Bank of Ireland is cutting its full-year dividend by 50 per cent to strengthen its capital position after warning on Wednesday that bad debts would rise in the second half of the financial year and further still in the following year.

The Dublin-based lender cautioned its performance for the first half, to September 30, would be down on the same period last year, with higher impairment charges reflecting a “rapid deterioration in general economic conditions”. Those charges were expected to rise from the mid-30s basis points in the second half to between 60 and 90 basis points for the year ending March 31, 2010.