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S&P places OTP Bank, OTP Mortgage Bank on negative watch

Standard and Poor's Ratings Services placed its 'BBB+' long-term and 'A-2' short-term counterparty credit ratings on OTP Bank and OTP Mortgage Bank on CreditWatch with negative implications.

This follows the similar CreditWatch placement of the ratings on the Republic of Hungary (BBB+/Watch Neg/A-2) on Wednesday, which in turn reflects the concerns over mounting financial-sector funding pressures and their potential to raise general government debt materially, S&P said on Thursday.

“It also reflects that OTP and other Hungary-based banks are facing sharply higher financing costs and reduced access to international markets as a result of growing macroeconomic risks from global financial turmoil and increasing risk aversion, which might have a negative effect on international capital flows and investor sentiment,” said Standard&Poor's credit analyst Annette Ess.

The ratings on OTP reflect its dominant domestic market position, strong and soundly managed business and earnings diversification in Central and Eastern Europe (CEE), and strong profitability. These factors are partly offset by the potentially volatile and risky operating environment in CEE countries, credit risks from rapid loan growth and significant domestic foreign currency lending, and the bank's moderate capitalization.

The Hungarian government and central bank have begun to implement measures to shore up financial markets in Hungary. Among the measures that have already been implemented are the government guarantee of all retail deposits with no limit effective since October 10 and the introduction of an overnight standing foreign exchange swap facility, supported by a €5 billion repo facility extended by the European Central Bank to the Hungarian Central Bank (MNB), S&P reminded.

Standard & Poor's aims to resolve the CreditWatch status of all these ratings within 60-90 days. (MTI – Econews)