BANK OF Ireland’s loan-to-deposit ratio improved by about 10 per cent in the first four months of the year, helped by marginally higher customer deposits.

In an interim management statement yesterday, the bank said that although lending margins improved in the four months to April, demand for new loans remained “muted”.

The overall volume of loans and advances to customers fell by a low single-digit per cent over the period.

The bank believes its total operating income faces “material adverse impacts” due to factors such as the continuing competition for customer deposits, more expensive wholesale funding and higher systemic guarantee fees. The group paid €145 million in guarantee fees over the period, compared with €87 million in the previous four months.

Despite the ongoing competition for deposits, its customer deposits were “marginally higher” by the end of the period.

As a result, the group’s loan-to-deposit ratio, which was 175 per cent at December 31st, improved by about 10 percentage points.

It also said it was maintaining its expectation that non-Nama impairment losses peaked in 2009.

The bank is working with advisers on a range of capital-raising initiatives, and expects to announce its capital plans in the coming weeks.

Davy, the stockbroking firm, said it was “nervous” about the prospects for Bank of Ireland subordinated bondholders after the bank said it “notes” Minister for Finance Michael Noonan’s comments that junior bondholders were expected to make a significant contribution to the bank’s equity capital requirements.

“In our view, this reference to the Minister’s statement indicates that the terms of a liability management exercise will not be at the sole discretion of the bank, but will be subject to strong political influence,” said Stephen Lyons, an analyst with Davy. – (Additional reporting Bloomberg)