UPDATE 2-Bank Hapoalim to meet capital rules ahead of time

Thu Nov 29, 2012 6:27am EST

Related Topics

* Q3 net profit 625 mln shekels vs 607 mln forecast

* Credit loss charges 286 mln shekels vs 351 mln forecast

* To meet 9 pct core Tier I capital ratio before end-2014

* CFO: Bank hopes to be allowed to pay dividend soon

* Shares up 2.4 pct (Adds comments from CFO interview, analyst quote, shares)

By Tova Cohen

TEL AVIV, Nov 29 (Reuters) - Bank Hapoalim, Israel's largest bank, expects to meet a target to strengthen its capital position ahead of time after beating third-quarter profit forecasts thanks to a drop in provisions for bad loans.

Finance chief Ran Oz said on Thursday the bank hoped to return to paying dividends soon, though he cautioned a slowing economy and low interest rates made for a challenging backdrop.

Israel's economy grew at an annualised rate of 2.9 percent in the third quarter, the slowest pace in more than three years.

The country's central bank has called on banks to hold core capital equivalent to at least 9 percent of risk-weighted assets by the end of 2014 as part of a global drive to strengthen the industry and prevent a repeat of the 2008 financial crisis.

Hapoalim has grown its core Tier I ratio by 0.2 percentage points in each of the past three quarters, reaching 8.5 percent in the third quarter from 7.9 at the end of 2011, and Oz believes it will reach the 9 percent target ahead of time.

"It's clear we are in a solid capital position. Hopefully we will be able to return soon to distributing dividends," he told Reuters. Hapoalim last distributed a dividend in July 2011.

The Bank of Israel also wants the country's two top banks - Hapoalim and Leumi - to reach a core Tier I capital ratio of 10 percent by the end of 2016.

"We estimate that the bank for a long time has been trying to persuade the Bank of Israel to allow it to distribute a modest dividend, about 20 percent of profit, even before reaching the capital ratio target of 10 percent," analyst Terence Klingman of the Psagot brokerage said.

At 1105 GMT, Hapoalim shares were up 2.4 percent at 15.69 shekels.

ECONOMIC GROWTH SLOWS

Oz said a slowing domestic economy was affecting the bank, with low interest rates hurting financial margins.

"Still, we are able to generate low double-digit returns. This is the low side of our target but still we are there. Looking forward it is going to be challenging but we are focused on making sure we grow our customer base, generate banking revenue and optimise and drive efficiency on our cost line," he said.

Hapoalim has compensated for low interest rates by growing its asset base to drive more revenue, he added.

The bank has also prepared ahead of time for the slowdown by cleaning up its credit portfolio. In the second half of 2011 it increased its overall charge for credit losses while in the first two quarters of 2012 it raised specific provisions.

"Today we have gotten to the point where our credit book is as clean as we think it should be," Oz said. "We try to take a more conservative approach. You can see a trend where we were ahead of the curve and now we are in a good position."

Looking ahead, Oz does not expect any dramatic change in credit loss charges. "We are going to moderately continue to grow our credit portfolio in a similar pace to the growth of the economy," he said.

Net profit in the third quarter rose to 625 million shekels ($163 million) from 471 million a year earlier. The bank was forecast in a Reuters poll to earn 607 million shekels.

Net financing income rose to 2.12 billion shekels from 1.66 billion, while provision for credit losses fell to 286 million shekels from 498 million.

The bank was forecast to post net interest income of 2.12 billion shekels and credit loss charges of 351 million.

($1 = 3.84 shekels) (Editing by Mark Potter)

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