Fitch Ratings cut its rating on Hungarian OTP Bank’s Russian unit to ‘BB’ from ‘BB+’ citing a weaker operating environment and higher uncertainty over OTP’s willingness to support the unit.
Fitch, which also revised the outlook on OTP Russia’s long-term issuer default rating to negative from stable, said on Friday the move reflected the severity of the recession in Hungary, OTP’s core market, and a sharp economic downturn in central Europe.
“The rating action reflects the severity of the recession and ongoing deterioration of the operating environment in Hungary,” Fitch said in a statement.
Hungary’s government expects the economy to contract by up to 3.5% this year but some analysts have said recent industrial production and foreign trade balance data pointed to risks of a much steeper economic downturn.
“This, coupled with the sharp, and largely co-ordinated, downturn in other CEE and CIS countries, where OTP Hungary has subsidiaries, weakens the parent bank’s standalone credit profile and gives rise to greater uncertainty as to its ability and willingness to support its Russian subsidiary, if needed.”
However, Fitch said its base scenario remained that OTP would continue to support its Russian operation. “OTP Russia’s ratings continue to be based on the likely still-high propensity of OTP Hungary to provide support to its subsidiary, if needed,” Fitch said.
Earlier this month, OTP’s chief executive told Reuters the bank’s capital position remained solid and OTP was forecasting a €1.3 billion capital buffer at the end of the year and expected to conclude an EBRD deal by April which could improve its position further.
OTP stock closed up 5.3% at HUF 1,580 on the Budapest Stock Exchange, outperforming a 4.1% gain in the wider market. (Reuters)