Moody’s international credit ratings agency downgraded Israel’s banking system outlook from stable to negative Tuesday, citing a predicted economic drop-off.
“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 explained in a press release. The report referenced the weakening export demand that will result from an unresolved Eurozone crisis.
Moody’s also worried about Israel’s security challenges, forecasting that "growing geopolitical tensions" could compromise business confidence and economic activity in the region.
Finally, the report cited a high concentration of domestic lending to large corporations as muddying the asset quality of Israeli banks.
But the agency cautioned against underestimating the Jewish State. “Moody’s acknowledges that Israel’s economy has proven resilient to repeated shocks in the past,” it wrote.
Finance Minister Yuval Steinitz said Wednesday that Moody’s downgrade warns against drastic government spending.
“Our banks are stable and were always stable,” Steinitz said, but added that Israel must not lose sight of the budget.
The Bank of Israel released a statement calling for careful study of the report and its conclusions about the Israeli banking system.
But Israeli social protest group Israel Yekara Lanu called on the new unity government to dismantle the country’s largest banks. The group told Israel Radio that the banks use billions of dollars of citizens’ money to provide loans to tycoons, who in turn make products more expensive to repay their debts and increase the cost of living for the bank’s customers.