The results of the ECB's comprehensive assessment showed that National Bank (>> National Bank of Greece) and Eurobank (>> Eurobank Ergasias SA) had too little capital at the end of last year - showing shortfalls of 3.43 billion euros (2.70 billion pounds) and 4.63 billion euros respectively.

But Greece's central bank governor Yannis Stournaras told Reuters only Eurobank had a shortfall under the ECB's adverse scenario after taking into account restructuring plans, of just 17.5 million euros.

Greece's battered banking system had been closely watched as part of the ECB's extensive review of banks, with analysts estimating a shortfall of as much as 1.5 billion euros before the ECB published its verdict on Sunday.

The results are a boost for Greece's government, which is hoping to use most of the 11 billion euros left over from a state bank rescue fund to help finance itself after it exits its EU/IMF bailout. Officials have suggested the funds could be used for a potential credit line if Athens quits its bailout early, at the end of the year.

"The results for the Greek banks are better than what the market expected," said Takis Zamanis, chief trader at Beta Securities. "The government has an advantage in negotiations with the (EU/IMF) troika."

According to the ECB, after taking into account restructuring plans, National Bank's shortfall stood at 273.28 million euros and Eurobank's shortfall stood at 70.66 million euros - both falling short on the asset quality review threshold. However, the ECB noted that the AQR result did not include capital raising or restructuring efforts this year.

National Bank said the tests showed it has no need to raise capital, noting that it had surplus of 2 billion euros under the "dynamic" scenario of the health check.

The restructuring plans have been approved by the European Union but have yet to be approved by the ECB.

The ECB noted that National Bank had already raised 2.5 billion euros since the start of the year, while Eurobank has already raised 2.86 billion euros in the same period.

SIGNIFICANT STRENGTHENING

A third Greek bank, Piraeus (>> Piraeus Bank SA), had a capital shortfall of 659.9 million euros at the end of 2013 but has already raised enough since then to cover that gap.

A fourth bank, Alpha Bank (>> Alpha Bank S.A.), was given a clean bill of health, confirming a Reuters report last week.

The two banks where the ECB's asset quality review (AQR) showed the biggest loan overvaluation were Piraeus and National Bank, each taking a hit of more than 300 basis points on core equity capital as a result.

Greece's four biggest lenders, which control about 90 percent of the industry, suffered heavy losses as the nation slumped into its worst economic crisis since World War II. They have struggled with rising bad loans and a sovereign debt restructuring in 2012 which wiped out their equity.

The four banks were rescued by the EU and IMF, which pumped 25 billion euros into them. All have since tapped international capital markets and raised 8.3 billion euros between them in their second recapitalisation round earlier this year, more than filling a 6.4 billion euro capital shortfall revealed in the second Bank of Greece stress test.

(Additional reporting by Renee Maltezou, editing by Deepa Babington and Alexander Smith)

By George Georgiopoulos and Lefteris Papadimas