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OTP Bank: credit rating placed under review by Moody's

07.06.2006 10:32
Autor: KBC/Patria

Ratings agency Moody's has placed OTP Bank's financial strength rating of B- under review for a possible downgrade, following the announcement of the acquisition of Raiffeisenbank Ukraine for EUR 650m. RBUA has a market share of 3.6% on total assets of € 1.2bn, 3.6% and 4.0% in corporate deposits and loans respectively, and 1.6% and 5.0%+ in retail deposits and loans respectively. RBUA is the seventh largest bank in the Ukraine. The review by Moody's is to focus on the bank's risk profile, changing as a result of the acquisition of Raiffeisenbank Ukraine and with additional purchases planned in Ukraine and Russia. The ratings review doesn't come as a surprise and may have some influence on the level of treasury shares the bank sells to fund the purchase.

Based on the 1Q06 results, taking into consideration a dividend of 30% and retained earnings for 2006, OTP Bank sees € 250m of excess tier 1 based on a target total capital adequacy of 9.5%. Using this figure, which we think is realistic, and looking at the goodwill generated by the transaction of some €511m (less year-to-date retained earnings), its expected that OTP Bank could sell some 9.28m treasury shares. This is approximately half of the bank's total 18.6m shares held in treasury or 3.5% of the total shares outstanding (excl. treasury shares). Overall, we'd like to see a smaller placement of treasury shares and higher gearing at OTP Bank, given the bank's strong capability to generate new capital internally (as well as the bank's stronger capital position under IFRS (consolidated) / BIS versus Hungarian (non-consolidated standards).

In our view, a review of OTP Bank's credit rating should have been expected, following the announcement of such an acquisition, but, nonetheless, we would not be surprised to see a negative short-term trading impact. We reiterate our Buy rating on the stock, which is the cheapest of the major CEE banks on P/E multiples.

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