Bank of Ireland has signalled that it expects to post a solid set of results for the first half of its financial year but disappointed investors by revealing that cost growth will be higher than expected. Siobhán Creaton, Finance  Correspondent, reports.

In a trading statement issued to the Irish Stock Exchange yesterday, the bank indicated that pre-tax profits would grow by about 5 per cent on the back of a good performance in its British and Irish businesses, broadly in line with market forecasts.

But signs that costs had increased beyond the level previously suggested to investors overshadowed the announcement.

Bank of Ireland shares shed 26 cents in Dublin after the announcement to close at €11.12 although most analysts did not expect to adjust their earnings forecasts for the group at this stage.

Some took the view that the weaker cost performance related largely to the bank's further investments in its wholesale and business banking activities with underlying growth remaining stable.

Group chief executive Mr Brian Goggin said the continued strong momentum in the British and Irish economies had driven a very strong trading performance across the group.

"We continue to position ourselves in each of our marketplaces to gain maximum benefit from the improving macroeconomic backdrop and to drive further profit growth in the future," he said.

The most significant increase in profit was achieved at the bank's Irish retail operations with Bank of Ireland signalling that pre-tax profits there will increase by more than 15 per cent on the same period last year. Lending remained buoyant with the bank expecting to report an increase of more than 25 per cent in mortgage lending with other lending growing in the high teens.

Meanwhile its deposit base will show a high single digit percentage increase, according to the statement.

Net interest income, earned on its core lending and deposit activities, is set to swell by a low double-digit percentage while its other income should rise by a high single-digit percentage, it said.

Its charge for loan losses is expected to be somewhat lower while costs will rise by a mid to high single-digit percentage fuelled by salary costs and depreciation charges.

The bank's life assurance operations should post profit growth of the order of more than 25 per cent as a result of strong growth in sales volumes and market share. The division's overall profits will be lower though, due to one-off gains it realised last year.

Bank of Ireland's wholesale division will see profit growth of between 11 and 15 per cent on growth in its domestic and international lending operations. Its First Rate Enterprise's joint venture with the UK Post Office will also yield a significant contribution, it said.

The performance of the bank's UK financial services division failed to impress investors. It expects to deliver low double-digit growth in the mortgage book, which was ahead of expectations, and a mid to high teen percentage growth in its business banking profits.

Its deposit base appears to have underperformed. The division has been restructured and the bank has said cost levels are expected to remain flat over the same period last year as a result of those initiatives.

Bank of Ireland's asset management business will bring in a low double-digit percentage increase in profits in the six-month period, with poor investment performance in the US and a loss of clients seen as the chief factors influencing an outcome which will be below expectations.

The statement said the launch of its UK Post Office financial services business is at an early stage and is progressing in line with expectations.