BANK OF Ireland has scrapped dividends to shareholders this year and reported a 32 per cent fall in underlying pretax profits to €650 million for the half-year to September 30th.
Profits fell sharply as the bank set aside larger sums of money to cover rising losses on loans, particularly to property developers.
The bank said it expected earnings per share for the second half of the year, to March 31st, 2009, to be "marginally better than break-even". Bank of Ireland's share price fell 8.3 per cent to €1.21.
Chief executive Brian Goggin said dividends would not be paid "until more favourable economic and financial conditions return".
He said the bank has set aside sufficient funds to cover projected higher loan losses and had no plans to ask shareholders or the Government for additional capital.
"I am not prepared to rule out capital raising but it is not on the agenda at this time," he said.
The bank raised its core tier on capital ratio - a key measure of financial strength closely watched by investors - to 6.3 per cent at September 30th from 5.7 per cent six months earlier. Finance director John O'Donovan said this represented a "very significant" raising of €600 million in "pure equity".
The bank said it can add to this capital by curbing riskier lending, reducing the level of debt on its balance sheet, selling assets and retaining earnings by withholding dividends. Mr Goggin said the bank had "plenty of flexibility" to increase capital but was "not prepared to sell assets for the sake of meeting our [capital] ratio".
Half-year profit fell below expectations as the bank posted a number of one-off losses: €40 million on an investment in US bank Washington Mutual; €32 million in failed US investment bank Lehman Brothers and €40 million on a UK property investment.
The bank was hit by a €58 negative investment variance in its life business, Bank of Ireland Life, where profits plunged from €72 million to €3 million as falling stocks affected investment values.
The bank will also lose up to €27 million from investments in the state-seized Icelandic banks.
The bank said customers were in arrears on loans of €1.9 billion, or 1.3 per cent of loans at the end of September, up 80 per cent from €1.06 billion six months earlier.
This is mostly due to a spike in losses on the construction and land-bank loan book, which totals €13 billion, or 9 per cent of the bank's total loans of €145 billion.
The bank said this sector was causing the most problems.
Loan losses came to €267 million in September, representing a bad debt charge of 0.38 per cent of loans - up from 0.22 per cent six months earlier. The bank expects a bad debt charge to be at the lower end of a 0.6 to 0.75 per cent range for the year to March 2009.
The bank said house prices would drop 30 per cent from their peak, while undeveloped land would fall between 35 and 65 per cent. Values would be half-way through these declines by the end of the year, the bank said.
Based on these falling values, weaker economic conditions and higher unemployment, a bad debt charge of 0.9 to 1.1 per cent is forecast for the year to March 2010 (up from the bank's September prediction of 0.6-0.9 per cent).
