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OTP's profit growth halts in Q4 on margin squeeze - extended

OTP Bank Nyrt, the Hungarian lender that's spent almost €2.3 billion expanding in eastern Europe, said profit growth halted in the Q4 as increasing competition lowered margins.

Net income was Ft 40.9 billion (€161 million), or Ft 156 a share, level with earnings in the year-earlier period, the Budapest-based bank said in a statement today. In the Q3, profit grew 31%. „Though the earnings were in line with expectations, their quality was poor,” said Mark Macrae, an analyst from KBC Securities in Warsaw. „Net interest margin including swaps was lower and net provisioning higher than we expected.”
The bank, a monopoly during communist years, is turning to markets outside Hungary as competition toughens at home from banks including UniCredit SpA, Erste Bank AG and Raiffeisen International Bank AG. Fiercer rivalries force banks to pay higher interest on deposits and lower borrowing costs for clients.  The earnings compare with the Ft 40.45 billion median estimate of eight analysts surveyed by Bloomberg News.
OTP shares fell 0.4 to Ft 8,520 as of 9:09 a.m. in Budapest, valuing the bank at €9.3 billion. „Partly the higher Hungarian interest rate levels and partly special year-end offers,” drove interests higher for deposits, the bank said in its earnings report.

The company's net interest margin shrank to 4.93% from 6.03% in the year-earlier period. OTP had 22.4% of Hungarian deposits on December 31, down from 25.6% a year earlier, because of a decline in household forint deposits. Its share of the lending market fell to 12.3% from 12.6% as a drop in consumer loans erased a gain in borrowing by municipalities.
Budapest-based OTP, which targeted Ft 185 billion net income in 2006, said annual profit rose 18.4% to Ft 187.5 billion. Its net interest income, the difference between the money paid on deposits and that collected on loans, rose 28.7% to Ft 103 billion in the quarter.
Income from fees and commissions declined 6.4% to Ft 52.7 billion. The lender has spent almost €2.3 billion the past five years buying banks from Bulgaria to Russia to reduce its dependence on the domestic market.

OTP earlier said it will halt acquisitions in 2007. Still, it may buy smaller lenders this year in countries where it is already present, Chairman Sándor Csányi told Világgazdaság newspaper in December. This is aimed to help OTP build a network and improve efficiency faster in certain markets than through organic growth. As part of the plan, OTP in December bought 83% of Kulska banka a.d. Novi Sad in Serbia and plans to merge the lender with two other units it has in that country.
Further expansion may slow after deputy Chief Executive Zoltán Spéder quit last month, some analysts say. Speder has spent 16 years at the Hungarian lender, helping Csányi buy 10 banks in four years. He was replaced by Lászlo Urbán, a director at Hungary's central bank. Of the 18 analysts covering OTP who are tracked by Bloomberg, 10 recommend buying the company's stock. The shares have gained 23% last year. Hungary's benchmark BUX Index has risen 18% in the same period. (Bloomberg)