The Central Bank’s new head of credit institutions supervision Ed Sibley said banks face “high levels of scrutiny and challenge” as they seek to free up money previously set aside for bad loans.

In his first speech his appointment to the role in April, Mr Sibley said that following the crisis "the patient is still weak and vulnerable" and banks still have much to do to address soured loans and risks posed by the "astonishing pace" of technological change.

The comments came a day after the Central Bank highlighted in its latest Macro Financial Review that Irish banks have largely relied on releasing provisions set aside in the past for bad loans to bolster the industry's return to profit in 2014. The report said that banks' core profitability remains weak due to low income growth and the fact that their loan books are still shrinking.

While domestic banks have been reducing their soured loans in recent years, with the value of non-performing loans having fallen by more than half their 2013 value to €27.8 billion, or just over 15 per cent of their portfolios, Mr Sibley said “risks remain regarding the high level of indebtedness in the economy.”

“The high level of non-performing loans is a continued symptom of the crisis and the tip of a very large iceberg - the even higher level of restructured commercial and mortgage debt is the rest of the iceberg sitting below the surface,” he said.

He said that the Irish regulators, together with the European Central Bank’s bank supervision arm, continue to apply “high levels of scrutiny and challenge” to the rate at which troubled loans are being resolved, how they are being provisioned for and the extent to which banks are freeing up some of these reserves as the economy improves.

Meanwhile, Mr Sibley said the Central Bank is concerned about some evidence it has found where lenders haven’t changed their risk culture since the crisis.

“We have seen pockets of activity demonstrating over-optimism and lack of consideration of downside risks, where one would question whether the lessons from the crisis have been truly remembered,” he said. “It is incumbent on us all that they are never forgotten.”

The Central Bank will be following an approach taken by Dutch authorities and will be “undertaking behaviour and culture in the Irish banks in due course.”