Central Europe's largest independent lender, Hungary's OTP Bank, is in talks to acquire the local retail mortgage portfolio of AXA Bank Europe SA, which has posted steep losses, financial sector sources told Reuters. The local branch of Belgium’s Axa Bank, owned by French insurance company Axa, incurred HUF 108 billion losses over a six-year period. Based on the numbers provided it seems OTP may boost its mortgage portfolio in Hungary by about one fifth by this transaction.
The sources, speaking on condition of anonymity, said the sale process has been under way for months and was near its final stages.
AXA Bank Europe, which operates as a branch office in Hungary, declined comment to Reuters questions about the deal.
"Whenever there is a significant change ... AXA Bank, as a responsible company committed to the Hungarian market, informs the public officially," it said in an emailed response.
"However, in line with the principles of its parent company, AXA Bank's Hungarian Branch Office does not wish to respond to market talk."
OTP Bank's press office also declined to comment. It only said that it is committed to the Hungarian market and whenever a major change occurs in this respect it will notify the public.
Replying to Portfolio’s inquiry the bank said:
According to end-2014 data, Axa had a loan portfolio of HUF 283 bn, most of which is suspected to be mortgage loans. This corresponds to 24% of OTP’s HUF 11,82 bn mortgage loan stock as of end-September 2015. Considering the impacts of the FX loan settlements this acquisition would boost OTP’s local mortgage portfolio by about one fifth.
Axa Bank has incurred significant losses since the crisis. Between 2009 and 2014 it accumulated losses of HUF 108 bn in total. The bad results had a great deal to do with the high ratio of non-performing loans, as it assumed higher-than-average risks when extending mortgage loans. By the end of 2014, ti has managed to stabilise its NPL ratio at 22.8%, while it did not lend actively over the last few years.
AXA Bank Europe, the Belgian banking arm of French insurance group AXA, has seen its Hungarian balance sheet shrink to HUF 351 billion by the end of 2014 from 550 billion in 2010, according to central bank figures.
AXA does not provide financial details about its local business on its Hungarian website.
Local banks have grappled with one of Europe's highest bank levies as well as billions of euros of foreign currency mortgages, mostly in the volatile Swiss franc, which used to be popular in Hungary before the financial crisis.
High default rates, the conversion of the loans into forints to shield borrowers from further volatility as well as a 2014 court ruling to refund past fees deemed unlawful to clients have cost banks hundreds of billions of forints, Reuters said.
"The credit portfolio of the Hungarian subsidiary has been in run-off since 2011 and has been very strictly monitored since," AXA Bank Europe said in its consolidated 2014 financial results statement published on its website.
Its total gross credit portfolio in Hungary had shrunk by 8.8% year-on-year to EUR 1.04 billion in 2014, it said.
Axa Group suffered considerable losses in Hungary on other activities, as well, but in essence these were within the margin of error for one of Europe’s largest insurers. If Axa Bank, or more precisely the core of the branch, can be sold only with a negative profit impact, the group will most likely shrug this one off too, whereas OTP can make a bargain on buying a mortgage loan portfolio of not a negligible size (although it is difficult to assess from the outside what risks it carries).
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