Bank Leumi, Israel's second largest bank, today reported a sharp fall in third-quarter earnings on Thursday as doubtful debts provision more than doubled due to the economic slowdown.
"These results reflect the deterioration in the economic situation in Israel and the world, particularly after the tragic events of September 11, 2001 in the USA," the bank stated.
"These circumstances have led to a decrease in income and have harmed the repayment capabilities of some borrowers in some sectors, which has necessitated a considerable increase in and the strengthening of reserves," it added.
The construction, tourism, hotels and commerce, transport and elecommunications sectors have been particularly hard hit, Leumi said.
Leumi, run by chief executive Galia Maor, posted third-quarter net profits of NIS 105 million ($24.8 million) or NIS 0.074 shekels a share, 67% down from the corresponding quarter for which it reported NIS 321 million profit or NIS 0.227 a share.
Quarterly doubtful debt provision rose to NIS 533 million shekels from NIS 206 million shekels. For the nine months doubtful debt provision reached NIS 806 million, up 73% from the corresponding period of 2000.
Supervisor of Banks Yitzhak Tal gave Leumi the same leeway granted to other banks. While he had originally ordered all the merchant banks to set aside 1.5% of their total credit portfolio as extra provision, on top of their general provision, he relented after the banks stepped up their specific provisions on problem loans.
For the third quarter Leumi's specific provisions increased 55% compared with the parallel quarter of 2000. (Specific provision is recognizable for tax purposes, while general provision is not.) Leumi's problem loans totaled NIS 1.26 billion at the end of the third quarter, about 29% more than in the parallel.
In the first nine months of the year the bank's net profit fell 42% to NIS 753 million, shekels from NIS 1.29 billion a year earlier. The nine-month figure for 2000 included extraordinary gains of NIS 345 million on selling its stake in Koor Industries (Nasdaq:KOR) and in Visa Israel Credit Cards.
Quarterly financing income before provision for doubtful debts inched up 6% from the parallel to NIS 1.29 billion. For the nine months this income rose 6% to NIS 3.81 billion.
Leumi posted an NIS 17 million loss on investment in stocks, compared with netting NIS 26 million from this activity in the parallel quarter of 2000.
The bank achieved an 8.9% return on equity for the nine months, in annual terms.
Its capital adequacy ratio on September 30 stood at 9.7%, compared with 10.1% at the end of the third quarter of 2000.
The bank's total assets rose to NIS 225.9 billion from NIS 209.5 billion a year earlier.