Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — OTP Bank — Q4 2017 Earnings Presentation
58 slides from Otp Bank Nyrt's earnings presentation, 2018
Slide 1: OTP Group Investor presentation based on 4Q 2017 results
OTP Group Investor presentation based on 4Q 2017 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-15 4Q 2017 Financial Performance of OTP Group 17-48 Macroeconomic overview 50-56 2
Slide 3: Key pillars of the OTP investment rationale
Key pillars of the OTP investment rationale 1. Unique diversified access to the CEE/CIS banking sector Return on Equity has returned to attractive levels (>15%) since a new era of structurally low risk 2. environment has commenced Accelerating loan growth: on top of strong organic performing loan ex
Slide 4: OTP Group offers universal banking services to almost 15.5 million customers in 9 countries
OTP Group is offering universal banking services to almost 15.5 million customers in 9 countries across 1. the CEE/CIS Region Major Group Members in Europe Total Assets Systemic position in Hungary… Montenegro 4Q 2017 market share (%) Ukraine Serbia Slovakia 2% 4% Total assets 26 Russia OTP Bank Rus
Slide 5: OTP Group's Capabilities
OTP offers a unique investment opportunity to access the CEE banking sector. 1. The Bank is a well diversified, transparent player without strategic investors Market capitalization: EUR 10.3 billion1 Total number of ordinary shares: 280,000,010, each having a nominal (Q-o-Q Ownership structure of OT
Slide 6: The net loan book is dominated by Hungary and tilted to secured retail lending
The net loan book is dominated by Hungary and tilted to secured retail lending; 1. around 85% of the total book is invested in EU countries with stable earning generation capabilities Breakdown of the consolidated net loan book OTP Core1 (Hungary) DSK Bank (Bulgaria) (in HUF billion) Car-financing M
Slide 7: In the deposit book Hungary and the retail segment is dominant
In the deposit book Hungary and the retail segment is dominant. 1. In Hungary and Bulgaria OTP and DSK are the largest retail deposit holders Breakdown of the consolidated deposit base OTP Core (Hungary) DSK Bank (Bulgaria) (in HUF billion) Corporate Retail sight Corporate Retail sight By countries
Slide 8: Return on Equity has returned to attractive levels
2. Return on Equity has returned to attractive levels Consolidated ROE1, accounting (%) ROE based on 12.5% CET1 ratio2 24.8 22.4 17.6 13.4 9.4 8.4 6.1 4.2 5.1 15.4 18.5 -7.4 Opportunity cost-adjusted3 consolidated accounting ROE over the average 10Y Hungarian government bond yields (%) 16.6 15.6 12.
Slide 9: The accounting ROE has been growing steadily since 2015
The accounting ROE has been growing steadily since 2015 on the back of moderating provision charges 2. and vanishing negative adjustment items; the total revenue margin has been relatively resilient 2009 2010 2011 2012 2013 2014 2015 2016 2017 Accounting ROE 13.4% 9.4% 6.1% 8.4% 4.2% -7.4% 5.1% 15.4
Slide 10: The credit quality indicators kept further improving
The credit quality indicators kept further improving. The ratio of consolidated DPD90+ loans dropped 2. below 10% Receding DPD90+ loan volume formation The consolidated risk cost for possible loan losses (consolidated, adjusted for FX and sales and write-offs, in HUF billion) has moderated substanti
Slide 11: In Hungary the retail loan penetration ratios halved since 2010
In Hungary the retail loan penetration ratios halved since 2010 and returned to the levels before the 3. lending boom Market penetration levels in Hungary in ... (in % of GDP) 30.2 Slovakia housing loans 24.3 Czech Republic 14.5 15.2 16.3 15.1 20.9 Poland 11.2 12.4 12.4 11.1 10.2 10.4 8.9 8.4 9.5 Bu
Slide 12: Turnaround in loan volumes, while deposits have been growing steadily
Following the contraction in the previous years, the last two years brought a spectacular turnaround in 3. loan volumes, while deposits have been growing steadily reflecting our clients' trust in the Bank Y-o-Y performing (DPD0-90) loan volume changes 1 (adjusted for FX-effect, %) Consolidated OTP C
