S&P has upgraded OTP Group’s creditworthiness to BBB/A-2, from BBB-/A-3, citing its resilience to potential sovereign stress situations since it has expanded its geographical presence outside its home country.
OTP has cut its share of Hungarian loans to 32 percent of the total portfolio, “from above 40 percent in the last decade,” the agency stated.
“While there is no immediate acquisition plan that would suggest a further decline of this ratio, we expect that OTP will continue its international expansion over time, which could further reduce country risk sensitivity to Hungary,” the report continued, adding, “we now consider that, to some extent, OTP would be able to withstand the financial stress generated by a hypothetical default of the sovereign, Hungary.”
The rating agency’s experts also examine how well a bank would be protected in a hypothetical scenario that even includes a state bankruptcy. They concluded that the Hungarian banking group would not be completely immune in this theoretical scenario, and therefore limited OTP’s long-term issuer credit rating (ICR) to no more than one notch above Hungary’s sovereign foreign currency debt rating.
However, S&P still assigned a negative outlook to its new rating, reflecting its outlook on Hungarian government debt, which it downgraded last Friday from stable to negative. As also noted in the OTP upgrade, the rating agency cited “risks to the country’s public finances from the uncertain growth outlook, high interest expenditure, narrowing EU fund inflows, and spending pressures ahead of a tightly contested election.”
The agency said it was “unlikely” the country will be able to receive any RRF funds from Brussels before their usage window expires in December 2026, plus there has been a steep drop in FDI over the past two years, falling to 2 percent of GDP in 2024 versus 8.4 percent in 2022.
Hungary’s long- and short-term foreign and local currency ratings stand at BBB-/A-3, which is just one level above junk status.
