The European Commission said on Thursday it had cleared, on a temporary basis, a bailout worth €1.8 billion for Cyprus Popular Bank, the second largest in the country.

It said the state aid decision was taken in the interest of financial stability, with the clearance lasting six months, during which time the Cyprus government is expected to prepare a full restructuring plan.

“Cyprus Popular Bank is the second largest banking institution in Cyprus and a default or technical insolvency would create a serious disturbance to the economy of Cyprus,” a statement said.

Cyprus applied for a full EU bailout in June after both Cyprus Popular Bank and Bank of Cyprus said they could not meet tough new capital reserve limits after taking huge losses on their exposure to bailed-out Greece.

Eurozone member Cyprus has the unenviable tag of being the first country to hold the six-month rotating EU presidency, which it assumed on 1 July, while also negotiating EU emergency aid.

Nicosia has been unable to borrow from international markets since 2011 after being reduced to junk status by ratings agencies.

As a whole, the Cyprus banking system is estimated to need €4.5 billion or 25 per cent of Gross Domestic Product to meet the new bank capital rules.

In its most recent directors’ report, Lombard Bank Malta stated that the bank continued to operate independently of any of its shareholders and held no financial exposure whatsoever to its largest shareholder, Cyprus Popular Bank. Moreover, the bank holds no exposure to any form of non-Maltese sovereign or corporate securities. Lombard Bank continues to operate as an independent Maltese banking institution determined to be a reliable and strong partner to its customer base.