OTP Group: HUF 28.3 billion adjusted profit in 1Q 2015

OTP Group posted HUF 28.3 billion adjusted profit in 1Q 2015 which means a 20% decline y-o-y, but massively exceeds the previous quarter. The significant quarterly improvement is reasoned mainly by lower risk costs, but the operating profit also improved by 8%.

The quarterly accounting profit was HUF 1.9 billion versus a profit of HUF 10.9 billion in the previous quarter and HUF 5.9 billion in 4Q 2014. In 1Q 2015 the total volume of adjustments amounted to -HUF 26.4 billion. The most important adjustment items were the special banking tax imposed on the Hungarian and Slovakian banks (HUF -28.7 billion), provisions were made on the OTP Life Annuity Ltd portfolio which had a negative impact of HUF 5.5 billion (after tax), the raised provision coverage of the gross loan exposures to Donetsk and Luhansk (HUF -1.2 billion). Positive impacts were the HUF 7.4 billion item by the law modification related to the Hungarian consumer loans in 1Q, and the HUF 1.6 billion badwill related to the closing of the acquisition of Romanian Banca Millennium.

Operating expenses dropped by 12% on a quarterly level. At all major Group members there was a substantial decline – 8% at OTP Core, 18% at DSK Bank, 21% at OTP Russia and 38% at OTP Ukraine respectively.

Within consolidated adjusted earnings there has been a material geographical re-allocation of profits: OTP Core posted HUF 29.4 billion, while DSK Bank reached its best ever quarterly result HUF 17.6 billion respectively. Also, all smaller subsidiaries posted positive bottom line result, their total profit contribution represented HUF 1 billion. On a quarterly base the Ukrainian losses dropped a lot: the local subsidiary suffered a loss of HUF 10.2 billion without the East Ukrainian adjustment items, with them the total loss represented HUF 11.3 billion. The Russian subsidiary posted HUF 11.4 billion negative result.

The FX-adjusted consolidated loan portfolio declined by 4% on quarterly and by 10% on yearly basis. Apart from the SME sector all product segments suffered setbacks. While in 1Q volume trends were less so distorted by write offs, overall quarterly volumes were influenced by the settlement and conversion process at OTP Core.

As for the yearly changes in the last 12 months HUF 238 billion non-performing loan volumes were written off in total, mainly at OTP Core, DSK, OTP Bank Russia and OTP Bank Ukraine. Furthermore, a significant portion of the municipality exposures were taken over by the State and later they were prepaid (with a total amount of HUF 79 billion). Also, the settlement had negative impact on overall volumes (with a total amount of HUF 178 billion).

The FX-adjusted deposit volumes stagnated on quarterly, but advanced dynamically on a yearly base (+12%). Out of the major Group members volumes advanced by 9% at OTP Core, by 6% in Russia, by 4% in Ukraine and by 13% at DSK Bank respectively. In 1Q only the Bulgarian deposits increased (+1%), whereas in Russia and Ukraine there was a deposit outflow (2% and 8% respectively).The consolidated net loan to (deposit+retail bonds) ratio dropped to 73% (-15 ppts y-o-y).

OTP Group kept its robust liquidity and solid capital position: by the end of March the gross liquid reserves of the Group exceeded EUR 8 billion equivalent. By the end of 1Q 2015 the Basel3 consolidated Common Equity Tier1 ratio under IFRS was 13.0%.