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OTP profit plunges 48% on Ukraine, Russia losses

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OTP Bank’s consolidated first-quarter after-tax profit plunged 48% to HUF 5.9 billion from the same period a year earlier on losses at its businesses in Ukraine and Russia and growing risk costs, an IFRS earnings report published Friday shows. 

OTP booked a HUF 7.5 billion loss in Ukraine and a HUF 4.7 billion loss in Russia. In the base period, the Ukrainian and Russian businesses generated after-tax profit of HUF 1.6 billion and HUF 7.7 billion, respectively.

OTP noted the “high probability of a fragile business environment for the rest of the year” in Ukraine and put the unit’s potential full-year loss at HUF 10 billion to HUF 20 billion. It said the Russian unit “may not provide a positive contribution to the group’s net earnings” because of a slower-than-expected decline in risk costs, weaker lending activity and lower profitability due to “benign macroeconomic performance.”

Risk costs for the group rose 25% to HUF 68.9 billion. The proportion of non-performing loans in the lending portfolio rose 1.3 percentage points to 21.2% in the twelve months to the end of March. Provisions on these NPLs reached 83.9% of the total.

Earnings per share came to HUF 22 in Q1, down from HUF 41in the base period.

Net interest income edged down 2% to HUF 162.5 billion as an easing cycle by the National Bank of Hungary (MNB) continued. Net revenue from commissions and fees rose 17% to HUF 42.0 billion.

OTP Bank noted that without the effect of a net HUF 29.4 billion payment on the bank levy, its earnings would have come to HUF 35.3 billion in Q1.

A breakdown of earnings by subsidiary, shows that, with the exceptions of the units in Ukraine and Russia, all of OTP’s main foreign businesses were in the black in Q1. After-tax profit at its Bulgarian unit, DSK Bank, climbed 25% to HUF 11.3 billion. Still, the proportion of consolidated profit generated by the foreign units dropped to just 5% from 45% in the same period a year earlier.

OTP’s core business in Hungary had after-tax profit of HUF 33.9 billion, up 55%.

OTP had total assets of just under HUF 10.14 trillion at the end of March, down 4% from twelve months earlier. Net assets fell 6% to HUF 1.4407 trillion.

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