Moody's, the credit rating agency, has reduced its financial strength rating on DZ Bank Ireland, which is based in the International Financial Services Centre (IFSC), because of the Irish institution's strong links with its German parent.

DZ Bank Ireland, which has total assets of about €5 million, operates under a strong letter of comfort from Frankfurt-based co-operative institution DZ Bank.

The Irish institution is engaged in international lending business with investment-grade counterparts from its IFSC headquarters.

Moody's has cut the bank's rating from C- to D+, citing the "reduced financial and managerial flexibility" of its parent.

Moody's also said that while the Irish bank had less loan risk than DZ Bank, it had "experienced some challenges" when compared with its peers.

In the same update, Moody's upgraded its rating on DZ Bank Ireland's debt and deposit ratings from A3 to A2.

The ratings agency said the shift reflected "the underlying support relationship" that existed within the German co-operative banking movement.

This support is based primarily on a guarantee fund and co-operative guarantee agreement that extends to DZ Bank Ireland, according to the agency.

The outlook for both ratings was stable, Moody's said.

In the same briefing, the agency maintained its P-1 short-term debt and deposit rating on the IFSC bank.