Scope Affirms OTP BBB+ Issuer Rating, Changes Outlook to Negative
Scope Ratings on Tuesday affirmed the BBB+ issuer rating of OTP Bank, Hungary's biggest commercial lender, but changed the outlook to negative from stable, according to a report by state news wire MTI.
"The change in outlook is driven by the weakening macroeconomic conditions in the CEE region and the group's high exposure to growing sovereign risk," Scope said.
Persistently high inflation combined with a slowdown in economic growth, particularly in Hungary, could impact OTP group's assets quality, it added.
Scope also noted OTP's direct exposure to sovereign risk through its sizable government bond portfolio, loans to public entities, and state-guaranteed loans to SMEs. That sovereign debt risk is increasing because of lower growth prospects and "ongoing institutional challenges", the rating agency added.
Scope acknowledged that OTP's ratings benefit from its "superior earnings generation" compared to both national and foreign peers, but said group earnings could be negatively impacted in the coming quarters by the interest rate cap in Hungary and by further government measures to support either the economy or borrowers.
A reduction in exposure to domestic sovereign risk or an improvement in the outlook for Hungary could move OTP's rating up, while a deterioration in the group's asset quality or earnings combined with an increase in domestic sovereign risk could move it down, Scope said.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.