OTP Group: 2019 2Q results

1H 2019 OTP Group’s consolidated accounting after tax profit was HUF 178 billion (+15% y-o-y). The total volume of adjustment items (after tax) in 1H represented -HUF 24.7 billion, o/w -HUF 6.9 arose in 2Q.

In 1H 2019 OTP Group posted HUF 202.6 billion adjusted after-tax profit underpinning a 19% y-o-y increase. The profit already incorporated the net results of Express Group and the Albanian subsidiary, adjusted for that the 1H profit would be HUF 191.6 billion. The performance of OTP Core improved by 2% y-o-y and comprised HUF 97.4 billion. DSK Bank’s net profit (HUF 24.4 billion) remained stable q-o-q and still the second largest contribution across the Group. There was a substantial earnings improvement at the Croatian (HUF 17.4 billion) and the Ukrainian subsidiaries (HUF 16 billion), independently comprising significant stand-alone contributions (in both case +42% y-o-y). The Russian operation also posted higher 1H profit (HUF 13.9 billion), as well as all other foreign subsidiaries. The Bulgarian Expressbank contributed almost HUF 10 billion into the first six months consolidated profit. As a result, the profit contribution of foreign subsidiaries increased y-o-y (1H 2018: 39%, 1H 2019: 45%).

In 2Q 2019 OTP Group posted HUF 112.2 billion adjusted after tax profit (+23% y-o-y, +24% q-o-q) which is an all-time high quarterly result. Within that the Albanian subsidiary posted HUF 1.2 billion and Expressbank another 4.6 billion. The consolidated adjusted 2Q ROE increased to 23.3% (+3.6 pps q-o-q). Key components of the improving quarterly profitability: the operating income grew by HUF 15.4 billion (+14% q-o-q), adjusted by the Bulgarian and Albanian subsidiaries +HUF 7.4 billion. At the same time total risk costs comprised -HUF 4.4 billion, HUF 1.8 billion less q-o-q. Furthermore, out of the quarterly profit dynamics HUF 7 billion is explained by the MOL-OTP own share swap agreement booked amongst one-offs. Out of that, the dividend paid by MOL in June represented HUF 5.7 billion.

The growth of the FX-adjusted performing (Stage 1+2) loan portfolio accelerated in 2Q, as a result the FX-adjusted loan book expanded by HUF 1,315 billion, +15% for the first six month including the impact of the Bulgarian and Albanian acquisitions. Without them the performing portfolio organically grew by HUF 412 billion ytd (+5%), within that by 4% q-o-q in 2Q (FX-adjusted). Regarding the individual performances in q-o-q Stage 1+2 volume changes, the Ukrainian and OTP Core operations demonstrated the strongest portfolio growth, but the Montenegrin, Romanian and Croatian subsidiaries also posted decent results. The Russian and Serbian volumes stagnated.

In line with the improving macroeconomic environment and the steadily good recovery results of the work-out activity, risk indicators in total improved. By the end of 2Q 2019 Stage 3 rate was 7.7% (-0.5 pp q-o-q); the own provision coverage of Stage 3 loans was 65.8% (+0.8 pp q-o-q). The DPD90+ ratio dropped to 5.5% (-0.4 pp q-o-q). The DPD90+ volumes (adjusted for FX and the effect of sales and write-offs) grew by HUF 23 billion in 2Q 2019, bulk of the q-o-q increase was related to the Russian subsidiary, and to a smaller extent to the Romanian and Ukrainian operations. At the same time DPD90+ volumes declined at OTP Core and OTP Bank Croatia. Stage 1+2 volumes comprised HUF 9,375 billion, their ratio to total gross loans was 92.3%, of which the Stage 1 ratio stood at 86.8% and Stage 2 at 5.5%. The consolidated 2Q risk cost rate was 15 bps (1Q 2019: 24 bps, 2018 average: 23 bps).

In 2Q the FX-adjusted deposit portfolio grew by 2% q-o-q and by 18% y-o-y; adjusted by the Bulgarian and Albanian entities, volumes increased by 8% y-o-y. As a result, the consolidated net loan-to deposit ratio grew q-o-q and came close to 75%.

At the end of 2Q 2019 gross operative liquidity reserves of the Group comprised EUR 7.2 billion equivalent.

At the end of June 2019 the consolidated Common Equity Tier1 ratio under IFRS – including the semiannual net result less dividend – was 15.9%. This ratio equals to the Tier1 ratio.