* Q4 net profit 135 million shekels, vs 186 million forecast
* Bad debt provisions up 36 percent to 366 million shekels
* Shares down 3.5 percent
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JERUSALEM, March 31 (Reuters) - Israel Discount Bank, the country's third-largest bank, missed forecasts with a 12 percent fall in fourth-quarter net profit, hurt by a drop in financing income and a jump in bad debt provisions.
Discount said on Thursday it posted fourth-quarter net profit of 135 million shekels ($39 million), compared with a forecast for 186 million in a Reuters poll.
Income from financing operations before provision for doubtful debts fell to 873 million shekels from 1.22 billion. Provision for doubtful debts rose 36 percent to 366 million shekels, compared with a forecast for 225 million.
"These results are messy," Citi analyst Michael Klahr said. "Financing income is clearly being constrained by capital issues -- total assets declined for a second quarter -- and fee income generation is lacklustre, especially in an expanding economy."
Israel's economy grew an annualised 7.7 percent in the last three months of 2010. Israel's four other main banks largely capitalised on the strong economic growth.
Discount's capital adequacy ratio rose to 13.7 percent from 12.06 percent at the end of 2009. Its return on equity fell to 5.1 percent in the fourth quarter from 6.3 percent a year earlier.
Its shares were down 3.5 percent, the worst performing of Israel's banks and the steepest decliner among blue-chip stocks .
"During 2011, the group expects to complete the structural changes that were begun in 2010 and to present a comprehensive and updated strategic plan," the bank said. "We have no doubt that we will execute these changes, and return to the path of continuous improvement in our efficiency ratios, profitability and return on equity." (Reporting by Steven Scheer and Tova Cohen; Editing by Dan Lalor)