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Tuesday, April 22, 2008

OTP's Shares Downgraded

OTP Bank, which is Hungary's largest lender, has had its price estimate cut 25 percent by analysts at HSBC Holdings Plc, who cited the country's slowing economic growth damaging demand for loans.

OTP's share-price estimate was reduced to 9,200 forint ($57.77) from 12,308 forint, HSBC analysts Maciej Baranski and Walid Khalfallah in London wrote in a note to clients today. They maintained their ``overweight'' recommendation for the stock.

Hungary's economic growth was 0.8 percent in the fourth quarter from a year earlier, the slowest in 11 years, following the implementation of a government austerity plan which cut spending and raised taxes to narrow a record budget deficit.

``Hungary is the key reason behind our expectations of poor earnings growth in this core market for OTP,'' the analysts wrote. ``The latest developments in Hungary suggest that the country's economy and the banking sector are set to be stuck in the doldrums for a long while.''

Portfolio Hungary also reports this morning
that Hungary now has the 7th “worst" EM sovereign rating in Standard & Poor's liquidity vulnerability index.

according to the crdit rating agency Eastern European sovereigns are the most vulnerable in the emerging market galaxy should the global credit squeeze tighten. The ranking does at least show however that there are economies in the region which are even more vulnerable than Hungary.

“Just how vulnerable each individual sovereign could become relates directly to its degree of dependence on foreign capital inflows to finance external imbalances and avert balance-of-payments crises, said the report titled "Why The Global Credit Squeeze Could Hit European Emerging Market Sovereigns Harder Than Others".

S&P's credit analyst Moritz Kraemer said Eastern European sovereigns looked to be the most exposed, while Asian and Latin American sovereigns, with their trade surpluses and large foreign exchange reserves, were “generally better insulated against the dearth of financial flows that may be in store if the global economy declines more sharply."

S&P's Liquidity Vulnerability Index underlines this trend, showing that almost all of the most vulnerable countries are East European, with only Iceland, Lebanon and South Africa coming from other areas.

Iceland, which is considered an "honorary" member of the emerging market (EM) sovereigns for present purposes due to its strong correlation with general EM market conditions, tops the list of the most vulnerable, but Iceland is clearly something of a special case.

The come Romania, Lebanon, Latvia, Turkey and Kazakhstan. Hungary came in 7th (0.97 pts) and thus was found more vulnerable than Bulgaria (0.92), Poland (0.92), Slovakia (-0.01), the Czech Republic (-0.30) and Russia (-1.00), which is the only European emerging sovereign that managed to squeeze into the “sheltered group".

Chile is the least vulnerable owing to its robust external and government balance sheet, S&P said.

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