Business 23 May 2023, 4:33pm

Hungary OTP Bank may exit Romania

Portfolio

OTP Bank, Hungary's largest lender, is exploring the possible sale of its Romanian business, Bloomberg has learned on Tuesday from sources familiar with the matter.

OTP may exit Romania

OTP is negotiating with potential buyers and has requested non-binding offers for its Romanian operation. Some of the biggest Romanian banks are looking at the deal, Bloomberg has learned.

Faced with acquisitional growth barrier, OTP Group has broadened the strategic options of OTP Bank Romania with a possible sale of the bank,

a spokesperson told Bloomberg in an emailed statement, adding that no decision has been made to sell the bank. “The chances of this are now being tested.”

OTP remained small in Romania

The group aims to achieve at least 10% market share in its markets, and the acquisition of a bank in Slovenia has already made the group the market leader in its fifth market.

OTP Chairman-CEO Sándor Csányi said at an event in 2017 that they are aiming for a 7-8% market share in Romania, but the bank has fallen far short of this. It has not been able to grow organically, and OTP has not been able to acquire a larger financial institution there with its market share remaining around 3%. The bank sold its Slovakian unit to KBC Group NV in 2020.

At the end of the first quarter of this year, the Romanian unit of OTP had total assets of HUF 1,586 billion, only 4.4% of the total balance sheet of the banking group, making it the fifth largest bank in the OTP group after Bulgaria, Slovenia, Croatia and Serbia.

How much could the Romanian operation be worth?

The equity of OTP's Romanian subsidiary is HUF 174 billion, which means that if OTP sells this operation at book value, this is what the buyer would pay. The potential purchase price is reduced by the small market share of OTP Romania. In addition, European bank valuations have fallen significantly in recent years, with OTP buying banks below book value in several cases, which has also resulted in significant badwill items that have delivered a serious blow to the banking group's profits. It is therefore likely that OTP could sell its Romanian bank for less than book value.

OTP typically buys, not sells

Since 2014, OTP has bought 14 financial institutions in the region, several of them from Socete Generale, as the French banking group has left the region, for a reason similar to the one OTP may leave Romania, because of its insufficient market share in these countries.

OTP has withdrawn from Slovakia

OTP is not always the buyer, though. For instance, it sold its Slovakian subsidiary OTP Banka Slovensko to KBC Group, with the sale completed in November 2020.

Chairman-CEO Sándor Csányi, had previously justified the sale by saying that they had not achieved optimal market share in Slovakia in 20 years. "Our entry into the Slovak market will always be memorable for us, as it was the first step on the road that has now developed the OTP Group into an international banking group with more than 10 countries," he said at the time.

OTP bought a majority stake in the Slovakian bank on 4 April 2002, which had a 1.75% market share in terms of total assets and 58 branches in Slovakia at the time of the transaction.