OTP Group: full year 2020 results

The full-year 2020 consolidated adjusted after tax profit exceeded HUF 310 billion (-26% y-o-y). The adjusted ROE stood at 13%.

Since the after-tax results were heavily distorted by the volume of total risk costs (HUF 188 billion related mainly to the pandemic situation), general trends are better illustrated and easier compared to base periods through the development of operating income. In 2020 OTP Group posted HUF 537.4 billion consolidated operating income underpinning a 5% y-o-y increase (-4%, without acquisitions, FX-adjusted). Total income increased dynamically (+9% y-o-y) with net interest income surging by 12% y-o-y, while net fees & commissions grew at a slower pace (+4%) and other net non-interest income remained flat y-o-y. The weaker increase in net fees & commissions on one hand was shaped by a drop in business activity in the first half of the year induced by the pandemic, and also by a lower success fee income compared to a record high performance in 2019 at OTP Fund Management (Hungary).

The consolidated NIM eroded substantially (2020: 3.61%, -50 bps y-o-y) due to several reasons: on one hand the interest rate environment declined substantially in a couple of countries (Russia, Ukraine, Romania, Serbia); furthermore, new subsidiaries consolidated into OTP Group usually operated with lower margins than the Group as a whole. Also, as a side-effect of the pandemic, demand for the higher margin consumer loans dropped, while the competition intensified. That was only partially offset by the positive impact of FX rate moves related to weaker HUF. The annual net interest income adjusted for acquisitions effects grew by 2% y-o-y (FX-adjusted), because of higher performing loan volumes.

Except the Moldovan operation, adjusted earnings declined everywhere across the Group y-o-y. Out of the adjusted annual profit the contribution of the non-Hungarian operations dropped from 46% to 41%. The adjusted operating profit for 4Q reached HUF 78.6 billion; only the Montenegrin and Moldavian subsidiaries, as well as OTP Fund Management managed to improve after tax profit q-o-q. For the rest of the Group, but OTP Core quarterly net earnings dropped because of higher provisions; in Hungary the seasonally higher operational expenses took their toll on 4Q profit.

Out of the adjusted profit the contribution of foreign operations melted down to 21% in 4Q, as the Croatian, Serbian and Romanian subsidiaries all turned into red.

In 4Q OTP Group posted HUF 140 billion operating income, q-o-q practically flat. The 4% q-o-q increase in total income to a large extent was shaped by surging fee & commissions income (+12% q-o-q) on the back of the HUF 7.3 billion success fees booked at the end of the year at OTP Fund Management (Hungary), but also by seasonally strong business activity. The quarterly NII increased by 1% q-o-q. Other net non-interest income advanced by 10% q-o-q shaped by OTP Core (better FX gains) and other Hungarian subsidiaries. Operating expenses grew by 8% q-o-q with all cost lines moving higher.

Following a 3% quarterly increase in 3Q, the FX-adjusted performing loan portfolio (Stage 1+2) advanced by similar space in 4Q, adjusted for the sale of the Slovakian subsidiary. As a result, in 2020 the organic loan volume growth was 9% (+HUF 1,129 billion). The closing balance did not comprise the Slovakian loan book (comprising HUF 405 billion at the end of 2019) as the bank was sold in November 2020. Apart from Russian loan book where the y-o-y drop exceeded 10%, and the marginal decline of the Slovenian portfolio, all other Group members demonstrated growth. Out of the major Group members the Hungarian (+17%), Serbian (+16%), Romanian (+13%) and Ukrainian (+11%) organic loan expansion rates were the most remarkable. In Hungary the excellent volume dynamics were coupled with improving market share in most of the loan categories. As a result of the seasonally strong 4Q performance the Russian loan book, which suffered significant setback in previous quarters, declined by 11% in 2020.

As for the major credit categories in 2020 the FX-adjusted Stage 1+2 micro and small enterprise book advanced organically the fastest y-o-y (+11%), followed by the mortgage loan portfolio (+10%), the consumer exposures (+9%) and the large corporate book (+8%). Regarding 4Q developments, out of the major operations the Russian loan book increased by 9% q-o-q, the Ukrainian by 8%, whereas the Hungarian and Serbian portfolio grew by 4 and 3%, respectively.

The consolidated loan portfolio quality – partly due to the existing or extended payment moratoria – remained stable in 4Q: the DPD90+ volume growth (adjusted for FX and the effect of sales and write-offs, as well as for the revaluation of Factoring claims in Hungary) decelerated significantly and in 4Q it even decreased (in HUF billion: 1Q: +27, 2Q: +56, 3Q: +5, 4Q: -3). The consolidated DPD90+ ratio declined below 4% (4Q: 3.8%, -0.3 pp q-o-q). The Stage 1+2 exposures (HUF 13,544 billion) comprised 94.3% of total gross loans. Within that Stage 1 loans represented 80.4% of total gross loans and the Stage 2 ratio was 13.9%. The Stage 3 ratio under IFRS 9 was 5.7% at end 4Q (+7 bps q-o-q, -22 bps y-o-y). The own coverage of Stage 1, 2 and 3 exposures were 1.0%, 10.4% and 62.3%, respectively.

The FX-adjusted deposit portfolio grew by 4% q-o-q and by 10% y-o-y. Such yearly increase translated into more than HUF 2,000 billion deposit volume surge (already adjusted for the Slovakian deposit volumes). Out of the major operations the Ukrainian, Romanian, Hungarian, Slovenian and Serbian subsidiaries captured double digit volume increase. The consolidated net loan-to-deposit ratio declined to 76% q-o-q.

At the end of 4Q 2020 the gross operative liquidity reserves of the Group comprised EUR 8.9 billion equivalent (+EUR 1.7 billion q-o-q).

At the end of December 2020, the consolidated Common Equity Tier 1 ratio under IFRS was 15.4%. This ratio equals to the Tier 1 ratio.