Aug. 5 (Bloomberg) -- Allied Irish Banks Plc, Ireland’s second-biggest lender by market value, reported a first-half loss compared with a year-earlier profit after a surge in bad debt provisions.

The net loss in the six months to June 30 of 829 million euros ($1.19 billion), or 43.2 cents a share, compared with a profit of 1.04 billion euros, or 114 cents a year earlier, Dublin-based Allied Irish said in a statement today. The pretax loss of 872 million euros beat the 925-million euros median estimate of three analysts surveyed by Bloomberg.

Allied Irish is facing surging losses on loans to real- estate developers following the collapse of Ireland’s property market. The company’s domestic unit posted a 1.5 billion-euro loss in the first half, with 11 percent of loans impaired, as the economy slid into its worst-ever recession.

The bank maintained an earlier forecast of 4.3 billion euros in loan losses for this year, Chief Financial Officer John O’Donnell said in a telephone interview today.

“With the way the economy is going, we are not changing that but the risk is to the downside,” he said, adding he couldn’t give any guidance on full-year earnings because markets are too volatile.

Ireland’s Bad Bank

The bank’s impairment charge surged to 2.37 billion euros, or 3.6 percent of average customer loans, from 137 million euros in the year-earlier period. A quarter of the loan book is either impaired or vulnerable to being classed as impaired, it said.

Lloyds Banking Group Plc today said impaired loans at its Irish unit rose to 14 percent of total loans, up from 5.7 percent a year ago. The bank set aside 1.21 billion euros to cover losses at the unit.

Ireland’s government is creating a so-called bad bank to purge lenders of souring real-estate loans. The agency plans to purchase the loans, which have a current face value of 90 billion euros, at a discount as property prices slump.

Allied Irish will transfer between 15 billion and 25 billion euros of loans to the National Asset Management Agency, O’Donnell said. He couldn’t say if the lender will need new capital until after the agency is set up later this year.

The bad bank plan is “something which will work very well,” Chris McGale, head of EU equities at Pali International, said in an interview with Bloomberg Television today, adding he owns shares in Allied Irish rival Bank of Ireland Plc. “Irish banks look very good value.”

Allied Irish rose 8.4 percent to 1.86 euros in Dublin. The shares have lost 78 percent of their value over the last 12 months. Bank of Ireland has dropped 68 percent over the same period.

“Although management declined to give any operating profit guidance, it acknowledged that operating profits are running ahead of earlier stress scenario expectations,” analysts at securities firm Davy, including Emer Lang, wrote in a research note today.

To contact the reporter on this story: Ian Guider in Dublin at iguider@bloomberg.net.

Last Updated: August 5, 2009 12:26 EDT