* Loan refunds call for 176.1 bln forints in provisions
* Writes down entire Ukraine goodwill, sees big 2014 loss
* Non-performing loans climb to 21.6 pct of loan book
* Capital position stable, normal operations profitable
(Adds interview comments from Deputy CEO)
By Marton Dunai
BUDAPEST, Aug 15 Hungary's OTP Bank posted its
deepest quarterly loss on record on Friday, weighed down by
regulations at home and higher loan provisions in Ukraine.
OTP's second-quarter net loss was 153 billion forints ($655
million) as it set aside 176 billion forints to prepare for a
Hungarian law forcing banks to refund loan clients. Its 109
billion forint operating profit was in line with recent
Hungary's parliament required banks in July to pay refunds
to customers on contract modifications that had been deemed
unfair and on disadvantageous exchange rates that were used to
calculate foreign currency loan payments.
"Those acts will put a substantial burden on the banking
sector," OTP said in its earnings statement on the Budapest
Stock Exchange website.
The bank, which had been profitable in nearly every quarter,
even during the economic crisis in 2008 and 2009, had warned on
Monday that it might suffer deeper than expected losses because
of Hungary's regulatory environment.
Deputy Chief Executive Laszlo Bencsik told Reuters the bank
was upbeat on its ability to generate profits as it saw problems
easing in Russian and Ukraine as well as in Hungary.
OTP's group-level loan book shrank by 1 percent on an annual
basis as mortgage loans and corporate loans dropped and consumer
loans grew. Deposits grew by 5 percent from the same period last
Net interest income was 158.3 billion forints in the
quarter, down 3 percent from a year earlier, while the bank made
41.5 billion forints from fees, a 3 percent annual fall.
OTP said its capital position was still stable even as its
solvency margin narrowed to 17.8 percent from 20.2 percent in
the first quarter, compared with an 8 percent regulatory
minimum. Its non-performing loan rate climbed to 21.6 percent of
the loan book from 21.2 percent previously.
As ex-communist central Europe's biggest independent lender,
OTP has two of its largest operations in Ukraine and Russia.
Both have been profitable in the past but the conflict in
Ukraine and delinquency among borrowers has sapped those
"Apart from the Ukraine and Russia, the rest of the group
enjoys an improving or stabilising macroeconomic environment,"
the bank said, adding that loan demand was returning to certain
market segments and the outlook for portfolio quality and risk
"As for the Ukraine and Russia, the short-term outlook is
anything but positive," OTP said.
The bank wrote down its entire goodwill in Ukraine and
raised its non-performing loan coverage to 90 percent in Crimea,
which hit its bottom line by a combined 20 billion forints.
Management expects losses in Ukraine to reach 30 billion
forints in 2014, compared with a loss of 10 billion to 20
billion seen earlier, as risk costs in Crimea rise and an
overall tough operating environment will continue this year.
($1 = 233.6500 Hungarian forint)
(Reporting by Marton Dunai; editing by Pravin Char and Tom