Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — OTP Bank — Q2 2018 Earnings Presentation
59 slides from Otp Bank Nyrt's earnings presentation, 2018
Slide 1: OTP Group Investor presentation based on 2Q 2018 results
OTP Group Investor presentation based on 2Q 2018 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-14 2Q 2018 Financial Performance of OTP Group 16-50 Macroeconomic overview 52-58 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 2Q 2018 market share (%) Slovakia Montenegro Serbia 2% 3% Total assets 25 Romania OTP Bank Russ
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 8.8 billion1 Total number of ordinary shares: 280,000,010, each having a nominal Ownership structure of OTP Bank o
Slide 6: Net loan book 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: Deposit book dominated by Hungary and retail segment
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 23.0 22.4 17.6 13.4 9.4 8.4 6.1 4.2 5.1 15.4 18.5 19.1 -7.4 Opportunity cost-adjusted2 consolidated accounting ROE over the average 10Y Hungarian government bond yields (%) 16.6
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 2010 2011 2012 2013 2014 2015 2016 2017 1H 2018 Accounting ROE 9.4% 6.1% 8.4% 4.2% -7.4% 5.1% 15.4% 1
Slide 10: Credit quality indicators kept improving
2. Credit quality indicators kept further improving. The risk cost rate was close to zero in the first half of 2018 Change in DPD90+ loan volumes (consolidated, adjusted for FX Consolidated risk cost for possible loan and sales and write-offs, in HUF billion) losses (in HUF billion) 253 190 -1 -31 1
Slide 11: Retail loan penetration ratios in Hungary 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) 30.4 Slovakia housing loans 23.8 Czech Republic 14.5 15.2 16.2 15.1 20.4 Poland 11.2 12.3 12.4 11.1 10.3 8.8 10.1 Bulgaria 8
Slide 12: Turnaround in loan volumes while deposits grow steadily
Following the contraction in the previous years, the last 2.5 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 C
Slide 13: Strong capital and liquidity position
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) 15.6% 16.0% Including unaudited 15.4% 7.6 i
Slide 14: 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 ~250 thousand 1 million regular active users users monthly2 monthly2 Monthly ATM cash ~250 thousand withdrawals in the contacts amount of monthly1,2 HUF ~250 billion2 1 Included inbound and outbound calls, e-mails, chats 2
Slide 15: Content
Content Investment Rationale 3-14 2Q 2018 Financial Performance of OTP Group 16-50 Macroeconomic overview 52-58 15
Slide 16: Accounting profit grew by 16% y-o-y in 1H 2018
The accounting profit grew by 16% y-o-y in 1H 2018, while the adjusted profit increased by 17%. 1H profit contribution of foreign subsidiaries improved to 39% After taxforintban) (milliárd profit development y-o-y (in HUF billion) After tax profit development q-o-q (in HUF billion) Accounting profit
Slide 17: 1H after tax profit of OTP Core grew by 6%
1H after tax profit of OTP Core grew by 6% y-o-y. The consolidated growth of profitability was mainly supported by the improving performance of the Croatian, Ukrainian, Serbian and Montenegrin operations 1H 2017 1H 2018 Y-o-Y 2Q 2017 1Q 2018 2Q 2018 Q-o-Q Y-o-Y in HUF billion in HUF billion Consolid
Slide 18: Adjustment items in 2Q 2018
In 2Q 2018 mainly the acquisition-related integration costs pushed the balance of adjustment items into negative territory 1H 1H (in HUF billion) Y-o-Y 2Q 17 1Q 18 2Q 18 Q-o-Q Y-o-Y 2017 2018 Consolidated after tax profit (accounting) 133.6 154.6 16% 80.7 65.1 89.5 38% 11% Adjustments (total) -11.5
Slide 19: 1H profit before tax grew by 15% y-o-y
1H profit before tax (without one-offs) grew by 15% y-o-y (+13% without acquisitions) supported by the 8% growth of total income (+2% without acquisitions) and moderating risk costs 18 1H Y-o-Y (in HUF billion) 17 1H 18 1H Y-o-Y 17 2Q 18 1Q 18 2Q Q-o-Q Y-o-Y 1 without M&A Consolidated adjusted after
