Equity
Hungary's OTP acquires bank in Croatia
OTP buys bank in Croatia
- OTP Bank Plc. has announced that its Croatian subsidiary OTP banka Hrvatska, signed an acquisition agreement on purchasing 100% shareholding of Splitska Banka, member of Société Générale Group.
- Societe Generale Splitska is the fifth largest player on the Croatian banking market and as a universal bank it has been active in the retail and corporate segment as well. As a result of the acquisition the market share of OTP Group will rise to approximately 10%.
- The financial closure of the transaction is expected in the summer 2017.
- The integration process may be completed by summer 2018.
5th largest bank in Croatia
- Splitska Banka had the fifth-largest assets in Croatia in 2015 after ZABA, PBZ, Erste and Raiffeisenbank.
- According to a banking sector analysis by Deloitte, Splitska Banka - similarly to the seventh-largest Hrvatska Postanska - was among the best performers in the country last year, mainly as a result of its relatively small CHF-denominated receivables.
- It had 3.4% return on equity (ROE), which was the second best in the country among the Top10 credit institutions.
- The bank’s cost-to-income ratio was 53.2% last year, which made it one of the most efficient banks in Croatia and was only slightly behind the 51.5% reading of the top players.
- The bank’s risk cost is relatively low in Croatian terms (it was 1.9% to total assets last year).
- With its capital ratios and interest rate margin it held the middle ground in the Croatian banking sector.
- At the end of last year, OTP’s market share in Croatia stood at 4.4% in terms of lending, and at 3.9% in terms of its assets, Splitska Banka’s respective shares were 6.8% and 6.7%.
How much OTP could have paid for the Croatian bank?
There is no official information about the price OTP paid for Splitska Banka therefore we have to rely on educated guesses. We know that the Croatian bank’s book value was 3.5 billion kunas (nearly HUF 146 bn) at the end of last year, hence if we assume that the bank was bought at book value, it must have paid HUF 146 bn. However, OTP was buying well below BV over the last few years, at 0.3x P/BV in Croatia, for instance. This would give us a HUF 44 bn purchase price.Should investors be happy?
To answer that question we should obviously know the financial details of the transaction, but we can still list several positive factors:- in line with the strategy of OTP’s management, the bank is expanding on a market it is already present at and where it knows the ropes;
- following the smaller acquisitions of the last few years, OTP is finally buying a bank of visible size. It will be a palpable addition to the group’s loan and deposit portfolios;
- Splitska Banka is a balanced commercial bank, with strong positions in both the retail and corporate segments;
- Splitska Bank is a profitable unit;
- the acquisition will also help OTP cut its massive liquidity reserves that has swollen to EUR 7.6 billion by the end of September, and - as management had put it earlier - it remains considerably and persistently above the safety level.
Share price reaction
On the back of the announcement the share price of OTP rose 0.7% on the Budapest Stock Exchange (BSE), which is no wonder in view of the drop over the last two days.
