Permanent TSB soared on Thursday morning in Dublin amid rising speculation that the 75 per cent state-owned lender may eventually be merged with another lender.

In a note to clients, Goodbody Stockbrokers analyst Eamonn Hughes highlighted that Minister for Finance Michael Noonan reignited talk of a potential deal, which his officials had previously suggested may best serve the group's future.

Shares in the bank surged as much as 10 per cent to €2.19 by mid-morning trade.

Mr Noonan said on Tuesday, in response to a parliamentary question from Sinn Fein's finance spokesman Pearse Doherty: "I cannot discount the possibility that a strategic transaction could arise opportunistically at any time involving PTSB that could be in the best interests of the State."

PTSB market value has fallen by more than half since the bank and Government sold shares in the company just over a year ago.

"The share price has been under pressure for a myriad of reasons, including, but not limited to, the lower interest rate environment, the delayed disposal [of its UK loan book] due to the UK referendum, increasing regulatory costs, the Central Bank tracker mortgage review, extension of the (Government's) bank levy and higher provisions and lower growth in new lending than the market anticipated," Mr Noonan said.

Mr Hughes said: “Some merger and acquisitions angle may indeed be the vehicle by which the State extricates some value from its stake.”

The Government continues to own 75 per cent of the bank.

Today, The Irish Times reported that Central Bank raised doubts in early 2011 whether PTSB would be viable in the long term as an independent bank. The comments were among Cabinet papers from the time, released under the Freedom of Information Act.

Earlier this month, it emerged that Department of Finance officials had briefed Mr Noonan, on returning to office under the new government, that PTSB's long-term outlook may be best served by a merger with another bank.

With the Department currently carrying out a review of how a banking levy is charged in future, the officials warned that any increase in PTSB’s current €27 million a year fee will put commitments in its European State-aid restructuring plan at risk.

“(It) could in a worst case scenario render the bank unviable,” the briefing notes said.