, Moody’s voiced its concern about the recent uprising in the Middle East that might have political ramifications that will affect the stability that Israel’s economy has been enjoying.
One aspect Moody’s probably considered was Israel’s rising GDP that continued its progresses during the fourth quarter of 2010. Israel’s GDP grew by 7.7% during the fourth quarter.
A couple of weeks earlier, Moody’s raised its projection on the three major Israeli banks: Hapoalim, Leumi and Haben-Leumi from “negative” to “stable”.
On the other hand, Moody’s reported that it will downgrade the deposit rating of the five Israeli commercial banks, as it did to most of the banks in other countries. The deposit rating for the major commercial banks changed as follows: Bank Hapoalim, Leumi and Mizrahi Tefahot fell from A1 to A2. Bank Discount and Haben-Leumi fell from A3 to A2.
The main reason given was that Israeli banks are expected to have lower profitability.
Another major concern the rating agency had was related to the exposure these banks (mainly Mizrahi Tefahot and Discount) have in the Israeli real estate market. And finally another concern relates to the strict expenses structures of the banks.
It seems that Moody’s have some merit according to Itai Furman, Market analyst, however they should have considered the unique structure of the Israeli market:
First, one should consider that while the Israeli banks have low profitability, it’s also very stable and even in times of crisis the major turnover of the banks is at low risk.
Second, major commercial banks in Israel have a very high share capital and capital ratios compared to commercial banks aboard and as such the Israeli banks present lower return on invested capital.
Want a more detailed analysis on Israel’s economy? IBR can do it for you…read here for more
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