Hungary’s banks posted record profits in 2004, driven mainly by a surge in lending to households

Hungary’s banks posted record profits in 2004, driven mainly by a surge in lending to households. However, industry representatives say the results will be hard to repeat in 2005, mainly because interest rates are continuing to fall, thus eroding the growth in interest income that drove many banks’ results for last year. At a press conference last Thursday, representatives of the Hungarian Banking Association said that 2004 was a successful year for the sector, with overall assets growing by 16% over the 12-month period. Final full-year figures for the entire sector were not available, but the consolidated nine-month figures show that sector net profit grew 36% to Ft 233 billion (€958 million). Lending to households grew by 27% in 2004 over the previous year, coming to Ft 3,000 billion, or one-third of all lending, said Tamás Erdei, president of the association. He drew attention to the rapid expansion in this area, noting that in 2002, household loans accounted for only one-seventh of association members’ total lending. Hungary’s commercial banking market leader, OTP Bank Rt, again delivered impressive profit growth. It recorded net profit of Ft 31.6 billion in the final quarter of 2004, up 133.8% on the corresponding quarter of 2003, but down 23.2% on the third quarter of 2004. OTP saw its quarter-to-quarter growth in interest income slowing as 2004 progressed. At the same time, the contribution of its Bulgarian subsidiary, DSK Bank, started to make an impact on the group’s bottom line, according to Kornél Sarkadi Szabó, lead equity analyst at Raiffeisen Bank Rt, who said OTP’s results exceeded his own forecast by Ft 2 billion. “In 2005, we expect a slow soft landing in profitability, supported by further expanding loan activity, stable margins on existing housing loans, a high margin on foreign currency-based loans, increasing income from fees and commissions, and an increasing contribution from DSK,” Sarkadi Szabó said.