Shares in Ireland's largest bank by assets fell as much as 8 percent on Monday after the bank also reported a smaller than expected pretax profit for last year.

Bank of Ireland grew its loan book in 2018 for the first time in a decade, but said competition in the UK mortgage market, which accounts for almost a third of its total book, contributed to a fall in its net interest margin (NIM), a measure of lending profitability.

The NIM fell to 2.20 percent at the end of December from 2.23 percent three months earlier. It stood at 2.32 percent 18 months ago, as the bank took advantage of the fast growing Irish economy where it is one of two dominant players.

The bank forecast a further decline to around 2.16 percent this year, though Chief Financial Officer Andrew Keating said it would return into "the 2.20s" in subsequent years, driven by an expected rise in interest rates.

Davy Stockbrokers said the NIM outlook would likely lead it to cut its forecast for underlying profit before tax in 2019 by 5 percent, with lower cuts in 2020 and 2021 also likely.

At 0930 GMT, Bank of Ireland shares were down 5.4 percent at 4.94 euros, off an earlier low of 4.80 euros.

Britain's biggest banks have also seen NIM fall in the last year, and have warned of a tough 2019. Lloyds Banking Group said its NIM would likely be around 2.90 percent, down from 2.93 percent in 2018.

Bank of Ireland's weaker forecast includes a 3 basis point hit from the planned sale of its UK credit card loan portfolio, which it said would help future profitability.

The bank's underlying profit fell by 13 percent to 935 million euros (£811 million) last year, despite a 13 percent rise in new lending volumes and a 3 percent year-on-year cut in costs - trends it expects to continue, as long as Britain secures an orderly departure from the European Union.

Pretax profit fell 2 percent to 835 million euros, missing analysts' forecast of 860 million in a Refinitiv Eikon poll.

With Ireland's economy heavily exposed to Brexit, Chief Executive Francesca McDonagh told Reuters small and medium sized businesses were deferring investment decisions, creating an investment gap with European peers that could be quickly closed once there is certainty.

(Reporting by Padraic Halpin; Editing by Mark Potter)

By Padraic Halpin