The bank, Ireland's only lender to escape nationalisation, reported a half-year profit for the first time in five years in August and said on Friday it continued to benefit from the positive economic environment in its businesses in Ireland and Britain.

Ireland's economy is set to grow by almost 5 percent this year as the country's lenders recover from a banking crisis that led to a state rescue and helped push Dublin into an international bailout it completed last year.

Having had sufficient capital at the end of 2013 to pass the European Central Bank's stress test last week, the bank said its Core Tier 1 capital ratio - a measure of financial strength - rose to 14.1 percent from 13.2 percent at the end of June.

Under the so-called "fully loaded" Basel III ratios, applying all the new global rules, the bank said its capital ratio excluding preference shares it intends to repay in the first half of 2016 was 8.3 percent at the end of September.

Ireland's largest lender by assets added that its net interest margin, a key metric that shows how profitable its lending is, rose to around 2.08 percent during the quarter, while its stock of defaulted loans fell to 16.4 billion euros(12.8 billion pounds).

The bank's loan volume also stabilised in the quarter, but this partly reflected a rise in the value of sterling, with repayments and redemptions continuing to exceed new lending.

(Reporting by Padraic Halpin; Editing by David Holmes)