Moody's: Israeli banks' view positive

Moody's Investors Service said its positive outlook on the Israeli banking system is based on the country's buoyant economic performance and the strong likelihood of state support, as well as the fact that a trend of deteriorating asset quality was reversed in 2005.

Restructuring in the Israeli bank sector - encouraged and assisted by the central bank - has been broadly successful, and liquidity and funding profiles are generally sound and improving, the agency said. Over the past four years, fee and commission income resilience and a decline in personnel expenses and staff numbers have contributed to pre-provision income growth.

In addition, Moody's notes that privatizations have made the banks' management teams more focused on efficiency and profitability than on market shares. The Israeli banking system is highly concentrated and is dominated by five banking groups, with the two largest, Bank Hapoalim and Bank Leumi, accounting for about 61% of total banking system assets.

Further improvements in performance and asset quality could lead to upgrades, but the agency said there are numerous challenges going forward, including the uncertain security situation and the short-term impact on profitability of structural reform projects begun by the government in 2004 to boost competition in the capital and retail banking markets.

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