AIB has reported a pretax profit of €2.5 billion for 2007, down 4 per cent on its 2006 profit, and is predicting slower underlying earnings per share growth of around 4 per cent in 2008 as a weaker economic climate curbs lending.

The bank's shares closed up 3.3 per cent at €13.90 yesterday, bucking the downward trend in the Iseq, where Irish Life & Permanent, Anglo Irish Bank and Bank of Ireland all lost ground.

Revenues at AIB rose 12 per cent to €4.868 billion in 2007, while group operating profit was up 18 per cent to €2.248 billion.

Loans grew 23 per cent in 2007 and the bank is targeting loan growth of around 10 per cent in 2008. Deposits rose 12 per cent and AIB is targeting deposit growth of 13 to 15 per cent.

AIB's adjusted earnings per share rose 13 per cent in 2007 to 205.9 cent, slightly below analysts' forecasts.

Chief executive Eugene Sheehy said he expected mortgage growth in Ireland to slow to 7 per cent in 2008 from 14 per cent in 2007.

He said house prices had fallen 15 per cent from a peak during the last three months of 2006 and would fall a further 5 per cent this year.

Mr Sheehy said investment banks were continuing to write- down assets linked to the credit crisis on an almost daily basis and he expected the market turbulence to continue for at least a year. "Every day some bank comes out with a howler. Banks have destroyed their credibility to a very significant degree over the last six months and investors will be slow to forgive them. It will continue through 2008."

Profit from M&T, the US bank in which AIB has a 25 per cent stake, fell to €120 million from €141 million in 2006 after M&T's net income fell by 22 per cent as it was hit by asset writedowns and a tough US housing market. AIB wrote down €131 million on assets affected by the subprime crisis - €92 million on its trading account, €25 million on asset-backed securities, €11 million on exposures to collateralised debt obligations and €3 million on other asset-backed securities.

AIB took a bad debt provision charge amounting to 0.09 per cent of all loans, or €106 million, in 2007, down from 0.12 per cent, or €118 million, but the bank expects this to rise to about 0.2 per cent this year due to the slowing economy.

AIB's profit from its Republic of Ireland division rose 13 per cent to €1.094 billion, while profit from its capital markets division fell 8 per cent to €532 million due to asset writedowns. Profit from the UK division rose 20 per cent to €452 million, while the Polish division contributed €269 million, up 26 per cent.

David Odlum, analyst at NCB, said the bank's results were "broadly consistent" with guidance. "They are not expecting stellar growth but the operating environment will be more challenging. They managed to avoid the bullets that are out there."