Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — Q2 2017 Earnings Presentation
63 slides from Otp Bank Nyrt's earnings presentation, 2017
Slide 1: OTP Group Investor presentation based on 2Q 2017 results
OTP Group Investor presentation based on 2Q 2017 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-17 2Q 2017 Financial Performance of OTP Group 19-51 Macroeconomic overview 53-62 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 3. After years of deleveraging loan volumes show positive turnaround
Slide 4: Universal banking services to almost 14.5 million customers in 9 countries
OTP Group is offering universal banking services to almost 14.5 million customers in 9 countries 1. across the CEE/CIS Region Major Group Members in Europe Total Assets Systemic position in Hungary… Ukraine Montenegro 2Q 2017 market share (%) Slovakia Serbia Russia 3% Total assets 25 Romania 5% 4% 1
Slide 5: Ownership structure of OTP Bank on 30 June 2017
OTP offers a unique investment opportunity to access the CEE banking sector. 1. The Bank is a well diversified, transparent player without strategic investors Ownership structure of OTP Bank on 30 June 2017 Key features Total number of ordinary shares: 280,000,010, each having a Other* (Q-o-Q change
Slide 6: Breakdown of the consolidated net loan book
The net loan book is dominated by Hungary and tilted to secured retail lending; 88% of the total book is 1. invested in EU countries with stable earning generating capabilities 1 Breakdown of the consolidated net loan book OTP Core (Hungary) DSK Bank (Bulgaria) (in HUF billion) Car-financing Mortgag
Slide 7: Breakdown of the consolidated deposit base
In the deposit book Hungary and the retail segment is dominant. In Hungary and Bulgaria OTP and 1. 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 22.3 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 15.1 12.
Slide 9: Accounting ROE 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 1H 17 Accounting ROE 13.4% 9.4% 6.1% 8.4% 4.2% -7.4% 5.1% 15.
Slide 10: A new era of structurally low risk environment has commenced
2. A new era of structurally low risk environment has commenced 1 2 Existing DPD90+ loans are conservatively covered with The DPD90+ formation has receded provisions (in HUF billion, without loan sales and write-offs, FX-adjusted) 2Q 2017, Splitska banka consolidated 313 Russia and Ukraine 254 CEE c
Slide 11: Retail loan penetration ratios in Hungary returned to pre-boom levels
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) 28.8 Slovakia housing loans 23.3 Czech Republic 14.5 15.2 16.3 15.1 21.3 Poland 11.2 12.3 12.4 11.1 10.2 10.4 8.9 8.4 8.2 9.
Slide 12: CEE region shows strong performance in loan-driving indicators
The CEE region demonstrates stellar performance; for most of the indicators affecting loan dynamics 3. Hungary ranks among the best in the regional rally Real GDP growth (y-o-y) Real wage growth in the private sector (y-o-y) Hungary 3.1% 2.0% >4.0% 4.3% 5.4% 6.0% Poland 3.9% 2.7% 3.7% 4.3% 4.4% 2.8%
Slide 13: Loan volume turnaround at OTP Core
After years of loan volume contraction 2016 and 1H 2017 developments already underpin a definite 3. turnaround at OTP Core FX-adjusted Y-o-Y performing loan volume changes at OTP Core1 (%) 21.9 AXA-effect 13.6 13.9 14.3 avg.: YTD 14.5% 12.0 8.8 6.4 4.7 -1.2 avg.: -8.9% -8.2 -7.6 -10.1 -9.6 -11.1 -14
Slide 14: Strong capital and liquidity position make room for acquisitions
Strong capital and liquidity position coupled with robust internal capital generation make room for 4. further acquisitions Development of the fully loaded CET1 ratio of OTP Group Net liquidity reserves Net liquidity buffer / total (in EUR billion equivalent) assets (%) -0.3%p 7.2 18.3% 2.2% 15.8% 1
Slide 15: Impact of recent acquisitions on consolidated loan volumes
Acquisitions announced over the last 1.5 years added 23% to the Group’s gross loans and 26% to 4. performing loans, whereas the organic performing loan growth reached 8% since 2015 (FX-adjusted) The impact of recent acquisitions on consolidated loan volumes (in HUF billion) Gross volumes Performing
