OTP Group: 2017 3Q results

The consolidated accounting profit was HUF 79.3 billion in 3Q 2017 (-2% q-o-q). During the last three months the following adjustment items appeared: HUF 189 million negative tax effect related to the reversal of impairment charges booked in relation to OTP Mortgage Bank; HUF 155 million (after tax) in relation to the Splitska banka transaction on the Effect of acquisitions line; the quarterly Slovakian banking tax (-HUF 162 million after tax); HUF 302 million dividends and net cash transfers (after tax). As a result, the total amount of adjustment items within 3Q 2017 accounting profit represented -HUF 0.2 billion (after tax).

In 3Q 2017 OTP Group posted HUF 79.5 billion adjusted after-tax profit (+2% q-o-q), as a result the 9M profit grew to HUF 224.6 billion (+30% y-o-y).

The favourable trends already manifested in case of performing loan volumes continued: the DPD0-90 portfolio grew by HUF 168 billion, or +3% q-o-q (+23% y-o-y, FX-adjusted). Adjusted for the AXA and Splitska deals the annual increase would demonstrate a 10% organic growth. In 3Q all major segments within the FX-adjusted performing loan portfolio increased: the retail book grew by 2% q-o-q (within that the mortgages by 1% and consumer loans by 4%), while the corporate exposures advanced by 3%.

Out of individual performances OTP Core excelled itself with a y-o-y performing volume increase of 18% (including AXA; without AXA the increase would have been +12% y-o-y), and of course the Croatian operation supported by Splitksa (+156%, without it +7%). It was also encouraging that both the Russian and the Ukrainian operations managed to boost their performing book organically (+19% and +15% y-o-y, respectively).

As for the credit quality trends, the development of DPD90+ volumes gives a comprehensive picture: DPD90+ volumes (adjusted for FX and the effect of sales and write-offs) grew by HUF 18 billion in 3Q, against almost HUF 17 billion in 2Q (without the one-off technical effect of Splitska consolidation). The biggest inflow was registered in Croatia (HUF 13.7 billion), where the volume increase was related mainly to several corporate exposures falling into default. In Russia the DPD90+ volumes grew by HUF 8.7 billion, but even this amount fell short of the preceding quarters’ average. Similar to 1Q DPD90+ volumes declined again in Hungary and Ukraine, whereas in Bulgaria the increase was marginal.

The 3Q consolidated DPD90+ ratio declined to 11.2% (-1.0 pp q-o-q). In 3Q non-performing loans were sold or written -off in the amount of altogether HUF 41.7 billion (FX-adjusted). The ratio of total provisions to DPD90+ volumes stood at 96.2% (-1.5 pps q-o-q).

Total risk cost dropped to HUF 4.3 billion in 3Q 2017 - a record low level for years -, within that provisions for loan losses dropped to one-seventh q-o-q, while other provisions remained almost flat. In 3Q the consolidated risk cost rate melted down to 5 bps (-30 bps q-o-q); 9M risk cost rate was 0.34%.

The FX-adjusted deposit book grew by 5% q-o-q. Out of the major Group members the Russian, Bulgarian, Croatian operations, as well as OTP Core enjoyed a decent inflow (+11, 6-6 and 5%, respectively). As a result the consolidated net loan-to-(deposit+retail bonds) ratio decreased by 1 pp q-o-q and reached 69%.

The adjusted after tax profit of OTP Core (basic activity in Hungary) reached HUF 46.7 billion in 3Q 2017, underpinning a 5% q-o-q decrease. The quarterly operating profit (without one-offs) dropped by 16% q-o-q: the lower total income and higher operating expenses were only partly offset by the q-o-q growing amount of provision releases. 9M profit of HUF 136.9 billion exceeded the base period by 39%. The after tax profit was positively affected by the decrease of the effective Hungarian corporate tax burden: the 9M profit before tax improved by 25% y-o-y.

The profit contribution of foreign subsidiaries remained practically flat q-o-q and represented 35%. Their performance was shaped on one hand by the declining interest rate environment, improving risk profile and also by the reviving business activity and increasing performing loan volumes on the other. In 3Q q-o-q performance improved in Ukraine, Romania, Montenegro and Serbia, quarterly profits  declined at the Bulgarian, Croatian and Russian subsidiaries and Slovakia and Touch bank remained in red.

At the end of 3Q 2017 the Group’ liquidity position was comfortably stable: liquidity reserves comprised EUR 7.9 billion equivalent. The q-o-q HUF 0.7 billion increase was related to the liquidity generation by the business lines across the Group. By the end of September 2017 the consolidated Common Equity Tier1 ratio under IFRS was 13.7% (-0.4 pp q-o-q). OTP Bank’s standalone Common Equity Tier1 ratio stood at 28.1% in September 2017 (practically flat q-o-q).