Allied Irish Banks, p.l.c. ("AIB") [NYSE:AIB] is issuing thefollowing update which covers key business trends and their expectedeffect on performance in 2008. Please note that all trends in thisupdate are in constant currency terms. Management will host aconference call at 08:00 GMT today and details are outlined at theend of this statement.

A principal focus of this statement is to update the market on thecurrent topical themes of funding, asset quality and capital.

At the operating level, before bad debt charges, all our businessescontinue to perform well and the overall group rate of income growthis expected to exceed that of cost growth in 2008 by c. 2%. Thecredit environment though continues to deteriorate and is doing so atan accelerated pace in recent months, heavily influenced by an acutescarcity of liquidity and highly elevated funding costs. There hasbeen some negative effect on asset quality generally across our loanportfolios, though the effect is most material in our Irishresidential development book. Deterioration in that book is theprincipal driver of a revised group bad debt charge expectation of c.75 basis points (bps) of average loans in 2008. The expected chargecomprises c. 45 bps of specific provisions and c. 30 bps of IBNRprovisions, the latter figure reflecting our forward looking view ina credit environment which will continue to be challenging. Thisrevision, together with the costs of higher funding and an estimateof the cost of the Irish Government guarantee scheme, lead us toreduce our earnings per share target for this year to around euro120c.

FUNDING

Despite unprecedented market conditions, our funding position remainsstrong. The Irish Government guarantee has added a further layer ofsecurity to the providers of funding to the "covered institutions"which include AIB. We welcome this initiative as an important step tounderpin confidence in the banking system, though we did notexperience any material outflow of funds before the guarantee wasannounced. Since then, there has been an improvement in fundingavailability, though no material reduction in its cost.

Customer deposits, sourced from across the range of our domestic andinternational franchises, continue to be our largest source offunding and will increase as a proportion of total funding this year.We are targeting customer deposits to grow by a low teens percentagein 2008. Customer loans are forecast to increase by around 9% causingthe loan to deposit ratio to fall from 157% at the end of 2007 to c.150% at the end of 2008. We are targeting further reductions in thisratio in subsequent periods.

Our liquidity has remained strong and our level of qualifying liquidassets has been significantly in excess of the regulatory requirementthroughout the extended period of market dislocation.

We are sourcing wholesale funding from a wide range of counterpartiesand programmes. Term markets remain difficult, though the termfunding that will mature during 2009 is low at c. EUR 4.6bn and ourmaturity profile is well spread. In addition the Government guaranteewill help support our activity in term debt markets. The increasedcost of wholesale funding is expected to be around EUR 200m above thelevel paid in 2007.

MARGINS

We are forecasting a net interest margin of around 2.18%, up 4 bps in2008. Our treasury liquidity management costs are likely to benefitby around 9 bps due to the relatively low rates paid for US dollarborrowing, though this effect is offset by hedging costs on currencyconversion of the borrowing which reduce our non-interest income. Theincreased cost of wholesale funding already referred to in thisupdate is expected to have a 12 bps adverse effect on the netinterest margin.

Customer lending margins are widening and are expected to continue torise, though at a slow pace due to lower levels of lending activity.This widening is more than offsetting some narrowing of customerdeposit margins.

For several years, the single largest factor driving net interestmargin attrition was the effect of customer loans growing at a fasterrate than deposits. That factor is now being reversed and while thereis still some averaging effect, the impact is likely to be broadlyneutral in 2008 and to become positive in subsequent periods.

NON-INTEREST INCOME

We now expect non-interest income to contract by a low 20s percentagerate this year. The aforementioned hedging costs of c. EUR 150m onconversion of US dollar borrowing account for close to half of thisreduction, The remainder is primarily due to difficult operatingconditions for our stockbroking and bond management activities, lowerPolish asset management and Republic of Ireland investment andprotection fees.

COSTS

As guided at our interim results presentation, we continue to targeta zero rate of cost growth this year and as indicated earlier in thisstatement, to achieve a positive gap of around 2% between the ratesof income and cost growth. All operating divisions are expected toincur lower costs than in 2007, with the exception of Poland where wehave continued to invest heavily this year. Excluding Poland, costsare likely to be down around 2% in 2008. We are achieving materialbenefits from our investment in common operating systems that enableus redeploy resources more effectively and improve productivity.

In the prevailing environment of lower income growth, every expensecategory across the group is being aggressively managed and we areconfident that further benefits will be realised. In addition, thecurrent phase of investment in Poland, where we have addedsignificant capacity in 2008 including close to 100 more branches, iscomplete. Further investment will be paused in 2009 as we ensure thesuccessful integration of this added capacity into our franchise.

