IRISH LIFE Permanent (ILP) has said it will not pay shareholders a final dividend this year.

Moreover, it expects the year's operating profit to be 30 per cent lower as it is writing off €92 million on investments in three state-rescued Icelandic banks and setting aside additional funds for rising bad debts.

The company's share price fell 7.7 per cent to €1.91 yesterday.

ILP said in a trading statement that, excluding exposure to Icelandic debt, operating profit would be 15 per cent lower - worse than the 10 per cent decline forecast by the company in August.

The firm is forecasting a tier one capital ratio, a measure of financial health, of about 10 per cent at the end of the year.

ILP chief executive Denis Casey said: "Our banking business is certainly being more challenged, particularly because the cost of funds has risen, but our life and pensions business is performing relatively well."

The company said its bad debt charge would be 11 basis points, or 0.11 per cent, of loans this year.

ILP added that its "stress models", which account for the recession, higher unemployment and house price declines, point to a bad debt charge of 60 to 80 basis points combined over three years.

The company said that it could "accommodate" rising bad debts without "requiring access to external capital support".

The firm has started accessing surplus capital from its life assurance business in a bid to strengthen the company further. Mr Casey said it could draw capital of more than €1 billion from its life business.

The company is finalising a reinsurance deal where it will sell on insurance risk which will release about €100 million in capital and reduce future needs over two to three years by between €100 million and €150 million.

No final dividend will be paid in a bid to save capital. This will conserve about €140 million and follows a similar move by AIB last week.

"It is clear that the one thing financial markets are valuing above everything else in the current environment is capital strength. We have that in spades," said Mr Casey.

He declined to say whether the dividends would be paid next year.

"Banks will be mindful of the responsibilities that the guarantee imposes on them and on their capital strength to ensure there are no circumstances where the bank guarantee would be called upon."

ILP will pay a "high single digit" million euro charge in this quarter for the guarantee, said Mr Casey, meaning a fee of between €7 million and €9 million.

On Tuesday 30 employees of Permanent TSB signed up to the bank's offer of paid career breaks, Mr Casey said. The bank is offering staff up to €35,000 to take a three-year career break in a bid to reduce the company's costs.

Mortgages of more than a month in arrears rose to 6,600 at the end of September from 5,700 in December 2007 from a total of more than 195,000 mortgages.

ILP expects gross new lending to fall about 45 per cent this year reflecting its decision to stop lending in the UK and buy-to-let loans being "severely curtailed".