Bank Leumi le-Israel B.M.

The stable outlook on Leumi reflects our view that the bank will be able to maintain strong capitalization and grow its new lending on the back of improving economic conditions in Israel over the next 24 months. The ratings on the bank also reflect our view that the bank's business, financial, and risk profiles will remain stable over the forecast horizon. We expect the bank's RAC ratio to remain sustainably above 10% over the next two years, with asset quality metrics remaining broadly in line with the system average. Rating pressure could emerge if the Israeli economy, particularly the real estate sector, markedly deteriorated. Such weakening might be triggered by higher-than-expected economic stress amid the COVID-19 pandemic, abrupt readjustment of

...The Israeli economy's resilient performance supports Leumi's creditworthiness. Our expectation of solid GDP growth of 6.5% in 2021 and 4% in 2022, after a limited contraction of 2.6% in 2020, will help Bank Leumi's profitability to recover. Specifically, we expect strong lending expansion, progress in fee income, and stable trading income to support revenue. At the same time, we anticipate economic recovery will help contain the cost of risk. Strong provisioning efforts in 2020 support on the bottom line in 2021. We expect credit losses to be exceptionally low in 2021, and then normalize to 20-25 basis points (bps), in line with the system average. In this context, we forecast that Leumi's risk-adjusted capital (RAC) ratio will be about 10.4%-10.8% in 2022-2023, compared with 10.5% as of December 2020. In our forecast, we factor in some volatility amid its higher exposure than peers to market risk and interest rate evolution, which affects the evaluation of its liability for employee benefits....

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