Leumi, Hapoalim Profits Drop on Bad Debt Provisions

(Corrects Partner performance in seventh paragraph.)

Bank Leumi Le-Israel Ltd. (LUMI) and Bank Hapoalim Ltd. (POLI), Israel’s two biggest banks, said first-quarter profit fell more than 20 percent as they took more provisions for bad debt amid slower economic growth in the country.

Bank Leumi’s profit declined 22 percent to 431 million shekels ($111 million), while Hapoalim’s net income dropped 26 percent to 659 million shekels, the Tel Aviv-based lenders said in regulatory filings today. Hapoalim’s profit beat two analysts’ estimates compiled by Bloomberg of 604 million shekels and 519 million shekels. Leumi’s net income met one estimate and missed another, the data show.

Banks in Israel are taking precautions as economic growth slows, the stock market drops and as some of the country’s biggest borrowers seek debt forgiveness from bondholders. Hapoalim said provisions soared to 303 million shekels in the first quarter from 14 million shekels in the year-earlier period. Leumi, which reported declines in profit in all but one of the last six quarters, said provisions for bad debt reached 225 million shekels in the three-month period.

“I expect to see higher provisions in the coming months due to the slowdown in the economy,” Adi Scop, a banking analyst and the head of sales at I.B.I.-Israel Brokerage & Investments Ltd., said by phone today.

Slower Growth

Economic growth in Israel will probably slow to 2.9 percent this year from 4.8 percent in 2011, according to the average of three economists compiled by Bloomberg in April.

Leumi’s shares rose 2 percent at 12:10 p.m. in Tel Aviv today, trimming their drop this year to 9.3 percent. Hapoalim gained 1.6 percent.

Leumi attributed the decline in profit to higher provisions, lower income from commissions and a net provision of 59 million shekels linked to a drop in the share value of Partner Communications Co. (PTNR), in which it holds a stake. Partner’s shares fell 15 percent in the first quarter and are down 49 percent this year.

Net interest income at Leumi rose 0.6 percent to 1.82 billion shekels, while Hapoalim’s was little changed at 1.96 million shekels compared with 1.97 million shekels a year earlier, the banks reported.

‘Favorable Buffer’

The Bank of Israel in March set a minimum core capital ratio of 9 percent for all banks in the country, to be implemented by Jan. 1, 2015, and a minimum ratio of 10 percent for the two largest banks, to be implemented by Jan. 1, 2017. Leumi said its core capital ratio rose to 8.3 percent at the end of March, from 8.1 percent in December, while Hapoalim’s climbed to 8.2 percent from 7.9 percent over the same period.

The capital ratio at First International Bank of Israel Ltd., the country’s fifth-largest bank by assets, rose to 8.8 percent, a “favorable buffer that is particularly important in these times of economic uncertainty,” Chief Executive Officer Smadar Barber-Tsadik said in a statement today. The bank posted a 22 percent decline in first-quarter profit to 142 million shekels.

First-quarter profit at Israel Discount Bank Ltd. (DSCT), the country’s third-largest bank, fell 11 percent 247 million shekels as net interest income declined 3.1 percent and provisions rose 9.8 percent.

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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