Slide 16: 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 1 ~140 thousand million regular users monthly1 users monthly1 Monthly ATM cash ~210 thousand withdrawals in the contacts amount of HUF monthly1 ~280 billion1 1 Based on 2Q 2017 data. 16
Slide 17: Digital Transformation Program aspirations
The Digital Transformation Program serves as an umbrella focusing on digital customer experience and 5. cost efficient and automatized processes Digital banking products and services aim at Internal processes of the digital bank are set to offering an outstanding customer experience simplify and dig
Slide 18: Content
Content Investment Rationale 3-17 2Q 2017 Financial Performance of OTP Group 19-51 Macroeconomic overview 53-62 18
Slide 19: Semi-annual accounting result grew by 26% y-o-y
The semi-annual accounting result grew by 26% y-o-y despite the balance of adjustments turned negative y-o-y. CEE Group members’ contribution grew by 32%, whereas the Russian and Ukrainian contribution increased by 56% (in HUF billion) Adjusted after tax results in the CEE countries1 Accounting prof
Slide 20: Aggregated profit of CEE Group members grew 21% q-o-q
In 2Q the aggregated profit of CEE Group members grew by 21% q-o-q, led by OTP Core and the Croatian operation. Romania and Serbia turned loss-making mainly due to higher risk costs reasoned by one-off provisions created in connection with changes in the provisioning policy 1H 16 1H 17 Y-o-Y 2Q 16 1
Slide 21: Four adjustment items in 2Q 2017
In 2Q 2017 four adjustment items emerged with an aggregated effect of HUF 2.4 billion 1H 16 1H 17 Y-o-Y 2Q 16 1Q 17 2Q 17 Q-o-Q Y-o-Y in HUF billion in HUF billion Consolidated after tax profit (accounting) 106.2 133.6 26% 71.9 52.9 80.7 53% 12% Adjustments (total) 2.0 -11.5 15.4 -13.9 2.4 -84% Divi
Slide 22: 2Q profit before tax without one-off items
The 2Q profit before tax without one-off items went up by 15% q-o-q, mainly on the back of improving core banking revenues, but also the further declining risk costs 1H 16 1H 17 Y-o-Y 2Q 16 1Q 17 2Q 17 Q-o-Q Y-o-Y in HUF billion in HUF billion Consolidated adjusted after tax profit 104.1 145.0 39% 5
Slide 23: Acquisition of Banca Romaneasca in Romania
In Romania OTP signed and agreement on purchasing the 14th biggest local bank, Banca Romaneasca OTP Bank Romania (BROM); as a result the market share of the combined entity will reach 3.8% Market Croatia shares in the Romanian banking sector Market share by total assets before and after the acquisit
Slide 24: Acquisition of Vojvodjanska banka in Serbia
In Serbia OTP signed and agreement on purchasing the 9th biggest local bank, Vojvodjanska banka (VOBAN); as a result the market share of the combined entity will increase to 5.7%. The purchase price OTP banka Srbija was EUR 125 million Market Croatia shares in the Serbian banking sector Market share
Slide 25: Consolidated total income increased by 8% q-o-q
Consolidated total income increased by 8% q-o-q, half of that was due to the Splitska acquisition. The increase in Hungarian core banking revenues was the other key driving factor TOTAL INCOME – 2Q 2017 Y-o-Y Y-o-Y Q-o-Q Q-o-Q without one-off items (HUF billion) (HUF bn) (%) (HUF bn) (%) OTP 8% 205
Slide 26: Net interest income up 4% q-o-q
The net interest income went up by 4% q-o-q mainly due to the contribution from the newly consolidated Splitska banka. At the Core division the positive impact of expanding volumes outpaced the headwinds from further NIM erosion NET INTEREST INCOME – 2Q 2017 Q-o-Q Q-o-Q 1 (HUF billion) (HUF billion)
Slide 27: Consolidated net interest margin
The 1H consolidated net interest margin eroded by 9 bps compared to the full-year 2016 level; in 2Q all major Group members suffered NIM attrition, however at both OTP Core and DSK the NIM erosion decelerated materially q-o-q Net interest margin (%) 1 The 3M BUBOR moderated by 3 bps q-o-q demonstrat
Slide 28: Consolidated performing loans increased by 14% q-o-q
Consolidated performing loans increased by 14% q-o-q (adjusted for the Splitska acquisition effect the organic increase was 3%); loan growth at OTP Core accelerated, mortgage volumes stabilized; the retail portfolio started growing at DSK DPD0-90 volumes Q-o-Q loan volume changes in 2Q 2017, adjuste
