Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — OTP Bank — Q3 2018 Earnings Presentation
58 slides from Otp Bank Nyrt's earnings presentation, 2018
Slide 1: OTP Group Investor presentation based on 3Q 2018 results
OTP Group Investor presentation based on 3Q 2018 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-15 3Q 2018 Financial Performance of OTP Group 17-49 Macroeconomic overview 51-57 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%) as a new era of structurally low risk 2. environment has commenced Lending momentum building: accelerating organic performing loan growth (
Slide 4: OTP Group offers universal banking services to almost 18 million customers in 9 countries
OTP Group is offering universal banking services to almost 18 million customers in 9 countries across 1. the CEE/CIS Region Major Group Members in Europe Total Assets Systemic position in Hungary… Ukraine 3Q 2018 market share (%) Slovakia Montenegro Serbia 2% 3% Total assets 27 Russia 5% 4% 3% OTP B
Slide 5: OTP Group's Capabilities
OTP offers a unique investment opportunity to access the CEE banking sector. The Bank is a well 1. diversified, transparent player without strategic investors Market capitalization: EUR 9.7 billion1 Total number of ordinary shares: 280,000,010, each having a nominal (Q-o-Q Ownership structure of OTP
Slide 6: The net loan book is dominated by Hungary and tilted to retail lending
The net loan book is dominated by Hungary and tilted to retail lending; around 85% of the total book is 1. 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 Mortgage
Slide 7: In the deposit book Hungary and the retail segment is dominant
In the deposit book Hungary and the retail segment is dominant. In Hungary and Bulgaria OTP and DSK 1. 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 ROE, accounting (%) ROE based on 12.5% CET1 ratio1 24.8 23.7 22.4 17.6 13.4 9.4 8.4 6.1 4.2 5.1 15.4 18.5 19.3 -7.4 Opportunity cost-adjusted2 consolidated accounting ROE over the average 10Y Hungarian government bond yields (%) 16.6
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 2010 2011 2012 2013 2014 2015 2016 2017 9M 2018 Accounting ROE 9.4% 6.1% 8.4% 4.2% -7.4% 5.1% 15.4% 1
Slide 10: Credit quality indicators kept further improving
Credit quality indicators kept further improving. The risk cost rate was 7 basis points in the first nine 2. months of 2018 Change in DPD90+ loan volumes (consolidated, adjusted for FX Consolidated risk cost for possible loan losses (in HUF billion) and sales and write-offs, in HUF billion) 253 -4 -
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 lending 3. boom Market penetration levels in Hungary in ... (in % of GDP) 30.1 Slovakia housing loans 23.8 Czech Republic 14.5 15.2 16.2 15.1 20.0 Poland 11.2 12.3 12.4 11.1 10.3 8.8 10.0 Bulgaria 8
Slide 12: Turnaround in loan volumes, deposits growing steadily
Following the contraction in the previous years, the last 3 years brought a spectacular turnaround in loan 3. 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 Cor
Slide 13: 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 and further acquisitions Development of the fully loaded CET1 ratio of OTP Group Net liquidity reserves (in EUR billion equivalent) 15.8% 16.0% 16.4% Including unaudited inter
Slide 14: OTP demonstrated strong results at the 2018 EBA stress test
4. OTP demonstrated strong results at the 2018 EBA stress test CET1 ratio under the adverse scenario: No. 16 CET1 ratio drawdown under the stress scenario: No. 9 Under the adverse scenario out of 48 participants OTP reached From 48 participants OTP reached 9th place in terms of the 16th place in CET
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 ~320 thousand 1 million regular active users users monthly3 monthly3 Monthly ATM cash ~250 thousand withdrawals in the contacts amount of monthly1,2 HUF ~290 billion3 1 Included inbound and outbound calls, e-mails, chats 2
Slide 16: Content
Content Investment Rationale 3-15 3Q 2018 Financial Performance of OTP Group 17-49 Macroeconomic overview 51-57 16
Slide 17: Accounting profit grew by 13% y-o-y in 9M 2018
The accounting profit grew by 13% y-o-y in 9M 2018, while the adjusted profit increased by 17%. 9M profit contribution of foreign subsidiaries improved to 41%, whereas in 3Q this ratio was 45% After taxforintban) (milliárd profit development y-o-y (in HUF billion) After tax profit development q-o-q
Slide 18: Profit growth shaped by performance improvement of foreign subsidiaries
