Bank of Ireland has signalled a strong half-year performance despite substantial exceptional costs to cover its DIRT bill and a staff severance programme.

In a trading statement issued to the Irish Stock Exchange Bank of Ireland said it had achieved "excellent" profit growth, suggesting earnings-per-share growth in the six months to the end of September will be more than 15 per cent.

Bank of Ireland shares were stronger on the back of the statement and also benefited from the increasingly positive sentiment towards financial stocks. Bank of Ireland shares closed 28 cents higher at €8.23 in Dublin. The bank's profits were boosted by a strong performance from its Irish-based banking operations and further expansion of its international business.

The bank has continued to benefit from the strong growth in the Irish economy with lending and life assurance products in good demand and this will be reflected in its interim results in November.

Last year the bank reported a 20 per cent increase in pre-tax profits to €580 million (£400 million) with €188 million earned at its retail operations in the Republic.

Interim figures will be affected by exceptional costs such as its €38.78 million DIRT settlement with the Revenue Commissioners and a €65 million provision to cover staff severance costs. The bank plans to close up to one in five of its branches with 700 of its 11,000 staff expected to leave. In the first half of 2000 Bank of Ireland estimates that lending volumes will be higher than last year, coming in at around 25 per cent. The bulk of this increase is due to strong demand for residential mortgages and loans to the business sector while personal and other lending will be below average, it said yesterday.

The bank has also managed to grow its funding resources during the six months between March and September with the number of credit balances up by more than 25 per cent. Deposits held at the bank were also higher, up by around 14 per cent.

And the decline in profit margins caused by low interest rates and increased competition particularly in the mortgage market has slowed. The bank said the contraction in profit margins has eased and suggests that further erosion of its margins has now been arrested.

The bank has also pointed to a small absolute reduction in its cost base. This combined with strong income growth and continuing good quality assets on its books will deliver "substantial" profit growth compared with the first half of 1999.