OTP Bank Set for 1-Month Low on FX Loan Concern: Budapest Mover

OTP Bank Zrt. headed for a one-month low after a magazine reported the Hungarian government is considering making the conversion of foreign-currency mortgages into forint compulsory, sparking concern banks may suffer.

Hungary’s largest lender fell as much as 1.9 percent to 4,200 forint, the lowest since July 19 on a closing basis, before trading at 4,268 forint by 1:52 p.m. in Budapest. About 580,000 shares changed hands, comprising 40 percent of the stock’s three-month average. The bank led declines on the benchmark BUX index, which increased 0.2 percent.

Participation in the plan should be “mandatory,” though borrowers would be able to opt-out, the Heti Valasz weekly magazine reported, citing Gabor Orban, state secretary at the Economy Ministry. OTP lost 4.7 percent in July, when the government announced plans to convert foreign-currency mortgages into forint-linked loans, with banks bearing part of the burden.

“This drop is a result of the state secretary’s comments, and shows that there is sill a lot of uncertainty over government plans,” Eszter Toth, a Budapest-based equity trader at CIB Bank Zrt., the Hungarian unit of Intesa SanPaolo SpA, said by phone today. “Markets are still guessing details.”

Prime Minister Viktor Orban is seeking to re-denominate $8 billion of mortgages issued in currencies other than the forint to ease the debt burden on homeowners after a weaker local currency led to ballooning repayments. The plan, which is being discussed with banks, will supplement earlier programs including a 2011 initiative that allowed the repayment of loans in a lump sum at below-market rates.

Unilateral Steps

A working group at the Hungarian Bank Association will present plans to lenders’ executives by the end of this week, Magyar Nemzet reported Aug. 1, without saying how it obtained the information. Banks and the cabinet need to reach an agreement by Sept. 30 or the government will be forced to take steps unilaterally, Economy Minister Mihaly Varga said in an interview with TV2 on Aug. 4.

Six analysts recommend investors buy the shares of OTP, while 11 have a hold rating and three say sell, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.