OTP Bank: 2017 Q1 results

The consolidated accounting profit was HUF 53 billion (+54% y-o-y). In line with the management’s guidance only one material adjustment items appeared in 1Q 2017, namely the banking tax in the amount of HUF 14.7 billion). This amount includes the full-year Hungarian levy booked already in 1Q in a lump-sum, as well as the quarterly part of the Slovakian banking tax.

In 1Q 2017 OTP Group posted HUF 66.8 billion adjusted after-tax profit (+136% q-o-q and +40% y-o-y). Key components of the improvement: on one hand the significant decline in risk costs and the effective tax rate moderated, too, since effective from 1 January 2017 the corporate tax rate in Hungary dropped to 9%. As a result, the consolidated effective tax rate in 1Q 2017 was 12.4%. The consolidated profit before tax exceeded HUF 76 billion (twice as much as in 4Q 2016).

The FX-adjusted consolidated gross loan portfolio was stable q-o-q, but grew by 3% y-o-y. Given the significant volume of sold and written off non-performing exposures, volume trends of performing (DPD0-90) loans give a more realistic picture. Accordingly, DPD0-90 volumes grew by 1% q-o-q and by 8% y-o-y. Within that the performing portfolio at OTP Core advanced by 3.0% q-o-q and by 13% y-o-y; the increase is partly explained by the effect of the companies being consolidated into OTP Core from 1Q 2017. Also, in Croatia the performing book also increase (+3%), true, due to asset re-classification. On yearly basis, apart from the Hungarian book, the increase in Russia (5.6%), Bulgaria (4.4%), Croatia (7.4%) and Serbia (14.6%) is worth mentioning. It was positive that at Touch Bank one could see a material q-o-q pick up in loan volumes.

As for the credit quality trends, the development of DPD90+ volumes gives a comprehensive picture:

DPD90+ volume growth (adjusted for FX and the effect of sales and write offs) reached only HUF 3.4 billion. The biggest inflow was registered in Russia (HUF 8.3 billion), but even this amount fell short of the quarterly average of HUF 12 billion in 2016. At the same time DPD90+ volumes declined in Hungary, Bulgaria and even in Ukraine. The consolidated DPD90+ ratio declined to 14.1% (-0.6 pp q-o-q). In 1Q altogether HUF 40 billion non-performing portfolio was sold or written off (FX-adjusted). The ratio of total provisions to DPD90+ volumes went up to 98.8% (+2.0 pps q-o-q).

Total risk cost dropped to HUF 12.5 billion in 1Q 2017, within that provisions for loan losses dropped by two third q-o-q. In 1Q the consolidated risk cost rate melted down to 65 bps (-115 bps q-o-q).

The FX-adjusted deposit book declined by 1% q-o-q. Out of the major Group members OTP Core and

Russia suffered outflows (-1% and -7% respectively), on the other hand the Bulgarian and Ukrainian deposits grew (+2% and +3%). As a result the consolidated net loan-to-(deposit+retail bonds) ratio increased by 1 pp and reached 68%.

The adjusted after tax profit of OTP Core(basic activity in Hungary) reached HUF 40.8 billion in 1Q 2017, underpinning a 72% q-o-q increase (+41% y-o-y), despite the 1Q decline of total income. The operating profit advanced by 17% q-o-q: the lower quarterly total income (-1% q-o-q) was more than offset by 12% lower operating expenses.

Out of the 1Q consolidated net earnings 67% was made by the Hungarian operation. The highest profit was achieved by OTP Core (HUF 40.8 billion), the second best by DSK Bank (HUF 13.4 billion), followed by the Russian and Ukrainian subsidiaries (HUF 7.6 and 3.3 billion, respectively). The Romanian subsidiary posted HUF 1.3 billion profit, its second best quarterly earnings on record. The Slovakian, Serbian and Montenegrin subsidiaries realized altogether HUF 0.2 billion profit. The Croatian subsidiary turned into red (-HUF 1.9 billion) as a result of provisions made on a significant corporate exposure. Similar to previous quarters Touch Bank posted a loss again (HUF 2.3 billion).

At the end of 1Q 2017 the Group’ liquidity position was comfortably stable: operative liquidity reserves comprised EUR 8.3 billion equivalent. By the end of March 2017 the consolidated Common Equity Tier1 ratio under IFRS was 16.0% (+2.5 pp q-o-q). OTP Bank’s standalone Common Equity Tier1 ratio stood at 29.5% in March 2017.