OTP Bank Net Income Beats Estimates on Lower Risk Costs

Updated on

OTP Bank Nyrt.’s second-quarter profit beat estimates as risk costs fell at its troubled units in Ukraine and Russia.

Hungary’s largest lender reported net income of 38.2 billion forint ($137 million) for the three months ending June, more than the 32.2 billion forint median estimate in a Bloomberg survey of nine economists. That compared with a 153 billion loss in the same period of 2014.

OTP Bank’s earnings continue to reflect divergence between its profitable core markets and troubled Ukrainian and Russian units. Risk costs fell an annual 30 percent as the lender changed the way it accounts for loan fallouts in Russia, while the stabilization of the hryvnia lowered provisioning in Ukraine.

“The positive results reflect a drop in losses in Ukraine and Russia,” Deputy Chief Executive Officer Laszlo Bencsik told reporters in Budapest on Friday. Costs associated with risks in Ukraine won’t remain at low levels in the rest of the year, he said.

The bank’s shares fell 3.3 percent to 5,655 forint by the close in Budapest, taking this week’s decrease to 1.3 percent. The stock has rallied more than 48 percent this year, helped by the Hungarian government’s pledge to phase out a special tax on lenders.

Losses at the Russian unit narrowed 63 percent from the first quarter to 4.2 billion forint. The Ukrainian subsidiary had a 586 million forint profit after a 10.1 billion forint loss in the previous quarter.

Interest Income

OTP Bank’s net interest income fell 12 percent to 140 billion forint in the second quarter as interest-rate cuts by the country’s central bank eroded the lender’s revenue in Hungary. Net fees and commissions rose 6 percent to 43.9 billion forint.

The bank is facing “difficult” operating environments in Russia and Ukraine, according to Bencsik, who said loan volumes will contract this year in the two countries.

Battered by a decline in oil prices, Russia’s economy contracted 4.6 percent from a year earlier in the period, the Federal Statistics Service said Aug. 11. Ukraine’s gross domestic product plunged 14.7 percent, according to official data published Friday, amid a separatist conflict in its easternmost regions.

“The improving eastern results are a very important part of the earnings report,” analysts at the Budapest-based Equilor Befektetesi Zrt. brokerage, led by Monika Kiss, said in an e-mail. While the bank showed better results than the market had expected, a complete turnaround remains elusive, they said.