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By Pawel Kozlowski

WARSAW, July 16 (Reuters) - Mid-sized Polish bank Millennium said on Friday its second-quarter net profit surged to 92 million zlotys ($25.7 million) from nearly four million in the same period of 2003, thanks mainly to one-off gains. Chief Executive Boguslaw Kott said the lender, half-owned by Portugal's Banco Comercial Portugues (BCP) , booked 112 million zlotys of extraordinary net income from the sale of its consumer loan portfolio to Spain's Santander Group .

Kott declined to say whether the bank would have had a net loss without the extraordinary items.

But he did say the bottom line suffered from a 50-million-zloty provision for potential future risk linked to changes in accounting standards next year.

"We didn't have to create this reserve. We made it after consultation with our auditor, just to protect ourselves from potential risks should our asset quality deteriorate after changes in reporting standards," Kott told a news conference.

From the start of 2005, all Polish listed companies will have to report financial results according to International Accounting Standards, which differ from Polish standards in their treatment of bad debt and the creation of risk provisions.

Millennium, seen as a prime candidate for consolidation in the fragmented Polish market, is the first major Warsaw-listed bank to report its second-quarter results. All listed companies are due to report by mid-August.

The bank's first-half net profit reached 112 million zlotys, up from nearly 34 million in the first six months of 2003.

In past years, the bank has managed to prop up its revenue from banking operations by selling non-core assets, including disposals of its stakes in pension fund Ego and card clearance centre PolCard.

Kott said that thanks to rapidly growing mortgage loans, credit card business and mutual funds the bank saw its first-half interest income rise 14 percent to 301 million zlotys, while net revenue from fees rose 16 percent to 120 million.

But its cost to income ratio, an efficiency measure, was 86 percent, excluding one-off gains, far above those of its domestic peers' as weak revenue barely covered operating costs.

On Friday, Millennium shares closed up 1.2 percent at 2.63 zlotys, near their lowest level since February, valuing the bank at $630 million.

Polish banks' results are expected to bounce back strongly in 2004 after a more than two-year slump as an economic recovery helps improve asset quality and boost loan growth. ((Reporting by Pawel Kozlowski, editing by Tom Pfeiffer; pawel.kozlowski@reuters.com; Reuters Messaging: pawel.kozlowski.reuters.com@reuters.net; +48 22 653 9717)) ($1=3.577 Zloty)