State-owned ACCBank, which will be merged with TSB Bank and floated on the stock market next year, has announced an 11 per cent rise in first-half pre-tax profits to £11.45 million (€14.5 million).

ACC said that with the continuing strength of the Irish economy, it was confident growth would continue in the second half, allowing it to meet its end-year targets.

"The second half of the year will be a particularly busy period for the bank as preparation for the merger with TSB Bank gathers pace," said ACC chairman Mr Padraic O'Connor. "I am satisfied, however, that the ordinary business of the bank will not be affected and that we are on course for another record year."

Loans and advances to customers increased by £116.9 million, or 7.3 per cent, to £1.72 billion in the first half, while customer deposits were up by £52.8 million, or 3.7 per cent, at £1.49 billion.

ACC said a key drivers of profit in the first six months was the growth in fee income, which was up by 22 per cent to £4.42 million.

Income from fees and commissions consisted mainly of fees and charges on ACC bank accounts and income from its broking service. ACC said this was an area in which it had under-performed in the past but it was particularly pleased with the improvement as it reduced the bank's dependence on rate margins in an increasingly competitive environment.

Despite lower interest rates, however, the bank managed a slight increase in its net interest margin to 2.58 per cent from 2.55 per cent a year earlier. This was mainly due to fixed rate loans, with very low margins, converting to variable rate loans with a higher margin, it said.

The bank said the merger negotiations with TSB were proceeding and had not been upset by the resignation of Mr Matt Barrett, the chairman of the non-statutory board overseeing the merger and flotation.

The bank also said it had paid all DIRT liabilities relating to bogus non-resident accounts which had been computed. ACC paid the Revenue Commissioners almost £1.35 million in a voluntary interim payment, pending a full Revenue audit going back to the introduction of DIRT in 1986.

The recent report from the Comptroller and Auditor General put ACC's potential liability at £17 million, a figure disputed by the bank.