Hungary's Central Bank Urges OTP Bank to Reduce Russian Exposure

Hungary's central bank has directed OTP Bank to further reduce its exposure to Russia and implement precautionary measures under close supervision. The directive comes as part of ongoing efforts by Central Europe's largest independent lender to decrease its footprint in Russia following Moscow's invasion of Ukraine in February 2022.

While OTP Bank has gradually reduced its Russian exposure, it still ranks third-highest among European banks in terms of exposure to Russia, trailing behind Raiffeisen Bank and UniCredit, according to a tally by Morningstar DBRS.

The Hungarian central bank highlighted potential risks associated with OTP's Russian activities, particularly concerning payment transactions, amidst Western sanctions on Russia and discrepancies between Russian and European Union regulations on anti-money laundering, counterterrorism financing, and compliance measures.

In response to these concerns, the central bank has instructed OTP to develop and continuously update a set of criteria approved by the bank's top management regarding international payment transactions deemed acceptable in terms of risk. Additionally, OTP is advised to wind down its corporate loan stock in Russia, maintain stability in its retail loan stock, and reduce its stock of retail deposits.

According to the central bank, these measures aim to ensure the continued stable, profitable, and reliable operation of OTP Bank. The bank is required to draft an action plan approved by its board of directors and provide regular reports on its implementation.

OTP Bank assured that implementing the central bank's recommendations would not affect its group-level management expectations for 2024. The bank emphasized that its Russian subsidiary accounts for only 0.14% of the local credit market share and 4.2% of the total assets of the OTP Group, based on data from the first quarter of 2024.

Since the beginning of 2022, OTP has significantly reduced its corporate loan stock in Russia by 85%, and its Russian branch network has shrunk by 39%. The bank has also scaled back its international payment services to and from Russia, including the cancellation of services related to customer transactions in U.S. dollars involving Russia.

By fLEXI tEAM