Ireland's largest bank by assets put aside 937 million euros mainly to cover likely losses from 105,000 loan repayment breaks for customers hit by the crisis, making up the bulk of what it called a prudent charge of between 1.1 billion euros and 1.3 billion expected during 2020.

It also introduced a voluntary redundancy scheme as part of medium-term plans to cut staff numbers to below 9,000 from 10,340 at the end of June, a move strongly criticised by unions at a time when 16.7% of the workforce is temporarily or permanently unemployed.

Davy Stockbrokers analysts said that although the impairments were much higher than forecast they appeared to be front-loaded and pointed to a 2020 income outlook that was better than indicated in the first quarter.

"We're cautiously optimistic that we're beginning to see green shoots," Chief Financial Officer Myles O'Grady told Reuters, pointing to a 25% year-on-year jump in Irish mortgage applications in July and a 6% month-on-month rise in business loan volumes.

"It's all premised on there not being another lockdown but it does seem like things are picking up for a recovery as we get towards the end of the year and into 2021," O'Grady said.

The bank's shares pared initial gains to be up 4.2% by 1300 GMT, versus a 0.8% rise in the wider market. Allied Irish Banks rose 3.9% ahead of its interim results on Thursday.

Bank of Ireland put 63,000 payment breaks in place in the United Kingdom, where it is the biggest Irish lender and where it announced further restructuring to shrink its balance sheet.

Most UK breaks were for smaller consumer loans and O'Grady said 33% of impacted mortgage customers had extended the initial three-month holiday.

In Ireland, 54% of affected mortgage customers sought to extend the break to six months. Smaller rivals permanent tsb and NatWest Group's Ulster Bank have reported a similar level.

Bank of Ireland, which made a pretax profit of 376 million euros in the same period last year, said its core Tier 1 capital ratio, a key measure of financial strength, rose to 13.6% from 13.5% at the end of March, above the minimum requirement of 9.27%.

It also cut costs by 3% year-on-year.

($1 = 0.8472 euros)

By Padraic Halpin