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Foreign residents withdrew $700 million in foreign currency from local banks between June 2001 and June 2002, according to figures released by the Bank of Israel yesterday.

Between 1990 and 2001, the amount of money in foreign resident accounts grew by an average of $1.1 billion a year. Of this, 80 percent was deposited by individuals and the rest by privately-held non-Israeli companies.

The central bank noted that foreign resident deposits serve as a key source of foreign currency for the commercial banks, which use it primarily to extend foreign currency-denominated credit to Israelis. But despite the fall in foreign resident deposits, the bank said, local banks managed to meet the increased demand for foreign currency in the first six months of 2002 by withdrawing funds from their deposits overseas and by selling bonds from their investment portfolios.

The central bank cited several reasons for the spurt of withdrawals: the geopolitical situation in Israel; the fall in international interest rates on short-term deposits, from 6 percent to 2 percent a year, which encouraged investment in low-risk alternatives such as bonds; Israel's enactment of legislation against money laundering; and some changes in the profile of investors - the original depositors are being replaced by their heirs, who have different considerations.