BANK OF Ireland yesterday maintained its position regarding not passing on last week’s ECB rate cut to mortgage customers, despite saying that it expects its net interest margin to stabilise in the second half of the year.

A spokeswoman for the bank said interest rates continue to be under review. In an interim management statement, Bank of Ireland reiterated its expectation that total impairment charges on mortgages have peaked.

However, it noted an increase in mortgage arrears in August and September which it attributed to speculation about a mortgage debt forgiveness scheme, echoing similar comments made by KBC Ireland on Thursday.

The bank noted “ongoing pressure on the group’s cost of funding”, due to intense competition for deposits in the Irish market, the elevated cost of wholesale funding, and the high cost of the Government guarantee.

However, these costs have been offset by a recovery in lending margins and the interest income benefits from lower subordinated debt and increased capital.

In the trading statement, the bank said it expected its net interest margin to stabilise in the second half of 2011 as a result of interest income benefits from lower subordinated debt and increased capital, although further margin recovery will face “some headwinds” as a result of the low interest rate environment.

British and Irish deposits at the bank rose to €67 billion at the end of October according to the trading update, from €65 billion at the end of June, a figure that had included a temporary deposit of €3 billion from the NTMA.

As a result, the bank’s loan-to-deposit ratio now stands at 153 per cent, compared to 164 per cent at the end of June, a trend that the bank expects will continue.

The improving loan-to-deposit ratio was also helped by loan sales, as the bank deleverages.

Last month, Bank of Ireland sold €5 billion of non-core loans at a discount of 9 per cent of their face value. This represents about half of all the loans the bank is required to sell by 2013.

The bank said yesterday it is at “an advanced stage of negotiation with potential purchasers on certain other non-core portfolios.”

The bank which is the only listed Irish bank to avoid State control plans to deleverage by disposing of or running down about €30 billion in assets.

The group is “strongly capitalised”, according to the interim management statement.