Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — OTP Bank — Q3 2019 Earnings Presentation
67 slides from Otp Bank Nyrt's earnings presentation, 2019
Slide 1: OTP Group Investor presentation based on 3Q 2019 results
OTP Group Investor presentation based on 3Q 2019 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-22 Details on financial performance 24-58 Macroeconomic overview 60-66 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 growth trajectory supported by organic loan growth and new acquisitions 4. Strong capital generation an
Slide 4: OTP Group offering universal banking services to 18.8 million customers in 11 countries
1. OTP Group is offering universal banking services to almost 18.8 million customers in 11 countries across 2. 1. 3. the CEE/CIS Region 4. 5. Major Group Members in Europe Total Assets Systemic position in Hungary… Montenegro Albania 3Q 2019 market share (%) Ukraine Moldova Slovakia 2% Total assets
Slide 5: OTP offers a unique investment opportunity to access the CEE banking sector
1. OTP offers a unique investment opportunity to access the CEE banking sector. The Bank is a well 2. 1. 3. diversified and transparent player without strategic investors 4. 5. Market capitalization: EUR 11.7 billion1 Total number of ordinary shares: 280,000,010, each having a nominal (Q-o-Q Ownersh
Slide 6: Net loan book dominated by Hungary and tilted to retail lending
1. The net loan book is dominated by Hungary and tilted to retail lending; more than 75% of the total book is 2. 1. 3. invested in EU countries with stable earning generation capabilities 4. 5. 1 Breakdown of the consolidated net loan book OTP Core (Hungary) DSK Group (Bulgaria) (in HUF billion) Car
Slide 7: Deposit book: Hungary and retail segment dominant
1. 1. In the deposit book Hungary and the retail segment is dominant. In Hungary and Bulgaria OTP and DSK are 2. 3. the largest retail deposit holders 4. 5. Breakdown of the consolidated deposit base OTP Core (Hungary) DSK Group (Bulgaria) (in HUF billion) Corporate Corporate Retail sight By countri
Slide 8: 9M accounting profit surged by 29% y-o-y
1. 9M accounting profit surged by 29% y-o-y, while the adjusted profit grew by 19%. The profit contribution of 2. 2. 3. foreign subsidiaries improved to 47% 4. 5. After taxforintban) (milliárd profit development y-o-y (in HUF billion) After tax profit development (in HUF billion) Accounting profit a
Slide 9: Return on Equity remained at attractive levels
1. 2. 2. Return on Equity remained at attractive levels 3. 4. 5. Consolidated ROE, accounting (%) 24.8 21.1 18.5 18.7 13.4 15.4 9.4 8.4 6.1 4.2 5.1 -7.4 Opportunity cost-adjusted1 consolidated accounting ROE over the average 10Y Hungarian government bond yields (%) 16.6 15.6 15.8 16.4 12.3 4.3 2.2 1
Slide 10: Accounting ROE consistently 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. 2003-2008 2009-2013 2014 2015 2016 2017 2018 9M 2019 average average Accounting ROE 29.4% 8.3% -7.4% 5.1% 15.4% 18.5% 18.7% 21.1% Adjusted
Slide 11: Turnaround in loan volumes, deposits growing steadily
1. Following the contraction in the preceding years, the last almost 4 years brought a spectacular turnaround 2. 3. 3. in loan 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,
Slide 12: Hungarian loan penetration still low in regional comparison
1. The Hungarian loan penetration levels are still low in regional comparison implying good volume growth 2. 3. 3. potential. This is also the case for Romania, as well as for the Bulgarian housing loan segment 4. 5. Market penetration levels in Hungary in ... Net loan to deposit ratio in the 3Q 201
Slide 13: OTP Group might double its performing loan volumes by end of 2019
1. By the end of 2019 OTP Group might double its performing loan volumes, as a result of strong organic 2. 3. 3. growth and acquisitions during the last 3 years 4. 5. OTP Group – performing (DPD0-90) loan growth1 FX-adjusted, in HUF billion 2016 5,882 Organic 669 +26% Components of OTP Group’s expec
Slide 14: Acquisitions in last 2.5 years improved OTP's positions
