Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — Q1 2017 Earnings Presentation
62 slides from Otp Bank Nyrt's earnings presentation, 2017
Slide 1: OTP Group Investor presentation based on 1Q 2017 results
OTP Group Investor presentation based on 1Q 2017 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-16 1Q 2017 Financial Performance of OTP Group 18-50 Macroeconomic overview 52-61 2
Slide 3: OTP Group offers universal banking services to almost 13 million customers in 9 countries
OTP Group is offering universal banking services to almost 13 million customers in 9 countries across the CEE/CIS Region Major Group Members in Europe Total Assets Systemic position in Hungary… Montenegro 1Q 2017 market share (%) Slovakia Serbia Romania 1% Total assets 25 Croatia 5% 4% OTP Bank Russ
Slide 4: Ownership structure of OTP Bank on 31 March 2017
OTP offers a unique investment opportunity to access the CEE banking sector. The Bank is a well diversified, transparent player without strategic investors Ownership structure of OTP Bank on 31 March 2017 Key features Total number of ordinary shares: 280,000,010, each having a Other* (Q-o-Q change)
Slide 5: Breakdown of the consolidated net loan book
The net loan book is dominated by Hungary and tilted to secured retail lending; 86% of the total book is invested in EU countries with stable earning generating capabilities Breakdown of the consolidated net loan book OTP Core1 (Hungary) DSK Bank (Bulgaria) (in HUF billion) Car-financing Mortgage 6%
Slide 6: Breakdown of the consolidated deposit base
In the deposit book Hungary and the retail segment is dominant. 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 By
Slide 7: Key pillars of the OTP investment rationale
Key pillars of the OTP investment rationale 1. Return on Equity has returned to attractive levels (>15% on 12.5% CET1 ratio) 2. A new era of structurally low risk environment has commenced 3. After years of deleveraging loan volumes show positive turnaround in Hungary 4. Strong capital and liquidity
Slide 8: Return on Equity has returned to attractive levels
1. Return on Equity has returned to attractive levels Consolidated ROE1, accounting ROE based on 12.5% CET1 ratio2 24.8 17.6 18.3 13.4 9.4 8.4 6.1 4.2 5.1 15.4 15.0 -7.4 Opportunity cost-adjusted3 consolidated accounting ROE over the average 10Y Hungarian government bond yields 16.6 12.3 11.5 4.3 2.
Slide 9: Accounting ROE and key performance indicators
1. The accounting ROE leaped since 2016 on the back of moderating provision charges and eroding negative adjustment items; the total revenue margin has been relatively resilient amid lower interest rate environment 2009 2010 2011 2012 2013 2014 2015 2016 1Q 17 Accounting ROE 13.4% 9.4% 6.1% 8.4% 4.2
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) 1Q 2017, Russia and Ukraine consolidated 313 CEE countries DPD90+ 254
Slide 11: Hungarian retail loan penetration ratios halved since 2010
In Hungary the retail loan penetration ratios halved since 2010 and returned to levels seen before the 3. lending boom Market penetration levels in Hungary in ... (in % of GDP) 28.5 Slovakia housing loans 22.9 Czech Republic 14.5 15.2 16.3 15.1 21.8 Poland 11.2 12.3 12.4 11.1 10.2 10.4 8.9 8.4 8.4 7
Slide 12: Hungary becoming a frontrunner in regional rally
For most of the indicators affecting loan dynamics, Hungary is becoming again a frontrunner in the 3. 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% 2.8% 3.3% 4.3% 4.4% 2.5% Czech Republic 4.6% 2.5% 2.6% 2.4% 3
Slide 13: Loan volumes show a definite turnaround at OTP Core
After years of loan volume contraction 2016 ad 1Q 2017 developments underpin a definite turnaround at 3. 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.: Effect of local firms 14.5% 12.0 YTD included in OTP 8.8 Core in 1Q 2017 3.0 4.7 2.
