Cyprus likely to seek EU bailout; EC says it can be avoided

05 Jun 2012

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Cyprus, one of the smallest economies in the eurozone, is likely to be the next to request a bailout from the European Union (EU), as its recession-hit economy has been badly struck by the Greek debt crisis.

In an interview with the Financial Times Monday Cyprus' central bank governor Panicos Demetriades said that his country was nearing an EU bailout request to shore up its banking system severely affected by the Greek turmoil. 

The governor acknowledged that the country's second largest-lender Cyprus Popular Bank is struggling to find at least €1.8 billion to meet a June end deadline for its recapitalisation, and recourse to the EU was becoming more probable.

''Clearly the closer you get to the deadline the less unlikely it becomes,'' he said, adding that the country was facing ''an important crunch time.'' Demetriades said.

The European Banking Authority, the regulator, wants Popular Bank to increase its core tire 1 capital to 9 per cent by 30 June by injecting fresh capital.

If the lender is unable to find the capital before the end of June, the government will be forced to come forward for its rescue.

Popular Bank's 2011 losses were around 2.8 billion, following the write-down of Greek government bonds.The Cypriot parliament passed legislation last month to underwrite the bank's €1.8-billion new share issue for its recapitalisation.

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