Russia will re-negotiate the terms of its €2.5bn loan to Cyprus, President Vladimir Putin said Monday, throwing a critical financial lifeline to the debt-stricken island economy as it attempts to save its collapsing banking industry.

Speaking to reporters during media event in Hannover, Germany, with Chancellor Angela Merkel to discuss the political tensions in North Korea, Putin also said that he hoped the current methods used in the €10bn Cypriot bailout - which included a massive and controversial haircut on bank depositors - would not serve as a template for future rescues. Moody's Investors Service has estimated that Russian companies held around €31bn in Cypriot banks prior to the bailout.

Cyprus' former finance ministers Michael Sarris travelled to Moscow in days prior to last month's bailout in a vain effort to convince Russia to ease the terms and interest rates on a €2.5bn loan agreement inked in 2011. Putin is said to have changed his mind on the renegotiation after Cypriot officials elected to have uninsured depositors bear most of the brunt associated with the depositor's levy.

"Forfeiture of investors' funds -- including of Russian origin -- wherever it happens, in Cyprus or in other places, undermines credibility of the banking system of the entire Eurozone," Putin told Germany's ARD television Sunday. "The more you 'pinch' foreign investors in the financial institutions of your countries, the better for us because the affected, offended and frightened -- not all of them but many -- should, so we hope, come to our financial institutions and keep their money in our banks."

Terms of the bailout - including the final tally on savers - are expected to be agreed at this Friday's Eurogroup summit of Eurozone finance ministers in Dublin.