Bank of Ireland’s underlying operating profits more than halved last year because of challenging business conditions in its core Irish and UK markets. However, the bank said on Monday it was making significant progress in restructuring its operations, reporting a big drop in pre-tax losses, which fell to €190m ($251m) in the year to the end of December 2011, compared with €950m in 2010. “We have made substantial progress on de-risking, deleveraging and strengthening the group’s balance sheet,” said Richie Boucher, Bank of Ireland’s chief executive. Bank of Ireland was the only Irish-owned bank to escape state control following Ireland’s banking crisis. In July 2011, it attracted private investment from several North American investors and is refocusing its operations on its core markets by shrinking its balance sheet and cutting costs. The bank’s underlying operating profit, which excludes impairment charges on its financial assets and sales of toxic loans to Nama, Ireland’s bad bank, fell to €411m last year, down from €1.01bn in 2010. The bank blamed the low interest-rate environment, intense competition for deposits in the Irish market, elevated costs of wholesale funding and the cost of the Irish government’s bank guarantee for a 27 per cent fall in operating income to €2.05bn in 2011, down from €2.8bn in 2010. “Trading conditions in our Irish and UK markets remain challenging with the economic growth now forecast to be lower than previously envisaged and weak consumer and business confidence in the domestic economies continuing to prevail,” said Mr Boucher. The bank said it was on course to meet a target set by the Irish central bank to shrink its loan book to €90bn by the end of 2013, down from €114bn in December 2010. During 2011 it sold assets in its international businesses raising €8.6bn, which was achieved at an average discount of 7.1 per cent. The bank said it increased customer deposits by 8 per cent in 2011 to €71bn. Strong growth in Bank of Ireland’s joint venture with the UK Post Office helped deposits increase by £4bn to £18bn in the UK while Irish deposits grew by €1bn. Impairment charges on loans increased slightly to €1.93bn at 31st December 2011, compared with €1.85bn a year earlier, reflecting continued weakness in the Irish residential and commercial property markets and high unemployment. Following a review of its loan book, the bank said it expects impairment charges to reduce over the next three years. The pace of reduction depends on Ireland’s economic recovery, it said. Mortgage arrears in Bank of Ireland’s €21bn Irish residential mortgage book increased to 5.6 per cent in December 2011, up from 3.76 per cent in 2010. The bank said it estimated there was €2.5bn of negative equity in its owner-occupier book. Arrears at the bank’s €7bn buy-to-let mortgage book increased to 10.8 per cent in December 2011, up from 5.9 per cent a year earlier. Mr Boucher warned new insolvency legislation proposed by the government, which would offer debt relief under certain circumstances, could make it more difficult for Irish banks to raise money and lead to higher mortgage costs for consumers. “We obviously would be concerned about any perception in international markets that fundamental changes to contract law to do with how mortgages operate. If that does happen then that has an adverse consequence on our ability to use mortgages as collateral to raise funding in the markets,” he said. From: FT