AIB reported a better than expected 25 per cent increase in earnings last year, but warned that growth this year would be lower.

Releasing its annual figures yesterday, the bank forecast adjusted EPS (earnings per share) growth in the "low double digits" for 2007. Finance director John O'Donnell said some of the performances seen last year, particularly in the Polish business and capital markets division, were "quite astonishing". As a result the forecasts for this year were coming off a very high base.

Chief executive Eugene Sheehy was upbeat about the bank's prospects, saying there was great potential for organic growth in all areas of its business, particularly in the UK and Poland. He dismissed concerns about a possible slowdown in the housing market in the Republic, noting that only 6 per cent of AIB profits come from the Irish residential mortgage sector.

"Profits are very well spread across the business," said Mr Sheehy, adding that this put the business in a very good position going forward. "We now have a business that isn't over reliant on any one area."

AIB recorded a 60 per cent increase in net profit, to €2.3 billion last year, while total operating income was up 19 per cent, at €4.3 billion. Adjusted EPS, stripping out the exceptional gains from property sales and the sale of Ark Life, were 25 per cent ahead at 182.2 cent.

Analysts welcomed the results, placing particular emphasis on the company's upbeat tone. Several brokerages raised their 2007 forecasts and dismissed the company's "low double digit" guidance as nothing to be concerned about. Davy banking analyst Scott Rankin said that, if the current environment stays the same, further upgrades will likely come through as the year progresses.

"We would be confident with the bank's guidance," he said. "They gave a lot of good signals."

Shares in AIB, which rose to a record high last month but fell almost 10 per cent amid the recent global stock market weakness, rose as much as 2.7 per cent yesterday before falling back to close up 18 cent, or less than 1 per cent higher, at €21.85.

In the Republic, pretax profit increased 24 per cent, to €966 million, while operating income was up 19 per cent, at €2 billion. Mr Sheehy said competition was intense, a factor that led to a reduction in the group's overall net interest margin - to 2.26 per cent from 2.38 per cent.

Profits at the capital markets division, which includes Goodbody Stockbrokers, rose 46 per cent to €589 million. Both the corporate banking and investment banking divisions put in very strong performances.

In the UK, profits were up 17 per cent at €379 million, while in Poland they were 56 per cent ahead at €207 million. Mr Sheehy said the bank had considerable scope to grow organically in Poland.

Profits from AIB's stake in US group MandT fell to €141 million, mainly due to accounting changes.

Mr Sheehy said AIB was very happy with its loan book. At the end of last year impaired loans accounted for 0.9 per cent of the total book, down from 1 per cent.

AIB raised its dividend by 10 per cent, to 71.8 cents a share.