Slide 1: OTP Group Investor Presentation
OTP Group Investor Presentation OTP Group has maintained strong profitability, capital adequacy and liquidity László Bencsik Chief Financial and Strategic Officer
Slide 2: Content
Content Investment Rationale 3-8 Macroeconomic overview 10-19 3Q 2013 Financial Performance of OTP Group 21-53 Liquidity, Capital Position and Rating Map of OTP Group 55-61 2
Slide 3: Strong and resilient profitability, capital and liquidity
After many years of high growth and high profitability before the crisis, OTP has proved to be resilient to the crisis demonstrating sustainable earning capacity over the business cycle Consolidated Net Profits* (HUF billion) ROE* % Banking tax & one-off FTT** for 2013 Strong and resilient profitabi
Slide 4: Unique investment opportunity to access the CEE banking sector
OTP offers a unique investment opportunity to access the CEE banking sector as a well diversified, transparent player without strategic investors Ownership structure of OTP Bank, as of 30 September 2013 Key features (0%) (0%) Treasury (Q-o-Q change) (Q-o-Q change) Total number of ordinary shares: 28
Slide 5: Universal banking services to 13 million customers in 9 countries
OTP Group is offering universal banking services to more than 13 million customers in 9 countries across the CEE Region Major Group Members in Europe Total Assets Systemic position in Hungary… Montenegro 3Q 2013 market share (%) Slovakia Serbia Romania 4% Total assets 26 Croatia OTP Bank Russia 6% 5
Slide 6: Loan book dominated by Hungary and secured retail lending
The loan book is still dominated by Hungary and tilted to secured retail lending. Almost 65% of the total book is invested in countries with stable earning generating capabilities, the rest is in markets with high growth potential Breakdown of the consolidated loan book OTP Core* (Hungary) DSK Bank
Slide 7: Deposit base: Hungary and retail dominant
In the deposit book Hungary and retail is even more dominant, together with DSK (Bulgaria) it represents a traditional and stable funding source Breakdown of the Consolidated deposit base OTP Core (Hungary) DSK Bank (Bulgaria) (in HUF billion) Corporate Corporate Retail sight 39% 13% 11% By countrie
Slide 8: Pre-crisis ROE and asset growth; ROE 10-13% during crisis
30% average pre-crisis ROE and 21% CAGR for assets; flat total assets and ROE* between 10-13% Average during the crisis as a result of strong revenue margins and strict cost control CAGR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 9M 13 ROE* 31.6% 32.6% 30.3% 31.1% 35.3% 32.3% 2
Slide 9: Content
Content Investment Rationale 3-8 Macroeconomic overview 10-19 3Q 2013 Financial Performance of OTP Group 21-53 Liquidity, Capital Position and Rating Map of OTP Group 55-61 9
Slide 10: Hungary: improved balance indicators, 2013 GDP growth 0.7%
Balance indicators have improved substantially, 2013 GDP growth can be 0.7% on the back of strengthening domestic consumption, export growth and public investments, however Hungary investments fell to very low levels Balance Growth ~ Investments Budget deficit Real GDP Investments to GDP 0.7% 22.3%
Slide 11: Hungary: imbalances disappeared, external indebtedness fell
Imbalances disappeared, the budget deficit remained low, while the external surplus has improved Hungary further, resulting in sharp fall of external indebtedness The government’s deficit target is Budget balance (as % of GDP) Public debt (as % of GDP) 2.7% of GDP for 2013 and 2.9% for 2014. In its
Slide 12: Hungary: FX reserves exceed adequacy rules
FX reserves significantly exceed the amount required by adequacy rules, while fiscal reserves Hungary remained robust despite significant FX redemptions in 2011 and 2012 Financial assets of the Central Government in Hungary (in HUF bn equivalent) Reserves and adequacy rules (EUR bn) HUF reserves Pen
Slide 13: Hungary: inflation forecast and low base rate
The inflation inertia may be broken, below mid-term target inflation is expected until end-2014. Low Hungary inflation environment supports the all time low base rate level The sharp slowdown in price and Inflation (YoY, %) Wages in the private sector (YoY, %) wage growth suggests that disinflation
