OTP Bank, a medium-sized player on the market, has stopped granting unsecured consumer loans in 14 branches, because, overall, the number of problems with loans was alarming, according to Laszlo Diosi, the bank's chief executive.
"We just provide home equity loans in those locations. As soon as we see that conditions have improved - in terms of personnel and process - we will resume consumer loans, most likely in March or April," Diosi told ZF.
He believes the increase in exposure to clients, overlapped with the still explosive growth of the real estate market, as well as tensions on the international markets that made loans more expensive, are a recipe for disaster in the banking system.
Unsecured consumer loans are the most vulnerable products in the banks' portfolios, with many players upping the reserves set aside for such loans in order to protect themselves from potential losses caused by bad payers.
The rapid exchange rate increase, along with the increase in interests and/or in fees have made it very difficult to repay loans especially for those clients that are close to their indebtedness cap.
Valentin Lazea, NBR's chief economist, says that the private lending growth rate is "infernal" and "unsustainable."
The local branch of Hungary's biggest bank ended last year with more than 11 million euros in losses, the same as in 2006.
At the same time, the quality of the loan portfolio worsened, after non-performing loans increased their volume and accounted for 10%, according to the data provided by OTP to the Budapest Stock Exchange.
"The increase in the share of non-performing loans is also fuelled by a statistical effect, given that we outsource some of the loans to Budapest, and they must be clean," Diosi explained.
He says that the quality of the loan portfolio has not actually worsened, as the loans in poorer performance categories were put there because of the different reporting standards used.
OTP uses NBR's rating system, which requires that loans should be classified in one of five classes from A to E, depending on the borrower's creditworthiness and instalment repayment history.
"This classification forces us to put all loans granted to newly-established companies, such as those that develop real estate projects, into class E, even though there are no problems," explained Tobias Seiferth, deputy chief executive of the corporate division.
According to Laszlo Diosi, the bank will develop its own rating system soon, in order to avoid such problems in the future.
OTP, one of the banks that announced extremely bold targets when it first entered the market, was forced to halt its territorial expansion, after its network reached 104 branches.
"We will halt the development of the network this year because we need some time to stabilise, as I believe all banks need. The high turnover of personnel and the increase in attempted fraud is putting pressure on operations. We will focus on training personnel and financial control operations," added Laszlo Diosi.
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