The bank said its results represented a €1.3bn improvement in performance compared with the first half of last year with funding and capital positions stable and improving.

The bank last reported a full-year profit in 2008 as the financial crisis was hitting.

The expected move to profit marks a milestone as it moves towards repaying a state bailout next year- the €20bn cost to the taxpayer was the most given to a bank that is still in operation.

AIB added that it approved a total of €5.6bn in lending in the period, a 33pc hike year-on-year of which about €4.6bn was lending approvals to the Irish economy.

Total impaired loans decreased by about €2.9bn or 10pc since December 2013

while the total number of accounts in arrears in the Irish residential mortgage portfolio declined by 6pc.

In the period the total accounts in arrears for owner occupier mortgages was down 9pc.

“Our mortgage arrears and overall levels of impaired loans are reducing and our performance in the first half of the year saw a material reduction in provision charges,” said David Duffy, chief executive.

“As the Irish economy and the bank recovers, we remain focused on growth and maximising value for the Irish State, as 99.8pc shareholder, and all other stakeholders over time.”

AIB’s core Tier 1 capital ratio, a gauge of its financial strength, was 16.1pc while its net interest margin – an assessment of the profitability of its lending – rose to 1.6pc.

However, while Mr Duffy said he believed the bank’s profitability is sustainable, challenges remain including the shrinking of its net loan book.

Commenting on house prices, Mr Duffy said that he does not believe a bubble exists but added that there is a supply issue in the capital.

AIB said its total operating income rose by 36pc to €1.24bn in the six months, while operating expenses fell 9pc to €686m – partly due to cost cutting measures.

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