Slide 14: Hungary: GDP growth forecast
After 1.7% recession in 2012, in 2013 GDP growth of 0.7% is achievable partly as a result of temporary Hungary effects; the medium term growth potential can reach 2%, which is low only in a regional context Reasons for last year’s recession: YoY and annualized QoQ GDP (%) Long term growth outlook (%
Slide 15: Hungary: key economic indicators and 2013 growth expectation
Strengthening 2013 growth expectation for Hungary with strong balance indicators Hungary (fiscal deficit below 3.0%, current account surplus around 2.1% of the GDP) OTP Research Focus Economics* Key economic indicators 2008 2009 2010 2011 2012 2013F 2014F 2013F 2014F Nominal GDP (at current prices,
Slide 16: Russia GDP growth disappoints; Ukraine political tension
Russia: yearly GDP growth continued to disappoint in 3Q, the government plans to support the economy Ukraine: political tension amid worsening economic conditions Russia Consumer loan flows (as% of GDP) Real GDP growth (%, SA, annualized Retail sales (2006=100) According to Rosstat the economy expan
Slide 17: Romania, Bulgaria and Slovakia economic developments
Romania: good news everywhere. Bulgaria: growth may have returned. Slovakia: stable growth with further improving budget balance, though domestic demand remains weak Romania Real GDP growth (%, SA, annualized Budget & C/A balance (4 Q AVG) , Base rate (%) and inflation (YoY; %) quarterly and year/ye
Slide 18: Croatia, Serbia and Montenegro economic developments
Croatia: historical budget balance was revised downwards; Serbia: much needed fiscal consolidation; Montenegro: 2.2% GDP growth in the first half year and temporary measures to increase budget revenues Croatia Real GDP growth (%, SA, annualized Industrial production and retail Budget balance Though
Slide 19: Fiscal consolidation across the OTP Group countries
On-going fiscal consolidation all over the countries of OTP Group. Due to modest domestic demand, external demand remains the key factor behind GDP growth. In Croatia the weak domestic demand coupled with high unemployment and excessive budget deficit are impediments to economic growth REAL GDP GROW
Slide 20: Content
Content Investment Rationale 3-8 Macroeconomic overview 10-19 3Q 2013 Financial Performance of OTP Group 21-53 Liquidity, Capital Position and Rating Map of OTP Group 55-61 20
Slide 21: Ukrainian goodwill write-down hit 3Q accounting results
The partial write-down of the Ukrainian goodwill had a negative impact on accounting results in 3Q. The Group’s adjusted after tax profit fell by 19% q-o-q, whereas before tax profit without one-off items declined by 11% 9M 12 9M 13 Y-o-Y 3Q 12 2Q 13 3Q 13 Q-o-Q Y-o-Y in HUF billion in HUF billion C
Slide 22: Before tax profit without one-off items declined q-o-q
Before tax profit without one-off items declined q-o-q on group level and at OTP Core by 11% and 7%, respectively, partly explained by lower other net non-interest income and also due to increasing risk costs 9M 12 9M 13 Y-o-Y 12 3Q 2Q 13 3Q 13 Q-o-Q Y-o-Y CONSOLIDATED in HUF billion in HUF billion
Slide 23: Income margins steady; loans and deposits grew
Consolidated income margins remained steadily high. Both loans and deposits grew q-o-q. In 3Q the record low portfolio deterioration and prudent provisioning resulted in improving provision coverage rate Adjusted Return on Equity – ROE (%) ConsolidatedConsolidated w/o Portfolio quality development O
Slide 24: Profit before income tax by subsidiary
The improving before tax profit of OTP Group year-to-date was due to the good performance of OTP Core, DSK Bank and OTP Ukraine, while in Russia pre-tax profit suffered 66% setback y-o-y PROFIT BEFORE INCOME TAX – 9M 2013 9M 2013 – Y-o-Y change 3Q 2013 – Q-o-Q change without one-off items (HUF billi
Slide 25: Total income by subsidiary
The Group’s total income for the first nine months increased by 3% y-o-y, reflecting the outstanding income generation dynamics of the Russian and Ukrainian subsidiary, while revenues at OTP Core further declined 9M 2013 3Q 2013 TOTAL INCOME – 9M 2013 Y-o-Y Q-o-Q FX adjusted Y-o-Y FX adjusted Y-o-Y
Slide 26: Net interest income by subsidiary
