S&P Affirms Bank Leumi Rating, Cites Real Estate Sector Risks

S&P Global Ratings has affirmed its BBB+ credit rating for Bank Leumi, maintaining a stable outlook. However, the agency highlighted significant risks stemming from the bank's substantial exposure to the real estate sector.

In its periodic review, S&P noted that Leumi's concentration in construction and real estate lending poses a risk amid the current economic and geopolitical climate. The agency warned that a combination of high labor costs, partly due to a shortage of Palestinian workers, elevated financing expenses, and a growing inventory of unsold apartments could severely strain the financial flexibility of developers and borrowers.

While 60% of the bank's real estate exposure is in short-term residential projects (under three years), mitigating some risk, S&P pointed out that the bank's real estate credit portfolio has grown rapidly and remains relatively "unseasoned." The agency cautioned that newer projects might be based on overly optimistic pricing assumptions given current market conditions.

Furthermore, S&P identified Leumi's indirect exposure to developer risks through non-bank credit entities, which saw a 35% surge in exposure during 2025. The agency warned that if developers face difficulties, losses incurred by these non-bank lenders could indirectly impact Leumi.

S&P anticipates a moderate deterioration in the bank's asset quality in the coming years. Although the non-performing loan (NPL) ratio is projected to decrease to 0.64% by mid-2026 from 0.87% at the end of 2024, the agency forecasts an increase to around 0.8% by 2028 as the credit portfolio absorbs the economic slowdown's effects.

Despite these warnings, the report acknowledged Leumi's strong profitability, which provides a buffer against potential credit losses without jeopardizing its rating. S&P praised the bank's efficiency ratio of 26% as of June 2026, noting it as the best in Israel and among the best globally. The agency projects Leumi will maintain a return on equity of approximately 14% in the coming years, supported by prudent expense management and healthy credit growth.