Investment house UBS Warburg today rated the Israeli banking sector a Hold.

UBS recommended overweighting Bank Hapoalim shares at the expense of Bank Leumi. Last week Investec General Bank also recommended the same.

Leumi shares carry higher risk, UBS wrote, because its privatization process could create negative pressure on the shares. Also, Hapoalim's third-quarter results were significantly better those of its arch-rival.

All the banks had to increase doubtful debt provision because of the economic slowdown, geopolitical developments, and exposure to communications and technology companies. But the third-quarter provisions made by Leumi and the First International Bank of Israel were especially high, UBS wrote. The investment bank revised its forecasts, lifting them for 2001 but lowering estimates for 2002.

Hapoalim is expected to end 2001 with a net profit of NIS 943 million, compared with the previous forecast of NIS 760 million. Profit in 2002 is expected to drop to NIS 1.15 billion, compared with the previously forecast NIS 1.25 billion.

UBS estimates that Leumi will net NIS 882 million this year, compared with the earlier forecast of NIS 802 million. Profit for 2002 is expected to come to NIS 933 million, compared with the previous forecast of NIS 977 million.

FIBI is expected to end 2001 with a net profit of NIS 180 million, and in 2002 profit is expected to rise to NIS 195 million.

The investment bank estimates that Leumi and Hapoalim will each post 8.1% return on capital this year.

In 2002 Bank Hapoalim is expected to post 9.2% return on capital, and Leumi¿s return on capital is expected to come to 8.1%.