Good lending growth in buoyant economic conditions helped TSB Bank to produce a 15 per cent rise in pre-tax profits to £25.5 million (€32.4 million) for the year to end October 1998.

TSB is currently awaiting a decision from the Minister for Finance on a planned merger with ACCBank and flotation of the merged entity on the stock market.

Lending to customers increased by 19.7 per cent, with net new loans of £181 million bringing the total loan book over £1 billion (£1,099 million or €1,396 million) for the first time. Growth in deposits was slower at 10.5 per cent, adding a net £146 million to bring total customer deposits to £1,524 million (€1,935 million). However, with more than 90 per cent of customer funds on deposit for periods of three months or less, TSB said it will consider its future resource strategy with a view to adding some longer term fixed price deposits to its total deposit portfolio. By the year-end deposits with the Minister for Finance had fallen to £7.3 million from £22.3 million.

Profits after tax were 24.8 per cent higher at £16.6 million (€21 million). By year end total assets had increased by 12.7 per cent to £1,771 million (€2,248 million).

The TSB's chairman, Dr Dermot Whelan, described the results as "impressive" in a competitive trading environment. The chief executive, Mr Harry Lorton, described 1998 as "an excellent year" for TSB.

The operating results show a six per cent rise in net interest income to £65.6 million. Despite good lending growth, profits from lending were held back by a further tightening in net interest margins in competitive trading conditions. The margin fell to 4.2 per cent from 4.34 per cent. Non-interest income - mainly from fees and commissions - was 16.8 per cent ahead at £20.7 million and accounted for 24 per cent of total income for the year.

Costs before bad debt provisions increased by 6.7 per cent to £58.4 million. With income growing faster than costs, the cost income ratio was reduced to 67.7 per cent from 68.8 per cent.

The bank will continue to work at bringing the ratio lower, a spokesman said. However, the ratio reflected the bank's concentration on the retail banking with 80 per cent of its business in this area, he added.

TSB reduced its bad debt provision to £2.4 million from £2.7 million despite the increase in lending. "We are very comfortable with the quality of our loan book," the spokesman said. The bad debt charge was down to 0.23 per cent of average loans from 0.3 per cent, while provisions were down to 1.6 per cent of gross loans from 1.8 per cent.

At the end of the year TSB had total reserves of £128 million, up from £111 million.

In his last annual report as TSB chairman, Dr Whelan expressed concern at the level of increases in house prices. "Despite the measures taken as a result of the Bacon Report, inflation in the housing market is still an issue and, together with upward wage pressures and infrastructural shortcomings, represents a significant challenge for Government in the coming years", he commented.

During the year three new branches were added and with another opened since year end the bank now has a network of 83 branches. Delivery channels were expanded last year with the development of a telephone banking service to give customers access to their accounts 24 hours a day.