AIB is to sell its 70% stake in Poland's Bank Zachodni WBK to Spanish bank Santander for €3.1bn.
AIB is selling off its stake as part of a restructuring plan aimed at raising €7.4bn to meet targets set down by the Financial Regulator.
Santander, the biggest bank in the eurozone by market value, is understood to have beaten off bids from BNP Paribas, Fortis and Polish bank PKO, in which the Polish government holds a 50% share.
AIB is also in the process of selling its 22% stake in US regional bank M&T, and its bank branches in the UK.
If its sale of assets fails to raise the €7.4bn in fresh capital it needs, the State will have to increase its shareholding in the bank.
Minister for finance Brian Lenihan has said that he welcomes 'Allied Irish Bank's sale of Bank Zachodni to Banco Santander.'
He continued, 'this successful sale is part of Allied Irish Bank's' capital raising exercise to meet the capital target set by the Financial Regulator.'