Allied Irish Banks has produced a strong set of results for the half-year to the end of June, despite a sharp fall in profits at its Polish operations and slower growth in the United States. Pre-tax profits rose almost 20 per cent to #667 million (£525 million) - #3.6 million per day.

The results were at the upper end of analysts' expectations, but failed to affect AIB shares, which have fallen sharply in recent months in line with weakness in the European banking sector. Shareholders, however, are being rewarded for the solid first-half performance with a 14 per cent increase in the interim dividend to 25.4 cents.

AIB's results were very much a mixed bag, with strong performances in the Irish and British banking operations and in capital markets, the beginnings of a recovery in the US but a sharp fall in Poland where the drop in profits to #26 million from #45 million was substantially bigger than many analysts had expected.

The first-half picture in Ireland and Britain was very positive. In Ireland, profits and deposits both rose by 16 per cent while AIB grew its mortgage business by 22 per cent. In the UK, profits rose 13 per cent and deposits were up 18 per cent.

Capital markets profits climbed 13 per cent, driven by a 27 per cent increase in the corporate loan book and a 47 per cent increase in fee income.

Earnings at the Allfirst subsidiary in the US rose by 6 per cent in the first half. But with earnings in the second quarter up 10 per cent from a virtual stand still in the first quarter, there are clear indications of a rise in earnings momentum.

The slump in the Polish economy, however, with rising unemployment, high interest rates and the strength of the zloty against the euro, severely affected AIB's banking operations there.

AIB chief executive Mr Michael Buckley acknowledged the short-term difficulties in Poland, but said the completion of the merger of WBK and Bank Zachodni would allow AIB generate synergies. "We would prefer a more benign economic environment but the Polish market of 40 million people will perform significantly better in the medium to long term than it is now," he said.

Mr Buckley acknowledged that the bad debt situation in Poland was a problem, even though such debts had fallen from 18 per cent some years ago to 7 per cent. The level of non-performing loans was 18 per cent, 3 per cent above the average. "We will have to work on that," Mr Buckley said.

AIB's faith in Poland is reflected in its rapid expansion there, with 35 branches opened in the first half and another 40 planned in the second half of the year.

Overall, AIB Bank, which takes in the Irish and British banking operations, increased profits to #372 million from #323 million in the first half last year, while profits at capital markets rose to #101 million from #90 million. Allfirst profits were up to #170 million from #164 million while profits in Poland were down 42 per cent to #26 million from #45 million.