Slide 14: Strong capital and liquidity position
4. Strong capital and liquidity position coupled with robust internal capital generation Development of the fully loaded CET1 ratio of OTP Group Net liquidity reserves Net liquidity buffer / total (in EUR billion equivalent) assets (%) +0.8%p 8.3 22.4% 2.2% 15.8% 16.0% 0.6% 16.6% 13.5% 1.3 3.7% 2008
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 ~930 thousand ~100 thousand regular users users monthly1 monthly1 Monthly ATM cash ~200 thousand withdrawals in the contacts amount of HUF monthly1 ~240 billion2 1 Based on 4Q 2016 data. 2 Based on 2015 data. 15
Slide 16: 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 17: Content
Content Investment Rationale 3-16 1Q 2017 Financial Performance of OTP Group 18-50 Macroeconomic overview 52-61 17
Slide 18: 1Q accounting result grew by more than 50% y-o-y
The 1Q accounting result grew by more than 50% y-o-y. The balance of adjustments was nearly the same as a year ago. CEE Group members’ contribution grew by 23%, while the Russian and Ukrainian contribution increased to 3.5-fold (in HUF billion) Adjusted after tax results in the CEE countries1 Accoun
Slide 19: Aggregated after tax profit of CEE Group members grew by 23%
In 1Q 2017 the aggregated after tax profit of CEE Group members grew by 23% y-o-y, led by OTP Core, Romania and Merkantil (Hungarian leasing). The Croatian result turned into red due to the sharp increase in risk costs 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 Q-o-Q Y-o-Y in HUF billion Consolidated adjusted af
Slide 20: Adjustment items in 1Q 2017
In 1Q 2017 only one major adjustment item emerged: the banking tax. The annual Hungarian banking tax was recognized in a lump-sum already in 1Q, while the Slovakian banking tax is booked quarterly 1Q 16 16 4Q 17 1Q Q-o-Q Y-o-Y in HUF billion Consolidated after tax profit (accounting) 34.3 26.5 52.9
Slide 21: Improvement in adjusted after tax profit due to declining risk costs
The spectacular q-o-q improvement in adjusted after tax profit was due to declining risk costs and moderating effective tax rate. The operating profit grew by 4% q-o-q despite total income for the quarter shrinking by 3% 1Q 16 4Q 16 1Q 17 Q-o-Q Y-o-Y in HUF billion Consolidated adjusted after tax pr
Slide 22: Management expectations for 2017
Strong performance in 2016 and 1Q 2017 validates the management’s mid-term ROE target of above 15% (based on 12.5% CET1 ratio) Management expectations for 2017 The management’s ROE target of >15% (based on 12.5% CET1) remains valid for 2017. Apart from the negative impact of the Hungarian and Slovak
Slide 23: Miscellaneous 1: Acquisition of Splitska banka
Miscellaneous – 1. On 2 May 2017, based on the acquisition agreement on purchasing 100% shareholding of Splitska banka d.d., member of Société Acquisition Générale Group signed on 20 December 2016 between OTP banka Hrvatska, the Croatian subsidiary of OTP Bank and Société of Splitska Générale Group,
Slide 24: Miscellaneous 2: customer-friendly housing loan
Miscellaneous – 2. On 9 March 2017 the National Bank of Hungary (NBH) published an announcement according to which NHB is going to introduce a “customer-friendly housing loan” certification and only those banks whose housing loan products meet certain conditions laid down by NBH can use the “custome
Slide 25: Total income by group member
Consolidated total income increased by 6% y-o-y with slight decline at OTP Core, but decent growth in Russia supported by the FX translation effect, too. The q-o-q decline was mainly explained by base effect at OTP Asset Management TOTAL INCOME – 1Q 2017 Y-o-Y Y-o-Y Q-o-Q Q-o-Q without one-off items
Slide 26: Net interest income
The net interest income marginally eroded q-o-q due to calendar effect and base effects; on the other hand, stronger RUB had a positive impact on the Russian NII contribution NET INTEREST INCOME – 1Q 2017 Q-o-Q Q-o-Q 1 (HUF billion) At OTP Core the 5% q-o-q NII decline was partly reasoned (HUF billi
Slide 27: Consolidated net interest margin
The consolidated net interest margin eroded by 2 bps compared to the full-year 2016 level. Without one-timers the margin of OTP Core would have declined by 7 bps q-o-q, while DSK would have experienced a 24 bps NIM attrition. Romania, Croatia and Ukraine, on the other hand, saw widening margins over
Slide 28: Consolidated performing loans increased by 1% q-o-q
Consolidated performing loans increased by 1% q-o-q and 8% y-o-y (+4% y-o-y w/o AXA take-over and broadening of OTP Core definition), led by corporate loan expansion in Hungary and Bulgaria, and reviving consumer loan demand in Russia DPD0-90 volumes Q-o-Q loan volume changes in 1Q 2017, adjusted fo
