OTP Sees ‘Moderate’ Credit Expansion, May Pay Higher Dividend

OTP Bank Nyrt., Hungary’s largest lender, expects to expand credit and see risk costs decline as bad loan formation slows, Chief Financial Officer Laszlo Bencsik said.

OTP may see a “moderate” increase in foreign currency-adjusted loans and operations in Hungary may improve, Bencsik said at a press conference in Budapest today. The bank may propose a dividend of 120 forint to 121 forint per share after the 2012 business year, Bencsik said, according to state news service MTI. That compares with a previous 101.7 forint per share payout.

OTP posted net income of 26.1 billion forint ($115 million) in the fourth quarter after a loss of 25.8 billion forint a year earlier, OTP said today. Analysts expected a profit of 30.4 billion forint in the last quarter, according to a Bloomberg poll of nine analysts.

“We expect a moderate improvement in company operations as we hope that the trend of declining loan volumes will turn around this year after a 2 percent fall in 2012,” Bencsik said. Economic strains will probably ease in a number of countries where OTP operates, including Hungary, yielding a “more positive picture” for the year, he said.

OTP shares rose as much as 2.1 percent today and traded 1 percent higher at 4,882 forint at 11:40 a.m. in Budapest, advancing for a fourth day. The benchmark BUX index advanced 0.13 percent in a fourth day of gains.

Foreign Units

OTP, which has subsidiaries in nine countries in central and eastern Europe, is increasingly relying on its foreign subsidiaries for profit generation as Europe’s highest bank levy and Hungary’s economic slump take a toll on domestic operations and boost bad loans. The ratio of non-performing credits rose 0.1 percentage point, the slowest pace since 2008, to 19.1 percent on group level in the last quarter of 2012.

Hungary, OTP’s largest market, is battling its second recession in four years as household consumption declined, investments dropped and the euro-area crisis drained demand for exports. Prime Minister Viktor Orban, who in 2010 levied special taxes on several industries including banks, backtracked on an earlier promise to cut the bank levy in half in 2013 and imposed a financial transaction tax of 0.2 percent as he seeks to shore up the budget.

OTP sees “double-digit” consumption loan growth in Russia, Ukraine, Romania, Serbia, Slovakia and in Hungarian corporate loans, especially in the agricultural sector, the bank said in a presentation today. Adjusted revenue margins will be stable while nominal operational costs may grow 5 percent, according to the presentation.

Portfolio Quality

OTP’s results look better on a second glance as the loan portfolio quality is improving and bad loan coverage is at record levels, analysts at Budapest-based brokerage Equilor Zrt. said in an e-mail today. “Once the management sees a sustainable drop in risks, provisioning may drop significantly, leading to a surge in profit and a revving up of dividend payments,” according to the e-mail.

Net interest income fell 2 percent in the last three months of 2012 from a year earlier to 166 billion forint, while provisions rose 4 percent to 70.3 billion forint. The bank had a bad loan provision coverage of 80 percent at the end of 2012.

OTP would be open to government measures aimed at helping foreign-currency mortgage holders who are more than 90 days overdue with their payments, Bencsik said. OTP’s Swiss franc-denominated loans total 600 billion forint, of which 30 percent are non-performing, he said.

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