Good growth in lending and fee income in the Republic helped Ulster Bank record a 7.6 per cent rise in profits before tax to £155 million sterling (€229 million) for 1998, a record result for the group.

But underlying profit growth was higher - profits were depressed by the negative effect of translating Irish pound earnings into sterling using an average exchange rate for the year. In Irish pound terms pre-tax profits rose 16 per cent to £180.7 million. As a subsidiary of the National Westminster Group, Ulster reports in sterling. Using a constant exchange rate, the underlying result was a 13 per cent rise in profits.

Some 62 per cent of profits came from operations in the Republic, helped by strong economic growth and rising demand for loans and other bank products. The balance of profits - £59 million - came from Northern Ireland, where higher interest rates for much of 1988 dampened economic growth and consequently loan demand. Meanwhile the strength of sterling hit exporters and the agri-sector resulting in a rise in bad debts.

Group chairman, Sir George Quigley, described underlying profit growth as "a continuation of the consistently steady advance recorded over recent years, with each year achieving a new milestone of progress". Group chief executive Mr Martin Wilson described the results as "an excellent all round performance".

Loans to customers were 16 per cent ahead at £744 million sterling (€1,094 million). In the Republic lending rose by 26 per cent. Group retail lending increased by £559 million (€822 million), or 16 per cent, while the increase at Ulster Bank Markets was £86 million (€12 million) or six per cent.

Chief executive Mr Martin Wilson said lending was "significantly stronger in the Republic and was spread across all the groups businesses". Ulster claims to have increased its share of the small and medium sized business (SME) and current accounts markets.

Claiming 15 per cent of the SME market, up from about 13 per cent in 1997, Sir George said the bank is getting 22 per cent to 23 per cent of all new SME business. Mortgage lending rose by 13 per cent with lending in the Republic up 22 per cent on 1997 figures. On the deposit side, a big rise in corporate deposits pushed customer current and deposit accounts up by an underlying 27 per cent, or £1,339 million, to £6,245 million. In the retail operation customer deposits rise by 13 per cent or £324 million to £2,848 million. Corporate deposits jumped by 43 per cent or £1,015 million to £3,397 million.

Ulster's net interest margins improved to 3.19 per cent from 3.15 per cent. This reflected a change in the mix of balance sheet funding towards customer deposits and away from more expensive traded funds. Some 55 per cent of funds now come from customers, up from 50 per cent the previous year.

Total income was six per cent stronger at £390.7 million sterling (E£575 million) - the underling constant currency increase was 11 per cent. At £255 million (€375 million) net interest income was just 5 per cent stronger while non-interest income was up eight per cent to £135.5 million sterling on good growth in income from stockbroking, investment management and credit card business.

Costs were three per cent higher at £219.5 million but the underlying increase was 8 per cent or £15.6 million. This included £5.1 million for EMU and millennium preparations and staff numbers rose by 225 people in 1998 to 4,909. Faster growth in income than in costs ensured a fall in the cost income ratio to 56.2 per cent from 57.7 per cent. Mr Wilson said the ratio must be reduced further while continuing to invest to improve efficiency.

Ulster Bank Retail - branch operations in the Republic and Northern Ireland - produced a 20 per cent increase in profits to £109.1 million and accounted for 70 per cent of profits.