AIB has said an increase in mortgage interest rates is unavoidable, as the bank reports its first-ever full-year loss.
The bank has reported pre-tax losses of €2,656bn for 2009, describing it as a very challenging year.
It is putting aside €5.35bn provision for bad loans, saying this equates to 4.05% of its average customer loans.
€3.4bn of this relates to loans that have been identified for potential transfer to the National Asset Management Agency.
AIB says the operating environment continues to be very difficult with both the increased costs of deposits and higher funding costs evident.
Speaking on RTÉ's Morning Ireland, AIB Group Managing Director Colm Doherty said he had prepared a capital development plan, which has been approved by the board of AIB, and that plan is being implemented.
He said: 'We clearly have a number of extremely valuable and divisible assets which we will be able to optimise value from.
'After we have done that we could go to our shareholders for a rights issue.'
Mr Doherty also said that the bank has been approached by 'a number' of other financial institutions with regard to a strategic investment in the bank, but he declined to say who those were.
He said that once the bank had exhausted all of the other options in relation to raising capital, only then would he see the bank going back to the State, though he could not rule this out.
Mr Doherty said AIB will emerge as a smaller bank. He said talks with the EU on restructuring were not over, so AIB has not yet heard what it is required to do with the shape of the institution.
AIB estimates it will hand over €23bn in loans to NAMA, though this figure may fall. Mr Doherty said it was difficult to predict what the discount will be on the loans.
Mr Doherty said the current retail banking environment in Ireland is 'quite dysfunctional'. He said the bank is being charged more for the money it borrows than it is charging its customers. He said this is unsustainable - you cannot spend more than you earn.
He said it was inevitable that pricing, right across AIB's product range, including mortgages, will have to go up in Ireland in 2010.
He said AIB is in a very difficult position on foot of its exposure to land and property development in Ireland.
The NAMA transfers will assist in terms of helping the bank's liquidity, but it is going to have to generate more capital for itself, and hopefully by doing that AIB will be able to minimise the call on the Irish taxpayer for further support.
Minister for Finance Brian Lenihan told RTE News this evening that if any more taxpayer's money goes to AIB, it will be for an increased share in the bank
However putting more taxpayers money into the bank, he said, was a last resort.
Asked about possible mortgage interest rate increases, Mr Lenihan said the European Central Bank has kept rates at a record low, adding that banks will have to do more to keep it that way.
Fine Gael's Finance Spokesman Richard Bruton said the Government had to confront the banks by forcing them to sell assets and letting those who made bad decisions take the pain.
He condemned banks for turning back to borrowers to solve their problems.
