Spain's banks may need more capital if the euro area's fourth-largest economy showed economic degradation, especially as the announced sharp austerity by the government is predicted to shave growth prospects, Central Bank Governor Miguel Angel Fernandez Ordonez said.

The rise in loan defaults is raising concerns that reforms in the banking sector might not be enough to solve banking problems, where raising capital will be needed to build solid entities.

Meanwhile, there are worries of seeing further economic deterioration in the Spanish economy that might force the government to ask for an international bailout, amid fiscal concerns after the rise in Spanish bond yields on Tuesday.