Permanent TSB improved its margins and reduced impairment charges in the third quarter but said new lending was being constrained by limited growth in the mortgage market that is key to its growth.

In a trading update, the lender said its financial performance has improved further in the third quarter.

It said that the improving Irish macro-economic performance has contributed to continued reductions in its loan losses.

Permanent TSB said it has seen an increase in current account balances and lending drawdowns since the start of the year.

The bank said current account balances were up 6% since the end of 2014, while lending drawdowns are up 34% year on year.

But it said its mortgage drawdowns have remained broadly in line with the figures from last year, with the market failing to grow at the speed anticipated.

The lender also said that 76% of cases identified in its Mortgage Redress Programme have now been dealt with.

PTSB agreed to compensate to 1,372 mortgage owners in July after the Central Bank found it had failed to warn them of the consequence of breaking the term of a particular loan agreement.

The level of mortgages in arrears further declined between July and September this year, the bank added today.

Permanent TSB said that the growth in the economy is providing a strong backdrop for its targeted return to sustainable profitability.

"At the same time, challenges remain in the form of increasing costs of meeting higher regulatory standards, limited housing supply resulting in constrained growth of the mortgage market and over supply and volatility in the UK mortgage asset market," the bank said.

The bank said its net interest margin, a key measure of profitability that the bank aims increase to 1.7% by 2018, rose to 1.26%, reflecting cuts to its deposit rate. This took the nine-month average to 1.07%.

Shares in the bank were sharply higher in Dublin trade today.