Spanish banks will need a total of 59.3 billion euros ($76.3bn) in extra capital to ride out a serious economic downturn, an independent report has said, removing a major obstacle in the way of an international bailout for Madrid.
The stress tests' findings, which were released by the Bank of Spain on Friday, will help Spain decide how much it will use of the €100 billion loan facility offered by the 16 euro countries.
Spain said around 40 billion euros of the total will come as European aid while the rest could be raised by the banks themselves.
The audit, carried out by consultant Oliver Wyman, is a condition of getting European funds to patch up Spanish banks damaged by a prolonged real estate crash, and identifies which banks need more capital and precisely how much each requires.
Spain has agreed a credit line that could provide up to 100 billion euros in European Union rescue funds for its banks.
"The preliminary estimate of the final amount we would need to tap from the 100 billion euro lifeline would be one third less than the capital shortfall identified by Oliver Wyman," Bank of Spain Deputy Governor Fernando Restoy said at a press conference.
Both the strict 2013 budget presented by the government of Prime Minister Mariano Rajoy on Thursday and the audit of 90 per cent of Spain's banking system are necessary steps for Madrid to request sovereign aid and trigger a European Central Bank bond-buying programme.
Spain has replaced Greece, Ireland and Portugal as the main threat to the survival of the euro currency project.
The audit results were in line with market expectations and were applauded by the European Commission, the European Central Bank and the International Monetary Fund.
"That's another layer of uncertainty that's off the table," said David Schnautz, rate strategist at Commerzbank. "We got the budget yesterday and today the stress tests and now we're all keen to hear what the ratings agencies' view will be."
Credit rating agency Moody's is due to review Spain's debt grade before Monday. It currently has Spain on one notch above junk with a negative outlook.
Shaky banking sector
The audit identified the bulk of capital needs at the four banks which have already been rescued by the Spanish government.
The worst case is Bankia, the result of an ill-fated, seven-way merger between unlisted savings banks which was taken over by the government earlier this year.
The capital shortfall for these banks is 49 billion euros, with Bankia accounting for half of that. The European Commission said the exact aid needed for each bank would be determined in the coming months.
More than 60 per cent of the system, including heavyweights Santander, BBVA and Caixabank, did not need extra capital under the terms of the audit.
Other banks that will need extra capital under the stressed scenario are Banco Popular, Banco Mare Nostrum and a new entity due to be formed by a merger between former savings banks Ibercaja, Liberbank and Caja 3.
These banks will next month present plans to the Bank of Spain outlining how they intend to raise capital by their own means including share placements, asset sales and forced losses on subordinated bondholders.
Spain is suffering its worst credit crunch in 50 years and designers of the bank bailout hope these steps will lead to a resurgence of lending to families and businesses.