The European Commission has approved the release of another €1 billion of funds for Ireland after its latest review found that we are complying positively with the terms of the economic adjustment programme.

The EU found that implementation of the programme remains strong, although ''tough important risks and challenges remain''.

In July, the European Commission, the ECB and the IMF - known as the troika - carried out their seventh review of the country's progress in meeting conditions tied to the programme.

The Commission said the risks are mainly due to fragile investor sentiment towards Ireland and continued uncertainties in the outlook for growth and debt sustainability in the rest of the euro zone. It also noted that corrective measures are needed from the Government to address overspending in the healthcare and welfare systems.

The latest review also unlocked another €0.9 billion from the IMF and €0.7 billion from other EU states, including the UK, through their bilateral loans to Ireland.

In today's review, the European Commission called on the Government to consider ''all options'' in the preparation of the 2013 budget. ''Better targeting of the social support schemes and a further broadening of the tax base would help mitigate the adverse impact of the necessary consolidation on growth and the most vulnerable,'' it added.

It also said the banks' weak profitability continues to present a challenge for the Government, and reflects the ever increasing level of arrears and bad debts, a high overall cost of funding due to high deposit rates and the once-off costs for restructuring plans currently underway.

''Banks need to continue working on their restructuring plans and effectively implement their arrears resolution strategies,'' the Commission urges. It also said the Government is actively exploring ways to gradually phase out the Eligible Liabilities Guarantee scheme, which continues to hit banks' profits.

The Commission welcomed Ireland's recent return to the bond markets and the improved market sentiment towards the country.