Slide 29: Retail loan disbursement strong y-o-y in 1H 2017
Retail loan disbursement showed strong y-o-y dynamics in 1H 2017 at OTP Core and almost all foreign subsidiaries Y-o-Y change of new disbursements (in local currency) – 1H 2017 Core DSK OBRu OBU OBR OBH OBS OBSr CKB (Hungary) (Bulgaria) (Russia) (Ukraine) (Romania) (Croatia) (Slovakia) (Serbia) (Mon
Slide 30: Consolidated deposit base increased by 18% y-o-y
The consolidated deposit base increased by 18% y-o-y, without Splitska by 8% respectively; volume growth at OTP Core was the engine behind the consolidated deposit base expansion Q-o-Q deposit volume changes in 2Q 2017, adjusted for FX-effect Total 10% 161% 10% 2 1% -2% -2% 6% -3% 3% 161% 0%2 -3% 11
Slide 31: Net fee and commission income up 21% q-o-q
The net fee and commission income showed a strong momentum q-o-q (+21%) on the back of two technical items and higher business activity at OTP Core, and the consolidation of Splitska banka NET FEE AND COMMISSION INCOME – 2Q 2017 Q-o-Q Q-o-Q 1 The quarterly increase was (HUF billion) (HUF billion) (%
Slide 32: Other net non-interest income increased by 15% q-o-q
The other net non-interest income increased by 15% q-o-q OTHER NET NON-INTEREST INCOME – 2Q 2017 Q-o-Q Q-o-Q without one-off items (HUF billion) (HUF billion) (%) OTP 100% 13.8 1.8 15% Group 1 At OTP Core the gain on the sale OTP CORE 1 48% 6.6 0.5 8% of real estate investment units (Hungary) was th
Slide 33: Operating costs grew by 7% y-o-y in 2Q
Operating costs grew by 7% y-o-y in 2Q (+5% adjusted for FX rate changes), explained mainly by the additional on-going costs of Splitska banka. In 1H 2017 the FX-adjusted consolidated cost growth without Splitska banka reached 2.5% y-o-y OPERATING COSTS – 2Q 2017 Y-o-Y Y-o-Y Y-o-Y Y-o-Y 1 The 2Q cos
Slide 34: OTP Core (Hungary) results
1H before tax profit at OTP Core picked up by 26% y-o-y amid moderating corporate tax burden; OTP Core such performance was shaped by improving operating profit and risk cost releases OTP CORE 1H 16 1H 17 Y-o-Y 2Q 16 1Q 17 2Q 17 Q-o-Q Y-o-Y (in HUF billion) Profit after tax 59.6 90.2 51% 30.7 40.8 4
Slide 35: Mortgage loan applications and disbursements accelerated
Mortgage loan applications and disbursements accelerated further. OTP’s market share remained strong OTP Core in new loan disbursements, corporate loans and also in retail savings Change of mortgage loan applications and OTP Group’s market share2 in loans to Hungarian disbursement of OTP Bank (1H 20
Slide 36: Customer-friendly housing loan product launched
OTP has launched its customer-friendly housing loan product. The central bank’s initiative is expected to give further impetus to the demand for housing loans on sector-level On 9 March 2017 the National Bank of Hungary (NBH) published an announcement according to which NHB is going to introduce a “
Slide 37: DSK Bank Bulgaria results
DSK Bank retained its outstanding profitability. Favourable credit quality trends remained intact and the DSK Bank Bulgaria bank released provision in 2Q. NIM remained stable q-o-q Income statement Net interest margin (in HUF billion) 16 2Q 17 1Q 17 2Q Q-o-Q Y-o-Y 5.47% 4.60% Profit after tax (adjus
Slide 38: OTP Bank Russia results
The Russian subsidiary generated almost the same profit in 2Q as in the first quarter. FX-adjusted performing OTP Bank Russia POS and cash loan volumes as well as corporate loans grew y-o-y due to strong disbursement activity Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HU
Slide 39: OTP Bank Russia: POS loans and deposits
In 2Q 2017 POS and cash loan disbursements grew on a yearly basis, but performing credit card volumes OTP Bank Russia declined further. Deposits decreased q-o-q in RUB terms. Average RUB term deposit rates kept shrinking POS loan disbursements (RUB billion) Development of customer deposits (RUB bill
Slide 40: Russia: recovering consumption boosts household credit demand
