AIB plans to sell its first junior bonds since imposing €5 billion of losses on holders of its riskiest debt, according to reports on Bloomberg. 

The financial news agency said that according to two people with knowledge of the matter, AIB is seeking to sell so-called Tier 2 notes as early as next week.

Any sale would depend on market conditions, it added.

The funds would boost AIB's capital ratios and show it can issue such securities before the Government starts to sell shares in the bank as early as next year, one of the sources said.

"AIB won’t be making any comment on this," the bank said in an e-mailed response from Bloomberg to questions. 

Ireland guaranteed its banks six years ago this month as the country's financial system came close to imploding in the wake of Lehman Brothers Holdings' failure. 

To make good on the pledge, the state had to commit €64 billion to rescue its lenders as their loan losses soared after a property collapse. 

Bailed-out Irish banks raised an additional €15 billion between 2009 and 2011 buying back most of their junior bonds at discounts to par value. 

"The timing of a potential AIB subordinated bond looks very good for us, given how buoyant markets are at this time," said Philip O’Sullivan, an economist with Investec in Dublin.  

"We think that a sale by AIB would be well received by investors," he added.  

The rate on Ireland’s two-year sovereign bonds dropped below zero for the first time today after European Central Bank policymakers yesterday cut their key interest rate and signalled at least €700 billion of aid to support the flagging euro zone economy.

When AIB reported its first underlying profit since 2008 in July, the bank's chief executive David Duffy said its capital position was strong as the European Central Bank completes stress tests on euro zone lenders. 

The bank may use the bond proceeds to help refinance €1.6 billion of Government-held contingent convertible notes after the stress tests, according to O’Sullivan at Investec. 

AIB’s core equity Tier 1, a gauge of financial strength, rose to 11.8% at the end of June from 10.5% in January, according to its interim report. 

Mr Duffy has said that AIB will be ready for any potential Government share sale from next year, in order for taxpayers to start recouping their €21 billion bailout of the bank. 

Finance Minister Michael Noonan said in a Bloomberg Television interview in January that the Government may sell a stake in the bank before the next scheduled general election in 2016.