By Eamon Quinn

DUBLIN--Ireland's plan to sell a large part of a 1 billion euro ($1.3 billion) holding in contingent capital, or CoCo, notes in Bank of Ireland PLC is a sign that the country's banking system is on the mend, said the Irish government Wednesday.

The notes are debt securities which can be converted to equity if the bank's capital falls below a certain ratio or if a "stress event" occurs.

Dublin plans to sell at least EUR500 million of its EUR1 billion holding of the notes to private investors. It injected the money into Bank of Ireland as emergency capital in 2011, at the height of the country's banking crisis.

"The successful exit from a large portion of this position represents another step along the road to normalizing the state's relationship with the banking sector and reflects positively on the progress being made in returning our banks to a position of strength," Irish Finance Minister Michael Noonan said in a statement.

Ireland has been forced to pump EUR64 billion--equivalent to about 40% of its annual economic output--into its banking system to keep it from collapse over the last five years.

Bank of Ireland, which has made the most progress in returning to health, was the only Irish lender to avoid outright nationalization during the country's crisis. The government still owns a 15% stake in the lender.

The bank said it had hired Davy Stockbrokers, Deutsche Bank and UBS to help sell at least EUR500 million of the CoCo notes, which mature in July 2016 and pay an annual coupon of 10%, through a placing on the secondary market.

Write to Eamon Quinn at eamon.quinn@dowjones.com