AIB and Bank of Ireland will need to raise €9bn in capital after transferring loans to Nama, according to US investment bank Morgan Stanley. AIB will need to raise €5bn through a combination of tapping investors, selling its stakes in foreign banks and buying some of its outstanding debt, the research note from the bank said.

Morgan Stanley acts as an adviser to AIB and estimates the Irish bank could raise €1bn from the sale of its 70% stake in Poland's Bank Zachodni WBK and €759m from its 22% holding in US lender M&T Bank. It could net a further €353m through the debt buyback. A combination of these measures would reduce the amount AIB has to raise from private investors or the government, the research report said.

Bank of Ireland may need to raise €4.1bn once its loans go to Nama, the report said. However, it has fewer options than AIB as it doesn't have as many assets to sell.

"It is an integrated bank with fewer obvious non-core assets that could be sold," Morgan Stanley said.

That may put the bank at a disadvantage when dealing with the European Union, which must approve the €7bn in state aid the banks have received.

Bank of Ireland could sell its stake in a joint venture with Britain's Post Office to satisfy the EU, "but it provides competition to local UK banks and hence it is not obvious that this would need to be sold", Morgan Stanley said. It added that the prospect of selling Irish assets was unlikely. It could raise €900m through buying back debt.

"AIB looks better positioned both to satisfy the EU on state aid concerns and to source capital to meet the higher European standards," the report said.

If the two banks raise the full €9.1bn, their equity Tier 1 ratio, a measure of their financial strength, would be about 8% in line with the norm for European banks, Morgan Stanley said.