Bank of Ireland continues to trade "in line with expectations", the company said today in advance of its annual shareholders meeting.

It said improvements were achieved in the volume of non-performing loans while new lending increased.

But its pension deficit widened and its UK loan volumes reduced due to sterling weakness.

The bank said macroeconomic environments in Ireland and the UK have “remained favourable”.

In Ireland, the export sector continued to expand and domestic activity increased as improving labour market conditions and other factors positively impacted consumer spending.

In the UK, where the bank is focussed on the domestic sector, the economy expanded in the first quarter, notwithstanding some uncertainty relating to the upcoming Brexit referendum.

“Our regulatory capital ratios are substantially hedged from currency translation impacts,” the bank said.

“However, given that sterling weakened by 7 per cent during the first quarter vis-a-vis our euro reporting currency, this has impacted reported balance sheet assets and liabilities as well as items in the profit and loss account.”

On a constant currency basis, Bank of Ireland said its net interest income had performed in line with expectations during the first quarter.

“Customer loan asset spreads remain in line with H2 2015 levels and we are continuing to take actions to reduce the cost of our funding,” it added.

The bank said its liquid asset volumes are higher than anticipated, due to underlying deposit and current account volume growth.

As a consequence, its net interest margin averaged 2.11 per cent during the period.

Other non-interest income and fees are largely in line with the second half of 2015, notwithstanding the backdrop of a more volatile market environment.

As anticipated, regulatory charges and levies of about €50 million were accounted for during the period.

Its non-performing loan volumes had fallen by €900 million since December 2015 to €11.1 billion at the end of March 2016, with reductions across all asset classes.

Its defaulted loans reduced by €800 million during the same period to €9.8 billion.

“These reductions reflect our ongoing progress with resolution strategies that include appropriate and sustainable support to customers who are in financial difficulty, the positive economic environment and the ongoing recovery in collateral values. We expect the level of non-performing loans to continue to reduce,” the bank said.

Its balance sheet was impacted by the translation impact of sterling assets and liabilities with customer loan volumes reducing to €81 billion in euro reported terms at the end of March 2016 and customer deposits to €79 billion, resulting in a loan to deposit ratio of 104 per cent.

The decrease in the value of sterling accounted for about €3 billion of the movement in customer loan volumes.

New lending volumes were higher than in the same period last year, the bank said.

Wholesale funding was €14 billion at the end of March 2016.

At the end of March 2016, the group’s fully loaded CET 1 ratio was 11.2 per cent, in line with the December 2015 position.

The Group’s continuing organic capital generation was offset by an increase in the IAS 19 accounting standard defined benefit pension deficit to €900 million.