Irish Life & Permanent has issued a positive trading statement, signalling strong growth in its banking and life assurance businesses and indicating that it will meet its earnings targets.

In a statement issued to the Irish Stock Exchange yesterday, the group said its loan book is expected to increase by more than 20 per cent year on year to €19 billion by the end of June, while sales of its life and pension products are expected to rise by 18-20 per cent.

"A strong economy and, in particular, a buoyant labour market provide a positive backdrop for both banking and life businesses, supporting good demand and volume growth," it said.

Earlier this week the Republic's biggest bank, AIB, also issued an upbeat trading statement, stating that its performance had been bolstered by strong economic conditions here.

Irish Life & Permanent shares were weaker following the statement as investors seemed concerned about the further erosion of its profit margins on its banking and life businesses, which will be larger than expected. The shares closed 17 cent weaker at €12.73.

Analysts were broadly positive about the company's prospects with Davy leaving its forecasts unchanged.

Irish Life's Irish banking operations, Permanent TSB, expects gross new lending to expand by 40 per cent in the six months to the end of June compared to the same period last year.

The bank, one of the State's biggest mortgage lenders, said demand for home loans is particularly buoyant, with Permanent TSB expecting gross new lending of around €2.2 billion.

Its UK mortgage subsidiary, Capital Home Loans, is also experiencing exceptional new residential mortgage lending, according to the statement. Consumer finance lending is expected to rise by more than 10 per cent.

The group expects sales of life products to increase by 18-20 per cent in the first six months and has reported a strong pipeline of new business into the second half of this year.

Sales at its retail life assurance division rose by more than 25 per cent on the same period last year when the market was experiencing considerable difficulties.

Irish Life & Permanent has benefited from a pick-up in pension and single-premium investment sales in the second half of last year and says this has continued into 2004. Corporate life division sales are expected to increase by around 8 per cent.

Irish Life Investment Mangers, which achieved a strong investment performance, is attracting substantial new business, with sales expected to be up by more than 60 per cent in the first half of this year, the group said.

The margin on Permanent TSB's lending and deposit operations tightened, reflecting lower European Central Bank interest rates and the increase in the amount of wholesale funds it has to source to support its residential mortgage lending. During last year, the bank realised a once-off gain of €26 million from the disposal of hedge securities, it said.

In the life business, the group's margin will be ahead of 2003 but will be behind target. It expects some of this will be offset by higher sales later this year.