AIB has reported a loss before tax of €3.8 billion for last year, down from the figure of €5.1 billion in 2011.
The bank said its operating loss - before exceptionals - came to €2.8 billion, down 65% from the figure of €8.1 billion in 2011.
The bank said the narrowing losses were mainly driven by a 70% reduction in bad debt provisions from €8.2 billion in 2011 to €2.5 billion in 2012.
In today's results statement, the bank said that 9.1% of its Irish owner-occupier mortgages are more than 90 days in arrears, while 17.7% of buy-to-let mortgages are more than 90 days in arrears.
It said that while arrears on its Irish mortgage book increased last year, the pace of increase slowed compared to 2011.
About 2,000 staff have been trained specifically to engage with, and help, customers dealing with financial stress. It noted that the ongoing difficult economic environment, especially in Ireland, continued to impact credit quality.
AIB said its plans to to return to sustainable profitability during 2014 remain on target. It added that its priority for 2013 is to ''substantially address'' the issue of SME and mortgage customers in difficulty.
The bank's chief executive David Duffy said that AIB has now largely completed the restructuring phase of its strategic plan.
''While 2012 was another very challenging year for the group, a number of important steps were taken to position the bank for recovery over the longer term. We continued to make progress on restructuring our balance sheet and undertook a number of strategic initiatives which will reduce the bank's cost base over time. Progress was also made in reorienting the organisation to be better aligned with the needs of our customers,'' Mr Duffy said.
AIB said that during 2012 the bank reduced its reliance on ECB funding by €9 billion to €22 billion. It also said that the Finance Minister's recent announcement that the Eligible Liabilities Guarantee is to end for new liabilities at the end of the month is an ''important milestone'' for the bank.
During the year, the bank said it would close a total of 67 branches across the country by this June. In an effort to cut costs, the bank said it would reduce its headcount by at least 2,500 by March 2014.
Today's results and annual report show that the bank's CEO David Duffy was paid €546,000 last year.