Steinitz: Moody's downgrade is a warning against overspending

Credit ratings agency forecasts an Israeli economic downturn

Finance Minister Yuval Steinitz on Wednesday said Moody’s downgrade of Israel’s banking system was a warning against drastic government spending on populist legislation.

“Our banks are stable and were always stable,” Steinitz said, adding that Israel must not lose its grip on the budget. He wouldn’t assent to any populist legislation that risked plunging the country into a financial crisis that it has thus far managed to avoid.

The Moody’s international credit ratings agency downgraded Israel’s banking system outlook on Tuesday from stable to negative, saying the move reflected a predicted economic drop-off.

The Moody’s report cited an expected slackening in Israel’s economic growth as well as the economic and security challenges facing the country as the reason for the negative rating. The report also said that there was a problem with the asset quality of Israeli banks due to a high concentration of domestic lending to large corporations.

“The negative outlook reflects the projected slowdown in economic growth and the country’s challenging operating environment which will continue over the 12-18 month outlook period,” Moody’s wrote in a press release.

The agency tempered its downgrade, though, saying Jerusalem had proven itself capable of weathering economic storms before.

“Moody’s acknowledges that Israel’s economy has proven resilient to repeated shocks in the past,” it wrote.

The Bank of Israel released a statement on Tuesday that it was studying the report in order to draw the appropriate conclusions regarding the banking system.

Following the release of Tuesday’s report, the social protest group Israel Yekara Lanu (Israel is dear to us) called on the new unity government to dismantle the country’s three largest banks, Israel Radio reported.

The group claims that the banks take billions of dollars entrusted to them by citizens and use that money to provide loans to tycoons so that they can monopolize the market. Then, the tycoons make their products more expensive to repay the debts to the banks.