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UPDATE 2-OTP says CEE econ bottomed out, profit on track

Published 08/14/2009, 04:42 AM
Updated 08/14/2009, 04:48 AM
TGT
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* Says CEE economies may have bottomed out

* On track for 150 bln forint full-year net profit target

* Says well capitalised, has ample liquidity

(Updates with detail, more CFO comment, background)

By Balazs Koranyi

BUDAPEST, Aug 14 (Reuters) - OTP Bank reported a 43 percent drop in second-quarter net profit on Friday but said Central Europe's economies were probably through the worst of their troubles and the bank was on track to meet its targets.

OTP, central Europe's biggest independent bank, said its quarterly net profit fell to 42.21 billion forints ($217 million) from 74.28 billion a year earlier as risk provisions more than tripled on a sharp deterioration in the company's loan book.

But the figure came above analysts' expectations for a net profit of 37.3 billion forints in a recent Reuters poll, and the bank's risk provisions, despite the surge, fell short of market forecasts.

"There are clear signs that the crisis has reached its bottom, and growth could begin," Chief Financial Officer Laszlo Bencsik told a news conference. "In the first half we produced well over half of our net profit target ... so management sees no reason to modify its full-year profit outlook."

The bank earlier said it expected its 2009 net profit above 150 billion forints, but most analyst have doubted this figure and expect weaker earnings.

Central and Eastern Europe's economies are expected to contract sharply this year as exports to western Europe dwindle, capital inflows dry up, unemployment rises and consumption falls, putting pressure on the region's bank sector.

In Hungary, the bank's biggest market, GDP shrunk by 7.6 percent in the second quarter to record its biggest drop since quarterly data have been released, and the government expects the country's economy to contract by 6.7 percent in all of 2009.

Raiffeisen International, Central Europe's No.2 lender said on Thursday its net profit dropped 60 percent on the quarter and 93 percent year on year on its high exposure to crisis-ridden Ukraine, Russia and Hungary.

HIGH PROVISION, AMPLE CAPITAL

As the region's economies suffered, OTP's loan loss provisions more than tripled to 55.49 billion forints and the bank's share of non performing loans, or loans more than 90 days overdue, rose to 7.4 percent in the second quarter from 5.7 percent three months earlier and 4.5 percent a year earlier.

Bencsik said the bank's non-performing loan rate would rise further in the second half as the loan book is not expanding and the region's economies suffer, but risk costs in the second half would be broadly in line with first-half figures.

"Given the forint's firming (in recent months), we think that making payments will become easier ... and that will help our portfolio quality," Bencsik said.

The bank's loan book suffered most in Russia, where the share of non-performing loans rose to 13.9 percent from 11.1 percent three months earlier, and in Ukraine, where NPL rose to to 11.2 percent from 10.4 percent in the first quarter.

"What is key in an economic crisis, the bank's capitalisation and liquidity remain superb," Bencsik said.

OTP's Tier 1 capital ratio was 12 percent at the end of the quarter and its consolidated capital adequacy ratio was 15.9 percent, both well above regulatory limits.

"This is rather high; some say too high," Bencsik said. "It's true that in the short term such a buffer can be a drag on profitability, but when growth returns it gives us the foundation to begin expanding our balance sheet, and we'll be in a better position than our rivals to start growing." (Editing by Will Waterman) ($1=194.46 Forint)

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