Cyprus May Seek Financial Aid From Europe: Report

Cyprus is closer to seeking financial assistance from the European Union as large exposure to Greek debt left the country's banking sector more vulnerable to contagion effects, central bank governor Panicos Demetriades indicated during an interview with the Financial Times.

Cyprus Popular Bank, the country's second largest lender, faces a deadline to find at least EUR 1.8 billion for recapitalization at the end of June. Demetriades told the newspaper that as the deadline closes in, the recourse to the EU is becoming more probable.

"Clearly the closer you get to the deadline the less unlikely it becomes," Demetriades said. "The country is facing an important crunch time," he added.

Popular Bank's Chairman Michalis Sarris told FT, "it is hard to see where [the capitalisation] is coming from, if not Europe." He also said the "appetite to lend to Cyprus has dried up for many months now".

Cyprus had so far firmly rejected suggestions that the country may have to seek an international bailout.

In March, Moody's Investors Service cut government bond ratings of Cyprus by a notch to 'Ba1' with a 'negative outlook', citing the possibility of the government providing support to banks due to their exposure to Greek debt.

Cyprus' economy remained in recession in the first quarter of 2012, with gross domestic product falling 0.3 percent sequentially, marking the third consecutive decline in GDP figures.