Slide 1: OTP Group Investor presentation based on 1Q 2018 results
OTP Group Investor presentation based on 1Q 2018 results OTP Group has maintained strong profitability, capital adequacy and liquidity
Slide 2: Content
Content Investment Rationale 3-14 1Q 2018 Financial Performance of OTP Group 16-46 Macroeconomic overview 48-54 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 normalized at attractive levels (>15%) as a new era of structurally low risk 2. environment has commenced Double-digit loan growth: on top of strong organic performing loan exp
Slide 4: Universal banking services to more than 17 million customers in 9 countries
OTP Group is offering universal banking services to more than 17 million customers in 9 countries across 1. the CEE/CIS Region Major Group Members in Europe Total Assets Systemic position in Hungary… Ukraine 1Q 2018 market share (%) Slovakia Montenegro Serbia 1% Romania 3% Total assets 26 Russia 5%
Slide 5: OTP Group's Capabilities
OTP offers a unique investment opportunity to access the CEE banking sector. The Bank is a well diversified, 1. transparent player without strategic investors Market capitalization: EUR 9.6 billion1 Total number of ordinary shares: 280,000,010, each having a nominal Ownership structure of OTP Bank o
Slide 6: Net loan book dominated by Hungary and retail lending
The net loan book is dominated by Hungary and tilted to retail lending; around 85% 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-financig Mortgage 5
Slide 7: Deposit book: Hungary and 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 SME By countr
Slide 8: Return on Equity has returned to attractive levels
2. Return on Equity has returned to attractive levels Consolidated ROE, accounting (%) ROE based on 12.5% CET1 ratio1 24.8 22.4 17.6 19.2 13.4 9.4 8.4 6.1 4.2 5.1 15.4 18.5 16.2 -7.4 Opportunity cost-adjusted2 consolidated accounting ROE over the average 10Y Hungarian government bond yields (%) 16.6
Slide 9: Accounting ROE growing steadily since 2015
The accounting ROE has been growing steadily since 2015 on the back of moderating provision charges and 2. vanishing negative adjustment items; the total revenue margin has been relatively resilient 2010 2011 2012 2013 2014 2015 2016 2017 1Q 2018 Accounting ROE 9.4% 6.1% 8.4% 4.2% -7.4% 5.1% 15.4% 1
Slide 10: Credit quality indicators kept improving
The credit quality indicators kept further improving. The ratio of consolidated DPD90+ loans dropped below 2. 9%, the risk cost rate sank to almost zero in 1Q 2018 Change in DPD90+ loan volumes (consolidated, Consolidated risk cost for possible loan Risk cost for possible loan adjusted for FX and sa
Slide 11: Retail loan penetration ratios in Hungary halved since 2010
In Hungary the retail loan penetration ratios halved since 2010 and returned to the levels before the lending 3. boom Market penetration levels in Hungary in ... (in % of GDP) 29.9 Slovakia housing loans 24.3 Czech Republic 14.5 15.2 16.2 15.1 21.2 Poland 11.2 12.3 12.4 11.1 10.3 8.8 9.8 Bulgaria 8.
Slide 12: Turnaround in loan volumes, steady deposit growth
Following the contraction in the previous years, the last two years brought a spectacular turnaround in loan 3. volumes, while deposits have been growing steadily reflecting our clients' trust in the Bank Y-o-Y performing (DPD0-90) loan volume changes 1 (adjusted for FX-effect, %) Consolidated OTP C
Slide 13: Strong capital and liquidity position
Strong capital and liquidity position coupled with robust internal capital generation make room for strong 4. organic growth and further acquisitions Development of the fully loaded CET1 ratio of OTP Group Net liquidity reserves (in EUR billion equivalent) 16.6% Including unaudited 15.3% 15.6% inter
Slide 14: OTP Bank is market leader in all direct channels in Hungary
5. OTP Bank is the market leader in all direct channels in Hungary More than ~250 thousand 1 million regular active users users monthly2 monthly2 Monthly ATM cash ~250 thousand withdrawals in the contacts amount of monthly1,2 HUF ~250 billion2 1 Included inbound and outbound calls, e-mails, chats 2
Slide 15: Content
Content Investment Rationale 3-14 1Q 2018 Financial Performance of OTP Group 16-46 Macroeconomic overview 48-54 15
Slide 16: Accounting profit grew 23% y-o-y in 1Q 2018
The accounting profit grew by 23% y-o-y in 1Q 2018, while the adjusted profit increased by 19%. Apart from the banking tax, other adjustment items were negligible. The profit contribution of foreign subsidiaries grew to 46% After taxforintban) (milliárd profit development y-o-y (in HUF billion) Afte
Slide 17: After tax profit of OTP Core grew 23% q-o-q
