OTP Bank Nyrt. (OTP) said 2012 lending will expand at a slower pace and risk costs may not ease as much as previously projected after Hungary’s largest bank reported first-quarter profit plunged.
Net income fell 66 percent in the first quarter to 12.8 billion forint ($56 million) from 37.2 billion forint a year earlier, after the bank booked 29 billion forint in a special bank levy for 2012 and had a loss of 1.8 billion forint on foreign-currency mortgage repayments, it said today in Budapest.
“Our expectations for lending growth have deteriorated, directly linked to economic growth projections pointing toward weaker growth in the entire region, except for Russia,” deputy Chief Executive Officer Laszlo Bencsik said. OTP had forecast credit growth “in the low single digits” and has a “good chance” of avoiding a drop in lending this year, he said.
OTP, which has subsidiaries in nine countries in central and eastern Europe, is increasingly relying on its foreign subsidiaries to boost profitability as Hungarian regulations and the forint’s weakening took a toll on domestic operations. The profit contribution from foreign units rose to 42 percent by the end of March from 32 percent in the previous quarter, chiefly as a result of Russian and Bulgarian operations.
The bank “may still” meet its profit targets, which the bank didn’t disclose, Bencsik said, adding that risk costs and margin developments were key for profitability.
“Uncertainty regarding our projection that risk costs may decline this year has risen after bad-loan formation accelerated in the first quarter,” he said.
OTP shares declined 1.5 percent to 3,575 forint by 10:47 a.m. in Budapest, the lowest since April 24. The benchmark BUX stock index fell 0.1 percent, dropping for a third day.
“We believe that OTP is undervalued compared to peers and an IMF/EU financing deal could trigger the rerating of the stock,” Attila Gyurcsik, an analyst at Budapest-based brokerage Concorde Zrt. said in an e-mailed note.
Risk costs, including provisions for bad loans, rose 3 percent to 58.7 billion forint in the first quarter as the ratio of loans overdue by more than 90 days increased to 17.4 percent from 16.6 percent at the end of 2011. Total provisions for non- performing loans stood at over 1 trillion forint, Bencsik said.
In the second quarter, OTP will book the entire estimated loss of revenue for 2012 stemming from a Hungarian government plan allowing the repayment of foreign-currency mortgages at below-market rates, Bencsik said.
He declined to give an estimate on the effect of a planned financial transaction tax to be introduced in 2013, saying upcoming negotiations between lenders and the government may help change the “parameters” of the levy before lawmakers approve it.
Hungary is planning to introduce a 0.1 percent financial transaction tax from 2013 along with other sectoral levies to help meet budget deficit targets and end the European Union’s excessive deficit procedure against the country.
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