1. Acquisitions in the last 2.5 years materially improved OTP’s positions in many countries. The pro forma 2. 3. 3. CET1 ratio impact of the Slovenian transaction (which was not yet closed in 3Q) is 0.9 pp 4. 5. Target Net loan volumes Market share in total assets Book value (seller, date of closing
Slide 15: Serbian transaction financial closure completed
1. On 24 September 2019 the financial closure of the Serbian transaction has been completed; 2. 3. Serbia with a market share of 14% OTP has become the 2nd largest in Serbia (on pro forma basis) 4. 5. Market share and equity of Serbian banks After tax profit Net loans Customer deposits (2Q 2019, in
Slide 16: Montenegrin transaction financial closure completed
1. On 16 July 2019 the financial closure of the Montenegrin transaction has been completed; 2. 3. Montenegro as a result, OTP cemented its market leading position in Montenegro 4. 5. Market share and equity of Montenegrin banks After tax profit Net loans Customer deposits (3Q 2019, in EUR million) (
Slide 17: Moldovan transaction financial closure completed
1. On 25 July 2019 the financial closure of the Moldovan transaction has been completed; the new 2. 3. Moldova subsidiary is the 4th largest bank on the Moldovan banking market with a market share of 13% 4. 5. Market share and equity of Moldovan banks After tax profit Net loans Customer deposits (3Q
Slide 18: Capital adequacy ratios well above CRR / CRD IV requirements
1. Capital adequacy ratios operating well above CRR / CRD IV capital requirements, supported by a proactive 2. 4. 3. and prudent capital management approach and a proven ability to withstand stress 4. 5. Management target of consolidated CET11 in light of regulatory minima for 2019 Capital Managemen
Slide 19: Strong capital and liquidity position with sound capital generation
1. Strong capital and liquidity position coupled with sound internal capital generation; the 3Q 2019 CAR 2. 4. 3. ratio already included the effect of Tier 2 bonds issued on 15 July 2019 4. 5. Evolution of CET1 / CAR ratios Value generative acquisition and dividends offset by Tier 2 CET1 including p
Slide 20: Robust liquidity and funding position
1. Robust liquidity and funding position: 75% net loan to deposit ratio; share of wholesale debt at 4% of 2. 4. 3. consolidated total assets; 175% LCR, light maturity profile with marginal refinancing needs 4. 5. Consolidated1 outstanding amount of wholesale debt (in EUR billion) Tier 2 bond issuanc
Slide 21: Hungarian GDP growth expected to be the highest in 2019
1. 2. 5. The Hungarian GDP growth is expected to be the highest in 2019 3. 4. 5. 2018 GDP growth (y-o-y) 2019F GDP growth (y-o-y) 2020F GDP growth (y-o-y) Hungary 5.1% Hungary 4.8% Hungary 3.3% Bulgaria 3.1% Bulgaria 3.6% Bulgaria 3.2% Romania 4.1% Romania 4.2% Romania 3.3% Russia 2.3% Russia 1.3% R
Slide 22: Changes in original management expectations for 2019
1. 2. 5. Changes in the original management expectations for 2019 3. 4. 5. Regarding the adjustment items the impact of the banking tax introduced in Romania in 2019 might be around -HUF 700 million against the originally expected maximum of -HUF 2 billion (after tax) and will be booked in 4Q. Follo
Slide 23: Content
Content Investment Rationale 3-22 Details on financial performance 24-58 Macroeconomic overview 60-66 23
Slide 24: 3Q 2019 adjustments mostly attributable to badwill
In 3Q 2019 the total amount of adjustments was +HUF 21.2 billion, mostly attributable to the badwill booked upon the consolidation of the newly acquired banks (in HUF billion) 9M 18 9M 19 Y-o-Y 3Q 18 2Q 19 3Q 19 Q-o-Q Y-o-Y Consolidated after tax profit (accounting) 240.5 309.6 29% 85.9 105.4 131.6
Slide 25: Adjusted profit improved due to stronger foreign contributions
The improvement in adjusted profit was mainly due to stronger foreign contributions, especially from Effect of Bulgaria, Croatia, Ukraine, Serbia and Russia. The Hungarian operation posted a 4% profit growth acquisitions Adjusted profit after tax (in HUF billion) 9M 2018 9M 2019 Y-o-Y OTP Group 262.
