Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — Q4 2018 Earnings Presentation
60 slides from Otp Bank Nyrt's earnings presentation, 2019
Slide 1: OTP Group Investor presentation based on 4Q 2018 results
OTP Group Investor presentation based on 4Q 2018 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-21 Details on financial performance 23-51 Macroeconomic overview 53-59 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. All-time high profit, outstanding ROE 3. Outstanding loan volume expansion supported by organic growth and new acquisitions 4. Strong capital and liquidity position 5. Supporting
Slide 4: Universal banking services to 18.4 million customers in 9 countries
1. OTP Group is offering universal banking services to 18.4 million customers in 9 countries across the 2. 1. 3. CEE/CIS Region 4. 5. Major Group Members in Europe Total Assets Systemic position in Hungary… Ukraine 4Q 2018 market share (%) Slovakia Montenegro Serbia 2% 3% Total assets 26 Russia 4% 3
Slide 5: OTP Group's Capabilities
1. OTP offers a unique investment opportunity to access the CEE banking sector. The Bank is a well 2. 1. 3. diversified, transparent player without strategic investors 4. 5. Market capitalization: EUR 10.4 billion1 Total number of ordinary shares: 280,000,010, each having a nominal (Q-o-Q Ownership
Slide 6: Net loan book dominated by Hungary and 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. invested 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-fina
Slide 7: Deposit book breakdown
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) Corporate Retail sight Corporate Retail sigh
Slide 8: Accounting profit grew by 13% in 2018
1. The accounting profit grew by 13% in 2018, while the adjusted profit increased by 15%. The annual profit 2. 2. 3. contribution of foreign subsidiaries improved to 38% 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: Profitability of OTP Group highest among European banking groups
1. 2. 2. The profitability of OTP Group is the highest among European banking groups 3. 4. 5. Return on Equity (ROE) of European banking groups1, 2018 (%) Regional banks 19 16 16 14 13 13 12 12 11 10 10 9 9 9 9 9 9 8 8 8 8 8 7 7 5 5 4 4 2 0 Standard Chartered RBS OTP Group HSBC ING Group CaixaBank I
Slide 10: Accounting ROE growing steadily since 2015
1. The accounting ROE has been growing steadily since 2015 on the back of moderating provision charges 2. 2. 3. and vanishing negative adjustment items 4. 5. 2010 2011 2012 2013 2014 2015 2016 2017 2018 Accounting ROE 9.4% 6.1% 8.4% 4.2% -7.4% 5.1% 15.4% 18.5% 18.7% Accounting ROE on 5.4% 17.6% 22.4
Slide 11: Net loan growth stands out from European banking groups
1. 2. The 15% y-o-y net loan growth of OTP Group stands out from European banking groups, thanks to the 3. 3. increasing loan demand amid supportive economic environment 4. 5. Net loan growth of European banking groups1 in 2018 (y-o-y, %) Regional banks (organic) 15 9 7 7 7 7 6 5 4 4 4 4 4 4 4 3 3 3
Slide 12: Turnaround in loan volumes, steady deposit growth
1. Following the contraction in the previous 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, %) Conso
Slide 13: Consolidated performing loans surged by 15% y-o-y
1. Consolidated performing loans surged by 15% y-o-y organically. Hungarian growth was even higher at 18% 2. 3. 3. with steady consumer and corporate portfolio expansion and housing loan growth above 10% 4. 5. Y-o-Y performing (DPD0-90) loan volume changes in 4Q 2018, adjusted for FX-effect Cons. Co
Slide 14: Hungarian loan penetration 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 15: Consolidated deposit base increased by 8% y-o-y
1. The consolidated deposit base increased by 8% y-o-y driven by steady inflows in the Hungarian retail 2. 3. 3. segment and strong Bulgarian, Russian, Ukrainian, Romanian, Serbian and Montenegrin performances 4. 5. Y-o-Y deposit volume changes in 4Q 2018, adjusted for FX-effect Cons. Core DSK OBRu2
Slide 16: Acquisitions concluded at average 1 Price to Book multiple
1. Acquisitions in the past 2 years were concluded at an average of 1 Price to Book value multiple. 2. 3. 3. Transactions have improved our market positions materially paving the way for better economies of scale 4. 5. Target Net loan volumes Market share in total assets Book value (seller, date of
Slide 17: Strong capital and liquidity position
1. Strong capital and liquidity position coupled with robust internal capital generation. The Bank is exploring 2. 4. 3. the opportunity to issue a euro denominated benchmark tier 2 item1 4. 5. Development of the fully loaded CET1 ratio of OTP Group In the 2018 stress test conducted by the European
Slide 18: Hungarian economic growth fastest within the Group in 2018
1. In 2018 the Hungarian economic growth was the fastest within the Group supported by strong household 2. 5. 3. consumption and outstanding gross fixed capital formation 4. 5. Real GDP growth, 20181 (y-o-y) Household consumption growth1 (y-o-y) Hungary 4.9% Hungary 5.3% Bulgaria 3.1% Bulgaria 6.4%
Slide 19: 2019 GDP expected to continue to grow dynamically
1. In 2019 the GDP is expected to continue to grow dynamically in Hungary and in other Group members’ 2. 5. 3. countries, inducing healthy growth in loan volumes 4. 5. 2019F GDP growth (y-o-y) 2019F sector-level loan growth1 (y-o-y) Hungary 4.0% Hungary 13% 11% Bulgaria 3.3% Bulgaria 10% 6% Retail R
Slide 20: 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% (assuming 12.5% Common Equity Tier 1 ratio) announced at the 2015 Annual General Meeting remains in place. A
Slide 21: Management expectations for 2019 – 2.
