Expanding balance sheet boosts OTP earnings

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Consolidated fourth-quarter after-tax profit of OTP Bank, Hungaryʼs biggest commercial lender, rose 32% year-on-year to HUF 103 billion, lifted by acquisitions and bigger business volume, state news wire MTI says, citing an earnings report released before markets opened on Friday.

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The profit was a hair over the HUF 101.1 bln estimate by analysts polled by Portfolio.hu. Earnings per share came to HUF 391 for the period. Net interest income rose 25% to HUF 195.9 bln. Net revenue from commissions and fees increased 51% to HUF 85.5 bln.

OTP finished the year with total assets of nearly HUF 20.122 trillion, up 38% from twelve months earlier. The net stock of client loans jumped 47% to nearly HUF 12.248 tln. Client deposits increased by 34% to approximately HUF 15.523 tln.

OTP said the ratio of non-performing loans in its portfolio fell a marked 2.1 percentage points to 4.2%, a level lower even than before the financial crisis. The decline was supported by sales and write-offs totaling HUF 133 bln, adjusted for exchange rate effects, mainly at OTPʼs businesses in Russia and Ukraine. The NPL ratio at OTPʼs core business in Hungary dropped 1.3 percentage points to 3.2%.

Full-year profit close to HUF 413 bln

OTP booked an after-tax profit of HUF 412.6 bln for the full year, up 30%.

Net interest income rose 18% to HUF 706.3 bln and net revenue from commissions and fees climbed 28% to HUF 282.5 bln.

Return on equity rose 1.6 percentage points to 20.3%. Return on assets, after adjustments, edged up 0.1 percentage points to 2.4%.

EPS came to HUF 1,575.

Buying spree adds HUF 29.4 bln to earnings

OTP said acquisitions it made last year added HUF 29.4 bln to after-tax profit. OTP closed the acquisition of the Albanian subsidiary of Franceʼs Société Générale Group in March, and it closed the acquisition of SocGenʼs Bulgarian unit in January. OTP closed acquisitions in Montenegro and Moldavia in July, and another in Serbia late in September. The acquisition of SKB Banka in Slovenia was closed in December.

OTP noted that Bulgariaʼs Expressbank contributed about HUF 18 bln to full-year profit, while the Albanian acquisition brought in HUF 2.6 bln and the Montenegrin and Moldavian banks generated a combined HUF 1.9bn in profit. The Serbian acquisition boosted profit by HUF 5bn. As the Slovenian acquisition was completed late in the quarter, only its balance sheet was included in the consolidation.

OTPʼs foreign businesses accounted for 46% of after-tax profit in 2019, up from 38% in 2018.

Board to propose HUF 248-per-share dividend

OTP said in the report that its board would propose to shareholders payment of a HUF 69.4bn dividend on last yearʼs earnings at an annual general meeting on April 17. The proposal implies a HUF 248-per-share dividend, compared to HUF 219 per share paid on 2018 earnings.

OTP said "capital accumulation" and "integration" of the banks it acquired last year would be "in focus" in 2020.

"Nevertheless, the management continues to assess further value-creating acquisition opportunities," it added.

OTP said its management expects a deceleration of FX-adjusted organic growth of performing loans in Q2 2020, but it sees a return to an annualized growth rate "above 10%" in the second half of the year.

Consumer loans drive growth in Hungary

Speaking at a press conference after the earnings report was released, deputy-CEO László Bencsik said stock of performing loans at OTPʼs core business in Hungary had risen 22%, driven by consumer loan outlays and also helped by prenatal baby support loans. OTP signed contracts for prenatal baby support loans worth HUF 209 bln, giving it a 45% market share in the segment, he added.

Hungaryʼs government launched the interest-free general-purpose loans up to HUF 10 million for families having children in July. The prenatal baby support loans are part of a package of family support measures designed to address the problem of depopulation and are available only until the end of 2022.

OTPʼs market share of Hungaryʼs personal loans market rose to 39.1% from 38.3% last year, Bencsik said. Its share of the mortgage loan market climbed to 31.6% from 29%, he added.

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