Slide 26: 9M operating profit without acquisitions improved by 16%
9M operating profit without acquisitions improved by 16%, due to earnings dynamics outpacing operating cost growth 9M 19 Y-o-Y Q-o-Q (in HUF billion) 9M 18 9M 19 Y-o-Y 2Q 19 3Q 19 Q-o-Q 1 w/o M&A without M&A FX-adj.2 Consolidated adjusted after tax profit 262.8 313.1 19% 294.0 12% 112.2 110.5 -2% -4
Slide 27: Net interest income kept increasing despite eroding margin
Despite the eroding net interest margin the net interest income kept on increasing even without acquisitions, Effect of adding to the bottom line earnings, whereas the ROE could remain above 20% in 3Q 2019 acquisitions Adjusted ROE Net interest income (in HUF billion) 171 177 163 22.3% 21.2% 23.3% 2
Slide 28: Q-o-Q performing loan volume changes in 3Q 2019
Consolidated performing (Stage 1+2) loans expanded by 14%, o/w organic growth represents 4%. Outstanding volume expansion at the OTP Core consumer loan segment partly due to the subsidized baby loans Q-o-Q performing (Stage 1 + 2) loan volume changes in 3Q 2019, adjusted for FX-effect Konsz. Core DS
Slide 29: YTD performing loan volume changes in 9M 2019
Consolidated performing (Stage 1 + 2) loans expanded by 33% year-to-date, within that the organic growth reached 10%. The consumer book, driven by booming volumes in Hungary, has been the engine of growth YTD performing (Stage 1 + 2) loan volume changes in 9M 2019, adjusted for FX-effect Cons. Core3
Slide 30: Y-o-Y performing loan volume changes
Consolidated performing (Stage 1 + 2) loans grew by 37% over the last 12 month, within that the organic growth hit 14% (without the new acquisitions in Bulgaria, Albania, Serbia, Montenegro and Moldova) Y-o-Y performing (Stage 1 + 2) loan volume changes in 3Q 2019, adjusted for FX-effect Cons. Core3
Slide 31: Q-o-Q deposit volume changes in 3Q 2019
Consolidated deposits increased by 11% q-o-q (+5% w/o acquisitions). Hungarian retail deposits increased by 2% q-o-q, despite the introduction of the new type of retail government bonds (MÁP Plusz) from June 2019 Q-o-Q deposit volume changes in 3Q 2019, adjusted for FX-effect Cons. Core DSK OBRu OBH
Slide 32: YTD deposit volume changes in 9M 2019
Consolidated deposits went up by 22% ytd, whereas the growth without acquisitions reached 6%, driven by the Hungarian deposit inflow, as well as outstanding expansion in Ukraine, Romania, Russia and Montenegro YTD deposit volume changes in 9M 2019, adjusted for FX-effect Cons. Core DSK OBRu OBH OBU
Slide 33: Y-o-Y deposit volume changes in 3Q 2019
Consolidated deposits went up by 26% y-o-y, even without acquisitions the growth was 9%, driven by the Hungarian deposit inflow, as well as the outstanding expansion in Bulgaria, Ukraine, Romania and Russia Y-o-Y deposit volume changes in 3Q 2019, adjusted for FX-effect Cons. Core DSK OBRu OBH OBU O
Slide 34: Consolidated net interest margin declined 16 bps q-o-q
The consolidated net interest margin showed a 16 bps q-o-q decline without acquisitions, explained mainly by four factors Consolidated net interest margin development Notes: 4.20% Reported net interest margin in 2Q 2019 13 bps Effect of acquisitions (Bulgaria, Albania) 4.33% 2Q 2019 net interest mar
Slide 35: OTP Core net interest margin declined 24 bps q-o-q
In 3Q 2019 the net interest margin of OTP Core melted down by 24 bps q-o-q due to four margin reducing factors OTP Core net interest margin development Notes: 3Q (1): the maturity of higher yielding government bonds at the 2Q 19 3.01% end of 2Q pushed down the margin by 7 bps q-o-q. In 3Q 2019 there
Slide 36: Net interest margin development at largest Group members