The growth of consolidated profit was mainly shaped by the impressive performance improvement of foreign subsidiaries, especially in Ukraine and Croatia 9M 2017 9M 2018 Y-o-Y 3Q 2017 2Q 2018 3Q 2018 Q-o-Q Y-o-Y in HUF billion in HUF billion Consolidated adjusted 224.5 262.8 17% 79.5 90.9 92.7 2% 17%
Slide 19: Adjustment items in 3Q 2018
In 3Q 2018 there were two significant negative adjustment items: the goodwill write-down and the effect of acquisitions covering mainly the acquisition-related integration costs (in HUF billion) 9M 17 9M 18 Y-o-Y 3Q 17 2Q 18 3Q 18 Q-o-Q Y-o-Y Consolidated after tax profit (accounting) 212.9 240.5 13
Slide 20: 3Q operating profit improved by 7% q-o-q
3Q operating profit improved by 7% q-o-q, whereas the 9M operating profit without acquisitions grew by 3% 9M 18 Y-o-Y (in HUF billion) 9M 17 9M 18 Y-o-Y 3Q 17 2Q 18 3Q 18 Q-o-Q Y-o-Y 1 without M&A Consolidated adjusted after tax profit 224.5 262.8 17% 247.3 14% 79.5 90.9 92.7 2% 17% Corporate tax -3
Slide 21: Guidance for 2018 adjusted earnings and housing subsidy amendments
Miscellaneous Guidance for According to the guidance provided by the Chairman-CEO on 20 September 2018 at a professional conference organized 2018 adjusted by the Budapest Stock Exchange, the full-year 2018 adjusted after tax profit of OTP Group might reach EUR 1 billion earnings equivalent (subject
Slide 22: Total income grew by 10% y-o-y in 9M 2018
Total income grew by 10% y-o-y in 9M 2018, driven partly by the acquisitions, without those the yearly Effect of dynamics would have been 5%. The q-o-q increase was due to improving business activity and seasonality acquisitions 1 TOTAL INCOME 9M 2018 3Q 2018 9M 1H 2018 Y-o-Y 2Q 2018 Q-o-Q 3Q At OTP
Slide 23: Cumulated net interest income grew by 4% y-o-y without acquisitions
The cumulated net interest income grew by 4% y-o-y even without acquisitions. On quarterly basis higher Effect of business activity and margin expansion drove the NII growth acquisitions NET INTEREST 9M 2018 3Q 2018 9M 2018 Y-o-Y 3Q 2018 Q-o-Q 1 At OTP Core the 5% y-o-y growth in 9M % was due to exp
Slide 24: Q-o-Q performing loan portfolio expanded by 4%
On a quarterly basis the consolidated performing loan portfolio expanded by 4%, Hungary grew by 6%: the corporate and consumer lending remained strong, and housing loans increased by 4% Q-o-Q performing (DPD0-90) loan volume changes in 3Q 2018, adjusted for FX-effect Cons. Core DSK OBRu OBH OBU OBR
Slide 25: Consolidated performing loans surged by 18% y-o-y
Consolidated performing loans surged by 18% y-o-y, the organic growth was 14%. Hungarian organic growth was even higher at 16% with steady consumer and corporate expansion, and housing loan growth above 10% Y-o-Y performing (DPD0-90) loan volume changes in 3Q 2018, adjusted for FX-effect Cons. Core
Slide 26: 13% ytd net loan growth stands out from European banking groups
The 13% ytd net loan growth of OTP Group stands out from European banking groups Net loan growth of European banking groups 9M 2018 (YTD, %) Regional banks (organic) 13 8 7 5 5 5 5 3 3 2 2 2 2 1 1 0 0 -2 -2 -3 -3 -4 -5 -7 OTP Group1 RBS ING Group Commerzbank KBC Group PKO Intesa Sanpaolo CaixaBank B
Slide 27: Y-o-Y change of new disbursements, 9M 2018
Household loan disbursements showed strong y-o-y dynamics at OTP Core and the larger foreign subsidiaries Y-o-Y change of new disbursements (in local currency) – 9M 2018 Core DSK OBRu2 OBH OBU OBR OBSr CKB OBS (Hungary) (Bulgaria) (Russia) (Croatia) (Ukraine) (Romania) (Serbia) (Montenegro) (Slovaki
Slide 28: Consolidated deposit base increased by 12% y-o-y
The consolidated deposit base increased by 12% y-o-y, the 9% organic growth was driven by steady inflows in Hungary, and strong Russian, Ukrainian, Romanian and Serbian performances Q-o-Q deposit volume changes in 3Q 2018, adjusted for FX-effect Total 3% 2% 3% 8% 2% 5% 3% 0% 9% 2% Retail 3% 2% 2% 6%
Slide 29: Consolidated net interest margin widened by 5 bps q-o-q
The consolidated net interest margin widened by 5 bps q-o-q, as a result 9M NIM declined by 7 bps compared to 4Q 2017 Net interest margin (%) OTP Group In 3Q 2018 the net interest margin rose by 5 bps1 q-o-q. 5.17% 4.82% 4.56% 4.31% 4.42% 4.38% 4.37% 4.25% 4.30% 2015 2016 2017 9M 18 3Q 17 4Q 17 1Q 1
Slide 30: Net interest margin at the largest Group members
