AIB has approved €9 billion in lending between January and September, up 39% on the same time last year.
The bank said it is on track to exceed its approvals lending target of €7-10 billion for this year.
In an interim management statement, the bank said the value of impaired loans on its books has fallen from €26 billion to €24.3 billion.
AIB said the number of mortgage accounts in arrears is also down by 11%.
The number of owner occupier mortgages in arrears fell by 15% so far this year, while the level of arrears in the buy to let sector also declined.
"AIB continues to meet targets in relation to the resolution of SME and mortgage customers in arrears with accelerated progress made in relation to concluding solutions," it said in today's trading update.
It said that given the stabilisation in its asset quality, its credit impairment charge is continuing to trend towards "more normalised levels".
The bank said that the country's economic recovery is positively impacting asset quality and lending demand levels. It added that the overall operating performance of the bank is ahead of expectations year to date.
"The bank continues to make tangible progress towards meeting its strategic goals and medium term targets," AIB said in today's trading update.
AIB said it was profitable and cash generative in the third quarter of this year. It said its net interest margin grew due to lower funding costs, sustainable asset pricing and continuing reductions in liabilities covered by the Eligible Liabilities Guarantee Scheme.
Operating costs at the bank reduced year on year and AIB said it expects to meet its €350m operating cost reduction target for this year.
"Today’s performance update demonstrates that AIB continues to make progress on its strategic goals. The bank is profitable, generating capital and has the capacity and appetite to meet increased lending demand in the economy," commented AIB's chief executive David Duffy.
"Delivering professional service at competitive lending rates to our customers lies at the heart of our strategy while, at the same time, ensuring the bank is generating an appropriate return for shareholders, including the Irish State," Mr Duffy added.