Diosi, OTP: Rise in unemployment is a time bomb for banks

Small and medium-sized enterprises are the worst hit by the arrearage, because they have no reserves to help them through this difficult time. Personnel redundancies are creating another problem for banks, because people lose their incomes and as such are rendered unable to repay their loans.

The number of overdue retail loans has stabilised since the beginning of the year, but the autumn could bring a new surge, as a result of the increase in the number of people who will lose their jobs, says Laszlo Diosi, chief executive of OTP Bank.

“Individual clients have adjusted to the harsher conditions, we do not see a worse situation than at the beginning of the year. It is a time bomb, though. There will be many people in trouble this autumn and a vicious circle will be created,” Diosi says.

The share of loans rated as “doubtful” and “loss” (loans overdue by at least 60 days) in the total portfolio exceeded 11% in May across the entire system, compared with 6.5% in December last year, according to the NBR data.

OTP’s boss says that he budgeted a higher risk cost for the second half (calculated as a ratio of the provisions set up and the total volume of loans i.e.) than in the first half.

Under the circumstances, Diosi says the state should come up with a programme to help people rendered unable to repay their loans to the bank, as it did with the programme to drive sales of new credits. The Hungarian government has recently secured approval from the European Commission for such a programme.

Diosi also sees a “slow but constant” deterioration of the loan portfolio of the small and medium-sized enterprises, which are experiencing arrearage, given that the state reimburses VAT late and many companies are also late in paying their suppliers.

“It’s not a disaster, but it is a constant worsening. We, however, hired people specialised in debt collection and bailiffs to take care of these loans.” OTP is actually in the process of subjecting a number of assets pledged as collateral to compulsory execution to collect its debt from SMEs.

On the other hand, Diosi is more relaxed when it comes to the loans granted to large companies, who have more options of cutting costs to survive the difficult period.