1. The proposed dividend to be paid after the 2018 financial year will be the same as in the previous year, 2. 5. 3. HUF 61.32 billion. The dividend proposal after the 2019 financial year will be formulated in 1Q 2020 4. 5. OTP Group: management expectations for 2019 – 2. Beyond the capital required
Slide 22: Content
Content Investment Rationale 3-21 Details on financial performance 23-51 Macroeconomic overview 53-59 22
Slide 23: Two significant adjustment items in 4Q 2018
In 4Q 2018 there were two significant adjustment items: the one-off gain booked in relation to monetary policy interest rate swaps, and the effect of acquisitions covering mainly the acquisition-related integration costs (in HUF billion) 2017 2018 Y-o-Y 4Q 17 3Q 18 4Q 18 Q-o-Q Y-o-Y Consolidated aft
Slide 24: Annual operating profit without acquisitions improved by 3%
The annual operating profit without acquisitions improved by 3% 2018 Y-o-Y (in HUF billion) 2017 2018 Y-o-Y 4Q 17 3Q 18 4Q 18 Q-o-Q Y-o-Y 1 without M&A Consolidated adjusted after tax profit 284.1 325.3 15% 307.9 13% 59.5 92.7 62.5 -33% 5% Corporate tax -37.3 -37.4 0% -33.9 -3% -6.5 -11.3 -4.7 -58%
Slide 25: Adjusted profit after tax by subsidiary
In 2018 primarily the Hungarian, Croatian, Ukrainian and Serbian profit contribution improved remarkably Adjusted profit after tax (in HUF billion) 2017 2018 Y-o-Y OTP Group 284.1 325.3 15% OTP Core (Hungary) 168.6 180.4 7% DSK (Bulgaria) 47.1 47.3 0% OBRu1 (Russia) 20.4 16.4 -19% / -13%2 OBH (Croat
Slide 26: Total income grew by 10% y-o-y in 2018
Total income grew by 10% y-o-y in 2018 driven partly by the acquisitions; without those the yearly dynamics Effect of would have been 6%. On a quarterly basis total income remained stable acquisitions TOTAL INCOME 2018 4Q 2018 1H 2018 2018 Y-o-Y Y-o-Y 2Q 2018 Q-o-Q 4Q 1 without one-off items (HUF bi
Slide 27: Full-year net interest income grew by 6%
The full-year net interest income grew by 6% y-o-y even without acquisitions. On a quarterly basis mainly Effect of Russia and Ukraine drove the NII growth acquisitions NET INTEREST 2018 4Q 2018 2018 Y-o-Y 4Q 2018 Q-o-Q 1 At OTP Core the 5% y-o-y growth was % due to expanding loans, partially INCOME
Slide 28: Quarterly performing loan changes
On a quarterly basis the consolidated performing loans expanded by 3%, Hungary grew by 2%. In Russia and Ukraine the quarterly growth was propelled by seasonally strong demand for consumer loans Q-o-Q performing (DPD0-90) loan volume changes in 4Q 2018, adjusted for FX-effect Cons. Core DSK OBRu OBH
Slide 29: Consolidated deposits increased by 3% q-o-q
Consolidated deposits increased by 3% q-o-q supported by the steady retail and corporate deposit inflows Q-o-Q deposit volume changes in 4Q 2018, adjusted for FX-effect Cons. Core DSK OBRu OBH OBU OBR OBSr CKB OBS (Hungary) (Bulgaria) (Russia) (Croatia) (Ukraine) (Romania) (Serbia) (Montenegro) (Slo
Slide 30: Consolidated annual net interest margin contracted by 7 bps
The consolidated annual net interest margin contracted by 7 bps compared to the 4Q 2017 level, whereas on a quarterly basis it remained fairly resilient Net interest margin (%) OTP Group Guidance for 2018: NIM might In 4Q 2018 the net interest erode by another 10-15 bps margin narrowed by 1 bp compa
Slide 31: Net interest margin at the largest Group members
At OTP Core the margin returned to levels seen in 2Q 2018. Russia and Croatia remained stable q-o-q. The underlying declining margin trend at DSK continued. Margins kept on improving in the Ukraine Net interest margin development at the largest Group members (%) 1 1 OTP 3.48 At OTP Core the q-o-q NI
Slide 32: Net fee income grew by 2% without acquisitions
