OTP unlikely to offer foreign banks Hungarian exit

By bne IntelliNews December 6, 2013

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The head of OTP hinted on December 5 that Hungary's biggest bank is unlikely to offer foreign banks a route out of the country.

CEO Sandor Csanyi told Forbes Hungary edition that OTP is interested in German state-backed lender BayernLB's troubled Hungarian unit MKB when asked about the asset. Even so, the executive hinted his bank is unlikely to move while the government threatens the banking sector with more taxes and losses over forex loans.

BayernLB, under a deadline to meet the conditions of a state bailout, recently said it would split off MKB's bad loans in a bid to unload Hungary's fourth largest lender. Several other major foreign banks have recently come out of the woodwork to admit they are also mulling an exit due to pressure the Hungarian government is putting on the sector.

OTP said in the summer - ahead of the government's announcement it plans to wrap up the foreign-currency loans issue - that it was looking at several acquisition targets. However, Csyani has since said that forcing the banks to swallow further large losses threatens the economy.

"We are interested in every bank that is for sale, we keenly look at them," he told the Hungarian magazine when asked about potential acquisition targets, including MKB, according to Reuters. "But I would not relinquish our current, very strong capital and liquidity position... I do not want to get into a situation again when liquidity disappears from the market, our bonds expire and we have to raise the sums to be paid back in a short period of time."

The latest was CEE's biggest bank, UniCredit Group. Its head of the CEE region, Gianni Franco Papa, told reporters on December 2 that the imposition of more costs "would really break the camel's back".

In mid-November, CEE's second biggest lender Raiffeisen Bank International said it is mulling offers for its Hungarian unit. Recent research from Citigroup shows the country's large foreign banks are now at a breakeven point, with profits earned before Fidesz came to power in 2010 now balanced by losses since.

Several smaller foreign-owned banks are also ready to quit the country. However, with a high balance of bad loans and the threat of more losses to come on their huge forex loan portfolios, finding suitors offering an acceptable price is likely to be an issue. Just one deal has happened so far: Italy's Banco Popolare agreed to sell its small subsidiary to Hungary's MagNet Bank for just €500,000 in April.

OTP was the main hope to play the role of suitor, but it looks increasingly unlikely to launch a major acquisition spree in recent months. Formerly seen as close to Prime Minister Viktor Orban, Csanyi has had a very public falling out with the ruling Fidesz party over its plan to revisit the forex debt issue. He insists it risks economic meltdown, and he and many of senior OTP officials have dumped huge volumes of shares in the bank.

However, the exit of foreign banks to give Hungarian players a greater role in the sector is a clearly stated goal of Orban. Still, even the ultra-loyal central bank admits the exodus will take some time while balance sheets are unwound. Foreign parent banks currently hold around €10bn at their Hungarian units to finance operations, Marton Nagy at the Magyar Nemzeti Bank told the Wall Street Journal in November.

Therefore, banks will only be able to sell once they deleverage, meaning any consolidation of the sector is likely to be gradual. At the same time, the rest of Emerging Europe is still busy fighting deleveraging, which was earmarked as a prime channel by which the Eurozone crisis would hit CEE. However, it's become a permanent state of affairs in Hungary, with lending by commercial banks having ground to a halt. Analysts say the central bank's Funding for Growth scheme will be the most important element in economic recovery in 2014.

Csanyi has regularly issued alarming warnings - far more nightmarish than those from any of his foreign peers - about potential damage to the economy, and continued on his theme in the interview. "In my view the banking sector is approaching the end of its working capacity," he told Forbes. "I find it increasingly hard to see who would finance economic growth not driven by multinational companies apart from OTP and one or two other banks."

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