Israel is still exposed to the negative economic repercussions of its war on Gaza (Al Jazeera)
Moody's downgraded the long- and short-term deposit ratings of the five largest banks in Israel: Leumi, Hapoalim, Discount, Mizrahi-Tefahot and First International Bank of Israel, to "A3/P-2" from "A2/P-1" level ( A2/P-1) with a negative outlook for long-term deposit ratings.
The agency downgraded the five banks' long-term counterparty risk ratings to "A2" and their long-term counterparty risk ratings to "A2" with a negative horizon.
Counterparty risk rating is a method of assessing the probability of default in a quantitative manner, and is based on data about financial condition, business operations, and creditworthiness. The higher the rating, the lower the risk of default.
At the same time, the agency affirmed the basic credit ratings of the five banks at Baa2.
The rating downgrade could extend beyond banks to include government companies such as Israel Electric
Reason for reduction
Moody's attributed its downgrade to the decline in government support included in these ratings due to the downgrade of Israel's rating.
The agency sees very high potential for government support for the five major banks given their importance.
The negative outlook on long-term deposit ratings reflects both the negative outlook on the Government of Israel's rating and thus the potential for further weakness in the country's ability to provide support, along with the potential for a much greater negative impact on the economy in the event of an escalation in the fallout from the war on Gaza, which could Leads to the fundamentals of independent banks being more affected than currently.
Moody's added that the social risks facing banks increased due to the war and the weak security situation.
The Israeli newspaper Globes quoted Moti Citrin, vice president of financial institutions at the Israeli rating agency Medrog, as saying that the rating downgrade may extend beyond banks to include government companies such as Israeli Electricity.
Last Friday, Moody's lowered Israel's credit rating to "A2" with a negative outlook, citing the repercussions of the war with the Islamic Resistance Movement (Hamas) and its repercussions. It also expected Israel's debt burden to rise above expectations before the war in Gaza.
She added that the risks of escalation of the conflict with Hezbollah still exist, which increases the possibility of a significant negative impact on the Israeli economy.
A report by Yedioth Ahronoth newspaper indicated that the downgrade step may lead to another downgrade of the rating, in the event that Israel's security, geopolitical, and economic situation deteriorates.
Downgrading the rating means that investors may become more cautious in approaching Israeli debt instruments, and may apply higher interest rates
Anger at Israel
Also according to Bloomberg, Israel is experiencing anger due to the first downgrade of its credit rating in nearly 50 years by Moody's.
It quoted Israeli officials, whose identities were not revealed, saying that the concern is that the relationship between Israel and investors may be affected, with its willingness to borrow almost record-breakingly to finance the war on the Gaza Strip.
The decision to downgrade Israel's rating came in light of the war it has been waging against the Gaza Strip since October 7, 2023, which led it to appear before the International Court of Justice on charges of "genocide," in addition to tensions in the north with Lebanese Hezbollah, and attacks in the southern Red Sea against Israeli and American ships. And British.
Downgrading the rating means that investors may become more cautious in moving towards Israeli debt instruments, and may set higher interest rates, to face the risks that the agency has drawn towards the Israeli economy.
Moody's announcement - downgrading Israel's rating - sparked an unusually strong rebuke from Israeli officials towards the agency, including Prime Minister Benjamin Netanyahu, who questioned the purpose behind the decision, according to Bloomberg.
Israel's dispute with Moody's centers on what officials believe is a misreading of an economy that has proven its ability to withstand wars and still enjoys large foreign exchange reserves.
Israel's foreign exchange reserves amount to approximately 200 billion dollars, representing approximately 37% of the gross domestic product, which is a high value, but it does not possess any other reserves such as gold and stocks.
The Israeli newspaper Yedioth Ahronoth reported - the day before yesterday - that senior Finance Ministry officials are seeking to avoid a new downgrade from the two other major credit rating agencies, Standard & Poor's and Fitch.
According to the newspaper, Accountant General Eli Rotenberg scheduled meetings with senior officials of the two agencies in London this week, in order to address their concerns.
Source: Al Jazeera + agencies + Israeli press