Bank of Ireland capital remains robust despite pension deficit hit

DUBLIN (Reuters) - Bank of Ireland's capital adequacy remained robust over the first three months of the year after organic capital growth mostly offset a rise in its pension deficit, the lender said on Thursday. Ireland's largest lender by assets said its defined benefit pension deficit rose to 900 million euros (686 million pounds) from 700 million euros at the end of 2015, a consequence of low interest rates but a less severe hit than most analysts had expected. The bank's Core Tier 1 capital ratio, which dipped in two of the previous four quarters due to the deficit, stood at 11.2 percent of assets at the end of March under fully loaded Basel III rules versus 11.3 percent at the end of December. Bank of Ireland, which is set next year to become the first Irish lender to reinstate dividend payments since the financial crisis, said its volume of non-performing loans fell 8 percent to 11.1 billion euros. The bank has benefited from an Irish economy that has grown faster than any other in Europe and said the macroeconomic environment at home and in Britain, its other key market, remained favourable. However, its loan volumes fell to 81 billion euros from 85 billion euros and its net interest margin, which shows how profitable its lending is, dropped to 2.11 percent from 2.17 percent in the second half of last year. With British customers accounting for about 40 percent of its loan book, a fall in sterling drove the decline, even though new lending was higher than in same period last year. The customer lending trends and fall in net interest margin were in line with expectations, Davy Stockbroker analyst Diarmaid Sheridan wrote in a note. "The headline grabbing net interest margin will garner attention but should be considered in the context of surplus liquid assets holdings resulting in net interest income being in line with management's expectations," he said. (Reporting by Padraic Halpin; editing by David Clarke)