The after tax profit of OTP Core grew by 23% q-o-q and performance of all foreign banks improved over the last quarter (in HUF billion) 1Q 2017 4Q 2017 1Q 2018 Q-o-Q Y-o-Y Consolidated adjusted after tax profit 66.8 59.5 79.3 33% 19% OTP Core (Hungary) 40.8 31.7 39.1 23% -4% DSK (Bulgaria) 13.4 10.4
Slide 18: Banking tax the only major adjustment item
In 1Q 2018 the banking tax was the only major adjustment item (in HUF billion) 1Q 17 4Q 17 1Q 18 Q-o-Q Y-o-Y Consolidated after tax profit (accounting) 52.9 68.5 65.1 -5% 23% Adjustments (total) -13.9 8.9 -14.2 -259% 2% Dividends and net cash transfers (after tax) 0.1 0.0 0.1 332% -7% Goodwill/inves
Slide 19: 1Q profit before tax grew 20% y-o-y
1Q profit before tax (without one-offs) grew by 20% y-o-y and 39% q-o-q, supported by acquisitions and lower risk costs 1Q 2017 4Q 2017 1Q 2018 Q-o-Q Y-o-Y 1Q 2018 Y-o-Y w/o M&A1 (in HUF billion) (HUF bn) Consolidated adjusted after tax profit 66.8 59.5 79.3 33% 19% 73.4 10% Corporate tax -9.4 -6.5
Slide 20: Miscellaneous: Romania M&A update, IFRS 9
Miscellaneous On 14 March 2018 the National Bank of Romania (NBR) notified the Bank that it did not grant its approval for the acquisition; Romania ̶ the Bank appealed against the decision. update on Due to the non-fulfilment of the conditions precedents by the longstop date the share purchase agree
Slide 21: Total income grew by 9% in 1Q 2018
Total income grew by 9% in 1Q 2018, driven mainly by the acquisitions, without those the yearly dynamics Effect of would have been 1%. The q-o-q decrease was mainly due to technical factors and seasonality acquisitions TOTAL INCOME 1Q 2018 Y-o-Y Q-o-Q 1 without one-off items (HUF billion) (HUF billi
Slide 22: Net interest income grew moderately y-o-y
The net interest income grew moderately y-o-y even without acquisitions. On quarterly basis the net interest Effect of income increased despite the negative calendar effect acquisitions 1Q 2018 Y-o-Y Q-o-Q 1 NET INTEREST INCOME % At OTP Core the 3% y-o-y growth was (HUF billion) (HUF billion, %) (HU
Slide 23: Consolidated performing loans increased by 26%
Consolidated performing loans increased by 26% over the last 12 months, within that the organic part was 11% (+2% q-o-q) DPD0-90 loan volumes Q-o-Q loan volume changes in 1Q 2018, adjusted for FX-effect 2% Total 2% 2% 3% 3% 9% 6% 2% 0% 0% 0%2 2% Consumer 5% 2% 4% 1% 2% 9% 9% 1% 1% 0% 7%2 -1% 4% Mort
Slide 24: Y-o-Y change of new disbursements
Retail loan disbursement showed strong dynamics at OTP Core and almost all foreign subsidiaries Y-o-Y change of new disbursements (in local currency) – 1Q 2018 Core DSK OBRu OBU OBR OBH OBS OBSr CKB (Hungary) (Bulgaria) (Russia) (Ukraine) (Romania) (Croatia) (Slovakia) (Serbia) (Montenegro) Mortgage
Slide 25: Consolidated deposit base increased by 24% y-o-y
The consolidated deposit base increased by 24% y-o-y, the 11% organic growth (without Splitska banka and Vojvodjanska banka) was driven by steady inflows in Hungary, and strong Ukrainian, Romanian and Serbian performances Q-o-Q deposit volume changes in 1Q 2018, adjusted for FX-effect Total -4% 1% 4
Slide 26: Consolidated net interest margin remained stable
The consolidated net interest margin remained stable compared to the 4Q 2017 level Net interest margin (%) OTP Group In 1Q 2018 net interest margin remained stable q-o-q. 5.17% 4.82% 4.80% 4.56% 4.66% 4.42% 4.376% 4.374% 2015 2016 2017 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 Interest rate effect: -1 bp Compos
Slide 27: Net interest margin of largest Group members
At OTP Core the declining margin trend continued. The Bulgarian and Croatian margins were fairly stable q-o-q. Following the intense competition during the high-season of consumer loans at the end of last year, Russian margins grew q-o-q. The Romanian margin bounced back. The Ukrainian margin widene
Slide 28: Net fee income grew by 4% y-o-y
The net fee income grew by 4% y-o-y even without the effect of acquisitions, but dropped by 16% q-o-q mainly Effect of due to numerous base effects and technical items acquisitions 1Q 2018 Y-o-Y Q-o-Q 1 NET FEE INCOME % The net fee income decreased by 2% (HUF billion) (HUF billion, %) (HUF billion,
Slide 29: Other net non-interest income remained stable
Effect of The other net non-interest income remained stable y-o-y without the effect of acquisitions acquisitions OTHER INCOME 1Q 2018 Y-o-Y Q-o-Q without one-off items (HUF billion) (HUF billion, %) (HUF billion, %) 1 Other net non-interest income declined OTP by 35% y-o-y due to a base effect: in
Slide 30: Operating costs grew 13% y-o-y
