AMSTERDAM, Aug 22 (Reuters) - An improving economy and a recovering housing market helped state-owned Dutch bank ABN AMRO to increase net profit 47 percent in the second quarter, as the volume of impaired loans in the bank's credit portfolio fell.
Underlying net profit at the bank rose to 322 million euros, according to results published on Friday, while underlying loan impairments fell by 164 million euros to 342 million.
"The increase (in profit) was driven by lower impairment charges, especially in the SME segment and in residential mortgages," said Chief Executive Gerrit Zalm, a former Dutch finance minister.
He said the bank was well on the way toward achieving the financial targets it had set for itself for 2017. The bank has previously said progress on these targets is a precondition for recommending to the government that it be privatised again.
Over the first half of 2014, the bank had earned a net profit of 700 million euros, corresponding to a return on equity of 10.1 percent - a significant increase from the 7.6 percent return achieved in the same period of 2013, and meeting the 2017 target of between 9 and 12 percent.
Net interest income, the large majority of the bank's income, was up 6 percent in the second quarter compared to the same quarter in 2013, while the underlying cost to income ratio stood at 61 percent, just short of the 2017 goal.
The Dutch government paid out nearly 40 billion euros to rescue the domestic financial sector during the 2008 financial crisis, when it provided capital injections for banking and insurance group ING, insurer Aegon and financial group SNS Reaal, as well as nationalising ABN AMRO.
The Dutch government aims to reprivatise ABN AMRO, but has not set a date for a float.
The bank said geopolitical developments, particularly in Russia and Ukraine, might pose a risk to future performance by putting the economy under pressure. The bank said it had limited direct exposure to Russia and "negligible" exposure to Ukraine.
Reporting by Thomas Escritt; Editing by Miral Fahmy