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Israeli Banks Post Lower Interest Income as Provisions Fall

Israel’s two largest lenders, Bank Hapoalim Ltd. (POLI) and Bank Leumi Le-Israel (LUMI) Ltd., posted lower first-quarter interest income as they reduced risky loans.

Net interest income at Hapoalim, the nation’s largest lender by assets, fell 4.2 percent to 2.06 billion shekels while Leumi’s financing income dropped 3.8 percent to 1.76 billion shekels, the banks said today in separate statements. Provisions to cover bad loans at Hapoalim declined to 257 million shekels from 303 million shekels a year earlier, while Leumi provisions fell to 73 million shekels from 225 million.

“Banks are putting on the brakes on the corporate sector and that’s hurting profitability,” Terence Klingman, head of research at Psagot Investment House Ltd., said today by phone from Tel Aviv. “As banks de-risk their balance sheets that’s having a positive effect on credit quality.”

Restructurings at holding companies such as IDB Holding Corp. and tougher capital adequacy directives from the Bank of Israel are forcing banks to pare lending. Israel’s economic growth will probably slow to 2.8 percent in 2013, excluding gas output, from 3.2 percent last year, according to the central bank. The Bank of Israel lowered rates this month twice to 1.25 percent, the lowest in more than three years.

The Bank of Israel said on May 28 that business sector debt in March declined by about 0.9 percent from the previous month. Mizrahi Tefahot Bank Ltd. (MZTF) said this week provisions were equivalent to 0.1 percent of outstanding loans.

Net income at Hapoalim fell 5.8 percent to 621 million shekels ($169 million) in the three months to March, the bank said. Leumi profit rose to 570 million shekels from 431 million shekels. The bank sold a 4.6 percent stake in Migdal Insurance & Financial Holding Ltd. (MGDL) stake, posting a 110-million shekel profit from the sale, it said Jan. 3.

Israel Discount Bank (DSCT), the nation’s third-largest lender by assets, said today profit fell to 263 million shekels from 246 million shekels as net interest income fell to 1.04 billion shekels from 1.1 billion shekels. Provisions at Discount rose to 145 million shekels from 123 million shekels.

Leumi fell 0.4 percent to 12.93 shekels while Hapoalim gained 0.3 percent to 17.17 shekels at the close in Tel Aviv. Discount gained 1.8 percent to 6.20 shekels in more than three times the three-month average daily volume. The Tel Aviv Banking Index of the bourse’s five largest commercial institutions has advanced 2.8 percent this month.

To contact the reporter on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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