Israel’s Banking Sector: A Mixed Bag of Risks

TEL AVIV, ISRAEL - August 6, 2019

The Israeli banking sector is a complex mix of positive and negative trends, according to S&P Global Ratings’ latest analysis.

Strengths

• Israel’s financial regulators have taken steps to improve lending standards and reduce systemic risk.
• The gradual elimination of holding company structures has reduced single-borrower concentration.
• The Bank of Israel (BoI) has implemented prudential measures to ensure a high-quality mortgage loan book.

Weaknesses

• The corporate sector remains heavily indebted, with many Israeli companies having large exposures to markets outside of Israel. This makes them less reliant on the local economy and more vulnerable to economic shocks.
• Household debt levels have risen significantly in recent years, although the BoI’s measures have helped mitigate some of this risk.

Credit Risks

• S&P Global Ratings expects credit losses to increase modestly over the next two years as consumer credit provisions rise following a period of rapid borrowing by households.

Industry Risk

• Israel’s institutional framework is adequate, with regulation and supervision in line with international standards.
• However, there are areas for improvement, such as better coordination between regulatory bodies to prevent the emergence of financial risks that are not fully supervised.

Regulatory Efforts

• The BoI has been working on introducing a Credit Bureau to improve lending pricing.
• A new insolvency law aims to ease the process and reduce the length of time required to receive a discharge.
• Israeli banks now operate under the Basel III regime, which should help improve their risk management capabilities.

Conclusion

Overall, S&P Global Ratings’ assessment is that Israel’s banking sector is characterized by a mix of positive and negative trends. Both strengths and weaknesses need to be addressed in order to ensure stability and growth.