AIB has joined rival Bank of Ireland in returning to a profit for 2014 as it clawed back money put aside for bad loans after years spent racking up billions of euros in loss provisions.

AIB today reported a pre-tax profit of €1.1 billion last year compared to a €1.7 billion loss in 2013.

This is the first time the state-owned bank has reported a full year profit since 2008.

In a statement, AIB said it has seen a significant fall in the number of customers in arrears on their loans, with total impaired loans down by 23% since December 2013.

The bank's profit includes a €188m write-back of money previously set aside to cover expected bad debts. This compares to a net charge of €1.9 billion in 2013 and AIB said this reflects the level of debt restructuring and economic improvements.

AIB, which is 99.8% owned by the State, said the number of accounts in arrears in its owner-occupier mortgage portfolio fell by 22% last year.

The bank's out-going chief executive David Duffy said that AIB successfully executed its three year plan to deliver a bank that is "sustainably profitable, adequately capitalised and appropriately funded".

"We are focused on growing our lending to support the Irish economy and delivering sustainable returns for our shareholders," he added.

The bank said today that Mr Duffy's successor will be named shortly. Mr Duffy announced in January that he would be stepping down.

AIB chairman Richard Pym said the bank is looking at viable internal and external candidates for the position and said it is "entirely confident" in AIB's ability to recruit a new CEO under its pay cap. 

Like Bank of Ireland, which announced a €921m profit last week, the pace of loan redemptions at AIB exceeded new lending demand. The bank said its loan book fell to €63.4 billion from €64.6 billion at the end of June 2014.

Its Core Tier 1 capital ratio, a measure of financial strength, rose to 16.4% or 11.8% under the so-called "fully loaded" ratios in new capital rules known as Basel III.

The Government has appointed Goldman Sachs to advise on the sale of bank. It is looking to recover all of the €21 billion spent on rescuing the country's second-largest bank by assets.

The bank said today it intends to pay its first cash dividend of €280m on the Preference Shares held by the Government in May.

AIB's lending approvals rose by 37% to €13.2 billion last year, while customer drawdowns were about 50% higher on 2013 levels. 

It noted that mortgage volumes continued to increase last year, albeit from historically low levels. 

AIB said its total operating expenses before exceptional items fell by 5% to €1.4 billion with personnel costs down 10% due to lower staff numbers.

The bank said that average staff numbers fell by 1,264 due to early retirement and voluntary redundancy schemes operated by the bank.

Mr Duffy said that having returned to profitability, AIB is well placed to benefit from the expected increase in economic activity in the main markets in which we operate. 

However, he said the bank continues to face a number of challenges. This include the requirement to reduce the size of its "significant" impaired loan portfolio, ensuring its capital structure is appropriate in the context of the evolving regulatory and market requirements, the continued decline in net loan volumes and the pension scheme volatility.

Mr Duffy said that AIB will continue to focus on making steady progress towards reaching its medium term performance targets.

"We believe we are well positioned from a capital and funding perspective to support our customers and the continued recovery in the Irish economy," the CEO added.

Noonan says all AIB options remain on the table

Finance Minister Michael Noonan said that today's "strong results" from AIB are very encouraging and demonstrate the significant progress made in returning the bank to a position of strength. 

"AIB is becoming an increasingly valuable asset and today's results put the taxpayer in a strong position to regain the €20.8 billion investment in the bank," the Minister stated. 

He said the Government's attention now turns to the process of examining the range of options available to recoup this investment for the taxpayer.

"While our focus is currently on restructuring the bank's capital base, this is just the start of the process. All options remain on the table and it is too early to specify what steps will be taken next or to put a timeline on decisions," he stated. 

He also said he welcomed AIB's statement that it intends to pay its first cash dividend of €280m on the Preference Shares held by the State in May.