Otp Bank Nyrt · BET:OTP
Otp Bank Nyrt — OTP Bank — Q2 2019 Earnings Presentation
67 slides from Otp Bank Nyrt's earnings presentation, 2019
Slide 1: OTP Group Investor presentation based on 2Q 2019 results
OTP Group Investor presentation based on 2Q 2019 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-24 Details on financial performance 26-58 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 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 2Q 2019 market share (%) Slovakia Albania Serbia 2% Total assets 2
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 10.7 billion1 Total number of ordinary shares: 280,000,010, each having a nominal Ownership stru
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 80% 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 Bank (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 Bank (Bulgaria) (in HUF billion) Retail sight Corporate Retail sight Corporat
Slide 8: Semi-annual accounting profit grew by 15% y-o-y
1. The semi-annual accounting profit grew by 15% y-o-y, while the adjusted profit leaped by 19%. The profit 2. 2. 3. contribution of foreign subsidiaries improved to 45% 4. 5. After tax forintban) (milliárd profit development y-o-y (in HUF billion) After tax profit development q-o-q (in HUF billion)
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 18.5 18.7 18.9 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 15.6 16.2 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 1H 2019 average average Accounting ROE 29.4% 8.3% -7.4% 5.1% 15.4% 18.5% 18.7% 18.9% Adjusted
Slide 11: Turnaround in loan volumes, steady deposit growth
1. Following the contraction in the preceding years, the last 3.5 years brought a spectacular turnaround in 2. 3. 3. 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, %) Co
Slide 12: Hungarian loan penetration levels 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 ... (in % of GDP) housing loans 30.2 Slovak
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 5,734 Organic 617 +25% Components of OTP Group’s expec
Slide 14: Acquisitions in the 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 Serbian, Moldovan, Montenegrin and Slovenian transactions is -2.8 pps 4. 5. Target Net loan volumes Market share in total assets Book value (seller, date of cl
Slide 15: Montenegrin Societe Generale transaction completed
1. On 16 July 2019 the financial closure of the Montenegrin Societe Generale transaction has been 2. 3. Montenegro completed; as a result, OTP cemented its market leading position in Montenegro 4. 5. Market share and equity of Montenegrin banks Net loans Customer deposits (2Q 2019, in EUR million) (
Slide 16: Moldovan transaction completed
1. On 25 July 2019 the financial closure of the Moldovan transaction has been completed; the new 2. 3. Moldova subsidiary with a market share of 14.0% is the 4th largest bank on the Moldovan banking market 4. 5. Market share and equity of Moldovan banks Net loans Customer deposits (2Q 2019, in EUR m
Slide 17: Acquisition of Societe Generale banka Srbija
1. On 20 December 2018 OTP Bank signed an acquisition agreement on purchasing 100% shareholding 2. 3. Serbia of Societe Generale banka Srbija, the 4th largest bank on the Serbian banking market1 4. 5. Market share and equity of Serbian banks Net loans Customer deposits (2Q 2019, in EUR million equiv
Slide 18: Acquisition of SocGen's Slovenian operation SKB Banka
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 market1 4. 5. Market share and equity of Slovenian banks Net loans Customer deposits (4Q 2018, in EUR million) (HUF billion) (HUF billion) Total Ma
Slide 19: 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 20: Strong capital and liquidity position
1. Strong capital and liquidity position coupled with sound internal capital generation; 1H 2019 CAR ratio 2. 4. 3. does not include the effect of Tier 2 bonds issued on 15 July 2019 4. 5. Evolution of CET1 / CAR ratios1 Value generative acquisition and dividends offset by Tier 2 CET1 including prof
Slide 21: 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; 191% LCR, 133% NSFR and light maturity profile with marginal refinancing needs 4. 5. Consolidated1 outstanding amount of wholesale debt (in EUR billion) Tier
Slide 22: 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 4.9% Hungary 4.8% Hungary 3.3% Bulgaria 3.1% Bulgaria 3.5% Bulgaria 3.2% Romania 4.1% Romania 3.9% Romania 2.9% Russia 2.3% Russia 1.3% R
