AIB is the first of the Irish banks to restart the payment of dividends since 2008 as it today proposed a €250m dividend, while it also said it was ready for its stock market flotation this year.
The last time the bank was in a position to announce a dividend was in summer 2008, just months before the collapse of Lehman Brothers.
AIB, which is 99% owned by the Government, reported pre-tax profits of €1.7 billion for the year to the end of December.
This was down from pre-tax profits of €1.9 billion in 2015 as a result of writing back far fewer of its remaining provisions for bad loans. Its writebacks for 2016 totalled €294m compared to almost €1 billion in 2015.
In its results statement, AIB said its impaired loans reduced to €9.1 billion, down about €4 billion since December 2015 and from €29 billion in 2013.
The bank said the 2016 profits were driven by a strong sustainable business performance, the provision writebacks and once-off benefits including the proceeds of the sale of its stake in Visa Europe.
AIB said it saw €12.9 billion in new lending approvals to customers with €8.7 billion drawn down.
However, it noted that UK new lending was negatively impacted by uncertainty around the Brexit vote in the UK.
In Ireland, the bank said that mortgage lending was up 22%, personal lending rose by 36% and business lending grew by 9%.
AIB's chief executive Bernard Bernard Byrne said that 2016 was another milestone year for AIB Group.
"Our strong financial performance and robust capital base support our proposed dividend of €250m to ordinary shareholders. This reflects our sustainable profitability, strong capital generation and focus on delivering for shareholders and customers," Mr Byrne said.
"The bank is now ready for an IPO, when market conditions permit and the Minister decides. With a market leading franchise, strong customer focus and investment in digital, AIB Group is well placed to continue to support our customers and the growing Irish economy," the CEO added.
Chairman Richard Pym said the proposed dividend has been set at a level which the board feels "is sustainable and offers prospects for growth".
AIB's main rival, Bank of Ireland last week delayed restarting its dividend payments until next year. Ulster Bank, which is owned by Royal Bank of Scotland, announced the resumption of payments to its parent company late last year.
AIB's core tier one capital ratio - a measure of financial strength - increased sharply to 15.3% at the end of 2016 from 13.7% three months earlier.
Last year, the Government pushed back the timetable for selling a 25% stake in AIB, citing unfavourable market conditions.
But Finance Minister Michael Noonan said last month that rising bank share prices suggested it might get the value needed.
He has raised the possibility of launching an initial public offering as early as May, or during another possible window in the third quarter.
Mr Noonan said today that the bank's results confirm the view that 2017 represents an appropriate time to consider an IPO of AIB.
"Today's results from AIB confirm a very strong performance by the bank with sustainable profits, strong capital generation and very significant lending into the Irish economy," Mr Noonan said in a statement.
"The proposal of a dividend payment of €250m to ordinary shareholders is particularly significant given that it is now nine years since the bank last paid a dividend to its shareholders," the Minister added.
On the issue of tracker mortgages, AIB said in today's results statement that it had engaged with and paid redress and compensation to about 2,600 customers who were wrongly moved off their tracker mortgages.
AIB's CEO Bernard Byrne said he apologised to customers for these failures "which should not have happened and which we are now putting right".
Mr Byrne said the bank continues to engage with customers and work through this process as set out in the Central Bank's framework.
The bank also highlighted the continued high level of impaired loan balances on its books, and said that while they continue to fall they remain high compared to other major European banks.
"Addressing this disparity is an objective for the next few years and there are no easy solutions given the depth of the previous financial crisis and the challenges of navigating through the legal system," chairman Richard Pym said.