Fitch Ratings downgraded Cyprus' government debt to junk status on Monday, with a negative outlook, making Fitch the last of the big three agencies to lower the island nation's sovereign credit rating.

The downgrade of Cyprus's sovereign ratings reflects a material increase in the amount of capital Fitch assumes the Cypriot banks will require compared to its previous estimate at the time of the last formal review of Cyprus's sovereign ratings in January 2012, Fitch said in announcing its move. This is principally due to Greek corporate and households exposures of the largest three banks, Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank and to a lesser degree the expected deterioration in their domestic asset quality.

Cypriot banks will require substantial injections of capital in order to secure confidence in their financial viability, Fitch said, adding that it judges that the scope for further capital-raising from the private sector is limited and thus assumes that the capital will have to be provided by the government.