By Margit Feher

BUDAPEST--OTP Bank (OTP.BU), Hungary's largest lender by assets and market share, expects the stock of its non-performing loans to keep falling in the coming quarters as it forecasts that economic conditions will improve marginally next year in the countries it is operating in, an executive said Thursday.

OTP's stock of non-performing loans fell sharply in the third quarter of this year from a peak in the second quarter, the company said earlier Thursday in its third-quarter earnings report.

"It seems we can return now to our expectations that the stock of NPL will fall. The engine behind the [non-performing loans] is economic performance," Laszlo Bencsik, deputy chief executive, said at a press conference.

OTP expects that economic conditions won't deteriorate further in Hungary while improving slightly in the other regions in which it operates.

However, Hungary's economy remained in recession, contracted more than expected in the third quarter. It contracted 0.2% in the third quarter from the second quarter in adjusted terms and shrank 1.5% in unadjusted terms from a year earlier, the central statistics office said earlier Thursday.

With Hungary remaining mired in recession next year, OTP's foreign units will continue to increase their contribution to the bank's consolidated net profit, Bencsik said.

As a result of Hungary's poor economic performance, demand for loans is still weak here, Bencsik added. OTP's consumer loans, which generate a higher margin than some of its other loans, are gaining momentum in the meantime in Ukraine, he added.

The share of non-performing loans of OTP's overall consolidated loan stock, or the NPL ratio, is likely to peak in one of the coming quarters, Bencsik added.

Write to Margit Feher at margit.feher@dowjones.com