UPDATE 1-Israel's Bank Leumi bullish on further 2021 profits

(Adds details, CFO/analyst comments)

JERUSALEM, May 27 (Reuters) - Bank Leumi, Israel’s largest lender, reported a steep jump in quarterly net profit and expects strong profitability for the rest of 2021 as the economy continues to rebound from the coronavirus pandemic.

Leumi began to release some of the nearly 2 billion shekels ($616 million) it set aside in 2020 to protect against loan defaults, posting income of 212 million shekels in the January-March period after provisions of 860 million a year earlier.

Chief financial officer Omer Ziv said he anticipated further releases in the coming quarters.

“The big question is what will happen when the stimulus will end,” Ziv said, referring to government aid to those out of work and easier corporate loan terms. “The release in the collective provision was very small. We decided to be more conservative.”

Ziv pointed to strong credit growth of 4% in the quarter as also bolstering profitability this year, while investment arm Leumi Partners will book a 90 million shekel gain in the second quarter from the sale of shares in Retailors Ltd.

“There are other investments this year that we will consider to sell,” Ziv told Reuters.

Leumi said it earned 1.34 billion shekels ($413 million) in the first quarter, above a forecast of 872 million in a Reuters poll of analysts and after a 232 million loss last year. Net interest income rose to 8.3% to 2.35 billion shekels.

Its shares rose 1.7% as the broader Tel Aviv market dipped.

“Leumi is actively using its excess capital position to grow its loan book at a high pace,” said Barclays analyst Tavy Rosner, anticipating sustainable bottom line growth.

Ziv expects Israel’s banking regulator to allow a resumption of dividends in September.

Leumi’s Tier 1 capital ratio rose to 11.73% from 10.84% at the end of March 2020.

Rival Hapoalim this month reported a sharp rise in profit, while posting large income in its loan loss provision. ($1 = 3.2470 shekels) (Reporting by Steven Scheer Editing by Ari Rabinovitch and Elaine Hardcastle)