Belgian financial group KBC's profit fell by less than expected in the second quarter as higher net interest income and increased loans and deposits partly made up for a hit from a new law on retail loans in Hungary.

KBC still owes €2 billion of the €7 billion state aid it received at the height of the credit crisis.

It said today that underlying net profit dropped 41% in the second quarter to €287m. That was above the €241m average expectation in a Reuters poll of seven analysts. 

KBC said that the results of its main Belgium and Czech Republic business units was in line with the average of the preceding four quarters. 

In its international business unit, the net loss of €176m was slightly better than the average of the past year, with the positive results in Bulgaria and Slovakia wiped out by Hungary and Ireland. 

The group said that a €231m provision to cover the consequences of a new Hungarian act on retail loans also hit its results in the three months from April to June. 

A Hungarian court ruled in June that banks had previously overcharged customers for some loans. A law drafted by Prime Minister Viktor Orban's government and passed last month will force banks to repay customers for unfair charges and interest rate hikes on loans. That is likely to result in big losses for Hungary's mostly foreign-owned banks.

The European Central Bank has warned this could hurt financial stability and said that a planned conversion of foreign exchange loans into Hungarian forints could pose risks. 

KBC Bank Ireland reduces loan loss provisions

KBC Bank Ireland today said that it took a €62m loan loss provision on its €15 billion book of mostly residential mortgages. This compared to impairment costs of €88m the same time last year.

It reported a loss of €34m after tax and impairment costs for the second quarter, down marginally from a loss of €38m the same time in 2013.

It said it now saw full-year loan loss provisions for Ireland at the high end of it previous guidance of €150-200m. KBC has said it hopes its loss-making Irish unit will become profitable by 2016.

The bank said it added over 20,000 customer accounts in the first half of the year and opened three new retail hubs in Dublin during the six month period. Another two are planned for the third quarter of the year. It also hired 100 new staff in the six month period, with another 80 new positions planned for the end of the year. 

The bank today reported a "substantial" increase in the number of mortgages approved in the second quarter, as the housing market recovers here. 

"The financial results and impairments are in line with our expectations and we remain on track to return to profitability by 2016," commented Wim Verbraeken, CEO of KBC Bank Ireland. 

He said the bank advanced its strategic objectives through the delivery of an enhanced mobile banking offering, the opening of new hubs in Dublin and the launch of new products including a new credit card.

"With the continued strength and support of our shareholder KBC Group and our focus on responsive customer service and innovation, we are well positioned to acquire new customers, providing them with a compelling retail banking offering," he added.

The bank employs over 900 people in Ireland with retail banking hubs in Dublin, Cork, Limerick and Galway.