The report came as another agency, Moody's, raised the alarm over Spanish banking woes as it sliced Spain's credit rating and warned it may do so again, pounding financial markets.

Spain's 17 savings banks are still struggling under the weight of loans that turned sour after the 2008 property bubble collapse and are at the heart of fears the country could need an Irish-style international rescue.

Moody's expressed scepticism about Madrid's assumption it can clean up savings banks' balance sheets at a cost of less than 20 billion euros ($28 billion), putting the cost at 50 billion euros.

Fitch estimated that the Spanish banking system as a whole "would have a capital shortfall of 38 billion euros in a base-case stress scenario and 96.7 billion in a more extreme stressed scenario based on experience with banks in Ireland.

"The estimates result from updated stress tests that Fitch has conducted on domestic loans for Spanish financial institutions."

It said most of the potential capital shortfall is linked to the regional savings banks, or cajas, "which represented 39 percent of the total banking system assets at end-September 2010."

It said the caja sector would need 19.4 billion euros of funds in a base-case stress scenario and 54.7 billion in its Irish stress scenario.

But it "does not expect that credit losses in Spain will be as high as those in Ireland as the dynamics of the two countries' residential mortgage lending and commercial real estate sector are different.

"However, the base-case stress scenario has a reasonable probability of materialising."

The Irish government came to the rescue of the country's banks to prevent their collapse, before agreeing to an international 85-billion-euro bailout with the European Union and the International Monetary Fund.

Spain's savings banks are scrambling to raise billions of euros of fresh funds to meet strict new capital requirements, set by the government last month to shore up confidence in the battered economy.

Under the new rules, savings banks must raise the proportion of core capital they hold to 8.0 percent of total assets from the current six percent, or 10.0 percent if they are unlisted.

The Bank of Spain will determine Thursday which savings banks have met the new core capital requirements and in the case of those that have fallen short, how much capital they need to raise to meet the new requirements.