OTP Group: 2019 Q1 results
1Q 2019 consolidated accounting after tax profit was HUF 72.6 billion (+12% y-o-y) versus HUF 65 billion in the base period. The accounting ROE was 15.9% (-0.3 pp y-o-y), whereas the adjusted ROE stood at 19.8%. The total volume of adjustment items (after tax) in 1Q represented -HUF 17.8 billion. The two material items were as follows: -HUF 15.2 billion banking tax paid by the Hungarian and Slovakian subsidiaries (after tax); -2.8 billion effect of acquisitions (after tax).
In 1Q 2019 OTP Group posted HUF 90.4 billion adjusted after-tax profit underpinning a 14% y-o-y increase. The profit already incorporated the net results of Express Group (the bank and also the leasing and factoring units) with HUF 5.2 billion. Adjusted for that the y-o-y increase would be 8%.
Within consolidated adjusted after tax profit the contribution of OTP Core was HUF 39.9 billion, DSK Bank including Express Group generated HUF 17.3 billion, and the subsidiaries in Ukraine (HUF 8.3 billion), Croatia (HUF 8.2 billion) and Russia (HUF 6.6 billion) excelled themselves. On a yearly base OTP Core, the Bulgarian, Ukrainian, Croatian and Serbian subsidiaries managed to improve their quarterly earnings (Ukraine, again had an outstanding growth of 42% y-o-y), the Russian profit, however, dropped y-o-y. DSK Bank also managed to improve its profit y-o-y, even without Express Group. As for other subsidiaries, the Leasing and Fund Management units delivered stable profits (HUF 2.6 and 1.0 billion, respectively), the Montenegrin subsidiary also improved its bottom line earnings, whereas the Romanian and Slovakian ones suffered a setback in quarterly profit y-o-y. As a result, the profit contribution of foreign subsidiaries increased from 46% to 50% y-o-y.
the Stage 1+2 portfolio advanced by 12% q-o-q, by more than HUF 955 billion (FX-adjusted). Within the increase Express Group contributed HUF 755 billion and the Albanian subsidiary HUF 115 billion, respectively. As a result, the FX-adjusted organic volume growth was 1% q-o-q (+HUF 84 billion) due to the seasonally weaker start to the year. Using the DPD0-90 performing category the organic growth would demonstrate a 14% y-o-y and 1% q-o-q increase (FX-adjusted). Regarding the individual performances in q-o-q Stage 1+2 volume changes, the Ukrainian, Bulgarian, Romanian, Serbian and Montenegrin operations demonstrated portfolio growth, whereas OTP Core, Russia and Croatia remained practically flat, and the Slovakian exposures decreased. The quarterly stagnation at OTP Core is partially explained by a technical factor: from 1Q 2019 the volumes of OTP Real Estate Lease were shifted to the Other Hungarian subsidiaries. Such move had a negative impact of around HUF 18 billion in Stage 1+2 volumes (mainly mortgages). Furthermore, the medium and large corporate exposure which demonstrated a spectacular growth during the last three years eroded by 2% q-o-q.
As for the major credit categories in 1Q the Stage 1+2 consumer book grew the fastest (+3%, without acquisitions), the large corporate portfolio increased by 2% q-o-q and the mortgage exposure by 1% (FX-adjusted). Regarding the disbursement activity y-o-y the Bulgarian (consumer and mortgage), the Ukrainian (consumer), the Croatian (cash loan), the Romanian (mortgage) and the Serbian and Montenegrin (corporate) lending activities were the strongest. On a q-o-q base Bulgaria (consumer), Croatia (cash loan) and Montenegro (corporate) are worth mentioning.
In line with the improving macroeconomic environment and the steadily good recovery results of the work-out activity, the DPD90+ volume growth (adjusted for FX and the effect of sales and write offs) continued to demonstrate a favourable trend: in 1Q 2019 they grew by HUF 22 billion, of which HUF 9 billion was related to the consolidation of Express Group. The DPD90+ ratio dropped to 5.9% (-0.5 pp q-o-q). Stage 1+2 volumes comprised HUF 8,959 billion, their ratio to total gross loans was 91.8%, of which the Stage 1 ratio stood at 85.5% and Stage 2 at 6.3%, respectively. By the end of 1Q 2019 Stage 3 rate was 8.2% (-0.4 pp q-o-q); the own provision coverage of Stage 3 loans was 65%. The consolidated risk cost rate was 24 bps (-44 bps q-o-q, 2018 average: 23 bps)
In 1Q the FX-adjusted deposit portfolio grew by 10% q-o-q as a result of the newly consolidated Bulgarian and Albanian entities, without them volumes were flat. The consolidated net loan-to-deposit ratio grew q-o-q and exceed 73%.
At the end of 1Q 2019 gross operative liquidity reserves comprised EUR 8.4 billion equivalent.
At the end of March 2019 the consolidated Common Equity Tier1 ratio under IFRS – including the quarterly net result less dividend – was 14.9%. This ratio equals to the Tier1 ratio.