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Croatian unit consolidation boosts OTP's loan volumes in Q2

OTP Bank Nyrt.'s loan volumes have grown by more than a fifth in the past year and were up 14% in the second quarter of 2017 alone, mainly thanks to the consolidation of Croatia's Splitska banka d.d., which the group acquired in May from Société Générale SA, CFO László Bencsik told analysts Aug. 11.

Bencsik said the change does not alter the full-year outlook for OTP, which also saw loan volumes increase as a result of the takeover of a Hungarian mortgage portfolio from AXA in November 2016. Total net customer loans, adjusted for foreign-currency effects, amounted to 6.530 trillion Hungarian forints at the end of the second quarter, up from 5.726 trillion forints three months earlier and 5.417 trillion forints a year earlier.

Excluding the impact of Splitska and AXA, OTP's total loan growth was 8%, which is more in line with what the group expects for the full year, Bencsik said while presenting second-quarter earnings.

"Our original forecast for this year was stronger than last year's growth but in the single digits and this is still the case. It will be a positive surprise to achieve double-digit growth for this year," he told analysts, adding however that the market outlook is for double-digit growth in 2018 and the following years.

"We haven't done the budgeting for next year but especially in retail in Bulgaria, Hungary, Romania, Russia, Ukraine, Serbia, we expect for next year double-digit growth numbers for the market," he said. "It is very clear, with the exception of Slovakia, all the other markets in which we are present [are] accelerating in terms of retail lending. The reason that Slovakia is an exception is because it has been very strong over the last five to eight years and has been growing easily double digits in retail lending."

Slovakia is different than other markets for OTP from a strategic point of view as well, since it is the only country where the acquisition-prone group has not been able to grow in recent years as part of its strategy to secure growth and market share through acquisitions across the Balkans. OTP's two most recent acquisitions were both from National Bank of Greece SA — Romania's Banca Româneasca SA and Serbia's Vojvodanska banka a.d. Novi Sad.

As a result of the acquisition of Banca Româneasca, OTP is hoping to "jump on the ladder" in Romania and become the eighth-largest bank in the country, Bencsik said. The acquisition of Vojvodanska banka will "definitely change" OTP's position in Serbia as the unit is actually much bigger than OTP's operation in Serbia, he added.

Slovakia, though, has been a challenge from a strategic point of view.

"[It] is a country where we haven't been able to organically grow our market share or actually provide the required level of profitability. And also, this is a market where it is not obvious what bank could be for sale. ... If you want to acquire banks, there should be a sell side as well, and there is [none] in Slovakia. It's a very concentrated market with very strong players. ... We are struggling with economies of scale and we are struggling with very strong competitors who have large market shares and control client relationships and moving clients from those banks to us is extremely difficult," Bencsik told analysts.

The bank's unit in Slovakia, OTP Banka Slovensko a.s., recorded a first half loss of 308 million forints, compared to a profit of 296 million forints in the year-ago period. Serbian unit OTP Banka Srbija a.d. Novi Sad generated a loss of 1.48 billion forints, compared to profit of 118 million forints a year earlier, as provisions for possible loan losses more than trebled year over year to 733 million forints.

OTP also lost 447 million forints in Romania in the second quarter, although first-half profit was still 861 million forints, down from 1.61 billion forints a year earlier. However, the lender's units in Ukraine, Russia and Croatia recorded year-over-year rises in first-half profit of 35%, 65% and 134%, respectively; the Croatian results included May and June performance from Splitska banka.

As of Aug. 10, US$1 was equivalent to 260.32 Hungarian forints.