Stress tests conducted by Spain on 14 lenders in its troubled banking system have identified a capital shortfall of around €59.3 billion ($75 billion Cdn).
The results, which matched market expectations, were released Friday.
The stress tests' findings will help the country decide how much money it will tap from a €100 billion ($126 billion Cdn) European loan facility to prop up its financial sector.
Rating agency Moody's Investor Services is also expected to issue a report later Friday that some analysts believe will reduce Spanish bonds to junk status.
Craig Erlam, markets analyst at Alpari, said a downgrade to junk status could "create some panic" among holders of Spanish debt.
"The positive side to this is this could accelerate the bailout request," Erlam said.
Spain's benchmark stock index closed down 1.7 per cent.
The interest rate, or yield, on the nation's benchmark 10-year bond stood at six per cent.
Friday's audit results came a day after Spain outlined plans to cut spending and raise taxes.
The government's 2013 budget was drawn up to convince financial markets it is on track to reduce its bloated deficit.
Finance Minister Cristobal Montoro said Thursday Spain's draft budget for 2013 would cut overall spending by €40 billion ($51 billion).
Many analysts believe Thursday's budget is part of preparations for another financial lifeline to help the country reduce its high borrowing costs.
Spain is under pressure to take up the European Central Bank on its offer to buy unlimited amounts of government bonds to help lower borrowing costs for countries struggling to manage their debts.
Such large-scale purchases of short-term government bonds would drive up their price and push down their interest rate and take some pressure off of financially stressed governments such as Spain.
Spain is at the center of the eurozone crisis — its €1.4 trillion ($1.8 trillion) economy is the fourth-largest among the 17 countries that use the euro. The country is struggling to prop up its shaky banking sector and support its heavily indebted regional governments.
It has already introduced several packages of tax hikes, civil servant wage cuts and freezes in a bid to get out of the crisis.
To get help from the ECB, Spain must first ask for assistance from the rest of the eurozone. So far, the government has been reluctant to ask for fear of the conditions the other countries will attach to its aid.
Analysts say the Spanish government hopes Thursday's budget measures will be enough to stop the eurozone from imposing.
The country's austerity cuts have been extremely painful for a nation with an unemployment rate of nearly 25 per cent, the highest in the eurozone.
Protesters twice this week demonstrated outside parliament and clashed with riot police who barricaded off the area.
Another big protest is scheduled for Saturday in Madrid, and union members will also demonstrate in Portugal over austerity-driven pay cuts and tax hikes.