OTP Group: First half 2018 result

The 1H consolidated accounting profit was HUF 154.6 billion (+16% y-o-y). In 1H adjustment items comprised -HUF 15.6 billion (after tax) of which -HUF 1.4 billion appeared within 2Q accounting profit (after tax). Out of them four items should be mentioned: -HUF 1.8 billion (after tax) acquisition effect related mainly to integration costs at Splitska banka and Vojvodjanska banka; -HUF 187 million related to the Slovakian banking tax; +HUF 476 million (after tax): tax effect related to the recognition and reversal of impairment charges booked in relation to investments in certain subsidiaries; also, at OTP Real Estate Lease there was a goodwill write-off; +HUF 172 million dividends and net cash transfers (after tax).

In 1H 2018 the adjusted after-tax profit at OTP Group exceeded HUF 170 billion (+17% y-o-y).

Net profit of OTP Core (HUF 95.4 billion) increased by 6% y-o-y, 2Q profit reached HUF 56.3 billion, up by 14% y-o-y and 44% q-o-q.

There was an improvement in the Ukrainian (HUF 11.3 billion), Romanian, Serbian and Montenegrin semi-annual net earnings, too. Despite the 5% y-o-y drop in the after-tax profit at DSK bank (HUF 24.1 billion) the Bulgarian operation is the second biggest profit contributor across the Group. The six  months results of the Russian operation (HUF 12.8 billion) already reflects the performance of Touch Bank integrated into the Russian Bank in May. Touch Bank was presented as a separate virtual entity until 4Q 2017; its stand-alone loss for 1H 2018 amounted to HUF 2.9 billion. Without Touch Bank OTP Bank Russia could also demonstrate a y-o-y profit improvement. Out of all subsidiaries it was only the Slovakian one which suffered a marginal loss in 1H. With regard to the semi-annual performance of the Croatian operation two factors should be considered: in the base period Splitska banka’s result was consolidated only from May 2017. Also, in 2Q 2018 further risk provisions were made towards a large Croatian corporate exposure. As a result, in 1H the Croatian operation posted HUF 12.2 billion net profit.

In 2Q 2018 OTP Group realized HUF 90.9 billion after-tax profit (+16% y-o-y, +15% q-o-q), the highest ever quarterly adjusted profit in its history. In 2Q 2018 OTP Group realized HUF 90.9 billion after-tax profit (+16% y-o-y, +15% q-o-q), the highest ever quarterly adjusted profit in its history. Key components of the quarterly improvement: the operating profit grew by HUF 5.7 billion, in the meantime total risk cost (-HUF 2.1 billion) had only a moderate q-o-q increase in absolute terms. Furthermore, within one-off revenues, the impact of the revaluation result of the MOL-OTP treasury share swap agreement explains HUF 7.1 billion from the q-o-q earnings dynamics. The q-o-q HUF 13.6 billion expansion of total income comfortably exceeded the quarterly increase of operating costs (HUF 7.9 billion).

One of the most apparent evidences of the supportive macroeconomic environment is the steady improvement of the credit profile. On one hand the DPD90+ ratio dropped to 8.9%, lower level was last seen in 2Q 2009. Furthermore, the DPD90+ volume growth (adjusted for FX and the effect of sales and write-offs) reached only HUF 8.2 billion (1Q: HUF 7.3 billion) versus the quarterly average of HUF 12.7 billion in 2017 (HUF 7.6 billion without the acquisition impact).

2Q total risk costs amounted to -HUF 2.1 billion. The consolidated risk cost for loan losses was practically zero.

The other important consequence of the favourable operating environment and low interest rates is the continuing and even accelerating increase of the performing loan volumes: in 2Q the FX-adjusted DPD0-90 loan book advanced by 5% q-o-q, as a result in 1H the performing portfolio grew by HUF 556 billion (+8% ytd). Similar to the previous quarter, all credit segments realized volume increase. In absolute terms the biggest volume increase was posted in the large corporate segment followed by the municipality and consumer loan segment. Performing mortgage volumes grew by 2% q-o-q.

As for the major Group members, performing exposures q-o-q expanded by 6% at OTP Core, by 3% at OTP Russia and DSK Bank and by 10% at OTP Ukraine, respectively. Positive volume trends were reasoned by strong disbursement activity supported by higher marketing spending. Within the 2Q selling activity across the Group the Ukrainian and Russian consumer loan disbursement was outstanding (+89% and 30% y-o-y), as well as the Romanian, Croatian and Serbian cash loan origination (+14, 18 and 23% y-o-y), all in local currencies. In case of Croatia and Serbia such good performance was also supported by the wider distribution channels as a result of acquisitions.

The FX-adjusted deposit portfolio grew by HUF 281 billion ytd. The strongest deposit inflow was registered at OTP Core and DSK Bank, whereas the Ukrainian subsidiary suffered a moderate outflow during the last six months.

It was positive that the net loan/(deposit + retail bonds) ratio increased by 3 pps q-o-q and pierced 71%.

Similar to previous periods OTP Group maintained a strong and safe liquidity position Total liquidity reserves of OTP Bank remained steadily and substantially above the safety level. As of 30 June 2018 the gross liquidity buffer was around EUR 7.6 billion equivalent.

By the end of June 2018 the consolidated Common Equity Tier1 ratio under IFRS was 14.6% (-0.4 pp q-o-q and +0.5 pp y-o-y).