Bloomberg: Hungary’s OTP Bank considers a full Russia exit as regulators review its purchase of Baltic lender Luminor

Hungary’s OTP Bank is considering a complete exit from Russia, Bloomberg reported. The bank has continued operating there since Russia’s full-scale invasion of Ukraine, but its Russian business could hinder approval of its planned purchase of Baltic lender Luminor Bank.

OTP Group CEO Peter Csanyi told Bloomberg that the bank is reviewing its strategy in Russia, partly because it plans to expand abroad. But OTP acknowledges the obstacles: “At present, a sale is virtually impossible.” The owners of its Russian business could receive only 5% of its value in a sale, and any buyer would have to be acceptable to both the Kremlin and European authorities.

The question of what to do with its Russian business is especially important for OTP because of the Luminor deal. In July, the group agreed to buy the Baltic bank from funds managed by Blackstone and DNB. The acquisition would take OTP into the Estonian, Latvian, and Lithuanian markets and increase the group’s assets by more than 10%.

Regulators in the Baltic countries are closely examining OTP’s presence in Russia, Bloomberg reported. The European Central Bank and Estonia’s banking regulator are due to rule on the acquisition in the coming weeks.

Bloomberg found companies linked to Gazprom and Russian state organizations among OTP’s clients in Russia. However, there is no record that the bank committed any violations. One OTP client, for example, received money from the History of the Fatherland foundation, whose board is chaired by Sergey Naryshkin, the head of Russia’s Foreign Intelligence Service.

Documents cited in the report also name the Tsargrad Society, which the U.S. and U.K. sanctioned in 2022. According to a contract, Konstantin Malofeev planned to transfer 33.5 million rubles to its account at OTP. Bloomberg could not confirm whether the transfer took place.

OTP is a minor player in Russia compared with UniCredit and Raiffeisen: it accounts for just 0.4% of the country’s banking assets. The bank has operated in Russia for about 20 years, but its Russian business has grown far more profitable since Russia’s full-scale invasion of Ukraine, according to Bloomberg.

OTP’s profit in Russia has risen more than fivefold from its 2021 level to $635 million. In recent years, OTP has been able to transfer about $880 million in dividends out of Russia.

The bank attributes its higher revenue to the difficulty of making international payments: OTP lets customers send payments abroad in several currencies, including euros. OTP says its Budapest headquarters reviews all euro payments between Russia and EU countries or the U.K. for sanctions compliance. The bank does not process dollar transactions.