Recovering consumption boosts household credit demand Russia Key economic indicators Retail loans Loan stock / GDP 14.0 14.3 OTP Research 12.8 12.6 12.2 12.4 2012 2013 2014 2015 2016 2017F 2018F Loan flow / GDP 11.6 Nominal GDP (RUB bn) 66,927 71,017 79,200 83,233 86,044 92,054 98,541 9.3 8.6 8.3 Re
Slide 41: OTP Bank Ukraine results
Although profit after tax in Ukraine somewhat eroded q-o-q, 2Q ROE (34%) is still the highest among OTP Bank Ukraine subsidiary banks of the Group. Net interest margin eroded q-o-q, but performing loan volumes kept growing Income statement Net interest margin (in HUF billion) 16 2Q 17 1Q 17 2Q Q-o-Q
Slide 42: OTP Bank Ukraine ranking and funding
OTP Bank Ukraine excelled in terms of nominal profit despite its low ranking by total assets. OTP Bank Ukraine Intragroup funding was stable q-o-q, the net loan to deposit ratio edged up somewhat Ranking of Ukrainian banks by total assets Ranking of Ukrainian banks by after tax result 1 PrivatBank 2
Slide 43: OTP banka Hrvatska results
The 2Q performance of the Croatian operation was also boosted by the consolidation of Splitska banka OTP banka Hrvatska from May. The market share of OTP in total assets increased to 11.3% based on May data DPD0-90 loan volumes (FX-adjusted, in HUF billion) 1H 1H 2Q 1Q 2Q Mortgage loans 1,052 (in HU
Slide 44: Consolidated DPD90+ ratio and risk cost rate
The consolidated DPD90+ ratio declined further. The risk cost rate sank 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 FX and sales and wr
Slide 45: FX-adjusted quarterly DPD90+ formation
In 2Q 2017 the FX-adjusted DPD90+ formation sank to HUF 17 billion (without the Splitska-effect). The Russian inflow was below the quarterly average of the last couple of years FX-adjusted quarterly change in DPD90+ loan volumes (without the effect of sales / write-offs, in HUF billion) Consolidated
Slide 46: Risk cost rate and DPD90+ ratio declined across the board
The risk cost rate and the DPD90+ ratio declined q-o-q all across the board with the provision coverage ratios remaining conservative OTP Core DSK Bank OTP Bank OTP Bank Hungary Bulgaria Russia Ukraine Risk cost for possible loan losses / Average gross customer loans*, % -0.6 -1.2 1.1 -0.1 8.2 7.9 1
Slide 47: DPD90+ ratios decreased q-o-q at main operations
At the main operations the DPD90+ ratios decreased q-o-q mainly as a result of DPD90+ portfolio sales and write-offs DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q OTP Bank Q-o-Q 2Q16 3Q16 4Q16 1Q17 2Q17 2Q16 3Q16 4Q16 1Q17 2Q17 (Hungary) (%-point) Russia (%-point) Total 11.0% 10.4% 9.8% 9.1% 8.3%
Slide 48: Restructured retail volumes decreased q-o-q
Restructured retail volumes decreased q-o-q on Group level Definition of retail Restructured retail loans with less than 90 days of delinquency restructured loans: 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 In comparison with the original terms and HUF mn %1 HUF mn %1 HUF mn %1 HUF mn %1 HUF mn %1 co
Slide 49: Reported CET1 was 14.1% in 2Q 2017
In 2Q 2017 the reported CET1 was 14.1%, but the CET1 capital does not include the 1H 2017 profit less indicated dividend; including these items the CET1 would have been 15.4% OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy ratios (under local regulation) 2012 2013 2014 2015 20
Slide 50: Stable, outstanding capital position
Continuously stable, outstanding capital position both on stand-alone and consolidated level OTP Group consolidated CAR (according to Basel III, IFRS) OTP Bank unconsolidated CAR (according to Basel III, HAS until 4Q16, IFRS from 1Q17) in HUF million 2Q 2016 1Q 2017 2Q 2017 in HUF million 2Q 2016 1Q
Slide 51: 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 OTP Bank Baa3 (0) BBB- (0) OTP Mortg
Slide 52: Content
Content Investment Rationale 3-17 2Q 2017 Financial Performance of OTP Group 19-51 Macroeconomic overview 53-62 52
Slide 53: Hungary: economy on track for around 4.0% growth in 2017
The economy is on track to reach around 4.0% growth in 2017. The household consumption is robust, Hungary investment activity has been strengthening and external demand has been improving Balance Growth Budget deficit Real GDP growth Investments to GDP 7.2% 4.0% 3.9% 20.5% 21.8% 21.7% 17.8% 20.2% 1.
