Bank of Ireland has reported a sparkling half-year performance with a doubling of profits to £507 million.

The figures were boosted by the sale of its stake in the US Citizens Financial group earlier this year, which realised £172.4 million. Taking this exceptional item into account, the bank still managed to achieve a 34 per cent increase in profits to £334.8 million, bringing in a half-year out-turn well above analysts' expectations.

The good results pushed the share price ahead yesterday. The shares closed at £12 in Dublin, ending the day up 5p. Bank of Ireland chief executive Mr Maurice Keane described the half-year figures as "very satisfactory" and predicted further good growth for the bank during the rest of 1998. "The bank's domestic performance is very strong. And, while Ireland is not immune to global economic conditions, there is very little doubt that there will still be very strong growth in the Irish economy, albeit at lower rates, in the years ahead. Within the EU, it will remain the strongest performing economy," he said.

The bulk of the profits were earned from the bank's retail operations in the Republic, which contributed pre-tax profits of £219.4 million, up from £178.5 million in the same period last year.

Despite falling interest rates and some tightening of bank profit margins, Bank of Ireland's earnings across all of its activities rose sharply. The bank managed to capitalise on the continuing strong demand for residential mortgages, which boosted its fee income by 19 per cent. Group income from other lending was also up at 18 per cent.

On the deposit side, even with interest rates sliding to historically low levels, Bank of Ireland's income from ordinary credit balances rose by 30 per cent, with earnings from time deposits up 12 per cent and profits on demand deposits running 22 per cent ahead over the six-month period.

Other income earned from life assurance, asset management, credit cards and Davy Stockbrokers also showed healthy growth, rising by 28 per cent.

Its subsidiary, British-based Bristol & West group, posted a handsome return. In the half-year period, it recorded pre-tax profits of £90.9 million, again driven by good growth in its core mortgage lending and deposit-taking operations.

The US-based Citizen's Financial group added a further £25 million to the bottom line with earnings in other markets bringing in a further £8.1 million.

Mr Keane pointed to the decline in the bank's profit margins, both in the Irish and British markets during the six months. The group's overall net interest margin - the difference between the interest rate earned on borrowings less the return paid to depositors - was reduced by 0.7 of a percentage point from 3.35 per cent to 2.64 per cent. Margins at Bristol & West tightened substantially, while those earned in the Irish retail banking and treasury operations were reduced. Mr Keane predicted further pressure on margins this year in the Irish and British markets on the back of lower interest rates.