Bank of Ireland this morning reported a "significant" improvement in its full-year results for 2013, with pre-tax losses narrowing from €1.5 billion in 2012 to €569 million in 2013, ahead of estimates, as the group's income rises and impairment charges drop to €1.665 billion.

Group chief executive Richie Boucher said that the bank made "substantial" progress in 2013.

“Our underlying financial performance improved by almost € 1 billion and we achieved our 2 per cent net interest margin target. Taxpayers’ support for andinvestment in Bank of Ireland has been rewarded and repaid. We are profitable and generating capital in 2014,” he said.

Mr Boucher said that the bank will continue to build on its “strong franchises” and that it is well well positioned to pursue new business opportunities, “which are increasing as the economic environment continues to improve”.

According to the bank, its improved performance was driven by its strong net interest margin performance, offset by lower average interest earning assets, albeit with the pace of decline in interest earning assets slowing in the second half of 2013. “A significant decline” in Eligible Liabilities Guarantee Scheme (ELG) fees, ongoing tight management of costs and a modest decline in impairment charges also contributed to this result.

The bank’s net interest margin increased by 83 basis points to an average of 2.03 per cent for the second half of 2013, reflecting “the actions that the group has taken to optimise the price of assets and funding, to efficiently manage the balance sheet and to generate sustainable returns on new business”. On a full year basis it stood at 1.84 per cent.

The bank has been generating capital since the beginning of 2014, and with state aid repaid, capital generated will be prioritised towards facilitating the de-recognition of the remaining € 1.3 billion 2009 preference shares in 2016.

The bank’s level of defaulted loans fell by €1.2 billion in the second half to €17.1 billion, across all major loan categories. While the volume of default mortgage arrears (based on loan volumes 90 days or more past due and / or impaired) has continued to increase, the pace of default arrears formation has reduced significantly in the year, particularly in the owner occupied segment, the bank said.

In reference to the ELG scheme, the bank said that the expiration of this in March 2013 has had “no adverse impact on our deposit volumes or pricing strategies”.

With regards to lending, approvals for new and increased credit for SMEs amounted to € 4 billion in 2013, which was up by about 8 per cent on 2012, reflecting an 85 per cent approval rate.

Mortgage applications to the value of € 2.2 billion were approved for 12,500 customers, with first time buyers accounting for almost half of all drawdown.

Employees at the bank fell by 761 to 11,255 in 2013.

Looking to 2014, Mr Boucher said that a key contributor to improved profitability in the coming years will be reducing “current elevated impairment charges to normalised levels” while another important contributor will be rebuilding its loan volumes in its core franchise.