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OTP Bank revives Uzbekistan M&A plans as Russia, Ukraine ops stabilize

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OTP Bank revives Uzbekistan M&A plans as Russia, Ukraine ops stabilize

OTP Bank Nyrt. has resumed its acquisition efforts in Uzbekistan, drawn by the geopolitical and economic attractiveness of the country, CFO László Bencsik said.

The Hungary-based lender has restarted plans to acquire Uzbek state-controlled lender JSC Mortgage Bank Ipoteka Bank after it was forced to put the process on hold following Russia's invasion of Ukraine. "We are doing another confirmatory due diligence, and we think that there is a high probability that the transaction can be made," Bencsik said during a Nov. 10 earnings call.

Both Uzbekistan and Ipoteka Bank provide a "very attractive investment opportunity," more so since the deal was shelved, driven by the country's robust economic growth — with GDP expected to reach 5% in 2023 — as well as the government's privatization push and efforts to curb inflation, the executive said.

While the geopolitical situation remains unstable, there is more clarity now on how the conflict in Ukraine is developing and what its implications are for the group's business, according to Bencsik. "I think the way [Uzbekistan's authorities] position the country vis-à-vis Russia during this period improved its geopolitical attractiveness," the CFO said.

In addition to resuming its M&A efforts in Uzbekistan, OTP Bank is also working on setting up a joint venture project in China. The plans were announced earlier this year, with OTP to be a minority investor in the project. "We are still focusing on trying to get the license, so here we are still in the early stage," Bencsik said.

OTP is also waiting for final clearance from Slovenia's competition watchdog to finalize the purchase of Nova Kreditna Banka Maribor d.d., which was announced back in 2021. Its purchase of Alpha Bank Albania SHA was finalized in July this year.

OTP has been a very active player in the M&A scene in recent years, and its foreign operations contribute significantly to its financial results. The adjusted after-tax profit contribution of the group's units in Central Europe, including Slovenia, Croatia, Albania, Romania and other countries, improved more than 30% in the first nine months of 2022 versus a year earlier, Bencsik said.

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OTP earned 231.9 billion forints in group after-tax profit during the nine-month period, 31% less than the previous year, mainly due to the war in Ukraine and government measures implemented in Hungary, including a windfall tax. Adjusted profit after tax for the same period was at 439.1 billion forints, up 18% year over year. In the third quarter alone, the bank's after-tax profit — in both adjusted and unadjusted terms — amounted to approximately 189 billion forints, a "historic high" for the bank, Bencsik said.

The operations of OTP's unit in Russia stabilized in the third quarter, resuming normal levels of lending activity. The Ukrainian subsidiary will still be loss-making for the full year, but the third quarter was slightly positive for the subsidiary, and it is possible the trend will continue in the upcoming quarters unless there is an unexpected escalation of the ongoing conflict, Bencsik said.

As of Nov. 10, US$1 was equivalent to 395.19 Hungarian forints.