OTP Group: 2017 results

The consolidated accounting profit was HUF 281.3 billion in 2017 versus HUF 202.5 billion in the base period. In 2017 as a whole adjustment items amounted to -HUF 2.7 billion (after tax).

In 2017 OTP Group posted HUF 284.1 billion adjusted after-tax profit (+41% y-o-y), adjusted for the positive impact of the Splitska banka and Vojvodjanska banka acquisitions (in total HUF 11 billion) the increase would be 36% y-o-y. The annual corporate tax burden declined by HUF 6.2 billion partially reasoned by the y-o-y 10 pps lowerHungarian corporate tax rate, as a result the consolidated effective tax rate dropped substantially in 2017 (11.6%). Profit before tax expanded by 31% y-o-y.

Within the annual consolidated adjusted profit the following group members posted outstanding results: OTP Core (HUF 168.6 billion), DSK Bank (HUF 47.1 billion), OTP Bank Russia (HUF 27.8 billion), the Croatian operation (HUF 17.1 billion, o/w the contribution of Splitska was HUF 10.9 billion) and Ukraine (HUF 14.1 billion). Out of those the annual profit in Bulgaria remained stable y-o-y, whereas all others saw an improvement. Furthermore, both Merkantil (the leasing company) and OTP Fund Management managed to further boost bottom line earnings y-o-y, while in Romania profit urged by 83% y-o-y. At the same time the Montenegrin and Slovakian subsidiaries remained in red and the Serbian subsidiary couldn’t repeat its profitable 2016 performance and posted negative results, again. There hasn’t been any meaningful turnaround at the Russian on-line bank (Touch Bank) and it suffered already its third consecutive loss-making year (-HUF 7.4 billion).

The adjusted after tax profit of OTP Core (basic activity in Hungary) reached HUF 168.6 billion in 2017, underpinning a 38% y-o-y increase. The 4Q profit was HUF 31.7 billion (-32% q-o-q). The annual result was shaped by higher operating profit (+5% y-o-y without one-offs) and favourable risk cost trends.

The FX-adjusted gross loan portfolio expanded by 18% y-o-y- and in 4Q by 3% q-o-q, respectively. Due to the write-offs and sale of non-performing portfolio, underlying trends are better represented through the performing loan volume trends. The performing (DPD0-90) portfolio grew by 25% y-o-y and by 6% q-o-q, FX-adjusted. Adjusted for the acquisitions the annual increase would demonstrate a 10% yearly organic growth (+3% q-o-q). It was positive that in 2017 the FX-adjusted performing loan portfolio increased in all countries and in all major segments. There was a substantial y-o-y increase in Hungary (+11%), Russia (+22%), Ukraine (+11%), Romania (+10%) and Bulgaria (+7%). The Croatian loan book grew by 6% organically, with the consolidation of Splitska banka the expansion was 153% y-o-y. In 4Q the Russian and Montenegrin portfolio expanded the fastest (+12 and 11% q-o-q, respectively). The Serbian performing book increased almost four-fold as a result of the consolidation of Vojvodjanska banka in December.

In line with the management forecast and the improving macroeconomic environment the development of DPD90+ volumes remained favourable: DPD90+ volumes (adjusted for FX and the effect of sales and write-offs) grew by HUF 50.8 billion in 2017, against HUF 77 billion in 2016. In 4Q the DPD90+ volumes decreased by HUF 0.4 billion. The consolidated DPD90+ ratio declined substantially, by 5.5 pps y-o-y and stood at 9.2% at the end of 2017. Last time it was in 2009 when the ratio was below 10%. The lower DPD90+ ratio was supported not only by non-performing loan sales and write offs, but also by the acquisitions: in case of the acquired banks the DPD90+ volumes were consolidated net of provisions. In Hungary the DPD90+ ratio was 6.4% at the end of 2017.

The FX-adjusted deposit book grew by 21% y-o-y, without acquisitions by 8%, respectively. As a result the consolidated net loan-to-(deposit+retail bonds) ratio increased by 1.8 pp y-o-y, reaching 68.3%.

Foreign subsidiaries’ annual performance is characterised by stable Bulgarian, improving Russian, Ukrainian, Croatian and Romanian performance, and lossmaking operations in Slovakia, Serbia and Montenegro as a result of prudent provisioning.

At the end of 2017 the Group’ gross liquidity reserves comprised EUR 8.3 billion equivalent.

At the end of December 2017 the consolidated Common Equity Tier1 ratio under IFRS was 12.7% (-1.0 pp q-o-q). The decline was explained partially by the consolidation of Vojvodjanska banka (-50bps). OTP Bank’s stand-alone common equity Tier1 ratio was 29.0% by the end of 2017.