Moody's cuts OTP Bank to C+

Moody's Investors Service said it downgraded the financial strength ratings of OTP Bank and its 100% owned subsidiary OTP Mortgage Bank to C+ from B- and affirmed OTP Bank's A1 local-currency bank deposit ratings and A2 foreign-currency subordinated debt ratings with a stable outlook and the A1 foreign-currency bank deposit rating, which remains on review for possible downgrade in line with the review for possible downgrade of Ukraine's ratings.

This concludes the review for possible downgrade of the financial strength rating begun on June 6, 2006, which focused on the impact of OTP Bank's 2006 acquisitions on its risk profile and financial fundamentals over the short to medium term.

The agency said the downgrade primarily reflects OTP Bank's increased risk profile, although Moody's noted the rapid expansion of the bank and the effect that this may have on stretching the bank's management and risk resources following its 2006 acquisitions. During 2006, OTP Bank acquired 100% of Raiffeisenbank Ukraine, 96.4% of Russia's Investsberbank, 67% of Serbia's Kulska banka, 100% of Montenegro's Crnogorska komercjalna banka and 75.1% of Serbia's Zepter Banka for a total of around €1.3 billion.

Moody's said that although these acquisitions are fully consistent with OTP Bank's strategic objective of expanding its presence in Central and Eastern Europe, the acquired banks do not benefit from the strength of franchise that OTP has in Hungary and Bulgaria and the relevant countries' banking systems are at an earlier stage of development.

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