NICOSIA Cypriot banks could need a further 1.5 billion euros ($2 billion) of capital to cope with a rise in bad loans in a rapidly contracting economy, credit rating agency Moody's Investors Service said on Thursday.
Moody's said the Mediterranean island's banks and cooperative lenders were likely to need the money on top of the 2.5 billion euros of EU support already earmarked for the banking sector.
Cyprus shut one its largest banks and forced depositors to forfeit savings to recapitalize a second bank in March, as part of a 10 billion euro aid package from international lenders after the country was hit by the euro zone debt crisis.
Moody's, which put Cypriot banks on a "negative" outlook in May 2009, said in a report it anticipated a 12 percent contraction in economic output this year, considerably worse than lenders' estimates of an 8.7 percent decline.
The agency estimated that problem loans increased to around 26 percent of gross loans at the end of 2012, and would increase to over 35 percent by the end of this year. It did, however, say there was limited publicly available data on the matter.
(Writing by Michele Kambas; Editing by Mark Potter)