The net interest margin in Bulgaria and Romania improved on quarterly basis, but declined In Russia, Ukraine and Croatia Net interest Net interestmargin margindevelopment developmentat at thethe largest Group largest members Group (%) (%) members 1 1 At NetDSK the net interest interest income grewin
Slide 37: 9M total income grew by 12% without acquisitions
The 9M total income grew by 12% without acquisitions. The quarterly growth was driven by Hungary, Effect of whereas the foreign subsidiaries’ contribution was shaped by the weakening HUF, too acquisitions TOTAL INCOME 9M 2019 3Q 2019 9M 2019 Y-o-Y 3Q 2019 Q-o-Q without one-off items (HUF billion) (H
Slide 38: 9M net interest income increased by 8% without acquisitions
9M net interest income increased by 8% without acquisitions, whereas in 3Q it grew by 2%; both changes Effect of were mainly driven by the strong business volume growth acquisitions NET INTEREST 9M 2019 3Q 2019 9M 2019 Y-o-Y 3Q 2019 Q-o-Q 1 While 9M net interest income showed a % decent performance,
Slide 39: Net fee and commission income leaped 8% q-o-q
The net fee and commission income in 3Q leaped by 8% q-o-q without acquisition; seasonality and Effect of strengthening business activity were the key drivers acquisitions 9M 2019 3Q 2019 9M 2019 Y-o-Y 3Q 2019 Q-o-Q NET FEE INCOME % (HUF billion) (HUF billion) (HUF billion, %) (HUF billion, %) 1 At
Slide 40: Other income growth boosted by Hungarian, Russian, Croatian results
Effect of 9M and 3Q other income growth was boosted by better Hungarian, Russian and Croatian results acquisitions OTHER INCOME 9M 2019 3Q 2019 9M 2019 Y-o-Y 3Q 2019 Q-o-Q 1 At OTP Core the 9M surge was without one-off items (HUF billion) (HUF billion) (HUF billion, %) (HUF billion, %) supported par
Slide 41: Operating costs grew 6.5% y-o-y adjusted for acquisitions and FX
Operating costs grew by 6.5% y-o-y adjusted for acquisitions and FX-effect, fuelled by higher IT spending, Effect of wage inflation and intensifying business activity acquisitions OPERATING COSTS – 9M 2019 Y-o-Y Y-o-Y Y-o-Y Y-o-Y 1 OTP Core: 9M opex increased by 11%, partly due (HUF billion) 2019Q3
Slide 42: Cost efficiency indicators improved in 9M 2019
In 9M 2019 cost efficiency indicators improved, fostered by better economies of scale reached in certain countries and total income margin remaining fairly stable Costs / average assets -10% 4.3% 4.1% 3.6% 3.6% 3.8% 3.9% 4.1% 3.9% 3.6% 3.7% 3.7% 3.6% 3.3% 2007 2008 2009 2010 2011 2012 2013 2014 2015
Slide 43: 9M after tax profit of OTP Core improved by 4%
9M after tax profit of OTP Core improved by 4% y-o-y driven by the 12% increase in operating profit. OTP CORE Total income (without one-off revenue items) expanded by 12% y-o-y OTP CORE 3Q 2Q 3Q 9M 2018 9M 2019 Y-o-Y Q-o-Q Y-o-Y (in HUF billion) 2018 2019 2019 Profit after tax 139.6 145.7 4% 44.3 57
Slide 44: Housing loan disbursements upward trend remained in place
The upward trend of housing loan disbursements remained in place. OTP enjoys a stable or improving market OTP CORE share in new mortgage and new cash loan disbursements, as well as in retail savings Change of housing loan disbursements of OTP Bank Performing (DPD0-90) cash loan volume growth (9M 201
Slide 45: Huge demand for subsidized baby loans
OTP Bank has experienced huge demand for the newly introduced subsidized baby loans: the contractual OTP CORE amount hit HUF 124 billion in the third quarter Subsidized baby loan – key statistics for 3Q 2019 Contractual amount (HUF billion) OTP’s market share in new contractual amounts Number of new
Slide 46: MSE and corporate loan growth at OTP Core
