Aug 28 (Reuters) - Polish corporate lender Bank Handlowy

posted a smaller-than-expected second-quarter profit

decline, but a one-off loss on the sale of its retail arm

weighed on its performance.

BY THE NUMBERS

Profit in the second quarter at the Polish division of

Citigroup ( C/PN ) more than halved to 165.6 million zlotys ($45.5

million), while its net interest income fell 5% to 530.1 million

zlotys.

Fees grew slightly to 106.5 million zlotys.

WHY IT'S IMPORTANT

Bank Handlowy is targeting a shift to institutional banking

and diversifying its revenue streams from 2007 onward, as it

aims to finance the country's key investments in defence and

energy sectors.

New loans to institutional clients rose by 36% to 3.9

billion zlotys in the first half of the year.

CONTEXT

Despite having faced multiple headwinds from legal

provisions for Swiss franc mortgages, mortgage moratoria,

falling interest rates, and most recently looming taxes

increase, the majority of Polish banks beat second-quarter

estimates.

The country's lenders are still enjoying relatively high

interest rates with the deposit rate standing at 4.50%, much

higher than the euro zone's 2%, helping the banks resist

pressure on their margins.

Additionally, most of the Polish banks have forecast a drop

in the long-running legal risk associated with disputes

regarding Swiss franc mortgages.

($1 = 3.6405 zlotys)