International ratings agency Standard & Poors has cut Cyprus's credit grade by one notch to BBB - just two notches above junk status.

The agency also kept the island nation on CreditWatch negative, a warning of additional future downgrades.

A Cyprus Finance Ministry said in a statement today that the reason for the S&P downgrade hinged on the increased risk that Cypriot banks may incur greater losses from a steeper drop in the value of their Greek bond holdings as part of a Greek debt restructuring.

The ministry said S&P also pointed to a delay in the country's efforts to shore up its public finances.

The latest in a series of Cyprus credit downgrades by all three major ratings agencies is mainly due to its banks' Greek exposure.