Spanish banks are failing to recognize the true scale of their losses amid a deep slump in Europe's fifth-largest economy, something that could hamstring the sector's growth for years, Moody's Investors Service said Tuesday in a report.

Moody's predicted Spanish bank customers will default on about 108 billion euros of loans during the economic downturn. Loan-loss provisions cover less than half these losses, meaning lenders would have to retain a big chunk of profits and raise more capital.

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