Permanent TSB says it is making “continued progress” towards profitability, with mortgage lending up strongly and impairments falling.
In a trading update, the bank says it has accelerated the sale of some assets, most recently its Springboard Mortgages subsidiary, which has improved its liquidity and capital position.
PTSB's statement comes as reports suggest the bank may have to raise up to €1bn in fresh capital following the publication of the European Central Bank's stress tests on Sunday.
PTSB, AIB and Bank of Ireland have already been given the results of the tests, which will be made public this weekend.
But PTSB is said to have failed the "adverse scenario" test, meaning the ECB thinks that in the event of a financial crisis the bank would not have enough capital to absorb the resulting losses.
Bank of Ireland and AIB are set to pass the latest series of stress tests carried out by the European Central Bank.
In its trading update today, PTSB said new mortgage approvals were 123% higher in September than in the same month of last year.
Personal lending was also increased, while the number of current account customers had also risen.
Meanwhile, the bank said the number of mortgage accounts in long-term arrears of 90 days or more had fallen 24.7% from its peak, with impairments falling as a result.
PTSB said it had also deleveraged €1.2bn worth of assets since the end of last year.
However, sources said that while PTSB passed the asset quality review and baseline stress test elements of the ECB's exercise, it failed a test to see if could withstand a severe economic downturn.
Analysts said that the bank, which is 99% owned by the State, was between €0.8 billion to €1 billion below the required level of funding.
Mortgage arrears and a large number of tracker mortgages have weakened Permanent TSB's finances.
The State holds €400m of contingent capital notes in the bank, which analysts say could be converted into equity to cover part of the shortfall.
Analyst Ciaran Callaghan at Merrion Capital said that he thinks that Permanent TSB's failure in the theoretical stress test may actually be a positive development for the bank, helping to accelerate its capital restructuring and return to private ownership.
"The ability to attract private investment and emerge from complete government ownership should be credit positive for the bank, enhancing its future funding prospects and improving medium-term viability," he added.
Permanent TSB may also be able to write-up the value of some of its assets due to the recovery in property prices and the economy in general since last year, when the ECB actually examined its balance sheet.
The chief executives of 130 banks around the euro zone have already been told whether or not their institutions have passed the stress tests, but the results will not be made public until Sunday morning.
The ECB has asked banks not to make any disclosures until this point.