Best Bank:
OTP Bank
Best debt house:
Central-European International Bank
Best equity house:
Erste Bank
Best M&A house:
CA IB
Hungarian banks are ahead of others in the region since Hungary was one of the first eastern European countries to open up. The first foreign banks started operating there in the mid-1980s.
OTP Bank stands out as one of the best banks in the region. It is dynamic and transparent, has a strong management and sound capital structure, and from a shareholders point of view returns hardly get any better than its 28% ROE. This is a significant achievement given that nine out of 29 Hungarian banks were still not making any money at the end of last year.
Uniquely, OTP is also under local management and local ownership. There is no strategic shareholder though 42% of shares are owned by foreign shareholders.
OTP dominates the Hungarian market with a quarter of total assets. Its strength lies in municipal banking and retail – it manages almost two-thirds of retail current accounts and 90% of local government accounts.
OTP has embarked on a cost-reduction programme, and achieved a 20% rise in pre-tax profit in 2000. OTP continuously improves its services: it has introduced consumer loans, an electronic current retail account, telebank loan information services, and more products in internet banking. It is among the top players in insurance, real estate, fund management and leasing services.
OTP also plans to expand regionally – it has expressed interest in Slovakian bank IRB – and hopes to gain a stronger corporate client base. Over the past year most banks have started to expand into the small- and medium-size business segments which are far more profitable to deal with than the few large corporates. OTP seems in a good position to exploit this market segment having the benefit of the most extensive branch network, with 455 branches. OTP already has a decent 10% market share in loans, but as a bank set up in the 1950s to service households, and which only moved into corporate banking in 1989, its corporate identity is still limited.
The most experienced domestic corporate banks are the Hungarian Foreign Trade Bank (MKB) and the Central-European International Bank (CIB) – the second and third largest by assets, respectively.
Both have good management, decent ROEs (around 17%) and low NPL ratios (less than 1%). Both serve multinationals and large Hungarian corporates, and are renowned for expertise in classical banking as well as in structured finance.
CIB has produced the better growth rates over the past year. Total assets grew from Ft458 billion ($1.6 billion) to Ft562 billion, net earnings after tax from Ft8 billion to Ft11.5 billion and its share of lending from 11.1% to 11.8%.
CIB was set up in 1979, authorized to undertake offshore transactions and specialized in forex services and foreign trade payments. The bank was originally owned by six major European banks, but in 1997 Banca Commerciale Italiana, now part of IntesaBci, bought out the other shareholders.
CIB ranks amongst the top three arranger for syndicated loans. It arranged a e80 million loan for mobile operator PanTel, a $350 million revolving loan facility for oil and gas group MOL, and acted as agent for a club loan for crude-oil provider KKKSZ. It also worked on a club deal for telecom Matav and a working financing for Vivendi.
Another top deal maker is ABN AMRO, but because of hefty losses in its operations it retreated from the market this year. ABN AMRO will merge its operations into KBC-controlled K&H Bank, the fourth-largest bank and another leading lender to larger corporates. The new bank will be the second largest by assets, and with a combined market share of 14% of loans it could be a candidate for this title next year.
The domestic debt capital market is not well developed. The Ft10 billion three-year issue for Matav – the largest corporate bond since 1997 – was rather exceptional. It was arranged by ABN AMRO, CA IB, CIB, MKB and OTP.
But at least the international bond market is about to recover this year. Last month, the Hungarian forint was liberalized, i.e. the floating band was widened, and within a matter of weeks EIB, EBRD and Depfa entered the market.
The liberalization also means that some new life may return to the Budapest stock exchange, which has not seen such a meagre year for a long time. Nasdaq’s fall last year especially hurt Matav, which with a weight of almost 30% in the BUX index dragged down the whole market. Government decisions further curbed investor demand. Most brokers made losses last year, including Austria’s Erste Bank which was the number one dealer in equities at the exchange.
CA IB co-advised with JP Morgan the Hungarian oil and gas company MOL in its successful bid on 36% interest in Slovakia’s sole crude oil refinery Slovnaft. The $300 million transaction closed in September 2000 and was the first cross-border transaction in the CEE region of such a size. It was followed by a bigger bid in January 2001, when Matav acquired 51% of Macedonia’s telecom company. CA IB was adviser to Matav.