Operating costs grew 13% y-o-y in 1Q 2018, whereas without Splitska and Vojvodjanska the increase was 5.4% Effect of on an FX-adjusted basis acquisitions OPERATING COSTS 1Q 2018 Y-o-Y Y-o-Y, FX-adjusted 1 (HUF billion) (HUF billion) (HUF billion, %) (HUF billion, %) Operating expenses increased by 3
Slide 31: 1Q 2018 profit of OTP Core up 23% q-o-q
The 1Q 2018 profit of OTP Core went up by 23% q-o-q due to seasonally lower operating costs and higher OTP CORE provision releases q-o-q. The yearly profit decline was driven mainly by lower provision write-backs y-o-y OTP CORE 1Q 2017 4Q 2017 1Q 2018 Q-o-Q Y-o-Y (in HUF billion) Profit after tax 40
Slide 32: Mortgage loan applications and disbursements accelerated in Hungary
Mortgage loan applications and disbursements accelerated further in Hungary. OTP’s market share improved OTP CORE in 1Q in new mortgage and cash loan disbursements, as well as in retail savings Change of mortgage loan application and disbursement of Performing cash loan volume growth (y-o-y , FX-adj
Slide 33: Corporate business had another successful quarter
Corporate business had another successful quarter: volumes grew furter q-o-q and corporate lending market OTP CORE share also improved on quarterly basis Performing medium and large corporate loan volume OTP Group’s market share in loans to Hungarian change (FX-adjusted) companies1 18% YTD 15% 13.8%
Slide 34: DSK Bank delivered strong results in 1Q 2018
DSK Bank delivered strong results in 1Q 2018 despite higher risk costs. The strengthening business activity DSK Bank Bulgaria can be illustrated by soaring new retail loan sales Income statement New mortgage loan disbursements (in HUF billion) 1Q 17 4Q 17 1Q 18 Q-o-Q Y-o-Y (in HUF billion, without r
Slide 35: OTP Bank Russia: profit improved 25% y-o-y in RUB
The Russian profit improved by 25% y-o-y and 37% q-o-q in RUB terms, with 1Q ROE exceeding 25%. OTP Bank Russia Performing loan volumes grew in all segments y-o-y. Risk cost rate decreased to 4.5% in 1Q Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 1Q 17 4Q 17
Slide 36: OTP Bank Russia: POS sales and deposits
In 1Q POS sales decreased q-o-q due to seasonality, performing credit card volumes kept growing q-o-q. OTP Bank Russia Deposits decreased q-o-q in RUB terms; LCY term deposit rates further declined POS loan disbursements (RUB billion) Development of customer deposits (RUB billion) 68 60 46 58 66 91
Slide 37: OTP Bank Ukraine: 1Q ROE 68.2%
The Ukrainian profit improved q-o-q, the 1Q ROE (68.2%) was the highest among subsidiary banks of the OTP Bank Ukraine Group. NIM improved q-o-q by 18 bps in 1Q. Performing loan volumes kept growing Income statement New cash and POS loan disbursements (in HUF billion) (in HUF billion) 1Q 17 4Q 17 1Q
Slide 38: OBH Croatia: HUF 7.7 billion profit in 1Q
Despite the seasonal decline in revenues provision releases supported the Croatian performance; OBH (Croatia) HUF 7.7 billion profit in 1Q underpins a close to 13% ROE Income statement DPD0-90 loan volumes (FX-adjusted, in HUF billion) (in HUF billion) 1Q 17 4Q 17 1Q 18 Q-o-Q Y-o-Y Mortgage loans 1,
Slide 39: Decline of consolidated DPD90+ ratio continued
The decline of the consolidated DPD90+ ratio continued. The risk cost rate sank close 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 an
Slide 40: Consolidated DPD90+ formation subdued in 1Q 2018
In 1Q 2018 the consolidated DPD90+ formation was subdued; overall trends remained favourable in almost all geographies FX-adjusted quarterly change in DPD90+ loan volumes (without the effect of sales / write-offs, in HUF billion) Consolidated OTP Core OBRu OBU DSK OBR 35 (Hungary) (Russia) (Ukraine)
Slide 41: DPD90+ ratio decline continued in key geographies
The overall trend of DPD90+ ratio decline continued q-o-q in all key geographies, but Croatia; the risk cost rates are hovering around all-time low levels OTP Core DSK Bank OTP Bank OTP Bank OTP Bank Hungary Bulgaria Croatia Russia Ukraine Risk cost for possible loan losses / Average gross customer
Slide 42: DPD90+ ratios decreased q-o-q at largest operations
At the largest operations the DPD90+ ratios typically decreased q-o-q DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) DPD90+ ratio (%) OTP Core Q-o-Q DSK Bank Q-o-Q OTP Bank Q-o-Q 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 (Hungary) (pp) (Bulgaria) (
Slide 43: Reported CET1 was 15.0% in 1Q 2018
In 1Q 2018 the reported CET1 was 15.0%, but the CET1 capital does not include the 1Q 2018 profit less indicated dividend; including these the CET1 would be 15.6%. In 2017 the completed acquisitions had on overall CET1 impact of -190 bps OTP Group consolidated capital adequacy ratios (IFRS) Capital a
Slide 44: 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 45: Management expectations for 2018 – 1.
