Israel's third-largest bank, Mizrahi Bank, on Tuesday reported a 51% drop in third-quarter profits as doubtful debt provisions soared.

Profit for the third quarter dropped to NIS 47 million, or NIS 2.15 per share, from NIS 95 million, or NIS 4.37 per share for the parallel quarter last year.

Profit for the first nine months of the year decreased to NIS 200 million, 28% less than the NIS 277 million posted for the parallel period last year.

Financing income for the third quarter, before provision for doubtful debts, dropped by 9% against the parallel to NIS 310 million, compared with NIS 339 million for the same period last year.

Financing income for the first nine months of the year dropped to NIS 940 million, 4% less than for the parallel.

Third-quarter provision for doubtful debts soared 200% from the parallel to NIS 107 million.

For the nine months provision for doubtful debts increased to NIS 184 million, 32% more than for the same period of 2000.

In the third quarter, the bank set aside NIS 48 million specific provision for debts held by businessman Gad Zeevi.

Zeevi borrowed hundreds of millions of dollars from Israel's leading banks to buy a 20% stake in the Bezeq phone company from British company Cable & Wireless in 1999. The Bezeq shares serve as collateral for his loans, but have since shrunk considerably in value.

Because of this specific provision on the Zeevi loan, the Supervisor of Banks accepted Mizrahi Bank's request to decrease its extra general provision from NIS 46 million to NIS 16 million.

In the fourth quarter the bank is expected to post an extra general provision of NIS 46 million, due to the economic slowdown, beyond any specific provision for loans made to Zeevi.

Net return on capital (annualized) for the first nine months of 2001 dropped to 9.4%, compared with 14.7% at the end of the third quarter of 2000.

Excluding the special and specific provisions, return on capital for the third quarter came to 11.4%.

Deposits from the general public totaled NIS 54.8 billion as of September 30, 5% more than for the end of 2000.

The bank's capital adequacy ratio for the third quarter was 9.3%.