Israel's Bank Leumi sharply boosts loan loss provision on war uncertainty

Bank Leumi said on Thursday it would post a loan loss provision of up to 1.1 billion shekels ($270 million) in the third quarter to protect itself from consequences of Israel's war with Palestinian Hamas militants. Israel's largest bank said the conflict has resulted in a sharp increase in economic uncertainty and increased risk with respect to the key economic indicators of financial activity in Israel, including the risk of credit rating downgrades.

Bank Leumi said on Thursday it would post a loan loss provision of up to 1.1 billion shekels ($270 million) in the third quarter to protect itself from consequences of Israel's war with Palestinian Hamas militants.

Israel's largest bank said the conflict has resulted in a sharp increase in economic uncertainty and increased risk with respect to the key economic indicators of financial activity in Israel, including the risk of credit rating downgrades. "The actual scope of the effect will depend on a long series of factors, including the duration of the war and its effect on economic activity," Leumi said in a regulatory filing in Tel Aviv. It said the provision, set aside for future loan defaults at between 800 million shekels and 1.1 billion shekels before taxes, could change and the final figure may be different than its preliminary estimate.

Leumi said it was in the process of compiling its third-quarter earnings report due in late November. Israel was blindsided on Oct. 7 by Hamas gunmen from Gaza who attacked its south, killing 1,400 in the deadliest attack on civilians in its history. Since then, its military has carried out a devastating bombardment in Gaza and was preparing a ground offensive.

Leumi said Israel's banking regulator met with banks last week and told them to take into account "the uncertainty and deterioration of the various indicators following the war events" in loan default provisions. The regulator also asked banks to include these in their third-quarter results despite the war breaking out at the start of the fourth quarter and to publish updated estimates closer to publication, it added.

Leumi's shares were down 1.3% in early afternoon trading in Tel Aviv. Jefferies analyst Joseph Dickerson said the higher provision would reduce Leumi's Tier 1 capital ratio by 10 to 15 basis points.

"The bank's significant excess capital position - 3.3 billion shekels at the end of Q2 - provides ample room to weather the charge," he said. ($1 = 4.0710 shekels)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)