By Margit Feher

BUDAPEST--OTP Bank Nyrt. (OTP.BU), Hungary's largest bank by assets and market share, has the financial strength and is ready to expand considerably, but demand for loans continues to remain slack in central and Eastern Europe, a top OTP executive said Friday.

OTP, which has operations throughout the region including Ukraine and Russia, has EUR6 billion in liquidity reserves while its debts that are maturing this year and will need to be renewed only amount to EUR300 million, Laszlo Bencsik, deputy chief executive, said at a press conference after the company released its fourth-quarter earnings.

"We are keen and prepared to finance a much more significant expansion, neither our liquidity or capital adequacy are an obstacle. The only obstacle is the lack of demand for loans," Mr. Bencsik said.

OTP projects that lending will swing into an increase, even if a slight one, this year from last year's decline, he added. OTP will continue to focus on consumer lending throughout the region and lending to small and medium-size companies, agricultural firms in particular in Hungary, he added. It forecasts a 5% rise in operating costs, at a rate in line with last year's increase, as it expects lending will recover slightly, he said.

OTP projects that risk provisioning for possible loan losses will be less this year than last year because it expects a slow down in the deterioration of its loan portfolio. OTP's provisions totaled 131 billion ($569.9 million) in the first half and HUF91 billion in the second half of last year. OTP expects provisions for the whole of 2013 won't rise from the level seen in the second half of last year if the forint's exchange rate remains relatively stable and in the absence of shocks, Bencsik said.

A euro-forint rate of HUF310-320 or above would be a problem for a huge number of Hungarian households and companies indebted in a foreign currency, he added. OTP bases its 2013 earnings targets on an EUR/HUF exchange rate of HUF290-295, and levels of HUF298-299 for a limited period of time wouldn't be a problem for the quality of its loan portfolio, he added.

But levels of HUF310-320 or higher "would be a different world," Mr. Bencsik said. The last time the EUR/HUF was at HUF310, in January 2010, retail borrowers with loans tied to the Swiss franc defaulted in large numbers, he warned. The EUR/HUF was trading at 298.36 mid-morning Friday.

OTP said earlier in the day that group net profit was HUF26.15 billion in the fourth quarter, compared with a year- earlier net loss of HUF25.84 billion - the latter was caused by retail foreign-currency mortgage loan repayments and the booking of a special bank tax.

The latest fourth-quarter net profit was well below the HUF30.0 billion profit forecast in a poll of 18 analysts provided by the company as provisioning for expected loan losses was higher than analysts had forecast.

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

Subscribe to WSJ: http://online.wsj.com?mod=djnwires