Hungary’s OTP books hefty Q1 profit despite government levies

By bne IntelliNews May 12, 2024

The consolidated adjusted net profit of OTP Bank rose 126% year on year to HUF240.0bn (€620mn) with all foreign units posting profits, accounting for three-quarters of earnings. Hungary's biggest commercial lender booked the full-year amounts for the bank levy and the windfall profit tax, HUF29bn and HUF10bn, respectively in Q1, according to the earnings report released before the bell on May 10.

Diluted earnings per share from adjusted after-tax profit came to HUF898.

Net interest income jumped 40% to HUF435.3bn, net revenue from commissions and fees increased 17% to HUF121.2bn.  

OTP released HUF6.9bn of risk provisions, after booking HUF8.8bn of risk costs in the base period.

OTP noted that starting in Q1 2024, only the effect of goodwill impairments and acquisitions would be taken out from the P&L hierarchy and shown at a consolidated level as adjustment items, while all other previous adjustment items would be booked at the particular geographies or business segments where they arose.

In a disclaimer regarding war-related risks, OTP said the precise consequences of the war in Ukraine and international sanctions were difficult to estimate, adding that it "continues to monitor the situation closely".

OTP noted that the impact of a deconsolidation of its Russian business and write-down of intragroup exposure would cut its CET1 ratio by 5bp, while the negative effect of a deconsolidation in Ukraine would be 11bp.

Total assets reached HUF41.5 trillion at the end of March, up 15% y/y.

Gross client loans increased by 9% to HUF23.4 trillion, the stock of deposits climbed 8% to HUF30.4 trillion.

Stage 3 credit-impaired loans under IFRS 9 comprised 4.3% of the gross loan portfolio at the end of the period. The Stage 3 ratio was highest in Ukraine (21.2%), Russia (12.1%) and Uzbekistan (13.3%).

At the press conference after the report, deputy-CEO Laszlo Bencsik said all Q1 indicators had been "in line with expectations" and all foreign units were profitable, including the bank’s latest acquisition, Uzbekistan’s Ipoteka Bank. The country’s fifth-largest lender booked a HUF11bn profit and an ROE of 30%, compared to the group average of 23%.

OTP’s Bulgarian unit, DSK, remained the most profitable foreign unit with a net profit of HUF43bn, up 23% y/y.

OTP, present in ten countries outside Hungary, was a market leader in five countries in terms of net lending stock. Another positive development was the upturn in retail lending in Hungary, with a significant increase in housing loans and consumer loans.

Applications for mortgage loans had climbed 176% in Q1, while new contract volume more than doubled. Mortgage outlays for the whole market could exceed HUF1 trillion this year, up from HUF686bn in 2023. SME lending still hasn't picked up but was stable during the quarter, in line with the trend for the region, he said. Outlays of state-subsidised credit schemes remained significant, and augured a pickup in corporate lending during the rest of the year.

The Hungarian unit booked a HUF50bn profit, returning from a HUF32bn loss in the base period.

The group liquidity and capital position were stable and showed improvement, with the net loan-to-deposit ratio reaching 73%.

Management left earlier guidance for organic growth in the lending portfolio, cleared of exchange rate effects, unchanged. Net interest margin could be level with that in 2023, while the cost-to-revenue ratio could be around 45% and ROE could be lower than in 2023. Mr Bencsik said.

Fielding questions on an offer OTP earlier said it made for a bank in the EU, Mr Bencsik said there was no further information regarding the transaction at present. According to press reports, OTP has made a bid to buy Tallinn-based Luminor Bank. A communication official of the bank confirmed that report to bneIntelliNews.

If realised, it would be the largest transaction in the bank's history.

Investors reacted positively to the earnings report with OTP stock rising to HUF18,600 reaching a 28-month high in intraday trading, up 0.5%. The share price surged 70% in the last 12 months. The 12-month target price of most analysts is above HUF22,000.


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