Institutional investors looking to rebuild their stakes in Irish banks are beginning to push for rights issues to make new shares available, according to industry sources.

With share prices showing a continued recovery in the wake of the government's equity injections into Bank of Ireland and AIB, plus the prospect of Nama putting a floor on asset losses, the big buyers are sniffing around the market again.

However the returning institutions are finding there is not enough stock in the market to satisfy their appetite, leaving brokers scrambling to fill orders.

Rather than slowly gather the small parcels available from retail investors, who now own as much as 50% of Irish bank shares, the investors are instead asking the banks to consider issuing more equity – a solution which would also help the banks build their capital buffers without further government help.

Many big shareholders such as pension funds shed their holdings in Irish financials as values plummeted over the last year, leaving much of the market to small individual investors, who traditionally hold about 20% of shares.

But institutions began returning to the market to buy bank shares in May as the threat of nationalisation – especially for AIB and Bank of Ireland – receded and details on how Nama would operate began to filter through.

Stockbrokers reported firm interest and some buying at the time, particularly in Bank of Ireland, which had surprised the market with a not-as-bad-as-expected set of results which suggested the bank might be in a position to issue new equity by the end of the year.

Davy has pushed that line with vigour, claiming the once-desperate bank could raise as much as €1.5bn late this year and reduce the government's stake to just 7%.

Irish Life & Permanent will have to re-issue shares when it undergoes a major corporate restructuring, tentatively scheduled for autumn.

Analysts have suggested this could be an opportunity for the company to raise additional capital, as well as spin off its banking arm. Senior industry sources told the Sunday Tribune such a move could double the value of shares in the remaining life company.

"There is a sense that Irish Life has really moved forward in a way shareholders can respect and relate to," said one institutional source.

"There is substance to their restructuring plans and they are refocusing on key areas of shareholder value, like the life business."

Frank O'Dwyer, chief executive of the Irish Association of Investment Managers, which represents the major institutional investment companies, has repeatedly stated that existing bank shareholdings are merely "option money", but that once clarity and certainty returned to the market, equity buyers would come back into the game.