The Irish Government is to inject €3.5bn (£3.15bn) into Bank of Ireland as part of its continued effort to recapitalise the Irish banking sector.

The core tier 1 capital’ will be issued in the form of new preference shares in Bank of Ireland with an 8% coupon. Ireland’s government said that Bank of Ireland’s core tier capital would grow to €10.7bn (£9.6bn)

Brian Goggin, chief executive at Bank of Ireland, in an interim management statement today welcomed the Irish government’s capital investment and said: ‘These measures are the result of an intense period of engagement between the bank and the government…Our stockholders have suffered very significant losses in the value of their holdings in Bank of Ireland. We sincerely regret this and see this capitalisation as a major step in the long-term rebuilding of value for our stockholders.’

He also lowered the bank’s earnings forecast for the second half of the year and said it expects to post an underlying loss. Its underlying profit in the second half of last year was €70m (£63bn).

Goggin said that based on a ‘continued market deterioration’ its estimates for loan impairment charges to March 2011 have increased from around €3.8bn (£3.1bn) to around €4.5bn (£4bn). Around 45% of the increase in the loan impairment charge in the second half arises from the bank's property and construction portfolios.

‘Uncertainty regarding the future results in risk to this estimate. As key economic indicators deteirorare there is a downside risk to this estimate which may result in an additional loan impairment charge of up to €1.5bn for the three years to March 2011.’

He also said the government was ‘examining proposals for the management and reduction of risks with respect to land and property development portfolios, having regard to international developments’

The bank said that equity markets remain weak and volatile, while global inter-bank and wholesale funding markets are stressed.

Its full year results to March 31, 2009 will be published on 19 May 2009.