Bank of Ireland shares fell in early trading on Thursday after US banking giant JP Morgan downgraded its recommendation on the stock amid concerns over the group's lending margins and ability to grow its loan book.

Shares in Bank of Ireland dropped as much as 2.6 per cent in Dublin, to 18.8 cent. JP Morgan analysts cut their rating on the shares to underweight, the equivalent of recommending that clients sell, from neutral, which is similar to a hold recommendation.

The bank, which is led by chief executive Richie Boucher, warned last month that it may delay its planned return to paying dividends early next year as the UK's vote to quit the European Union impacts business sentiment.

Net interest margin

The bank’s net interest margin – the difference between the average rates at which it borrows and lends on to customers – contracted to 2.11 per cent from 2.21 per cent a year earlier.

The bank’s loan book, net of provisions set aside for bad loans, shrank to €80.2 billion in June from €84.7 billion in December, as a weakening of the sterling following the Brexit referendum hit the value of its loans in the UK.

JP Morgan sees continuing pressure on the bank’s net interest margins amid rising competition in the mortgage market.