International rating agency Fitch Ratings has downgraded the long-term and short-term foreign currency ratings of Israel’s Bank Hapoalim and Bank Leumi to 'BBB+' from 'A-' (A minus) and to 'F2' from 'F1', respectively. The individual and support ratings for each bank are affirmed at 'C' and '2', respectively.
Bank Hapoalim's long-term, short-term and individual ratings have been removed from rating watch negative, where they were placed on March 24, 2003, and the outlook is stable; the rating outlook for Bank Leumi has been revised to stable from negative.
Bank Hapoalim and Bank Leumi share two-thirds of Israel's banking system between them and therefore are equally prone to domestic and international economic and political developments affecting the country. The rating action on these two banks is based on the deterioration in asset quality and weak capital levels by international standards (but in line with domestic levels).
The worsening in asset quality is due to the continued slowdown in the Israeli economy, which had a negative effect on certain large Israeli corporates to which the banks have exposure. Net non-performing loans (non-accrual and in temporary arrears) at Bank Hapoalim and Bank Leumi reached a very high 53.5 percent and 39.1 percent of equity, respectively, at end-2002.
With total risk weighted capital ratios for Bank Hapoalim and Bank Leumi at 9.9 percent and 10.3 percent respectively, the capital position for both these banks is looking increasingly tight. Despite the difficult operating environment in Israel and the high level of provisions for doubtful debts, because of the strong franchises both of the banks have, they were able to yield profits in 2002.
Economic conditions in Israel are expected to remain challenging in 2003, and although these banks are expected to continue to generate profits, asset quality pressures are not expected to improve significantly and the banks will have to continue setting aside high level of provisions. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