In the MSE segment OTP Core managed to demonstrate 14% ytd volume dynamics, whereas the medium and OTP CORE large corporate loans increased by 9% ytd. OTP’s market share in corporate loans got close to 15% Performing (DPD0-90) medium and large corporate loan OTP Group’s market share in loans to Hung
Slide 47: Bulgarian operation posted HUF 19.6 billion profit in 3Q
The Bulgarian operation posted HUF 19.6 billion profit in 3Q including HUF 5.2 billion made by Expressbank. DSK Bank Bulgaria The stronger business activity was reflected in the trend-like improvement in cash and mortgage loan sales Income statement New mortgage loan disbursements (in HUF billion) 3
Slide 48: Russian profit improved q-o-q
The Russian profit improved q-o-q driven by increasing total income and stable cost base. Amid the overall OTP Bank Russia slow-down of loan volume expansion, POS and cash loans exhibited double-digit y-o-y growth rates Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in RUB bill
Slide 49: POS loan sales and deposit growth at OTP Bank Russia
In 3Q POS loan sales grew by 6% y-o-y, while cash loan disbursements moderated by more than 20%. OTP Bank Russia Deposit volume growth continued in 3Q with deposit rates broadly remaining stable POS loan disbursements (RUB billion) Development of customer deposits (RUB billion) 60 46 58 66 79 60 94
Slide 50: Ukrainian ROE remained above 45% in 9M 2019
The Ukrainian ROE remained above 45% in 9M 2019 supported by y-o-y widening margins and expanding OTP Bank Ukraine performing loan volumes Income statement New cash and POS loan disbursements in UAH billion 3Q 18 2Q 19 3Q 19 Q-o-Q Y-o-Y (in UAH billion) Profit after tax (adjusted) 0.7 0.7 0.8 15% 20
Slide 51: Croatian operation posted HUF 26.5 billion adjusted profit in 9M
The Croatian operation posted HUF 26.5 billion adjusted after tax profit in 9M, up by 27%, as a result of OBH (Croatia) diminishing risk costs and improving operating profit on the back of better cost efficiency Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) in HUF billion 3Q 18
Slide 52: Stage 3 ratio diminished further
The Stage 3 ratio diminished further, at the end of 3Q it stood at 6.9%, while its own coverage stood at 65.9% OTP Group - consolidated Stage 3 ratio1 OTP Group - own coverage of consolidated Stage 3 loans1 12.2% -5.4%p 66.8% 11.1% 65.8% 65.9% 65.0% 9.8% The ytd decline was due 8.6% to the new acqui
Slide 53: OTP has highest own coverage ratio versus regional peers
Compared to regional peers, OTP has the highest own coverage ratio in all three stages of impairment under IFRS 9 Gross customer loans’ split by the 3 stages of impairment under IFRS 9 definition Stage 1 Stage 2 Stage 3 3Q 2019 incl. POCI 88.1% 5.0% 6.9% 3Q 2019 incl. POCI 86.9% 10.5% 2.5% 4Q 2018 i
Slide 54: Credit quality indicators remained favourable
Credit quality indicators remained favourable. The DPD90+ ratio declined further and the 9M consolidated risk cost rate remained somewhat below the last year’s level Change in DPD90+ loan volumes (consolidated, without the Consolidated provision for impairment on loan and placement technical effect
Slide 55: Consolidated DPD90+ formation flat q-o-q
In 3Q 2019 the consolidated DPD90+ formation remained flat q-o-q, within that the Russian deterioration moderated 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 (Hungary) (Russia) (Ukraine) (Bulga
Slide 56: Declining Stage 3 ratio trend in most key geographies
The declining trend of Stage 3 ratio continued in most key geographies, with risk cost rates remaining benign 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, % -0.9 0.3 -0.2 6.
