AIB has reported profits of €636 million in the six months to the end of June. The figure is broadly in line with market expectations, which were tempered by a warning earlier this year that currency movements would depress earnings.

The headline figure is 9 per cent lower than for the equivalent period last year.

Announcing its results yesterday, AIB chief executive Mr Michael Buckley said the bank's earnings were likely to be 4 per cent below market expectations for the full year.

"Our earnings per share growth will remain low but a lot depends on the equity and currency markets. If the trends of the last 12 months were to reverse, the true strength of the underlying business would shine through very quickly," he said.

AIB's earnings per share over the six months were 5 per cent weaker at 58.5 cents, mainly due to the reduction in the bank's earnings in the UK, the US and Poland, and exceptional costs.

The bank has switched to reporting its headline figures in terms of earnings per share, mainly due to the impact of the sale of US subsidiary Allfirst to M&T that resulted in it taking a 22.5 per cent stake in the New York bank.

The 9 per cent fall in pre-tax profits compared with the first six months of 2002 reflects a number of exceptional items incurred during the first half of this year, including a €16 million restructuring charge at its US affiliate, M&T Bank, and the €15 million half-year cost of the Government levy on the banks.

When these items are adjusted for, the bank's earnings per share increased by 4 per cent.

AIB shares closed lower in Dublin following the results, shedding 25 cents to €12.40.

Shareholders will be paid a dividend of 19 cent per share, up 10 per cent.

The total group income fell by 15 per cent to €1.7 billion during the six months. AIB's business in the Republic and the UK performed very strongly, with its operations in Poland suffering a 32 per cent decline in profits.

AIB's retail bank in the Republic generated close to half of this year's interim profits, contributing €310, an increase of 6 per cent on the same period last year. Business and mortgage lending was strong. AIB's profits from its business banking activities rose by 16 per cent, which was primarily driven by good demand for lending.

The bank has been very aggressive in the mortgage market, reporting a 14 per cent increase in residential mortgages advanced in the first six months of 2003.

Mr Buckley estimated that the bank accounted for 13 per cent of the Irish mortgage market. Total deposits rose by 3 per cent.

Profits at insurance subsidiary Ark Life were down 48 per cent. The bank said that the exclusion of the sale of the Government-backed Special Savings Incentive Account scheme in the previous year accounted for the decline.

AIB's capital markets division, which includes Goodbody Stockbrokers, posted profits of €132 million, up 4 per cent.

In the UK and Northern Ireland, the bank's profits surged by 18 per cent to €125 million, which was fuelled by strong demand for commercial and home loans.

AIB's bank in Poland, Bank Zachodni WBK, contributed just €8 million in profits, down 32 per cent, as the business continued to struggle in the low interest rate environment there.

Its US business, now part of M&T, contributed profits of €66 million.