We examine the changes in profitability of Israeli banks around the 2008 financial crisis. In particular, we compare the effect of the crisis on Israeli banks with that of banks in other countries. We find that the crisis had a positive incremental effect on the profitability of Israeli banks relative to banks in other countries. This positive effect is mainly driven by lower loan loss provisioning post-crisis. We also examine the association between changes in profitability and banks’ market values of equity. We find that banks in Israel after the crisis are priced with lower Price-Earnings ratios than before the crisis. This result suggests that the market places lower value on earnings after the crisis than before, perhaps because earnings are less credible due to lower loan loss
Professor Eli Amir, CPA (Israel), The Max and Steffi Perlman Professor of Financial Economics Coller School of Management Tel Aviv University and, Itay Sharony, CPA (Israel), Coller School of Management Tel Aviv University.