ANGLO IRISH Bank shares fell almost 3 per cent yesterday despite the bank reiterating its forecast that earnings would rise 15 per cent for the full year to September 30th amid slower lending, higher bad debts and difficult market conditions.

Anglo said in a trading statement that the economic environment would remain "significantly challenged" and that it would adopt "a very cautious and selective approach" on new lending until next year, with loan growth "moderating further". The bank said its focus would be managing "asset quality" and growing its capital.

The bank said its capital strength positioned it well in a "testing" environment where loan losses would rise and funding costs would remain high.

"Against the backdrop of difficult market conditions, Anglo Irish Bank will report another very good performance in 2008," said chief executive David Drumm.

Anglo's shares climbed 3.8 per cent after the statement before shedding value as European and UK bank shares fell over concerns about credit losses. Anglo has declined 47 per cent this year.

The bank said its full-year earnings per share would rise about 15 per cent this year to 151.4 cent, in line with analysts' forecasts. Anglo expects to grow new lending by 15 per cent, or roughly €10 billion, over the full year.

This compares with a 37 per cent increase in its 2007 full year.

Most of this year's loan growth has been in the six months to March 31st. Anglo expects new loans to grow by about 5 per cent in the second half of its fiscal year.

Ratings agency Fitch affirmed Anglo's debt rating and stable outlook, saying its heavy property exposure was mitigated by the geographic spread of its loans and the security backing each loan.

The bank is forecasting a bad debt charge of 0.13-0.18 per cent of loans for the full year - up from 0.1 per cent at the end of March.

Anglo said that even if impaired loan charges rose to 0.7 per cent - the consensus forecast in the market for 2009, but above the bank's own expectations - it would still remain "highly profitable".

Sebastian Orsi, analyst at stockbrokers Merrion Capital, said Anglo's figures for 2008 reflected a "strong" performance but concerns about future loan losses were likely to "dominate" given weakening economic conditions and because the bank had not provided details on vulnerable loans.

"Non-performing loans is the key to future credit charges."

The bank said Irish residential development accounted for 7 per cent of its €69 billion loan book.

"The Irish residential development sector has continued to deteriorate due to more restricted mortgage availability, particularly in the last quarter," Anglo said.

The bank said most of its house-builder clients were "sufficiently strong" to repay loans through "a protracted downturn", but it warned that the sector represented the "principal risk" to future loan losses and was "a key focus" for management as it worked "to proactively mitigate against any potential losses".

Anglo said there had been "no significant increase" in impaired commercial property loans and that it had "limited" exposure on loans for speculative development.

The bank said it continued to monitor "closely" the performance of clients and tenants in properties on which its loans were secured.