NET PROFIT at Dutch bank ABN Amro fell 36 per cent in the second quarter compared with the first quarter, as the stagnating Dutch economy and falling property market led to a near doubling in impairment charges.

ABN Amro, wholly owned by the Dutch state since it was rescued during the financial crisis, said it expected profit to drop further in the second half of 2012 due to rising bankruptcies and the introduction of a new banking tax.

Overall for the first half of 2012, the bank’s operating income fell to €3.8 billion, down 7 per cent compared with the same period last year. Net profits in the first half were down 14 per cent year on year to €743 million.

The decline in profit is further testimony of the weakness in the Dutch economy, which barely grew in the first half after shrinking in the second half of 2011.

ABN Amro’s impairments rose to €554 million in the first half, up 79 per cent over the same period last year. This rise accelerated in the second quarter, nearly doubling to €367 million, from €187 million in the first quarter.

Impairments on loans came largely in construction, where many smaller Dutch firms have gone bankrupt in recent months, and commercial real estate, where values have declined dramatically.

Residential real estate values have also been falling rapidly after one of the biggest real estate rises in Europe over the past decade. Housing prices were down 8 per cent from a year earlier in July.

But ABN Amro said its level of impaired residential mortgages had not risen in the first half of 2011, remaining at 0.9 per cent, even though one in five of its mortgage clients currently owe more than their houses are worth.

Gerrit Zalm, chief executive, said mortgage impairments were not likely to rise sharply unless households are unable to pay mortgages because of a further rise in unemployment, which has gone up from 5 per cent to 6.5 per cent over the past year.

ABN Amro’s core tier one capital ratio increased to 11.9 per cent following a settlement agreement in June with Belgian insurer Ageas, which allowed the bank to take a net €1.6 billion in liabilities off its balance sheet.

Mr Zalm pointed to the bank’s success in cutting costs, with the underlying cost to income ratio falling to 59 per cent, from 63 per cent a year earlier. But the bank said the new Dutch banking tax, which comes into effect on October 1st, would knock roughly €100 million off profits in the second half. – (Copyright The Financial Times Limited 2012)