Bank Hapoalim's Half Year Net Profit Rose 47.4%.

Business Editors

TEL AVIV, Israel--(BUSINESS WIRE)--Aug. 28, 2003

Bank Hapoalim's (LSE:BKHD) (TASE:POLI) financial statements for the first half of 2003 showed a continued increase in profitability.

Net profit for January to June 2003 rose 47.4% to $150.7 million, compared to $102.3 million in the first half of 2002. Net profit for the second quarter of 2003 was $81.9 million, an increase of 59.0% over the same quarter last year.

Net return on equity was 10.1%, compared with 6.8% for the first half of 2002 and 2.7% for the whole of 2002.

Shareholders' equity for the Group was $3.3 billion as of June 30, 2003, an increase of 6.9% over the end of 2002.

Total consolidated assets of the Bank amounted to $59.8 billion. Credit granted to the general public was $42.3 billion, while deposits from the public amounted to $47.1 billion.

The increase in the Bank's profit in the first half of 2003 resulted mainly from a $186.0 million increase in profit from financing activities before provision for doubtful debts, a $13.0 million increase in operating and other income, and a $12.8 million increase in the share in the net profits of equity-basis investee companies.

Offsetting these factors were a $103.0 million increase in the provision for doubtful debts, a $5.1 million increase in operating and other expenses, a $41.0 million increase in the provision for taxes on operating profits, a $10.9 million change in minority interest in the results of consolidated companies and a $6.0 million cumulative effect of the change in accounting methods concerning derivative instruments and hedging activities.

Profit from financing activities before provision for doubtful debts totaled $796.6 million in the first half of 2003, an increase of 30.5% over the same period last year. The growth resulted mainly from an increase in the market value of bonds, the difference between the index "for the month" and the "known" index, and a 1.3% growth in the volume of financing activity.

The provision for doubtful debts totaled $270.4 million, compared with $167.4 million for the same period in 2002, an increase of 61.5%.

The specific provision for doubtful debts totaled $259.0 million, compared with $177.6 million for the first half of 2002, an increase of 45.8%. The growth in the specific provision derived from the continuing recession in the Israeli economy, the security situation, the continued decline in borrowers' repayment ability and the erosion of collateral in different sectors of the economy.

Most of the growth in the provision for doubtful debts derived from the corporate segment, in which the provision totaled $186.0 million, compared with $101.8 million in the first half of 2002, an increase of 82.7%. The provision for doubtful debts in the retail segment increased 75.0% to total $39.0 million, compared with $22.3 million in the first half of 2002.

Operating and other income totaled $427.4 million compared with $414.4 million in the same period last year, an increase of 3.1%. Operating and other expenses from January to June 2003 totaled $656.5 million, an increase of 0.8% over the same period last year.

The operational coverage ratio, measuring operating and other expenses by operating and other income (excluding costs of early retirement programs) reached 66.4% in the first half of 2003, compared with 64.3% in the first half in 2002 and 66.7% for the whole of 2002.

The ratio of expenses to income, (calculated as the ratio of operating and other expenses, excluding costs of early retirement programs, to profit from financing activities before provision for doubtful debts and operating and other income), improved to reach 53.6% for the first half of 2003, compared with 63.6% in the first quarter of 2002, and 59.3% in the whole of 2002.

The Bank's share in the net operating results of equity-basis investee companies after taxes, totaled $8.6 million, compared with a loss of $4.2 million in the first half of 2002.

Banking subsidiaries in Israel contributed $22.0 million, compared with $9.0 million in the first half of 2002. Most of the contribution to profit, $15.3 million, was derived from Bank Mishkan.

Subsidiaries abroad ended the first half of 2003 with a profit of $7.4 million compared with a loss of $4.2 million in the first half of 2002. The Signature Group ended the first half of 2003 with a net profit of $1 million, compared with a loss of $9 million in the first half of 2002.

The full financial statements for the first six months of 2003 are available upon request, and can be accessed on the Bank's Internet site www.bankhapoalim.co.il.