Strong growth is expected to continue in 2018 supported by organic and acquisition-generated business expansion Management expectations for 2018 – 1. The ROE target of above 15% (assuming 12.5% Common Equity Tier1 ratio) announced at the 2015 Annual General Meeting remains in place. Apart from the n
Slide 46: Management expectations for 2018 – 2.
The expected amount of proposed dividend to be paid after the 2018 financial year depends on the future acquisitions Management expectations for 2018 – 2. Beyond the capital required for organic growth the management intends to allocate significant part of the generated excess capital for further va
Slide 47: Content
Content Investment Rationale 3-14 1Q 2018 Financial Performance of OTP Group 16-46 Macroeconomic overview 48-54 47
Slide 48: Hungary's economy grew by 4.0%
Hungary’s economy grew by 4.0% and we foresee a similar rate for 2018. 1Q delivered 4.4% y-o-y growth; Hungary we expect some deceleration in 2H 2018 due to base effects Balance Growth Budget deficit Real GDP growth Investment to GDP 7.1% 1.7% 2.0% 2.0% 2.2% 3.4% 4.0% 4.0% 4.0% 24.1% 24.9% 2.2% 21.7
Slide 49: Government intends to spend more on investments
The government intends to spend more on investments, but the overall fiscal discipline is expected to persist. Hungary The current account surplus moderated, while external indebtedness fell further The budget position remained solid, Budget balance (as % of GDP) Public debt (as % of GDP) thanks to
Slide 50: Monetary conditions likely to remain very relaxed
Monetary conditions are likely to remain very relaxed for an extended period Hungary CPI reversed over the last third of 2017 and we expect it to oscillate Inflation (y-o-y, %) Wages in the private sector (y-o-y, %) around 2.0% y-o-y for a while from 2017 December onward. Even though the current pha
Slide 51: Key economic indicators
2018 is likely to be as encouraging as it was in 2017 with 4.0% GDP growth, moderate inflation, low budget Hungary deficit and declining external debt Key economic indicators OTP Research Focus Economics* 2014 2015 2016 2017 2018F 2019F 2018F 2019F Nominal GDP (at current prices, HUF billion) 32,400
Slide 52: Russia and Ukraine macro outlook
Russia: slow recovery supported by higher oil prices; the CBR will be cautious with further rate cuts as inflation bottomed out and the risk premium increased; Ukraine: GDP growth was 3.1% in 1Q 2018, rate cuts are not likely in the near future Russia Economic recovery continued: GDP growth stood at
Slide 53: Bulgaria, Croatia and Romania macro outlook
Bulgaria: solid, sustainable, broad-based growth; Croatia: balance indicators improved further, tourism posted strong start to the year; Romania: slowdown in 1Q, inflation rose to 5.2%, monetary tightening went on Bulgaria Real GDP growth (%, SA, annualized Unemploy. (LHS, %), activity rate Building
Slide 54: Growth can remain strong in CEE countries
Growth can remain strong in the next two years with macro trends remaining favourable in CEE countries REAL GDP GROWTH EXPORT GROWTH UNEMPLOYMENT 2016 2017 2018F 2019F 2016 2017 2018F 2019F 2016 2017 2018 2019F Hungary 2.2% 4.0% 4.0% 4.0% Hungary 5.8% 7.1% 6.4% 6.0% Hungary 5.1% 4.2% 3.9% 3.9% Ukrai
Slide 55: 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