JERUSALEM, Aug 17 (Reuters) - First International Bank of Israel (FIBI) beat second-quarter expectations on Tuesday, reporting a 132% jump in profit on rising revenue and a reversal of COVID-19 loan loss provisions.

Following on the heels of most of its domestic peers, Israel's fifth-largest bank by assets also said it would distribute a special dividend.

Net profit totalled 390 million shekels in April-June, FIBI said, up from 168 million shekels a year earlier and well above a Reuters poll forecast for 331 million shekels.

After setting aside 165 million shekels for bad loan provisions in the second quarter of last year, the bank said it reversed 128 million shekels of that as income in April-June this year. This followed a trend in the local banking industry after a successful vaccination campaign enabled Israel to begin to emerge from lockdowns and the economy picked up.

Net interest income rose to 710 million shekels from 660 million shekels, the bank said.

FIBI, like other banks in Israel, allowed customers to defer loans due to the COVID-19 pandemic. The ratio of deferred debts to total loans at the end of June amounted to 0.2%, versus 1.9% at the end of 2020. Loans to customers grew 6.6% over the past year.

The bank noted that while COVID-19 infections in Israel have started to spike, it was "well prepared for the various scenarios monitoring the different risks" and was following guidelines from Israel's banking regulator and health officials.

"The bank is taking measures to ensure business continuity," it said.

The bank's Tier 1 capital ratio rose to 11.67% from 10.71% a year ago.

FIBI said it would pay a 225 million shekel dividend, representing 30% of 2020 net profit. Larger rivals Hapoalim , Leumi and Mizrahi-Tefahot have also announced special dividends.

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.

FIBI said its dividend distribution policy of paying up to 50% of net profit remains unchanged and would be examined in accordance with developments and regulation.

($1 = 3.2224 shekels) (Reporting by Steven Scheer; Editing by Susan Fenton)