OTP Group: first nine months 2023 results

OTP Group posted HUF 281 billion profit after tax in 3Q 2023. The q-o-q 26% drop was to a great extent due to the negative balance of adjustment items (2Q: +HUF 98.1 billion, 3Q: -HUF 26.5 billion). At the same time total income demonstrated further improving dynamics, while risk costs remained benign. The quarterly figures already incorporated the performance of Ipoteka Bank in Uzbekistan.

In 3Q 2023 adjustment items were a drag on the consolidated profit after tax by around

-HUF 26.5 billion.

The major items were as follows:

• -HUF 24.1 billion effect of acquisitions (after tax), o/w -HUF 13.2 billion (after tax) was induced by the adjustment of badwill related to the acquisition of Ipoteka Bank; according to the accounting standards, the badwill can be adjusted within one year following the transaction. Furthermore, mainly the Slovenian integration costs (-HUF 7.4 billion) appeared on this line;
• -HUF 7.1 billion as of the expected negative impact of the rate caps introduced in October in Serbia effective till the end of 2024 for existing and newly originated mortgages was booked in 3Q in one sum;
• +HUF 4.3 billion (after tax) related to the OTP-MOL treasury share swap agreement as MOL paid dividend in July.

Thus, in the first nine months of 2023 OTP Group posted HUF 857.9 billion profit after tax (almost quadrupling y-o-y).

Both the quarterly and 9 months profit after tax, as well as the balance sheet items were distorted by the currency moves: in 3Q the closing rate of the Hungarian Forint weakened against all Group currencies typically by 5-6%, but the Russian RUB; its average rate depreciated by around 3% q-o-q.

The 9 months moves were extraordinary in case of UAH and RUB: the Ukrainian UAH average rate against the Hungarian Forint dropped by 18%y-o-y, whereas the RUB by 20%, respectively.

In 3Q 2023 the consolidated adjusted profit after tax reached HUF 307.5 billion (+8% q-o-q), as a result

OTP Group posted HUF 779 billion adjusted profit in the first nine months (+77% y-o-y). The 3Q adjusted ROE reached 32.2% (-1.3 pps q-o-q) and the 1-9M adjusted ROE was close to 30% (29.8%).

The quarterly results were shaped by the strong income dynamics, while the increase of operating expenses was lower than inflation, and total risk costs remained moderate.

In 3Q the consolidated operating result advanced by 12% q-o-q, and by 43% y-o-y for the first nine months.

During 3Q all geographies were profitable. Out of the individual performances the Bulgarian and Slovenian subsidiaries excelled themselves. For most of the subsidiaries the first nine months profit after tax already exceeded the whole year net results in the previous year. Foreign subsidiaries’ adjusted profit contribution reached 66% in 1-9M (+24 pps y-o-y). As for the Slovenian operation the profit after tax for 1-9M already exceeded HUF 88 billion including 8 months contribution from Nova KBM. The Uzbek Ipoteka Bank had a moderate HUF 0.2 billion profit in 3Q: during the quarter operating results reached HUF 21.4 billion, but that was offset by a similar amount of risk costs related mainly in relation to the corporate segment.

The consolidated 3Q NIM improved by 19 bps q-o-q reaching 3.96%.

Quarterly operating expenses increased by 5% q-o-q but remained stable on an FX-adjusted basis and without the acquisition of Ipoteka Bank. The consolidated 3Q cost-to-income ratio dropped below 40% (39.2%), thus the 1-9M ratio was 42.6% underpinning an almost 4 pps y-o-y improvement, as a result of the y-o-y 58 bps improvement of the income margin (getting close to 5.9%).

The amount of consolidated total risk costs was moderate, -HUF 3.2 billion against a positive balance of HUF 9.5 billion in 2Q.

The nine months risk cost rate was 3 bps versus 73 bps for the whole 2022 year.

The FX-adjusted consolidated performing (Stage 1+2) loan volumes increased by HUF 133 billion or 1% q-o-q and got close to HUF 21,600 billion. In the first nine months the loan portfolio grew by 4% organically. The performing loan book of Ipoteka Bank consolidated in June represented HUF 889 billion (-3% q-o-q).

As for individual Group members, the Bulgarian and Croatian operations demonstrated favourable trends with 2% and 3% q-o-q FX-adjusted volume expansion. The Uzbek and Moldavian subsidiaries suffered volumes drop q-o-q (-3% and -5%, respectively), whereas both the Ukrainian and Russian portfolio grew q-o-q (+2% and +10%, FX-adjusted). In Ukraine the expansion was partially related to a re-classification of previously non-performing volumes, and to a smaller extent to strengthening corporate lending, while in Russia the q-o-q 11% jump in consumer loan volumes was the major driver behind the quarterly expansion.

As for the major segments, the FX-adjusted performing consumer book grew by 6% q-o-q, the leasing volumes by 3%, while the mortgage portfolio by 2%, respectively. The q-o-q 3% decline in the corporate book was explained by the portfolio migration into Stage 3 category at Ipoteka Bank, as well as by the declining Hungarian and Bulgarian volumes.

FX-adjusted deposits grew by 4% q-o-q and got close to HUF 29,000 billion. In 3Q the Russian, Croatian, Serbian, Moldavian and Montenegrin deposit volumes grew the fastest. In Hungary the 3% q-o-q increase was induced by the corporate segment, the retail volumes (with retail bonds) declined by 2%.

The consolidated net loan/(deposit + retail bond) ratio moderated to 74% (-2 pps q-o-q).

The risk profile of the consolidated loan book remined stable in 2023, the major indicators shaped favourably. The Stage 3 ratio under IFRS 9 comprised 4.3% of the gross loans at the end of 3Q 2023, underpinning a 0.1 pp q-o-q increase. Since the Stage 3 ratio practically improved q-o-q at all Group members, the moderate increase was entirely related to the Stage ratio increasing to 8.6% at Ipoteka Bank. At the same time, in 3Q both the Ukrainian and Russian Stage 3 rates improved q-o-q.

The own provision coverage of Stage 3 exposures continued to exceed 60%.

In the case of the Ukrainian and Russian banks OTP management applies a “going concern” approach, however in Russia the management is still considering all strategic options, bearing in mind that any future solution should be strictly within the framework and in accordance with applicable local and international regulations.

At the end of September 2023, the consolidated CET1 ratio under the prudential scope of consolidation according to IFRS was 16.4% (+0.8 pp q-o-q). This equals to the Tier 1 ratio. Consolidated CAR stood at 18.8%.