JERUSALEM (Reuters) - Israeli banks might be allowed to resume limited dividend payments later this year after having overcome a wave of loan deferments during the coronavirus pandemic, the country’s banking regulator said. Yair Avidan, the supervisor of banks at the Bank of Israel, also said he backed banks’ moves into “digital wallets” and expects Apple Pay to enter the Israeli market this year, with similar offerings from Samsung and Google to follow later. Three of Israel’s largest banks -- Hapoalim, Leumi and Discount -- have announced plans to launch digital wallets, which allow customers to pay via mobile phones in stores. Avidan, a banking industry veteran who took over the Bank of Israel post last May, said 2020 was a tough year for banks and the economy as a whole. But he told Reuters easier regulations that allowed for lower capital requirements and businesses and households to defer loan and mortgage payments, while also continuing to lend, helped keep the economy afloat. Following the policy in force under Avidan’s predecessor, banks had to halt dividends and share buyouts in exchange for a 1% reduction in capital ratios. Avidan said although the economic environment remained uncertain, dividend resumption was on the table. “I believe in the second half of 2021, maybe will be the right time to start allowing dividends but not in the same magnitude prior to this crisis” and dependent on economic conditions, Avidan said. Prior to the COVID-19 pandemic, banks paid dividends of up to 40% of quarterly net profit. But Avidan said once dividends resumed, payouts likely would be initially capped at about 15%, which is similar to what is expected in Europe. Bank stocks rose on Avidan’s comments, with the Tel Aviv Banking Index up nearly 2%, pushing its gains to above 5.5% so far in 2021 after a 22% loss last year. Through the first nine months of 2020, profit at Israel’s five main banking groups slid to a combined 4.9 billion shekels ($1.5 billion) from 8.6 billion in the same period in 2019. At the same time, provisions for loan losses soared to 7.3 billion shekels from 1.6 billion. Still, banks have been able to maintain a ratio of equity Tier 1 capital to risk components of 10-12%. The government has backed loans and the central bank has loaned banks funds at low rates to encourage credit to small businesses. Avidan said 70-80% of customers who deferred loans have begun to repay those debts and just a “low portion” will still be in a deferral period until June, with 2-3% having financial difficulties that could have long-term effects. The central bank a month ago eased rules on mortgages aimed at lowering monthly payments, and Avidan said he was monitoring the situation to ensure banks were complying. ADVERTISEMENT Israel’s unemployment rate has topped 15% as a result of the pandemic that led to businesses to close or scale down during three lockdowns the past year, resulting in an estimated 2020 economic contraction of some 3.7%. Avidan said banks have passed a number of stress tests over the last year. “As far as we see right now, customers and banks are in good position,” he said, praising the banks’ high levels of loan loss provisions. When asked if any bank was in danger of failing, Avidan said: “Definitely not at all ... We are very sure about the resiliency of the banks.” “I am not saying there won’t be any bankruptcies or any bad debts but right now we see this in the very low single digits,” he said. “Some customers will suffer. We will try to bring it to a minimum but it’s not just upon the banks. It’s on the customers too.” Avidan said it would take an economic crisis of triple of what we are experiencing currently, with capital markets plunging and Israel facing serious geopolitical problems to harm the banking system. ($1 = 3.2479 shekels)