The review for downgrade was triggered by two factors:

1. The slow pace of negotiations with the Troika and the resulting uncertainty regarding the likelihood and timing of a support package which raises liquidity risks.

2. Evidence that Cyprus's budget deficit will be significantly larger than expected, which further increases liquidity risks for the government.

The key difference between the drivers underlying today's rating action and Moody's previous actions on Cyprus is the increase in the country's liquidity risk in a short period of time. This is a new risk factor that was not present when Moody's downgraded Cyprus' bond ratings to B3 from Ba3 in October 2012. The rating action in October focused on the profound difficulties in the Cypriot banking sector, which creates both a macroeconomic risk and a solvency risk for the government.

RATINGS RATIONALE

RATIONALE FOR THE REVIEW FOR DOWNGRADE

The first driver behind Moody's decision to place Cyprus's B3 ratings on review for downgrade is the slow pace of negotiations with the Troika, which raises liquidity risks for the country. Cyprus requested assistance in June, but negotiations only began in mid-November. Given that politically controversial measures such as significant changes in the structure of public expenditures (like the linkage between public-sector wages and inflation) and privatisations are high priorities for the Troika, Moody's points to the risk that negotiations could potentially be prolonged. Even if negotiations were to be concluded in 2012, Moody's considers it unlikely that any assistance will be disbursed in 2012 because of the length of time that it takes for euro area national parliaments to agree to any new assistance programme. Moreover, the country's political and election calendar, in particular Cyprus's presidential election due on 17 February 2013, materially raises the risk of a delay in agreeing the conditionality and disbursement of assistance until late in the first quarter of 2013.

The second key driver underlying Moody's review of Cyprus's sovereign rating is the extent of deterioration in the country's fiscal position in a short period of time, which is further heightening liquidity risk given the government's limited market access. The deterioration reflects a number of factors including declining revenues, a sharp upturn in retirements over the course of this year and the inclusion of debt servicing costs on loans from the Russian government in the deficit numbers. The extent of the deterioration is sufficiently material not just to pose further challenges to the government's fiscal consolidation programme, but to materially heighten liquidity risk given the government's very limited market access. Moody's notes that the Cypriot government has been without international market access for well over a year, but can still issue T-bills in its domestic market. In 2011, the country received liquidity support from the government of Russia, but public statements indicate that further Russian support is likely to be linked to any Troika programme. At the same time, the weaker macroeconomic environment has taken its toll on revenues, while the benefits stemming from expenditure reductions have to some extent been offset by rising expenditure on pensions and interest costs, as reflected by Moody's recent upward revision of Cyprus's 2012 deficit forecast to 5.7% of GDP from the previous estimate of 4.9%.

FACTORS TO BE CONSIDERED IN THE REVIEW

The review of Cyprus's sovereign rating will focus on three issues.

- Most immediately, Moody's will monitor the Cypriot government's ability to access short-term funding while the Troika negotiations continue. The rating agency expects that this access will remain sufficient for the government to meet its funding needs, but evidence to the contrary would likely lead to a substantial downward transition in the rating.

-Secondly, Moody's will monitor the progress and outcome of Cyprus's negotiations with the Troika.

-The rating agency will also factor in bank recapitalisation needs, the key driver for the downgrade in October , in any agreed Memorandum of Understanding (MoU) against Moody's own central scenarios, which have been incorporated into 2013 debt calculations. Moody's central scenario assumes that the three largest Cypriot banks will require more than EUR8 billion in capital from the government.

WHAT COULD MOVE THE RATINGS DOWN/UP

Cyprus's rating could be downgraded if there is evidence that the government's access to short-term funding will be insufficient to meet its funding needs. The rating could also be downgraded if the government fails to agree on a MoU with the Troika in a timely fashion. Finally, the rating could be lowered if the MoU incorporates banking sector recapitalisation needs that are materially higher than Moody's current estimates.

Cyprus's rating could be confirmed at its current level if an MoU with the Troika is agreed in a timely fashion, and if banking sector recapitalisation needs are in line with our current estimates.

Upward movement in the rating is unlikely as long as debt levels are projected to remain at very high levels. The magnitude of the government's fiscal challenge is unlikely to decline materially even following agreement on an MoU because of the sheer size of the financial support needed for the banking sector.

The principal methodology used in this rating was Sovereign Bond Ratings Methodology published in September 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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Sarah Carlson VP - Senior Credit Officer Sovereign Risk Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Bart Oosterveld MD - Sovereign Risk Sovereign Risk Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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