OTP To Stop Unsecured Lending in Romania

Portfolio Hungary is reporting the following:

Hungary's OTP Bank has stopped granting unsecured consumer loans in 14 Romanian branches, because, overall, the number of problems with loans was alarming, László Diósi, chief executive of OTP Romania, told Ziarul Financiar on Wednesday

“We just provide home equity loans in those locations. As soon as we see that conditions have improved - in terms of personnel and process - we will resume consumer loans, most likely in March or April," ZF cited Diósi as saying.

The local branch of Hungary's biggest bank ended last year with more than EUR 11 million in losses, the same as in 2006.

At the same time, the quality of the loan portfolio worsened, after non-performing loans increased their volume and accounted for 10%, according to the data provided by OTP to the Budapest Stock Exchange.

"The increase in the share of non-performing loans is also fuelled by a statistical effect, given that we outsource some of the loans to Budapest, and they must be clean," Diósi explained.

He added that that the quality of the loan portfolio has not actually worsened, as the loans in poorer performance categories were put there because of the different reporting standards used.

OTP, one of the banks that announced extremely bold targets when it first entered the market, was forced to halt its territorial expansion, after its network reached 104 branches.

“We will halt the development of the network this year because we need some time to stabilise, as I believe all banks need," Diósi said.

“The high turnover of personnel and the increase in attempted fraud is putting pressure on operations. We will focus on training personnel and financial control operations," he added.

“We believe that the news on worsening loan portfolio quality is already priced in following disclosure of 4Q07 results with rising non-performing loans which accounted for 10% of total loans," Marta Czajkowska, analyst at KBC Securities, has commented.

“However the news on the stopped branch expansion is new and negative in our opinion. Overall, we expect neutral impact on the stock price today."