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Thursday, 29 August, 2002, 11:50 GMT 12:50 UK
Recession dogs top Israeli banks
Tourists at the Dead Sea
The tourism industry is suffering from the unrest
Israel's two biggest banks have blamed growing levels of loan default, prompted by the country's long-running recession, for a slide in profits.

Bank Hapoalim, Israel's top-ranking bank, said its earnings had been hit by the decision to raise its provision for doubtful debts by 386m shekels (53.5m; $82.6m).

Because of the recession, borrowers find it hard to repay their loans

Ronit Goodman, Nessuah Zannex Securities.
The statement came the day after second-ranking Bank Leumi, reporting an 80% slump in profits, said its provision had risen to 329m shekels in the second quarter, up from 190m shekels a year before.

The strengthening of the banks' loan safety net comes amid torrid economic conditions in Israel, hit by a double whammy of tech sector slowdown and security fears.

Recession continues

In the 1990s, Israel relied for much of its growth on tech firms, which have struggled amid the sector's global slowdown over the last two years.

Bank Leumi, which has a high proportion of telecoms customers, is seen as particularly exposed to the sector's plight.

Meanwhile, continuing Israel-Palestinian unrest has hit levels of inward investment, construction and tourism.

Such difficulties fuelled a contraction of 0.9% in Israel's economy last year.

This year, economic output is set to slide by 1.0-1.5%.

'No end in sight'

Ronit Goodman, banking analyst at Nessuah Zannex Securities, said: "The banking system is a mirror of the economy.

"Because of the recession, borrowers find it hard to repay their loans."

She forecast the loans crisis would continue in "coming quarters".

"You can't really see the end at the moment," she said.

Second quarter profits at Hapoalim were, at 223m shekels, 30.5% lower than a year before.

Bank Leumi's profits fell to 77m shekels compared with 382m the year before, and were well below analysts' expectations.

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