Slide 29: New household loan disbursements
In 1Q 2017 new household loan disbursements improved significantly y-o-y at OTP Core and at almost all subsidiaries Y-o-Y change of new disbursements (in local currency) – 1Q 2017 Core DSK OBRu OBU OBR OBH OBS OBSr CKB (Hungary) (Bulgaria) (Russia) (Ukraine) (Romania) (Croatia) (Slovakia) (Serbia) (
Slide 30: Consolidated deposit base growth
The consolidated deposit base showed a strong 6% growth y-o-y, but decreased by 1% q-o-q. The strength of the Hungarian and Bulgarian franchises is reflected in the steadily strong retail deposit inflows (+15% and +7%, respectively) Q-o-Q deposit volume changes in 1Q 2017, adjusted for FX-effect Tot
Slide 31: Net fee and commission income
The net fee and commission income declined by 8% q-o-q mainly due to a seasonal setback at OTP Fund Management NET FEE AND COMMISSION INCOME – 1Q 2017 Q-o-Q Q-o-Q (HUF billion) (HUF billion) (%) 1 At OTP Core the quarterly decline was explained by the fact OTP that similar to previous years, the 100
Slide 32: Other net non-interest income
The other net non-interest income remained relatively stable q-o-q OTHER NET NON-INTEREST INCOME – 1Q 2017 Q-o-Q Q-o-Q without one-off items (HUF billion) (HUF billion) (%) OTP 100% 12.0 -0.2 -2% 1 At OTP Core the q-o-q change Group was mainly induced by a base OTP CORE 1 51% 6.1 3.1 106% effect: in
Slide 33: Operating costs
Consolidated operating costs grew by 8% y-o-y (+4% adjusted for FX rate changes), explained by higher costs at OTP Core, Touch Bank and OTP Bank Russia. Romania demonstrated efficient utilization of synergies from the Millennium deal OPERATING COSTS – 1Q 2017 Y-o-Y Y-o-Y Y-o-Y Y-o-Y 1 (HUF billion)
Slide 34: OTP Core 1Q 2017 performance
The 1Q 2017 performance of OTP Core was shaped by declining effective corporate tax rate, OTP Core lower net interest income and risk cost releases OTP CORE 1Q 16 4Q 16 1Q 17 Q-o-Q Y-o-Y (in HUF billion) Profit after tax 28.9 23.8 40.8 71% 41% 1 Corporate tax -10.8 -6.2 -5.2 -16% -52% Before tax pro
Slide 35: Mortgage applications and market share of OTP Core
Mortgage loan applications and disbursements accelerated further. OTP’s market share remained strong in OTP Core 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 (1Q 20
Slide 36: DSK Bank Bulgaria
Net earnings rebounded massively q-o-q and remained fairy stable y-o-y. NIM erosion (partially explained DSK Bank Bulgaria by technical and one-off items) continued, but coupled with parallel moderation in risk cost rate Income statement Net interest margin (in HUF billion) 1Q 16 4Q 16 1Q 17 Q-o-Q Y
Slide 37: OTP Bank Russia
The Russian subsidiary further improved its profit in 1Q 2017 as a result of operating profit increasing. OTP Bank Russia FX-adjusted performing POS and cash loan volumes grew y-o-y due to the favourable new disbursements Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF bi
Slide 38: OTP Bank Russia loans and deposits
In 1Q 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 39: Russia: key economic indicators and retail loans
The recovery of domestic demand is sluggish, but retail lending has bottomed out by mid-2016 Russia Key economic indicators Retail loans 14.0 14.6 Loan stock / GDP 13.1 12.8 12.3 OTP Research 11.6 2012 2013 2014 2015 2016 2017F 2018F Loan flow / GDP Nominal GDP (RUB bn) 66,927 71,017 79,200 83,233 8
Slide 40: OTP Bank Ukraine
In Ukraine profitability further improved in 1Q 2017 due to moderating risk cost, stringent cost control, OTP Bank Ukraine stable net interest margin and q-o-q slightly lower performing loan volumes Income statement Net interest margin (in HUF billion) 1Q 16 4Q 16 1Q 17 Q-o-Q Y-o-Y 8.33% 9.02% Profi
Slide 41: OTP Bank Ukraine rankings
OTP Bank Ukraine excelled in terms of nominal profit despite its low ranking by total assets. Intragroup OTP Bank Ukraine funding remained stable q-o-q, but the net loan to deposit ratio sank further Ranking of Ukrainian banks by total assets Ranking of Ukrainian banks by after tax result 1 PrivatBa
Slide 42: OTP Bank Romania
OTP Bank Romania demonstrated strong profitability in 1Q 2017, supported by favourable margins and the OTP Bank Romania cost efficiency gains thanks to the exploitation of cost synergies after the Banca Millennium transaction Income statement Net interest margin (in HUF billion) 1Q 16 4Q 16 1Q 17 Q-
Slide 43: Consolidated risk costs and DPD90+ ratio
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 44: FX-adjusted DPD90+ formation
In 1Q 2017 the FX-adjusted DPD90+ formation sank to HUF 3 billion. 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 OTP Core OBRu OBU DSK OBR 68 (
Slide 45: Risk cost rate and DPD90+ ratio by member
