AIB says it has seen an 11% fall in mortgages arrears this year.
The bank's interim management statement shows an improved financial position, with lending levels up 39% to €9bn.
AIB CEO David Duffy says the bank is profitable and is "continuing to trend towards more normalised levels".
It is reported that the the Government could now look to sell some of its 99% stake in the lender.
Notionally the bank is valued on the Government books at around €10bn which could be argued as being conservative since it is now profitable and it is lending more.