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Bank Leumi's management had only one reason to be happy yesterday with the fact that rival Bank Hapoalim managed to end the first nine months of the year with much higher profitability: One of Leumi's biggest borrowers is the Dankner family, among the controlling shareholders in Hapoalim.

As long as Hapoalim stays reasonably profitable, the chances of a dividend increase, and with them, the Dankner's ability to service the loans they took from Galia Maor.

But in every other parameter, the two banks' profit-loss reports indicate a widening gap in their performances. Bank Hapoalim reports NIS 312 million in profits in Q3, bringing its first nine-month total to NIS 757 million. In contrast, Leumi can tell of just NIS 115 million in profits in Q3, and NIS 421 million to date this year.

The differences in results were impacted by Hapoalim's particularly-high profits from finance operations in the quarter (albeit mostly for technical reasons like inflation linkage and higher lending rates), by Leumi's much larger provisions for doubtful debt, and by Hapoalim's greater operating revenue.

Leumi is still paying the price for losing credit card company Visa CAL to Israel Discount Bank, and its restructuring still involves major expenses (a NIS 10 million charge in the first nine months). In contrast, Hapoalim is enjoying stable revenues and profitability, as it suffered no shocks in the credit card sector.

There is another parameter in which the state of Hapoalim is better than that of Leumi, although still nothing to write home about - the volume of non-income bearing debts. This is the worst of the various forms of problematic debt; it describes borrowers who have simply not even paid the bank interest payments for several months.

Leumi has NIS 4.4 billion in non-income bearing debts - up from NIS 2.5 billion at the end of 2001. One major contributor to the item is hotelier David Teig, who isn't paying interest on loans for the construction of Tel Aviv's David Intercontinental and the Dead Sea Hyatt. Another contributor is Gad Zeevi, whose loans have been transferred from the "under special supervision" column to plain old non-income bearing.

Hapoalim's situation is not as bad, although not encouraging. The bank's non-income bearing debts have grown since the beginning of the year to NIS 3.4 billion; the institution's special supervision and temporary arrears categories have also grown; and its total problematic debt is up 22.7 percent since the beginning of the year, to NIS 21.5 billion. Leumi's total problematic debt is up 1.2 percent, to NIS 18.7 billion.

Both banks continue to see the importance of households to profitability and the stability of that enormous source of revenue. Retail banking turned a NIS 352 million profit for Leumi, and if we throw in the mortgage sector, then the total household sector's contribution to Leumi's bottom line is NIS 421 million.

Hapoalim took in NIS 467 million in the first nine months on retail banking.

The CEO of one of the banks, in seeking to describe the economic situation a few months ago, said that the most encouraging fact was that there had been no substantial damage to the state of private customers. As long as the little guy consumes, pays debts and does business, the economic crisis is limited. But since then, the situations of many big borrowers have gone further downhill, and without an imminent economic uptick, the major banks' dependence on households could prove limited.