Minister for Finance Michael Noonan has said the money to be repaid by AIB to the State will go towards reducing the national debt.

Speaking on the RTÉ News at One, Mr Noonan said under fiscal rules there is no scope to use the money for any other purpose other than repaying what has been borrowed.

"Under the budgetary rules this money will not affect the deficit. It's regarded as a financial transaction ... so the money will be used to reduce the debt and it will have a big impact on the debt," the Minister said.

“But then as a consequence, of course, it will have a small impact on the total interest we pay on the national debt. But principally since the money was borrowed in the first instance to allow the taxpayer to bailout AIB, the money will be paid back to alleviate that borrowing burden," he added.

Mr Noonan said he is certain the Irish taxpayer will get back the full €21bn it borrowed to invest in AIB during the financial crisis, and perhaps considerably more than that.

In relation to the flotation of AIB, Minister Noonan said he and his department have all the preparatory work done to allow the incoming government to float 25% of AIB shares  by next May or June or in the early Autumn.

The first tranche of the money is set to be paid by the end of year.

Earlier, it was announced AIB had received approval from the EU banking regulator, the Single Supervisory Mechanism, to begin the process of repaying €3.3bn to the State.

The capital reorganisation will see AIB partially redeem preference shares created in 2009 which will result in a €1.7bn repayment to the State.

Separately, the bank said it expects to repay €1.6bn in what are called contingent capital notes, another form of finance provided to AIB as part of its €21bn bailout. 

The actions are subject to approval at an upcoming extraordinary general meeting of its shareholders, which is largely a formality given that the bank is 99% State-owned.

"The approval of these capital actions by the SSM represents another key milestone in the transformation of AIB," commented the bank's CEO, Bernard Byrne. 

"The capital reorganisation will support a sustainable and compliant regulatory capital structure underpinning our business plans and positions the group to repay capital to the State and return to private ownership over time," he added. 

In a statement earlier this morning, Mr Noonan said the proposed reorganisation of the bank's capital base will ensure it has a balance sheet that is fit for purpose.

He also said it marked an "important initial step" in the Government's efforts to maximise its return from this important investment. 

"When income as well as capital returns are taken into account I am confident that the State is on track to achieve a return approaching €4bn from our investments in the bank in the near term," he added.