Mizrahi Tefahot Bank Ltd.

The negative outlook on Mizrahi reflects the deteriorated economic environment, which could have negative consequences for the bank's creditworthiness over the next 12-24 months. We could lower the ratings on Mizrahi if we considered that economic risks in Israel had structurally increased, with negative consequences for the banking sector and Mizrahi's creditworthiness. This could happen if we anticipated significant asset quality deterioration, particularly in the real estate sector, alongside a material decline in the bank's solvency or higher exposure to financial and nonfinancial risks. We could revise the outlook to stable if we were of the view that pressure on domestic economic prospects had lessened. We use our Banking Industry Country Risk Assessment's economic risk and industry risk scores to

...S&P Global Ratings expects a deterioration of asset quality due to the war. Hamas' attacks and the military operation led by the Israeli army on the Gaza Strip have added significant risks to Israel's economic outlook (see "Outlooks On Israeli Banks Revised To Negative On Increased Geopolitical Risk; Ratings Affirmed," published Oct. 31, 2023, on RatingsDirect). We see a risk that Mizrahi and more broadly Israeli banks might face protracted effects from changed macroeconomic prospects and credit conditions, with a potential decline in revenue and substantial increase in credit losses. Mizrahi's profitability should absorb the costs associated with the war, if the conflict remains contained. In the current scenario of a contained impact from the war, we expect credit provisions will surge in the coming quarters, but Mizrahi's revenue prospects to remain favorable. In the third quarter of 2023, the bank frontloaded provisions for increased credit losses due to the war by setting aside a high...

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