OTP Says Provisioning Need May Decline After Bad Loans Dropped

OTP Bank Nyrt., Hungary’s largest lender, sees provisioning needs falling in the coming quarters after non-performing loans declined for the first time since the global financial crisis hit central and eastern Europe.

Bad-loan formation decreased in the third quarter, partially due to the “profitable” sale of such loans, Chief Financial Officer Laszlo Bencsik said at a news conference today after the Budapest-based lender released July-to-September results that beat the average estimate in a Bloomberg poll of 8 analysts.

Third-quarter adjusted net income was 42.2 billion forint ($191 million), a 2 percent decline from a year earlier, and net interest income rose 3 percent to 165 billion forint, OTP said in a statement to the Budapest Stock Exchange today. Analysts had expected net income of 38 billion forints in the Bloomberg survey. Unadjusted net income plunged 74 percent to 10.9 billion forint after an unexpected 37.2 billion forint goodwill writedown at OTP’s Ukrainian unit.

The results “paint a picture of favorable trends in the past, however the current and coming quarters may be more difficult,” analysts at Budapest-based brokerage Equilor Zrt. said in an e-mailed note today.

OTP, which is active in nine countries in central and eastern Europe, has seen its profitability decrease since the global economic crisis increased bad loans and Hungary levied extraordinary taxes on banks. The tax burden in Hungary is set to rise further in 2014 because of higher financial transaction tariffs, Bencsik said.

OTP shares jumped as much as 4.7 percent and were 3.6 percent stronger at 4,489 forint by 9:52 a.m. in Budapest, helping lead the benchmark BUX index 2 percent higher.

‘Enormous Reserves’

“OTP has enormous capital and liquidity reserves. We are like a compressed spring waiting to boost lending the moment demand rises,” Bencsik said. Signs of higher credit demand are surfacing both in the rest of Europe and in Hungary as the country’s economy gets “more dynamic,” he said.

The rate of loans overdue more than 90 days fell to 20.6 percent of total credits at the end of September from 20.8 percent at the end of the second quarter, boosting the coverage rate of such loans to a record-high 80.6 percent. The bank set aside 66 billion forint in risk provisions in the three months to end-September, 9 percent higher than a year earlier.

OTP’s Ukrainian subsidiary is performing well even with “rising concerns over the macroeconomic situation,” Bencsik said. Profitability at the Russian unit, which suffered from an acceleration in bad-loan formation, is set to turn around in 2014, he said.

Special taxes in Hungary will remain “a serious burden” for OTP next year, Bencsik said. Special levies imposed on commercial lenders active in Hungary accounted for as much as 370 billion forint in 2013, compared with as much as 150 billion in 2012, Bencsik said.

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