Net fee income grew by 2% on an annual basis without acquisitions. The 2% quarterly decline was Effect of attributable to technical items at OTP Core acquisitions 4Q 2018 2018 Y-o-Y 4Q 2018 Q-o-Q 1 2018 The y-o-y decline at Core was reasoned by NET FEE INCOME % (HUF billion) (HUF billion) (HUF billi
Slide 33: Other net non-interest income up 20% without acquisitions
Effect of The annual other net non-interest income went up by 20% without acquisitions acquisitions OTHER INCOME 2018 4Q 2018 2018 Y-o-Y 4Q 2018 Q-o-Q without one-off items (HUF billion) (HUF billion) (HUF billion, %) (HUF billion, %) 1 The annual other net non-interest OTP income (without one-offs)
Slide 34: Operating costs – 2018
Effect of acquisitions In 2018 operating costs without acquisitions grew by 8.2% on an FX-adjusted basis, partly because of fastly expanding personnel expenses in the wake of high wage inflation and strong business activity Effect of Touch Bank inclusion in 2018 OPERATING COSTS – 2018 Y-o-Y Y-o-Y Y-
Slide 35: OTP Core annual profit grew by 7%
The annual profit of OTP Core grew by 7% y-o-y with net interest income increasing by 5%. OTP Core Risk costs added to the bottom line earnings in 4Q, too OTP CORE 4Q 3Q 4Q 2017 2018 Y-o-Y Q-o-Q Y-o-Y (in HUF billion) 2017 2018 2018 Profit after tax 168.6 180.4 7% 31.7 44.3 40.8 -8% 29% Corporate ta
Slide 36: Turnaround in Hungarian loan growth
The last 3 years brought a spectacular turnaround in Hungarian loan growth: the organic growth surged OTP CORE to 18%. Beside robust corporate loan growth the retail segments also shifted gears Y-o-Y performing (DPD0-90) loan volume changes (adjusted for FX-effect, %) AXA-effect 18 12 11 5 -1 -10 -1
Slide 37: Mortgage disbursement and market share in Hungary
Mortgage loan disbursement remained strong in Hungary. OTP enjoys a y-o-y improving market share in OTP CORE new mortgage and cash loan disbursements, as well as in retail savings Change of mortgage loan disbursement of OTP Core Performing cash loan volume growth (2018, y-o-y change) (y-o-y, FX-adju
Slide 38: Corporate segment above 20% volume dynamics
In the corporate segment OTP Core managed to demonstrate above 20% volume dynamics, thus OTP’s OTP CORE corporate lending market share improved in 2018 Performing medium and large corporate loan volume change OTP Group’s market share in loans to Hungarian companies1 (FX-adjusted) 26% 14.7% 13.8% 19%
Slide 39: DSK Bank retained strong profitability in 2018
DSK Bank retained its strong profitability in 2018, despite the spike in risk costs in 4Q 2018. DSK Bank Bulgaria The strengthening business activity manifested in trend-like improvement in retail loan sales Income statement New mortgage loan disbursements (in HUF billion) 4Q 17 3Q 18 4Q 18 Q-o-Q Y-
Slide 40: OTP Bank Russia: profit decreased q-o-q on higher risk cost
In 4Q the Russian profit decreased q-o-q mainly due to higher risk cost, explained mainly by the revision of OTP Bank Russia parameters in the IFRS9 provisioning models. Loan growth remained strong both in retail and corporate Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in H
Slide 41: OTP Bank Russia: POS and cash loan sales strong
In 4Q POS and cash loan sales retained their strong momentum. Performing credit card volumes also OTP Bank Russia exhibited growth on yearly basis. Deposits grew during the quarter with RUB deposit rates flattening out POS loan disbursements (RUB billion) Development of customer deposits (RUB billio
Slide 42: Ukrainian ROE improved to 55.6% in 2018
The Ukrainian ROE improved to 55.6% in 2018, the highest within the Group, supported by widening margins OTP Bank Ukraine and expanding performing loan volumes Income statement New cash and POS loan disbursements (in HUF billion) (in HUF billion) 4Q 17 3Q 18 4Q 18 Q-o-Q Y-o-Y Profit after tax 5.2 7.
