Bank Hapoalim profit beats forecast

Bank Hapoalim, Israel's second-largest bank, reported a higher-than-expected rise in quarterly net profit on Wednesday as a stronger economy led to lower bad debt provisions.

An increase in income from handling credit transactions and credit card fees also helped boost profit.

The bank's shares were up 1% to NIS 15.48 ($4) at 10031 GMT in a declining broader market.

Leader Capital Markets analyst Alon Glazer raised his rating for Hapoalim to "outperform" from "market perform" and his target price to NIS 18 ($4.72).

"Since the start of the year, shares in Bank Hapoalim and the entire sector have fallen and underperformed the market by nearly 10% even as the bank has recorded improved results that contribute to our security regarding the bank's ability to generate good results," he said.

"We are more optimistic regarding their future results and the latest quarters prove the banks have left behind most of the effects of the crisis."

Less affected by stock market declines

Israel's economy has bounced back from a brief recession, growing an annualized 4.7% in the second quarter with forecasts of 3.7% growth in 2010. As a result, demand for retail credit and mortgages is rising.

Banks are also capitalizing on higher interest rates.

Glazer said Hapoalim was less affected by stock market declines since most of its securities portfolio is invested in government bonds, which are rising.

Hapoalim said its activity in the commercial sector gained momentum in the first half of 2010, with new customers' recruited and new business branches opened.

Barclays Capital analyst Joseph Wolf said in a client's note that while loans to large customers were flat, loans to small and medium enterprises grew 3% as the bank focuses on the customer base for growth.

"In our view Hapoalim executed well in 2010 and has shown steady progress over the last year as its new management team refocuses the bank on core Israel banking activity," he said.

Hapoalim earned NIS 513 million ($134 million) in the second quarter, compared with NIS 382 million ($100 million) a year earlier. It had been expected to earn NIS 425 million ($111 million), according to a Reuters poll.

Financing income, or net interest income, fell to NIS 1.837 billion ($480 million) from NIS 1.955 billion ($510 million) due to the adjustment to fair value of derivatives and as a result of non-recurring income from credit derivatives a year earlier. Excluding this, financing profit rose, reflecting increased interest rates.

The bad debt provision slipped to NIS 341 million ($90 million) from 538 million ($141 million). The high level last year was due to risks in Hapoalim's credit portfolio because of a weak economy.

Analysts had forecast financing income of 1.777 billion ($470 million) and bad debt provisions of NIS 398 million ($104 million).

The capital adequacy ratio fell to 13.6% from 13.9% in the first quarter, according to Basel II directives.

Return on equity rose to 9.9% on an annualized basis.

Hapoalim's chief rival, Leumi, will issue its results next week.

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