AIB has almost halved its previous earnings outlook for 2008 after increasing its estimate of bad debts for the year.

In a trading update ahead of its full results for 2008, due on March 2, it said it now expected to report earnings per share of around 66 cent. In November, AIB had said its target was around €1.20 per share. Instead of making just over €1 billion in profits after tax, the figure is now expected to be €580m.

The bank says it will take a charge for bad debts of around 1.37% of its average loans, up from the previous 0.75%. Based on its November estimate, this would amount to more than €1.8 billion in total.

AIB said it had increased its estimates of bad debt charges from November due to worsening economic conditions. This included an extra €500m set aside to cover 'a portfolio of identified cases', of which 75% related to Irish property development loans. Although these loans were not yet bad, it said they were showing 'growing signs of stress'.

The bank said, however, that it had seen some benefits from a reduction in costs and cheaper funding on international money markets.

Last week, the Bank of Ireland told markets that in a worst case scenario, the value of impaired loans on its balance sheet could almost double to €6 billion by 2011. The bank had previously issued guidance in November saying the figure for impaired loans amongst property developers and other lending would be €3.8 billion.

This came after the Government announced that both banks would receive €3.5 billion each under a recapitalisation plan.