Hungarian OTP Bank’s bold incursion into central and eastern Europe picked up pace in 2006 with new acquisitions in Ukraine (RBUA), Russia (Investsberbank), Serbia (Zepterbanka and Kulskabanka) and Montenegro (CKB). But what has impressed industry insiders most this year has been the ease with which the bank has restructured and incorporated these diverse operations in the region, despite fierce competition and significant operational challenges.
Chairman-CEO Sandor Csanyi explains the key challenge in the short term is to continue consolidating these newly acquired assets to boost the bank’s profitability. But he is still looking out for more promising investments in the medium term. “Our goal is the maximization of shareholders’ value and not growth for its own sake,” he says. “We take a very prudential approach in assessing potential targets of acquisition, and always look for synergies with our current operation. Hence, our primary targets are banks with measurable market shares in the retail banking sector in countries with huge growth potential.”
Csanyi believes the growth push will also avoid his bank becoming an object of acquisition for regional giants such as Raiffeisen International and UniCredit, which have already bought up most of OTP’s rivals. “The merger of OTP Bank with some other financial institution is currently not an issue,” he says.
The largest independent bank in Hungary has used regional expansion to insulate itself from deteriorating macroeconomic conditions at home. Angelika Zwerenz, analyst at Erste Bank, believes this approach is laudable. “I think OTP has been pursuing a very good strategy over the last year. By diversifying its customer base, the bank is able to better insulate itself from lower growth rates in Hungary, tax increases and a volatile exchange rate,” he says. So far, this business model is paying off, with the bank expecting ft212 billion in consolidated profits after tax this year, exceeding analyst expectations.
Fortunately, its new strategic targets have been integrated mindful of the market, credit and operational risks, with the management aiming to standardize international best practice across its group members. “The preparation for Basel II was a good opportunity for us to harmonize our risk measurement methodology with industry best practice. Risk is a function where we aim for a relatively high level of uniformity and centralization across the entire group. Key components of the risk measurement and management systems are standard and have to be adopted by all group members,” Csanyi explains.
He is also banking on a surge in domestic consumption in Hungary once the government’s austerity measures deliver macroeconomic stabilization, and believes the bank’s long history in the country puts them in the best position to benefit. “We have accumulated a unique data base of clients for over 50 years, which not only renders the bank one of the best risk assessors in the market but also facilitates efficient marketing campaigns. OTP’s brand name also helps gain customers’ trust, and our diversified branch network makes our services readily accessible everywhere in the country.”