Bank Hapoalim B M : Immediate Report on the Rating of Debt Certificates / Rating of a Corporation or Discontinuation of Rating

The following is an unofficial translation of the Hebrew report and has been prepared for convenience only.

In case of any discrepancy, the Hebrew version prevails.

מ"עב םילעופה קנב

Bank Hapoalim B.M.

Number with the Registrar: 520000118

Securities Authority	Tel Aviv Stock Exchange Ltd.	Tav 125	Transmitted Via Magna 01/03/2021
www.isa.gov.il	www.tase.co.il	(Public)	Ref: 2021-01-024607

Immediate Report on the Rating of Debt Certificates / Rating of a Corporation or

Discontinuation of Rating

On 01/03/2021, Other Fitch Ratings published:

◙ An up-to-date rating report / notice

• ○ Notice of discontinuation of rating

  1. Rating report or notice ◙ Rating of the Corporation: Other Fitch Ratings ________ stable Notes/Nature of the Notice: Other Approval of Rating A/F1+

Rating history for the 3 years preceding the date of the rating / notice:

Date	Subject of the rating	Rating	Notes/nature of the notice
09/12/2020	Bank Hapoalim B.M.	Other A/F1+ Fitch Ratings_____ stable	Rating approval
14/07/2020	Bank Hapoalim B.M.	Other A/F1+ Fitch Ratings_____ stable	Rating approval
30/04/2020	Bank Hapoalim B.M.	Other A/F1+ Fitch Ratings_____ stable	Rating approval _____________
06/03/2020	Bank Hapoalim B.M .	Other A/F1+ Fitch Ratings_____ stable	Rating approval
17/12/2019	Bank Hapoalim B.M.	Other A/F1+ Fitch Ratings_____ stable	Rating approval
17/07/2019	Bank Hapoalim B.M.	Other A/F1+ Fitch Ratings_____ stable	Other Short term rating raised to F1+
07/05/2019	Bank Hapoalim B.M	Other A/F1 Fitch Ratings ______ stable	Watch list (positive)/ Rating examination (positive)___________
01/05/2019	Bank Hapoalim B.M	Other A/F1 Fitch Ratings ______ stable	Rating approval
09/01/2019	Bank Hapoalim B.M	Other A/F1 Fitch Ratings ______ stable	Rating approval
02/05/2018	Bank Hapoalim B.M	Other A/F1 Fitch Ratings ______ stable	Rating approval

Explanation: Under the rating history only the rating history of the rating company referred to in the Immediate Report should be specified.

□

Rating of the Corporation's Debt Certificates:

Name and Type of Security	Number of the Security on the Stock Exchange	Rating Company	Present Rating	Notes/Nature of the Notice
________	________	_________	________	________

Rating history for the 3 years preceding the rating date / notice:

Name and Type of Security	Number of the Security on the Stock Exchange	Date	Type of Rated Security	Rating	Notes/Nature of the Notice
________	__________ __	_____	_______	_____ ____ ____ ____ ____	__________ __________

Explanation: Under the rating history only the rating history of the rating company referred to in the Immediate Report should be specified.

Attached hereto is the rating report: Fitch Bank Hapoalim_BM 01032021.isa.pdf

2. On (date) ________, ________ _________ gave notice of discontinuation of rating to: ________

Particulars of the signatories authorized to sign on behalf of the corporation:

Name of Signatory	Job Title
1	Ram Gev	Other Chief Financial Officer
2	Karen Mazor	Other Head of Investor Relations Department

Explanation: According to Regulation 5 of the Periodic and Immediate Reports Regulations, 5730-1970, a report filed pursuant to these Regulations should be signed by the persons authorized to sign on behalf of the corporation. ISA Staff position on the subject can be found on the ISA website: Press here

Note: Fitch Ratings published a confirmation of the Bank's long-term rating (A) and short term rating (F1+), with a stable rating outlook.

Signed on 1. 3.2021

The reference numbers of the previous documents on the subject (any citation made does not constitute inclusion by way of reference):

Date on which the structure of the form was updated: 28/02/2021

The securities of the Corporation are listed for trading on the Tel Aviv Stock Exchange Abbreviated Name: Poalim

Address: POB 27, Tel Aviv 6100001 Telephone: [phone] 3333, Fax: [phone] Electronic Mail:[e-mail] Company Website:http://www.bankhapoalim.co.il

Previous names of reporting entity:

Name of Electronic Reporter: Bloch Gilad, His Job Title: Secretary of the Bank, Name of Employing Company: Address: Yehuda Halevy 63, Tel-Aviv 6578109, Telephone: [phone] Fax: [phone],

Electronic Mail:[e-mail]

Bank Hapoalim B.M.

