AIB is expecting bad debt charges for 2009 to amount to €5.3 billion, up from previous estimates of €4.3 billion.
In an interim management statement today, the bank said the charges were weighted towards loans that may potentially be transferred to the National Asset Management Agency (Nama).
The loans are predominantly in the Republic of Ireland division, with some in the UK divisions.
"At our half year results presentation we said that a bad debt charge outlook figure for 2009 was likely to be overtaken by the implementation of the first phase of Nama. Accordingly we did not revise the previously guided figure of €4.3b billion provided in May," the statement said.
"We did however note that in light of the continuing deterioration in the economies in which we operate, particularly in Ireland, the risk to that figure of €4.3 billion was that it would be higher."
The company said that when the impairment charges were excluded from the balance sheet, the group is expecting underlying operating profit of around €2 billion.
"Income pressure and most particularly the cost of customer deposits is the key driver of reduced operating profits in our Republic of Ireland and United Kingdom divisions," the statement said.
Gross customer loans are expected to be being broadly in line with last year, as demand for credit remains weak. However, increased impairment is expected to reduce year on year net customer lending by about 4 per cent.
A low levels of loan demand is particularly evident in Ireland, the group said.
Shares in AIB were down 1.3 per cent to €1.72 on the Dublin market this morning.
The Government yesterday confirmed it would not allow guidelines on salaries for top bankers to be breached with the appointment of AIB's new managing director.
Senior AIB executive Colm Doherty was today confirmed as managing director of the bank at a salary of €500,000.
Minister for Finance Brian Lenihan said yesterday he had received a proposal from AIB for the appointment at the higher salary, but confirmed that the Government was not prepared to breach the guidelines for the appointment, which capped the salary at €500,000.
Speaking on RTÉ's Morning Irelandtoday, Minister for Energy, Communication and Natural Resources Eamon Ryan denied that the Government would be forced into anything by the banks, and said there would be "ongoing change".
"Banking's got a tough name, it's got a bad knock in recent years. The 85,000 people working in Irish banks are by and large decent, straight capable honest hard working people. I thnk we're at a moment in time where we can turn it around," he said.
"I'm confident the bank will work in cooperation with the Government along the guideines that we have set with the primary objective of getting the economy turned around, getting everyone back working, and with incomes raised so we can start pay off some of the debts we built up wrongly over the last 10 years."