ASSET QUALITY

In very difficult economic and market conditions, asset quality hasdeteriorated this year. The extent and pace of this deterioration hasbeen particularly evident in recent months. At group level, and asalready noted, we expect the bad debt charge in 2008 to be c. 75 bpsof average loans, approximately EUR 950m. Of this total, close to EUR 400mc. 30 bps of average loans, is expected to be charged under theheading of "incurred but not reported" (IBNR) provisions and wouldmaterially increase our stock of IBNR provisions from EUR 218m at theend of 2007 to over EUR 600m at the end of 2008. This action is beingtaken to reflect adverse changes in the credit environment and theconsequent increasing trend likely to continue in specific provisionsrequired in the future. Specific provisions of c. EUR 550m, close to 45bps of average loans, are expected this year and following a specificprovision charge of 19 bps in the first half of the year represents acurrent run rate of 71 bps. As indicated at our interim resultspresentation in July, we continue to expect bad debt provisions topeak in 2009. At this time, our guidance for total bad debtprovisions in 2009 is in a range of 90-110 bps of average loans,incorporating the expected effects on our loan portfolios of ananticipated deterioration in economic and credit conditions,including lower GDP and rising unemployment. This guidance rangecomprises a specific charge and a significantly lower IBNR chargethan expected this year, reflecting the level of IBNR that we areforecasting to build by the end of 2008. IAS accounting rulesincreases the upfront amount of the bad debt provision requirementdue to the net present valuing of cashflows on impaired loans. Inlight of this factor, considerably lower loan growth that is likelyover the coming 18 months and the intense management focus on ourcredit portfolios, it is reasonable to assume a levelling off inprovision requirement in 2010.

REPUBLIC OF IRELAND DIVISION

Of the c. EUR 950m of provisions that are expected in 2008, around EUR 700mis likely to be incurred by our Republic of Ireland Division, lessthan half of which is specific provisions. This EUR 700m represents abad debt charge of c. 94 bps of the division's average loans of closeto EUR 75bn. Around one third (EUR 25bn) of the book is personal housemortgages which is currently experiencing a bad debt charge of c. 4bps or c. EUR 12m. This implies a bad debt charge of c. 140 bps or EUR 688min 2008 on the remaining EUR 50bn of the book.

There has been a deterioration in the quality of the portfolios thatcomprise the above mentioned EUR 50bn as the Irish economy contracts,though the overall deterioration has been moderate in all but theresidential development portfolio of c. EUR 10.7bn. Liquidity in theover supplied housing market is low and has weakened further inrecent months, a factor best illustrated by some evidence ofcontracted sales being deferred or cancelled. We do not expect ameaningful market recovery until the first half of 2011 andanticipate an average peak to trough fall in values of undevelopedland (c. EUR 7bn of portfolio) and completed houses (c. EUR 3.7bn ofportfolio) of c. 40% and 30% respectively. Around EUR 4.6bn of thisportfolio is expected to remain very resilient throughout this periodof weakness and a further c. EUR 3.2bn is currently deemed satisfactory.EUR 260m is currently impaired and c. EUR 2.5bn is now on "watch" and thesubject of intense management. Bad debt guidance incorporates a c.300 bps charge this year on the residential development portfolio.

Our commercial property development portfolio totals c. EUR 6.2bn ofwhich c. EUR 2.5bn is undeveloped land and c. EUR 3.7bn work in progress.There is very little speculative finance in the latter category basedon capital values of agreed sales / pre-lets and our undeveloped landexposure is well collateralised. While liquidity in this market hasalso weakened and impaired and watch loans have increased to c. EUR 45mand c. EUR 520m respectively, losses are expected to be materially lowerthan in the residential development portfolio.

Our commercial and residential investment books are c. EUR 10.3bn andEUR 2.2bn in respective size. Both are solidly supported by regular,recurring income streams and low vacancy rates. While decreasingrents are placing some strain on cash cover ratios, the overallquality remains good and deterioration in credit grades is oftenlinked to connections in the property development portfolio.

Earlier in this statement, a 2009 group bad debt charge range of90-110 bps of average loans was guided. It implies an estimated rangefor our Republic of Ireland division of 120-150 bps. This rangecompares to a peak charge of 100 bps incurred in the last severedownturn in Ireland in the early 1990s. It implies a bad debt chargeof up to 250 bps in our property & construction portfolios (up to c.480 bps on residential development). The peak in the previous cyclefor property & construction was 240 bps in 1992.

