Bank of Ireland has signalled a strong trading performance in the six months to the end of September although adverse currency movements and the Government levy on banks will depress its bottom line performance.

The bank also announced that it would incur exceptional costs of £35 million (€50.5 million) as part of the restructuring of the UK financial services division. The re-organisation is expected to yield annual savings of £30 million.

In a statement guiding the market about its half year performance, Bank of Ireland, said that profit before tax and exceptional costs were expected to grow by about 5 per cent.

In the absence of the impact of currency movements and the bank levy, profit growth could have been as high as 10 per cent, the bank stated. The levy will cost Bank of Ireland €14 million in the first six months of this year while the strengthening of the euro against sterling reduced earnings from its UK and Northern Ireland businesses.

Despite the positive statement, Bank of Ireland shares drifted lower in Dublin closing 44 cents down at €10.76 with the market down overall.

The bank's chief executive, Mr Michael Soden, said the group's impressive record of consistent, high quality and sustainable earnings will be again demonstrated in this period. "All divisions of the group performed well, especially in the context of testing economic conditions in some markets," the statement said.

The recovery in world stock markets since the beginning of the year helped to underpin the strong out turn as their impact, through the group's life assurance and asset management businesses, affects 10 per cent of the bank's revenues.

The quality of the group's loan book remains strong with historically low interest rates continuing to be a positive factor in maintaining credit quality overall, it said. The bank acknowledged some challenges in relation to the international lending environment and will be raising its provisions for potential bad debts in these sectors.

The overall loan loss charge and loan arrears as a percentage of the total loan book will be marginally better than when Bank of Ireland reported full-year results in March.

In the Republic, the bank's core retail banking business continued to generate robust profits on the back of good demand for its products and services while costs have been contained well. Its profits are expected to grow by a low single digit percentage compared to the same period last year, it said.

The bank's UK financial services division is expected to report high single digit percentage profit growth with the bank reporting good progress in the management of costs and in boosting revenues.