Key Rating Drivers

Support Drives Ratings: Bank Hapoalim B.M.'s Issuer Default Ratings (IDRs) reflect Fitch Ratings' view that there is an extremely high probability that Israel would support the bank, if needed. This is underpinned by Israel's strong ability and willingness to do so given the bank's large domestic franchise, its importance to the economy and deposit-heavy liability structure.

VR Resilient to Pressures: Hapoalim's Viability Rating (VR) reflects a strong domestic franchise, modest risk appetite despite the presence of some industry concentrations and still resilient asset quality with low levels of impaired loans. It also reflects fairly stable underlying profitability, supported by the bank's strong market position and efficiency measures introduced over the past couple of years. The VR also considers ample liquidity, strong funding and sound capitalisation.

Healthy Asset Quality: Hapoalim's impaired loan ratio was low at 1.37% at end-3Q20, helped by the payment break framework and relaxed guidelines on the classification of impaired and restructured loans. Under our base case we expect this ratio to deteriorate in 2021 but to a level not materially higher than 3%, which would still be commensurate with our current asset quality score. A substantial portion of borrowers on payment breaks have returned to normal payment patterns, and extensive government measures will support retail customers well into 2021.

Profitability under Pressure: Net income of ILS1.1 billion in 9M20 was down by over 50% yoy due to a high risk-charge of ILS2.1 billion, equal to an annualised 94bp of average gross loans, to cover the anticipated Covid-19-related asset-quality deterioration. Potential further risk charges should be accommodated by the bank's sound revenue generation and by the continued cost-efficiency measures. The bank's operating income is heavily reliant on net interest income, however, which will be under pressure from lower interest rates.

Sound Capitalisation: Hapoalim's reported common equity Tier 1 (CET1) ratio of 11.5% at end-3Q20 was sound despite risk concentration and increased provisioning. In our assessment we consider the bank's conservative risk weights, which results in a high leverage ratio of 6.9%. We expect the bank to target moderate management buffers over the regulatory capital requirements given the low volatility of its business model.

Solid Customer Deposit Base: The bank benefits from solid and stable customer deposits, which fully fund its loan book. Access to local wholesale capital markets extends funding maturities. Its liquidity buffer of cash and high-quality sovereign bonds is comfortable.

Rating Sensitivities

Sensitive to Support: Hapoalim's IDRs are sensitive to a change in Fitch's assumptions about the Israeli authorities' propensity or ability to provide timely support to the banking sector. A downgrade of Israel's Long-Term (LT) IDR is likely to result in a downgrade of the bank's IDR.

VR Downgrade on Deeper Crisis: We would likely downgrade the VR if the deterioration in asset quality is more severe than under our baseline expectations and if the bank's impaired loan ratio exceeds 3% over a prolonged period or if the deterioration in profitability significantly weakens the bank's capitalisation. Capital ratios below the bank's tolerance level of 9.5% CET1, without a plan to rebuild it sufficiently and swiftly, would also lead to a VR downgrade.

Upside Potential: A material and structural improvement in profitability, most likely following a more diverse business model while maintaining strong capital ratios and healthy asset quality, which we do not expect over the next two years at least, could result in an upgrade of Hapoalim's VR. An upgrade of Israel's LT IDR is unlikely to result in an upgrade of the bank's LT IDR.

Rating Report │ 1 March 2021

Banks

Retail & Consumer Banks

Israel

Ratings

Foreign Currency

Long-Term IDR Short-Term IDR

Viability Rating

Support Rating Support Rating FloorA F1+ a-1 A

Sovereign Risk

Long-Term Foreign-Currency IDR

A+

Long-Term Local-Currency IDR Country Ceiling

A+ AA

Outlooks

Long-Term Foreign-Currency IDR

Stable

Sovereign Long-Term Foreign-Currency IDR

Stable

Sovereign Long-Term Local-

StableCurrency IDR

Applicable Criteria

Bank Rating Criteria (February 2020)

Related Research

Fitch Affirms Bank Hapoalim at 'A'; OutlookStable (December 2020)

Fitch Ratings 2021 Outlook: Middle East andNorth Africa Sovereigns (December 2020)

Fitch Affirms Israel at 'A+'; Outlook Stable(January 2021)

Israel (January 2021)

Analysts

Scarafia, Christian [phone]

Shishkina, Maria [phone], Michael [phone]

fitchratings.com

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