AIB has hired four international banks to test investor appetite for its first public bond since March 2010. This follows Bank of Ireland’s sale of €1 billion in public bonds two weeks ago.

The State-owned bank has retained Deutsche Bank, HSBC, JP Morgan and UBS to assess interest in a three-year euro-covered bond supported by Irish mortgages as collateral.

The possible return to the public debt market comes as AIB said it had halted the decline in its net interest margin, the difference between what it pays for deposits and other funding and charges for loans.

AIB had reduced deposit and raised lending rates with a “positive effect in arresting the decline in the net interest martin”, the bank said.

The new bond would be the first time the bank has borrowed on a secured basis, without the use of a Government guarantee, since June 2007.

AIB noted the improved appetite among investors for Irish bonds and said it would “re-engage with the market in a balanced and measured manner”.

Guarantee

The lender said it was “prepared” for the end of the Government’s guarantee, the Eligible Liabilities Guarantee, the costly fees on which are squeezing the interest margin.

Deposits and other liabilities at AIB covered by the guarantee stood at €32 billion at the end of October, down from €40 billion at the end of last year.

Ratings agency Fitch’s decision to move the bank to a stable outlook, removing the risk of a downgrade, was the “first positive revision for AIB in almost four years”, the bank said.

This was “reflective of further signs of economic stabilisation”, said the bank, which is 99.8 per cent State-owned.

“Although economic conditions remain challenging, we have seen signs of a stabilisation in underlying economic indicators, including house prices,” the bank said in an interim management statement.

It said it was on target to reduce staff numbers by at least 2,500, about one in every five, by 2014. More than 1,000 had already departed and about 1,700 were expected to have left by the end of the year, AIB said. The bank expects provisions to cover bad debts to “continue to trend lower” on last year and teh return to normal.

AIB said that it was “actively evaluating and developing a number of mitigating actions to protect regulatory capital”.

The Government has injected €20.7 billion into AIB and its subsidiary EBS to cover losses following the property crash.

AIB said it had “materially accelerated” its engagement with distressed mortgage holders.