By Padraic Halpin

DUBLIN (Reuters) - Concerns over the profitability of its lending overshadowed Bank of Ireland's (I:BIRG) resumption of dividends for the first time in a decade, sending its shares lower on Monday.

The bank had said a year ago it expected to pay its first dividend since the financial crisis in the first half of 2018, a year later than initially hoped as it awaited further clarity on Brexit and visibility on its pension deficit.

The deficit stabilised at 500 million euros (£439 million)last year and new chief executive Francesca McDonagh said the bank, the Irish lender most exposed to the British property market, was seeing no material impact so far from Brexit.

"This is a pivotal moment," McDonagh, who took over in October, told Reuters, referring to the resumption of dividend payments at 11.5 euro cents per share as annual underlying profits held steady at 1.1 billion euros.

That equates to 18 percent of sustainable earnings, Davy Stockbrokers said, calling it somewhat lower than expected.

The bank, Ireland's largest by assets, reiterated its aim to progressively build payments towards a payout ratio of around 50 percent of sustainable earnings.

However, investors focused on net interest margin (NIM), a measure of the profitability of a bank's lending, which dipped to 2.24 percent at the end of 2017 from 2.32 percent in the first half of the year, a level it expects it to remain at this year.

Its shares were 2.8 percent lower at 7.54 euros by 0940 GMT.

Analysts and traders said that the outlook negated positives elsewhere, namely a robust boost in core Tier 1 capital to 13.8 percent from 12.8 percent as of the end of September under fully loaded Basel III industry rules and growth in the share of the Irish mortgage market to 27 percent from 25 percent a year ago.

Chief Financial Officer Andrew Keating added that NIM was primarily lower due to structural reasons and was optimistic about future expansion in line with the bank's expectation for net loan book growth in 2018 after years of repayments and redemptions exceeding improving new lending.

"Customers, particularly small business, are still reticent about taking on extra debt with some uncertainties about Brexit and because of the prosperity in the economy, most are managing their growth in cash," McDonagh told the Newstalk radio station.


"What we are seeing though in 2018 is an inflection point and we're already seeing at the end of last year that households are beginning to take on a bit more debt and we believe that the tipping point for businesses will happen in 2018."