Bank of Ireland on Wednesday followed main rival AIB in upgrading its net interest income guidance for 2022, reflecting the faster pace of European Central Bank interest rate increases.

Ireland's largest bank by assets said in a trading update that it expects net interest income to increase by around 6% to 7% year-on-year compared to its previous guidance that it would be modestly higher than 2021.

AIB, the country's largest mortgage lender, forecast last month that its net interest income would increase by more than 15% compared to the 10% expected previously.

AIB is the only Irish bank so far to increase non-tracker mortgage interest rates since the ECB began to hike rates at its fastest pace on record. Bank of Ireland and Permanent TSB , the only other high street lender, have yet to move.

Bank of Ireland's 3% interest income growth year-to-date was driven by the bank no longer being charged negative rates by the ECB for excess deposits.

It also said it expects to repay all of its ultra cheap ECB funding this month, boosting income by another 30 million euros.

As well as hiking rates last month, the ECB changed the conditions from November of its widely-used long-term loan programme known as TLTRO-III to encourage banks to pay at least some of the money back.

Bank of Ireland added that new lending was up 13% so far this year compared to 2021, comprising of a 30% jump in Irish retail, 23% increase in corporate and markets and a 19% fall in the UK, where it continued to focus on value rather than volume.

"Overall business momentum is positive. The strength of our business model means we are firmly on track to deliver sustainable RoTE (return on tangible equity) of greater than 10% in the near term," Interim Chief Executive Gavin Kelly said in a statement. (Reporting by Padraic Halpin; Editing by Simon Cameron-Moore)