Slide 1: OTP Group Investor presentation based on 1Q 2019 results
OTP Group Investor presentation based on 1Q 2019 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-21 Details on financial performance 23-49 Macroeconomic overview 51-57 2
Slide 3: Key pillars of the OTP investment rationale
1. 2. Key pillars of the OTP investment rationale 3. 4. 5. 1. Unique diversified access to the CEE/CIS banking sector 2. Strong profitability with ROE remaining at attractive levels 3. Outstanding loan volume expansion supported by organic growth and new acquisitions 4. Strong capital and liquidity
Slide 4: OTP Group offers universal banking services to almost 18.5 million customers in 10 countries
1. OTP Group is offering universal banking services to almost 18.5 million customers in 10 countries across 2. 1. 3. the CEE/CIS Region 4. 5. Major Group Members in Europe Total Assets Systemic position in Hungary… Ukraine Montenegro 1Q 2019 market share (%) Slovakia Albania Serbia 1% Total assets 2
Slide 5: OTP Group's Capabilities
1. OTP offers a unique investment opportunity to access the CEE banking sector. The Bank is a well diversified, 2. 1. 3. transparent player without strategic investors 4. 5. Market capitalization: EUR 10.9 billion1 Total number of ordinary shares: 280,000,010, each having a nominal Ownership structu
Slide 6: The net loan book is dominated by Hungary and tilted to retail lending
1. The net loan book is dominated by Hungary and tilted to retail lending; around 85% of the total book is 2. 1. 3. on-lended in EU countries with stable earning generation capabilities 4. 5. Breakdown of the consolidated net loan book OTP Core1 (Hungary) DSK Bank (Bulgaria) (in HUF billion) Car-fin
Slide 7: In the deposit book Hungary and the retail segment is dominant
1. In the deposit book Hungary and the retail segment is dominant. In Hungary and Bulgaria OTP and DSK 2. 1. 3. are the largest retail deposit holders 4. 5. Breakdown of the consolidated deposit base OTP Core (Hungary) DSK Bank (Bulgaria) (in HUF billion) Retail sight Corporate Retail sight Corporat
Slide 8: In 1Q 2019 accounting profit grew by 12% y-o-y, adjusted profit by 14%
1. In 1Q 2019 the accounting profit grew by 12% y-o-y, while the adjusted profit increased by 14%. The profit 2. 2. 3. contribution of foreign subsidiaries improved to 50% 4. 5. After taxforintban) (milliárd profit development y-o-y (in HUF billion) After tax profit development q-o-q (in HUF billion
Slide 9: In the first quarter the Return on Equity remained at attractive levels
1. 2. 2. In the first quarter the Return on Equity remained at attractive levels 3. 4. 5. Consolidated Return on Equity (%) adjusted ROE accounting ROE 22.3% 21.2% 19.1% 19.7% 19.8% 18.7% 13.7% 21.9% 18.5% 18.7% 19.6% 16.2% 17.1% 15.9% 2017 2018 1Q 2Q 3Q 4Q 1Q 2018 2019 9
Slide 10: The accounting ROE has consistently been above 15% since 2016
1. The accounting ROE has consistently been above 15% since 2016 on the back of moderate provision 2. 2. 3. charges and vanishing negative adjustment items 4. 5. 2011 2012 2013 2014 2015 2016 2017 2018 1Q 2019 Accounting ROE 6.1% 8.4% 4.2% -7.4% 5.1% 15.4% 18.5% 18.7% 15.9% Adjusted ROE1 11.8% 10.2%
Slide 11: Turnaround in loan volumes while deposits grew steadily
1. Following the contraction in the preceding years, the last 3 years brought a spectacular turnaround in loan 2. 3. 3. volumes, while deposits have been growing steadily reflecting our clients' trust in the Bank 4. 5. Y-o-Y performing (DPD0-90) loan volume changes 1 (adjusted for FX-effect, %) Cons
