OTP Q2 Profits Surge to HUF 382 bln

Banking

Photo by Jessica Fejos

Consolidated second-quarter after-tax profit of OTP Bank, Hungary's biggest commercial lender, jumped 402% year-on-year to HUF 382.1 billion, supported by the impact of acquisitions, improved net interest margin, and a release of risk provisions, an earnings report published ahead of the opening bell on Thursday shows.

Net interest income rose 28% to HUF 340.8 bln as net interest margin widened by 20 bp to 3.77%.

Net revenue from commissions and fees increased 23% to HUF 117.7 bln.

Other net non-interest income climbed 180% to HUF 89 bln, boosted by a positive fair value adjustment of prenatal baby support loans and subsidized home loans.

OTP booked a HUF 9.5 bln release of risk provisions, compared to HUF 31.8 bln of risk costs in the base period.

OTP's recently acquired Slovenian bank, Nova KBM, was included in the consolidated P+L statement for the full quarter, rather than just two months in Q1. OTP acquired a controlling stake in Uzbekistan's Ipoteka Bank in June and consolidated the lender's balance sheet, but its P+L will be consolidated only from the second half of 2023.

Among adjustments, OTP noted the net positive HUF 84 bln effect of acquisitions on after-tax profit, a HUF 25.6 bln rebate on a windfall profit tax and a negative HUF 17.9 bln related to the impact of an extension of interest rate caps on mortgages and SME loans in Hungary until end-2023.

Earnings per share came to HUF 1,428 for the period.

Foreign Units Lift Earnings
 

Adjusted after-tax profit at OTP's core business in Hungary edged down 4% to HUF 73.6 bln.

At the same time, the contribution of OTP's foreign units improved and accounted for 68% of adjusted consolidated after-tax profit.

Adjusted after-tax profit of DSK Group, OTP's Bulgarian unit, climbed 87% to HUF 53.2 bln.

Adjusted after-tax profit of the business in Slovenia jumped 621% to HUF 34.2 bln, boosted by the inclusion of Nova KBM in the consolidation. Nova KBM added HUF 26 bln to Q2 earnings.

OTP booked adjusted after-tax profit of HUF 33.3 bln at its business in Russia and HUF 17.8 bln at its unit in Ukraine. OTP's management applies a "going concern" approach to both businesses, but is still considering "all strategic options" in Russia, the lender said, while acknowledging a Russian presidential decree prohibiting the sale of foreign-owned banks.

Russian assets on OTP's consolidated balance sheet accounted for 3.1% of the total at the end of Q2. The impact of deconsolidation and write-down of intragroup exposure under an "unexpected and extremely negative scenario" would cut OTP's CET1 ratio by 46 bp.

Ukrainian assets made up 2.6% of the balance sheet total.

Guidance for 'Substantial' Increase in Adjusted ROE
 

OTP had total assets of HUF 36.867 trillion at the end of June, up 20% from 12 months earlier.

The gross stock of client loans increased 23% to HUF 21.564 tln. The NPL ratio edged down 0.6 percentage points to 2.9%.

OTP noted that Ipoteka Bank added HUF 885 bln to the performing loan volume.

Client deposits rose 21% to HUF 26.904 tln.

In updated guidance, OTP's management said organic performing loan volume growth could reach 5% for the full year. They also forecast a lower credit risk cost rate and cost-to-income ratio and said adjusted ROE could "substantially exceed" the 18.8% level in 2022.

OTP Weighs 'Strategic' Opportunities
 

Speaking at a press conference after the release of the report, deputy CEO László Bencsik noted that first-half consolidated after-tax profit had reached HUF 577 bln. While OTP paid HUF 62.5 bln in sectoral taxes during the period, the acquisitions of Nova KBM and Ipoteka Bank added HUF 168.9 bln to the bottom line, he added.

Excluding one-offs, first-half after-tax profit rose 88% to HUF 471 bln, he said.

Touching on the topic of acquisitions, Bencsik said OTP was "weighing strategic opportunities". Asked whether OTP planned to make acquisitions in Poland or Russia, he said no acquisitions were planned in Russia, but OTP had been watching the Polish market for 20 years and continued to "closely follow opportunities".

He called the drop in demand for credit "temporary" and said the propensity to borrow could improve as inflation falls.

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