BNP Paribas First to Tap Forint-Bond Market on Recovery

BNP Paribas SA became the first foreign lender to sell bonds denominated in forint on expectations that Hungary’s economy and its currency will rebound from a slump, France’s biggest bank said.

BNP sold 20 billion forint ($91 million) in three-year notes this week at an average yield of about 4.75 percent, Laurent Poiron, BNP’s general manager for Hungary and south-eastern Europe, said in an interview in Budapest yesterday. Hungary’s gross domestic product expanded 0.8 percent from the previous three months in the third quarter, having emerged from recession this year, statistical office data showed on Nov. 14.

The issue signals confidence is returning, according to Buda-Cash Brokerhaz Zrt., eight months after Prime Minister Viktor Orban said he would strive to curb foreign lenders’ presence in the country. BNP’s sale came as Raiffeisen Bank International AG, eastern Europe’s second-biggest bank, said it can’t rule out withdrawing from Hungary as bad debts mount.

The economy is “starting to grow again, not by strong numbers but we really feel it,” BNP’s Poiron said. “When you look at Hungary from a macro standpoint, Hungary is doing OK.”

Hungary lost its last investment-grade credit rating and the forint slumped to a record in 2012 after Orban introduced the European Union’s highest bank levy and forced lenders to take losses on foreign-currency mortgages.

Foreign Signal

“The fact that a large foreign bank like BNP Paribas is selling bonds in forint is a sign of confidence in the Hungarian economy and the forint,” Gergely Palffy, an analyst at Buda-Cash Brokerhaz, said by phone from Budapest yesterday.

BNP was the third-most active investor at Hungary’s primary bond auctions in the first half of 2013, according to Debt Management Agency data. Raiffeisen said on Nov. 27 said its operations in Hungary were “under special review” in part because the country’s policies were difficult to predict.

Banks in Hungary lost $1.7 billion during a 2011 program passed by Orban’s cabinet that allowed the early repayment of foreign-currency household mortgages at below-market exchange rates. The nation’s top court this week agreed to consider the legality of $17 billion in existing non-forint loans following pressure from the government, which wants to phase out such credit before parliamentary elections next year.

‘Unhealthy’ Ownership

Hungarians have struggled with mortgages borrowed in foreign currencies since the forint plunged during the global crisis and Orban said in March that it’s an “unhealthy situation that foreigners have such a high degree of ownership” in the country’s banking industry.

Hungary’s extraordinary bank levies are “unsustainable” and the government’s efforts to help mortgage borrowers may lead to consolidation in the financial industry, Laszlo Bencsik, deputy chief executive officer of OTP Bank Nyrt., Hungary’s largest lender, said at a conference yesterday.

BNP’s unit wasn’t involved in foreign-currency home loans “on a significant scale,” Poiron said. The French bank is rated A+ by Standard & Poor’s, seven steps above Hungary’s BB sub-investment grade.

Hungary will benefit from a rebound in the euro area, its biggest trading partner, Poiron said. GDP will expand 1.5 percent in 2014, compared with 0.5 percent this year, a median estimate from economists surveyed by Bloomberg show.

Higher Competitiveness

“Hungary and central and east Europe as a whole are going to outperform the rest of Europe in the next one-and-a-half to two years,” Poiron said. “Not only because of exports; there is a lot of infrastructure investments and competitiveness is higher than in western Europe, and this will continue.”

While the guidance for BNP’s forint notes was set at 65 basis points above Hungary’s benchmark 2016 bonds, investors bid for as little as a 55 basis point spread, Poiron said.

The yield on Hungary’s three-year forint notes rose five basis points to 4.22 percent by 11 a.m. in Budapest, 11 basis points more than a record low set on Nov. 18 and down from this year’s peak of 5.76 percent on June 24, according to data compiled by Bloomberg.

This compares with 4.16 percent on similar maturity notes from Romania, rated one level higher by S&P at BB+, and 3.19 percent on Poland’s securities, which have an A- grade. OTP was lead arranger and underwriter for BNP’s issue, the biggest non-sovereign debt auction in Hungary, the French lender said in an e-mailed statement today.

‘Unexpected Steps’

Policy makers at Hungary’s central bank may “in coming months” cut their benchmark interest rate to 3 percent from 3.2 percent now, before potentially tightening policy late next year as inflation rebounds, Karel de Bie, a strategist at BNP Paribas, told a conference in Budapest yesterday.

The forint weakened 0.1 percent to 300 per euro today. It will probably trade in a range between 295 and 300 in the next 12 months, before appreciating toward 285 per euro as monetary tightening starts, de Bie said.

While “there was a lot of noise around Hungary” as Orban implemented policies to weed out the impact of foreign currency loans, BNP doesn’t expect bigger policy initiatives by the cabinet in the run-up to next year’s ballot, Poiron said.

“Lots of things have already been done,” he said. “I don’t see now any major unexpected steps before the elections.”

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