Slide 12: Consolidated performing loans surged by 26% y-o-y
1. Consolidated performing (DPD0-90) loans surged by 26% y-o-y, within that the organic growth reached 14% 2. 3. 3. (without the new acquisitions in Bulgaria and Albania). The Hungarian expansion rate remained strong 4. 5. Y-o-Y performing (DPD0-90) loan volume changes in 1Q 2019, adjusted for FX-ef
Slide 13: Hungarian loan penetration levels are still low in regional comparison
1. 2. The Hungarian loan penetration levels are still low in regional comparison implying good volume growth 3. 3. potential. This is the case for Romania, as well as for the Bulgarian housing loan segment 4. 5. Market penetration levels in Hungary in ... (in % of GDP) 31.3 Slovakia housing loans 23
Slide 14: Consolidated deposits went up by 17% y-o-y
1. Consolidated deposits went up by 17% y-o-y, even without acquisitions the growth remained double digit 2. 3. 3. driven by steady inflows in the Hungarian retail segment, as well as outstanding expansion in Romania 4. 5. Y-o-Y deposit volume changes in 1Q 2019, adjusted for FX-effect Cons. Core DS
Slide 15: Acquisitions in the last 2 years materially improved OTP's positions
1. Acquisitions in the last 2 years materially improved OTP’s positions in many countries. The pro forma CET1 2. 3. 3. ratio impact of the on-going Serbian, Moldovan, Montenegrin and Slovenian transactions is -2.7 pps 4. 5. Target Net loan volumes Market share in total assets Book value (seller, dat
Slide 16: OTP Bank announced the acquisition of SocGen's Slovenian operation
1. On 3 May 2019 OTP Bank announced the acquisition of SocGen’s Slovenian operation; 2. 3. Slovenia SKB Banka is the 4th largest player in the Slovenian market 4. 5. Market share and equity of Slovenian banks Net loans Customer deposits (2018, in EUR million) (HUF billion) (HUF billion) Total Market
Slide 17: Albanian transaction completed; Banka Kombëtare market overview
1. On 29 March 2019 the financial closure of the Albanian transaction has been completed; 2. 3. Albania OTP Bank Albania is the 5th largest bank on the Albanian banking market with a market share of 6% 4. 5. Market share and equity of Albanian banks Net loans Customer deposits (2018, in EUR million
Slide 18: Strong capital and liquidity position with sound internal capital generation
1. Strong capital and liquidity position coupled with sound internal capital generation. 1Q 2019 capital 2. 4. 3. adequacy ratios already include the consolidation impact of the Bulgarian and Albanian subsidiaries 4. 5. Development of the fully loaded CET1 ratio of OTP Group Net liquidity reserve (i
Slide 19: The Hungarian GDP growth is expected to be the highest in 2019, too
1. 2. 5. The Hungarian GDP growth is expected to be the highest in 2019, too 3. 4. 5. 2018 GDP growth1 (y-o-y) 2019F GDP growth (y-o-y) Hungary 4.9% Hungary 4.5% Bulgaria 3.1% Bulgaria 3.3% Romania 4.1% Romania 3.5% Russia 2.3% Russia 1.8% Ukraine 3.3% Ukraine 2.7% Slovakia 4.1% Slovakia 3.6% Croati
Slide 20: OTP Group: management expectations for 2019 – 1.
1. 2. 5. Strong growth dynamics may continue in 2019, supported by both organic and acquisitive expansion 3. 4. 5. OTP Group: management expectations for 2019 – 1. The ROE target of above 15% announced at the 2015 Annual General Meeting remains in place. Apart from the negative impact of the Hungari
Slide 21: OTP Group: management expectations for 2019 – 2.
