Italian crisis to affect Bank Leumi?

According to bank's second quarter statements, its exposure to Italy of totaled NIS 794M, which makes up for about 1.7% of nostro account. First International Bank's exposure to Italian sovereign debt is NIS 75M

Raheli Bindman, Calcalist |Published: 11.10.11 , 09:27

The crisis that has been rattling European stock markets might impact upon Israel directly: Italian government bonds are hitting all-time records with two-year bonds climbing to an interest rate of 7%, which according to estimates, is too high for the country to be able to service the debt.

According to Bank Leumi's first half statements for 2011, the bank is not directly exposed to Italian sovereigns but does have a NIS 795 million ($215 million) exposure to investments in the country, with NIS 462 million ($125 million) invested in Italian financial institutes and banks.

Leumi's exposure constitutes 5% of the bank's investment portfolio in foreign banks. All Italian bank bonds which Leumi holds are rated at a high AA- and AAA.

Estimates are that the exposure will shrink by a sizable percentage in the bank's third quarter reports due to the declining exposure of the bank's clients to such bonds whereas the bank's exposure to Italian bonds of NIS 462 million remains unchanged.

It should be mentioned that the value of the bank's nostro account is NIS 45 million ($12 million) – 1.7% of the entire portfolio.

Things are a bit rosier for other Israeli banks. The First International Bank held NIS 74 million ($20 million) in Italian government bonds at the end of the second quarter, due on June 2017.

Additionally, the bank has a NIS 9 million ($2.5 million) exposure to other Italian entities thus its total balance sheet exposure was NIS 83 million ($22.5 million), and its off balance-sheet exposure (unused credit lines and collateral) was only NIS 2 million ($500,000).

Of the total exposure, only NIS 8 million ($2.17 million) are scheduled for repayment within a year and the remainder has an average duration of over 12 months.

Inside sources say there are no Italian government bonds in Bank Hapoalim's nostro account and that Mizrahi Tefahot and Discount Bank have no exposure to Italy whatsoever.