Cash-strapped Cyprus has shifted its focus onto a bilateral loan instead of an EU bailout to recapitalise its second largest bank although both options are still open, media reported on Wednesday.

The euro zone minnow, shut out of capital markets for more than a year, must find the equivalent of 10 percent of its GDP by June 30 to recapitalise Cyprus Popular Bank if no private investor comes forward.

Bilateral lending, which the island's finance minister has repeatedly described as «not the preferred option» is coming back to the forefront as a likely scenario.

Russia, which bailed Cyprus out last year, was back in the frame as a potential lender, newspapers reported.

Efforts were underway to borrow from a third country with «more favourable terms», Haravghi, the mouthpiece of Cyprus's ruling AKEL Communist party, reported in a front-page headline. It did not offer more details.

Asked whether the prospect of bilateral lending was distant, Finance Minister Vassos Shiarly told state TV in an interview on Tuesday night; «I would say not."

He also reiterated earlier comments that the island would not «wait until the last day» to take action to prop up the bank, either through bilateral lending or by resorting to the European Financial Support Facility.

Nonetheless, resorting to bilateral lending rather than EU partners is likely to raise eyebrows in the bloc over a country which is poised to assume the European Union presidency on July 1.

Popular and the other main bank, Bank of Cyprus were hit heavily by the writedown on Greek debt. Bank of Cyprus has almost completed its recapitalisation privately.

Moody's Investors Service on Tuesday cut the credit rating of Bank of Cyprus, and put Popular on review for a downgrade, citing the increased risks of a possible Greek exit from the euro zone..

Cyprus has repeatedly expressed concern about strings which may be attached to any bailout from its EU partners. Its primary concern is that its cherished 10 percent corporate tax rate could be compromised.

The country, which represents 0.2 percent of the euro zone's economy, received a bilateral 2.5 billion euro loan from Russia, a close business partner, last year. Media reported that Cyprus has sounded out Russia on a new loan, but China has also been rumoured as another interlocutor.

[Reuters]