* Irish fin min says bank's results support 2017 IPO plans
* AIB sees scope for progressive rise in "modest" dividend
* FY profit 1.7 bln eur, fully loaded CET1 ratio 15.3 pct (Adds CFO interview, quotes from chairman)
By Padraic Halpin
DUBLIN, March 2 (Reuters) - Allied Irish Banks (AIB) became the first domestic-owned Irish lender to restart dividends since the financial crash almost a decade ago, proposing a 250 million euro ($263 million) payment and saying it was ready to IPO this year.
Finance minister Michael Noonan said the bank's performance supported the view that 2017 is an appropriate time to consider selling Ireland's 25 percent stake. Last month, he raised the possibility of doing so as early as May as markets improve.
The 99.9 percent state-owned bank was valued at 11.3 billion euros at the end of last year, meaning a share sale yielding almost 3 billion euros would be one of the largest bank listings in Europe since the 2008 financial crisis.
"Market conditions at the moment are pretty receptive but that can move in a week, move in a day," AIB chief financial officer Mark Bourke told Reuters in a telephone interview.
"There is huge interest in the Irish story, which has continued to deliver and we are a pure play on that. When that is added to the performance and recovery the bank has made, the interest levels are always pretty high among investors."
AIB pointed to strong financial results and robust capital as supporting its "modest" dividend. The bank intends to maintain a conservative stance but sees scope for a progressive payment, Bourke said following AIB's results on Thursday.
AIB's main rival, 14 percent state-owned Bank of Ireland, last week delayed restarting its dividend payments until next year. Royal Bank of Scotland's Irish unit Ulster Bank announced the resumption of payments to its parent company late last year.
AIB, whose 21 billion euro taxpayer bailout was the biggest for any Irish bank still trading and more than four-times that of Bank of Ireland, reported a full year pre-tax profit of 1.7 billion euros, down from 1.9 billion a year ago.
But that was primarily as a result of writing back far fewer of its remaining and shrinking 9.1 billion euros in provisions racked up during Ireland's financial crisis. Its writebacks totalled 294 million last year versus almost 1 billion in 2015.
The bank's core tier one capital ratio - a measure of financial strength - increased sharply to 15.3 percent at the end of 2016 from 13.7 percent three months earlier.
Bourke said the banks' UK business, which accounted for 14 percent of pre-provision operating profit last year, had held up after Britain's vote to leave the European Union and was "broadly, far better than anyone would have forecast."
However the outlook was uncertain, he said, and while Irish business customers heavily reliant on the UK had weathered the storm quite well, they had an awful lot of work to do to prepare for Britain's scheduled departure in 2019.
AIB chairman Richard Pym also raised another potential side effect, saying that while an influx of financial firms moving to Dublin from London was welcome, it increased the risk of AIB losing key staff. ($1 = 0.9503 euros) (Editing by Alexander Smith)