UPDATE 1-Bank Hapoalim Q1 net falls on asset-backed losses

(Adds details, chairman's quote)

TEL AVIV, May 29 (Reuters) - Bank Hapoalim (POLI.TA), one of Israel's largest banks, said on Thursday it moved to a net loss in the first-quarter as it sold off its U.S. mortgage-backed securities portfolio and wrote down other assets.

Hapoalim recorded a quarterly net loss of 1.567 billion shekels ($476 million), or 1.23 shekels per share diluted, compared with net profit of 635 million shekels, or 0.5 shekel per share, a year earlier.

Israel's largest bank in terms of assets said losses from the sale of mortgage-backed securities, the decline in value of other asset-backed securities and a loss in the credit derivatives portfolio totalling 3.76 billion shekels as well as 300 million shekels for a voluntary retirement programme were recorded in the first quarter.

Excluding those effects, net profit would have totalled about 1 billion shekels.

Hapoalim Chairman Dani Dankner said the decision to sell the MBS portfolio was aimed at eliminating uncertainty.

"I am confident that this step has strengthened us and increased investors' and the market's confidence in the bank," he said in a statement.

The bank had a loss from financing activities before a provision for doubtful -- or bad -- debt, of 2.012 billion shekels in the quarter compared with profit of 1.78 billion a year earlier. The bad debt provision fell to 32 million shekels from 181 million.

The bank's capital adequacy ratio at the end of the first quarter was 9.74 percent compared with 10.26 percent at the end of 2007. Taking into consideration a share issue to York Capital in April 2008, the bank's capital adequacy ratio is about 10 percent.

The bank has adopted a policy aimed at increasing its ratio of capital to risk assets to 11 percent by the end of 2008 and 12 percent by the end of 2009.

Return on equity in the quarter was negative.

"The rate of net return on equity in 2008, as estimated by the bank based on the data available to it today, is expected to reach 7-10 percent," Hapoalim said in a statement. (Reporting by Tova Cohen; Editing by Louise Ireland)