OTP Bank (OTP) Nyrt., Hungary’s largest lender, reported its first quarterly loss in three years on a foreign-currency loan repayment plan, goodwill writedowns at foreign units and a special bank tax.
The fourth-quarter net loss of 25.8 billion forint ($116 million) compares with a net income of 17.4 billion forint a year earlier, OTP said in a statement to the Budapest Stock Exchange today. Net income adjusted for one-time items was 30.2 billion forint, down 6 percent from a year earlier.
OTP, which has subsidiaries in nine countries in central and eastern Europe, increasingly relies on foreign units to boost profit after domestic operations were hurt by government measures. The bank targets a “stable” revenue margin in 2012 as consumption loans are set to jump more than 10 percent in Russia and Ukraine and bad-loan growth slows, OTP said.
“The profit contribution of foreign subsidiaries will gradually increase as our core operations will drop,” OTP Deputy Chief Executive Officer Laszlo Bencsik told reporters today. “We very firmly believe that the trend of declining lending will turn around this year and we see a dynamic increase in deposits.”
OTP set aside 28 billion forint for dividend payment, which translates into a payout of 100 forint per share, Bencsik said during a conference call today. The final decision on the dividend proposal has still to be made by the board, he said.
Hungary’s government levied an extra tax on financial institutions and allowed foreign-currency mortgage holders to repay their loans at discount exchange rates, forcing banks to swallow losses.
OTP booked an after-tax loss of 31.2 billion forint in the fourth quarter on the repayment plan and sees a further 2 billion-forint loss being accounted in the first quarter of 2012. The lender’s total pretax losses from the plan is 65.4 billion forint as clients repaid almost 20 percent of the lender’s total mortgage stock.
OTP, which paid 7.2 billion forint in a special bank levy in the last quarter of 2011, booked 17.7 billion forint in goodwill writedowns at its Serbian, Croatian and Montenegrin subsidiaries.
“Adjusted for one-time factors, the quarterly results aren’t bad,” Zoltan Reczey, an analyst at Buda-Cash Brokerhaz Zrt. in Budapest, said in a telephone interview today. The trends underlying the main profit figure, “which is scary at first glance,” aren’t altogether negative, he said.
Shares rose 3.4 percent to close at 3,824 forint, boosting this year’s advance to 18.8 percent, compared with a 10.8 percent increase in the benchmark BUX index in the period.
IMF, EU Willingness
OTP’s pricing depends on market perceptions of Hungary’s willingness to reach an agreement with the International Monetary Fund and the European Union on financial assistance because of “concern” the government may be playing for time, Reczey said.
Such a deal would be “positive” for OTP, Bencsik said. “The bank’s management,” and Chairman Sandor Csanyi “personally, is convinced of the government’s commitment to reach an agreement.”
The government and commercial lenders agreed on a plan in December to temporarily fix the exchange-rate on foreign- currency mortgages to ease the burden on households after the forint weakened, boosting repayment obligations.
“I wouldn’t rule out the possibility that more than 90 percent of our clients will use this program,” Bencsik said. “I see no reason why they shouldn’t.”
The bank, which has 130,000 foreign-currency mortgages at the moment, will see its interest income decline as a result of the plan, he said.
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