OTP Group: 2018 results
The full year consolidated accounting profit was HUF 318.3 billion versus HUF 281.3 billion in the base period. During the course of the year total adjustment items comprised -HUF 7 billion (after tax), of which +HUF 15.3 billion (after tax) appeared within 4Q accounting profit.
In 2018 OTP Group posted all-time high, HUF 325.3 billion (above EUR 1 billion) adjusted after-tax profit (+15% y-o-y).The effective tax rate declined by 1.3 pps to 10.3%. The before tax profit grew by 13% compared to the base year.
Within the annual profit – given their individual weight – profit contribution from OTP Core (HUF 180 billion), DSK Bank (HUF 47.3 billion), the Croatian operation (HUF 25 billion), the Ukrainian (HUF 24.4 billion) and Russian subsidiaries (HUF 16.4 billion) was the most meaningful. Out of those banks only the Russian subsidiary suffered a y-o-y profit decline, while others enjoyed their profits improving y-o-y, of which Ukraine was the ultimate winner (+73% y-o-y, annual ROE: 56%). Regarding the Russian performance one should note that the lossmaking Touch Bank was shown as a separate entity in 2017, however, starting from 2018, it was presented as part of the Russian operation. So, including Touch Bank’s result in the base period, too, the Russian operation suffered a y-o-y 13% profit decline in RUB terms. The Romanian, Serbian and Montenegrin subsidiaries posted a significant profit mprovement y-o-y, whereas the Slovakian subsidiary realized a marginal profit against a loss in 2017.
As a result, the 2018 profit contribution of foreign subsidiaries increased from 35% to 38% y-o-y.
Annual total income of OTP Group increased dynamically (+10% y-o-y, +6% without acquisition effect). The annual operating profit improved by 6% y-o-y, whereas total risk costs dropped by 43%.
In 4Q 2018 OTP Group realized HUF 62.5 billion after-tax profit (-33% q-o-q). The q-o-q drop of the quarterly profit was partially due to seasonally higher operating expenses (+15% q-o-q) elevated also by one-offs, as well as by total risk costs increasing eight folds, albeit from a low base. Higher risk costs, however were not induced by portfolio deterioration.
In 2018 the consolidated FX-adjusted performing loan volumes surged by 15%, more than HUF 1,000 billion y-o-y (4Q: +3% q-o-q). It was positive that all Group members and all credit segments posted volume increase. Out of the individual performances OTP Core (+18%), Serbia (+31%), Ukraine (+30%), Russia (+30%) and Bulgaria (+11%) demonstrated excellent y-o-y growth dynamics, but smaller operations like the Montenegrin or Romanian ones, as well as Merkantil Bank also excelled themselves. As for the major credit segments the biggest volume increase was posted in the large corporate segment (+20% y-o-y) followed by the SME and consumer loan segment (+18% and +14%, respectively), but the performing mortgage volumes growth of 6% y-o-y was remarkable, too.
In line with the supportive macroeconomic environment, as well as the improving efficiency of collection, the trend of the DPD90+ volume increase (adjusted for FX and the effect of sales and writeoffs) remained favourable: accordingly, in 2018 DPD90+ volumes grew only by HUF 24 billion versus an increase of HUF 51 billion in the base period. The DPD90+ ratio dropped to 6.3% (-2.9 pps y-o-y), resembling already pre-crisis levels. The DPD90+ volume decline was supported by sales and write-offs reaching HUF 176 billion in 2018. In Hungary the DPD90+ ratio dropped to 4.5% (-1.9 pps y-o-y). The consolidated risk cost rate was 0.23% versus 0.43% in the base period.
The FX-adjusted deposit portfolio increase was less robust in 2018 (+8% y-o-y). As a result, the net loan/(deposit + retail bonds) ratio increased by 3 pps y-o-y to 72%.
At the end of 2018 the Group’ gross liquidity reserves comprised EUR 7.8 billion equivalent.
By the end of December 2018 the consolidated Common Equity Tier1 ratio under IFRS was 16.5% including the unaudited interim profit and deducting the indicated annual dividend amount.