BUDAPEST Hungary's most influential commercial banker said on Wednesday he expected the government to start talks with the IMF and EU soon on a loan that should prompt a sharp cut in the country's risk premium, benefiting bank lending and its economy.
Sandor Csanyi, Chairman and Chief Executive of OTP Bank, central Europe's biggest independent lender, told Reuters in an interview it would probably take 3 to 4 months to reach an agreement with lenders once the talks start.
A deal should cut Hungary's credit default spreads by at least 150-200 basis points, he said.
"The signs from the past few days have been positive," Csanyi said. "I hope the path will open shortly so (Hungary) can sit down for talks with the International Monetary Fund."
Saddled with the region's highest debt load, Hungary has been in dispute for months with the IMF and the EU over conditions for starting talks on a multi-billion euro loan, making it vulnerable to a worsening European debt crisis.
The disagreement has centered on a law that lenders say undermines the independence of Hungary's central bank.
Parliament put off a vote on amendments to the law this week and investors now hope the government will modify the law further to meet all the requests of the IMF and the European Central Bank.
Csanyi, who shares a passion for soccer with Prime Minister Viktor Orban and is known to have good relations with the premier, said he believed the government was committed to reaching a deal with international lenders.
"The government wants to agree with the IMF, but obviously, like the IMF and the EU, the government has conditions, a framework that it would like to uphold... The problem is it takes time, which obviously costs money."
Csanyi said the eventual deal and a potential pickup in consumption and investment could benefit OTP, with lending growth accelerating perceptibly from 2013 as more clients become eligible for loans.
"My feeling is that in the second half, and from next year, a positive trend will start for the bank," he said. "The CDS trend is very important for us. It's critical, even though OTP does not need to go to the markets (for capital)."
A fall in Hungary's five-year credit default swaps, currently above 600 basis points and at their highest since January, would make bank loans cheaper for clients, benefiting lending and the economy overall.
OTP PROFITABILITY TO RISE
Hungary's government, under pressure to meet strict fiscal targets but unwilling to give up on its flagship flat income tax system, has levied big windfall taxes on the country's banks and other business sectors.
Banks took a big hit, with OTP recording a loss for the fourth quarter and only a modest profit in the first quarter of 2012.
The bank tax will be halved from next year but the government has tabled a new financial transaction tax from 2013, a move that it hopes would raise at least 130 billion forints ($536 million) a year for the budget.
Csanyi said the effect of the new tax on banks' bottom line was tough to gauge at this stage as parliament would approve the final version only in the autumn.
He said while OTP was not expected to produce a 25-30 percent or higher return on equity, as was routine for the bank in the decade leading up to the 2008 crisis, the bank was likely to record higher returns than the 12.6 percent it managed in the first quarter.
"We expect that we'll be able to generate a return on equity of about 15-20 percent on the longer term," he said. "Of course we will have to adjust accordingly, cut costs and launch products that require less infrastructure."
"I think OTP's lending will expand this year, as it did last year. Next year, I expect more dynamic growth." ($1 = 242.6107 Hungarian forints)
(Reporting by Marton Dunai; Editing by John Stonestreet)