OTP Bank Q3 profit rises on east European expansion

Net income rose to Ft 53.6 billion (€205.5 million), or Ft 207 a share, from Ft 41 billion, or Ft 155 a share, a year earlier, the Budapest-based bank said in a statement yesterday. That beat the Ft 47 billion median estimate of five analysts surveyed by Bloomberg News. Budapest-based OTP and many large Hungarian companies, including refiner Mol Nyrt, are targeting acquisitions in former communist countries where growth is outstripping expansion in their domestic market. OTP Chairman Sándor Csányi has spent $2.4 billion buying 10 banks in the region in the past five years. „Foreign units certainly helped,”

Marta Czajkowska, an analyst covering OTP at KBC Securities in Warsaw, said before the report. „The bank is on a good path to reach the level of profit growth planned by the management.” OTP, a monopoly in Hungary during communism, in April said it expects to double profit by 2010 because of the performance of its foreign units. Csányi is aiming for annual net income of Ft 317 billion in 2010. The company in August said it expects the banks it bought in Ukraine, Russia and Serbia to have a combined profit of €50 million ($64 million) this year. That may grow to €115 million in 2007 and €250 million by 2010, and about half the total profit will be generated in Ukraine.

Economic growth in Hungary is set to slow as the government takes measures to curb the European Union's widest budget deficit. Higher corporate and personal taxes and an increase in government-regulated prices are sapping Hungarian's disposable income, slowing borrowing and spending. The economy grew 3.8% in the Q2, while the EU's eight eastern members had average growth rates of 7%. Prime Minister Ferenc Gyurcsány’s government expects GDP to grow 2.2% next year. Competition in Hungary is intensifying as foreign banks, like Erste Bank AG and Raiffeisen Bank AG, are offering cheaper loans to win market share. The two Austrian banks are also boosting their profit by expanding in eastern Europe.

Erste, which provides a third of the mortgages in the Czech Republic, raised its profit 16% in the Q3, while Raiffeisen almost tripled its net income in the period. OTP's net interest income, the difference between the money paid on deposits and that collected on loans, rose 42.9% to Ft 106.9 billion. That compared with the analysts' Ft 92.8 billion median estimate. Income from fees and commissions declined 11% to Ft 56.8 billion. Of the 14 analysts covering OTP who are tracked by Bloomberg, 11 recommend buying the company's stock. The shares have gained 7.3% this year, valuing the bank at $10.4 billion. Hungary's benchmark BUX Index has risen 12% in the same period. (Bloomberg)