The Real Value of Israeli Banks

Are they a financial opportunity or a crisis waiting to happen?

Published: March 5th 2011
in Economics » Israel

Bank Hapoalim

The Israeli economy


Israel has one of the world's best economies. During the 2008 economic crisis, Israel’s economy performed rather well, especially compared to other comparable economies. The unemployment rate is relatively low and the central bank, under the leadership of Prof. Stanley Fischer, has taken responsible steps that kept the economy growing despite the fact that Israel is located in a troubled and unstable part of the world. Recently we reported in Shalom Life that the growth pace of Israel in the last quarter of 2010 was 7.8 per year, similar to India and China.


The Israeli banks


When the economy is booming the banks of any country are the first to enjoy the economic growth. The financial system gives credit and loans to entrepreneurs who, in most cases, pay their debts. The credibility of the banking sector increases and so does their balance sheets. The banking systems that rely mostly on households and small businesses see an increase in the economic activity and in the volume of deals on the market.


Israeli banks are traded at discount


Despite the positive economic environment and the positive expectations for the future, it seems that shares in Israeli banks are traded at a significant discount when analyzing their real value. Many investments houses say that the market has yet to realize how financially strong the Israeli banks are and eventually when that happens, shares will surge.


"Psagot" (Peaks) is an Israeli investment house that had recently analyzed the major Israeli banks and came to the following conclusions:


Bank Hapoalim – Should be traded for 24 NIS per share. The current price of 16.3 NIS is really cheap and Bank Hapoalim shares could surge by up to 50 per cent.


Bank Leumi - Should be traded for 21.2 NIS per share. The current price of 16.6 NIS is relatively cheap and Bank Leumi shares could increase by 30 per cent.


Bank Mizrahi Tefahot and the Israeli International bank are also recommended by "Psagot". According to the Israeli investment house the aggregate-average upside to the banking system is 29 per cent. When adding dividends to the shareholders, these figures look extremely positive, assuming the 'prophecy’ becomes the reality. 


The foreign investor


For those who never invested in Israel before and don't know where to start, the Israeli banking system and bank representatives should be a good start. Some Israeli banks have branches and representative offices in the US and in Canada and meeting those representatives should enrich the potential investor with valuable data and ideas about the Israeli market. Investing in the Israeli capital market can also be done via the Israeli banks’ trust funds. This way might be more comfortable for those who do not wish to directly trade in an unfamiliar market.


What to do?


Purchasing shares in Israeli banks seems attractive for the long term as these shares are considered a "defensive strategy". However, investors must remember that we are dealing with shares of corporations in the Middle-East, where fluctuations and unexpected political and military events may damage investors' portfolios.




Shares in Israel’s major banks might seem like an attractive financial opportunity. Like any investments in shares, especially overseas shares, there are also risks that come with these opportunities. Speak to your financial representative before making any decision.


This article does not recommend investing in the capital market nor does it recommend to invest in Israeli banks' shares.

Related articles: (Israel, Banks, Bank Hapoalim, Bank Leumi, )

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