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OTP seeks to grow even bigger

Telco

Hungary’s biggest lender OTP isn’t deterred by a drop in its first quarter business results, so much so that it is close to acquiring two of its peers on the Hungarian market from foreign owners seeking to leave.

OTP Bank has made an offer to acquire one domestic competitor and is in “very serious negotiations” on buying another, the company’s chairman-CEO Sándor Csányi told commercial broadcaster InfoRádio in an interview.

The immediate speculation on the market is that the two targets for the buyout are CIB and MKB. The former’s owner has publicly expressed disappointment with business conditions in Hungary, while the latter is openly for sale. Csányi declined to reveal the answer, but only said OTP had made a non-binding, written offer for one of the banks and was in the “last phase of negotiations” on the purchase of the other.

OTP’s latest business report for the first quarter showed after-tax profits of HUF 11.23 billion, down 12% year-on-year, but still beating analyst expectations. OTP noted that the effects of the financial sector tax are always added to the books in the first quarter of the year, which weighs heavily on the overall result.

Thanks to continued profitability, OTP has €6.1 bln in free liquidity, which will be used to finance the latest acquisitions.

“Our case is made difficult by the fact that we were always a very conservative bank and, fittingly, we proceeded with the pricing in a pretty conservative manner too. We took into account all possible risks, thus it could be that our offer price will not be enough,” Csányi said regarding the outlooks

After other deals in the past years, the market is likely to see further consolidation. Several banks – “not just small ones, either” – want to pull out of Hungary, Csányi said, as the special taxes eating into the sector’s profits paired with low lending is making the market less appealing.

“The big question is whether these will be bought by another foreign bank that wants to stay in Hungary, or by OTP, or by, let’s say, the Hungarian Development Bank (MFB),” he added.

He noted that the government’s strategic goal of increasing domestic ownership to 50% within the country’s banking sector could easily become a reality in the coming years.

OTP’s deputy CEO László Bencsik hinted that the bank’s liquidity might be used to make even further acquisitions, not only in Hungary but abroad, although without going into specifics. He promised the bank would adhere to its established conservative approach in evaluating its options.

The continuation of OTP’s international expansion is hardly surprising given some of the successes it has had. Even when the domestic situation is adverse to the banking industry, OTP could remain profitable, hoisted by its foreign units. In the first quarter of 2013, OTP’s foreign subsidiaries generated 45% of total after-tax profit, adjusted for one-off effects.

OTP’s newly announced acquisitions could be concluded in three to four months’ time. The deal will also require permission from the competition office GVH, since the deals will further increase OTP’s already dominant role on the Hungarian market.

OTP Bank has total assets of HUF 10,520 bln, according to latest data, more than several of its foreign rivals’ local assets put together. Late 2012 figures show Austria’s Erste had total assets of HUF 2,788 bln, German-owned MKB Bank had total assets of HUF 2,579 bln, Italian-owned CIB Bank had total assets of HUF 2,119 bln and Austrian-owned Raiffeisen had total assets of HUF 2,096 bln.

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