Dutch financial-services company ING Groep NV Wednesday reported a 22% drop in second-quarter net profit, as it took a hit to cut its huge exposure to Spain in response to the worsening debt crisis in the euro zone.

ING Groep received a €10 billion government bailout in 2008. The Netherlands’ largest bank by assets said net profit came in at 1.17 billion euro ($1.45 billion), down from €1.51 billion in the same period a year ago. Earnings were squeezed by higher provisions for bad loans, which rose 78% to €541 million, mainly because of the weakening European economy.

In response to the deteriorating crisis in the euro zone, ING also said it brought down its exposure to Spain to “reduce the funding mismatch in that country.” The total exposure was cut to €34.9 billion by July from €41.1 billion at the end of the first quarter, mainly through selling covered bonds and residential-mortgage-backed securities. ING said that process led to a loss of €234 million.

“ING posted solid second-quarter results. In these uncertain times the financial strength of the company is our highest priority: Capital, liquidity and funding have all improved,” Chief Executive Jan Hommen said in a statement.

ING is considered one of the stronger players in Europe’s battered banking industry, which is groaning under a weak economy, tighter regulations and a series of scandals.

But ING, which received a €10 billion government bailout in 2008, isn’t immune to the crisis. The bank’s credit rating was cut in June, and it has postponed plans to repay the state funds to bolster its capital buffer.

Analysts also worry about ING’s exposure to Spain and the weak housing market in the Netherlands, and they warn that the turmoil in financial markets could frustrate the company’s asset-disposal plan.

ING shares closed at €5.75 Tuesday, having gained 3.5% since the start of this year.

Source: Marketwatch