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Despite portfolio deterioration, K&H Bank profits more than double in H1

Hungary's K&H Bank had consolidated after-tax profit of HUF 23 billion in the first half, up more than 164% from the same period a year earlier even as the proportion of non-performing loans in the portfolio grew, documents distributed at a press conference on Thursday show.

The proportion of NPLs rose to 7.3% at the end of June from 4.6% twelve months earlier. Quality was worst in the leasing portfolio, where the proportion of NPLs reached almost 12%. The proportion in the retail portfolio was 6.9%, up 0.7% percentage point from the end of March and 1.5 percentage points from the end of 2009.

The bank set aside risk provisions of HUF 9.5 billion in Q1 and HUF 7.7% in Q2, or HUF 17.2 billion for H1, under the HUF 19 billion set aside in H1 2009.

Net interest revenue in H1 rose 6.7% to HUF 49.3 billion from the same period a year earlier.

Operating revenue was up 4.4% at HUF 73.2 billion while operating costs fell 5.7% to HUF 34 billion.

Operating profit was up 15% to HUF 39.4 billion, but lending costs remained high, the bank said.

ROE was more than 20%.

K&H Bank's loan-to-deposit ratio reached 97.5% at the end of H1, the lowest rate in Hungary, according to the bank.

After-tax profit of K&H Bank's insurance unit reached HUF 100 million in H1.

Excluding one-off items, K&H Bank's profit rose 51% to HUF 16 billion.

The bank's stock of retail loans fell, excluding the effect of exchange rate changes, and demand continued to weaken. The proportion of new outlays that are forint loans reached 80% in H1.

Hungary's government decided to ban foreign currency-based mortgage loans from July 1. Although legislation enforcing the ban is not yet in place, most big banks are voluntarily complying.

Including the effect of exchange rate changes, retail lending stock rose 9.8% to HUF 788 billion at the end of June from twelve months earlier. The increase was 11.1% compared to the end of December.

Retail deposit stock fell 5% to HUF 1,597 billion because of campaigns to draw deposits in the base period.

Stock of SME loans fell 13.6% to HUF 133 billion from twelve months earlier and was down 6.3% from the end of December.

K&H Bank will not pass on the cost of the extraordinary bank levy its clients, if the measure is, in fact, extraordinary and temporary, said CEO Hendrik Scheerlinck. If this is not the case, the bank cannot keep this promise, he added.

The levy will cost the bank and its units HUF 17.1 billion this year.

Scheerlinck expressed hope the government would rethink the tax from 2012, and reduce its size to that of such taxes in other EU countries.

Scheerlinck declined to reveal the bank's profit target for the full year, but said the proportion of NPLs in the portfolio would continue to grow and lending costs would remain high. The unemployment rate, however, could improve slightly, he added.

Speaking about the bank's exposure to Hungarian government debt, Scheerlinck said the only state securities the bank holds are Hungarian government securities. Stock of these reached 1,066 billion last year, or about one-third of K&H Bank's total assets, he added.

Luc Cools, who heads K&H Bank's insurance unit, said profits fell because competition forced the company to lower premiums. Payouts on storm- and flood related damages in the spring exceeded HUF 1 billion, he added.

K&H 's share of the guaranteed fund market rose more during the period to almost 47%. (MTI-Econews)