Hungary's OTP Bank reported a 46.6% rise in consolidated second-quarter net profit as a large gain on open foreign currency positions offset a rise in risk provisioning.Second-quarter net profit came in at Ft 74.28 billion ($464.5 million), up sharply from Ft 50.68 billion a year ago and also comfortably above analyst forecasts for Ft 66.59 billion in a Reuters poll earlier this week.
The bank said its quarterly net profit included Ft 10.1 billion in foreign currency gains after the Hungarian forint firmed 9% versus the euro and 10.5% versus the Swiss franc in the three-month period.
OTP said in the first half it produced a record net profit of Ft 129.62 billion, up 28.1% from the same period a year earlier, adding that its earlier guidance for a more than 10% increase in annual profit was firmly in sight.
“The management reiterates that its 2008 profit targets of minimum 10% increase are realistic and well-founded,” OTP said in its quarterly flash report.
Even without foreign currency gains due to the strong forint, OTP's quarterly net profit rose 29.5% to Ft 63.93 billion, above analyst expectations, led by strong performance in its home market and Russia.
Net interest income rose by 15.6% to Ft 123.99 billion, above analysts' average projection for Ft 115.97 billion.
Net interest margin rose 16 basis points on the quarter to 5.57%; however, it was slightly below the 5.71% recorded a year ago.
Lending expanded by 23.6% from a year earlier. However, on a quarterly basis it dropped by 0.5%, largely due to the forint's appreciation as most new loans in Hungary, OTP's core market, were denominated in foreign currencies.
Risk provisions rose by 29% on the quarter to Ft 15.84 billion and were 152% higher than a year earlier as the bank said the quality of its lending portfolio deteriorated slightly in the second quarter.
It said the proportion of risky loans was 4.4%.
OTP's core domestic banking unit increased net profit by 25.6% to Ft 43.14 billion, partly through large tax savings on foreign investments due to the strong forint and exchange rate gains on foreign currency loans at home.
However, OTP said margins remained under pressure at its core unit primarily due to an ongoing revaluation of state-subsidized home loans, which is expected to cut revenues in that segment by about Ft 13 billion this year.
At Bulgaria's DSK, OTP's biggest unit, net profit rose by 6.4% in the second quarter despite a two-fold increase in risk provisions.
In Russia, quarterly net profit was up by 72.4% on the back of a 73.3% rise in net interest income.
OTP shares finished trade down 2.1% at Ft 6,801 on Wednesday, slightly outperforming a 2.4% decline in the broader market. (Reuters)