Bank of Ireland chief executive Richie Boucher has signalled that the bank would raise interest rates on some loans.

Speaking after the publication of an interim statement on the bank's results for the first half of this year, Mr Boucher said the bank had tried to absorb the two recent interest rate increases by the European Central Bank. However, it  could not avoid increasing borrowing costs to cover the high cost of deposits.

"We have also tried as long as we can to absorb the two interest rate rises that have happened over the deposit prices and deposits costs have remained very, very elevated. I don't think that we can continue to bear that," said Mr Boucher.

Parts of the bank's loan book are "very difficult" to increase interest rates on, he said. Some 62 per cent of the bank's €28 billion Irish residential mortgage book were based on tracker rates that are tied into the European Central Bank base rate.

The interim statement showed the bank's underlying pre-tax loss narrowed to €723 million in the first half of 2011, compared to €1.32 billion for the same six month period a year earlier.

The bank said its loan impairment charge fell 22 per cent from €1.08 billion to €842 billion. However, impairment charges on residential mortgages rose to €159 million from €142 million.

Some 5.2 per cent of the bank's Irish mortgages were in arrears for more than 90 days at the end of June, rising from 4.2 per cent at end of December.

Deposits were unchanged at €65 billion at the end of June from six months earlier.

Mr Boucher said he hoped to grow the country's Irish deposit base modestly, in line with economic growth, as well as attracting corporate deposits between now and the end of 2013.

"We had about €20 billion of rating sensitive deposits which left us in the period between August 2010 and December 2010 and we are not anticipating that those rating sensitive deposits will return during the life of our plan," he said.

Impairment charges on assets to Nama totalled €43 million as against €277 million for the first half of 2010.

The lender recorded profits before tax of €556 million compared to €116 million for the same period a year earlier.

Its net interest margin - the difference between its funding costs and the average rate at which it lends - narrowed to 1.33 percentage points from 1.41.

The bank said it expected mortgage arrears and loan losses will rise next year. Bank of Ireland is assuming a 55 per cent fall in Irish house prices from their 2007 peak and a further 9 per cent of legal and other costs in assessing its home-loan loss charges.

Mr Boucher said the bank plans to make a new debt-exchange offer involving securities originally issued by Bristol and West Building Society "relatively quickly".

The lender withdrew an original offer to the bondholders on June 28th, saying it planned to instigate a new offer at some stage to "address the unique difficulties" they had.

Mr Boucher said the bank does not expect current global market volatility to disrupt its plans to sell key non-core assets this year.

"We are quite well advanced on the sale process of a number of portfolios which we had identified for sale. We have €10 billion to sell before December 2013. We would like to front-end that as much as possible. We do not see the current level of volatility impacting very significantly where we expect to come out."

Mr Boucher said the bank hoped to raise more term funding this year after generating €2.9 billion euros in June and July in secured unguaranteed issues to replace maturing central bank funding.

Additional reporting: Bloomberg/Reuters