THE state is poised to take control of AIB this week as what was once the country's biggest bank loses its struggle for independence.

The government is expected to move in the next few days to boost AIB's depleted capital base ahead of the end of its financial year on 31 December.

It is likely that nearly all of the €3.5bn the government injected via preference shares into AIB in February 2009 will be converted into ordinary shares. That's likely to push the taxpayers' stake in AIB from the current level of 18% to well above 90%. Some market sources have suggested the Department of Finance and NTMA might fully nationalise the bank in one step.

The state is already on the hook for the billions of euro more that AIB needs to find by the end of February to meet tough new capital levels set by the Central Bank in the wake of the bailout agreement between Ireland and the EU and IMF.

It is understood the bank is getting the urgent capital injection because it is running the risk of breaching baseline European rules on the minimum capital a bank must hold against losses.

Under the EU's capital requirements directive a bank must have a minimum tier 1 capital ratio of 4% and 8% total. Without maintaining that buffer the bank wouldn't be able to operate.

"All credit institutions are required to maintain minimum own funds in accordance with the Capital Requirements Directive on an ongoing basis," the Central Bank told the Sunday Tribune.

The bank is suffering huge losses as a result of transferring toxic loans to Nama, which has applied writedowns of nearly 50% on AIB's tranches.

In September, the Central Bank estimated AIB's haircuts on future transfers would top 60%, raising its required capital even higher and leading to the resignations of chief executive Colm Doherty and chairman Dan O'Connor. The bank had originally thought it would be less than 30%.

AIB fought against ceding control to the government, pushing ahead with the sale of its valuable overseas assets. It had also planned to raise money from private investors.

The bank agreed to sell its Polish subsidiary, Bank Zachodni, to Banco Santander for €3.1bn in September, going part-way towards raising the €10.3bn required by the Financial Regulator's prudential capital assessment review in March.

AIB then disposed of its 22.5% shareholding in leading US regional bank M&T. The bank's planned rights issue was overwhelmed by the bailout and the Central Bank's new requirement for all banks to hold 12% capital.

AIB said in November that it needed to raise €9.8bn by the end of next February to meet the Central Bank's new total core tier 1 capital ratio target. This cash call is expected to be met by taxpayers.