Hungarian retail bank OTP said its fourth-quarter net profit fell by 97% on a sharp rise in risk provisioning, a major goodwill write-down and lower fee and commission income.
OTP’s quarterly net profit fell to HUF 1.71 billion ($7.29 million) from 51.60 billion a year earlier as the firm suffered from the impact of the global financial crisis on the bank sector and Central Europe’s economies, the bank said in a statement on Friday.
The net profit figure is well below analysts’ average estimate for HUF 26.1 billion in a recent Reuters poll but forecasts varied in a wide HUF 48 billion range, indicating that analysts were highly uncertain over how the global financial crisis had impacted the bank’s bottom line.
One of the biggest drags on OTP’s profit was a 34.8 billion goodwill write-down on its Ukrainian and Serbian subsidiaries, which the company said reflected its cautious outlook. Most analysts had not anticipated the goodwill charge but several analysts whose forecasts were at the bottom of the range predicted a figure in excess of HUF 30 billion.
Risk provisions could be a major disappointment for investors as OTP set aside HUF 62.2 billion in provisions in the Q4, well above the HUF 33 billion forecast by analysts, and more than three and a half times as much as in the Q3.
“Keeping a close eye on deteriorating macro-environment and a significant weakening of several local currencies, the management took a cautious stance on provisioning: it increased by 156% year-on-year (for all of 2008),” OTP said. The rise in provisioning reflected a sharp deterioration of portfolio quality as the share of nonperforming loans rose to 5.4% from 4.2% a year earlier.
Net interest income, excluding the impact of swaps, rose by 26.8% while net interest margin rose to 6.15% from 5.51% a year earlier, primarily on sharply higher domestic interest rates. Net interest income at HUF 145 billion came well above market expectations for HUF 123.6 billion. But swaps generated a HUF 9.5 billion loss for the bank on the forint’s sharp fall versus both the euro and the dollar.
Investors have been most concerned over the health of OTP’s subsidiaries in Russia, Ukraine and Romania as the countries’ economic troubles are expected to impact bank profits. But OTP said its Russian unit increased its profit by 29% and the Ukrainian unit doubled its profit.
In Ukraine, nonperforming loans nearly doubled to 3.6% from the previous quarter, the loan book shrunk and risk costs increased significantly due to the hryvnia’s weakening, OTP said. In Russia, lending slowed sharply while the share of nonperforming loans rose to 10.4% from 9.3%. (Reuters)