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By the end of this year, problem debt at Israel's five biggest banks will have more than doubled compared with the third quarter of 2008, to NIS 79 million, predict IBI bank analyst Lior Rabinovitz and chief equity analyst Yuval Zehira.

Rabinovitz and Zehira based their assessment on a model that examines the sectors to which the banks give loans; for example, agricultural, construction, tourism and utilities.

In each financial statement, the banks report in detail on their provisions for doubtful debt. Doubtful debt boils down to loans a bank thinks it may not get back, even if at the time of the financial statement it has no concrete grounds for its downbeat assessment.

The mildest form of doubtful debt is "debt under special supervision." This covers companies that aren't actually lagging behind their repayment schedule, but the bank suspects they will in the future, so it keeps a beady eye on them.

Other categories include "temporarily in arrears," debts marked for refinancing (change to the repayment schedule because the borrower isn't meeting the original one), debts already rescheduled - and the worst, non-performing debts, on which the bank isn't even collecting interest.

IBI concluded that Bank Hapoalim will be adding NIS 11.7 billion to its doubtful-debt provisioning by year-end, to NIS 26.7 billion, compared with NIS 15 billion at present. (All the figures are from the end of the third quarter of 2008).

Second is Bank Leumi, which Rabinovitz and Zehira estimate will be provisioning NIS 27 billion by year-end, after increasing its dodgy-loan books by NIS 11 billion.

Third is Discount Bank, which Rabinovitz and Zehira project will increase doubtful-debt provisioning by NIS 4.4 billion to NIS 12.2 billion.

First International Bank (Beinleumi) is next with a NIS 2.2 billion increase to NIS 5.5 billion, while at Mizrahi-Tefahot, Rabinovitz and Zehira sees an increase of NIS 2.3 billion to NIS 7.8 billion.

Bank Hapoalim will be publishing its fourth-quarter statement on Thursday, and Rabinovitz and Zehira suspect it will surprise on the downside. Even so, Rabinovitz repeated a Buy rating for the bank and a 12-month target price of NIS 12.60.

Hapoalim has already released a profit warning for the last quarter, predicting a quarter-billion loss and a negative return on equity of 5%.

Rabinovitz projects that the loss will be a quarter-billion shekels greater, possibly as much as NIS 366 million. If so, for the full-year 2008, Hapoalim will have lost NIS 590 million.

"We believe Bank Hapoalim had reckoned on provisioning of around 1.3%, but this could spike higher than 1.5% in the fourth quarter of 2008," Rabinovitz wrote. "This, we feel, represents the outlook for Bank Hapoalim in 2009."