The only difference between Ireland and Iceland is that Ireland can avail of the European Central Bank's balance sheet, Royal Bank of Scotland (RBS) has told its clients.

In a note on Ireland and Nama, the bank said Nama would lead to greater demand for Irish bonds and it said concerns over the scale of capital needed for Irish banks was overdone. However, it said the crucial support for Irish debt was the involvement of the European Central Bank in this country's bank rescue programme.

The ECB's ability to extend refinancing deals to Irish banks is crucial to Ireland dealing with its financial crisis.

"That in a nutshell explains the difference between Ireland and Iceland, as the Irish state has the support of the ECB balance sheet," said the bank in a note sent to clients last week.

The bank estimates, after talking to local sources in Ireland, that the banks here require total recapitalisation of €20bn. It points out that much of that has already been committed, and while €10bn may still have to be extended, this "should not distract Irish bond markets for long".

It claims the state is sitting on cash balances of €28.9bn and the National Pension Reserve Fund has assets of €19.4bn, although €7bn of this is already invested in AIB and Bank of Ireland in the form of preference shares.

"In other words, any immediate cash needs are unlikely to translate to immediate bond issuance if at all," RBS analysts said.

The bank added: "Strange as it may seem, capital may come from sources outside of the Irish sovereign." It noted recent press reports suggesting that some Canadian banks may have an interest in an AIB investment.

The bank is also wary of the implications of a no vote in the Lisbon referendum.

"It will call into question Ireland's solidarity with the EU at a time when Ireland needs the good will of the EU," it said.