Slide 57: Reported CET1 ratio of 14.3% and CAR of 16.8%
In 3Q 2019 the reported Tier1=CET1 ratio of 14.3% already included the new acquisitions completed this year and the first nine months interim profit less dividend, while the CAR of 16.8% reflected the newly issued Tier 2 bond OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy rat
Slide 58: OTP Bank ratings correlate with sovereign ceilings
While OTP Bank ratings closely correlate with the sovereign ceilings, subsidiaries’ ratings enjoy (rating outlook) + positive - negative the positive impact of parental support 0 stable Hungarian sovereign, OTP Bank and OTP Mortgage Bank ratings Moody’s S&P Fitch OTP Bank Baa3 (0) BBB- (0) OTP Mortg
Slide 59: Content
Content Investment Rationale 3-22 Details on financial performance 24-58 Macroeconomic overview 60-66 59
Slide 60: Hungary: GDP growth around 4.8% in 2019
After the robust 3Q expansion of 5.0% y-o-y, GDP growth can be around 4.8% in 2019 as a whole. Soaring Hungary investments might be the strongest catalyst of growth Balance Growth Budget deficit Real GDP growth Investment to GDP 7.1% 25.2% 29.0% 2.4% 2.3% 5.1% 22.3% 19.7% 22.2% 1.8% 1.8% 4.3% 4.8% 3
Slide 61: Hungary: 2019 deficit target safely attainable
Strong revenue growth and lower-than-expected expenditures make the 2019 deficit target safely attainable, further deficit reduction for 2020 is on track. The deterioration of current account balance stopped and was Hungary just below zero. As the deficit is covered by FDI and EU funds, external ind
Slide 62: Hungary: imported inflation supports disinflation
Imported inflation still supports the disinflation, but due to domestic factors – the re-accelerating households Hungary consumption – the disinflation trend will not be as strong as it was anticipated few months ago The inflation fell below the MNB’ target in Inflation (y-o-y, %) Real wage growth (
Slide 63: Hungary: Key economic indicators
Hungary’s economic growth may have reached its cyclical peak in 2019, but GDP growth should remain fairly Hungary strong even under a deteriorating external environment Key economic indicators OTP Research Focus Economics* 2014 2015 2016 2017 2018 2019F 2020F 2019F 2020F Nominal GDP (at current pric
Slide 64: Bulgaria and Romania macro outlook
Bulgaria: GDP growth could slow down slightly in 3Q, inflation decelerates: volatile GDP growth with slight deterioration in balance indicators; Romania: GDP slows and the budget deterioration remains a major risk factor Bulgaria Real GDP growth (%, SA, annualized Government debt, ESA and Cash Headl
Slide 65: Russia and Ukraine macro outlook
Russia: 2019 brings a temporary slowdown as national projects start slowly, CBR continues its easing cycle. Ukraine: GDP growth was 4.2% y-o-y in 3Q 2019, inflation at 6.5%, the NBU reduced the base rate by 200 bps since June Russia GDP growth picked-up to 1.7% y-o-y in 3Q Real GDP growth (%, SA, an
Slide 66: 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 RATE (%) 2017 2018 2019F 2020F 2017 2018 2019F 2020F 2017 2018 2019F 2020F Hungary 4
Slide 67: 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