Cyprus can't exclude EU bank bailout, says Finmin

Cyprus cannot rule out an EU bailout to prop up its Greece-exposed banks, its finance minister said on Wednesday, but is worried its EU partners could impose prohibitive conditions on any offer of aid.

Speculation is growing that Cyprus, the euro zone's third-smallest economy, could become the bloc's fourth recipient of aid as a deadline looms to recapitalise the island's second-largest bank.

"It's clear to us that, if we did proceed through the EFSF (European Financial Stability Fund), there are certain conditionalities which might not be acceptable to us," Vassos Shiarly told Reuters.

"We had the experience of Ireland, and therefore we are a little bit wary in case conditions are applied," he added.

But Cypriot officials have repeatedly said any assistance should not compromise the island's low-tax status which has propped up the island economically for decades.

Popular Bank requires 1.8 billion euros in fresh capital to meet European regulators' conditions by June 30. If the bank cannot raise the funds privately, the government, itself cash-strapped by its exclusion from international capital markets, will have to step in.

Asked if an EU bailout could be avoided, Shiarly said: "Yes, its possible, but I'm not suggesting that it is something that we are trying to avoid." Cyprus was not engaged in discussions with the EU about financial assistance, he said.

The island could not exclude bilateral borrowing either, even though, he said, it was not the "preferred option", but rather a fallback option. Cyprus acquired a 2.5 billion euro loan from Russia in late 2011, funding which is covering deficit shortfalls this year.

"We will never exclude any possibility so if and when we apply to the EFSF at least we will know that, if we are pressed too hard through the EFSF, we do always have an alternative, if an alternative is available," he said.