OTP Group: 2017 Q2 results

The consolidated accounting profit was HUF 80.7 billion in 2Q 2017 (+53% q-o-q). During the last three months four adjustment items appeared: certain, mainly one-off items emerged in relation to the Splitska banka transaction in 2Q; HUF 782 million negative tax effect related to the write-back of impairment losses at three Hungarian subsidiaries; HUF 209 million dividends and net cash transfers (after tax); the quarterly Slovakian banking tax (-HUF 169 million after tax). As a result, the total amount of adjustment items to 2Q 2017 accounting profit represented +HUF 2.4 billion (after tax).

In 2Q 2017 OTP Group posted HUF 78.3 billion adjusted after-tax profit (+38% y-o-y and +17% q-o-q), as a result the semi-annual profit grew to HUF 145.0 billion (+39% y-o-y). 2Q net earnings (1H as well) already incorporated the profit contribution of Splitska banka for May and June (+HUF 4.6 billion).

The favourable trends already manifested in 1Q in case of performing loan volumes (+3% q-o-q) continued: the DPD0-90 portfolio grew by HUF 802 billion, or +14% q-o-q (+22% y-o-y, FX-adjusted) already including the Splitska effect, too (+HUF 621 billion). Without Splitska the quarterly increase (3%) was similar to that in the previous quarter. If the y-o-y volume change was adjusted for the AXA and Splitska deals, it would demonstrate 7.5% growth.

In 2Q all major segments within the FX-adjusted performing loan portfolio increased: the retail book grew by 10% q-o-q (within that the mortgages by 6% and consumer loans by 17%), while the corporate exposures surged by 22%. As for the major Group members, they all demonstrated volume expansion. The performing book at OTP Core grew by 3% q-o-q, at DSK by 2%, at OTP Russia by 2% and at OTP Ukraine by 5% respectively, whereas in Croatia the acquisition-boosted portfolio grew almost two and a half fold. As a result, Croatia overtook DSK Bank in terms of performing book and became the second largest within the Group. It was positive that at Touch Bank the material q-o-q pick up in loan volumes continued (+59%). Only the Slovakian subsidiary had a marginal setback in 2Q.

Out of individual performances OTP Core excelled itself with a y-o-y performing volume increase of 16% (including AXA; without AXA the increase would be +10% y-o-y), and of course the Croatian operation supported by Splitksa (+161%, without it +7%). It was also encouraging that both the Russian and the Ukrainian operations managed to boost their performing book organically (+13% and +7% y-o-y, respectively).

As for the credit quality trends, the development of DPD90+ volumes gives a comprehensive picture: DPD90+ volumes (adjusted for FX and the effect of sales and write offs as well as the effect of Splitska acquisition) grew by HUF 17 billion in 2Q, against HUF 3.4 billion increase in 1Q.The biggest inflow was registered in Russia (HUF 9.6 billion), but even this amount fell short of the quarterly average of HUF 12 billion in 2016. This time DPD90+ volumes did not decline in Hungary, Ukraine and Bulgaria (as it was the case in 1Q), but the increase was marginal in each countries. As a result of the Splitska acquisition the DPD90+ portfolio grew by HUF 15 billion q-o-q (FX-adjusted). The consolidated DPD90+ ratio declined to 12.2% (-1.9 pps q-o-q). In 2Q non-performing loans in the amount of altogether HUF 49 billion were sold or written-off (FX-adjusted). The ratio of total provisions to DPD90+ volumes stood at 97.7% (-1.0 pp q-o-q).

Total risk cost dropped to HUF 9.8 billion in 2Q 2017, within that provisions for loan losses dropped by 42% q-o-q, but other provisions doubled. In 2Q the consolidated risk cost rate melted down to 35 bps (-31 bps q-o-q); 1H risk cost rate was 0.5%.

The FX-adjusted deposit book grew by 10% q-o-q. Out of the major Group members OTP Core enjoyed a moderate inflow (+1%) and, of course the Croatian operation (+161%). At the same time Russia, Bulgaria and Ukraine suffered outflows. As a result the consolidated net loan-to-(deposit+retail bonds) ratio increased by 3 pps q-o-q and reached 71%; such development was in line with management’s aims.

The adjusted after tax profit of OTPCore(basic activity in Hungary) reached HUF 49.4 billion in 2Q 2017, underpinning a 21% q-o-q increase (+61% y-o-y). 1H net earnings exceeded the base period by 51% y-o-y. The after tax profit was positively affected by the Hungarian corporate tax rate being cut uniformly to 9% from 19% effective from 1 January 2017. The semi-annual profit before tax improved by 26% y-o-y.

As for the foreign subsidiaries: stable Russian, somewhat declining quarterly profits at the Bulgarian and Ukrainian subsidiaries, strong bottom line earnings in Croatia; loss making performance in Romania, Slovakia, Serbia and Montenegro.

Out of the 2Q consolidated adjusted earnings the highest profit was achieved by OTP Core (HUF 49.4 billion), the second highest by DSK Bank (HUF 12.0 billion), followed by the Russian, Croatian and Ukrainian subsidiaries (HUF 7.5, 6.9 and 2.5 billion, respectively). The Romanian, Slovakian, Serbian and Montenegrin subsidiaries realized altogether HUF 2.4 billion loss, whereas the Hungarian Leasing operation (Merkantil Group) and OTP Fund Management posted HUF 1.5 and HUF 1.0 billion profits, respectively. Similar to previous quarters, Touch Bank posted a loss again (-HUF 1.6 billion); however its scale declined a lot q-o-q. 

At the end of 2Q 2017 the Group’ liquidity position was comfortably stable: liquidity reserves comprised EUR 7.2 billion equivalent. By the end of June 2017 the consolidated Common Equity Tier1 ratio under IFRS was 14.1% (-2.5 pps q-o-q). OTP Bank’s standalone Common Equity Tier1 ratio stood at 28.0% in June 2017 (-1.4%-point q-o-q).