UK DIVISION

Weakness in the property & construction sector is the principaldriver of a significant increase in impaired (c. Stg£115m) and watchloans (c. Stg£830m) in the nine months to September 2008. In commonwith the Republic of Ireland, deterioration is particularly evidentin the residential development book of c. Stg£3bn. Included in thisfigure is c. Stg£1bn and c. Stg£600m for the acquisition ofundeveloped land in Northern Ireland and Great Britain respectively.Our assessment of likely impairment and loss includes a peak totrough fall in average property values of up to 40% in NorthernIreland and up to 30% in Great Britain. We are not expecting materialsales receipts in either area until 2010. The remainder of ourproperty and construction book totals c. Stg£4.4bn, comprising c.Stg£400m of commercial property development and the balance incommercial / residential investment. While there has been somedeterioration in these portfolios, they are well collateralised andthe investment exposures are underpinned by good rental cashflows.

The quality of our other loan portfolios is good though economicweakness is having some adverse effect. In Great Britain, ourportfolios are concentrated in resilient mid corporate sectors and wehave very low exposure to consumers. Overall we expect to incur a baddebt charge in 2008 of c. 60 bps of average loans of which around twothirds are likely to be specific provisions. This guidance implies acharge this year of around 100 bps and 220 bps respectively for ourproperty & construction and residential development portfolios.

CAPITAL MARKETS DIVISION

Credit quality has weakened due to lower liquidity and the effect ofthe economic downturn in all the main markets in which we operate. Asexpected and previously indicated, the very strong recoveries inpreviously highly liquid corporate markets will not recur this year.However, there are no material adverse trends in any particularsector or geographic portfolio and increased impairment and bad debtcharges are largely due to deterioration in a small number of cases.The high quality of our Treasury and other structured securitiesportfolios is unchanged. There has been no material change in our twosmall US sub prime portfolios which continue to perform better thanthe market average. A low / mid 30s bps of average loans charge isexpected in 2008 for the division.

POLAND DIVISION

Asset quality remains good in the relatively stable Polish economyand credit grade trends are generally steady. However, Poland is notimmune to the effects of global market conditions and we remainvigilant in management of credit quality across our portfolios. Thevery low level of bad debt charge in 2007 will not be repeated thisyear due to a lower level of recoveries and we expect the 2008 chargeto be a low / mid 30 bps of average loans.

CAPITAL

The risk profile of different banks varies very considerably and wehave a transparent business model with no material exposure to assetclasses that are causing significant writedowns in other financialinstitutions. We are acutely aware though that bank capital ratiospreviously deemed satisfactory by regulators and the market arechanging and it will take time for new norms that are appropriate tobusiness models to be established.

Our capital position is good and expected to remain resilient in allplausible scenarios through the downturn in the credit cycle. UnderBasel II rules, while expected loss in our internal ratings basedportfolios is anticipated to increase, the capital deduction isconsiderably mitigated by the increase in bad debt provisions.Looking to the end of 2009, we expect to have significant levels ofretained profits in both years, reflecting a robust operating profitperformance and notwithstanding a material increase as guided for baddebt charges. Risk weighted asset growth is expected to beconstrained by lower loan growth and a relatively low impact fromprocyclicality due to our conservative, through the cycle capitalmodels.

We have several other distinct options available to increase ourcapital ratios. These options include revising the level of cashdividend payments and disposal of assets. We have formed an actionplan that is designed to achieve a core tier 1 ratio of at least 7%over time. We are targeting a core tier 1 ratio of around 6% at theend of 2008 and this target assumes a final cash dividend will not bepaid. It should be noted that our plan does not exhaust availableoptions to generate capital nor does it include action that woulddilute our shareholders.

OPERATING DIVISION UPDATE

In our Republic of Ireland Division, a reduction of around 3% in GDPthis year is affecting customer demand and business activity. We aretargeting loan growth of around 6% in 2008 and deposit growth ofaround 2%, up from a flat result in the first half. Costs are beingclosely managed to ensure a reduction on the 2007 level. Market shareis being retained in all key product categories.

The strong productivity in Capital Markets is expected to furtherincrease in 2008. Deposits are expected to increase by a strong high20s percentage reflecting a comprehensive, well co-ordinated campaignto gain a greater share of our domestic and international customerdeposits. Corporate customer loans are forecast to grow by around 14%and we continue to identify higher margin opportunities than werepreviously available in corporate credit markets. In Global Treasury,both customer and interest rate management activities are performingwell. Our investment Banking business continues to experience toughmarket conditions.

Our focus on deposit gathering in the UK Division, most notably fromthe Great Britain mid corporate sectors in which we operate, isexpected to result in an increase of around 25% in customer depositsthis year. We continue to be cautious in selecting lendingopportunities in difficult economic conditions and we have not addedexposure to higher risk sectors since the middle of 2007. Loan growththis year is expected to be around 7% and the loan to deposit ratiois being considerably reduced. Cost management is a key priority anda material reduction in costs is forecast in 2008.

