OTP Bank Gains Most in Week on Tax Break Report: Budapest Mover

OTP Bank Nyrt., Hungary’s largest lender, gained the most in more than a week after the government said it was considering tax breaks in exchange for increased lending.

The shares rose 2.5 percent to 4,877 forint by the close in Budapest, the biggest advance since Feb. 8. The benchmark BUX stock index, in which OTP has the highest weighting at 34 percent, gained 1.4 percent, the biggest rally in a month.

The government is in “informal” talks with commercial banks on a deal that would provide tax cuts as incentives for providing more loans to help the economy emerge from recession, Gyula Pleschinger, state secretary at the Economy Ministry, said on MR1-Kossuth public radio. The government has introduced a special levy on lenders, taxed financial transactions such as cash withdrawals and forced banks to take losses on foreign-currency loans since coming to power in 2010.

The talks on reducing taxes “would appear to be good news” for OTP, Marta Czajkowska-Baldyga, a Warsaw-based analyst at KBC Groep NV, wrote in a research report today.

Gains may be mitigated if the Cabinet reverses its course, for example by requiring banks to take losses on municipal government debt holdings, Czajkowska-Baldyga said.

“Whenever a carrot appears, a stick swiftly follows when it comes to government policy towards Hungary’s financial sector,” she wrote.

Hungarian Prime Minister Viktor Orban, who has led what he called a “war on debt” including the liabilities of the state and households, last year turned to local government bonds and loans on banks’ books, pledging to take over as much as $2.8 billion from local councils.

The central government will assume 50 to 60 percent of Budapest’s debt, compared with the 40 percent initially reported, ATV reported citing Mayor Istvan Tarlos today.

“There is speculation that the government may impose a 20-25 percent haircut” on local government debt, Czajkowska-Baldyga said.