Bank of Ireland profitable as lending remains muted

DUBLIN (Reuters) - Bank of Ireland said on Friday it has been profitable so far this year, achieving higher margins on new lending, but repayments continued to exceed the level of new loans handed out as demand remained muted. The country's only lender to escape nationalisation said in March it was in profit in the first two months of the year, the first Irish lender to return to profit since the country's financial crisis. On Friday, the bank said it was trading in line with expectations as the economies of its main markets of Ireland and Britain improved. Its net interest margin - a measure of the profitability of its lending - inched up to 2.05 percent in the first three months of the year from 2.03 percent in the second half of 2013 after substantial rises over the last 18 months. However loan volumes fell to 83.3 billion euros (68.4 billion pounds) at the end of March from 84.5 billion at the end of December, a broadly similar pace of contraction to the second half of 2013, taking the bank further below its net loan book target of 90 billion euros. The bank said its core Tier 1 capital ratio, the main measure of financial strength, was above the 12.3 percent at the end of December that Chief Executive Richie Boucher said last month would likely leave it enough capital to pass a European-wide health check. The bank said asset quality trends continued to improve in line with expectations, with further reductions seen in both early and default mortgage arrears in the first three months. "As expected, net loans continue to contract," Davy Stockbrokers said in a note to clients. (Reporting by Padraic Halpin; Editing by Erica Billingham)