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Moodyʼs upgrades OTP Bank after Tier 2 issue

Moodyʼs Investors Service said Wednesday it has upgraded the long-term local currency deposit ratings of OTP Bank, Hungaryʼs biggest commercial lender, from Baa2 to Baa1, and changed its outlook from "rating under review" to "stable," state news wire MTI reported.

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At the same time, Moodyʼs upgraded the backed issuer rating of OTP Mortgage Bank from Baa3 to Baa2, and likewise changed its outlook from "rating under review" to "stable."

The upgrade of OTP Bank is driven by the lenderʼs issue of EUR 500 million of Tier 2 notes on July 15, Moodyʼs said. As reported yesterday, the European Bank for Reconstruction and Development (EBRD) will invest EUR 60 mln in the subordinated bonds.

"The subordinated debt results in larger loss absorption buffers for the bankʼs depositors and senior creditors, increasing the notching uplift to the bankʼs deposit ratings following the application of Moodyʼs Advanced [Loss Given Failure] analysis," the agency added.

The upgrade of OTP Mortgage Bank is driven by the change in OTP Bankʼs liabilitiesʼ structure, as well as OTP Bankʼs full, irrevocable and unconditional guarantee of all of OTP Mortgage Bankʼs unsubordinated obligations, Moodyʼs explained.

The stable outlook on OTP Bankʼs and OTP Mortgage Bankʼs ratings reflects Moodyʼs view that OTPʼs credit risk profile will remain broadly stable as asset quality improvement is offset by softening capital buffers, the agency added.

Moodyʼs noted that the Baa1 local currency deposit rating is at the same level as the Baa1 local currency deposit ceiling for Hungary, and two notches above the Hungarian governmentʼs Baa3 bond rating, the maximum level allowed in Moodyʼs Banks methodology. It can only be upgraded if the bankʼs baseline credit assessment is upgraded, combined with a higher government rating and a raising of the ceiling, it added.