Slide 54: Hungary: budget position and external indebtedness
The government intends to spend more on investments, but the overall fiscal discipline is expected to persist. Hungary The current account surplus reached all-time high level in 2016 and the external indebtedness fell further The budget position remains strong, Budget balance (as % of GDP) Public de
Slide 55: Hungary: buffers and fiscal reserves
Buffers represent adequate levels. The amount of fiscal reserves stood at elevated levels, the financing of Hungary the government debt is safe Reserves and adequacy rules (EUR billion) Financial assets of the Central Government in Hungary (in HUF billion equivalent) HUF reserves Pension Reform and
Slide 56: Hungary: monetary conditions likely to remain relaxed
Monetary conditions are likely to remain relaxed for an extended period Hungary CPI is on an accelerating path, even though it is more or less masked by Inflation (y-o-y, %) Wages in the private sector (y-o-y, %) evolution of energy, administered and food prices. The underlying figure, which is filt
Slide 57: Hungary: 2Q 2017 GDP growth and forecast
2Q 2017 GDP growth surprised on the downside, however it was mainly due to Easter effect. Hungary Underlying growth still points to about 4% GDP expansion in 2017 2Q y-o-y GDP growth down to 3.2% y-o-y and annualized q-o-q GDP (%) Consensus on long-term growth (%) from 4.2% a quarter earlier The dec
Slide 58: Hungary: key economic indicators
Temporary slowdown in 2016 coupled with reviving consumption and strong balance indicators. Hungary GDP growth may accelerate to around 4% both this and next year Key economic indicators OTP Research Focus Economics* 2013 2014 2015 2016 2017F 2018F 2017F 2018F Nominal GDP (at current prices, HUF bil
Slide 59: Russia and Ukraine macro outlook
Russia: recovery firms; inflation fell below CBR’s target enabling further rate cuts. Ukraine: GDP growth was 2.4% y-o-y in 2Q 2017, inflation is around 15% Russia Real GDP growth (OTP estimation, %, Retail sales and real wages Inflation (y-o-y %) and USD/RUB (r.a) Economic recovery has progressed:
Slide 60: Romania, Bulgaria and Slovakia macro outlook
Romania: stellar GDP growth; the budget execution remains the main risk; Bulgaria: solid, sustainable growth. Slovakia: 3.3% y-o-y growth in 2Q Romania: GDP growth accelerated Real GDP growth (%, SA annualized ESA-2010 deficit (4Q avg., r.h.s.), Wages, private sector - l.h.s; even further in 2Q, rea
Slide 61: Croatia, Serbia and Montenegro macro outlook
Croatia: growth may remain around or even above 2.5% y-o-y in 2017, imbalance indicators improve steadily. Serbia: GDP growth was modest in 2Q, similar to 1Q; Montenegro: modest growth shadowed by imbalances Croatia In line with our expectations GDP growth decelerated to 2.5% y-o-y in 1Q from 3.4% i
Slide 62: General macro trends favourable in CEE countries
General macro trends remained favourable in CEE countries with growth levels exceeding EU average, while in Russia and Ukraine the recovery is expected to continue REAL GDP GROWTH EXPORT GROWTH UNEMPLOYMENT 2015 2016 2017F 2018F 2015 2016 2017F 2018F 2015 2016 2017F 2018F Hungary 3.1% 2.0% 3.9% 4.1%
Slide 63: 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