Profits grew by 5 per cent at Irish Life & Permanent over the first half of the year, as a strong performance in life and pensions balanced a less impressive banking result.

The group said yesterday that its operating profits had climbed from €187 million in the first half of 2004 to €196 million in the six months to the end of June.

A breakdown of the result shows that while profits were up by 7 per cent at €109 million within the group's life operations, banking profits climbed by just 2 per cent to €66 million.

Profits from the firm's general insurance associate, Allianz Ireland, rose by 9 per cent to €24 million.

Irish Life & Permanent chief executive, David Went, said the results were "outstanding on the life side, very solid on the baking side and very satisfactory overall".

"We face the remainder of 2005 with great confidence," he added.

The combined result was slightly beneath some analysts' forecasts however, although much of the shortfall was linked to the application of new accounting standards to Irish Life & Permanent's results.

This led to the absorption of a €7 million reduction in treasury profits, without which banking profits would have climbed by 12 per cent.

Irish Life & Permanent has applied international financial reporting standards (IFRS) to its banking and associate general insurance numbers, but has used the European embedded value methodology to report its life insurance and investment results because it believes that this combination best reflects the composition of its operations.

The highlight in the numbers, as reported under these standards, came in a 61 per cent rise to €45 million in new business inflows into the group's life and investment businesses.

Mr Went described the increase, which came largely on the back of retail investment sales as, "particularly pleasing". He said the market backdrop for life and pensions business was "hugely supportive".

In banking, said Mr Went, market conditions are "tough", with "lots of jockeying for position" amid margin pressures.

The group's banking operation, Permanent TSB, lent out €2.5 billion in new mortgages over the half, marking a 12 per cent increase on the same period of 2004.

The figures do not include any contribution from 100 per cent loans, which were launched by Permanent TSB over the summer.

Mr Went said the bank, which has about 18 per cent of the mortgage market, had developed the products only because other players in the market had done so, and not because of consumer demand.

He expects that 5-10 per cent of first-time buyers will take up the products "over time".

Mr Went rejected the idea that the market could soon accommodate 120 per cent loans, saying that consumers simply have no need for them.

Irish Life & Permanent will pay an interim dividend of 17.7 cent, up 7 per cent on last year.

Shares in the group fell 25 cent to close at €15.15 last night.