The European Central Bank's "stress" tests were stricter than forecast, Cyprus's finance minister told CNBC, after three Cypriot banks failed the crucial healthcheck.
Results published on Sunday showed that 25 euro zone banks had failed the tests, which were designed to assess whether Europe's financial sector could withstand another financial crisis. All three of the Cypriot banks assessed—Bank of Cyprus, CY Co-operative Central Bank and CY Hellenic Bank—were shown to have capital shortfalls at the end of 2013.
The ECB has come under fire over whether the tests were rigorous enough and the "stresses" used were realistic.
However, Harris Georgiades, finance minister of Cyprus, told CNBC on Monday that the tests were tougher than foreseen.
"In the case of Cyprus, it was much more adverse than any reasonable analyst could have expected," he said.
"We have had the real stress situation and now our banks are perfectly equipped to cope with a yet another theoretical stress of the economy. I think overall it has been a very demanding exercise at the European level but also for Cyprus."
Georgiades added that Cypriot banks had been able to raise "significant capital" in the last few months—waylaying the weak 2013 figures.
"You mention failure—that is on the basis of the 2013 numbers," he told CNBC. "But on the basis of the 2014 numbers and the developments which followed, we have a successful outcome, and that is an excellent piece of news for a banking system that was led into crisis during the period 2011 to 2013."
Cyprus received a 10 billion euro ($12.7 billion) bailout in 2013 from Europe and the International Monetary Fund to save it from bankruptcy and recapitalize it banking sector, which was crumbling under heavy exposure to Greek debt. Cyprus was the fifth euro zone country to receive an international bailout since the global financial crisis of 2007-08.
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Last Friday, Standard & Poor's raised Cyprus's rating to "B+" from "B". However, it noted that "outstanding challenges" remained in the financial sector.
According to the credit ratings agency, Cypriot non-performing loans stood at an estimated 53 percent—the highest in the European Union—in August 2014, compared with 46 percent at the end of 2013.
"The asset quality of Cyprus' banks continues to decline despite banking sector restructuring," it said in a report on Friday.