OTP Sees Lending Pick Up, Slowing Portfolio Deterioration

OTP Bank Nyrt. (OTP) expects lending to pick up in the second half of the year and bad loan growth to moderate after Hungary’s largest lender reported its profit fell in the second quarter.

Net income adjusted for one-time revenue sources dropped an 17 percent from a year before to 37 billion forint ($164 million) in the period as provisioning for bad loans rose, OTP said in a statement to the Budapest Stock Exchange today. Unadjusted net rose to 41.4 billion forint from 37.3 billion forint a year earlier. The median estimate by nine analysts polled by Bloomberg was for a 32.6 billion-forint profit.

“We expect an increase in lending in the second half, especially in Russia where the second half is a seasonally dynamic period in terms of lending,” Deputy Chief Executive Officer Laszlo Bencsik said at a press conference in Budapest today. The bank expects bad loan growth to moderate in the third quarter, he said.

OTP, which has subsidiaries in nine countries in central and eastern Europe, has seen profitability decline as the economic crisis sapped demand for credit and boosted non- performing loans. Provisions for bad loans rose an annual 28 percent to 64.1 billion forint in the second quarter as the ratio of loans overdue by more than 90 days increased to 18.8 percent from 17.4 percent at the end of the first quarter.

OTP booked a one-time income of 4 billion forint in the second quarter following impairment charges at its Serbian and Montenegrin subsidiaries.

Shares Rise

OTP shares gained 2.3 percent to 3,830 forint by 10:06 a.m. in Budapest, the highest since May 3. The benchmark BUX stock index advanced 0.5 percent, heading for the highest close since Aug. 6.

“Results were more favorable than expected,” analysts at Budapest-based brokerage Equilor Zrt. said in an e-mailed note today. “However, if we look behind the scenes, we see significant problems where the acceleration in portfolio deterioration is concerned. We expect a positive initial market reaction with institutional investors possibly showing up later in the day on the selling side.”

Bencsik declined to give an estimate on the effect of a planned financial transaction tax to be introduced in 2013, saying OTP has not yet decided what percentage of the levy it will relay onto its customers.

Hungary is planning to introduce a 0.1 percent financial transaction tax from 2013 along with other sectoral levies to help shore up the budget.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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