OTP Bank Declines on Muni Debt Discount Report: Budapest Mover

OTP Bank Nyrt., Hungary’s largest lender, snapped two days of gains after news website Origo reported the government plans to apply discounts of as much 25 percent when it transfers municipal debt owed to banks to the central budget.

The shares fell 1.7 percent to 4,150 forint by the end of trading in Budapest, paring the advance this month to 6.6 percent. The benchmark BUX stock index rose 0.1 percent, extending its gain in October to 3.4 percent.

Prime Minister Viktor Orban’s government, which has been working to cut the biggest sovereign debt burden in the east of the European Union, is extending its “war” on liabilities by taking over $2.8 billion in local council debt, Orban said on Oct. 27. The government may pay between 75 percent and 80 percent of the face value on some of the riskier municipal debt, forcing banks to write off the rest, and settle in bonds not cash, Origo reported, without citing anyone.

“The news is negative for investor sentiment,” Zoltan Arokszallasi, an analyst at Erste Group Bank AG, wrote in an e-mailed report. “In the worst case, losses for the banking sector would be very significant and thus detrimental to lending and the gross domestic product outlook.”

The prime minister’s press office declined to comment on the Origo report when contacted by e-mail.

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