OREANDA-NEWS. Fitch Ratings says in a new report that in contrast to most EU countries, the likelihood of support from the Israeli authorities for major domestic banks remains unchanged. Recovery and resolution planning is underway in Israel, and we believe the Israeli authorities will implement resolution tools similar to those being implemented in the EU's Bank Recovery and Resolution Directive. However, we believe these laws will primarily be implemented to provide the authorities with flexibility rather than, for example, bailing-in of senior creditors in the short to medium-term.

In its peer review of the major Israeli banks, Fitch says the Issuer Default Ratings (IDRs) of Israel's two largest banks' - Bank Leumi Le-Israel (Leumi) and Bank Hapoalim B.M. (Hapoalim) - are support- driven. This reflects Fitch's view that, if needed, support from the Israeli state (A/Stable) is extremely likely. The banks' dominant domestic franchises, the lack of a deposit insurance guarantee, and the sovereign's track record in supporting its banks underpin Fitch's assessment. The IDRs are therefore sensitive to changes in Israel's ability or propensity to support its banks.

Leumi and Hapoalim are predominately domestic and as such their Viability Ratings (VRs), which reflect standalone strength, are invariably linked to developments in the domestic economy. The two banks' VRs factor in the significant, although declining, concentrations of their loan portfolios in terms of sector and/or single-name exposures, and moderate capital levels. The ratings also consider their large deposit bases, healthy asset quality, and reasonable profitability.

The Israeli banking sector is concentrated, with Leumi and Hapoalim each controlling around 30% of banking sector assets. The remaining 40% is largely made up of the three unrated banks: Israel Discount Bank, Mizrahi Tefahot Bank and First International Bank of Israel.

For more details, see "Peer Review: Major Israeli Banks", available at www.fitchratings.com.