Irish Permanent has pleased the market, posting a 21 per cent rise in pre-tax profits to £66.7 million (€84.7 million) last year, from £55 million (€69.8 million) the previous year.

Announcing its last set of annual results yesterday, Irish Permanent chief executive, Mr Roy Douglas, said the economic outlook for the foreseeable future should be very good for its mortgage business and for the life and pensions industry although net interest margins look set to slide further.

On the back of the good results, shareholders will be paid a second interim dividend of 13.4p (17 cents). This brings in a total dividend for the year of 19.5p (24.8 cents) up 27 per cent on 1997.

Irish Permanent, which is the State's biggest mortgage lender, recorded total gross new lending of £1.5 billion last year, an increase of 38 per cent on 1997. Of this £919 million was advanced as mortgage finance in the Republic, up 44 per cent on the previous 12 months. A further £236 million was loaned through its Capital Home Loans subsidiary in the UK up from £173 million in 1997.

Demand for other types of loan finance was also strong, with Irish Permanent showing a 20 per cent rise in commercial lending during the year to £149 million and a 31 per cent increase in motor finance loans to £190 million at Irish Permanent Finance.

On the savings and investment side of its operations, the group saw a huge switch in the mix of deposit and investment related products held by its customer base. With low interest rates, the amount of money held in deposit accounts dropped by 53 per cent to £145 million as customers sought higher earning options. In turn the group reported a 45 per cent rise in monies put into PIP's, PEPs and Tracker Bonds to £109 million. Sales of pensions was also up, showing a 26 per cent rise to £8 million.

This switch coupled with the strong demand for mortgages also meant the group had to recourse to funding a greater proportion of its loan book from the market and was the primary reason cited for a steady decline in its net interest margin in 1998. At the end of 1997 its net interest margins stood at 2.4 per cent but dropped to 2.15 per cent by the end of last year. Wholesale funding amounted to £747 million financing about 50 per cent of all new lending for that period.

The gradual adjustment in interest rates last year also put pressure on margins periodically as the group held off in passing on the new rates to borrowers and savers for short periods. Its treasury operations realised profits on bonds and equity sales of £20.5 million in addition to £2.3 million in dealing profits. The £15 million gains on bonds was transferred to its deferred income account and does not affect this year's bottom line. Its subsidiaries also fared well, with Irish Progressive recording a 57 per cent growth in pre-tax profits to £18 million. Irish Permanent Finance showed a 40 per cent increase in profits to £5 million. The most modest increase was achieved at its private banking arm, Guinness & Mahon. It's pre-tax profits grew by just 4.1 per cent to £1.1 million. Overseas, CHL's pre-tax profits more than doubled to £4.1 million, while its Isle of Man operation posted a 13 per cent rise improvement to £1.5 million.

Group net interest income rose by 7.1 per cent from £110.3 million to £118.1 million. Other income increased by 52.3 per cent to £32 million.

In line with the surge in lending last year, Irish Permanent has also raised its provisions for bad and doubtful debts.