November 21, 2017 / 8:45 AM / a year ago

UPDATE 1-Israel's Bank Leumi Q3 profit beats estimates, raises dividend

* 820 mln shekels net tops 686 mln forecast

* Down from 919 mln year earlier

* Doubles dividend policy to 40 pct of net profit (Adds details, analyst comments, share reaction)

By Tova Cohen

TEL AVIV, Nov 21 (Reuters) - Bank Leumi, Israel’s second-largest lender, beat third-quarter net profit forecasts on Tuesday and doubled its quarterly dividend payout rate to 40 percent of profit.

Leumi earned 820 million shekels ($233 million) in the quarter, topping the 686 million forecast by analysts in a Reuters poll.

Earnings fell from 919 million shekels a year earlier, but that had been boosted by a 235 million insurance reimbursement relating to a fine paid to U.S. authorities in a tax investigation.

The bank raised its quarterly dividend payout to 40 percent of net profit and said it would distribute 328 million shekels for the third quarter.

In March, Leumi adopted a dividend policy for the first time in six years, and had set a payout ratio of 20 percent.

“We had been arguing for over six months that our model for Leumi easily supports a 40 percent payout in the context of the bank’s careful growth path,” Barclays analyst Tavy Rosner said.

Net interest income fell to 1.918 billion shekels from 1.97 billion hurt by a negative consumer price index.

Credit loss expenses fell to 3 million shekels from 106 million a year earlier.

Rosner reiterated his “overweight” rating for Leumi, his top pick among the Israeli banks he covers. He said its high quality loan portfolio has allowed the bank to post the lowest level of loan loss provisions in the sector.

“After years of careful capital build we see the bank as well positioned to return to accelerated growth,” Rosner said. “We see the cost-cutting potential as highest at Leumi in the coming years, this should translate into the largest decrease in salary and related costs.”

Leumi’s shares were up 1.1 percent to 19.13 shekels in early trade in Tel Aviv.

The bank’s tier 1 ratio, which measures equity capital as a proportion of total risk-weighted assets, rose to 11.35 percent at the end of September from 11.15 percent at the end of 2016.

Leumi’s top rival Hapoalim will report its quarterly results next week.

$1 = 3.5187 shekels Editing by Jason Neely

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