Slide 23: Strong growth dynamics may continue in 2019
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 as of 1Q Interim Report (10 May 2019) – 1. The ROE target of above 15% announced at the 2015 Annual General Meeting remains in place. Apart f
Slide 24: Dividend proposal after 2019 will be formulated in 1Q 2020
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 as of 1Q Interim Report (10 May 2019) – 2. The dividend proposal after the 2019 financial year will be decided by the management in 1Q 2020, similar to the
Slide 25: Content
Content Investment Rationale 3-24 Details on financial performance 26-58 Macroeconomic overview 60-66 25
Slide 26: 2Q 2019 adjustments of -HUF 6.9 billion
In 2Q 2019 the total amount of adjustments was -HUF 6.9 billion, mostly related to the Romanian goodwill write-off and the losses incurred on the Serbian CHF mortgage conversion (in HUF billion) 1H 18 1H 19 Y-o-Y 2Q 18 1Q 19 2Q 19 Q-o-Q Y-o-Y Consolidated after tax profit (accounting) 154.6 178.0 15
Slide 27: Semi-annual adjusted profit growth from foreign contributions
The semi-annual adjusted profit growth was attributable to improving foreign contributions, mainly from Effect of Bulgaria, Ukraine and Croatia. The Hungarian operation posted a 2% profit growth acquisitions Adjusted profit after tax (in HUF billion) 1H 2018 1H 2019 Y-o-Y OTP Group 170.1 202.6 19% /
Slide 28: Operating profit without acquisitions improved by 14%
The semi-annual operating profit without acquisitions improved by 14%, due to earnings dynamics outpacing operating cost growth 1H 19 Y-o-Y Q-o-Q (in HUF billion) 1H 18 1H 19 Y-o-Y 1Q 19 2Q 19 Q-o-Q 1 w/o M&A without M&A FX-adj.2 Consolidated adjusted after tax profit 170.1 202.6 19% 191.6 13% 90.4
Slide 29: Performing loans expanded by 4% q-o-q
Consolidated performing (Stage 1 + 2) loans expanded by 4% q-o-q, driven partly by Hungarian corporate and consumer lending, but Ukraine and Romania delivered strong figures, too Q-o-Q performing (Stage 1 + 2) loan volume changes in 2Q 2019, adjusted for FX-effect Cons. Core DSK OBRu OBH OBU OBR OBS
Slide 30: Performing loans expanded by 16% year-to-date
Consolidated performing (Stage 1 + 2) loans expanded by 16% year-to-date, within that the organic growth reached 5% (without the new acquisitions in Bulgaria and Albania). The Hungarian expansion rate remained strong YTD performing (Stage 1 + 2) loan volume changes in 1H 2019, adjusted for FX-effect
Slide 31: Performing loans expanded by 25% over last 12 months
Consolidated performing (Stage 1 + 2) loans expanded by 25% over the last 12 month, within that the organic growth hit 13% (without the new acquisitions in Bulgaria and Albania). The Hungarian expansion rate remained strong Y-o-Y performing (Stage 1 + 2) loan volume changes in 2Q 2019, adjusted for
Slide 32: Consolidated deposits increased by 2% q-o-q
Consolidated deposits increased by 2% q-o-q. Hungarian corporate deposit inflow was strong, while the retail deposits showed a 1% q-o-q growth despite the introduction of the new type of retail government bonds (MÁP Plusz) from June Q-o-Q deposit volume changes in 2Q 2019, adjusted for FX-effect Con
Slide 33: Deposits up 12% YTD
Consolidated deposits went up by 12% YTD, without acquisitions the growth was 3% driven by steady inflows in the Hungarian retail segment, as well as outstanding expansion in Bulgaria, Russia, Romania and Ukraine YTD deposit volume changes in 1H 2019, adjusted for FX-effect Cons. Core DSK OBRu OBH O
Slide 34: Deposits up 18% y-o-y
Consolidated deposits went up by 18% y-o-y, even without acquisitions the growth was 8% driven by steady inflows in the Hungarian retail segment, as well as outstanding expansion in Bulgaria, Russia, Romania and Ukraine Y-o-Y deposit volume changes in 2Q 2019, adjusted for FX-effect Cons. Core DSK O
Slide 35: Consolidated net interest margin
On consolidated level the reported 2Q net interest margin dropped by 5 bps q-o-q, but remained stable q-o-q without the effect of acquisitions. The 1H 2019 NIM w/o acquisitions stood at 4.33%, up by 3 bps compared to the FY 2018 level Net interest margin (%) OTP Group NIM guidance for 2019: NIM star
Slide 36: Net interest margin of largest subsidiaries
