Rating agency Standard and Poor's has said that Irish banks' results for 2016 confirm its belief that the lenders will remain profitable and their balance sheets will continue to improve.
But in a new report, S&P's also said the large stock of non-performing loans remains a key relative weak spot for Irish banks.
The rating agency had estimated that about 16% of domestic loans were in arrears at the end of last year. While that is down from a peak of 37% at the end of 2013, the much more gradual reduction appears to be the new trend as the remaining loans represent the most difficult cases.
It also noted that Irish banks' mortgage books remain "blighted" by high levels of negative equity, a relative lack of new lending and the high level of tracker mortgages.
S&P's said today that Irish banks "still have a long way to go" to match the creditworthiness of most other West European banking systems.
It noted that apart from Iceland, Italy, Portugal and Spain, its anchors, or starting points, for Western European banks lie in the "bbb+" to "a-" range.
In January, S&P's had raised the starting point for an Irish bank to investment grade - from bb+ to bbb-.
S&P's said it believes the gradual recovery in the banks' creditworthiness has been supported by the recovery in the Irish economy, the growing employment levels and rising house prices and not due to any significant improvements by the banks themselves.
The rating agency said that risks to Irish banks include a setback in the apparently robust domestic economic outlook. It added that challenges from Brexit will also hit the Irish economy due to the strong direct trade relations between Ireland and the UK.
"Furthermore, the low interest rate environment and low credit growth means that future net interest income expansion may be difficult to achieve," it added.
S&P noted that most of the big banks in Ireland were profitable last year - Bank of Ireland, AIB and Ulster Bank.
While Permanent TSB reported a statutory loss, this was mainly due to a €399m charge in relation to the completion of the sale of both its non-core UK and Isle of Man loan portfolios, it added.
Permanent TSB's management has said it expects to be profitable in 2017, which is consistent with S&P's view given that the bank's deleveraging programme is now complete.