UPDATE 2-Kazakh Alliance bank reports lower H1 net profit

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ALMATY, Oct 8 (Reuters) - Kazakhstan's fourth-biggest bank, Alliance (ALLBq.L), reported a slump in net profit on Wednesday, citing higher provisions for loan losses.

Alliance, which like other banks in Central Asia's biggest economy has been hit hard by the global credit crisis, said its net profit fell to $84.7 million in the first half from $159 million in the same period last year.

"The decrease in profit was due to additional provisions being created for losses on loans and other assets," it said in a statement.

Alliance Chief Executive Erik Sultankulov said the bank maintained its full-year profit outlook at $150 million.

"I think this target is realistic," Sultankulov told reporters.

Alliance said its loan book shrank 12 percent in the first half of 2008, adding that it had created various reserves against losses for a total of $676 million.

It said non-performing loans jumped to 7.8 percent on July 1 from 3.8 percent in early January.

"We plan to have loan loss reserves of about 10 percent by the end of this year to cover non-performing loans, which we see at 9 percent by that time," Sultankulov said.

He said Alliance's key shareholder, SAFC, had spent about $5 million on a share buyout announced last month to support the share price, which had plunged after a wave of high-profile bankruptcies in the financial sector.

The liquidity squeeze has raised concerns about Kazakh banks' ability to refinance debt and has stalled broader economic growth in Central Asia's biggest economy.

To safeguard the sector from instability, the government has announced a host of measures, including a plan to set up a $6 billion distressed asset fund to buy up bad loans from banks. (Writing by Olzhas Auyezov)