Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — OTP Bank — Q3 2017 Earnings Presentation
57 slides from Otp Bank Nyrt's earnings presentation, November 2017
Slide 1: OTP Group Investor presentation based on 3Q 2017 results
OTP Group Investor presentation based on 3Q 2017 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-16 3Q 2017 Financial Performance of OTP Group 18-48 Macroeconomic overview 50-56 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 demonstrate positive tren
Slide 4: Universal banking services to more than 15 million customers in 9 countries
OTP Group is offering universal banking services to more than 15 million customers in 9 countries 1. across the CEE/CIS Region Major Group Members in Europe Total Assets Systemic position in Hungary… Ukraine Montenegro 3Q 2017 market share (%) Slovakia Serbia Russia 2% Total assets 25 Romania 5% 4%
Slide 5: OTP Group's Capabilities: unique investment opportunity in CEE banking
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 September 2017 Key features Total number of ordinary shares: 280,000,010, each having a Other* (Q-o-Q c
Slide 6: Net loan book dominated by Hungary and tilted to secured retail lending
The net loan book is dominated by Hungary and tilted to secured retail lending; 87% 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: Hungary and the retail segment dominant
In the deposit book Hungary and the retail segment is dominant. In Hungary and Bulgaria OTP and DSK are 1. 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 23.1 17.6 13.4 9.4 8.4 6.1 4.2 5.1 15.4 19.1 -7.4 Opportunity cost-adjusted3 consolidated accounting ROE over the average 10Y Hungarian government bond yields (%) 16.6 15.3 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 9M 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) 3Q 2017, Splitska banka one-off consolidated 313 Russia and Ukraine 2
Slide 11: Hungarian retail loan penetration ratios halved since 2010
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) 29.3 Slovakia housing loans 23.9 Czech Republic 14.5 15.2 16.3 15.1 20.9 Poland 11.2 12.4 12.4 11.1 10.2 10.4 8.9 9.8 Bulgar
Slide 12: CEE region demonstrates stellar performance
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 (y-o-y) Hungary 2.0% 3.7% 3.7% 6.1% 9.4% 6.3% Poland 2.7% 3.9% 3.5% 4.4% 2.7% 3.9% Czech Republic 2.5% 3.
Slide 13: Loan volume turnaround at OTP Core
After years of loan volume contraction 2016 and 9M 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 9.8 4.7 -1.2 avg.: -8.9% -8.2 -7.6 -10.1 -11.1 -9.6 -14
Slide 14: Strong capital and liquidity position make room for further 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 (%) 7.9 19.5% 2.2% 15.8% 2.1% 15.
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 More than ~180 thousand 1 million regular users monthly2 users monthly2 Monthly ATM cash ~210 thousand withdrawals in the contacts amount of monthly1 HUF ~280 billion1 1 Based on 2Q 2017 data 2 Based on 3Q 2017 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 3Q 2017 Financial Performance of OTP Group 18-48 Macroeconomic overview 50-56 17
Slide 18: 9M accounting result grew by 21% y-o-y
The 9M accounting result grew by 21% y-o-y despite the balance of adjustments turned negative y-o-y. CEE Group members’ contribution grew by 26%, whereas the Russian and Ukrainian contribution increased by 25% y-o-y (in HUF billion) Adjusted after tax results in the CEE countries1 Accounting profit
Slide 19: 9M profit growth of CEE Group members led by OTP Core and Croatia
The 9M profit growth of the CEE Group members was led by OTP Core and the Croatian operation, but the contribution of the Leasing operation surged, too. The Russian profit improved by 34%, Touch Bank remained loss-making 9M 16 9M 17 Y-o-Y 3Q 16 2Q 17 3Q 17 Q-o-Q Y-o-Y in HUF billion in HUF billion C
Slide 20: Four small adjustment items in 3Q 2017
