OTP Brings Forward Guidance Horizon as Russia, Ukraine Improve

  • Strong performance in Russia, Ukraine boost bottom line
  • Lender to meet 15% ROE target this year instead of 2017

OTP Bank Nyrt. expects to meet its profit guidance earlier than forecast as the improving performance of its Russian and Ukrainian units helps support the bottom line.

Net income at Hungary’s largest listed company surged 88 percent from a year earlier to 71.9 billion forint ($258 million) in the April-June period, helped by a 42 percent quarterly drop in risk costs and a 13.2 billion forint one-time gain on the sale of a stake in the Visa Europe network. The lender may meet its target of a return on equity above 15 percent already in 2016 rather than 2017 as earlier forecast, OTP said on Friday.

"We trust that the performance of our Russian and Ukrainian operations will remain strong for the rest of this year, firmly in the black, even though a further rise in their profitability is unlikely in 2016," Chief Financial Officer Laszlo Bencsik told reporters in Budapest. The bank expects consumer lending in Russia to pick up in the last quarter of the year, according to Bencsik.

OTP is counting on lending to pick up across its central and eastern European markets as the region’s economies expand. Gross domestic product in Hungary, OTP’s core market, expanded 2.6 percent year-on-year in the second quarter, data showed on Friday. The government expects that pace to be sustainable in the remainder of 2017 and OTP also sees macroeconomic developments as "fairly promising" in the rest of the region, it said.

Shares Gain

The stock rose as much as 2.1 percent and traded 1 percent stronger at 7,046 forint per share by 10:19 a.m. in Budapest, the highest since May 26.

OTP sees the turnaround at its Ukrainian and Russian subsidiaries to continue for the rest of the year, Bencsik said. Profit in Russia more than doubled from the previous three months to 6.5 billion forint, while Ukrainian earnings quadrupled to 3.4 billion forint. The group’s overall level of loans overdue more than 90 days dropped 0.6 percentage points by the end of June to 16.4 percent compared with the end of March.

"Results exceeded optimistic expectations, especially on the back of lower risk costs, an 11 percent strengthening of the ruble exchange rate in the quarter, the performance of the Russian subsidiary and one-off items," analysts at Budapest-based brokerage Equilor Zrt. said in an e-mail.

The group’s consolidated net interest margin is set to decline by about 25 basis points this year from 2015, Bencsik said, adding that the bank doesn’t expect risks costs to improve further in the second half of 2016. 

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