Irish-based banks' reliance on emergency funding fell to the lowest level in almost 18 months at the end of January after borrowings from the European Central Bank shrank by 14 percent on the previous month, data showed on Friday.

Irish banks, at the root of a financial crisis which led to an 85 billion euro (72 billion pound) EU/IMF bailout in November 2010, are reliant on central bank loans to fund their day-to-day operations after losing tens of billions of euros in deposits and being largely excluded from wholesale lending markets.

The bulk of the loans from the ECB are to domestic Irish banks such as Bank of Ireland , Allied Irish Banks and permanent tsb but the overall figure also includes foreign subsidiaries based in Ireland.

Analysts said it was more likely that the sharp fall was down to foreign banks based in Dublin's International Financial Services Centre (IFSC) than one of its domestic lenders.

We would suggest that the sharp drop is more likely to be driven by a transfer of funding from an IFSC bank to a foreign parent or bad bank vehicle over the course of January, Dublin-based Glas Securities wrote in a note.

We remain sceptical as to whether the recent drop should be perceived in a positive manner for the Irish Covered Banks.

Overall borrowings by the banks from the ECB and Ireland's central bank stood at 138.1 billion euros as of January 27, down from 151.4 billion euros at the end of December and from a high of 187 billion euros in February 2011.

Banks had 92.6 billion euros in outstanding loans from the ECB, lower from a nine-month high of 107.2 billion euros last month following an injection of ultra-cheap three-year loans by the euro zone's central bank into the European banking system.

Emergency loans from the Irish central bank rose a touch to 45.5 billion euros from 44.2 billion euros but stayed well below the 70 billion euros lent in February last year.

As part of their bailout, Irish banks have pledged to shed over 70 billion euros in assets by the end of 2013, via disposal and run-off, and to wean themselves off central bank funding. They were almost halfway through that process at the end of 2011.

(Reporting by Padraic Halpin; Editing by Catherine Evans)