OTP Group: 2015 results

The banking group has still strong liquidity and capital position, with strong Hungarian and Bulgarian performance.

The consolidated accounting profit for the last 12 months was HUF 63.2 billion versus a loss of HUF 102.3 billion in the base period. The material y-o-y change was related mainly to the adjustment items. In 2015 the total volume of adjustments amounted to HUF -57 billion after tax, which is materially lower than HUF -220 billion booked in the base period. In 4Q 2015 adjustment items represented HUF +10.1 billion after tax (3Q: -38.3 billion).

OTP Group posted HUF 120.2 billion adjusted profit in 2015 which underpins a y-o-y 2% increase against the base period. The corporate tax burden grew by HUF 1.5 billion y-o-y, as a result, profit before tax advanced by 3% y-o-y. The operating income dropped by 13%; the negative impact was off-set by lower risk costs (-20% y-o-y) and higher one-off revenue items.

As for individual performances, 2015 to a great extent resembles 2014: it was again OTP Core with HUF 123.4 billion and DSK Bank with HUF 52.5 billion contributing the most to consolidated adjusted earnings. Other Group members in the CEE region except for Serbia were profitable, too and in total posted HUF 5.9 billion profit. Ukraine and Russia, on the contrary, remained still in red (with HUF 40.3 billion and HUF 15.1 billion adjusted loss), still their combined negative result was slightly lower than in 2014, besides the Russian online bank, Touch Bank also posted negative result (HUF 4.8 billion) in 2015.

The adjusted after tax profit of OTP Core (basic activity in Hungary) reached HUF 123.4 billion in 2015, underpinning a 10% y-o-y decline. In 4Q the operation posted HUF 27.9 billion profit (-23% q-o-q). The key driver behind the lower annual profit was the y-o-y weaker net interest income (-6%) and increasing risk costs (+9%). The operating profit without one-off revenue items eroded by 6%. Total income moderated by 2%, whereas operating expenses grew by the same magnitude.

The FX-adjusted consolidated loan portfolio decline continued (-8% y-o-y, -2% q-o-q). Since there have been significant write offs during 2014, the changes in the performing DPD0-90 loan volumes would draw a better picture on real trends. Accordingly, the performing (DPD0-90) book eroded by 5% y-o-y, however it increased by 1% over the last quarter.

As for individual performances, in 2015 the Romanian and Serbian subsidiaries managed to increase their FX-adjusted loan volumes the fastest (+25% and 17% respectively); the remarkable y-o-y increase for all product segments in Romania was related mainly to the acquisition. The previously dynamically expanding Russian consumer book eroded by 26% y-o-y and in Ukraine by 28% respectively. The mortgage portfolio eroded at all banks, but at the Romanian subsidiary (+20%). As for the corporate volumes, the Romanian and Serbian subsidiaries posted remarkable increase (+36% and 31%, respectively). At OTP Core the SME DPD0-90 book grew by 14% y-o-y supported also by the Lending for Growth Programme of the NBH.

DPD90+ loan volume changes adjusted for FX rate movements and the effect of loan sales and writeoffs demonstrated a favourable picture: against the record level of inflow in 2014 (HUF 254 billion), the new DPD90+ formation in 2015 comprised only HUF 133 billion, of which 4Q 2015 represented HUF 4 billion only. The y-o-y improving trend was valid for almost all Group members. In Russia the annual inflow was almost identical with the previous year’s level (HUF 110 billion), in 2H there was a major deceleration (1H 2015: HUF 70 billion, 2H: HUF 40 billion). In Ukraine the 2014 new DPD90+ formation comprised HUF 60 billion, but dropped to HUF 11 billion in 2015 (adjusted for FX changes, write-offs and sales). Consolidated risk costs reached HUF 221 billion (-20% y-o-y), in 4Q they were around HUF 53 billion (-10% q-o-q). By the end of 2015 the provision coverage ratio of DPD90+ loans stood at 93.4% underpinning a y-o-y 9.1 ppts increase. At individual levels the provision coverage edged up significantly at OTP Core (+9.3 ppts y-o-y), Ukraine (+21.3 ppts) and DSK Bank (+4.3 ppts).

The FX-adjusted deposit volumes kept advancing dynamically (+5% y-o-y, +3% q-o-q). The biggest growth was achieved in Bulgaria and Romania (+16% and 51% y-o-y).

The consolidated net loan to (deposit+retail bonds) ratio dropped to 67% (-9 ppts y-o-y on an FX-adjusted basis). All subsidiaries, but the Romanian and Serbian were below 100%.

By end-2015 the gross liquidity reserves of the Group were close to EUR 8.6 billion equivalent.

By the end of 2015 the consolidated Common Equity Tier1 ratio under IFRS was 13.3%. Neither the net earning was included (because of the lack of audit), nor was the dividend amount accrued in 2015 deducted from the capital when calculating the IFRS consolidated capital adequacy ratios. OTP Bank’s stand-alone Common Equity Tier1 ratio stood at 22.6% in 4Q 2015.