AIB is to seek permission from its shareholders to be in a position to buy back up to 5% of the bank from the state using excess capital if conditions allow.
The move, known as a Directed Buyback Contract, is aimed at putting the lender in a position to more rapidly return to full private ownership.
Under the plan, the bank would with the agreement of the Minister for Finance be able to buy back portions of the state's 71% shareholding, at a time and number of occasions as its directors deem appropriate.
However, the amount will be capped at 4.99% for a 12 month period and the permission would only last for a year.
"Neither the Company nor the Minister for Finance would be under an obligation to agree to make such off-market purchases and would only do so subject to regulatory approval from the European Central Bank at the time," the bank says in a document to be circulated to shareholders ahead of its AGM on May 6.
The price per share paid by the bank to the state would have to be the relevant market price for ordinary shares on the date the contract is struck and other preconditions would also be in place governing the sale and the price that would be paid for shares.
"Authority to enter into the Directed Buyback Contract will give AIB the flexibility, if appropriate at the relevant time and with the agreement of the Minister for Finance, to help facilitate the return of AIB to full private ownership over time through the use of AIB’s excess capital," said Deputy Chairman, Brendan McDonagh in the letter to shareholders.
"The Directors will only make off-market purchases with the Minister for Finance’s agreement and where, in light of market conditions prevailing generally at the time, they consider that such off-market purchases will be in the best interests of Shareholders as a whole."
Shareholders will vote on the proposal at the AGM.
AIB has been majority owned by the state since it was bailed out to the tune of nearly €21bn during the banking crisis over a decade ago.
In 2017 it sold a 29% stake of its shares in the bank for €3.4bn.