Slide 20: Miscellaneous: M&A transactions update
Miscellaneous On 2 August 2018 OTP Bank announced that DSK Bank signed an acquisition agreement on purchasing 99.74% Update on shareholding of Société Générale Expressbank (SGEB), the Bulgarian subsidiary of Société Générale Group, and other local the M&A subsidiaries held by SGEB. Furthermore, OTP
Slide 21: DSK Bank to purchase Société Générale Expressbank in Bulgaria
In Bulgaria DSK Bank signed and agreement on purchasing the 7th biggest bank, Societe Generale Bulgaria Expressbank (SGEB) Market Croatia shares in the Bulgarian banking sector Market share by total assets before and after the acquisition* (1Q 2018, million EUR) (pro forma, based on 1Q 2018 data) +6
Slide 22: SGEB steadily profitable operation
Societe Generale Expressbank (SGEB) has been running a steadily profitable operation for the last couple of Bulgaria years; in 2017 its profit after tax reached HUF 17 billion, which translates into an ROE of close to 15% Main components of balance sheet Main components of P&L account and indicators
Slide 23: OTP to purchase Société Générale Albania
In Albania OTP signed and agreement on purchasing the 5th biggest bank, Societe Generale Albania Albania (SGAL); as a result the market share will reach 5.7% Market Croatia shares in the Albanian banking sector Profit after tax Net loan to deposit ratio (1Q 2018, million EUR) (2017, in HUF billion)
Slide 24: Total income grew by 8% y-o-y in 1H 2018
Total income grew by 8% y-o-y in 1H 2018, driven mainly by the acquisitions, without those the yearly Effect of dynamics would have been 2%. The q-o-q increase was due to improving business activity and seasonality acquisitions TOTAL INCOME 1H 2018 2Q 2018 1H 2018 Y-o-Y 2Q 2018 Q-o-Q 1 without one-o
Slide 25: Net interest income growth
The net interest income grew moderately y-o-y even without acquisitions. On quarterly basis accelerating Effect of business activity and a positive calendar effect were the key drivers of growth acquisitions 1H 2018 2Q 2018 1H 2018 Y-o-Y 2Q 2018 Q-o-Q 1 NET INTEREST INCOME % At OTP Core the 3% y-o-y
Slide 26: Q-o-Q performing loan volume changes
On a quarterly basis the Group’s performing loans expanded by 5%. Hungary and Bulgaria posted accelerating growth rates in retail; Hungarian mortgage growth reached 2% over the quarter, within that housing loans rose by 3% Q-o-Q performing (DPD0-90) loan volume changes in 2Q 2018, adjusted for FX-ef
Slide 27: Y-o-Y performing loan volume changes
Consolidated performing loans increased by 17% y-o-y, within that the organic part was 13%. Hungarian consumer and corporate growth was around 20%, mortgages rose by 4%; in Bulgaria the mortgage growth stepped up to double-digit Y-o-Y performing (DPD0-90) loan volume changes in 2Q 2018, adjusted for
Slide 28: Y-o-Y change of new disbursements 1H 2018
Household loan disbursements showed strong dynamics at OTP Core and almost all foreign subsidiaries Y-o-Y change of new disbursements (in local currency) – 1H 2018 Core DSK OBRu2 OBH OBU OBR OBSr OBS CKB (Hungary) (Bulgaria) (Russia) (Croatia) (Ukraine) (Romania) (Serbia) (Slovakia) (Montenegro) Mor
Slide 29: Consolidated deposit base increased by 14% y-o-y
The consolidated deposit base increased by 14% y-o-y, the 12% organic growth was driven by steady inflows in Hungary, and strong Russian, Ukrainian, Romanian and Serbian performances Q-o-Q deposit volume changes in 2Q 2018, adjusted for FX-effect Total 1% 1% 3% 6% 2% -6% 3% 5% -1% 5% Retail 2% 3% 2%
Slide 30: Consolidated net interest margin eroded by 12 bps q-o-q
The consolidated net interest margin eroded by 12 bps q-o-q in, as a result 1H NIM declined by 6 bps compared to 4Q 2017 Net interest margin (%) OTP Group In 2Q 2018 the net interest margin eroded by 12 bps1 q-o-q. 5.17% 4.82% 4.56% 4.31% 4.66% 4.42% 4.38% 4.37% 4.25% 2015 2016 2017 1H 18 2Q 17 3Q 1
