UPDATE 1-Israel's Bank Leumi Q2 profit falls less than expected

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TEL AVIV, Aug 27 (Reuters) - Bank Leumi, one of Israel’s two largest banks, reported lower net profit in the second quarter as the bank increased its loan loss provisions in the wake of the coronavirus pandemic.

Leumi said on Thursday it earned 694 million shekels ($204 million) in the quarter, compared with 923 million a year earlier and 430 million shekels forecast in a Reuters poll of analysts.

Its shares were up 2% in midday trading in Tel Aviv, outpacing a 1.2% rise in the overall banking index.

Net interest income fell to 2.12 billion shekels from 2.47 billion a year earlier while loan loss expenses surged to 875 million shekels from 288 million a year earlier.

Barclays analyst Tavy Rosner attributed the earnings beat to very strong fee income and lower-than-forecast operating expenses.

From the outbreak of the coronavirus crisis and up to June 30, Leumi deferred 367 million shekels in current mortgage repayments.

The bank said most customers have resumed mortgage payments and only 10% of mortgage loans are still have deferred status.

Earlier this month, Leumi’s main rival Hapoalim reported net profit of 133 million shekels, down from 871 million a year earlier.

Leumi’s Tier 1 equity to risk assets ratio stood at 11.49% at the end of June, down from 11.64% a year earlier. ($1 = 3.4002 shekels) (Reporting by Tova Cohen Editing by Stevn Scheer and Jane Merriman)