STRONG lending growth and good results from its capital markets division helped AIB Group generate profits of just over £1 million a day in 1995.

The group reported a 9.2 per cent rise in pre tax profits to £372.6 million, a return on average assets of 1.09 per cent for the year.

Earnings per share rose by 12.5 per cent to 34.2p. Shareholders will benefit with a 20 per cent increase in the final dividend to 7.7p per share, bring the annual dividend to 12.9p.

Two of the AIB's three operating divisions accounted for almost all the profit growth in Irish pound terms in 1995.

In the AIB bank division, which consists of retail operations in Ireland, Northern Ireland and Britain, profits increased by 10 per cent to £203.9 million. In the capital markets division, profits rose by 28 per cent to £59.1 million.

While profits from the US division rose by 7 per cent in dollar terms, a weaker dollar meant flat profits in Irish pound terms. The US division generated profits of £109.6 million in 1995, just fractionally up from £109.5 million the previous year. But its contribution to group profits slipped to 29.4 per cent from 32.1 per cent.

Overall, group lending increased by 12.8 per cent, bringing loan assets to £13.3 billion. But in three intensely competitive markets, erosion of net interest margins continued, reducing the profits from higher lending volumes. The group margin was down to 3.82 per cent from 3.9 pet cent at the end of June 1995 and 4.04 per cent at the end of December 1994.

The AIB Bank division accounted for 54.7 per cent of group profits, boosted by strong growth in lending. In Ireland, lending rose by 12.3 per cent, helped by good growth in mortgage and commercial lending. At £1.379 billion, residential mortgages in Ireland now account for 10.5 per cent of total group loans.

The 20.1 per cent growth in mortgage lending reflected a focus on this sector which included the creation of a specialised business unit, the development of new products and the sale of products through the branches. Branch lending grew by 2 per cent, while leasing business increased by 21.4 per cent.

In Northern Ireland lending increased by 15.3 per cent, boosted by the integration of First Trust, while lending in Britain was up by 9.9 per cent.

In the capital markets division, which includes treasury and international business, investment banking and corporate banking, corporate lending was 22.2 per cent higher. In the US, lending rose by 12.8 per cent.

Asset quality improved with group non performing loans down to 2.4 per cent of total loans from 3.4 per cent. Despite lending growth, the bad debt provision fell to 0.4 per cent of average loans from 0.5 per cent for 1994. At £295.7 million, the total group bad debt provision gave 94 per cent cover of non performing loans, compared with 79 per cent in 1994.

Group total income rose by 0.8 per cent to £1.2 billion. Net interest income was down by 0.4 per cent to £796.4 million reflecting margin pressure and the translation impact of weak dollar and sterling currencies and lower investment income.

Other income increased by 3.2 per cent to £401.3 million, with a £35.5 million rise in dealing profits more than offsetting a £5.8 million fall in net income from fees and commissions. Reflecting the dealing profits and margin pressure, other income increased to 33.5 per cent of total income compared with 32.7 per cent for 1994.

Cost control led to a 1.2 per cent drop in operating expenses staff costs rose by 0.7 per cent but other costs, including depreciation, were 4.1 per cent lower. AIB's cost income ratio fell to 64.6 per cent to 65.9 per cent.

But the group chief executive, Mr Tom Mulcahy, described the ratio as "potentially misleading" because it does not include bad debts and because it is the result of blending a number of businesses.

Before provisions for bad debts, operating profits rose by 4.6 per cent to £425.9 million. In a more favourable economic environment, provisions and writeoffs were 19 per cent lower at £53.3 million, with bad debt provisions 16.5 per cent down at £52.5 million.

By year end, AIB's had a total capital ratio of 10.9 per cent, down from 11.9 per cent, reflecting acquisitions in 1995 and a tier one capital ratio of 8.1 per cent.