Moody’s downgrades deposit ratings of Israel’s five largest banks

Moody’s Investors Service downgrades the deposit ratings of Israel’s five largest banks and attaches a negative outlook, citing “potential further weakening of the sovereign’s capacity to provide support,” due to the ongoing war with the Hamas terror group.

The US credit ratings agency lowers the long- and short-term deposit ratings of Bank Leumi Le-Israel, Bank Hapoalim, Mizrahi Tefahot Bank Ltd., Israel Discount Bank Ltd., and First International Bank of Israel Ltd. (FIBI), by one notch to A3 from A2.

Moody’s says that the downgrade is “driven by a lower government support uplift incorporated in those ratings because of the downgrade of Israel’s sovereign ratings.”

The action comes after the rating agency on Friday downgraded Israel’s sovereign credit rating by one notch to A2 with a “negative” outlook as the “ongoing military conflict with Hamas, its aftermath and wider consequences materially raise political risk for Israel, as well as weaken its executive and legislative institutions and its fiscal strength, for the foreseeable future.”

The rating agency lowers its outlook on the long-term deposit ratings of the banks to “negative,” citing the “potential for a significantly more negative impact on the economy in the event of an escalation in the ongoing conflict, which could lead to the banks’ standalone fundamentals being impacted more severely than is currently assumed.”

At the same time, Moody’s states that it “continues to assume a very high probability of government support for the five large Israeli banking groups that it rates given their systemic importance and the Israeli government’s long-standing practice of supporting such systemically important banks, in case of need.”