Lippo Bank, the nation's tenth largest lender by assets, which is about to be merged with Bank CIMB Niaga, posted a 60 percent decline in net profits during the first half of the year on lower investment proceeds from government bonds.

Profits after tax and provisions for losses dropped to Rp 150 billion (US$16.4 million) in the first six months of the year from Rp 375 billion in the same period of last year.

"The primary driver for the lower performance was due to 'mark to market' losses incurred on the back of the market volatility in the fixed income portfolio, which is mainly in government bonds," said the bank in a statement over the weekend.

During the period the bank recorded net interest income of Rp 978.8 billion, up slightly by 6 percent from Rp 922.6 billion.

Treasury director Gottfried Tampubolon said the bank faced a challenging first semester as the market was still suffering from the United States subprime mortgage crisis, aggravated by the high inflationary environment due to rising energy prices.

The bank also experienced a tightened net interest margin in the first half of the year as interest spreads between loans and deposits narrowed over the course of the past 12 months due to higher interest rates and stiffer competition.

Despite the lower profits, the bank managed to book a 61 percent jump in loan disbursements to Rp 24.5 trillion on a consolidated basis, for the period ended 30 June 2008.

The loan portfolio was made up of 40 percent commercial and small and medium businesses, 31 percent corporates and 29 percent consumer lending.

Malaysia's investment group Khazanah National Berhad has a 93.6 percent stake in Lippo.

The group is scheduled to merge Lippo with Bank CIMB Niaga, the country's sixth largest bank, in October this year, under the name of CIMB Niaga.

Khazanah has 20.2 percent stake in Malaysia's CIMB, which controls a 63.4 percent stake in CIMB Niaga.

After the merger, the Lippo brand will just become part of the history of the country's banking sector. Lippo Bank was founded by the Riady family.

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