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 1.1 8.2 13.0 (2016) (201
Slide 46: DPD90+ ratio by member
At OTP Core, DSK Bank and the Russian operation the DPD90+ ratio decreased q-o-q partly as a result of DPD90+ portfolio sales and write-offs DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q OTP Bank Q-o-Q 1Q16 2Q16 3Q16 4Q16 1Q17 2Q16 3Q16 4Q16 1Q17 (Hungary) (%-point) Russia 1Q16 (%-point) Total 11
Slide 47: Restructured retail volumes
Restructured retail volumes slightly increased q-o-q on group level Definition of retail Restructured retail loans with less than 90 days of delinquency restructured loans: 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 In comparison with the original terms and HUF mn %1 HUF mn %1 HUF mn %1 HUF mn %1 HUF
Slide 48: Consolidated capital adequacy ratios
In 1Q 2017 the reported CET1 was 16.0%, but the CET1 capital does not include the 1Q 2017 profit less indicated dividend; including these items the CET1 would have been 16.6%, reflecting strong underlying capital generation OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy ratio
Slide 49: Stable, outstanding capital position
Continuously stable, outstanding capital position both on stand-alone and on 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 1Q 2016 4Q 2016 1Q 2017 in HUF million 1Q 2016
Slide 50: OTP Bank and subsidiary 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 Moody's Moody's Hungary rating Baa3
Slide 51: Content
Content Investment Rationale 3-16 1Q 2017 Financial Performance of OTP Group 18-50 Macroeconomic overview 52-61 51
Slide 52: Hungary: GDP growth expected to accelerate to around 4% in 2017
After a temporary slowdown in 2016 GDP growth is expected to accelerate to around 4% in 2017. The dynamic Hungary growth of household consumption is going to be the main driver of the economy for a longer period of time Balance Growth Budget deficit Real GDP growth Investments to GDP 7.2% 4.0% 3.9%
Slide 53: Hungary: budget position and external indebtedness
Without jeopardizing fiscal balance the government intends to accelerate spending on investments. Hungary The current account surplus reached all-time high level in 2016, and the external indebtedness fell further The budget position remains Budget balance (as % of GDP) Public debt (as % of GDP) out
Slide 54: 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 55: Hungary: inflation, wages and base rate
CPI is expected to hit the NBH’s 3% target later this year, but only for a short period, hence the base rate is Hungary expected to remain on hold. The comfortable budgetary position may result in further selective VAT-cuts A slow growth in underlying inflation is masked by selective VAT cuts and ve
Slide 56: Hungary: GDP growth forecast
1Q 2017 GDP growth exceeded market expectations by a wide margin. The economy is on track to achieve Hungary about 4% y-o-y GDP growth this year; we foresee election year (2018) to bring further acceleration 1Q GDP growth jumped to 4.1% y-o-y and annualized q-o-q GDP (%) Consensus on long-term growt
Slide 57: Hungary: key economic indicators
Temporary slowdown in 2016 coupled with reviving consumption and strong balance indicators. Hungary In 2017 growth may accelerate to close to 4% and further in 2018 Key economic indicators OTP Research Focus Economics* 2013 2014 2015 2016 2017F 2018F 2017F 2018F Nominal GDP (at current prices, HUF b
Slide 58: Russia and Ukraine macro outlook
Russia: private consumption may have turned the corner; inflation fell to CBR’s target level prompting a rate-cutting cycle. Ukraine: GDP growth was 2.4% y-o-y in 1Q 2017, inflation stabilized around 12% Russia Real GDP growth (OTP estimation, %, Retail sales and real wages Inflation (y-o-y %) and U
Slide 59: Romania, Bulgaria and Slovakia macro outlook
Romania: GDP grew by 4.8% last year, the largest y-o-y gain since 2008; the budget deficit may exceed 3%. Bulgaria: solid growth, increasing retail trade, positive signs on the housing market. Slovakia: 3.1% y-o-y growth in 1Q Real GDP growth (%, SA annualized ESA-2010 deficit (4Q avg., l.h.s.), Wag
Slide 60: 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 slowed to 1.0% y-o-y in 1Q from 2.5% in 4Q; Montenegro: modest growth shadowed by imbalances Croatia GDP growth overshot expectations in 2016. According to supranationals, Cr
Slide 61: General macro trends in CEE countries
General macro trends remained favourable in CEE countries with growth levels exceeding EU average, while Russia and Ukraine are underperformers with modestly improving outlook REAL GDP GROWTH EXPORT GROWTH UNEMPLOYMENT 2015 2016 2017F 2018F 2015 2016 2017F 2018F 2015 2016 2017F 2018F Hungary 3.1% 2.
Slide 62: 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