GROWTH in lending, fee income and earnings from treasury operations boosted per tax profits at ACCBank to £13.17 million for 1995.

Pre tax profits rose by 30 per cent at the State owned bank. But the underlying increase was a more modest 8 per cent when the impact of the exceptional charge in 1994 is stripped out. In 1994 profits were reduced by £2.02 million to cover the cost of reorganisation aimed at streamlining the bank's operations to improve product delivery to customers.

ACC chairman, Mr Dan McGing described 1995 as "one of the toughest years in the industry when banks had to run harder just to keep up". ACC performed well despite intense competition, he said.

Lending rose by 20 per cent with net new loans of £145 million bringing total advances at year end to £879.5 million. Deposits from customers rose by 33 per cent to £236.8 million bringing year end customer deposits to £947.3 million.

But, in competitive lending and deposit markets, tighter margins reduced the impact on profits of higher volumes of business. ACC's average margin fell by half a percentage point to 3.56 per cent. "We hope it will bottom out soon but it is very tough out there," Mr McGing said.

As customers shopped around, margins on deposit business had fallen to around 3.5 per cent while margins on lending were very tight, particularly on mortgage lending, he said.

Loans to the farming sector made up 30 per cent of ACC's loan book at the end of 1995. But, reflecting the banks drive to diversify its lending, the fastest growth in 1995 was in the home and personal loan market.

Interest income rose by 22.5 per cent to £99.7 million for 1995 while interest paid out to depositors increased by 38.4 per cent to £59.1 million.

Net interest income - interest earned on lending less interest paid for funds - was 5.6 per cent higher at £40.6 million.

Income from fees and commissions - a target area in ACC's drive to generate more non interest income - jumped by 65 per cent to £2.1 million. This income came from current account charges, charges on Business Expansion Scheme plans commission on insurance products and fees on foreign exchange transactions.

Profits were boosted by a turnaround in treasury with dealing profits of £700,000, mainly on Government bonds, compared with a loss of £380,000 in 1994.

Total operating income rose by 8.4 per cent to £45.5 million. But costs rose more - by 11.2 per cent to £30.3 million - increasing the cost/income ratio to 67 per cent from 65 per cent.

The jump in costs included an 18 per cent increase in the depreciation charge to £3.1 million reflecting investment in new technology and branch offices. Administrative expenses rose by 10.4 per cent to £27.2 million.

A reduction in the bad debt charge to £1.98 million boosted profits by £530,000. In a stronger market, non performing loans fell to 3.2 per cent of total loans from 3.6 per cent, with total provisions of 145 per cent of nonperforming loans.

With a fall in its effective tax rate from 35 per cent to 31.6 per cent, profits after tax rose by 37 per cent to £9 million. ACC paid dividends of £2.2 million to its State shareholder, an increase of 25 per cent.

ACC recorded a return on shareholders' funds of 16.7 per cent and a return on assets of 0.76 per cent. Total assets were £1.3 billion.

At year end, the bank's capital adequacy ratio was 11.3 per cent after a £5 million equity injection by the Government in September.