GROWING demand for loans and the buoyant housing market elevated pre tax profits at ACCBank to over £6 million in the first six months of the year.

The state owned bank recorded a 17 per cent increase in pre tax profits to £6.66 million from £5.67 million for the first half of 1996.

The pre tax profit increase will mean an interim dividend for the Government of over £1.29 million, a 6.25 per cent increase over 1995.

The bank's loan book increased by 13.7 per cent during the first six months and topped £1 billion for the first time. Customer deposits rose 6 per cent and now also stand at over £1 billion.

Mr John McCloskey, the bank's chief executive said the main contributor to the bank's improvement came from retail banking. The decision to increase the focus to residential mortgages was a positive one, he added. The bank claims 5 per cent of all residential mortgages in the country.

However, this also meant that the cost ratio suffered and margins remain under pressure.

"We didn't achieve as much as we hoped in cutting costs," Mr McCloskey said. "But that is still our prime focus."

Costs came down only marginally, with the cost/income ratio falling to 68.3 per cent from 68.64 per cent a year earlier.

A general decline in margins to 3.27 per cent from 3.66 per cent and the bank's decision to reposition itself in the mortgage market inhibited the drive to reduce costs, he said.

"The housing market has the finest margins of any area of business," he said. However, he added that it is the fastest expanding sector of the business. The risks in the housing market are also perceived as one of the lowest," he said.

Profits continued to be enhanced by treasury operations. Dealing profits rose sharply to £422,000 from £43,000 in the first six months of 1995. This was mainly due to activities in Government bonds.

The bank also took money out of equities with a fall of over £9 million in the amount invested in equity shares and other variable yield securities, which now stands at £20 million. At the same time around £29 million more was invested in debt securities and other fixed income securities and the total invested here now stands at £86 million.

The improvement in loans also hallowed ACC to raise less money in the inter bank market. Loans and advances to banks stood at almost £250 million from nearly £290 million at the end of 1995. However, this is still a rise from the mid point in 1995 when it stood at almost £208 million.

Mr McCloskey also said that he has not had any approaches about ACC's future from the Government. The Government is still considering its options and the banks is thought to prefer a takeover or a strategic alliance with a large European bank. The Cabinet is likely to agree a plan to recapitalise ACC in the autumn using the proceeds of the sale of TSB.

Despite the beef crisis and the fact that the bank advances 39 per cent of its loans to farmers it has cut its provision for bad and doubtful debts to £900,000 from £1.1 million.