Israel's top three banks posted weak fourth quarter results weighed down by soaring bad debt provisions and declining investment portfolios, and the difficult times are expected to continue in 2009.
A worsening economy meant some of the banks cut dividends to boost capital adequacy ratios to the 12% minimum set by the central bank for the end of 2009.
Bank Leumi, which overtook rival Bank Hapoalim in the quarter to become Israel's largest bank by assets, dropped its 2008 dividend and set no dividend policy for 2009.
Galia Maor, Leumi president and chief executive said the first half of 2009 was shaping up to be a continuation of the second half of 2008 and gave no clue to when the bank would return to profit.
"It is reasonable that some of our borrowers might have difficulties and this would be reflected in our (bad) debt provisions," she told a news conference on Tuesday.
Leumi lost NIS 1.18 billion ($282 million) in the quarter, from a NIS 517 million profit a year earlier, as doubtful debt provisions soared to NIS 1.09 billion.
Israel Discount Bank, the third largest lender, said management decided to postpone its proposal to the board regarding a dividend policy until the beginning of 2010.
Discount recorded a loss of NIS 121 million in the quarter, from a profit of NIS 41 million a year earlier.
"We are assuming the recession will last throughout 2009," Discount Chief Executive Giora Offer said. "The longer the recession lasts, the higher the risk of further provisions in the future."
Israel's economy is forecast to shrink 1.5% in 2009.
The banks' difficulties come at a time when the non-banking credit market has all but dried up; but banking leaders said there was simply not enough credit available to jump-start the economy.
"We need a solution for the credit problem," Discount Chairman Shlomo Zohar said. "Israel entered this crisis last and at this rate we will exit the crisis last."