AIB’s trading performance continued to improve in the third quarter of the year, the bank said, as the pace of new impairments in its loan portfolio slowed significantly.

The State owned bank said the credit quality of its loan portfolios was stabilising, and customer account balances had also shown signs of rising, with the loan to deposit ratio of 104 per cent at the end of September.

Loans fell in the quarter as the rate of redemptions exceeded new lending drawdowns, which Davy Stockbrokers said could lead to concerns over asset quality, but noted AIB reported increasing levels of activity in respect of new credit demand.

Meanwhile, the banks has cuts its operating costs and widened its net interest margin – the difference between the rate which it pays borrowers and lends to customers – widened to more than1.4 per cent during the quarter, before the impact of the Government guarantee costs was taken into account.

Levels of wholesale funding fell over the quarter, with reliance on funding from monetary authorities falling to €16 billion by the end of September, down from €18 billion three months earlier.

Looking ahead, the banking levy announced by Minister for Finance Michael Noonan in the budget is expected to cost AIB €60 million next year.

The bank said discussions with the European Commission in relation its restructuring plan are at an advanced stage.

“We welcome confirmation that discussions with the European Commission in relation to the approval of the AIB restructuring plan are at an advanced stage,” said Philip O’Sullivan, an economist with Investec Plc in Dublin. “The resolution of this will bring certainty to the group and allow management to focus on how to best meet the needs of a re- emerging Irish economy.”

(Additional reporting: Bloomberg)