* H1 net interest margin 1.65 pct vs 1.34 pct in H2 2012
* Margin target of 2 percent little less challenging-CEO
* H1 underlying loss 383 mln euros vs 933 mln eur year ago
DUBLIN, Aug 2 (Reuters) - Bank of Ireland's net interest margin rose dramatically in the first half of the year as the only Irish lender to escape nationalisation declared itself a normal bank once again after four difficult years.
The bank said on Friday that its net interest margin - a key metric that shows how profitable its lending is - jumped 31 basis points to 1.65 percent in the six months to end-June, helping it trim its underlying loss by almost two-thirds.
With provisions for impaired loans falling, mortgage arrears growth slowing and the bank comfortable with the resilience of its deposit base, Chief Executive Richie Boucher said the 15 percent state-owned lender was firmly on the mend.
"It's been a hard four years," Boucher told reporters.
"But we now have a normalised bank which has strong momentum towards profitability... We are in the more pleasant place of having the challenges of ordinary businessmen and women."
The bank's net interest margin of 1.65 percent compared with the 1.28 percent reported by main rival Allied Irish Banks on Thursday and the 1.50 forecast by five analysts surveyed by Reuters.
Boucher said that the goal of increasing it to 2 percent was now a little less challenging compared with six months ago.
The momentum that the bank pointed to earlier this year saw its underlying loss before tax fall to 383 million euros from 933 million euros a year ago. Excluding a provision of 780 million euros, it made an operating profit of 380 million euros.
The bank's proportion of owner-occupiers in arrears for more than 90 days rose to 7.9 percent, the lowest in the industry where the average is 12.3 percent. Buy-to-let mortgage holders in trouble amounted to 17.6 percent, closer to the 19.7 percent average reported by the central bank.
"My eyes are glued to the net interest margin," said Stephen Lyons, credit analyst at Davy Stockbrokers.
"Most of the other metrics are similarly trending positively but I keep getting drawn back to that margin and its substantial jump." (Editing by Chris Gallagher)