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

...Leumi's strong franchise is credit positive. Leumi is a universal bank that serves the full spectrum of customers in Israel, from households to large corporates and institutions, thus providing reasonably predictable earnings and balance-sheet metrics. Rising interest rates are a strong tailwind to earnings, supporting the bank's capitalization. Leumi's profitability will benefit from rising interest rates, as well as the contribution from its recent, sustained business growth. Cost efficiency initiatives are also helping. We expect credit losses to increase to about 35 basis points (bps) by 2024-2025. In this context, we forecast that Leumi's risk-adjusted capital (RAC) ratio will improve to about 10.5% in 2025, compared with 9.7% as of December 2022, assuming a slowdown in lending expansion, particularly in riskier segments....

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