Bank of Ireland says its underlying operating profit, before impairment charges, for the year to December 2010 will be about 35-40% lower than the €1.5 billion reported in 2009.
In an interim management statement, the bank says the reduction is mainly due to lower operating income and the higher cost of the Government guarantees. It also cited continuing intense competition for deposits and the higher cost of wholesale funds.
Bank of Ireland said the cost of the Government guarantee for the second half of the year are expected to amount to 150% of the €151m charged in the first half of the year due to the extension of the scheme.
The bank said that while economic conditions remain challenging, it still believes that impairment charges on loans peaked in 2009 and the overall charge will progressively reduce in 2010, 2011 and 2012.
It said its corporate banking loan book has begun to benefit from the general improvement in world economic conditions. While arrears in its Irish mortgage book continues to rise, there is evidence of some stabilisation, especially for owner occupiers.
Arrears in the bank's UK mortgage book have stabilised over recent months and loan losses are less that its previous expectations.
It said its business banking books have continued to see some deterioration, but it added that there is some signs that this is moderating in the SME/Agi divisions.
Bank of Ireland said the retention of €2.1 billion of loans that had been due to go to NAMA before the agency changed its threshold rules is not expected to materially alter its previous loss estimates.
Bank of Ireland shares closed up 6.3% to 41 cent in Dublin this evening.