At OTP Core the margin pick-up was mainly reasoned by the higher interbank rates. The underlying declining margin trend at DSK continued. The Russian margin dropped by 82 bps q-o-q. The Ukrainian spreads kept on improving Net interest margin development at the largest Group members (%) 1 1 OTP 3.48
Slide 31: Net fee and commission income
Strong underlying business activity was the ultimate driver in the q-o-q improvement of net fee and Effect of commission income, outweighing two negative technical items at OTP Core affecting the q-o-q dynamics acquisitions 3Q 2018 9M 2018 Y-o-Y 3Q 2018 Q-o-Q 1 9M 2018 The 9M y-o-y decline at Core w
Slide 32: Other net non-interest income rose by 12% without acquisitions
Effect of The 9M other net non-interest income rose by 12% without acquisitions acquisitions OTHER INCOME 9M 2018 3Q 2018 9M 2018 Y-o-Y 3Q 2018 Q-o-Q without one-off items (HUF billion) (HUF billion) (HUF billion, %) (HUF billion, %) OTP 1 The 9M other net non-interest income 46 16 5 8 12%1/20% -1 -
Slide 33: Operating costs – 9M 2018
Effect of acquisitions 9M operating costs growth without acquisitions was 6.8% on an FX-adjusted basis; personnel expenses grew as a result of high wage inflation and strong business activity Effect of Touch Bank inclusion in 9M 2018 OPERATING COSTS – 9M 2018 Y-o-Y Y-o-Y Y-o-Y Y-o-Y 1 OTP Core: high
Slide 34: OTP Core 9M profit grew by 2%
The 9M profit of OTP Core grew by 2% with total income increasing by 4% y-o-y. In 3Q the 21% q-o-q drop OTP Core was mainly due to declining positive risk costs and seasonally lower one-off items OTP CORE 3Q 2Q 3Q 9M 2017 9M 2018 Y-o-Y Q-o-Q Y-o-Y (in HUF billion) 2017 2018 2018 Profit after tax 136
Slide 35: Mortgage loan disbursement remained strong in Hungary
Mortgage loan disbursement remained strong in Hungary, while the popularity of fixed rate loans with longer fixation period has been further increasing. OTP enjoys a dominant and even improving market share in new OTP Core mortgage and cash loan disbursements, as well as in retail savings Change of
Slide 36: OTP Core corporate segment above 20% volume dynamics ytd
In the corporate segment OTP Core can boast above 20% volume dynamics ytd, thus OTP’s corporate lending OTP Core market share improved further in the first nine months Performing medium and large corporate loan volume change OTP Group’s market share in loans to Hungarian companies1 (FX-adjusted) YTD
Slide 37: DSK Bank delivered strong results in 3Q 2018
DSK Bank delivered strong results in 3Q 2018. The strengthening business activity manifested by soaring DSK Bank Bulgaria new retail loan sales Income statement New mortgage loan disbursements (in HUF billion) 3Q 17 2Q 18 3Q 18 Q-o-Q Y-o-Y (in HUF billion, without refinancing) Profit after tax 11.3
Slide 38: OTP Bank Russia: profit increased q-o-q
In 3Q the Russian profit increased q-o-q due to improving operating profit. Performing loans grew y-o-y both OTP Bank Russia in the retail and corporate. The q-o-q increase in risk cost rate was explained by stronger new disbursements Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billio
Slide 39: OTP Bank Russia: POS and cash loan sales improved
In 3Q POS and cash loan sales improved and performing credit card volumes kept growing. Deposits grew OTP Bank Russia q-o-q in RUB terms keeping net loan-to-deposit ratio flat; RUB term deposit rates further declined POS loan disbursements (RUB billion) Development of customer deposits (RUB billion)
Slide 40: OTP Bank Ukraine: profitability remained strong
The Ukrainian profitability remained strong in 3Q, supported by widening margins and expanding performing OTP Bank Ukraine loan volumes Income statement New cash and POS loan disbursements (in HUF billion) (in HUF billion) 3Q 17 2Q 18 3Q 18 Q-o-Q Y-o-Y Profit after tax 3.1 5.4 7.0 28% 127% 17 Profit
Slide 41: OBH (Croatia): strong 3Q results
Following lower 2Q bottom-line earnigs weakened by elevated risk costs, Croatia reported strong 3Q results, OBH (Croatia) pushing 9M ROE to almost 11% Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 3Q 17 2Q 18 3Q 18 Q-o-Q Y-o-Y Mortgage loans 1.117 1.095 Profit
Slide 42: Decline of consolidated DPD90+ ratio continued
The decline of the consolidated DPD90+ ratio continued. The risk cost rate remained close to multi-year lows 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 (in HUF bn) (consolidated, adjusted for F
Slide 43: Consolidated DPD90+ formation subdued in 3Q 2018
In 3Q 2018 the consolidated DPD90+ formation was subdued; trends remained favourable in all geographies. The increase in Russia reflects growing loan portfolio FX-adjusted quarterly change in DPD90+ loan volumes (without the effect of sales / write-offs, in HUF billion) Consolidated OTP Core OBRu1 O
