* State-owned lender says deposits continuing to flow in
* Pre-exceptional operating loss narrows to 980 mln euros
* CEO waiting for tracker mortgage deal
DUBLIN, March 26 (Reuters) - Irish bank permanent tsb (PTSB) has had no fallout from the banking crisis in Cyprus, the state-owned lender said on Tuesday after reporting that losses in 2012 shrank by a third, while mortgage arrears rose.
"We've seen no issues so far, we've been through a lot worse than this and have seen continued inflows," PTSB group treasurer Kieran Bristow told a news conference.
Cyprus will force losses on uninsured deposits in bank accounts with more than 100,000 euros as part of a rescue deal agreed with the European Union.
The decision to make bank depositors take losses marks a radical departure from the bailout Ireland agreed in late 2010 after the financial crisis when deposits were protected.
But the Cyprus crisis and its bailout has not prompted outflows from PTSB.
"We saw strong inflows last year, this year and even this week since the announcement," Bristow said. "They continued to flow in across our deposit channels - institutional, corporate and retail," he said.
PTSB, the smallest of Ireland's three remaining domestically-owned banks, gained approval from the country's EU and IMF lenders last year to seek out a viable future by moving bad assets off its balance sheet.
The bank, split from its more profitable life insurance arm last year, said its full-year operating loss before exceptional items narrowed to 980 million euros ($1.29 billion) in 2012 from 1.47 billion euros a year earlier.
"WHAT WILL BE WILL BE"
After more than trebling its impairment charges to 1.4 billion euros in 2011, the bank, which is cutting more than 10 percent of its staff and a fifth its branches, trimmed bad debt provisions to 891 million euros last year.
However its net interest margin, measuring the profitability of its lending, remained the lowest in the industry at 0.72 percent versus 0.92 percent a year ago, while its loan-to-deposit ratio was at a still-high 191 percent.
The pace of mortgage arrears growth slowed as the country's unemployment stabilised just above 14 percent.
But the bank's chief executive Jeremy Masding said arrears had not yet peaked and the proportion of owner-occupier loans in arrears for more than 90 days stood at 15 percent at the end of 2012, up from 13.2 percent in June.
That compared to an industry average of 11.9 percent while 21 percent of buy-to-let investors were three months or more in arrears, again higher than the 18.9 percent reported by the central bank for the sector as a whole.
A large stock of loss-making mortgages that track the European Central Bank's low interest rate remain the biggest drag on profitability. Masding said the so-called "tracker" loans were costing the bank an "eye-watering" amount without specifying what that figure was.
The trackers have been moved into an asset management unit, one of three distinct businesses now being run by the bank. Masding said he was not expecting any quick decision on the kind of sector-wide tracker mortgage solution the government was looking at last year.
Masding said the bank, which aims to turn a profit again across the three units by the end of 2016, has seen funding costs continue to fall this year.
"All I can do is try to create as much option value as I can for our three businesses, manage it over time and what will be will be."