There was a precedent
Earlier this week, the Hungarian Chamber of Commerce and Industry compiled its second crisis package, which also served as a kind of menu on which elements the government and the economic restart action group could compile their crisis management measures. The MKIK package also included the establishment of a National Crisis Management Fund, one of the possible sources of which was the mention of the one-time contribution of the most profitable companies this year.
At the beginning of March, the MNB published the latest statistics on the credit institution sector, which showed that the sector achieved a profit after tax of nearly HUF 700 billion last year.
Many may have suggested that, based on MKIK’s proposals and last year’s record profit in the banking sector, the banking sector could be one of the sectors whose extra payments the government is seeking to mitigate the negative effects of the coronavirus crisis.
presumably, bank executives and some investors will not be hit completely unexpectedly by another crackdown on banks.
How much can OTP pay?
Today's Government Information announced that the government would set up two funds:
- to fight an epidemic of $ 663 billion
- and a $ 1,345 billion economic restart fund.
Banks will have to pay HUF 55 billion into the former. It is not yet clear to what extent each bank will take their share of the HUF 55 billion contribution to the epidemic fund, but to estimate the proportion of the largest domestic player, OTP, can have a share of the contribution.
Results – based approach
Banks can also make payments in proportion to their earnings. According to MNB statistics, the after-tax profit of the entire Hungarian credit institution sector was HUF 698 billion last year. Of this, OTP delivered HUF 413 billion, based on which OTP's share is 59.1%. However, the MNB's sector-level statistics include not only OTP's Hungarian results, but also the Group's total results, excluding the results of OTP's foreign subsidiaries. According to our calculations, OTP's share of the Hungarian credit institution sector's result is 43.7%.
Balance sheet total approach
At the end of last year, the balance sheet total of the domestic credit institution sector was HUF 49,780 billion, of which the OTP Group provided HUF 20,122 billion, based on which OTP's share was 40.4 percent. If we also clear the sector-level balance sheet total data from the numbers of OTP's subsidiaries, OTP's share is only 20.5 percent.
According to our calculations, depending on the basis of the payment, OTP may pay between HUF 11 and 33 billion into the epidemic fund. The after-tax effect may be between HUF 10-30 billion, the negative effect may be HUF 37-106 per share.
Overall, it seems that it does not matter at all what criteria domestic banks make payments to the epidemic fund.
How much does it hurt?
To put the amount into perspective, it is worth looking at how much after-tax profit OTP can achieve this year, according to analysts ’expectations.
As we are in the early stages of the crisis, it is difficult to estimate the potential effects, and there is a large variance in profit expectations.
According to the consensus of Reuters, the OTP Group can achieve a profit of HUF 410 billion this year, according to our calculations, the payment to the epidemic fund would take 2.5-7.2 percent of it.
However, based on the lowest profit expectation of HUF 272 billion this year (assuming that the analyst has not yet calculated an extra payment at OTP), the extra burden would already be 3.8-10.9 percent.
What else can come?
In crisis management, individual countries give a special role to banks, we have also seen this as an example of a loan repayment moratorium, which was introduced not only in Hungary, but also in a somewhat different form in Serbia and Romania. In connection with the introduction of Hungarian banks into the epidemic fund, it is also worth preparing for the fact that banks from other countries, such as OTP, can also be involved in crisis management through their foreign subsidiaries, even with one-off payments similar to Hungary's.
The exchange rate fell sharply this year
OTP lost 41 percent of its value this year.
Cover image: Ákos Stller / Getty Images