Slide 31: Net interest margin of the largest Group members
At OTP Core the declining margin trend remained in place. The steep margin decline at DSK was predominantly caused by a one-off accounting correction. The Russian margin dropped by 30 bps. The Ukrainian spreads benefitted from the higher rate environment and better corporate margins Net interest mar
Slide 32: Net fee income growth
The net fee income grew by 2% y-o-y without the effect of acquisitions; the 14% q-o-q increase was due to Effect of numerous base effects, but stronger business activity also fuelled the growth acquisitions 1H 2018 2Q 2018 1H 2018 Y-o-Y 2Q 2018 Q-o-Q 1 NET FEE INCOME % The y-o-y decline at Core is r
Slide 33: Other net non-interest income
The 1H other net non-interest income rose by 10% without acquisitions, partially due to a technical change Effect of and higher FX gains at OTP Core acquisitions OTHER INCOME 1H 2018 2Q 2018 1H 2018 Y-o-Y 2Q 2018 Q-o-Q without one-off items (HUF billion) (HUF billion) (HUF billion, %) (HUF billion,
Slide 34: Operating costs 1H 2018
Effect of acquisitions Operating costs grew 13% y-o-y in 1H 2018, whereas without acquisitions the increase was 7.5% on an FX-adjusted basis Effect of Touch Bank inclusion in 1H 2018 OPERATING COSTS – 1H 2018 Y-o-Y Y-o-Y Y-o-Y Y-o-Y 1 OTP Core: higher personnel expenses (+7%) as (HUF billion) (HUF b
Slide 35: OTP Core 1H profit grew by 6%
The 1H profit of OTP Core grew by 6% as declining operating result was offset by higher positive risk costs. In 2Q the 44% quarterly jump was owing to bouncing back net fees, better risk costs and higher one-off OTP Core revenue items OTP CORE 1H 2017 1H 2018 Y-o-Y 2Q 17 1Q 18 2Q 18 Q-o-Q Y-o-Y (in
Slide 36: OTP Core mortgage and cash loan market share
Mortgage loan disbursement momentum remained strong in Hungary. OTP enjoys a dominant and even OTP Core improving market share in new mortgage and cash loan disbursements, as well as in retail savings Change of mortgage loan application and disbursement of Performing cash loan volume growth (y-o-y ,
Slide 37: OTP Core corporate business market share
Corporate business had a successful 6M period, too: volumes grew further and corporate lending market OTP Core share improved by 0.8 pp ytd; the bank was also active in commercial factoring and disbursement of EU funds Performing medium and large corporate loan volume change OTP Group’s market share
Slide 38: DSK Bank delivered strong results in 2Q 2018
DSK Bank delivered strong results in 2Q 2018. The strengthening business activity can be illustrated by DSK Bank Bulgaria soaring new retail loan sales Income statement New mortgage loan disbursements (in HUF billion) 2Q 17 1Q 18 2Q 18 Q-o-Q Y-o-Y (in HUF billion, without refinancing) Profit after t
Slide 39: OTP Bank Russia results
In 2Q the Russian profit decreased q-o-q due to seasonally higher risk cost, while operating profit improved by 2% in RUB terms. Performing loan volumes grew in the main retail as well as corporate segments y-o-y. OTP Bank Russia Risk cost rate stood at 5.5% in 1H Income statement DPD0-90 loan volum
Slide 40: OTP Bank Russia POS sales, cards and deposits
In 2Q POS sales decreased q-o-q due to seasonality while cash loan sales improved and performing credit OTP Bank Russia card volumes kept growing. Deposits increased q-o-q in RUB terms; LCY term deposit rates further declined POS loan disbursements (RUB billion) Development of customer deposits (RUB
Slide 41: OTP Bank Ukraine results
The Ukrainian profitability remained strong in 2Q, 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) 2Q 17 1Q 18 2Q 18 Q-o-Q Y-o-Y Profit after tax 2.5 5.8 5.4 -7% 117% 11 11 Pro
Slide 42: OBH (Croatia) results