Slide 13: Acquisitions completed in 2017 in Croatia and Serbia increased market shares
Due to the acquisitions completed in 2017 in Croatia and Serbia, OTP’s market shares increased 3. substantially, with loans and deposits expanding several-fold in both countries Croatia - Splitska banka Serbia - Vojvodjanska banka Market share Number of branches Market share Number of branches 11.6%
Slide 14: Strong capital and liquidity position make room for growth and acquisitions
Strong capital and liquidity position coupled with robust internal capital generation make room for strong 4. organic growth, further acquisitions and growing dividend payment Development of the fully loaded CET1 ratio1 of OTP Group Net liquidity reserves (in EUR billion equivalent) (Including unaud
Slide 15: OTP Bank is the market leader in all direct channels in Hungary
5. OTP Bank is the market leader in all direct channels in Hungary More than ~220 thousand 1 million regular users monthly2 users monthly2 Monthly ATM cash ~210 thousand withdrawals in the contacts amount of monthly1 HUF ~280 billion1 1 Based on 2Q 2017 data 2 Based on 4Q 2017 data 15
Slide 16: Content
Content Investment Rationale 3-15 4Q 2017 Financial Performance of OTP Group 17-48 Macroeconomic overview 50-56 16
Slide 17: The accounting result grew by 39% in 2017
The accounting result grew by 39% in 2017, while the adjusted profit increased by +41%. The adjustment items were not significant in 2017 After taxforintban) (milliárd profit development (in HUF billion) Accounting profit after tax Adjusted profit after tax +39% 281.3 +41% 284.1 202.5 201.2 2016 201
Slide 18: Elements of the management guidance for 2017 were typically met
Elements of the management guidance for 2017 were typically met, in some cases with significant overperformance Management guidance for 2017 2017 Fact 1. ROE based on 12.5% CET1 ratio >15% 22.4% 2. Performing loan portfolio (without acquisition effect) 3% < 2017E < 10% +10% 3. NIM erosion (witho
Slide 19: Annual adjusted profit growth of 41% driven by OTP Core and Splitska
The annual adjusted profit growth of 41% was driven mainly by the improving performance of OTP Core and the Splitska acquisition. The quarterly profit decline was mostly due to the weaker contribution from OTP Core (in HUF billion) 2016 2017 Y-o-Y 4Q 16 3Q 17 4Q 17 Q-o-Q Y-o-Y Consolidated adjusted
Slide 20: In 4Q 2017 two larger adjustment items emerged
In 4Q 2017 two larger adjustment items emerged with an aggregated positive effect of HUF 8.9 billion (in HUF billion) 2016 2017 Y-o-Y 4Q 16 3Q 17 4Q 17 Q-o-Q Y-o-Y Consolidated after tax profit (accounting) 202.5 281.3 39% 26.5 79.3 68.5 -14% 159% Adjustments (total) 1.3 -2.7 -1.8 -0.2 8.9 Dividends
Slide 21: Annual total revenues and net interest income increased
The annual total revenues and within that net interest income increased even without the Splitska-effect. Core banking revenues grew on a quarterly basis, offset by the seasonal increase of operating costs and total risk costs 2017 w/o (in HUF billion) 2016 2017 Y-o-Y Y-o-Y 4Q 16 3Q 17 4Q 17 Q-o-Q Y
Slide 22: Miscellaneous: IFRS 9 impact
Miscellaneous The preliminary estimate for the impact of implementing the IFRS 9 standards, including the deferred tax effect, on the retained earnings is around -HUF 50 billion in the opening consolidated balance sheet as of 1 January 2018. OTP Bank opted to apply transitional rules (phase-in), i.e
Slide 23: Total income showed a strong 9% growth in 2017
Total income showed a strong 9% growth in 2017, driven by OTP Core, Russia and the Splitska acquisition. Effect of The q-o-q increase was mostly due to Russia, Vojvodjanska and the seasonal Fund Management fee income acquisitions TOTAL INCOME 2017 4Q 2017 2017 Y-o-Y 4Q 2017 Q-o-Q 1 without one-off i
Slide 24: Annual net interest income benefited from the Splitska acquisition
The annual net interest income benefited from the Splitska acquisition, but stronger Russian contribution Effect of played a role, too. In 4Q 2017 one-off items influenced the NII path at the Core and Romanian division acquisitions 2017 4Q 2017 2017 Y-o-Y 4Q 2017 Q-o-Q 1 The annual NII of OTP Core N
