AIB is planning to reduce its cost base by €350 million annually over the next two years, The Irish Times has learned.

This would be the equivalent of 21.6 per cent of its personnel and general and administrative expenses last year and would be the biggest cost-reduction programme implemented by an Irish bank.

It is understood that staff have not been informed of the size of the cuts planned by AIB over the next couple of years.

It is part of chief executive David Duffy’s plan to return the bank to profitability. AIB recorded an operating loss of €2.84 billion in 2012. When a number of exceptional costs are included, this loss widened to €3.6 billion.

The bank is targeting €200 million in savings from its severance and early retirement programmes, about €35 million on pay and benefits and the rest in other operational savings.

The project is being led by Anne Boden, AIB's chief operating officer who joined the bank in July 2012 and has extensive experience of financial services in the UK.

New technologies
A key part of her role is to introduce new technologies to enhance customer service and drive efficiencies for the bank. On Monday, AIB opened a digital concept outlet at the Dundrum Town Centre that will trial a number of IT customer service initiatives that could be rolled out in branches over time.

AIB has already agreed a voluntary severance programme that will result in 2,500 staff leaving by March 2014.

It had 13,429 full-time equivalent staff at the end of December 2012, including those on paid leave. The bank is aiming to get its head count down to about 11,000.

It is currently in the final stages of closing 67 branches in the Republic and 12 in Northern Ireland and Britain, and will close its operations in Jersey and the Isle of Man by the end of 2013.

In addition, the bank is in negotiations with the Irish Bank Officials Association on the outsourcing of about 70 IT roles at facilities in Dublin, Belfast and Northampton to HCL.

AIB is also in talks with staff on closing its defined benefit pension scheme and transferring them to a defined contribution arrangement. This is the subject of talks at the Labour Relations Commission and is being resisted by the IBOA.

It is understood that such a move could net the bank a saving of €180 million.

It is proposed that AIB would make a contribution of 10 per cent to the new scheme for employees.

Staff are also being asked to make a voluntary contribution of 2 per cent, which would be matched by the bank.