Spanish bank loan losses could hit 260 billion euros ($A339.05 billion), with the industry likely to need some 60 billion euros ($A78.24 billion) in outside help to stay afloat, the International Institute of Finance (IIF) says.
Taking guidelines from how badly Ireland's banks were hit in its financial crisis, economists at the global banking institute said they expect the losses to be in the range of 216-260 billion euros.
"A number of factors suggest that the losses could be nearer the upper end of this range. Spain's macroeconomic prospects are worse than those faced by Ireland, especially as regards growth and unemployment," they said in a new review of the global economy.
"The bulk of the losses would be generated by the commercial real estate loan portfolio, which is concentrated in the cajas," the Spanish savings and loan banks, it said.
The IIF is an association of around 450 banks around the world and has been closely involved in the eurozone crisis, leading the negotiations for a write-down of Greece's private-sector debt in March.
The IIF said the banks were able through the end of last year to find enough capital internally to put aside 110 billion euros for loan loss reserves, and some will be able to keep generating capital internally to meet needs. But not all of them.
"Substantial divergences between individual banks suggest that government assistance will be needed for a significant number of banks, mainly the cajas," the IIF said.
In the worst case, the IIF said the shortfall that would fall on the government would be about 50-60 billion euros.
It said some aspects of the Spanish market might prevent the worst-case scenario.
"Mitigating factors, on the other hand, include more conservative lending standards than in Ireland, with lower ratios of loans to value. Real-estate lending in Spain, moreover, has not been as concentrated. Most banks, finally, have more diversified loan books."