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Cyprus may be next country to seek bailout

ReutersCypriot President Demetris Christofias says the island nation's economy, the third-smallest in the euro zone, is affected by heavy exposure to Greece.

NEW YORK (MarketWatch) -- Cyprus may seek financial aid from its European neighbors as early as this month, making it the fourth country to tap the region's temporary bailout fund, according to media reports.

The tiny island nation may need a bailout to recapitalize its banks, which are feeling the effects of the crisis in Greece, its neighbor, the country's central bank governor has told the Financial Times.

Panicos Demetriades said the country was at "an important crunch time," according to the newspaper Sunday.

The Wall Street Journal reported on Saturday that Cyprus' second-largest bank is seeking government aid, which would deeply strain the island's public finances and make it miss this year's budget targets.

Michalis Sarris, Popular Bank's chairman, told the FT "it is hard to see where [the capitalization] is coming from, if not Europe."

Cyprus is already rated below investment grade by two major rating agencies and it pays a yield around 14% on its 10-year bonds, according to the Journal.

The central banker's comments came shortly after Demetris Christofias, the president of Cyprus, said it wasn't certain whether the country would seek a bailout, but he couldn't exclude the possibility, according to the BBC.

Christofias said at that time Cyprus also was looking at contingency plans if Greece leaves the euro, because his country's financial system's exposure to Greece is estimated to be more than its total gross domestic product, reports said.