BANK of Ireland reported a loss of €2.16bn in 2012 following a "challenging" year for the bank which saw mortgage arrears rise.
The latest loss was up from €190m a year earlier, a figure boosted after the bank recouped €1.8bn by burning so-called junior bond holders. While acknowledging the bank's problems, officials said the country's biggest bank by market capitalisation made good progress in key performance targets in 2012.
The bulk of the losses for 2012 were driven by provisions for bad debts and higher write-offs associated with job cuts and asset sales which at €1.72bn were down from €1.94bn a year earlier.
The bank said mortgage arrears continued to increase in 2012 but the pace slowed.
The figures remain stark, however. The bank said that 9.9pc of home loans for owner- occupiers are in arrears, compared to 23.4pc of buy-to-let mortgages.
The bank expects to carry out more repossessions of buy-to-let properties once the Government acts on a promise to update legislation to give banks more freedom to seize houses over unpaid debts. Bank of Ireland hopes to avoid, as far as possible, repossession of family homes, chief executive Richie Boucher said.
The fall in house prices is estimated to be 55pc since the boom, he said.
The stabilisation in house prices as well as in mortgage arrears means the bank said it probably won't need more capital after stress tests this year.
However, the bank's chief executive did not rule out shareholders, including the State, seeing their holdings diluted if they are asked to help redeem €1.8bn of so-called preference shares over the next year.
The preference shares are currently in state hands and become more expensive for the bank if they remain so in March 2014, under a structure designed to incentivise a return of cash to taxpayers.
The bank published results for 2012 that show revenues of €1.8bn. An eventual return to profit will be helped by the scrapping of the government guarantee at the end of this month, the bank said.
Fees for using the guarantee cost the bank €388m last year and will fall rapidly once the scheme starts to be phased out from March 28, the bank said.
That may help improve the bank's "net interest margin", a measure of the difference between the banks' cost of borrowing – mainly by taking in deposits – and the rate it charges for loans.
That rate was just 1.25pc at the end of last year and means Bank of Ireland will be challenged to hit a target of 2pc next year, Mr Boucher admitted, unless the main European Central Bank rates are raised.
It's bad news for customers because without that intervention, the main way the bank can improve the net interest margin is raising interest rates for borrowers and cutting them for depositors.
The head of the bank said there are signs the economy is stabilising. "If we look at our deposit books, there is cash in the economy. People are still cautious about spending. However, we are certainly seeing them starting to spend on smaller ticket consumer items."
Shares in Bank of Ireland closed up 3.8pc at 13.6 cent each yesterday.