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Pandemic-related provisions weigh on OTP profits

Banking

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Consolidated fourth-quarter after-tax profit of OTP Bank, Hungary's biggest commercial lender, fell 31% year-on-year to HUF 71.5 billion as pandemic-related provisions weighed, an earnings report published ahead of the opening bell on Friday shows, according to Hungarian news agency MTI.

Net interest income edged up 1% to HUF 197.6 bln but net revenue from commissions and fees slipped 3% to HUF 83.1 bln.

Risk costs jumped 109% to HUF 52.1 bln. That included HUF 42.2 bln for impairment on loan and placement losses, mitigated by a HUF 11.6 bln release of provisions in Hungary as a result of recoveries at OTP Factoring.

OTP's credit risk cost rate stood at 1.17% in Q4.

Full-year profit near HUF 260 bln

For the full year, OTP's after-tax profit dropped 37% to HUF 259.6 bln. OTP's foreign businesses accounted for 41% of after-tax profit.

Net interest income increased 12% to HUF 788.1 bln and net revenue from commissions and fees rose 4% to HUF 293.1 bln.

Risk costs rocketed 299% to HUF 188 bln. The annual credit risk cost rate was 1.15%.

OTP booked HUF 28.3 bln for the expected one-off negative effect of repayment moratoria in Hungary and Serbia.

Return on equity fell 9.4 percentage points to 10.9%. Return on assets, adjusted for one-offs, dropped 1 percentage point to 1.4%.

Diluted earnings per share came to HUF 1,003 for the year.

OTP noted that the National Bank of Hungary (MNB) instructed all lenders to refrain from paying dividends or making commitments to pay dividends on 2019 and 2020 earnings until after September 30, 2021. However, the lender said it deducted HUF 119 bln of dividends from its regulatory capital, in line with European Union rules, and added that the deducted dividend "is identical with the amount the management would have proposed to the AGM if the MNB hadn't restricted dividend payment". The HUF 119 bln includes the HUF 69.4 bln dividend the management proposed paying on 2019 earnings. 

After September 30, 2021, OTP's board "may decide about paying dividend advance", the lender said.

OTP's "safe capital position" enables it "to look further for acquisition targets", "in line with the management's strategic targets", it added.

The group's gross operative liquidity reserves stood at the equivalent of EUR 8.9 bln at year-end.

Loan portfolio quality improves

OTP had total assets of nearly HUF 23.336 trillion at the end of December, up 16% from 12 months earlier.

Gross client loans increased 11% to more than HUF 14.363 tln. Retail lending stock rose 5% to HUF 8.309 tln and corporate loans climbed 6% to almost HUF 5.41 tln.

Deposit stock increased 15% to about HUF 17.891 tln. Retail deposits grew 9% to HUF 12.811 tln and corporate deposits rose 14% to approximately HUF 5.072 tln.

The rate of loans in the portfolio past 90 days due fell 0.4 percentage point to 3.8%, although OTP acknowledged the impact of extended repayment moratoria on portfolio quality.

Too early for specific guidance

OTP said it was still too early to give "specific and numeric consolidated management guidance" in light of the "still significant uncertainties" surrounding the pandemic. However, "based on currently available information", the management expects "the mitigation of the negative impact of the pandemic" and "a steady rebound in economic performance across the Group" for the second half of 2021.

Adjusted ROE "might be higher than in 2020", while organic, FX-adjusted growth of performing loan volume "might be around the 2020 level", OTP said.

The net interest margin erosion "might continue", total risk costs "might be lower than in 2020", and the cost-to-asset ratio "might further improve", it added.

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