Income opportunities have been better in Poland this year thanelsewhere in the group as the economy continued to benefit from goodlevels of investment and demand. Recently though, there has beenevidence that the effects of the global market downturn are nowhaving an impact in Poland with the result that the environment isless buoyant than heretofore. As we have invested to build andstrengthen our market presence, customer lending across all mainproduct areas has grown strongly and we expect loan growth this yearof around 40%. Deposit growth is also strong and deposits areexpected to increase by around 25%. The loan to deposit ratio isanticipated to remain under 90% at the end of the year. Therebalancing of our business continues with a higher percentage ofincome coming from corporate, commercial & retail banking and a lowerreliance on relatively more volatile asset management and brokeragesources. While income from the latter sources will reduce this year,we continue to have valuable, market leading positions in thesemarkets.

In the U.S., M&T continues to outperform its regional peer group. Thestrength and quality of the franchise is well illustrated by year onyear growth in average core deposits of 12% in the third quarter of2008. This was the fourth consecutive quarter of increase in coredeposits and growth was particularly strong during September whenmarkets were significantly disrupted. Third quarter average loans andleases were up 11% on the corresponding quarter in 2007 and the netinterest margin was stable compared to the previous quarter, thoughdown 26 bps year on year. While third quarter non-performing loanscontinued to increase to 1.46% of total loans in a very tough bankingenvironment, the book is being very carefully and prudently managed.M&Ts regulatory capital ratio continued to improve, reflecting thestrength of its operating model.

NOTE

Group results for the year ending 31st December 2008 will beannounced on Monday, 2nd March 2009.

-ENDS-

For further information please contact:Alan Kelly Catherine BurkeGeneral Manager, Group Finance Head of Corporate RelationsAIB Group AIB GroupDublin 4 Dublin 4Tel: +353-1-6600311 ext. 12162 Tel: +353-1-6600311 ext. 13894

Forward-looking statements

This document contains certain forward-looking statements within themeaning of the United States Private Securities Litigation Reform Actof 1995 with respect to the financial condition, results ofoperations and business of the Group and certain of the plans andobjectives of the Group. In particular, certain statements withregard to management objectives, trends in results of operations,margins, risk management, competition and the impact of changes inFinancial Reporting Standards are forward-looking in nature. Theseforward-looking statements can be identified by the fact that they donot relate only to historical or current facts. Forward lookingstatements sometimes use words such as 'aim', 'anticipate', 'target','expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or otherwords of similar meaning. Examples of forward-looking statementsinclude among others, statements regarding the Group's futurefinancial position, income growth, business strategy, projectedcosts, capital position, estimates of capital expenditures, and plansand objectives for future operations. Because such statements areinherently subject to risks and uncertainties, actual results maydiffer materially from those expressed or implied by suchforward-looking information. By their nature, forward-lookingstatements involve risk and uncertainty because they relate to eventsand depend on circumstances that will occur in the future. There area number of additional factors that could cause actual results anddevelopments to differ materially from those expressed or implied.These factors include, but are not limited to, changes in economicconditions globally and in the regions in which the Group conductsits business, changes in fiscal or other policies adopted by variousgovernments and regulatory authorities, the effects of competition inthe geographic and business areas in which the Group conducts itsoperations, the ability to increase market share and controlexpenses, the effects of changes in taxation or accounting standardsand practices, acquisitions, future exchange and interest rates andthe success of the Group in managing these events. Anyforward-looking statements made by or on behalf of the Group speakonly as of the date they are made.The Group cautions that the foregoing list of important factors isnot exhaustive. Investors and others should carefully consider theforegoing factors and other uncertainties and events when making aninvestment decision based on any forward-looking statement. In lightof these risks, uncertainties and assumptions, the forward-lookingevents discussed in this Report may not occur. The Group does notundertake to release publicly any revision to these forward-lookingstatements to reflect events, circumstances or unanticipated eventsoccurring after the date hereof.

Eugene Sheehy, John O'Donnell and Alan Kelly will host a conferencecall for analysts and investors today at 08.00 GMT

CONFERENCE CALL DIALL-IN DETAILS:

Please dial in 5 to 10 minutes prior to start time

Title: AIB Interim Management Statement - access code 9054568

Republic of Ireland +353 (0) 1 4860915UK +44 (0) 20 7138 0828USA +1 718 354 1358

Replay facility available until midnight 10th November 2008 - accesscode 9054568#

Republic of Ireland +353 (0) 1 659 8321UK +44 (0) 20 7806 1970USA +1 718 354 1112

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