BELGIAN BANK KBC, the owner of Irish lenders IIB Bank and IIB Homeloans, took a bad debt charge of €42 million in the three months to June 30th on its shares in Irish Life Permanent.

The bank said the impairment charge arose from its stake of about 2 per cent in the Irish company and was considered "an exceptional, non-operating item".

KBC's bad debt charge helped drag the bank's net income for the three months to the end of June down 47 per cent to €493 million from €936 million a year earlier.

Earnings excluding one-time items dropped 42 per cent to €510 million, below analysts' forecasts.

Irish Life Permanent's share price fell 46 per cent in the second quarter as Irish financial stocks were hit by the global credit crisis and concerns about the Irish banks' exposure to the economic downturn and housing slump.

The company had a market value of €1.8 billion at the end of June, valuing KBC's 2 per cent stake at about €36.4 million.

KBC said that gains earned from the sale of part of its stake in Irish Life Permanent in 2006 had also previously been included as an exceptional, non-operating items in the bank's accounts.

The Belgian bank had not taken any impairment charge on the stake throughout 2007 or in the first three months of this year.

Shares in the Irish company have fallen 73 per cent since their peak at €22.80 in February 2007.

Loan losses at KBC more than doubled in the three-month period to €143 million, the most in more than four years, as the US subprime mortgage collapse spilled over into other credit markets.

KBC shares lost 6.5 per cent on Thursday, its steepest decline since January, after it reported its results for the first half of the year.

KBC's share price is down over 30 per cent this year. The Belgian bank only reveals financial details for IIB at the end of each year.