At the same time, S&P affirmed its “B” short-term foreign and local currency counterparty credit ratings on both banks. The outlook for the long-term ratings of the bank were said to be stable.

S&P said it took the ratings actions after noting positive developments in a review of economic and industry risks for the Hungarian banking sector. Among the developments cited were the conversion of FX retail lending stock into forints, the establishment of an asset management company to deal with bad commercial real estate loans and a reduction in banksʼ reliance on external financing.

“The upgrade of OTP Bank largely mirrors our revised view of the domestic banking system, while also taking into account the bankʼs strengthened overall risk profile,” S&P said.

OTPʼs foreign units “represent less of a drag on the groupʼs risk position” as their operations are returning to profitability and their share of loans within the consolidation has decreased, the ratings agency said.

S&P said it put the ratings of OTP Mortgage Bank on the same level as those of parent OTP Bank because they regard it as a “fully integrated subsidiary that is integral to the groupʼs strategy”.

The likelihood of a positive rating action on OTP Bank over the next 12 months “is limited”, as it would hinge on a similar rating action on Hungary, but a negative rating action could stem from a similar rating action on the sovereign or deterioration of S&Pʼs stand-alone credit profile assessment for the bank, the ratings agency said.