Reduced deposit margins, higher funding costs and the cost of the Government bank guarantee are expected to hit results at Bank of Ireland, the financial institution said today.
Reduced new business activity in lending and in the sale of investment and savings products is also expected to hurt the bank’s results.
In a trading update issued today, the bank said its total income could be "mid teens" percentage points lower in the six months to September 30th 2009 compared to the same period a year ago.
The bank said it expects underlying operating profit, before impairment charges, to be lower in the six months to September 30th than in the same period a year earlier.
"Trading conditions in the first six months of our financial year have been difficult. The level of economic activity across our main markets has contracted and the credit environment has deteriorated," the bank said in a statement.
"Trading conditions in Ireland remain particularly challenging with continuing low levels of activity."
In a statement, the financial institution said it is anticipating an impairment charge on loans and advances to customers of about €1.6 to €1.8 billion for the six-month period.
However, it is also anticipating lower staff costs as the bank reduces employee numbers.
On a divisional basis, operating profits at Bank of Ireland Life's business are expected to be "well behind" the same period six months earlier as a result of lower volumes of new business and a fall in management fees from reduced assets under management.
Profit before impairment charges will be "significantly lower" at the retail arm of the bank, the firm said.
"The depressed economic conditions in Ireland are reflected in weak loan demand and are expected to result in modest growth in the mortgage book and a reduction in the consumer finance book," the statement said.
"Excluding property, SME lending activity has reflected a reasonable flow of new lending opportunities offset by scheduled repayments and voluntary redemptions as customers have sought to reduce leverage. Growth in overall resources is expected and reflects exceptionally good growth in deposits. This is expected to be partially offset by a reduction in current account credit balances reflecting the lower levels of economic activity."
Higher loan impairment charges will hit profit before tax in the Capital Markets division, with pre-impairment operating profit expected to be flat for the six months.