Cautious Bank of Ireland delays resumption of dividend

* Bank had hoped to resume dividend payments this year

* Keen to see sustained recovery in pension deficit

* Underlying pretax profit falls 11 pct to 1.07 bln euros (Adds details)

By Padraic Halpin

DUBLIN, Feb 24 (Reuters) - Bank of Ireland (EUREX: 1269463.EX - news) expects to pay its first dividend in a decade in the first half of 2018, a year later than hoped as it awaits further clarity on Britain's vote to leave the European Union, it said on Friday.

Ireland (Other OTC: IRLD - news) 's largest bank by assets outlined provisional plans a year ago to reinstate dividends alongside its full-year results for 2016 but warned in July that external factors, including Brexit, could force a delay.

The bank also said on Friday it wanted to see recent bond market-led improvements in its pension deficit sustained. Its initial plan would have made it the first domestic Irish lender to resume dividend payments since the financial crash.

"From a Brexit point of view, we haven't seen any material negative impacts, other that the translation impact on our profits from our UK business," Bank of Ireland Chief Executive Richie Boucher told Reuters in a telephone interview, describing the dividend decision as a finely balanced call.

"The pension deficit did stabilise, we don't expect the same volatility in bond yields as we had in the first half of last year but we do want to make sure that continues to be the case. It's probably just a bit of a caution on the bond yield issue."

Bank of Ireland, which has led a return to profitability across the Irish sector following years of losses, reported an underlying full-year pretax profit for 2016 of 1.07 billion euros ($1.1 billion) down from 1.2 billion a year ago.

Shares (Berlin: DI6.BE - news) in the bank, which fell 30 percent last year, were 2.6 percent lower at 0.23 euros at 0815 GMT.

"The lack of a dividend may be a slight initial negative, particularly in terms of management now guiding on nothing until next year, but the underlying figures are very strong," said Investec (LSE: INVP.L - news) analyst Owen Callan.

Like-for-like profit was hit by a weaker pound, which cut the value of its UK earnings. The bank is more exposed to the country than any other Irish lender but Boucher said he expected some growth in mortgage lending in the United Kingdom this year.

The bank finished the year strongly with a net interest margin, a measure of the profitability of its lending, at 2.19 percent versus 2.15 percent in September and non-performing loans down 34 percent to 9.6 percent of gross loan balances.

Its core loan book rose, led by a 6 percent increase in new lending in Ireland where it benefited from continued stellar economic growth.

The bank, which is 14 percent owned by the state, said its Tier 1 capital ratio rose to 12.3 percent from 10.5 percent three months ago, helped by a narrowing of its pension deficit to 450 million euros from 1.45 billion at the end of September. ($1 = 0.9447 euros) (Editing by David Clarke)