British lender Royal Bank of Scotland's chairman expects a "small country" to leave the euro zone, telling Sky News this scenario would put more strain on the world's banking system.

"I think it is likely that one country, a small country, will drop out," Philip Hampton said.

"It could be any of them because I think that some of these things will be driven by political events as much as by economic circumstances and social unrest, and all of those sorts of things. But I think there is a very good chance that one country will fall out," he said.

Banks yesterday took €489 billion of loans at the European Central Bank's first offering of three-year funding.

The move raised hopes among investors that a credit crunch could be avoided and the money may be used to buy Italian and Spanish debt, although many investors remain concerned that countries such as Greece may have to leave the euro zone.

Mr Hampton said the British banking system had been fixed yet, although the sector was "very much on the mend".

Reuters