UPDATE 2-Hungary's OTP Bank says on target after Q1 net rise

(Adds detail, quotes, analysts)

By Balazs Koranyi

BUDAPEST, May 15 (Reuters) - Hungary's OTP Bank OTPB.BU delivered first-quarter net profit just ahead of expectations on Thursday and said it remained on track to deliver profit growth above 10 percent this year.

OTP, central Europe's biggest independent bank with market capitalisation of $12.9 billion, said first-quarter net profit rose by 9.5 percent to 55.34 billion forints ($331 million), against expectations for 54.5 billion in a Reuters poll.

"These figures support our opinion that we will deliver on our full-year target of profit growth above 10 percent," Chief Financial Officer Laszlo Urban told a news conference.

Net interest income rose by 12.6 percent to 112.5 billion forints, just short of analysts' forecasts for 115.4 billion, but the bank's margins shrunk and were seen shrinking further.

"There is a slow erosion and it's not realistic to expect this to stop," Urban said. "As long as Hungary and Bulgaria are so large (in the group), competition and portfolio rollover will push margins down."

OTP's net interest margin dropped to 5.15 percent in the first quarter from 5.56 percent

Overall lending grew 31 percent, primarily on rapid lending expansion in Ukraine, Bulgaria and Russia, but analysts said figures from Russia and Ukraine were disappointing.

RUSSIA, UKRAINE TO REBOUND

In Russia, where the bank expects annual profit growth at 50 percent, adjusted first-quarter profit grew only 12 percent as provisions rose sharply, new money-laundering rules forced it to give up some customers and the integration of its various units ate up management resources, Urban said.

"I'm quite relaxed about Ukraine but Russia is a much more complex issue," Urban said. "Nevertheless, for now we have no information to think that the 50 percent growth target is not attainable."

Urban added that in Russia, where the bank has eyed expansion, it was unlikely to make a further acquisition at least until the liquidity crunch was over and its next purchase there should be relatively large because integrating a small buy takes up too much management resource.

In Ukraine, the global liquidity squeeze and large portfolio rollovers allowed OTP to quickly expand its lending portfolio and this lowered its profitability, Urban said, adding it would restore margins in Ukraine in the second quarter.

Urban added that while the global credit crunch has increased financing costs, it managed to pass much of these on to customers and expects no difficulty in organising financing facilities to support lending expansion.