Hungary (11) -- Analyses -- 2010

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18.05.2010

Net interest income fell 10 percent on the year to 142.63 billion forints while risk provisioning remained high, which was offset by strict cost controls and currency gains. Currency gains improved the results by 17.8 billion forints compared with a year ago, while operating costs declined 3 percent on the year even as inflation reached 10 percent in many countries where the bank operates.
Risk provisions, a figure closely watched by analysts, dropped by a third from the fourth quarter, but at 54.5 billion forints came in 20 percent above the year-ago figure. After record provisioning in 2009, total provisions stood at 553 billion forints at the end of March, compared with the 730 billion forint stock of bad debt, up by two-thirds on the year. The rate of non-performing loans reached 10.7 percent at the end of the first quarter after 9.8 percent at the end of 2009 and 5.7 percent a year ago, deteriorating fastest in Serbia and Ukraine, at 37.6 percent and 23.5 percent, respectively. But the bank noted that in Hungary, its core market, it had kept in check the growth of bad debt, which inched up to 8 percent from 7.4 percent in the last quarter, and group-wide deterioration also slowed from the previous quarter. OTP's earnings stabilised as some of its key markets showed signs of recovery.
In Ukraine, where the economy grew by 4.8 percent in the first quarter, the bank posted a net profit of 143 million forints after a loss of 9.1 billion forints in the same period a year ago, while risk provisioning moderated steeply. Profits at OTP's Russian unit, another subsidiary watched closely by analysts because of the difficult climate, were somewhat lower than in the previous quarter, but sharply higher than a year earlier. However, net profit fell at Bulgaria's DSK, OTP's biggest foreign unit, declining by a third both from the previous quarter and the first quarter of 2009 as provisioning rose steeply there, especially for corporate loans, OTP said. OTP's overall lending was flat on the previous quarter and shrank 10 percent from a year ago as credit demand remained subdued while unemployment remained high and companies were reluctant to take on more debt, OTP said, adding that the loan book only shrank 2 percent when accounting for currency swings. The bank has said it would aim to expand its loan book by 5 percent in 2010.
OTP's capital adequacy ratio stood at 17.5 percent, up from a revised 17.2 percent three months earlier.

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