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JERUSALEM -(Dow Jones)- The Bank of Israel on Wednesday said the country's banking system is "robust," following Moody's Investor Services' downgrade of the banking system's outlook.

On Tuesday, Moody's downgraded its outlook for Israel's banking system to negative from stable, due to an expected slowdown in economic growth and continuing political instability in the region. A weak local corporate-bond market and the high number of conglomerates to which banks have loaned money also increases the banking system's credit risk, although this is partially offset by the sector's high liquidity, the Moody's report said.

The Bank of Israel said that these risks have been known for a while and that the Moody's report contained no new information.

"[The banking system] can withstand shocks as it has in the past," the central bank said in a statement. Israel's banking system hardly suffered from the world financial crisis that began in 2008. The system's resilience derives in part from low household debt ratios, minimal exposure to sovereign debt and a relatively low leverage level when it comes to loans to the business sector, the central bank said.

A recent stress test by the Bank of Israel and International Monetary Fund also indicated that the banking system is stable. According to that test, the biggest risk for the banking sector was its exposure to the debt of Israeli conglomerates.

Terence Klingman, senior analyst at Psagot Securities Ltd. in Tel Aviv, said the Moody's outlook downgrade wasn't a "substantial issue." He said local companies' ratings of the banks are more important anyway, because banks raise money locally. Klingman pointed out that Israel's banking sector has outperformed its index on the Tel Aviv Stock Exchange.

Bank Hapoalim B.M (POLI.TV) and Bank Leumi Le-Israel BM (LUMI.TV), the country's two largest banks, declined to comment on the downgrade Wednesday.

-By Sara Toth Stub, Contributing to Dow Jones Newswires; saratoth@gmail.com