(Adds details on business)
BRUSSELS Aug 8 Nationalised Franco-Belgian financial group Dexia reported a reduced net loss for the first half of 2014, as it benefited from lower funding and risk costs.
The bank, 94 percent owned by the Belgian and French states, said its net loss in the first half was 178 million euros ($238 million) before one-off items, 127 million euros less than the second half of 2013.
Dexia said that market conditions in the first half of the year were sound and it was able to build up a liquidity buffer of 9.3 billion euros, which it will need to pay back some bonds falling due in late 2014 and 2015.
The group added that while funding costs were good in the first half of the year, its business model remained vulnerable to any higher interest rates and a worsening of the credit environment.
Dexia, once the world's largest municipal lender, said it had managed to reduce its exposure to the U.S. city of Detroit, which was declared bankrupt in December, by $75 million during the second quarter.
The bank said the book value at the end of June of its lending to Detroit which is affected by the debt restructuring measures stood at $255 million, with a further $136 million unaffected. However, in July Dexia said it sold a further $55 million of Detroit's outstanding debt.
The group has become almost irrelevant as an investment but its quarterly results matter because France, Belgium and, to a lesser extent, Luxembourg. are guaranteeing its borrowings by up to 85 billion euros. ($1 = 0.7484 euros) (Reporting by Robert-Jan Bartunek; Editing by Subhranshu Sahu and Greg Mahlich)