AIB yesterday reported another bumper year in 2005 with profits up 23 per cent to € 1.7 billion in 2005. The bank's chief executive, Eugene Sheehy, said AIB was continuing to "really fire on all cylinders" and is expecting another strong performance this year.

Half of the profits earned by the Republic's biggest bank came from its operations in the UK, the US and Poland. In Ireland, its profits increased by 24 per cent to € 779 million on the back of strong lending and its other banking activities here.

Last year AIB set aside € 50 million to compensate customers it overcharged over a number of years for foreign exchange.

The headline profit figure also includes €45 million of the €160 million profit the bank will make from the sale and leaseback of a development site at its Ballsbridge headquarters which is due to be completed in early 2007. The bank is currently holding a tender to complete a similar deal on its existing headquarters but would not state how much it expects to make from that arrangement.

The group's €1.7 billion profit was ahead of market expectations with some analysts expected to upgrade their earnings forecasts for the bank for this year.

AIB shareholders will be paid a 65.3 cent dividend per share, a 10 per cent increase on last year on the strength of this performance. AIB shares last night closed up 1.12 per cent at €19.90.

Mr Sheehy expects very good growth in loans and deposits again in 2006 and said the quality of its loan book will remain strong.

During last year AIB's loans in Ireland, including mortgages, business lending and personal lending, increased by 28 per cent. Deposits rose by 20 per cent with the bank also reporting a notable rise in profit at its card services division, which includes credit cards, which was boosted by higher consumer spending.

AIB's capital markets division, which includes its corporate banking and treasury operations, also had a good year with profits up 27 per cent to €403 million. Mr Sheehy said that about one third of its profits were generated overseas.

In the UK and Northern Ireland, the bank's profits rose by 18 per cent to €322 million where loans and deposits rose by 29 per cent and 17 per cent respectively.

In Poland, where AIB holds a 70.5 per cent stake in Bank Zachodni WBK, the group earned profits of €132 million, up 13 per cent on the previous year. Lending remained subdued in this market where the bank does not compete in the residential mortgage business. It said that personal lending grew strongly and that customer deposits had increased by 8 per cent although margins had deteriorated in line with lower interest rates.

AIB's 23.5 per cent interest in US bank M&T generated after-tax profits of €148 million, up 16 per cent on 2004.

In 2005 AIB says it had 70,000 more customers in Ireland and added more than 100,000 customers in Poland. In the UK it is continuing to see a migration from small to medium market customers, it said.

The bank expects "low double- digit" earnings in 2006.