Bloomberg News

OTP Bank Falls Second Day After Erste Takes Hungary Charge

October 10, 2011

(Updates with analyst comment, prices from first paragraph.)

Oct. 10 (Bloomberg) -- OTP Bank Nyrt. fell for a second day after Erste Group Bank AG’s writedown of the value of its Hungarian business increased concern the government’s policies are hitting the sector’s profitability.

The shares of OTP, Hungary’s largest lender fell as much as 3.3 percent and slumped 0.8 percent to 3,130 forint by 11:29 a.m. in Budapest, underperforming a 1.2 percent rally in the benchmark BUX index.

Erste, eastern Europe’s second-biggest lender, is writing down the value of its Hungarian and its Romanian businesses by a combined 939 million euros ($1.3 billion) and increasing bad- debt provisions, citing “increasing government intervention in the market” in Hungary, according to a statement today.

The Erste move “shows the depth of the damage from government policies,” Marc MacRae, an analyst at Wood & Co in Prague, said in a telephone interview, adding that Raiffeisen Bank International AG will probably also follow Erste and “ring-fence” its Hungarian liabilities.

OTP’s shares have slid 25 percent since Hungary’s governing party proposed on Sept. 9 to allow the repayment of foreign- currency mortgages at below market rates, forcing banks to swallow the cost, which has now been enshrined in law.

Seven Hungarian banks including OTP were placed on review for a downgrade at Moody’s Investors Service last week on concern that exchange-rate losses from the government mortgage plan may erode their profitability.

Erste, which like OTP is now liable for a banking tax in Hungary, is writing off its remaining 312 million euros of goodwill in its local business and made additional bad-debt provisions of 450 million euros. The lender will also add 600 million euros of fresh capital into its Hungarian unit.

--With assistance from Zoltan Simon in Budapest. Editors: Chris Peterson, Alex Nicholson

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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