1. 2. 5. The dividend proposal after the 2019 financial year will be formulated in 1Q 2020 3. 4. 5. OTP Group: management expectations for 2019 – 2. The dividend proposal after the 2019 financial year will be decided by the management in 1Q 2020, similar to the practice concerning the 2018 dividend
Slide 22: Content
Content Investment Rationale 3-21 Details on financial performance 23-49 Macroeconomic overview 51-57 22
Slide 23: Banking tax and acquisitions were the two major adjustment items
In 1Q 2019 the banking tax and the effect of acquisitions were the two major adjustment items (in HUF billion) 1Q 18 4Q 18 1Q 19 Q-o-Q Y-o-Y Consolidated after tax profit (accounting) 65.1 77.8 72.6 -7% 12% Adjustments (total) -14.2 15.3 -17.8 -151% -45% Dividends and net cash transfers (after tax)
Slide 24: Profit before tax (without one-offs) increased by 12% y-o-y
In 1Q 2019 profit before tax (without one-offs) increased by 12% y-o-y and 52% q-o-q. The operating profit without acquisitions improved by 10% y-o-y 1Q 18 4Q 18 1Q 19 Q-o-Q Y-o-Y 1Q 19 Y-o-Y HUF billion without acquisitions1 Consolidated adjusted after tax profit 79.3 62.5 90.4 45% 14% 85.2 7% Corp
Slide 25: Profit contribution by subsidiary improved
Primarily the Hungarian, Bulgarian, Croatian, Ukrainian and Serbian profit contribution improved remarkably; the Bulgarian 1Q profit incorporates HUF 5.2 billion from the newly acquired Expressbank Adjusted profit after tax (in HUF billion) 1Q 2018 1Q 2019 Y-o-Y OTP Group 79.3 90.4 14% OTP Core (Hun
Slide 26: Performing loans expanded by 12% q-o-q
Consolidated performing (Stage 1 + 2) loans expanded by 12% q-o-q, while the organic growth was seasonally weaker (+1%) driven by strong performances in Bulgaria, Ukraine, Romania and Montenegro Q-o-Q performing (Stage 1 + 2) loan volume changes in 1Q 2019, adjusted for FX-effect Cons. Core DSK OBRu
Slide 27: Consolidated deposits increased by 1% q-o-q organically
Consolidated deposits increased by 1% q-o-q organically and by 10% including the effect of acquisitions in Bulgaria and Albania Q-o-Q deposit volume changes in 1Q 2019, adjusted for FX-effect Cons. Core DSK OBRu OBH OBU OBR OBSr CKB OBS (Hungary) (Bulgaria) (Russia) (Croatia) (Ukraine) (Romania) (Se
Slide 28: Consolidated 1Q net interest margin broadly stable q-o-q
The consolidated 1Q net interest margin remained broadly stable q-o-q, but went up by 4 bps without the effect of new acquisitions Net interest margin (%) OTP Group NIM guidance for 2019: NIM started to flatten out In 1Q 2019 the net interest margin in 2018, and the margin without acquisitions may w
Slide 29: Net interest margin development at the largest Group members
The net interest margin of OTP Core improved q-o-q, in Bulgaria and Russia the declining trend continued. Margins kept on improving in the Ukraine. The Romanian margin declined in the first quarter Net interest margin development at the largest Group members (%) 1 1 At OTP Core the q-o-q NIM improve
Slide 30: Total income grew by 16% y-o-y
Total income grew by 16% y-o-y driven partly by the Expressbank deal, but even without that the yearly Effect of dynamics would have been double digit (+11%). Total income without acquisition remained stable q-o-q acquisitions TOTAL INCOME 1Q 2019 Y-o-Y Q-o-Q without one-off items (HUF billion) (HUF
Slide 31: Net interest income grew by 8% y-o-y even without acquisitions
Net interest income grew by 8% y-o-y even without acquisitions as a result of steady loan expansion. Effect of On quarterly basis NII increased despite the negative calendar effect (but declined adjusted for M&A impact) acquisitions 1Q 2019 Y-o-Y Q-o-Q 1 NET INTEREST INCOME % Amid eroding NIM OTP Co
Slide 32: Net fee income grew by 10% y-o-y without acquisitions
The net fee income grew by 10% y-o-y even without the effect of acquisitions. The q-o-q decline was mainly Effect of due to seasonality acquisitions 1Q 2019 Y-o-Y Q-o-Q 1 NET FEE INCOME % Core net fees went up by 8% y-o-y, (HUF billion) (HUF billion, %) (HUF billion, %) supported by stronger card, d
Slide 33: Other net non-interest income boosted by acquisitions
