BANK OF Ireland has signalled further reductions in staff numbers as the lender continued to shrink in size and reported that trading remained challenging in the first three months of the year.

Chief executive Richie Boucher told the annual meeting of shareholders that staff numbers fell by 3,700 from a peak of 16,400 in 2008 and that fewer staff would be required due to investments in technology. “It is fair to assume that there will be less people working in Bank of Ireland next year than there are today,” he said.

Mr Boucher said the lender was not involved in the Government’s discussions on the transfer of tracker mortgages from AIB and Permanent TSB to Irish Bank Resolution Corporation as Bank of Ireland was not owned by the State.

“We are obviously keeping a very close eye on potential developments but the bank is not engaged in any such discussions,” he said.

The tracker mortgages, which account for 62 per cent of Bank of Ireland’s €28 billion Irish residential mortgages, were “expensive”, he said, and improving the net interest margin on these loans depended on the bank’s ability to “normalise” its cost of funding.

Earlier, the bank said funding costs, intense competition for deposits, Government guarantee fees and fewer earning assets due to the bank’s reduced size continued to affect operating income and the net interest margin adversely. Despite growth in Irish exports and improved competitiveness, conditions remain tough.

“Whilst consumer confidence surveys have shown improvements in the first three months of 2012, domestic economic indicators remain weak, unemployment remains elevated and residential property prices do not appear, as yet, to have fully stabilised,” the bank said in a trading statement.

The bank still expects the bad debt charge to decline from the €1.9 billion set aside in 2011, despite an increase in arrears on the bank’s Irish residential mortgages since the start of the year.

The pace of the reduction in the charge depends on the performance of the mortgages and commercial property, the bank said.

Mr Boucher said that arrears on €3 billion within the bank’s €7 billion Irish buy-to-let mortgage book involving multiple properties were “problematic” and that rent receivers were being appointed where rental income was not being passed on to the bank.

To tackle funding costs, the bank has reduced deposit prices and withdrawn its UK subsidiary from the Government guarantee.

The bank said it has reduced its balance sheet by further €900 million with the sale of international loans, including €600 million of mortgages to a subsidiary of the Coventry Building Society. The bank has now completed 95 per cent of its deleveraging target.

Loans have fallen to €99 billion, customers deposits fell by €1 billion to €70 billion since December and the loans-to-deposits ratio has fallen to 142 per cent, still above the target ratio of 122.5 per cent.