BANK OF Ireland is in the final stages of raising about £1 billion (€1.15 billion) in funding from the private sale of bonds backed by its UK residential mortgages.

The bank is in negotiations to raise the secured loans and a deal has not yet been agreed, a source familiar with the transaction said.

The funding deal is the latest transaction involving an Irish bank raising borrowings without the support of the Government guarantee but with loans as collateral.

Bank of Ireland, the only Irish bank to avoid Government control, has raised €2.9 billion of term funding since June, offering part of the bank’s €32 billion UK residential mortgage book as collateral.

The bank paid a premium for the loans, which had an average duration of 2.2 years, but said the transactions represented a step towards a return to normal funding for the bank.

Chief executive Richie Boucher flagged the possibility of the bank raising further unguaranteed funding by the end of the year when he appeared at the Oireachtas committee on finance, public expenditure and reform earlier this month.

A spokeswoman for the bank declined to comment on the latest drive to raise unguaranteed loans, which was reported by the Bloomberg news wire yesterday.

The bank raised €4 billion of cash to meet a higher capital target set by the Central Bank following the March 2011 stress tests of the banks. It raised €3.7 billion of this cash from private investors and by imposing losses on subordinated bondholders.

Allied Irish Banks executive chairman David Hodgkinson told the same Oireachtas committee earlier this month that the bank was preparing for a possible issue of covered debt, despite volatile markets.

Irish Life and Permanent said at the end of last month that it had raised £1.4 billion of funding secured against its £6.8 billion UK residential mortgage book.

The Irish banks have been unable to raise unguaranteed unsecured funding in the public debt markets since the first half of 2010 before the EU-IMF bailout of Greece sparked the euro zone sovereign debt crisis.

The disposal of assets by the Irish banks under the plan to deleverage themselves of €73 billion in loans and other assets has allowed them to reduce their reliance on wholesale funding and on cheaper funding from the Irish and European Central Banks. Irish banks had borrowed €98 billion from the ECB and €56 billion from the Irish Central Bank on August 26th.