In 3Q 2017 four small adjustment items emerged with an aggregated effect of -HUF 0.2 billion 9M 16 9M 17 Y-o-Y 3Q 16 2Q 17 3Q 17 Q-o-Q Y-o-Y in HUF billion in HUF billion Consolidated after tax profit (accounting) 176.0 212.9 20% 69.8 80.7 79.3 2% 14% Adjustments (total) 3.1 -12.9 1.0 2.4 -0.2 Divid
Slide 21: 9M profit before tax without one-off items up 23%
9M profit before tax without one-off items went up by 23% y-o-y; whereas it remained stable in 3Q q-o-q. The quarterly net interest income stabilized and risk costs kept further declining 9M 16 9M 17 Y-o-Y 3Q 16 2Q 17 3Q 17 Q-o-Q Y-o-Y in HUF billion in HUF billion Consolidated adjusted after tax pr
Slide 22: Management's view on operating environment and capital allocation guidance
Miscellaneous - 1 OTP Group has started to follow a dynamic growth trajectory. During the last twelve months the performing loan portfolio advanced by 10% organically, whereas the two already completed and two announced acquisitions boost the portfolio by an additional 25%. According to the manageme
Slide 23: Change in the presentation of accrued interest receivables
Miscellaneous - 2 In 3Q 2017 the way of presentation of accrued interest receivables related to loans has been unified at certain Group members. In essence, the accrued interest receivables have been included in the gross customer loans line in the balance Change in the sheet of these Group members.
Slide 24: Total income – 3Q 2017
The y-o-y increase in consolidated total income was supported mainly by the consolidation of Splitska banka in May 2017; 3Q total income incorporated 3 months contribution from Splitska banka versus 2 months in 2Q TOTAL INCOME – 3Q 2017 Y-o-Y Y-o-Y Q-o-Q Q-o-Q without one-off items (HUF billion) (HU
Slide 25: Net interest income – 3Q 2017
The net interest income remained flat q-o-q; headwind from further NIM erosion was mainly offset by expanding performing volumes. The additional contribution from Splitska banka was offset by the impact of weakening RUB NET INTEREST INCOME – 3Q 2017 Q-o-Q Q-o-Q 1 (HUF billion) The lower NII can be p
Slide 26: Consolidated performing loans increased by 3% q-o-q
Consolidated performing loans increased by 3% q-o-q. At OTP Core corporate and consumer loan dynamics remained strong and mortgage volumes also grew (+0.4%). At DSK the retail loan expansion continued. In the Russian consumer loan segment the q-o-q loan growth reached 9% due to the seasonally strong
Slide 27: Y-o-Y change of new disbursements – 9M 2017
Retail loan disbursement showed strong y-o-y dynamics in 9M 2017 at OTP Core and almost all foreign subsidiaries Y-o-Y change of new disbursements (in local currency) – 9M 2017 Core DSK OBRu OBU OBR OBH OBS OBSr CKB (Hungary) (Bulgaria) (Russia) (Ukraine) (Romania) (Croatia) (Slovakia) (Serbia) (Mon
Slide 28: Consolidated deposit base increased by 21% y-o-y
The consolidated deposit base increased by 21% y-o-y, without Splitska by 10%; volume growth at OTP Core was the engine behind the consolidated deposit base expansion Q-o-Q deposit volume changes in 3Q 2017, adjusted for FX-effect Total 5% 5% 6% 11% 10% 2% 0% 6% 0% 2% 11% Retail 1% 0% 2% 6% 10% 0% 0
Slide 29: Consolidated net interest margin development
The consolidated net interest margin eroded by 19 bps compared to the full-year 2016 level, of which around 7 bps can be attributed to the dilution effect of Splitska banka. Out of the quarterly NIM attrition 14 bps is explained by Splitska banka. The weakening RUB lowered the NIM by 10 bps. Interes
Slide 30: Net interest margin of the largest Group members
Net interest margin of the largest Group members typically declined over the last quarter, which can be partially explained by technical factors Net interest margin development of the largest Group members (%) OTP Out of the 13 bps q-o-q decline 3 bps is explained by a reclassification 3.72 3.48 3.2
Slide 31: Net fee and commission income – 3Q 2017
