Bank of Ireland narrowed its pretax losses to €190 million for 2011, down from €950 million the previous year.

Chief executive Richie Boucher said trading conditions remained challenging as the bank also reported impairment charges of €1.94 billion compared with €1.86 billion in 2010.

“Operating income remains under pressure and our loan losses continue to be at an elevated level,” he said.

Mr Boucher said the banking environment remained difficult, particularly in Ireland, where he cited a range of problems from recession and unemployment to businesses going bust and the shattered housing market.

“We expect the impairment charges to reduce from this level trending over time towards a more normalised impairment charge as the Irish economy recovers,” he said.

“The pace of the reduction will be particularly dependent on the future performance of our Irish residential mortgage book and commercial real estate markets.”

Shares in the bank, which have rising strongly in the last month, were 6.4 per cent higher at 14.9 cents today.

Operating profit before provisions for 2011 dropped to €411 million on high funding costs, a limited appetite for new credit and following the sale of higher-earning assets.

However, the underlying pre-tax loss more than halved to €1.5 billion after the big hit taken in 2010 by transferring loans to Ireland's state-run "bad bank".

The bank said its deposits grew by €8 billion in the second half of 2011 to €71 billion, mostly thanks to its UK unit, outstripping the €6 billion growth.

After central bank figures last week showed that nearly one in seven Irish home loans were not being fully repaid, Bank of Ireland also bettered the industry average with its proportion of owner-occupier loans in arrears for more than 90 days rising to 5.6 per cent from 3.7 a year ago but below the sector-wide headline figure of 9.2 per cent.

The level of arrears among properties bought by investors to rent out, the most distressed part of its mortgage book, almost doubled to 10.8 per cent. But with unemployment stabilising, albeit at high levels, Mr Boucher said arrears would peak in 2012.

"We don't anticipate that they have peaked as yet. We think that the ratio of increase will start to ease during 2012 and will peak during 2012," he told reporters.

The bank said its underlying pretax loss narrowed to €1.52 billion from €3.46 billion a year earlier. Net income was €40 million, compared with a €609 million net loss reported in 2010.

Bank of Ireland is alone among the country's six largest lenders in escaping state control after the government sold a 34.9 per cent stake last year to five investors, including Toronto-based Fairfax Financial Holdings and WL Ross and Company, a New York-based investment firm.