Slide 25: Consolidated performing loans increased by one-quarter over 12 months
Consolidated performing loans increased by one-quarter over the last 12 months (+6% q-o-q), fuelled also by acquisitions; the organic growth surpassed 10% in 2017, of which 3% materialized in the last quarter. At OTP Core mortgages turned into growth mode. In Russia the q-o-q loan growth reached 12%
Slide 26: Y-o-Y change of new disbursements 2017
Retail loan disbursement showed strong dynamics in 2017 at OTP Core and almost all foreign subsidiaries Y-o-Y change of new disbursements (in local currency) – 2017 Core DSK OBRu OBU OBR OBH OBS OBSr CKB (Hungary) (Bulgaria) (Russia) (Ukraine) (Romania) (Croatia) (Slovakia) (Serbia) (Montenegro) Mor
Slide 27: Consolidated deposit base increased by 21% y-o-y
The consolidated deposit base increased altogether by 21% y-o-y, the 8% organic growth (without Splitska and Vojvodjanska) was driven by steady inflows in Hungary, but Russia, Ukraine and Serbia performed well, too Q-o-Q deposit volume changes in 4Q 2017, adjusted for FX-effect Total 6% 314% 6% 4%2
Slide 28: Consolidated net interest margin eroded compared to 2016
The consolidated net interest margin eroded by 26 bps compared to the full-year 2016 level, of which around 10 bps can be attributed to the dilution effect of Splitska banka. In 4Q 2017 the NIM contraction decelerated Net interest margin (%) OTP Group 2017 NIM eroded by 26 bps compared to FY 2016 le
Slide 29: Net interest margin development of the largest Group members
At OTP Core the q-o-q widening of net interest margin can be explained by technical factors. Croatia and Ukraine remained broadly stable q-o-q. In 4Q the Romanian margin drop was driven by a one-off accounting correction. The Russian margin diminished over the last quarter due lower interest rates o
Slide 30: Annual net fee income showed decent growth
The annual net fee income showed decent growth, fuelled by OTP Core, Russia and Croatia. The quarterly Effect of increase was induced by the seasonality at Fund Management, the decline at OTP Core was technical acquisitions 2017 4Q 2017 2017 Y-o-Y 4Q 2017 Q-o-Q 1 Az OTP Core the annual growth NET FE
Slide 31: Annual other net non-interest income rose by HUF 10 billion
Effect of The annual other net non-interest income rose by HUF 10 billion, driven by several larger items acquisitions OTHER INCOME 2017 4Q 2017 2017 Y-o-Y 4Q 2017 Q-o-Q 1 The annual other income of OTP without one-off items (HUF billion) (HUF billion) (HUF billion, %) (HUF billion, %) core grew HUF
Slide 32: Operating costs 2017
Operating costs grew by 10% in 2017, whereas without Splitska and Vojvodjanska the increase was 4.6% Effect of on an FX-adjusted basis acquisitions OPERATING COSTS – 2017 Y-o-Y Y-o-Y Y-o-Y Y-o-Y 1 (HUF billion) (HUF bn) (%) (FX-adj., HUF bn) (FX-adj., %) At DSK 2017 operating expenses increased by 1
Slide 33: Annual profit of OTP Core grew by 38%
The annual profit of OTP Core grew by 38% amid moderating corporate tax burden. In 4Q 2017 both NII and OTP Core net fee dynamics were influenced by one-off items, whereas costs and risk costs saw a seasonal increase OTP CORE 2016 2017 Y-o-Y 4Q 16 3Q 17 4Q 17 Q-o-Q Y-o-Y (in HUF billion) Profit afte
Slide 34: Mortgage loan applications and disbursements accelerated in Hungary
Mortgage loan applications and disbursements accelerated further in Hungary. OTP’s market share remained OTP CORE strong in new mortgage and cash loan disbursements, as well as in retail savings Change of mortgage loan applications and disbursements of Performing cash loan volume growth in 2017 (FX-
Slide 35: Corporate business had another successful year in Hungary
Corporate business had another successful year in Hungary: both large and SME exposures posted OTP CORE double-digit expansion Performing medium and large corporate loan volume OTP Group’s market share in loans to Hungarian change (FX-adjusted) companies1 18% 15% 13.8% 14.7% 13.9% 12.4% 13.1% +87% 1
Slide 36: DSK Bank retained its stable profitability
