OTP Q2 profit falls on pandemic provisions



Second-quarter consolidated after-tax profit of OTP Bank, Hungaryʼs biggest commercial lender, fell 25% year-on-year to HUF 78.7 billion because of risk costs related to the impact of the coronavirus pandemic, state news wire MTI reports, citing an earnings report published early Friday.

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Provisions came to HUF 39.1 bln in Q2, well over the HUF 4.4 bln in the base period, but far less than the HUF 91.7 bln in Q1 when OTP booked a HUF 4.1 bln loss.

OTP acknowledged the "significant setback" in profit across the group in Q1, but said that moderating risk costs in Q2 had improved the bottom line, quarter-on-quarter, at all of its units with the exception of its bank in Ukraine and its leasing business Merkantil.

OTPʼs foreign businesses generated half of the group-level profit in Q2.

OTP noted that it released HUF 2 bln in provisions related to the government-mandated moratorium on loan repayments in Hungary in light of participation rates: at the beginning of July, participation in the scheme, from which borrowers must opt out, affected 53% of the retail portfolio and 31% of corporate loans. OTP added that it is "has not calculated with meaningful negative impact" of repayment moratoria in other countries where it is present based on participation rates "due to the different interest calculation methodologies in place".

Net interest income rose 14% to HUF 194.5 bln during the period. Net revenue from commission and fees was flat at HUF 66.6 bln.

OTPʼs return on equity, after adjustments, dropped 9.2 percentage points to 14.1%. Adjusted return on assets slipped 1.2 percentage points to 1.5%.

Earnings per share came to HUF 301.

Balance sheet expands as acquisitions pay off

OTP had total assets of HUF 21.790 tln at the end of June, up 32% from twelve months earlier, boosted by a buying spree abroad.

The gross stock of client loans increased by 29% to HUF 13.879 tln. Allowances for loan losses were up 22% at HUF 834 bln.

The lenderʼs non-performing loan ratio stood at 4.4%, down 1.2 percentage points from twelve months earlier, but up 0.2 percentage points from the end of March.

The stock of client deposits rose 24% to HUF 16.588 tln.

OTPʼs management continued to refrain from issuing detailed guidance because of the high degree of uncertainty regarding the duration of the pandemic as well as the pace of recovery of the global economy, but it said adjusted ROE "might exceed 10%" for the full year, while the annual risk cost rate "may be around 125 bp alongside the currently probably macroeconomic development path".

OTPʼs total risk cost-to-asset ratio stood at 0.73% in Q2, down from 1.77% in Q1.

Management augurs 7% loan volume rise

OTP said lending activity in Q2 was "shaped by lockdowns and limitations" related to the pandemic, but it conceded that "the more cautious attitude of clients also took its toll", noting double-digit quarter-on-quarter declines in new lending volume in Hungary, Russia, and Croatia.

Management said FX-adjusted performing loan volume "might increase by around 7%" for the full year, following 3% growth in Q1 and a near-zero change in Q2. 

OTP said its management is committed to paying a dividend on 2020 earnings that "also compensates" shareholders for the originally proposed HUF 69.4 bln dividend on 2019 profits which was not paid on the instruction of the National Bank of Hungary. The managementʼs proposal on the dividend on 2020 earnings will depend on "the annual accounting profit, acquisition opportunities, the then-prevailing economic environment, as well as the regulatory and supervisory requirements", the lender added.

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