New Financial Services market report from Business Monitor International: "Israel Commercial Banking Report Q3 2012"

Boston, MA -- (SBWire) -- 09/04/2012 --BMI View: We expect asset growth within Israel's commercial banking sector to drop off in the coming quarters as the domestic economy runs into a soft patch, forecasting total asset growth to fall to 5.0% in 2012, compared with 9.7% last year. However, we stress that the sector is in a strong position to weather the impact of a slowdown, given relatively low leverage ratios and minimal concerns over asset quality. We hold to our view that asset expansion in the Israeli commercial banking sector is set to slow throughout 2012. Israeli banks performed relatively well in 2011, in spite of the sluggish global economy, with total assets growing 9.7% to ILS1.2trn (US$312.8bn). However, with a domestic slowdown likely to bite in the coming quarters (see our online service, March 7, 'No Avoiding A Slowdown In 2012'), we expect the sector to fare worse this year, forecasting asset growth of just 5.0%. Moreover, we flag up some downside risks to our outlook, in particular ongoing economic uncertainty in several of Israel's main trading partners, as well as persistent questions over the state of the domestic housing market. That said, we stress that banks are well-placed to weather the impact of decelerating economic momentum, even if either of the above risks plays out. The sector's aggregate balance sheet position looks robust, with a low loan-to-deposit ratio, minimal concerns over asset quality and a high proportion of liquid assets in banks' portfolios. While profitability within the sector has been slack - and is likely to remain so in 2012 - four out of the country's five largest commercial banks reported an uptick in net profits last year, suggesting that the overall condition of the sector remains in good shape. Israel Commercial Banking Report Q2 2012 © Business Monitor International Ltd Page 36 Stuttering Economy To Weigh On Asset Expansion Deposit growth sped up significantly throughout 2011, reaching 10.6% y-o-y in December, up from 3.6% at the beginning of the year. The healthy rate of expansion was driven by relatively strong economic growth - real GDP growth came in at 4.7% in 2011 - and was further bolstered by several of the economic reforms introduced by the Trajtenberg Committee (established by the government in response to last year's 'tent protests'), which included a reduction in lower-band tax rates, new social spending measures and increased tax credits for families. However, we expect deposit growth to tick lower in the coming quarters. Available leading indicator data suggest that economy has hit a soft patch, with both the Bank Hapoalim Purchasing Managers' Index and the Bank of Israel's 'state of the economy' index pointing a significant slowdown in domestic consumption. We are forecasting real GDP growth to fall to 3.2% in 2011. Although a public sector pay hike implemented by the government following a general strike in March offers some upside potential for the banking sector's stock of customer deposits, we nevertheless for

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