THE STATE'S largest bank, AIB, expects its first-half earnings to be down 6 per cent but is maintaining its single-digit percentage growth target for the year, as growth abroad helps offset the slowdown at home.

The bank said earnings per share would be down in the first half of 2008 on the same period last year because the global credit crisis had not emerged this time last year and the bank enjoyed an exceptional level of bad debt recoveries in the first half of last year.

"Guidance for 2008 is based on an assumption that conditions in the first four months will continue for the full year," AIB said in an interim management statement. "This assumption may be undermined by further market dislocation and the adverse effects it may have, particularly on our funding costs and asset valuations."

AIB's share price rose 0.8 per cent to €13.71 in light trading.

The bank said it was "particularly vigilant" in managing loans to Irish residential property developers due to the "marked" housing slowdown. It said the number of cases requiring "close management" had increased and that "action plans to minimise risk and possible loss are being implemented on a case by case basis".

The bank reiterated its prediction that bad loans would rise to about 0.2 per cent of the loan book this year, up from 0.09 per cent.

Loan growth is expected to slow to 10 per cent this year from 23 per cent in 2007, reflecting lower demand in some of AIB's markets and increased focus on matching rising loan and deposit volumes. The bank is targeting loan growth of about 30 per cent in Poland this year, high single-digit percentage growth in the UK and about 4 per cent in the Republic.

The bank said its funding position remained strong, and predicted volume growth in deposits to be about 13 per cent this year.Deposits are expected to grow 25 per cent in Poland, 20 per cent in the UK and 2 per cent in Ireland.

AIB said it had "ample" liquid assets, which, at about €31 billion, were similar to the figure held at the end of 2007. It said there were "some early signs" of improvement in the funding markets.

The bank said it was putting "a heightened emphasis" on cost management as lending slows.

"In response to this lower growth environment, we have acted swiftly to materially reduce cost growth and we are targeting income to grow at a faster rate than costs again this year."

The bank expects costs to rise by 3 per cent this year, compared with 9 per cent last year. It is forecasting its net interest margin to fall by 0.1 per cent this year, which includes higher funding costs shaving 0.04 per cent off the margin. While much of its foreign currency income is hedged, AIB expects the strong euro to knock 3 per cent off earnings.