Net interest income of OTP Core declined y-o-y due to lower yield environment and the shrinking loan book, the Russian and the Ukrainian contribution improved as a result of stronger consumer lending y-o-y NET INTEREST INCOME – 3Q 2013 Y-o-Y change Y-o-Y change Q-o-Q change Q-o-Q change (in HUF bill
Slide 27: Interest margins improved q-o-q across the Group
Interest margins improved q-o-q across the Group. The slight increase of Russian margin despite further loan quality worsening was due to pricing steps aimed at increasing product profitability. DSK’s net interest margin was stabilised by lower interest expenses on deposits, increasing margins in Uk
Slide 28: Net fee income up 2% q-o-q
Net fee income increased by 2% q-o-q due to the good performance of OTP Ukraine, while the quarterly decline in other net non-interest income is mainly related to OTP Core and OTP Russia Quarterly NET FEE INCOME 1 OTHER INCOME 2 Ukrainian net fees grew on Other non-interest change 3Q 13 Q-o-Q (HUF b
Slide 29: Net loan to deposit ratio stable below 100%
The consolidated net loan to deposit ratio has stabilised below 100% since 3Q 2012 Loan to deposit ratio, % (30 September 2013) Change of net loan to In case of OTP Core the yearly decline in the Net loan to deposit ** deposit ratio, adjusted* 100% indicator reflects the gradual erosion in Gross loa
Slide 30: Consolidated gross loan book development
In the third quarter the expansion of consumer loans and the gradual erosion of mortgage loans continued. As a result of the central bank’s Funding for Growth Programme, loan volumes to Hungarian companies increased Breakdown of consolidated gross loan book (in HUF billion) Q-o-Q loan volume changes
Slide 31: Consolidated deposits grew 1% q-o-q
Consolidated deposits grew by 1% q-o-q on the back of strong corporate deposit collection. Hungarian household deposits kept on declining Breakdown of consolidated customer deposits (in HUF billion) Q-o-Q deposit volume changes in 3Q 2013, adjusted for FX-effect 6,213 6,510 6,824 6,556 6,616 Total 1
Slide 32: Hungary: OTP Core market positions strengthened
In the wake of mixed policies applied by Hungarian authorities, OTP Core's market positions have Hungary strengthened, while its revenue margin eroded Policies of the Hungarian government and National Bank… OTP's market share in… …mortgage loan sales • Fixed exchange rate scheme for FX • Special ban
Slide 33: Hungary: Funding for Growth Scheme lending
The central bank’s Funding for Growth Scheme gave new impetus to lending to Hungarian companies. As the biggest lender in the first phase, OTP Group concluded contracts in the total Hungary amount of HUF 91 billion. The share of new loans within the first pillar reached 62% Amount of signed loan con
Slide 34: Hungary: market share in retail loans and savings
OTP’ s market share is steadily strong both in new retail loan flows and in the stock of household Hungary savings. Mortgage loan applications advanced further in 3Q 2013 Consumer loan volumes Retail savings of Hungarian credit institutions (in HUF billion, without home equity and car-financing loan
Slide 35: OTP Core government measures: FX protection scheme
Measures taken Recentwith respect toonFX developments mortgage policies borrowers targeting existing and potential mortgage borrowers and OTP Core government measures (3/1) FX PROTECTION SCHEME • The protection is provided for 5 years. In the fixing period clients may save ~25% (subject to the devel
Slide 36: OTP Core government measures: financial transaction tax
Recent developments on policies targeting existing and potential mortgage borrowers and OTP Core government measures (3/2) FINANCIAL TRANSACTION TAX • From 1 January 2013 Hungarian banks are obliged to pay financial transaction tax. The tax rate for cash withdrawals was set at 0.3%, while for other
Slide 37: OTP Core government measures: municipal debt
Recent developments on policies targeting existing and potential mortgage borrowers and OTP Core government measures (3/3) DEBT OF THE HUNGARIAN MUNICIPALITIES • As for municipalities with less than 5,000 people in the consolidation process the State provided a non-refundable subsidy for the repayme
