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OTP Leads BUX to Biggest Loss in 2 Weeks on Hungary Rating Worry

OTP Bank Nyrt. fell amid concern the government won’t meet its deficit targets and may face a ratings cut to below investment grade, leading the benchmark index to the biggest slide in two weeks.

The country’s biggest lender fell 3.6 percent to 3,154 forint by the 5 p.m. end of trading in Budapest, extending its weekly drop to 2.9 percent. Oil refiner Mol Nyrt. fell 1.9 percent to 15,800 forint. The BUX equity gauge, where OTP and Mol have a combined 58 percent weighting, slid 2.5 percent to 16,289.14, the biggest slump on a closing basis since Sept. 22.

Hungary had a budget deficit of 1.57 trillion forint ($7.2 billion) in the first nine months of the year, 229 percent of the original annual target, the Economy Ministry said today. The country, which aims to cut the deficit to 2.5 percent of gross domestic product next year from 4.2 percent in 2010, is rated at the lowest investment-grade ranking by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

“There are increasing fears about the sustainability of the budget,” Zoltan Reczey, an equity analyst at Buda-Cash Brokerhaz Zrt, said in a telephone interview today. “The possibility of a downgrade coming in the next one to two months is in the air.”

The forint appreciated 0.5 percent to 295.3 per euro, paring its loss in the second half of 2011 to 10 percent.

Teams from Standard and Poor’s and Moody’s Investors Service will visit the country in October to review its rating, Gyula Pleschinger, chief executive officer of the state’s Debt Management Agency, told a conference last week. The outlook on Hungary’s rating is negative at S&P and Moody’s and stable at Fitch.

‘Imminent Rating Action’

“There is market talk today of an imminent rating action on Hungary following a forthcoming visit to Budapest by one of the major rating agencies,” Benoit Anne, head of emerging-markets strategy at Societe Generale in London, wrote by e-mail. “The risk of a sovereign rating downgrade is quite elevated, in my view.”

OTP’s shares have slid 25 percent since Hungary’s governing party proposed on Sept. 9 to allow the repayment of foreign-currency mortgages at below market rates, forcing banks to swallow the cost, which has now been enshrined in law.

“The domestic policy-making has deteriorated sharply in recent weeks, and investor confidence has been badly damaged,” Anne said.

Seven Hungarian banks including OTP were placed on review for a downgrade at Moody’s this week on concern that exchange-rate losses from the government mortgage plan may erode their profitability.

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