The other net non-interest income was boosted by the effect of acquisitions and better results at OTP Core Effect of and Romania acquisitions OTHER INCOME 1Q 2019 Y-o-Y Q-o-Q 1 without one-off items (HUF billion) (HUF billion, %) (HUF billion, %) The HUF 2.5 billion q-o-q growth at OTP Core was supp
Slide 34: Operating costs grew by 11% y-o-y adjusted for Expressbank and FX
Operating costs grew by 11% y-o-y adjusted for Expressbank and FX-effect, fuelled by higher IT and digital Effect of developments-related costs, as well as wage inflation acquisitions OPERATING COSTS 1Q 2019 Y-o-Y Y-o-Y, FX-adjusted 1 (HUF billion) Operating expenses increased by 17% (HUF billion) (
Slide 35: Croatia: Splitska integration completed, cost saving realized
In Croatia the Splitska integration was completed, the realized cost saving of HUF 1.5 billion is 31% of the Croatia smaller bank’s cost base. In 1Q the Croatian ROE calculated with effective capital was above 15% Operating cost saving (milliárd forintban) Operating expenses of OTP Bank Croatia and
Slide 36: OTP Core after tax profit improved by 2% y-o-y
The after tax profit of OTP Core improved by 2% y-o-y, driven by the 1% decline in operating profit and OTP CORE 2% higher positive risk costs. Total income (without one-off revenue items) expanded by 9% y-o-y OTP CORE 1Q 2018 4Q 2018 1Q 2019 Q-o-Q Y-o-Y (in HUF billion) Profit after tax 39.1 40.8 3
Slide 37: OTP Core: mortgage lending trend and market shares
The upward trend of mortgage lending remained in place in Hungary. OTP enjoys an improving market share OTP CORE in new cash loan disbursements, as well as in retail savings Change of mortgage loan application and disbursement of Performing (DPD0-90) cash loan volume growth OTP Bank (1Q 2019, y-o-y
Slide 38: OTP Core: corporate lending and market share
In the MSE segment OTP Core managed to demonstrate 5% volume dynamics, whereas the medium and OTP CORE large corporate loans declined by 2%. OTP’s market share in corporate loans remained above 14% Performing (DPD0-90) medium and large corporate loan OTP Group’s market share in loans to Hungarian co
Slide 39: DSK Bank Bulgaria posted HUF 17.6 billion profit in 1Q
The Bulgarian operation posted HUF 17.6 billion profit in 1Q, including HUF 5.2 billion made by Expressbank. DSK Bank Bulgaria The strengthening business activity was reflected in the trend-like improvement in cash loan sales Income statement Market share by total assets in 1Q 2019 (in HUF billion)
Slide 40: OTP Bank Russia profit improved massively q-o-q
The Russian profit improved massively q-o-q driven by increasing operating profit and halving risk costs. OTP Bank Russia POS and cash loans were the major engine behind the robust y-o-y volume expansion Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 1Q 18 4Q 18
Slide 41: OTP Bank Russia: POS loan sales and deposit developments
POS loan sales grew by 58% y-o-y, while cash loan disbursement moderated. Deposit volume developments OTP Bank Russia reflected the weaker overall loan growth in 1Q, deposit rates remained almost flat q-o-q POS loan disbursements (RUB billion) Development of customer deposits (RUB billion) 60 46 58
Slide 42: Ukrainian ROE remained above 50% in 1Q 2019
The Ukrainian ROE remained above 50% in 1Q 2019 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) 1Q 18 4Q 18 1Q 19 Q-o-Q Y-o-Y Profit after tax 5.8 6.2 8.3 34% 42% 17 18 Profit
Slide 43: Croatian ROE improved further on cost synergies
The Croatian ROE improved further, underpinned by the extracted cost synergies from the Splitska acquisition OBH (Croatia) and the benign risk environment Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 1Q 18 4Q 18 1Q 18 Q-o-Q Y-o-Y Mortgage loans Profit after ta
Slide 44: Stage 3 loans amounted to 8.2% of gross loan portfolio
At the end of 1Q the Stage 3 loans amounted to 8.2% of the gross loan portfolio, while the own coverage of Stage 3 loans is higher in comparison with our regional competitors (compared to 4Q 2018 levels) OTP Group - consolidated Stage 3 ratio1 OTP Group - own coverage of consolidated Stage loans1 re
Slide 45: Credit quality indicators remained favourable
