AIB has delivered a solid half-year performance, with most parts of the bank showing strong underlying growth.

Group chief executive Mr Michael Buckley has signalled that currency movements will depress earnings this year and confirmed that the bank will restructure its Polish operations to arrest its decline.

In the first six months of 2003, the dollar weakened by 18 per cent, sterling lost 9 per cent of its value, while the Polish zloty declined by 14 per cent, which has affected the profits earned in these markets.

The bank had hedged some of its earnings and Mr Buckley pointed out that an overall decline of 4 per cent was pretty good.

Some analysts noted that, if the currency impact was stripped out, the group would have been shown to have generated growth of around 5 per cent.

The Irish and British operations delivered handsomely, with the group stressing that, despite rapid growth in lending, asset quality remained high across all of its businesses.

Mr Buckley defended AIB's decision not to pass on the full 0.5 of a percentage point cut in European Central Bank rates to its mortgage customers earlier this year, saying it had adjusted all of its interest rates to offer better value to its entire customer base.

Whatever the adjustments, its lending activities in the Republic and Britain are thriving, growing at double-digit rates and delivering healthy profits.

The Central Bank of Ireland has been in contact with AIB and other financial institutions about lending growth to stress the importance of prudent lending at a time when the economy is slowing.

Mr Buckley said the loan-to-value ratio of its mortgages had not increased significantly in the past couple of years and was currently at 71 per cent and not a cause of concern.

Its life assurance arm, Ark Life, was the only part of the Irish operations to post a decline in profits although, when adjusted to take account of the end of the Government-backed Special Savings Incentive Scheme, its underlying growth was flat.

The group was experiencing most pressure in Poland and has moved to take up to €25 million, or 8 per cent, in costs out of Bank Zachodni WBK, the state's sixth-largest bank.

Last week it announced the loss of about 1,000 jobs, which will account for about half of those cost savings, according to Mr Buckley.

Otherwise, AIB contributed €16 million towards the restructuring costs involved in the merger of Allfirst into M&T. All of the Allfirst branches have been re-branded and linked to M&T's computer network.

The bank has signalled that it will buy-back further shares over the rest of this year but that its activity will be relatively modest.

The bank is also awaiting the outcome of an actuarial review of its pension scheme which, when reported in line with accounting standards, currently shows a deficit of €467 million. This is an improvement on the €537 million deficit at the end of 2002, reflecting a modest recovery in equity markets.

The bank said that any deficit identified by the actuarial review will be address over a period of time.