Analysis: Impressive first-half results from Bank of Ireland will go some way towards reassuring investors, writes Siobhán Creaton, Finance Correspondent

Bank of Ireland chief executive Mr Michael Soden is pleased to have delivered such a strong performance given the criticism levelled at the bank over its botched attempt to buy Abbey National.

The figures are impressive, coming in ahead of market expectations, and will go some way towards reassuring investors.

Its core business in the Republic delivered a 13 per cent increase in profits to €189 million. Its life division achieved profits of €56 million, up 27 per cent on the same period last year, while its wholesale banking operations reported a 10 per cent rise in profits to €195 million. Its asset management arm reported a 7 per cent decline in profits, coming in at €56 million, having been adversely affected by weak international stock markets.

In the UK, where its main business is the Bristol & West Building Society, profits rose by 10 per cent to €166 million.

The group's net interest income - the profits earned on its core savings and deposit activities - rose by 15 per cent to €860 million, on foot of higher volumes and improved profit margins.

Most of the gains in terms of margins were at its UK business with low interest rates and greater competition in the mortgage market in the Republic depressing margins earned on this business.

During the six months, Bank of Ireland earned other income of €594 million, unchanged on the previous period.

Group costs were also higher, rising 8 per cent to €814 million. Most of this was due to increased staff costs, which rose from €441 million to €476 million. Administrative costs were also up at €254 million compared with €236 million in the same period last year.

The bank's overall cost-to-income ratio was fractionally better, falling from 55.7 per cent to 55.4 per cent. Yesterday Mr Soden emphasised that the bank would continue to keep costs down and to improve its cost-to-income ratio in the future.

The bank has posted a higher loan loss charge of €56 million compared with €43 million in 2001 and remains confident about the quality of its loan book to withstand a weakening economic climate. Some 50 per cent of Bank of Ireland's loan book comprises residential mortgages.

Investors will now be closely watching the bank's moves in the UK market. Its approach to Abbey National raised concerns about the long-term viability of Bristol & West, with some now wondering whether Bank of Ireland may sell it.

The bank will also be keeping an eye on businesses being sold off by other British financial institutions as potential acquisitions.