Mizrahi Tefahot Bank Ltd.

The negative outlook on Mizrahi mirrors that on the sovereign and reflects our view that an escalation of the war could have negative implications for Mizrahi's creditworthiness over the next 12-24 months. We could lower the rating on Mizrahi if we lowered the rating on Israel because we would consider the government less likely to provide extraordinary support to Mizrahi in case of need. We could also lower the rating on Mizrahi if we considered that security risk had escalated with negative consequences for the banking sector or if Mizrahi's performance was less resilient to the current environment than we currently assume. This could happen if we anticipated the bank's RAC ratio was not going improve above 10% over the

...The Israeli-Hamas war has added significant risks to Israel's economic outlook. In this context, mortgage-focused Mizrahi is better positioned than the rest of the sector to face higher economic risk, in our view. About two-thirds of Mizrahi's book is mortgages, which we see as more resilient than Israel's construction and commercial real estate sectors because we continue to expect it to benefit from still-strong housing demand and low unemployment. That said, the very high focus on real-estate-related lending exacerbates tail risk. Profitability should support the bank's capitalization through the economic slowdown. We expect Mizrahi's risk-adjusted capital (RAC) ratio to gradually improve to about 10.0%-10.5% in 2026 from 9.3% on Dec. 31, 2023 pro forma the new economic risk (see "Various Rating Actions On Israeli Banks On Increased Geopolitical Risks; All Outlooks Negative," published on May 2, 2024 on RatingsDirect)....

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