AIB has announced it is to increase its standard variable rate for mortgage holders from 3% to 3.5% from 3 September.

It has also announced plans to close 67 branches by the end of 2013.

In its results for the first half of 2012, it said 45 sub-office closures and six branch amalgamations would take place from October.

A further 16 branches are set to close in 2013.

The bank said that these branches typically carry out on average 20% of the transaction volumes of other AIB branches.

The bank said the office closures will not result in compulsory job losses and that staff will be offered employment at other locations.

The results show an operating loss of €1.1bn, a fall of 64% from the first half of 2011.

The bank's provision for bad debts in the first six months of the year is €900m, a drop of 70% from the first half of 2011.

The bank aims to save €200m per year from its redundancy scheme and it expects to meet its minimum target of 2,500 staff reductions by 2014.

A pay freeze and a pay cut at senior levels is expected to save a further €30m per year.

AIB said it has the lowest standard variable rate in the Irish mortgage market and its current mortgage portfolios are loss-making.

Following the increase announced today, the bank said it will continue to have the lowest standard variable rate in the Irish domestic market.

Buy-to-let mortgages will also increase by 0.5% from 3.95% to 4.45%.

AIB Chief Executive David Duffy has said that raising the standard variable mortgage interest rate by a 0.5% was a "very difficult" decision to make.

Speaking on the RTÉ’s News at One, Mr Duffy said that raising the rate was necessary because of the cost of funding.

He said: "It's a decision that was very, very difficult for us to make but if we are return to sustainable profitability, which is the mandate we were given, so that can support the economy growing, we cannot afford to write a loss on one of most important products.

“We are very, very sensitive about this decision in terms of its execution and we want to make absolutely sure that customers will contact us immediately if they feel the decision will cause any consequences in that are the negative."

Mr Duffy also moved to reassure rural customers that services will be maintained through An Post and through mobile banking.

Closures will shock customers - IBOA

The Irish Bank Officials' Association said the branch closures will come as a major shock to customers.

The union said the bank has also identified a further five branches for closure in its First Trust Bank subsidiary in Northern Ireland.

IBOA General Secretary Larry Broderick said apart from the impact of these closures, there is also a wider issue of public policy that must be considered.

He said: "What we are witnessing at the present time is the piecemeal dismantling of Ireland's banking infrastructure.

"We could soon arrive at a position where many towns around Ireland have an ATM and little else."

He said there is an urgent need for an integrated strategic approach to Irish banking.

Speaking later on RTÉ’s News at One, Mr Broderick asked the Government to make clear a strategy for the Irish banking sector.

He added that recent problems experienced by Ulster Bank highlighted the need for bank branches.