Allied Irish Banks is one of five "key buys" in the banking sector Europe, according to a review by ABN-Amro. AIB has joined Spanish bank Argentina, BNP, Natwest and the Italian bank San Paolo-IMI in ABN's exclusive club.

ABN bases its AIB recommendation on the strength of the domestic economy, an expectation of strong 1998 results, a modest valuation compared to its European peer group and AIB's inclusion in a number of key European stock indices, particularly the key Dow Jones Euro Stoxx 50 index. According to ABN, AIB has probably the highest-quality earnings and assets of the eight banks in that index.

ABN is positive about the entire Irish banking sector and believes that the expected robust 1998 results are likely to be in stark contrast to many European peer banks which have suffered from problem loans and lower levels of investment banking activity.

Of the four Irish banks considered by ABN, AIB is the clear first preference, as it "offers better underlying earnings momentum, visibility of earnings and high asset quality". It is also one of the cheapest European banks on a warranted equity valuation basis, says the ABN report.

Bank of Ireland is also favoured, but ABN cautions that the bank must address "its limited strategic options in the UK this year and the intensifying competition in the UK mortgage market". Anglo Irish Bank and First Active are given "hold recommendations" while the ABN report does not cover Irish Permanent, which will shortly merge with Irish Life.