Allied Irish Banks (AIB) has agreed to sell its stake in Polish banking business to Spanish lender Santander for a total consideration of €3.1bn.

Under the agreement, AIB will sell its 70.36% stake in Bank Zachodni (BZWBK) and its 50% stake in an asset management joint venture BZWBK AIB Asset Management to Santander for €2.9bn and €150m respectively.

The proposed disposal is part of AIB’s capital raising initiatives and will generate €2.5bn of equivalent equity tier 1 capital towards meeting AIB’s Prudential Capital Assessment Review requirement set by the Irish Financial Regulator.

AIB said that the cash proceeds will be used as an additional source of liquidity to support its business activities.

AIB group managing director Colm Doherty said that the sale will generate significant capital for AIB and represents the first step of the bank’s recapitalization plan that was set out in March.

“We continue to make good progress on other elements of the recapitalisation plan and will make further announcements in due course,” Doherty said.