Slide 44: Declining DPD90+ ratio trend in all key geographies
The declining trend of DPD90+ ratio continued in all key geographies, with risk cost rates typically hovering around all-time low levels. The Russian risk cost rate trajectory reflects the provisioning need for the fast growing new disbursements OTP Core DSK Bank OTP Bank OTP Bank OTP Bank Hungary B
Slide 45: DPD90+ ratios decreased q-o-q at the largest operations
At the largest operations the DPD90+ ratios decreased q-o-q DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q DSK Bank Q-o-Q OTP Bank Q-o-Q 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 (Hungary) (pp) (Bulgaria) (pp) Croati
Slide 46: 3Q 2018 reported CET1 was 14.6%
In 3Q 2018 the reported CET1 was 14.6%, but the CET1 capital does not include the 9M 2018 profit less indicated dividend; including these the CET1 would be 16.4% OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy ratios (under local regulation) 9M 9M 2013 2014 2015 2016 2017 BASE
Slide 47: Credit ratings of OTP Bank and subsidiaries
+ positive While OTP Bank ratings closely correlate with the sovereign ceilings, subsidiaries’ ratings enjoy (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 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. Original guidance disclosed at the 2018 AGM Comments at the 2Q 18 confcall The ROE target of above 15% (assuming 12.5% Common Equity Tier1 ratio) anno
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. 2018 adjusted after tax profit might reach EUR 1 billion Management expectations for 2018 – 2. Beyond the capital required for organic growth the management intends to allocate signi
Slide 50: Content
Content Investment Rationale 3-15 3Q 2018 Financial Performance of OTP Group 17-49 Macroeconomic overview 51-57 50
Slide 51: Hungary: OTP Research expects 4.4% growth in 2018
OTP Research expects 4.4% economic growth in Hungary in 2018; in 1H 2018 GDP expanded by 4.5% y-o-y. Hungary Growth is forecasted to stay at around 4% in 2019 Balance Growth Budget deficit Real GDP growth Investment to GDP 25.4% 7.1% 2.2% 2.4% 1.8% 4.0% 4.4% 4.0% 24.0% 1.6% 3.4% 2.2% 22.0% 19.3% 21.
Slide 52: Hungary: government intends to spend more on investments
The government intends to spend more on investments, but the overall fiscal discipline is expected to persist. Hungary The current account surplus moderated further, external debt continued to be on a decreasing trajectory The budget deficit might reach 2.4% of GDP Budget balance (as % of GDP) Publi
Slide 53: The zero interest rate environment may come to an end in 2019
The zero interest rate environment may come to an end in 2019 Hungary Inflation (y-o-y, %) Wage growth in the economy (3M rolling y-o-y,%) CPI reached 3.6% in September, due to the sharp rise in fuel and seasonal food prices. CPI may reach its peak in the last third of 2018, and thereafter we expect
Slide 54: Hungary: Key economic indicators
2018 is likely to be even more encouraging than 2017 with close to 4.5% GDP growth, moderate inflation, Hungary low budget deficit and declining external debt Key economic indicators OTP Research Focus Economics* 2014 2015 2016 2017 2018F 2019F 2018F 2019F Nominal GDP (at current prices, HUF billion
Slide 55: Russia and Ukraine macro outlook
Russia: slow recovery continues, the CBR increased the key rate due to the VAT hike and increasing geopolitical risks. Ukraine: inflation below 10%; household gas prices were lifted as the new IMF program started Russia GDP growth stood at 1.9% in 2Q 2018. Higher oil prices brought the budget into b
Slide 56: Bulgaria, Croatia, Romania macro outlook
Bulgaria: slight slowdown as output nears the potential level; Croatia: budget balance in surplus, fast decline of public debt, tourism revenues hit new record; Romania: growth picked up in 2Q; CB tightens lending conditions for households Bulgaria Real GDP growth (%, SA, annualized Cash based & ESA
Slide 57: Macro trends are favourable in CEE countries
Macro trends are favourable in CEE countries and growth is expected to remain strong in the next two years REAL GDP GROWTH EXPORT GROWTH UNEMPLOYMENT 2016 2017 2018F 2019F 2016 2017 2018F 2019F 2016 2017 2018 2019F Hungary 2.2% 4.0% 4.4% 4.0% Hungary 3.4% 7.1% 5.1% 7.0% Hungary 5.1% 4.2% 3.5% 3.0% U
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