Ireland's bailed-out banks may need as much as €4 billion more loan loss provisions than assumed in stress tests last year, which could "tip the balance in favor" of the country requiring a second aid program, Deutsche Bank said in a report today.

"A new, even modest, increase in capital requirements could deter sovereign investor participation and tip the balance in favor of the sovereign requiring a second loan program," said Deutsche Bank analysts David Lock and Jason Napier.

The government's plan to introduce new personal insolvency laws creates "risks", even as politicians and the financial regulators seek to avoid widespread residential mortgage debt forgiveness, the bank said.

"Although resilient during 2009 and 2010, mortgage arrears have risen sharply over the past year, house prices are continuing to fall, market liquidity is limited, and over half of customers are now in negative equity," said Deutsche Bank analysts in the report.

"We fear the size of negative equity balances for some mortgage holders may greatly reduce their incentive to cooperate, pushing them towards default."

Bloomberg