DUBLIN, March 6 (Reuters) - Irish bank AIB Group announced a more than four-fold increase in returns to shareholders on Wednesday after higher interest rates helped it more than double its full-year after-tax profit and boost its targeted returns out to 2026.

Ireland's highly concentrated banking sector makes more of its profit through interest revenue than its European peers. AIB raised its net interest income guidance three times last year and delivered a jump of 83% to 3.84 billion euros.

The boosted the bank's profit to 2.1 billion euros ($2.28 billion) from 765 million. It plans to return 1.7 billion euros to shareholders, 696 million of it via dividends and the rest through share buybacks.

That equated to a payout ratio of 82% of profit after tax, above AIB's target of 40-60%. The bank said that represented the start of a return of excess capital to shareholders promised at its 2017 IPO.

The bank, one of two dominant lenders in a market that now contains just three high-street operators, almost tripled its return on tangible equity (ROTE) to 25.7% last year, way above its target of boosting returns above 13% by 2024.

It reset its targets to 2026 as a result, seeking a ROTE of 15% that analysts at Davy Stockbrokers said would likely end up being conservative.

AIB's main rival, Bank of Ireland, last week tripled its shareholder returns but a weaker than expected outlook and increase in 2023 profits saw its shares fall by as much as 13%, half of which has recovered by Tuesday.

Like Bank of Ireland, AIB set aside cash to cover potential commercial real estate losses in 2024. AIB CFO Donal Galvin told Reuters he expected office and retail values to begin to recover in the second half following a 5-10% fall in the first half.

($1 = 0.9210 euros) (Reporting by Padraic Halpin; editing by Jason Neely and Louise Heavens)