Ireland’s efforts to pull out of a deep economic slump suffered a setback on Monday after a major firm downgraded the country’s bond rating, citing a weak banking system and rising debt.

Moody’s Investors Service downgraded Ireland one notch, to Aa2 from Aa1, although it remained comfortably above junk level. Moody’s also changed the outlook on the ratings to stable from negative.

“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,” a senior credit officer at Moody’s, Dietmar Hornung, said.

The Moody’s downgrade put its ratings in line with other agencies. Standard & Poor’s downgraded Ireland to AA in June 2009, after lowering it to AA+ from AAA in March 2009. Fitch downgraded Ireland to AA+ from AAA in April 2009, then to AA- in November 2009.