Irish banks have "extremely low or in some cases no direct exposure" to the crisis in the US sub-prime mortgage market, according to a senior banking analyst at ratings agency Moody's.

However, the increase in bank funding costs caused by the crisis - in addition to the reduced number of mortgages now being sold in the Irish market - is likely to mean that Irish banks will not continue to make as much in profits. "The issue for the Irish banks in the markets is profit, not liquidity," said Ross Abercromby, assistant vice-president of Moody's Investors Service.

Speaking yesterday at a conference on banking and insurance hosted by Moody's in Dublin, Mr Abercromby said Irish banks would in future be operating in "a harder climate" due to the high cost of inter-bank borrowing and increased competition.

He said the growth of the Irish banks would slow with the housing market, which meant that they may not be able to compensate for narrowing profit margins to the same extent as they did in the past.

"Profitability is likely to be pressured going forward. There is unlikely to be a fall in profitability but there will be no further profitability growth," he said.

Mr Abercromby said some Irish banks have "a very high exposure to real estate" - for example, more than 90 per cent of Anglo Irish Bank's loan book was in property, while more than 33 per cent of AIB's loan book was in construction and property, with a further 25 per cent in residential mortgages.

"However, underwriting on commercial property is extremely conservative and cash-flow based," he said. Mr Abercromby said Moody's as it believed that, in a downturn, commercial property portfolios were more vulnerable to deterioration than residential mortgages.