The net interest margin of the largest subsidiaries typically declined in the second quarter Net interest margin development at the largest Group members (%) 1 1 OTP OTP Core: in the second quarter the margin decline was partly due to 3.22 3.01 3.03 2.97 3.05 2.98 3.06 3.01 the swap result dropping
Slide 37: Semi-annual total income grew by 11% without acquisitions
The semi-annual total income grew by 11% without acquisitions. The quarterly growth was driven by Effect of Hungary, whereas the foreign subsidiaries’ contribution was shaped by the weakening HUF, too acquisitions TOTAL INCOME 1H 2019 2Q 2019 1H 2019 Y-o-Y 2Q 2019 Q-o-Q without one-off items (HUF bi
Slide 38: Net interest income increased by 9% without acquisitions
The semi-annual net interest income increased by 9% without acquisitions, whereas in 2Q it grew by 4%; Effect of both changes were mainly driven by the strong business volume growth acquisitions NET INTEREST 1H 2019 2Q 2019 1H 2019 Y-o-Y 2Q 2019 Q-o-Q 1 2Q net interest income went up by % HUF 1.5 bn
Slide 39: Net fee and commission income in 2Q
The net fee and commission income in 2Q leaped by 16% q-o-q without acquisition, partly due to base effect Effect of in case of OTP Core and also to positive seasonality acquisitions 1H 2019 2Q 2019 1H 2019 Y-o-Y 2Q 2019 Q-o-Q 1 NET FEE INCOME % At OTP Core in 1H 2019 the NFC (HUF billion) (HUF bill
Slide 40: Other net non-interest income growth
The semi-annual other net non-interest income growth was boosted by better Hungarian, Croatian and Effect of Romanian results acquisitions OTHER INCOME 1H 2019 2Q 2019 1H 2019 Y-o-Y 2Q 2019 Q-o-Q 1 without one-off items (HUF billion) (HUF billion) (HUF billion, %) (HUF billion, %) At OTP Core both c
Slide 41: Operating costs grew by 8% y-o-y adjusted
Operating costs grew by 8% 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 – 1H 2019 Y-o-Y Y-o-Y Y-o-Y Y-o-Y 1 OTP Core: 14% y-o-y growth, partly due to the (HUF billion) 2019Q2 CUM
Slide 42: Cost efficiency indicators improved in first half 2019
In the first half of 2019 cost efficiency indicators improved, fostered by better economies of scale reached in certain countries and stabilizing total income margin Costs / average assets -7% 4.3% 4.1% 3.6% 3.6% 3.8% 3.9% 4.1% 3.9% 3.6% 3.7% 3.7% 3.6% 3.4% 2007 2008 2009 2010 2011 2012 2013 2014 20
Slide 43: OTP Core 1H after tax profit improved by 2%
1H after tax profit of OTP Core improved by 2% y-o-y driven by the 4% increase in operating profit. OTP CORE Total income (without one-off revenue items) expanded by 10% y-o-y OTP CORE 2Q 1Q 2Q 1H 2018 1H 2019 Y-o-Y Q-o-Q Y-o-Y (in HUF billion) 2018 2019 2019 Profit after tax 95.4 97.4 2% 56.3 39.6
Slide 44: OTP Core mortgage disbursements and cash loan market share
The upward trend of mortgage disbursements remained in place in Hungary, however new applications declined partly due to the launch of Baby Shower Subsidy and other subsidies from July. OTP enjoys a OTP CORE stable/improving market share in new mortgage and new cash loan disbursements, as well as in
Slide 45: OTP Core MSE and corporate loan growth
In the MSE segment OTP Core managed to demonstrate 10% ytd volume dynamics, whereas the medium OTP CORE and large corporate loans increased by 5% 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 46: DSK Bank Bulgaria profit in 2Q
The Bulgarian operation posted HUF 16.6 billion profit in 2Q including HUF 4.6 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 disbursements1 (in HUF billion)
Slide 47: OTP Bank Russia profit improved q-o-q
The Russian profit improved q-o-q driven by increasing total income and stable cost base. POS and cash OTP Bank Russia 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 RUB billion) 2Q 18 1Q 19 2Q 19 Q-o-Q Y-o
Slide 48: OTP Bank Russia POS and cash loan sales
In 2Q POS loan sales grew by 20% y-o-y, while cash loan disbursement increased by 17%. Deposit volumes OTP Bank Russia also grew in 2Q with deposit rates slightly increasing POS loan disbursements (RUB billion) Development of customer deposits (RUB billion) 60 46 58 66 79 88 81 90 94 92 101 75 79 71
Slide 49: OTP Bank Ukraine ROE above 47%
The Ukrainian ROE remained above 47% in 1H 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 HUF billion) (in UAH billion) 2Q 18 1Q 19 2Q 19 Q-o-Q Y-o-Y Profit after tax 0.5 0.8 0.7 -11% 33% 18 17
Slide 50: OBH Croatia adjusted after-tax profit in 1H
