DUBLIN--Bank of Ireland PLC (IRE), which is striving to emerge from the wreckage of the country's deep banking debt crisis, Monday posted a smaller underlying loss in 2012, but its road back to restoring profitability remains long.

The bank was a among a group of six stricken lenders that needed enormous sums from Irish taxpayers to keep them from immediate collapse when Ireland's over-inflated property market burst disastrously over five years ago. A huge bank-rescue bill eventually forced Ireland to strike an international bailout deal, in late 2010.

Bank of Ireland was the only one of three Irish surviving lenders to escape outright government control, and it believes it will emerge from the crisis as Ireland's "pre-eminent" lender.

Compared with nationalized rivals Allied Irish Banks PLC and Permanent TSB PLC, it shows the healthiest signs of being on the mend. But, with Ireland's economic recovery slower than expected, predicting when Ireland's dysfunctional banking system has firmly turned the corner remains as difficult as ever to predict, analysts say.

The underlying figure showed an annual loss of over 1.48 billion euros ($1.92 billion) after a loss of about EUR1.52 billion in 2011. The figure excludes items such as gains or losses it made from disposals under a huge restructuring.

It had a net attributable loss of EUR1.82 billion, after a profit of EUR45 million in 2011, and a total net loss of EUR1.83 billion in the period, compared with a profit of EUR40 million a year earlier.

Before the cost of the Irish government's bank guarantee and allowing for certain accounting classifications, Bank of Ireland said its net interest income was about EUR1.66 billion, down from EUR1.88 billion a year earlier.

And it said impairment charges on loans to customers remained at a high level of about EUR1.72 billion, though down from about EUR1.94 billion in 2011. It expects that charge will reduce in future periods "as the Irish economy recovers."

The Irish government owns about 15% of Bank of Ireland after outside investors in September 2011 completed a EUR1.1 billion purchase of Bank of Ireland stock. It also holds EUR1.8 billion in preference shares in the lender. The government hailed the sale in January of EUR1 billion in so-called contingent convertible, or CoCo, notes it held in Bank of Ireland to private investors as a sign of normality returning to Irish banks.

The government says it is confident that it will emerge from its international bailout and resecure full access to debt markets from 2014 when the European Union and International Monetary Fund will have disbursed the last of their emergency loans. Its creditors say that the Irish economy has turned the corner, and that the country's jobs crisis is past the worst, providing hope to the country's broken lenders.

Bank of Ireland said Monday that it too detects green shoots, saying that, with rising confidence, consumers have started buying small ticket items and are even weighing making home purchases for the first time in years, amid signs that home prices are stabilizing.

But it warned that despite progress, the Irish recovery has been "slow" and "uneven," with growth relying almost entirely on exports, while demand remains at best flat at home.

Write to Eamon Quinn at eamon.quinn@dowjones.com

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