DUBLIN (Reuters) - Ireland's extensive support for its banks has been vital to maintaining financial stability, the International Monetary Fund said, as ratings agencies praised decisions taken by the country's "bad bank" this week.

An IMF spokesman said the first transfer of assets from banks to Ireland's "bad bank" represented an important step in the country's recovery, while ratings firms said it made the course the government's debt will take clearer.

"The government should now be restoring the financial health of the banking system which is an absolutely necessary prior condition for restoring economic growth and stability," Chris Pryce, director for ratings in Western Europe for Fitch Ratings, told Reuters in an interview.

He said Fitch's AA- rating on Ireland with a stable outlook was increasingly proving to be appropriate, and that recent decisions had not changed that outlook.

Fellow ratings firm Moody's said it was closer to deciding the level in the Aa range where Ireland's rating would settle, describing the bad bank's impact on its AA1 mark on negative outlook as a "balancing act" dependent on economic recovery.

Fitch's Pryce added that it was absolutely essential Dublin continued to aggressively follow its programme of budgetary cuts which have helped Ireland to win back investor confidence compared with other heavily-indebted euro zone members.

Ireland's "bad bank", the National Asset Management Agency (NAMA), last week started buying property loans from banks at a higher discount than expected and Dublin told participants to find up to 32 billion euros ($43.16 billion) of capital to make up for the write-downs.

Central bank Governor Patrick Honohan lowered the estimated amount NAMA would pay for property loans, saying in an article in the Financial Times last Thursday it would spend between 40 billion euros and 50 billion euros, below the government's initial 54 billion euro projection.

The bigger capital shortfalls arising from higher discounts will ultimately hit government coffers, which are under close scrutiny as Dublin attempts to cut its large budget deficit. The state will have to supply extra capital to nationalised Anglo Irish Bank, two building societies and possibly to Allied Irish Banks. Bank of Ireland is potentially the only participant that will avoid majority state ownership.

Honohan reiterated the banks would sell "non-core" assets and issue new shares, and the government's preference shares from an earlier bailout would be converted into ordinary equity.

As in the case of bailed-out British banks Lloyds and Royal Bank of Scotland, Irish banks will be managed with a view to get the best value for the taxpayer when the equity stakes are sold back into the private sector, he said.

The government has injected 12 billion euros into nationalised Anglo Irish Bank, and has said another 10 billion could be needed. Honohan said it was likely the additional amount would be necessary.