With Reuters

Bank Leumi (TASE: LUMI ) today reported an 80% drop in second-quarter net profit, due to the economic slump, rising inflation and technical factors.

The rise in domestic interest rates "caused a decrease in the market value of negotiable financial instruments", Leumi said. But it also blamed technical accounting factors such as a decrease in the market value of financial derivatives and the way it accounts for inflation.

Net profit sank to NIS 77 million, from NIS 382 million in the parallel quarter of last year.

The drop resulted from soaring provision for doubtful debt. Leumi set aside 73% more than in the parallel quarter NIS 329 million.

Earnings from financing operations sank 25% from the parallel three months to NIS 987 million.

The bank's capital adequacy ratio rose to 10.3% in the second quarter, versus 9.7% at the beginning of the year.

For the first half of the year, Leumi posted net profit of NIS 304 million shekels, down 55.6% from NIS 685 million in the first half of 2001. Provision to account for bad loans jumped 141% to NIS 696 million in the first six months, while interest income sank by NIS 332 million.

First-half income before the doubful debt provision amounted to NIS 2.3 billion shekels, down 12.5% from 2.7 billion shekels in the first half of 2001.

Leumi, which is run by chief executive Galia Maor, achieved a return on equity of 4.7% for the first half-year, in annual terms.