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OTP Bank Q4 profits almost wiped out by risk costs, taxes
March 7, 2014 / 6:18 AM / in 4 years

OTP Bank Q4 profits almost wiped out by risk costs, taxes

* Risk costs top 90 bln forints, nearly wipe out Q4 profit

* Once-profitable Russian business turns quarterly loss

* Adjustment items hit annual net profit, lowest in a decade

By Marton Dunai

BUDAPEST, March 7 (Reuters) - Soaring risk costs, falling operating profit and a few one-off items nearly wiped out Hungarian lender OTP Bank’s fourth-quarter profit, which was well below expectations, the bank said in its earnings statement on Friday.

Ex-communist central Europe’s largest independent lender, OTP has faced troubles in its main foreign markets in Russia and Ukraine, while it was hit by some of Europe’s highest taxes and other punitive measures on its home Hungarian market.

Risk provisions reached 91.6 billion forints in the fourth quarter, and one-off charges, including a competition authority fine and a tax charge related to a capital transfer, hit the bottom line as well.

This pushed the bank’s fourth-quarter net profit to 1.4 billion forints ($6.28 million) versus analyst expectations of 15.7 billion in a poll by the news portal portfolio.hu. It had a 26.1 billion forint net profit in the same quarter of 2012.

For the full year in 2013, OTP’s net profit came in at 64 billion forints, nearly halved from the year before and the bank’s lowest annual profit in a decade.

“The key driver of that meaningful decline is explained by the trebling (of) adjustment items,” OTP said in a quarterly report posted on the website of the Budapest stock exchange.

The biggest adjustment item was a significant goodwill writedown at its Ukrainian unit in the third quarter.

OTP said on Friday that profits fell steeply in its home market last year and foreign businesses also made a lot less, with their contribution falling from half of all profits in 2012 to just over a third of the total in 2013.

Profits at its Russian business, once its second most lucrative, were wiped out in 2013 and the Russian unit posted a loss in the fourth quarter due to high provisioning against bad debt, which continued to accumulate at an accelerating rate.

The Bulgarian unit posted solid numbers, however, with the annual net profit climbing above 30 billion forints.

NON-PERFORMING LOANS

The Hungarian business posted broadly unchanged profits at 27.3 billion forints, even as operating profit was down 2 percent from a year before as interest margins fell amid record low rates and a regulatory interest cap.

The loan book continued to shrink, by 7 percent year-on-year, and a shelter scheme on foreign currency loans also eroded profits in Hungary, the bank said.

But risk costs in Hungary were 40 percent below 2012 levels last year, OTP noted, as fewer clients fell behind on payments. In the fourth quarter, the stock of non-performing loans declined for the first time since the onset of the economic crisis in 2008.

On a group level, the rate of non-performing loans fell to 19.8 percent of the loan book at the end of the year from 20.6 percent at the end of September.

Consolidated pre-tax profit in the third quarter was 14.4 billion forints, sharply lower from 39.4 billion forints in the fourth quarter of the previous year.

The bank’s interest income was 159.2 billion forints in the quarter, down four percent from a year earlier, while it made 44.8 billion forints from fees, an 11 percent rise.

The bank said its capital position remained robust, with its solvency margin at 19.9 percent of assets, down from 20 percent in the third quarter and far above the regulatory minimum of 8 percent. ($1 = 222.9408 Hungarian forints)

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