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There are nine large commercial banks in Hungary, of which Takarékbank, MKB Bank and Budapest Bank do not have a large listed bank owner, thus the remaining six parent banks just listed are now counted. To see the relative size of each banking group, we anticipate the size of the loan portfolio: as can be seen, the two Italian owners (UniCredit, Intesa Sanpaolo) are much larger than the Austrians (Erste, Raiffeisen), the Belgian (KBC ) or the Hungarian (OTP) banking group.
The impact of the coronavirus epidemic is shown by the fact that the aggregate loan portfolio of banking groups has stagnated since the end of 2019 (-0.0%) despite the positive effect of repayment moratoriums on size lending (although weakening regional currencies is likely to have a minor but negative effect). Of the six large banks, however, only UniCredit’s loan portfolio decreased (by 3.0%), while that of the others increased moderately, but Ersté’s was the one that increased the most (by 2.6%). %).
Even more interesting is the size of the provision for expected credit losses. We look at net worth, that is, the difference between forming and dissolving. The total cost of risk of the six banks was 8,417 million euros so far this year, about 2.5 times more than the previous year, so it can be said that the banks constituted more provisions for 5,043 million euros this year. The amount of almost HUF 1.8 billion would correspond to the size (total balance sheet) of a large Hungarian bank. It’s difficult to say exactly how much of the epidemic is goose, but this large number is largely to blame for the coronavirus crisis.
The absolute increase in provisioning broadly follows the size of the banks, with this year’s cost of risk as a percentage of gross loans ranging from 0.5% to 1.0% (higher in OTP and lower in Austrian banks). Interestingly, UniCredit and OTP made the largest provisions for expected credit losses in the first quarter, Erste, KBC and Intesa Sanpaolo (excluding UBI) in the second quarter and Raiffeisen in the third quarter.
Income is also worth taking a look at, our figures below show the change in net interest income. The aggregate net interest income of the six banks in the third quarter was 3.4% lower than the previous year, which is now normally explained not by a decrease in outstanding loans but by a reduction in interest margins (after the relaxation of the central bank). Raiffeisen, KBC and UniCredit had the worst results in this area.
However, in the first nine months of the year, the average (weighted) decline was only 0.9% overall. UniCredit, Raiffeisen and KBC saw net interest income drop in the first nine months of this year, while others still rose. Most in euros at OTP, where acquisitions also helped mitigate the negative effects of the coronavirus on an annual basis.
Finally, a few words about the net result: Banks’ aggregate profit showed a moderate lag of 6.4% in the third quarter, despite a significant increase in provisions, with KBC alone outperforming the last year.
However, in the first three quarters of the year, profits were only a third of the previous year: a 63% drop in total profits compared to the first nine months of 2019. The two extremes are represented by the two Italian banks : UniCredit became a loss, while Intesa’s profit fell only 7%. If the acquisition of UBI Banca (not considered above) is also taken into account, CIB’s parent bank has significantly improved its profitability due to a hostile takeover below book value.
We’ve written about the Banking Groups Quick Report in the following articles:
(OTP earnings figures expressed in HUF have been converted to euros based on quarterly averages and balance sheet at the end of the quarter).
Cover image: Getty Images
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