Equity
S&P upgrades Hungary's OTP Bank, as well
OTP also upgraded
“We now see a lower risk of OTP Bank's default on senior liabilities that may be protected with an effective bail-in resolution process. We are therefore raising our resolution counterparty ratings on OTP Bank and OTP Mortgage Bank to 'BBB/A-2' and affirming our 'BBB-/A-3' issuer credit ratings," S&P said.The outlook on the long-term issuer credit rating is stable.
The sovereign upgrade reflects our view of sound growth prospects in the country, supported by high private savings and real wage gains sustaining domestic demand, as well as the ongoing expansion of export capacity in the automotive and services sectors.
Until now, S&P capped its long-term RCRs on OTP at the level of the foreign currency sovereign rating because we doubted that the bank would have sufficient bail-in-able liabilities to absorb the impact on their capitalization in a hypothetical default scenario of Hungary.However, the higher foreign currency sovereign rating means that this constraint is no longer applicable.
The analyst in charge of Hungary at S&P answered Portfolio's questions in an interview published on Tuesday:
What does the stable outlook reflec?
“The stable outlook reflects the sound economic and industry risk environment in Hungary and stabilization of the risks in foreign operations."S&P expects OTP's gradual recovery of operational performance to continue, supporting the rating agency’s forecast that OTP will maintain a risk-adjusted capital (RAC) ratio at 8.5%-9.0% during the next 18-24 months.
The outlook also reflects S&P expectation that OTP will continue to acquire banks in its core operating regions to exploit further growth opportunities, but at a pace commensurate with its internal capital-generation ability.
Rating movers
A negative rating action over the next two years could stem from- an adverse economic development in OTP's core operating regions with a negative impact on the bank's asset quality and profitability.
- S&P could also lower the ICR if it saw larger-than-expected M&A transactions that could hamper OTP's capital or risk profile.
The rating agency said it could take a positive rating action on OTP over the next two years if
- its RAC ratio improves sustainably above 10%, accompanied by a material improvement of asset quality metrics that are stronger than peer banks'.
S&P added, though that “the likelihood of a better assessment of other bank-specific factors that could trigger a change in the stand-alone credit profile is limited, as it would require a material shift in the business model, which is unlikely."
