The outlook for Ireland's banking system remains negative, a new report on the banking sector from rating agency Moody's said today.

Moody's noted the outlook for the Irish banks has not changed since 2008 and reflects its view that the banking system here has not yet fully stabilised.

The report also said that Irish banks will remain under pressure for the next 12 to 18 months due to the growing level of arrears, their continued dependence on Central Bank funding and weak profits.

It noted that although most of the underperforming land and development loans were transferred to NAMA, arrears remain high on the remaining property loans.

''The asset quality of the banks' residential mortgage books will also remain very weak, although Moody's recognises that increases in arrears are beginning to slow,'' the report stated.

Moody's expects the Irish economy to grow at a slower pace in 2012 and 2013 - at 0.2% and 1.1% respectively - following GDP growth of 1.4% in 2011.

It said the country's growth prospects remain weak due to the fiscal consolidation process, the ongoing deleveraging in the private sector, and subdued external demand.

''Additional factors that will exacerbate the banks' challenging operating environment and constrain a return to banking stability are the uncertain economic outlook for key trading partners (especially the UK and the euro area), and the ongoing euro area crisis,'' it added.