BELGIAN-OWNED KBC Bank Ireland reported a profit of €42 million for the first half of this year after setting aside €62 million for loan losses in the six-month period compared with a bad-debt charge of €55 million for all of 2008.

Non-performing loans within the bank’s €18.3 billion Irish loan book rose to 5.6 per cent in the second quarter of the year from 4.6 per cent in the first quarter.

KBC Bank Ireland chief executive John Reynolds said 26.1 per cent of the bank’s €600 million development loans were non-performing, compared with 3.6 per cent of €2.9 billion in loans to large companies and small and medium-sized enterprises (SMEs).

The bank, which has the fifth-largest mortgage book in the State, also has €10.2 billion in residential mortgages and €3.4 billion in buy-to-let mortgages. Property investment loans account for a further €1.2 billion of the book.

Mr Reynolds said the bank’s ability to generate €104 million in profits before bad debts represented “a strong performance” in what he described as a “dog-rough economic environment”.

The bad-debt charge on the Irish loan book was the equivalent of 67 basis points (0.67 of a percentage point) for the second quarter, compared with 35 basis points for the first quarter.

Mr Reynolds said the bank had not passed on all of the European Central Bank interest-rate cuts to its standard variable mortgage rate. The bank was “not planning at this point” to raise the rate following the move by Permanent TSB last month, he added.

Mr Reynolds said KBC’s new mortgage lending rate was “no more than 5 per cent” of market share, well below its traditional 9 per cent mortgage lending rate, due to a sharp fall in demand.

“The two businesses we want to grow are residential mortgages and our SME business,” he said.

Jan Vanhevel, chief executive of KBC Bank in Belgium, said that, while economic conditions were worsening in Ireland, some 86 per cent of the bank’s Irish loans were considered low or medium risk.

The bank noted the credit losses in its Irish unit, saying Ireland remained an area of attention.

KBC Bank in Belgium reported a net profit of €409 million, excluding one-off items, in the second quarter, following three consecutive quarterly losses.

KBC, which has received €7 billion in Belgian government cash, was boosted by a €1.3 billion mark-up of its loan portfolio, strong trading income and tight cost control. The results beat forecasts and its shares rose as much as 23.8 per cent to an eight-week high.