AIB's raising of €500m through an earlier-than-expected bond sale this week boosts the chances of the bank returning capital to shareholders next year, according to Davy.
AIB - which is still more than 70% owned by the State - recieved €3.6bn in offers for the €500m in bonds, or so-called additional tier-1 (AT1) notes, it sold this week.
"We view the timing of the deal as supportive of AIB's regulatory discussions around the return of excess capital following the achievement of the 5% non-performing [loan] exposure milestone by the end of 2019," Davy said.
Davy expects AIB to return surplus cash - in the form of a €300m special dividend - following its results for the first half of 2020.
In the first half of this year, AIB lowered the percentage of non-performing loans on its total loan book from 9.6% to 7.5% and said it is on course to hit the European average of 5% by the end of 2019.
In July, the bank's chief executive Colin Hunt said there is a growing chance of the bank returning capital to shareholders.
"We want to put ourselves in a position where we can return capital to shareholders," he said.
With this week's bond sale, AIB joined a growing list of European corporate borrowers to shun English law-governed notes when raising debt. The percentage of European banks using English law for their riskiest bonds has dwindled from 40% to 14% as Brexit approaches.
AIB's share price has tumbled nearly 40% in the past 12 months and was down by over 1% in latest trading.