Slide 43: Croatian ROE improved; Splitska banka integration completed
The Croatian ROE improved y-o-y. In December 2018 the integration of Splitska banka was successfully OBH (Croatia) completed Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 4Q 17 3Q 18 4Q 18 Q/Q Y/Y Mortgage loans 1.114 1.089 Profit after tax 6.0 8.7 4.1 -53% -33
Slide 44: Benign credit quality trends remained in place
Benign credit quality trends remained in place: further declining DPD90+ ratio coupled with moderate DPD90+ loan formation. The annual risk cost rate sank to new lows despite the increase in 4Q due to IFRS9 model fine-tuning Consolidated provision for impairment on loan and placement Change in DPD90
Slide 45: Consolidated DPD90+ formation subdued in 4Q 2018
In 4Q 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 46: Declining DPD90+ ratio 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 47: DPD90+ ratios decreasing at largest subsidiaries
The DPD90+ ratios kept on decreasing at the largest subsidiaries DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q DSK Bank Q-o-Q OTP Bank Q-o-Q 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 (Hungary) (pp) (Bulgaria) (pp) C
Slide 48: Reported CET1 of 16.5% and CAR of 18.3%
In 2018 the reported CET1 of 16.5% and CAR of 18.3% already included 2018 after tax profit less the proposed dividend OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy ratios (under local regulation) BASEL III 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 Capital a
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: Performing loans definition switching to Stage 1 and Stage 2
The definition of performing loans is switching from DPD0-90 loans to Stage 1 and Stage 2 category loans under IFRS 9. OTP adopted the new standard concerning its guidance for the expected loan growth in 2019 Development of DPD0-90 and Stage 1 + Stage 2 loan volumes (FX-adjusted, in HUF billion) DPD
Slide 51: Performing loans definition switching to Stage 1 and Stage 2
The definition of performing loans is switching from DPD0-90 loans to Stage 1 and Stage 2 category loans under IFRS 9. OTP adopted the new standard concerning its guidance for the expected loan growth in 2019 Development of DPD0-90 and Stage 1 + Stage 2 loan volumes (FX-adjusted, in HUF billion) DPD
Slide 52: Content
Content Investment Rationale 3-21 Details on financial performance 23-51 Macroeconomic overview 53-59 52
Slide 53: Hungary: economic growth 4.8% in 2018
Economic growth was 4.8% in Hungary in 2018, higher than previously expected; GDP growth may slow down Hungary in 2019, but it can remain strong despite the deteriorating external environment Balance Growth Budget deficit Real GDP growth Investment to GDP 7.1% 2.2% 1.9% 1.6% 4.1% 4.9% 22.0% 19.3% 21
Slide 54: Hungary: better-than-expected 2018 budgetary position
Better-than-expected 2018 budgetary position makes 2019 deficit target safely attainable. The public debt Hungary can reach 62.4% by 2021. The current account surplus moderated, while external indebtedness fell further The budget deficit might have fallen to Budget balance (as % of GDP) Public debt
Slide 55: Zero interest rate environment may come to an end
The zero interest rate environment may come to an end in 2019 Hungary Despite the headline inflation fell Inflation (y-o-y, %) Real Wage growth in the economy (y-o-y,%) below the MNB’ target in the last two months, the closely watched constant tax core inflation reached the threshold level and it ca
Slide 56: Key economic indicators
Hungarian economic growth may have reached the cyclical peak in 2018, but the 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 2018F 2019F Nominal GDP (at current prices, HUF bill
Slide 57: Bulgaria, Croatia and Romania economic overview
Bulgaria: maintained good economic performance; 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) & growth Real wage amount
Slide 58: Russia and Ukraine economic overview
Russia: slow recovery continues, oil prices help to accumulate reserves, geopolitical risks increase Ukraine: GDP growth was 3.4% y-o-y in 4Q 2018, inflation is below 10%, rate cuts are unlikely in the near future Russia Real GDP growth and household Headline budget balance and non-oil Government bo
Slide 59: General macro trends 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 2016 2017 2018 2019F 2016 2017 2018 2019F 2016 2017 2018 2019F Hungary 2.3% 4.1% 4.9% 4.0% H
Slide 60: 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