Credit quality indicators remained favourable. Out of the quarterly growth of DPD90+ loan volumes HUF 9 billion was related to the consolidation of Expressbank. The 1Q consolidated risk cost rate was the same as in 2018 Change in DPD90+ loan volumes (consolidated, adjusted for FX Consolidated provis
Slide 46: Consolidated DPD90+ formation picked up due to Expressbank
In 1Q 2019 the consolidated DPD90+ formation picked up mainly as a result of the Expressbank transaction; otherwise, 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 OBRu
Slide 47: Declining Stage 3 ratio trend continued in key geographies
The declining trend of Stage 3 ratio continued in all key geographies, with risk cost rates remaining favourable OTP Core DSK Bank OTP Bank OTP Bank OTP Bank Hungary Bulgaria Croatia Russia Ukraine Provision for impairment on loan and placement losses / Average gross customer loans1, % -1.6 0.7 0.3
Slide 48: Reported Tier1=CET1 ratio of 14.9% and CAR of 16.5%
In 1Q 2019 the reported Tier1=CET1 ratio of 14.9% and CAR of 16.5% already included the completed Bulgarian and Albanian acquisitions and the interim profit less dividend due to the review according to ISRE 2410 auditing standards OTP Group consolidated capital adequacy ratios (IFRS) Capital adequac
Slide 49: 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 S&P Hungary ratin
Slide 50: Content
Content Investment Rationale 3-21 Details on financial performance 23-49 Macroeconomic overview 51-57 50
Slide 51: Hungary: GDP growth can be around 4.5% in 2019
After the very robust expansion of 5.3% y-o-y in 1Q, GDP growth can be around 4.5% in 2019. Hungary Soaring investment can be the strongest catalyst of growth Balance Growth Budget deficit Real GDP growth Investment to GDP 7.1% 25.5% 29.5% 2.2% 2.2% 4.9% 4.5% 22.0% 19.3% 21.5% 1.6% 1.6% 3.5% 4.1% 2.
Slide 52: Hungary: fiscal position, public debt and current account
Better-than-expected 2018 fiscal position makes 2019 deficit target safely attainable. Public debt can drop to Hungary as low as 64% by 2021. The current account surplus moderated, while external indebtedness fell further Budget balance (as % of GDP) Public debt (as % of GDP, including Eximbank) The
Slide 53: National Bank of Hungary hiked the O/N deposit rate
The National Bank of Hungary hiked the O/N deposit rate by 10 bps in March and started to tighten liquidity Hungary through FX swap volumes. Any further steps will be data driven Inflation (y-o-y, %) Unemployment rate (%) Both the inflation and the closely watched constant tax core inflation climbed
Slide 54: Hungary's economic growth may have reached the cyclical peak
Hungary’s economic growth may have reached the cyclical peak in 2018, but GDP growth may remain Hungary strong even under a deteriorating external environment Key economic indicators OTP Research Focus Economics* 2014 2015 2016 2017 2018 2019F 2019F 2020F Nominal GDP (at current prices, HUF billion)
Slide 55: Bulgaria, Croatia and Romania macro outlook
Bulgaria: GDP growth was surprisingly strong in 1Q, defying downside risks; Croatia: solid but moderating GDP growth with improving balance indicators; Romania: stellar GDP growth, but the budget execution remains a major risk factor Bulgaria Real GDP growth (%, SA, annualized Exports (2010=100; LHS
Slide 56: Russia and Ukraine macro outlook
Russia: 2019 brings a temporary slowdown, oil prices help to accumulate reserves, geopolitical risks are still high Ukraine: GDP growth was 2.2% y-o-y in 1Q 2019, inflation is below 9%, the NBU started its easening cycle Russia GDP growth slowed sharply to 0.5% y-o-y in Real GDP growth (%, SA, annua
Slide 57: General macro trends remained 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 2017 2018 2019F 2020F 2017 2018 2019F 2020F 2017 2018 2019F 2020F Hungary 4.1 4.9 4.5 3.1 Hu
Slide 58: Disclaimers and contacts
Disclaimers and contacts This presentation contains statements that are, or may be deemed to be, “forward-looking statements” which are prospective in nature. These forward-looking statements may be identified by the use of forward-looking terminology, or the negative thereof such as “plans", "expec