"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.
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