Bank Leumi, one of Israel’s leading financial institutions, has made a significant announcement regarding anticipated credit card losses due to the ongoing war with Hamas, which began on October 7, 2023. This revelation comes as the banking sector grapples with the economic fallout of the conflict, and a general atmosphere of uncertainty prevails.

Under the leadership of CEO Hanan Friedman, who is on the verge of electing a new chairman, Bank Leumi expects to recognize expenses in the range of approximately NIS 800 million to NIS 1.1 billion in provisions for credit losses in its financial statements for the third quarter. This amount is substantially higher than the NIS 318 million provision set aside in the previous quarter. It is important to note that the bulk of this expense is intended to augment the group provision, rather than specific private or business customers, signifying a proactive approach to mitigate risk.

The bank clarified that these figures are preliminary estimates and are subject to change based on evolving war-related developments and their impact on the economy. The ultimate extent of this provision depends on various factors, including the duration of the war and its effects on economic activity.

The decision to allocate these provisions is in response to a directive from the Bank of Israel, issued in consultation with the supervision of banks, which acknowledged the heightened uncertainty and worsening economic indicators caused by the war, even though it began after the third quarter had ended.

The Israeli banking sector, heavily impacted by the conflict, faces not only the challenge of supporting war-affected citizens but also declining share prices. Leumi shares, for example, have lost approximately 20% of their value since the onset of hostilities. It is believed that banks will be required to increase their safety cushions to offset potential losses, affecting their quarterly profits. Concurrently, economic activity is expected to contract due to the broader economic slowdown, leading to reduced demand for credit.

Furthermore, credit rating agency Moody’s has placed the ratings of the country’s five largest banks under review with “negative” consequences, indicating potential downgrades in the coming months. This decision highlights the profound impact of the ongoing war on Israel’s financial sector and the overall economy.

In summary, Bank Leumi’s announcement reflects the financial sector’s proactive response to the uncertainties created by the war. As the conflict continues to affect the economy and banking operations, institutions must prepare for potential losses and reassess their financial strategies.

Main article photo: Bank Leumi in Tel Aviv. REUTERS Corinna Kern