UPDATE 1-OTP Bank sees lower provisioning in 2014, Ukraine a risk

Fri Mar 7, 2014 3:37am EST

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By Marton Dunai

BUDAPEST, March 7 (Reuters) - Hungary's OTP Bank said its outlook for 2014 was promising, with an improved loan portfolio, a growing loan book and reduced provisioning costs, but flagged risks in both Ukraine and its home market.

OTP, central Europe's largest independent lender, also reported a drop in 2013 net profit to 64 billion forints ($287.1 million), nearly halved from the year before and the bank's lowest annual profit in a decade, mostly due to high risk provisioning that nearly forced it into a fourth-quarter loss.

The bank said its operations outside Russia and Ukraine would improve. It expects a healthier loan portfolio this year and moderating risk costs.

"On the whole the countries where the group is present will show economic growth, offer a better operating environment and expanding market for banks," OTP said in a presentation prepared for a press conference.

The bank however warned of risks in its home market, where a potential government plan to help foreign currency loan holders poses a risk to the bank's operations.

Detailing risks in Ukraine, where OTP has tied up 9 percent of its loan book as of the end of last year, an "extreme negative scenario" is plausible, the bank said.

That involves "prolonged political uncertainty, state debt is not financed, economic output declines significantly and the hryvnia (currency) is devalued significantly. In such a case the Ukrainian operation will turn a loss (in 2014)."

But its "base case" scenario for Ukraine is more favourable, with a strong government, a hryvnia that is no weaker than 10 to the dollar and a stabilising economy, in which case the Ukrainian bank could turn a profit, OTP said.

In Russia, the bank sees stabilising portfolio quality from the second quarter, though consumer lending was set to drop by about 20 or 30 percent from 2013.

The bank will continue to expand in Russia through the launch of online banking, selling new products to existing clients, strengthening the small business segment and boosting lending overall. ($1 = 222.9408 Hungarian forints) (Reporting by Marton Dunai)

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