Israel Financial System Resilient Despite Wars, Central Bank Says

Israel’s financial system shows “high resilience” despite the country’s military conflicts and ongoing geopolitical uncertainty that have persisted for more than a year, the Bank of Israel said in a report on Tuesday.

The banking sector’s profits have been boosted by high interest rates, cushioning them over the final six months of last year from macroeconomic risk that kept Israel’s economic activity below the long-term trend and led to higher government financing costs, a higher risk premium and credit rating downgrades.

The central bank cautioned of a possible deterioration should there be renewed fighting in Gaza and, as U.S. President Donald Trump’s tariffs raise risks to growth, it warned of the risks attached with “deglobalisation.”

In its Financial Stability report for the second half of 2024, the central bank said credit repayment delinquency rates remained stable and historically low, while banks’ loan loss provisions also decreased.

“The resilience of major financial institutions remained high, with improvements in capital ratios for both banks and insurance companies, which were already high,” Tuesday’s report said.

Israel’s economy is forecast to have grown 0.6% in 2024, with Israel’s wars against Palestinian militant group Hamas in Gaza and Hezbollah in Lebanon weighing on growth. Israel has since forged ceasefire deals with both Hamas and Hezbollah.

The central bank said that towards the end of the year Israel’s risk premium and debt financing costs declined somewhat, reflecting a moderation in geopolitical risk assessments and improved sentiment in local markets.

In the fourth quarter, Tel Aviv shares rose but remained low in dollar terms relative to global share indices.

“Along with the reduced potential of a negative impact on stock prices due to risk absorption, the financial system’s vulnerability from asset price channels declined to a medium-high level compared to the first half of the year,” the central bank said.

Starting in 2025, the report will be published annually instead of semiannually, the bank said.

(Reporting by Steven Scheer; editing by Barbara Lewis)