The public stake in AIB has increased to 18.61% as the annual dividend on the Government's €3.5bn preference shares, which amount to €280m and was due today, will not be paid in cash as talks with the European Commission on its restructuring plan are ongoing. At the request of the Commission, AIB will issue over 198 million ordinary shares to the Government by way of bonus issue.

In an interim management statement today, AIB said at the end of April, overall loan and deposit volumes were both broadly unchanged compared to December 2009. Loan volumes exclude the effect of loans transferred to State toxic property loans agency, NAMA. The bank said customer demand for credit is weak in Ireland where it has increased lending capacity to the business and mortgage sectors. "We are deleveraging our balance sheet by taking some opportunities to reduce lending in our other businesses," the bank said.

AIB said a combination of factors is placing downward pressure on the net interest margin and / or operating profit before provisions this year. These factors include:

• Highly competitive and uneconomic market repricing of customer deposits

• The elevated cost of wholesale funding and the higher cost of the Government Guarantee

• Reduced income on capital and increased interest payments on higher yielding bonds following the two capital exchanges successfully completed in the past year

• NAMA administration costs and reduced income from NAMA loans

• Targeted loan volume reductions outside Ireland to reduce the loan to deposit ratio

Positive factors, including loan repricing across all portfolios and a reduced impact or non recurrence of some of the above factors, are expected to have a much more significant effect in the medium term future than in 2010.

AIB said that its bad debt charges in the first quarter were at a similar to 2009 but the residential mortgage book, valued at €27bn, continued to perform better than the sector's average.

Statement