In the first six months of this year, AIB's net interest income surged to €2.08bn, up 18% on the same period last year, with the lender continuing to cash in on the ECB's slower-than-expected easing of interest rates.

AIB also announced a €505m share buyback scheme, with the bank also "in discussions" with the Government about another directed buyback of the state’s holding in the bank worth €500m.

The State has reduced its shareholding in AIB from 71% in 2022 to 25.5%.

“AIB Group delivered a very strong financial performance with profit after tax of €1.1bn in the first half of the year," said chief executive, Colin Hunt.

"Given our strong capital position, we are pleased to announce our first post-GFC (global financial crisis) mid-year distribution, with discussions underway with the Department of Finance for a directed share buyback, which would bring payments to the State to €3bn so far this year." 

The bank's gross loans increased by 3% to €68.9bn, underpinned by strong new lending exceeding redemptions. 

AIB said it now expects customer loans to grow by 4% this year, compared to previous guidance of 2%.

Total new lending increased by 13% to €6.3bn, with the bank noting positive trends across its new Climate Capital segment, personal lending and mortgages.

The lender's operating costs rose by 6% to €947m in the first six months, driven by increased staff numbers to support higher business volumes, inflation and enhanced employee benefits, AIB said.

It added that it expects this year's costs to increase by 6-7% as well as a €25m once-off spend for customer and operational efficiency initiatives including investment in its branch network.

The ECB has finally embarked on an interest rate reduction roadmap after two years of aggressive monetary tightening, albeit at a gradual pace, with the regulator announcing a 0.25% reduction in June this year. Markets are forecasting just one more reduction by the end of 2024.

AIB is the last of Ireland's pillar banks to report half-year profits, with Bank of Ireland on Wednesday posting €1.1bn in profits before tax in the first six months.

On Thursday, PTSB posted a pre-tax profit of €75m, underpinned by a high interest rate environment and its growing mortgage market share.

"We are in the first year of our new strategic cycle and the Group has had a very strong start to 2024 with momentum in income and loan book growth contributing to capital generation and return," AIB said.

"The Group is generating sustainable profits, supporting our 3.3 million customers and the wider economy and delivering attractive shareholder returns. Following a very strong first half, we are confident for the remainder of the year."