* Q2 net 1.42 billion shekels vs f'cast 1.03 billion

* Net interest income 2.51 billion shekels vs year-ago 2.17 bln

* Shares down 1.5%

JERUSALEM, Aug 16 (Reuters) - Bank Hapoalim reported a higher-than-expected jump in quarterly net profit, helped by a continued reversal of provisions to protect against loan defaults during the pandemic.

Hapoalim, one of Israel's two largest lenders, said on Monday it earned 1.42 billion shekels ($442 million) in the April-June period, compared with a 133 million a year before and with an average forecast of 1.03 billion in a Reuters poll of analysts.

Profit was boosted by reporting income for credit losses of 647 million shekels, up from 508 million in the first quarter when a successful vaccination campaign allowed Israel to begin to emerge from lockdowns, and versus second-quarter 2020 credit loss expenses of 1.13 billion.

"The income from credit losses in both quarters was supported by an improvement in economic indicators, which led to a reduction of the collective provision for credit losses, along with an individual allowance recovery," Hapoalim said.

Driven by credit portfolio growth and an increase in inflation, net interest income rose to 2.51 billion shekels from 2.17 billion a year earlier.

Corporate credit in the quarter rose 14.4% over the past year, while mortgage loans grew 11.8% given high demand in the housing market.

Hapoalim said the balance of loans in payment deferral had dropped sharply to 3.5 billion shekels, or 1.1% of total credit to the public. It had allowed deferrals at the start of the pandemic last year.

The bank this week will pay a special divided of 617 million shekels, or about 30% of 2020 net profit. Israel's banking regulator had banned regular dividends in March 2020 through this September, but allowed one-off payouts of up to 30% of net profit. It has not yet decided whether to extend its dividend controls.

Earlier this month, Hapoalim's chief financial officer told Reuters the bank was ready to resume regular quarterly dividends of at least 40% once it receives the green light.

Hapoalim's Tier 1 capital ratio rose to 11.61% from 11.23% a year earlier. Its shares were 1.5% lower in morning trade.

Last week, main rival Leumi reported a huge jump in second-quarter net profit.

($1 = 3.2150 shekels) (Reporting by Steven Scheer Editing by Shounak Dasgupta and David Holmes)