In Croatia the elevated 2Q risk costs were mostly related to a single big corporate exposure. The first half OBH (Croatia) ROE was close to 10%. Corporate and consumer loan volumes kept on increasing Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 2Q 17 1Q 18 2Q
Slide 43: Decline of the consolidated DPD90+ ratio continued
The decline of the consolidated DPD90+ ratio continued. The risk cost rate sank 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 FX an
Slide 44: Consolidated DPD90+ formation subdued in 2Q 2018
In 2Q 2018 the consolidated DPD90+ formation was subdued; trends remained favourable in all geographies FX-adjusted quarterly change in DPD90+ loan volumes (without the effect of sales / write-offs, in HUF billion) Consolidated OTP Core OBRu1 OBU DSK OBR 31 (Hungary) (Russia) (Ukraine) (Bulgaria) (R
Slide 45: DPD90+ ratio decline in all key geographies
The overall trend of DPD90+ ratio decline continued q-o-q in all key geographies; the risk cost rates are hovering around all-time low levels OTP Core DSK Bank OTP Bank OTP Bank OTP Bank Hungary Bulgaria Croatia Russia1 Ukraine Risk cost for possible loan losses / Average gross customer loans2, % -1
Slide 46: DPD90+ ratios at the largest operations
At the largest operations the DPD90+ ratios typically 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 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 (Hungary) (pp) (Bulgaria) (
Slide 47: Reported CET1 was 14.6% in 2Q 2018
In 2Q 2018 the reported CET1 was 14.6%, but the CET1 capital does not include the 1H 2018 profit less indicated dividend; including these the CET1 would be 16.0% OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy ratios (under local regulation) 1H 1H 2013 2014 2015 2016 2017 BASE
Slide 48: OTP Bank and subsidiaries ratings
+ 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 49: 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 50: 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 51: Content
Content Investment Rationale 3-14 2Q 2018 Financial Performance of OTP Group 16-50 Macroeconomic overview 52-58 51
Slide 52: Hungary: economic growth forecasts
OTP Research expects 4.4% economic growth in Hungary in 2018; in 1H 2018 it reached 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 7.1% 1.7% 2.0% 2.4% 2.0% 3.4% 4.0% 4.4% 4.0% 23.5% 24.7% 22.0% 19.3% 21.5% 2.2% 20
Slide 53: Hungary: fiscal discipline 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 moderated, while external indebtedness fell further Budget balance (as % of GDP) Public debt (as % of GDP) The budget deficit might reach 2.4% of GDP in
Slide 54: Zero interest rate environment may 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 3.4% in July, due to the 8 8 15 Forecast Public sector wage Private sector wage sharp rise in fuel prices. After hitting 7 the peak we expect inflati
Slide 55: Key economic indicators Hungary
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 56: Russia and Ukraine macro outlook
Russia: slow recovery continues, supported by higher oil prices, rate cuts on hold due to the VAT hike in 2019, geopolitical risks rose further. Ukraine: GDP growth was 3.6% y-o-y in 2Q 2018, inflation is below 10%, IMF visit is due in September Russia GDP growth stood at 1.8% in 2Q 18. Higher oil p
Slide 57: Bulgaria, Croatia and Romania macro outlook
Bulgaria: slight slowdown of growth as output nears the potential level; Croatia: budget balance is in surplus, government debt declines fast, tourism posted strong start; Romania: growth picked up in 2Q; inflation marked a turning point; the 3% government deficit target is challenging Bulgaria Real
Slide 58: Growth can remain strong in CEE countries
Growth can remain strong in the next two years and macro trends are favourable in CEE countries 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 5.8% 7.1% 5.8% 6.0% Hungary 5.1% 4.2% 3.9% 3.9% Ukraine 2.3%
Slide 59: 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