Slide 38: Participation in the FX protection scheme
The fixed exchange rate scheme provides considerable benefits to half of the eligible FX mortgage borrowers in terms of loan volumes. In November defaulted borrowers as well as borrowers Hungary borrowers having big-ticket loans gained eligibility PARTICIPATION IN THE FX PROTECTION SCHEME Fixed exch
Slide 39: Russia: retail loan market slowing
With the Russian economy slowing down, only marginal moderation can be observed on the retail Russia loan market Key economic indicators Retail loans Loan stock / GDP 13.8 Loan flow / GDP 12.4 OTP Research 2008 2009 2010 2011 2012 2013F 2014F 9.7 9.2 9.9 8.9 8.8 Nominal GDP (RUB bn) 41,277 38,807 46
Slide 40: Russia: low retail and consumer loan penetration
The Russian retail and consumer loan penetration is still low in international comparison. Russia The consumer loan market is also supported by the structural weaknesses on the mortgage market Consumer loans* Loan stock / GDP 9.5 9.5 Consumer loan* STOCK to GDP ratio (%) Loan flow / GDP 8.7 8.9 7.2
Slide 41: Russia: real wages, consumption and loan penetration
Despite moderating GDP growth real wages and consumption remain strong. Consumer loan Russia penetration does not seem to be high in international comparison Key macroeconomic indicators Consumer loan** STOCK to GDP ratio (%) Real GDP change 2012 Russia 9 5.3% 4.5% 4.3% 3.4% Hungary 13 1.8% 2.6% Pol
Slide 42: Russia: consumer segment and OTP market position
After whooping growth rates in 2011 and 2012 consumer segment slowed down, Russia while OTP started to decelerate in 2012 Consumer loan market segment* Market position of OTP Bank Russia POS loan market POS loan volumes of OTP Russia Sales force: (RUB billion) +29% -3% +40% 5,376 own sales points*
Slide 43: Russia: loan growth and risk costs across the market
Rapid retail loan growth resulted in a material increase of risk costs across the Russian market Russia Retail loan growth* (%, Y-o-Y) 2011 2012 9M 2013 Return on Equity** (%) 2011 2012 1H 2013 4,733 58 59 57 185 52 49 43 34 32 34 30 28 30 129 24 2423 121 22 2219 19 101 11 10 77 81 3 6 75 58 60 62 6
Slide 44: Transformation Project at OTP Bank Russia
A comprehensive Transformation Project has been launched at OTP Bank Russia OTP Bank Russia Challenges and opportunities Transformation project (from November 2012) • Challenging risk environment, Improving • Transformation of the overall credit scoring and collection process considerable room for r
Slide 45: OTP Russia: loan volumes, revenues and profitability
At OTP Russia loan volumes, revenues and operating profit kept growing, however the profitability OTP Bank Russia deteriorated as a result of higher risk cost Gross loans (in RUB billion) Performance indicators (%) Other loans Credit card loans 128 Cash loans POS loans 103 89 22 ROA 2.9% 5.1% 4.8% 1
Slide 46: OTP Russia: risk cost rates and provision coverage
Risk cost rates increased for POS loans and decreased for credit cards; provision coverage rates OTP Bank Russia increased in all 3 segments Risk cost rates and provision coverage at OTP Bank Russia (%) POS loans 2009 2010 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 2012 1Q 2013 2Q 2013 3Q 2013 Risk cost r
Slide 47: OTP Russia: collection efficiency
Improving soft collection efficiency was in the focus of the Collection Project, OTP Bank Russia strategy setting and preparatory work for hard collection project in 3Q FICO Credit Health Index of the Russian market Consumer loan’s soft collection efficiency1 2Q 2011=100% Based on consumer loans’ an
Slide 48: Operating costs 9M 2013
Operating cost growth y-o-y was mainly driven by the stronger Russian business activity; the q-o-q improvement is mostly the result of moderating expenses in Hungary OPERATING COSTS – 9M 2013 Y-o-Y Y-o-Y 3Q 2013 Q-o-Q Q-o-Q 1 (HUF billion) (HUF bn) (%) (HUF billion) (HUF bn) (%) 9M operating costs o
Slide 49: Slowest pace of portfolio deterioration since the crisis
The slowest pace of portfolio deterioration since the beginning of the crisis, due to prudent provisioning the coverage ratio increased further, the ratio of 90+ days overdue loans decreased to 20.6% q-o-q Consolidated risk cost for possible loan losses and its ratio Quarterly change in DPD90+ loan
