NICOSIA, Cyprus – International credit rating agency Moody’s drove Cyprus deeper into junk Thursday with a three notch downgrade from B3 to Caa3 over concerns that the country may ultimately default on its burgeoning debt level.

Moody’s says more downgrades are possible for the country that is trying to finalize a bailout with international lenders to rescue its banks, which sustained massive losses on bad Greek debt and loans.

The agency said that an anticipated increase in the amount of money that Cypriot banks will need to recapitalize will push the country’s debt to a point where it won’t be able to pay it down.

The agency said that it believes that there is a “significantly increased likelihood” that Cyprus may default outright or seek for its debt to be written down, but doesn’t foresee that happening this year.

Moody’s said it estimates Cypriot banks will need around $13.11 billion to replenish their capital buffers, equal to a provisional estimate contained in a draft bailout agreement that Cyprus has reached with the European Commission, the European Central Bank and the International Monetary Fund. But this would lift Cyprus’ debt this year to a whopping 150 percent of its $22.95 billion gross domestic product, Moody’s said.