Hungary-based OTP Bank Nyrt. is forecast to report further profit growth from its Russian business, even as its European peers pare back their operations in the sanctioned country.

OTP Bank's Russian unit is forecast to report a net profit equivalent to €81.4 million in the third quarter, up 15.6% quarter over quarter and 49.1% year over year, according to analyst estimates from Visible Alpha, part of S&P Global Market Intelligence. The share of the Russian unit's profit in the group-level results is anticipated to grow to 11.2% from 10.4% in the second quarter.

Net interest income is expected to increase both annually and quarterly, while net fee and commission income could rise more than 20% year over year but decline about 4% from the previous quarter.

The performance contrasts with that of Raiffeisen Bank International AG and UniCredit SpA, the other two major European lenders that have retained a significant exposure to Russia.

RBI's third-quarter net profit in Russia is set to drop almost 38% quarter over quarter and over 30% year over year. The share of its Russian unit JSC Raiffeisenbank's profit in wider group is forecast to drop to 36.8% from 57.3% in the second quarter.

UniCredit's Russian unit is also projected to report a quarter-over-quarter and year-over-year drop in third-quarter net profit and net interest income, while net fee income will grow on an annual basis.

The trend is forecast to continue for full year 2024, with OTP the only of the three banks to grow profit and revenue from Russia on an annual basis. Russia's contribution to OTP Bank group profit is set to reach 11.5% in 2024, up from the previous year. RBI remains the European bank most reliant on Russia for profits, with its business there expected to comprise nearly 47% of 2024 group profit.

OTP Bank's profitability in Russia is supported by a growing deposit book, which is projected to rise to €4.2 billion in 2024 from €2.9 billion in 2023 and make up 5.4% of group deposits. The bank is benefiting from the difference between interest rates paid to Russian depositors and the Russian central bank's key rate of 21%.

"This is quite a profitable business given the rate environment in the country," CFO Laszlo Bencsik said in August.

OTP Bank's Russian loan book is also set to grow from €1.9 billion in 2023 to the estimated €2.5 billion by 2024-end, accounting for 4.1% of the group total. The growth is driven by consumer lending, as the bank ceased issuing corporate loans to local clients after Russia's invasion of Ukraine, resulting in an 85% reduction in the corporate portfolio.

The growth continues even though the Hungarian central bank recommended in May that OTP Bank reduce deposits in Russia and maintain the stability of the consumer loan book. OTP Bank discussed its plans and actions in Russia with the Hungarian central bank, which "led to a common understanding of the situation and acceptance of our plans," an OTP Bank spokesperson told Market Intelligence via email. In addition to reducing its corporate portfolio, OTP Bank's Russian unit stopped offering dollar transactions and limited euro-denominated transactions.

Meanwhile, analysts expect gross customer loans and deposits at the Russian units of UniCredit and RBI to continue declining as the lenders accelerate their exit from Russia at the request of the European Central Bank.

RBI's proportion of Russian loans and deposits within the group are projected to fall to about 4.7% and 10.6%, respectively. Russia-related risk weighted assets and their share at group level are projected to rise, however, due to the increasing value of deposits placed with the Russian central bank, which carry a higher risk weight compared to alternative placements.

UniCredit's Russian loans are expected to fall to €2.3 billion, or 0.5% of total loans, by year-end. Total deposits are projected to fall to €5.8 billion, or 1% of group-level deposits.

Both RBI and UniCredit confirmed to Market Intelligence their earlier commitments to reduce Russian operations but declined to provide further comments.

RBI executives said in July the bank was simplifying its Russian business model, with no new lending and payment services limited to a pre-approved list of large, internationally active clients.

UniCredit plans to continue reducing its Russian business in 2025, targeting a decrease in net local loans to below €1 billion, a decrease in local deposits to below €2 billion and reduction in cross-border payments to €8.5 billion.

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'If we could, we would…'

OTP Bank is gradually reducing its exposure and withdrawing assets from Russia through dividends, but exiting the country remains difficult, according to the lender's spokesperson.

"If we could, we would leave Russia. The chances of this happening in the current regulatory environment are very small, as we can see from other Western banks' examples as well," the spokesperson said.

RBI sought to sell a 60% stake in its Russian unit, but a Russian court recently imposed a ban on transferring the subsidiary's shares, effectively blocking the potential sale. S&P Global Ratings said in September that reputational, sanction and regulatory risks remain elevated for RBI after the court's decision, but expects the Austrian lender to eventually exit its Russian operations.

Ratings also noted that finding a non-sanctioned buyer for UniCredit's Russian unit is proving difficult, leaving the Italian lender exposed to financial, operational and reputational risks while continuing operations in Russia.

With the Russian profits falling, RBI's group net profit for 2024 is projected by analysts to drop year over year to €2.2 billion, and the third-quarter result will fall to roughly €640 million. OTP Bank and UniCredit are anticipated to report full-year results comparable to their respective performances from 2023.