Slide 50: Portfolio deterioration decelerated across the Group except Russia
The pace of portfolio deterioration decelerated remarkably across the Group except for Russia. Although the worsening of Russian consumer loans slowed down slightly, it still remained at elevated levels FX-adjusted quarterly change in DPD90+ loan volumes (in HUF billion) OBRu OBU DSK OTP Core* OBR*
Slide 51: Provision coverage of non-performing loans improved
Provision coverage of non performing loans improved in case of the 4 biggest group members; the Russian risk cost rate increased further, but coverage ratio edged up, too; in the Ukraine sale of non-performing corporate loans played a role in the decrease of the DPD90+ ratio OTP Core OTP Bank DSK Ba
Slide 52: DPD90+ ratios by segment
In Russia within the consumer book the deterioration of the POS segment was the most pronounced, corporate loans improved both in Hungary and in the Ukraine, in Bulgaria the deterioration slowed down in all segments DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 OTP B
Slide 53: Restructured retail volumes declined
Restructured retail volumes declined further on group level, representing 2.0% of total retail loans by the end of 3Q 2013 Revised definition of retail Restructured retail loans with less than 90 days of delinquency restructured loans: In comparison with the original terms Old and conditions, more
Slide 54: Content
Content Investment Rationale 3-8 Macroeconomic overview 10-19 3Q 2013 Financial Performance of OTP Group 21-53 Liquidity, Capital Position and Rating Map of OTP Group 55-61 54
Slide 55: Capital adequacy ratios above regulatory minimum
Capital adequacy ratios are significantly above the regulatory minimum both on consolidated and standalone levels. Responding to a change in regulatory environment, the Montenegrin bank received subordinated capital in April 2013 OTP Group consolidated capital adequacy ratio (IFRS) Capital adequacy
Slide 56: Liquidity position remained very strong
The Group’s liquidity position remained very strong, swap roll-over needs for 2013 had been already renewed by end-2012 OTP Group net liquidity buffer1 Debt and capital market issuances in (in EUR million, equivalent) 30/09/2013 2012 and 9M 2013: 4,850 5,563 5,510 5,282 OTP Bank Russia printed a R
Slide 57: Maturity profile of senior debts
No significant peaks in the maturity profile of senior debts; refinancing of mortgage bonds solved as a result of the liquidity enhancing measures of the NBH (repo-eligible instruments); minimal maturing sub-debt until 2015 Liability structure of OTP Group, 3Q 2013 (in EUR billion) Maturity profile
Slide 58: OTP Hungary's outstanding securities and syndicated loans
OTP Hungary’s outstanding securities and syndicated loans Principal Type (million) Date of Issue Date of Maturity Lead Manager FIX/FRN Outstanding external obligation*/ Outstanding obligation LT2 EUR 93 / 93 04/03/2005 04/03/2015 JP Morgan FRN LT2 EUR 500 / 500 19/09/2006 19/09/2016 Calyon, Citigrou
Slide 59: Rating map of countries and subsidiaries
+ positive Despite strong profitability, capital and liquidity position, rating map of countries and (rating outlook) - negative 0 stable subsidiaries in OTP Universe suggest the strong sovereign ceiling effect -* rating under review Hungarian sovereign and OTP Bank rating Moody's S&P Fitch Moody's
Slide 60: No exposure to Southern euro-zone countries or Ireland
OTP Group has no exposure to Southern euro-zone countries or to Ireland* Bulk of Exposure 30 September 2013 Exposure Deal Type Currency Longest Maturity Due Portugal EUR 0 - - - - Ireland EUR 0 - - - - Italy EUR 0 - - - - Greece EUR 0 - - - - Spain EUR 0 - - - - *Without the transactions with those
Slide 61: Stable capital position on stand-alone and consolidated levels
Continuously stable, outstanding capital position both on stand-alone and on consolidated levels OTP Group consolidated CAR (according to Basel 2) OTP Bank unconsolidated CAR (according to HAR) HUF million 3Q 2012 2Q 2013 3Q 2013 HUF million 3Q 2012 2Q 2013 3Q 2013 CAR = (1) / (5) 18.2% 20.2% 20.0%
Slide 62: 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