The net fee and commission income was shaped by base effect in 2Q at OTP Core and also the weaker RUB on one hand, and the higher contribution from Splitska banka on the other NET FEE AND COMMISSION INCOME – 3Q 2017 Q-o-Q Q-o-Q 1 (HUF billion) -HUF 1.3 billion effect: the (HUF billion) (%) financial
Slide 32: Other net non-interest income – 3Q 2017
The other net non-interest income decreased by 8% q-o-q OTHER NET NON-INTEREST INCOME – 3Q 2017 Q-o-Q Q-o-Q without one-off items (HUF billion) (HUF billion) (%) OTP 100% 12.7 -1.1 -8% Group 1 1 At OTP Core the q-o-q decline OTP CORE 34% 4.3 -2.3 -35% was mainly due to the base effect (Hungary) of s
Slide 33: Operating costs – 9M 2017
Operating costs grew by 9% y-o-y in 9M, whereas without Splitska banka the increase was 5.4% and only 3.8% on an FX-adjusted base OPERATING COSTS – 9M 2017 Y-o-Y Y-o-Y Y-o-Y Y-o-Y (HUF billion) (HUF bn) (%) (FX-adj., HUF bn) (FX-adj., %) 1 At DSK 9M operating expenses OTP increased by 8% y-o-y, the
Slide 34: OTP Core: 9M profit after tax up 39%
9M profit after tax at OTP Core grew by 39% y-o-y amid moderating corporate tax burden; OTP Core the before tax profit (+25% y-o-y) was shaped by improving operating profit and substantial risk cost releases OTP CORE 9M 16 9M 17 Y-o-Y 3Q 16 2Q 17 3Q 17 Q-o-Q Y-o-Y (in HUF billion) Profit after tax 9
Slide 35: OTP Core market share in loans and savings
Mortgage loan applications and disbursements accelerated further. OTP Core OTP’s market share remained strong 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 (9M 20
Slide 36: DSK Bank retained stable profitability
DSK Bank retained its stable profitability (9M ROE: 21.1%). DSK Bank Bulgaria Favourable credit quality trends remained intact and NIM erosion was fairly contained q-o-q Income statement Net interest margin (in HUF billion) 16 3Q 17 2Q 17 3Q Q-o-Q Y-o-Y 5.47% 4.60% Profit after tax (adjusted) 14.7 1
Slide 37: OTP Bank Russia
The Russian profit somewhat declined in 3Q (-5% q-o-q in RUB terms), with 3Q ROE still at 20%. FX-adjusted OTP Bank Russia performing POS and cash loan volumes as well as corporate loans grew y-o-y due to strong disbursements Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HU
Slide 38: OTP Bank Russia: POS loans, credit cards and deposits
In 3Q not just POS and cash loan sales kept growing, but also performing credit card volumes started OTP Bank Russia increasing on a quarterly basis. Deposits grew q-o-q in RUB terms. RUB term deposit rates flattened out in 3Q POS loan disbursements (RUB billion) Development of customer deposits (RU
Slide 39: OTP Bank Ukraine
The Ukrainian profit improved q-o-q, 3Q ROE (39%) was the highest among subsidiary banks of the Group. OTP Bank Ukraine NIM returned to levels seen in previous quarters after a drop in 2Q. Performing loan volumes kept growing Income statement Net interest margin (in HUF billion) 3Q 16 2Q 17 3Q 17 Q-
Slide 40: OTP Bank Ukraine excelled in nominal profit
OTP Bank Ukraine excelled in terms of nominal profit despite its low ranking by total assets. OTP Bank Ukraine Intragroup funding further declined ytd, 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 PrivatBa
Slide 41: OBH (Croatia) boosted by Splitska banka consolidation
The 9M performance of the Croatian operation was boosted by the consolidation of Splitska banka from May. OBH (Croatia) The market share of OTP in total assets increased to 11.3% based on August data DPD0-90 loan volumes (FX-adjusted, in HUF billion) 9M 9M 3Q 2Q 3Q Mortgage loans 1,036 (in HUF billi
Slide 42: Consolidated DPD90+ ratio continued to decline
The consolidated DPD90+ ratio continued to decline. The risk cost rate dropped 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
Slide 43: FX-adjusted quarterly change in DPD90+ loan volumes
