The First International Bank of Israel has been downgraded from AAA- to AA+ by local credit rating firm Maalot.

The rating applies to deferred notes and to the fourth series of Magal bonds.

Analysts Ruthie Dahan and Hadas Rozen said that FIBI's credit portfolio largely consists of companies and that it has relatively low retail credit, compared with Bank Hapoalim and Bank Leumi. The analysts said that FIBI's real estate loans share is similar to that of the other two banks.

Dahan and Rozen believe that the large real estate companies in the bank's credit portfolio are financially strong. They said that the bank's share in startup loans is negligible, and that its credit to communications companies is relatively big.

The analysts noted that as of 2000 the volume of FIBI's problem loans and provisions for doubtful debts significantly increased, compared with Bank Hapoalim and Bank Leumi. The analysts said that the problem debt is centralized, and that in 2000 only 12 companies contributed to debt requiring special attention increasing by NIS 330 million. This comes to 80% of the increase in loans requiring special attention reported for 2000.

In the first nine months of 2001, problem debts rose by 90%, the bank making special provisions of NIS 222 million.

Maalot expects that doubtful debt provisions will continue rising in the coming period.

The analysts said that FIBI's profitability is lower than that of Bank Hapoalim and Bank Leumi. This is because of FIBI's relatively high share in low-profitability loans. In addition, the bank's capital ratio is 9%, the minimum capital ratio stipulated by the central bank. In previous years, this ratio was among the highest in the banking sector: 12.8% in 1996 and 1997, and 10.5% in 1998 and 1999.

The analysts estimate that the sharp drop in the capital ratio and in the quality of FIBI's credit portfolio increases its risk exposure. The bank plans to increase the capital ratio to 9.5% by issuing deferred notes.