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Acquisitions boost OTP Bank earnings in second quarter

Second-quarter after-tax profit of OTP Bank, Hungaryʼs biggest commercial lender, rose 18% year-on-year to HUF 105.4 billion, boosted by the consolidation of acquisitions in Bulgaria and Albania, an earnings report released early Friday shows, state news agency MTI reported.

Earnings were over the HUF 95.8 bln estimate by analysts polled by business news site portfolio.hu.

OTP closed the acquisition of the Albanian subsidiary of Franceʼs Société Générale Group (SocGen) in March, while it closed the acquisition of SocGenʼs Bulgarian unit in January. The Albanian subsidiary contributed HUF 1.2 bln to Q2 group profit, and the Bulgarian unit HUF 4.6 bln.

In addition, OTP closed acquisitions in Montenegro and Moldova in July, while the financial closure of recent acquisitions in Serbia and Slovenia is pending. 

Net interest income increased 17% to HUF 170.7 bln in Q2, while net revenue from commissions and fees climbed 18% to HUF 66.8 bln.   

Return on equity was 21.9% for the period, level with the rate in Q2 2018. Return on assets, adjusted for one-offs, edged up 0.1 of a percentage point to 2.8%. Earnings per share came to HUF 402 for the period.

Double-digit profit growth abroad

OTPʼs foreign banks generated combined after-tax profit of HUF 46.8 bln, or 42% of group-level profit. In the base period, the foreign units accounted for one-third of group profit.

Profit at the business in Bulgaria jumped 29% to HUF 16.6 bln, while profit in Croatia soared 91% to HUF 8.6 bln. OTP Bank Russiaʼs profit increased 29% to HUF 7.3 bln, while OTP Bank Ukraineʼs profit rose 42% to HUF 7.7 bln. 

All of OTPʼs other foreign banks showed double-digit profit growth during the period, while profit at the lenderʼs core business in Hungary edged up just 3% to HUF 57.7 bln.

Improving portfolio quality

OTP had total assets of HUF 16.458 trillion at the end of June, up 16% from 12 months earlier. Excluding the impact of the acquisitions in Albania and Bulgaria, the performing loan portfolio grew 5%.

The stock of OTP client loans rose 20% to HUF 10.157 tln. The retail lending stock was up 16% at HUF 6.017 tln, while corporate loans rose 28% to HUF 3.794 tln.

The ratio of non-performing loans (NPLs) fell to 5.5%, down from 8.1%. At the same time, provisions for loan losses dropped 11% to HUF 683.1 bln.

Client deposits were up 18% at just under HUF 12.7 tln.

OTP said that its Common Equity Tier 1 (CET1) capital ratio, which stood at 15.9% at the end of June, would have been 2.8 percentage points lower if the acquisitions in Montenegro, Moldavia, Serbia and Slovenia had been booked during the period.

The bank noted that gross operative liquidity reserves at group level stood at the equivalent of EUR 7.2 bln at the end of June.

Meanwhile, assets managed by OTP Bankʼs fund management unit fell 16% to HUF 1.029 tln in the 12 months to the end of June. OTP acknowledged the impact of the popularity of the Hungarian Government Security Plus (MÁP Plusz) bonds, launched in June, on investment funds, especially bond funds, during the period.

The Plusz bonds, which pay an annualized yield of 4.95% if held for the full five-year maturity, have attracted record demand.