In 3Q 2017 the FX-adjusted DPD90+ formation was similar to that in 2Q (without Splitska); the Russian inflow was below the quarterly average of the last couple of years, while in Croatia the increase was mostly related to corporate exposures FX-adjusted quarterly change in DPD90+ loan volumes (witho
Slide 44: DPD90+ ratios declined q-o-q in all key geographies but Croatia
The DPD90+ ratios declined q-o-q in all key geographies, but Croatia. Risk cost rates remained moderate all across the board. Provision coverage ratios stood at conservative levels OTP Core DSK Bank OTP Bank OTP Bank OTP Bank Hungary Bulgaria Croatia Russia Ukraine Risk cost for possible loan losses
Slide 45: DPD90+ ratios at the largest operations
At the largest operations the DPD90+ ratios decreased q-o-q (with the exception of Croatia), supported by favourable credit quality trends, as well as by DPD90+ portfolio sales and write-offs DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q DSK Bank Q-o-Q OTP Bank Q
Slide 46: Reported CET1 was 13.7% in 3Q 2017
In 3Q 2017 the reported CET1 was 13.7%, but the CET1 capital does not include the 9M 2017 profit less indicated dividend; including these items the CET1 would have been 15.8% OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy ratios (under local regulation) 2012 2013 2014 2015 20
Slide 47: 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 3Q 2016 2Q 2017 3Q 2017 in HUF million 3Q 2016 2Q
Slide 48: OTP Bank ratings and sovereign ceilings
+ 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: Content
Content Investment Rationale 3-16 3Q 2017 Financial Performance of OTP Group 18-48 Macroeconomic overview 50-56 49
Slide 50: Hungary's economy on track to grow 3.5-4.0%
Hungary’s economy is on track to grow by 3.5-4.0% over the coming years. Household consumption is Hungary robust, investment activity has been strengthening and external demand has been improving Balance Growth Budget deficit Real GDP growth Investment to GDP 7.1% 2.7% 4.0% 3.7% 21.1% 22.8% 21.7% 19
Slide 51: Hungary's current account surplus remained high
The government intends to spend more on investment, but the overall fiscal discipline is expected to continue. Hungary Hungary’s current account surplus remained high, while external indebtedness fell further The budget position remains strong, Budget balance (as % of GDP) Public debt (as % of GDP)
Slide 52: CPI to remain below the MNB's 3% target
Monetary conditions are likely to remain very relaxed for an extended period Hungary CPI may have surpassed its recent Inflation (y-o-y, %) Wages in the private sector (y-o-y, %) peak and is heading down right now, mainly owing to the base effect of fuel prices. Over the medium term we expect the CP
Slide 53: Key economic indicators
Temporary slowdown in 2016, coupled with reviving consumption and strong balance indicators. Hungary GDP growth may accelerate to around 4% both in 2017 and 2018 Key economic indicators OTP Research Focus Economics* 2013 2014 2015 2016 2017F 2018F 2017F 2018F Nominal GDP (at current prices, HUF bill
Slide 54: Bulgaria, Croatia and Romania economic outlook
Bulgaria: solid, sustainable, broad-based growth; Croatia: the economy is on track to expand nearly 3% in 2017; Romania: stellar GDP growth, the budget execution remains the main risk Bulgaria Real GDP growth (%, SA, annualized Growth of household consumption Housing prices (BGN/ sqm, r.h.s) Since 2
Slide 55: Russia and Ukraine economic outlook
Russia: recovery continues; inflation sank even deeper below the CBR’s target, prompting further rate cuts. Ukraine: GDP growth was 2.4% y-o-y in 2Q 2017, inflation is around 16%, rate cuts aren’t likely in the near future Russia Economic recovery is under way: GDP growth Real GDP growth (OTP estima
Slide 56: 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 2015 2016 2017F 2018F 2015 2016 2017F 2018F 2015 2016 2017F 2018F Hungary 3.1% 2.0% 3.7% 3.7
Slide 57: 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