* Bank says new provision guidelines to hit results
* Possible core tier 1 could fall below 5 pct
* Bank applied for state aid in June (Adds detail)
NICOSIA, Dec 27 (Reuters) - Cyprus’s largest lender Bank of Cyprus warned investors of worse results in 2012 after a 2011 loss, on tougher provisioning regulations as the island readies for a bailout the size of its economy.
The bank said it anticipated a “significant negative deviation” in its 2012 results after tax and before Greek bond impairment, the write-down of which had a disastrous effect on the lender’s balance sheet in 2011.
Recapitalisation needs of banks which the state could not afford to support forced Cyprus into seeking an international bailout in June 2012.
Its 2012 results, Bank of Cyprus said, would be affected by more stringent conditions for the definition of non-performing loans and a deteriorating economic environment.
On the back of those expectations, the bank said it was possible its core tier 1 capital - a measure of financial strength - would fall below 5.0 percent on Dec. 31 2012.
Under the terms of a provisional agreement Cyprus has reached with prospective lenders from the IMF, the EU and the ECB, Cypriot banks have until the end of 2013 to raise their core Tier 1 to 9 percent, then to 10 percent in 2014.
Negotiations between Cyprus and lenders are continuing on a bailout which could potentially reach 17 billion euros, with up to 10 billion required for bolstering banks alone. Cyprus’s GDP is about 17.5 billion euros.
A conclusion to talks is contingent on an asset quality review of banks which will be ready in mid-January.
Bank of Cyprus reported a 1.37 billion euro loss in 2011 after taking a haircut on the value of Greek sovereign paper in its portfolio, depleting its regulatory capital and forcing it to apply for state aid. Heavier losses were also reported by a second bank, Popular. (Reporting By Michele Kambas; Editing by Helen Massy-Beresford)