DSK Bank retained its stable profitability (ROE: 20%). Favourable credit quality trends remained intact and DSK Bank Bulgaria NIM erosion moderated in 2017 Income statement Net interest margin (in HUF billion) 4Q 16 3Q 17 4Q 17 Q-o-Q Y-o-Y 5.47% 4.60% 3.85% Profit after tax (adjusted) 4.7 11.3 10.4
Slide 37: Russian profit somewhat declined in 4Q, annual ROE reached 21%
The Russian profit somewhat declined in 4Q, but the annual ROE reached 21%. FX-adjusted performing POS OTP Bank Russia and cash loan volumes as well as corporate loans grew y-o-y due to strong disbursements Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 4Q 16 3Q
Slide 38: OTP Bank Russia: POS and cash loan sales increased in 4Q
In 4Q POS and cash loan sales increased significantly, performing credit card volumes kept growing q-o-q. OTP Bank Russia Deposits grew q-o-q in RUB terms. RUB denominated term deposit rates further declined in 4Q POS loan disbursements (RUB billion) Development of customer deposits (RUB billion) 73
Slide 39: Ukrainian profit improved q-o-q, annual ROE 47.1%
The Ukrainian profit improved q-o-q, the annual ROE (47.1%) was the highest among subsidiary banks OTP Bank Ukraine of the Group. NIM remained broadly stable in 4Q. Performing loan volumes kept growing Income statement Intragroup funding and net loan to deposit ratio (in HUF billion) 4Q 16 3Q 17 4Q
Slide 40: Croatian operation boosted by consolidation of Splitska banka
The 2017 performance of the Croatian operation was boosted by the consolidation of Splitska banka from May. The ROE was the highest in many years OBH (Croatia) Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 4Q 16 3Q 17 4Q 17 Q-o-Q Y-o-Y Mortgage loans 1,048 Prof
Slide 41: Decline of consolidated DPD90+ ratio accelerated
The decline of the consolidated DPD90+ ratio accelerated. The risk cost rate remained at close to multi-year lows despite the seasonal increase in 4Q Consolidated risk cost for possible loan losses and its ratio to Change in DPD90+ loan volumes average gross loans Risk cost for possible loan losses
Slide 42: FX-adjusted DPD90+ formation was zero in 4Q 2017
In 4Q 2017 the FX-adjusted DPD90+ formation was zero. OTP Core saw a significant decline. The Russian inflow was below the quarterly average of the last couple of years. In Serbia the increase was related to take-over of Vojvodjanska’s portfolio FX-adjusted quarterly change in DPD90+ loan volumes (w
Slide 43: DPD90+ ratios declined q-o-q in all key geographies
The DPD90+ ratios declined q-o-q in all key geographies. The annual risk cost rates improved compared to 2016. Provision coverage ratios stood at conservative levels OTP Core DSK Bank OTP Bank OTP Bank OTP Bank Hungary Bulgaria Croatia Russia Ukraine Risk cost for possible loan losses / Average gros
Slide 44: DPD90+ ratios decreased at the largest operations
At the largest operations the DPD90+ ratios decreased q-o-q, supported mainly by DPD90+ portfolio sales and write-offs DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q DSK Bank Q-o-Q OTP Bank Q-o-Q 4Q16 1Q17 2Q17 3Q17 4Q17 4Q16 1Q17 2Q17 3Q17 4Q17 4Q16 1Q17 2Q17 3Q1
Slide 45: Reported CET1 was 12.7% in 4Q 2017
In 4Q 2017 the reported CET1 was 12.7%, but the CET1 capital does not include the 2017 profit less approved dividend; including these the CET1 would be 15.3%. In 2017 the completed acquisitions had on overall CET1 impact of -190 bps OTP Group consolidated capital adequacy ratios (IFRS) Capital adequ
Slide 46: OTP Bank ratings correlate with sovereign ceilings
While OTP Bank ratings closely correlate with the sovereign ceilings, subsidiaries’ ratings enjoy + positive (rating outlook) - negative the positive impact of parental support 0 stable Hungarian sovereign, OTP Bank and OTP Mortgage Bank ratings Moody’s S&P Fitch Dagong Moody's S&P Baa1 14 Moody's H
Slide 47: 2018 GDP expected to continue to grow dynamically
In 2018 the GDP is expected to continue to grow dynamically in Hungary and in other Group members’ countries, inducing healthy growth in loan volumes 2018F GDP growth (y-o-y, %) 2018F loan growth1 (y-o-y, %) Retail Corporate 10% Hungary 4.0% Hungary 7% 9% Bulgaria 3.6% Bulgaria 6% 10% Romania 4.0% R
Slide 48: Management expectations for 2018 – 1.
