The State has agreed in principle to AIB's €1.2bn share buyback proposal.
The transaction, which is subject to shareholder approval and market conditions, will see the company acquire its shares from the State by way of an off-market purchase.
This has the potential to reduce the State's shareholding by 8% to 3%.
The Department of Finance said it expects the buyback will be completed shortly after AIB’s Annual General Meeting on 1 May 2025.
"As part of AIB's FY2024 annual results the bank announced that discussions were underway with the Department of Finance for a further €1.2bn directed share buyback and I can now confirm that I have agreed in principle to participate in this buyback on a fully directed basis (subject to shareholder approval and market conditions)," said Paschal Donohoe, Minister for Finance.
"The successful completion of this transaction will see a further €1.2bn returned to the State which will be in addition to the €100m in dividends due to be received in May 2025 while also allowing the State to further reduce its shareholding in AIB and get closer to exiting its position in the bank," he added.
Minister Donohoe said earlier this year that the state may exit the bank entirely this year, having sold the last of its shares in Bank of Ireland in 2022. The government still holds a 57.5% stake in PTSB.
The State effectively nationalised AIB in 2010 when it pumped 21 billion euros into the lender following the banking crash.
It has been gradually selling down its shares over the last four years following a 2017 IPO.
