OTP Sees Narrowing Losses in Ukraine, Russia, Csanyi SaysEdith Balazs
OTP Bank Nyrt.’s Ukrainian and Russian subsidiaries will remain unprofitable this year because of the deadly conflict in Ukraine’s east, though Hungary’s largest financial institution sees narrowing losses in both countries.
OTP may cut headcount by half in Ukraine and trim further jobs in Russia as it closes money-losing branches, OTP Chairman Sandor Csanyi said. Its Ukrainian business posted an annual loss of 77 billion forint ($277 million) while its Russian subsidiary reported a loss of 14.5 billion forint last year.
“We definitely expect losses in Russia and Ukraine to narrow this year, mostly due to the cost-cutting plans we are implementing in both countries,” Csanyi told reporters in Budapest on Friday.
OTP, which has subsidiaries in nine countries in central and eastern Europe, is battling profit erosion after an armed separatist movement in eastern Ukraine against the Kiev-based government left more than 6,000 people dead and the economy plummeting. Sanctions against Russia, which the U.S. and the European Union accuse of fostering the conflict, are hitting growth there, eroding OTP’s bottom line, Csanyi said.
Expectations for narrower losses in Ukraine and Russia because of cost cuts and a dividend outlook sent a positive message, David Sandor, an analyst at the Hungarian brokerage of KBC Groep NV, said by phone on Friday.
“The share price may reach the 5,000 forint level this year as the stock is set to appreciate further in the coming period,” Sandor said.
OTP has no plans to leave the two countries even though the Ukrainian situation “is extremely malleable,” Csanyi said. Even after posting an annual loss in 2014, OTP is committed to paying a dividend of 146 forint per share after last year’s operations, he said.
OTP shares gained 3.6 percent percent to 4,330 forint by 2:31 p.m., the steepest gain in almost one month.
The bank’s fourth-quarter net income jumped to 11 billion forint ($40 million) from 1.4 billion forint a year earlier. The lender booked a loss of 102 billion forint in 2014, driven by losses in Ukraine, Russia, special taxes in Hungary and Slovakia, and domestic regulations that forced banks to compensate borrowers for past lending practices.
The lender expects the economic rebound in central and eastern Europe to boost lending this year and sees net interest margins “declining slightly,” mostly on stricter lending regulations and the low interest-rate environment in Hungary, Csanyi said.
Loans overdue by more than 90 days dropped 0.4 percentage points from a year earlier to 19.3 percent by the end of 2014 as a result of partial loan write-offs worth 238 billion forint.
OTP’s net interest income declined an annual 2 percent to 155.8 billion forint in the last three months of 2014, while net fees and commissions were 44.5 billion forint, down 1 percent from a year earlier.
The lender is open to acquisitions both at home and abroad, it’s bidding for Citigroup Inc.’s retail portfolio in Hungary, Csanyi said.
OTP was outbid by Apollo Global Management LLC for Slovenia’s Nova Kreditna Banka d.d., Csanyi said.
“We hope ongoing talks between the Slovenian government and Apollo will eventually break down,” he said.