Losses at AIB fell 55 per cent last year on the back of reduced operating expenses and improved margins.

Overall losses were €1.7 billion for the year, compared with €3.8 billion in 2012. Total impaired loans, together with past due but not impaired loans, decreased by approximately €1 billion.

The bank, in which the State has a majority holding, said operating expenses fell by 16 per cent or €278 million, while staff costs declined 18 per cent.

The bank said pre-provision operating profit for the period was €445 million, €769 million higher than 2012.

Operating income rose 39 per cent for the year, reaching €1.9 billion, some 19 per cent higher than in the previous year.

Its net interest margin - measuring the profitability of its lending - rose to 1.37 percent from 1.06 percent at the end of June.

AIB chief executive, David Duffy said the results were evidence of the positive impact of the bank's revised strategy on operating performance.

“We are well positioned in our customer businesses, we have leading market shares across the bank’s key product lines in Ireland and we continue to invest in our franchise.,” he said.

“We approved over €7billion in mortgage, personal, SME and corporate lending to the Irish economy during 2013 and we are targeting €7 billion - €10 billion in lending approvals, per year, over the next five years,” he added.

AIB said it has met its targets in relation to the restructuring of mortgage and SME arrears.

The bank’s proportion of homeowners in arrears for more than 90 days stood at 11.1 per cent at the end of December.