AIB yesterday raised its full-year profit forecast after reporting a 21 per cent increase in pretax profit in the first six months of the year.

Ireland's largest bank saw its pretax profits rise to €851 million in the six months to the end of June, boosted by increased demand for its loans and savings accounts.

The equivalent figure for 2004 was €706 million. Basic earnings per share increased to 72.3 cent, compared with 64.1 cent a year earlier, causing the bank to raise its forecast for full-year earnings growth to between 140 and 142 cent a share.

"The business momentum is going very well and there is tremendous upside to our business," Gary Kennedy, director of finance and enterprise technology said at a briefing on the group's results. "We see this growth continuing."

Overall, loans grew by 11 per cent in the period, while deposits rose 6 per cent. Total income increased 12 per cent to €1.8 billion in the period, while costs rose by 8 per cent because of regulatory costs and higher performance-related pay.

Since the beginning of the year, AIB has taken on 400 new staff and has a further 300 positions vacant. Mr Kennedy said he expects that the higher costs relating to regulatory issues to continue for another year.

Pretax profit at the group's business in the Republic of Ireland increased by 17 per cent in the period, helped by a 12 per cent increase in the loans business and a gain of 8 per cent in the deposits side of the business.

Mr Kennedy said the deposits business is coming under pricing pressure, but that the loan business is in very good shape.

Excluding the one-time €45 million charge taken in the first half of 2004 relating to the investigation into overcharging, profits in the Republic were 34 per cent ahead of the year-earlier period.

"We are competing fiercely in both of these markets and it's our intention to continue doing that," Eugene Sheehy, the bank's new chief executive said as he unveiled the first set of results since he took over the helm in June. He also said the group has "lots of head room" to grow in the UK and Northern Ireland, where its pretax profit increased 13 per cent.

In Poland, where AIB's pretax profit rose 17 per cent, business is "progressing well", according to Mr Sheehy. He said the Polish division is becoming an attractive part of the business and that he is very optimistic about its future.

Profits at AIB Capital Markets increased by 33 per cent, helped by a 51 per cent jump in operating profit in the unit's corporate banking business.

Asked if he was concerned about the levels of debt that people in Ireland are taking on, Mr Sheehy said he does not see it as an issue. He said the bank regards itself as a prudent lender and always focuses on the applicant's repayment capacity when offering loans.

"We see it as a very strong story and are not seeing trouble coming at us," he said.

Shares in AIB fell yesterday, ending the day down 17 cent at €17.80, although analysts said the move did not reflect disappointment with the numbers, which came in ahead of expectations.