OTP Bank Swings to 3Q Loss as Loan-Conversion Costs Hit Units

  • Romanian, Croatian FX loan woes follow Hungary impact
  • Further `significant' provisions considered at Ukraine unit

OTP Bank Nyrt., Hungary’s largest lender, posted its first loss in five quarters as the cost of converting foreign-currency loans weighed on its Romanian and Croatian units.

The Budapest-based bank booked a 3.7 billion forint ($12.6 million) net loss in the three months ending September, hit chiefly by the one-time 25.5 billion forint impact of plans to convert Swiss franc-denominated mortgages in Romania to leu. The shares fell 1.8 percent to 5,592 forint by close in Budapest, paring this year’s rally to 47 percent.

The cost of cleaning up foreign-currency lending at its subsidiaries is dragging down OTP’s results after loan programs in Hungary dented profitability at its core operations for years. The bank is seeking to preempt planned legislation and legal battles in Romania by offering clients the opportunity to convert loans to leu, it said.

"This is a mutually beneficial opportunity, compared with lawsuits," Chief Financial Officer Laszlo Bencsik told reporters in Budapest. "We will have an indication by the end of the first quarter on what share of borrowers will participate."

Ukraine Provisions

A 6.5 billion-forint cost in Hungary related to the conversion of foreign-denominated car and consumer loans also contributed to the loss, as did the 6.3 billion forint impact of the re-denomination of Swiss franc loans in Croatia. The lender may book further "significant" provisions in the fourth quarter related to liabilities managed by its Ukrainian factoring unit, it said in a presentation.

The combined 20 billion forint adjusted loss at the lender’s Russian and Ukrainian units marked a "difficult" operating environment amid an economic downturn, Bencsik said. A deceleration in non-performing loans in Russia may help the unit return to profits in the "near future," Bencsik said.

"The eastern situation is still gloomy," Monika Kiss, the head of research at Equilor Befektetesi Zrt. brokerage in Budapest, said in an e-mailed report. "The market will ignore that OTP was able to achieve above consensus total revenues, and will focus on Romanian adjustment item and fourth-quarter risk provision-warning in Ukraine."

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