* H1 net profit 1.785 billion lira
* Assets increase 12 percent
(Adds detail, background)
ANKARA, Aug 12 (Reuters) - Turkey's state-owned Ziraat Bank posted a 61 percent rise in first-half net profit to 1.785 billion Turkish lira ($1.18 billion), as assets rose and it benefited from interest rate cuts.
Assets have increased 12 percent from the end of 2008 to 117 billion lira and credits rose, it said on Wednesday.
Turkish lenders have boosted earnings this year by keeping lending rates high while reducing what they pay on deposits following the central bank's nine months of consecutive interest-rate cuts.
The central bank has reduced its benchmark borrowing rate by 8.5 percentage points since November in an effort to stimulate the economy, which has contracted by a record amount in 2009.
Defaults on loans have risen in Turkey amid the economic slowdown, but privately owned banks such as Akbank and Garanti have managed to remain profitable because regulations kept the kind of toxic assets that undermined European peers off their books.
The index of banking stocks has risen almost 80 percent this year. (Editing by Dan Lalor)