Nobody is talking about a property crash just yet, but they are openly questioning some of the lending practices that are driving prices ever higher.

AIB chief executive Eugene Sheehy says he would rather cede market share than put 100% mortgages in the hands of first-time buyers.

"AIB is the only institution that doesn't promote 100% mortgages, " he says. "It's best for the bank and it's best for our customers. We don't believe mortgages should be shovelled out like a generic product."

The bank's caution is not limited to the home market.

In Poland, which contributed 8% of operating profits in 2005, AIB is steering clear of the current fashion for borrowing in Swiss francs, which accounts for up to half of the mortgage market. It believes the lure of Switzerland's rockbottom rates of interest is blinding Polish home-owners to the huge risks that come with borrowing in foreign currencies.

"It's not a good idea to lend our Polish customers Swiss francs that they'll have to repay in zlotys, " says AIB finance director John O'Donnell. He draws parallels with the Ireland of the 1980s when many businesses got badly burnt by the sinking value of the punt, which meant that their deutschmark-denominated borrowings did not look so cheap any more.

Bankers are even more sceptical in private about the credit boom, admitting that they are baffled by their customers' appetite for risk.

For many the tipping point was last year's battle for the Jurys Doyle hotel group.

Developer Sean Dunne emerged victorious with a knockout price of 260m for Jury's landmark site in Ballsbridge, even though planning permission for all of the high-rise luxury apartments he wants to build is far from certain.

Such gung-ho attitudes to risk are frightening the industry, leading some to rethink their credit policies. While there is no shortage of firsttime buyers queuing to get on the property ladder, bankers report that business has been less brisk since Christmas, especially in the upper reaches of the food chain, where the big money lies.

If we have indeed hit the top of the property cycle, the first casualties could be the banks' own share prices, which are highly leveraged to the property boom. Surging lending volumes have masked a worrying slide in interest margins in recent years, with Sheehy admitting that AIB has seen a full percentage point knocked off its margins in the last seven years. If loan growth were to slow significantly, this could have a disproportionate impact on the bottom line as well as on investor confidence.

For now there is no evidence of trouble and only 1% of AIB's loans are classified as impaired, meaning that interest is not being paid on them.

But O'Donnell admits that the rosy picture is coloured somewhat by the recent switch to international accounting rules, which limits a bank's ability to make provisions for loans it believes might turn bad in future.

The bean counters want to stop banks gilding the lily by using bad debt provisions as a type of slush fund to manipulate reported profits. The result is that there is no longer any scope for holding some time back in case of trouble ahead.

If there is bad news, expect it to crop up first in lending to the construction and property sector, which surged 29% last year, making it the fastest-growing part of AIB's loan book. But the bank's exposure is broadly spread, with Ireland accounting for just over half of all property and construction lending.

Sheehy's big strategic move since taking the helm at AIB last summer was to spin off the bank's under-performing insurance arm, Ark Life, into a joint venture with Hibernian Life & Pensions.

His willingness to give so much away . . . AIB has just 25% of the merged entity . . .

surprised everyone, especially as an aging population will provide a ready-made market for savings and pensions for years to come.

Sheehy insists that the deal is better than the alternative of ploughing ahead with a business that was losing ground year after year.

"Twenty-five percent of the joint venture is strategically better than what we were trying to do on our own, " he says. "It is a market with great potential and we're going to participate in that."

Cost control could be an even bigger strategic headache for AIB. While arch-rival Bank of Ireland is in the throes of radical cuts that will axe 2,100 jobs across the group, Sheehy sees his cost base as a springboard for continued growth.

So far there are no apparent flaws in his thinking.

Costs are growing and will keep growing if employee unions succeed in pushing through an ambitious 10% pay claim plus profit-sharing. But revenues are growing even faster, leading to a 2.5% drop in the key cost-income ratio last year to 51%.

"Uniquely among Irish banks, we are adding to staff, " Sheehy boasts, adding that the head count grew by 500 last year with another 300 jobs still to be filled.

Without naming names, he pours cold water on Bank of Ireland's strategy of outsourcing hundreds of jobs to third-party specialist providers as part of its plan to cut costs by 120m a year.

"We've decided to be an insourcer rather an an outsourcer, " he says. "We want to develop skills within the group without relying on outsiders because ultimately that's a risk to the group."

That makes a lot of sense . . .as long as AIB keeps writing enough new loans to support all those desk jobs in the background.

Where AIB makes its money 2005 PROFIT 1.7BN* Republic of Ireland 47% Britain & Northern Ireland 20% Capital Markets 25% Poland 8% * Includes 148m from US associate, M&T Bank