The Croatian operation posted HUF 17.4 billion adjusted after-tax profit in 1H, representing 12.9% ROE, as a OBH (Croatia) result of y-o-y improving operating profit and positive risk cost Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) in HUF billion 2Q 18 1Q 19 2Q 19 Q-o-Q Y-o-
Slide 51: Stage 3 ratio at 7.7% and own coverage 65.8%
At the end of 2Q the Stage 3 ratio stood at 7.7%, while the own coverage of the Stage 3 loans represented 65.8% OTP Group - consolidated Stage 3 ratio1 OTP Group - own coverage of consolidated Stage 3 loans1 12.2% 66.8% -3.4%p 65.8% 11.1% 65.0% 9.8% The ytd decline was due to 8.6% the new acquisitio
Slide 52: 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 2Q 2019 incl. POCI 86.7% 5.6% 7.7% 2Q 2019 incl. POCI 85.6% 11.6% 2.8% 4Q 2018 i
Slide 53: Credit quality indicators remained favourable
Credit quality indicators remained favourable. The DPD90+ ratio declined further and the semi-annual 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 technica
Slide 54: Loan quality deterioration remained moderate
Loan quality deterioration remained moderate in the past few years both on consolidated level and the main subsidiaries Ratio of DPD90+ loan formation to average performing (DPD0-90) loans1 (1H 2019 numbers are annualised) OTP Core (Hungary) DSK Group (Bulgaria) Consolidated 1.5% 2.7% 1.7% 0.4% 0.7%
Slide 55: Consolidated DPD90+ formation in 2Q 2019
In 2Q 2019 the consolidated DPD90+ formation increased q-o-q, related partly to the seasonal deterioration in Russia and higher new delinquencies in Romania and Ukraine FX-adjusted quarterly change in DPD90+ loan volumes (without the effect of sales / write-offs, in HUF billion) Consolidated OTP Cor
Slide 56: Declining Stage 3 ratio in all key geographies
The declining trend of Stage 3 ratio continued in all 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, % -1.1 0.3 -0.2 6.7
Slide 57: Tier1=CET1 ratio of 15.9% and CAR of 17.4%
In 2Q 2019 the reported Tier1=CET1 ratio of 15.9% and CAR of 17.4% already included the completed Bulgarian and Albanian acquisitions and the first half interim profit less dividend OTP Group consolidated capital adequacy ratios (IFRS) Capital adequacy ratios (under local regulation) BASEL III 2014
Slide 58: OTP Bank ratings and subsidiaries' ratings
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 Dagong OTP Bank Baa3 (0) BBB- (0) BB
Slide 59: Content
Content Investment Rationale 3-24 Details on financial performance 26-58 Macroeconomic overview 60-66 59
Slide 60: Hungary: GDP growth around 4.8% in 2019
After the very robust expansion of 5.1% y-o-y in 1H, GDP growth can be around 4.8% in 2019, as a whole. 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% 1.8% 4.9% 4.8% 22.0% 19.3% 21.5% 1.6%
Slide 61: Hungary: fiscal position and external indebtedness
Better-than-expected 2018 fiscal position and strong revenue growth make the 2019 deficit target safely Hungary attainable. The current account surplus moderated, while external indebtedness fell further Budget balance (as % of GDP) Public debt (as % of GDP, including Eximbank) The 2018 ESA budget d
Slide 62: Hungary: inflation and monetary policy
Due to the underlying global market conditions and the downturn in local inflation further monetary Hungary tightening may be off the table for a while Both the inflation and the closely watched Inflation (y-o-y, %) Unemployment rate (%) constant tax core inflation finally started 8 8 Forecast decli
Slide 63: Hungary key economic indicators
Hungary’s economic growth may have reached its cyclical peak in 2018, but GDP growth may remain strong Hungary 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 prices, HUF bi
Slide 64: Bulgaria, Croatia and Romania macro overview
Bulgaria: GDP slowed down in 2Q, high frequency indicators weaken; Croatia: solid 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 Activity & Employment rate (%; Retail trade &
Slide 65: Russia and Ukraine macro overview
Russia: 2019 brings a temporary slowdown as national projects start slowly, geopolitical risks are still high Ukraine: GDP growth was 4.6% y-o-y in 2Q 2019, inflation is around 9%, the NBU started its easing cycle Russia GDP growth slowed sharply to 0.5% y-o-y in Real GDP growth (%, SA, annualized H
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 2017 2018 2019F 2020F 2017 2018 2019F 2020F 2017 2018 2019F 2020F Hungary 4.1 4.9 4.8 3.3 Hu
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