Strong growth is expected to continue in 2018 supported by organic and acquisition-generated business expansion Management expectations for 2018 – 1. The ROE target of above 15% (assuming 12.5% Common Equity Tier1 ratio) announced at the 2015 Annual General Meeting remains in place. Apart from the n
Slide 49: Management expectations for 2018 – 2.
The expected amount of proposed dividend to be paid after the 2018 financial year depends on the future acquisitions Management expectations for 2018 – 2. Beyond the capital required for organic growth the management intends to allocate significant part of the generated excess capital for further va
Slide 50: Content
Content Investment Rationale 3-15 4Q 2017 Financial Performance of OTP Group 17-48 Macroeconomic overview 50-56 50
Slide 51: Hungary's economy grew by 4.0%
Hungary’s economy grew by 4.0% and we forecast a similar rate for 2018. Hungary Domestic demand is expected to give the main impetus to growth Balance Growth Budget deficit Real GDP growth Investment to GDP 4.2% 4.0% 4.0% 7.1% 3.4% 21.8% 21.7% 21.6% 2.0% 1.9% 1.9% 1.9% 2.2% 17.8% 20.9% 2003- 2015 20
Slide 52: Hungary's current account surplus remained high
The budget deficit is expected to remain near 2%, public debt is likely to maintain its downward trend. Hungary Hungary’s current account surplus remained high, while external indebtedness fell further Budget balance (as % of GDP) Public debt (as % of GDP, including Eximbank) The ESA deficit remaine
Slide 53: Monetary conditions likely to remain very relaxed
Monetary conditions are likely to remain very relaxed for an extended period Hungary CPI turned down over the last third of 2017 and we expect it to stay around Inflation (y-o-y, %) Wages in the private sector (y-o-y, %) 2.0% y-o-y for a while from December 2017 onward. In 2018 country specific one-
Slide 54: Key economic indicators Hungary
GDP growth accelerated to 4% in 2017 and may remain the same in 2018 with domestic demand being the key Hungary growth drivers Key economic indicators OTP Research Focus Economics* 2013 2014 2015 2016 2017F 2018F 2017F 2018F Nominal GDP (at current prices, HUF billion) 30 127 32 400 33 999 35 005 37
Slide 55: Bulgaria, Croatia, Romania economic performance
Bulgaria: maintained good economic performance; Croatia: solid GDP growth, improving balance indicators; Romania: stellar GDP growth, the budget execution remains the main risk Bulgaria Real GDP growth (%, SA, annualized Unemploy. (LHS, %), activity rate Building permits (4Q y-o-y %) & GDP growth re
Slide 56: Russia and Ukraine economic outlook
Russia: recovery continues; inflation sank even deeper below the CBR’s target, prompting further rate cuts. Ukraine: GDP growth was 1.8% y-o-y in 4Q 2011, inflation is around 14%, rate cuts aren’t likely in the near future Russia Real GDP growth (OTP estimation, %, Budget balance (% of GDP) and the
Slide 57: General macro trends favourable in CEE countries
General macro trends remained favourable in CEE countries, with growth levels exceeding EU average, while the recovery in Russia and Ukraine is expected to continue REAL GDP GROWTH EXPORT GROWTH UNEMPLOYMENT 2015 2016 2017 2018F 2015 2016 2017F 2018F 2015 2016 2017 2018F Hungary 3.4% 2.2% 4.0% 4.0%
Slide 58: Forward looking statements
Forward looking statements This presentation contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of OTP Bank. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances