Bank Leumi le-Israel B.M.

The stable outlook on Leumi reflects our view that the bank will be able to maintain strong capitalization, keeping its RAC ratio sustainably above 10% over the next two years, with its asset quality metrics remaining broadly in line with the system average. Rating pressure could emerge if the Israeli economy, particularly the real estate sector, deteriorated markedly. Such weakening could stem from an abrupt readjustment of the local real estate market, economic stress amid the deterioration in the global economic outlook, or a pronounced escalation in local geopolitical turbulence. Furthermore, we could take a negative rating action if Leumi failed to sustain its capitalization. This could happen if the bank's growth, particularly in real estate-related lending, exceeded our expectations

...The Israeli economy's more resilient performance than that of peers supports Bank Leumi le-Israel B.M.'s (Leumi's) creditworthiness. Leumi's profitability will benefit from rising interest rates and inflation, thanks to its consumer price index (CPI)-linked assets, as well as the contribution from recent sustained business growth. Our expectation of average Israeli GDP still growing at 2.7% in 2023-2024 will help the bank preserve its asset quality despite rising rates and an economic slowdown. We expect credit losses to normalize to about 25 basis points (bps) by 2023-2024, in line with the banking system average. In this context, and considering the Israeli new shekel (ILS) 2.7 billion capital increase in June 2022, we forecast that Leumi's risk-adjusted capital (RAC) ratio will be about 10.2%-10.7% in 2023-2024, compared with 9.4% as of December 2021. Leumi's higher geographical and sectoral concentration than that of its peers will continue to weigh on the ratings. Leumi continues to...

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