Otp Bank S/Adr R

Dear ladies and gentlemen, welcome to the first quarter 2024 conference call of OTP Bank. This conference will be recorded. As a reminder, during the presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Laszlo Bencik, Chief Financial and Strategic Officer. Laszlo, please go ahead.

Thank you. Good morning or good afternoon, depending where you are. Thank you for joining us today on OTP Group's 2024 first quarter results conference call. As usual, the presentation which we are going to use is available on the website, so you can download it. But in the meantime, we keep on projecting it together with this VC. Looking at the first quarter results and the kind of high level messages we like to communicate about ourselves, I think on a high level there has been no change and all those factors, if anything, became more transparent and more articulated in terms of our market share in the region, in terms of our profitability, liquidity, capital position, all getting stronger and stronger and commitment remains solid and stable for ESG targets. Now, if you look at the numerical results for the whole group, we achieved 240 billion of after-tax profit. Now, as we previously indicated, we have changed some of the presentation methodology of our results, we don't intend to use these kind of one-offs or adjustments anymore, unless something really huge happens in terms of badwill or a huge gain or loss on selling an asset. But most likely, these adjustments will just disappear. So there will not be a kind of separate adjusted profit. This obviously does not have any impact on the underlying accounting standards, approaches, methodologies, and the structure of our kind of underlying financial statements only have effects on the way how we present them when we communicate with you. So we are going to show less with no items as one of basically, and everything goes into profit after tax. Now, some of you may like it, some of you may not like it, I don't know. It will, might probably cause some inconvenience and by we are kind of moving from one to another one. We try to do everything we can to ease and facilitate this change. And in the analyst tables, in the Excel tables that we have on the website and also in our written Word document, For the report, we presented the numbers in both kind of presentation methodologies, the old and the new. And we have in the Word document a page close to the end, which describes in detail how we reached the kind of new methodology or new presentation methodology numbers for 23, starting from the old ones. And if you have any remaining question, please don't hesitate to contact our AI team and they will be helping you to understand the changes. But I hope this is going to be for the better. So therefore we don't show any more this kind of adjusted numbers, only the profit after tax numbers. And with that line, we had a 23% year on year increase and almost two times improvement compared to the fourth quarter. The kind of lead indicators, net interest margin stayed at the level of the fourth Q, which is good because fourth Q is quite a good level, especially compared to the first quarter last year. Now, this quarterly change, as we explained during 23, was driven by the changes in Hungary and the rapid rate normalization in Hungary, which improves substantially our names in OTP Hungary. Risk cost was actually So we released provisions primarily in Hungary, but also in Croatia. This was due to the usual IFRS 9 kind of forward-looking macro expectations update. So as long as we move ahead in time, and the macro expectations improve quarter by quarter, we should have somewhat less provisions. And this was exactly the case, but it's obviously the opposite. Should the macro expectation deteriorate for the future, we should provision somewhat more. And that's what caused this negative number, sort of this kind of release. And the other factor, which is very important, and I'm going to talk a bit more about this, risk was started to normalize rapidly in Uzbekistan and therefore overall group level we have less risk cost and the profitability of our operation in Uzbekistan is getting to the level where we expected it to be this year. Now nevertheless we obviously Booth, the kind of previous one of items, namely the special tax bank tax in Hungary and the windfall tax in Hungary, which after tax these two items, as you can see on the page with 39 billion and there were other items across the group, which were booked as costs. in one go in the first quarter, despite the fact that, I mean, fundamentally, they should have been spread over the whole year and accrued, but due to the accounting rules, our auditor insisted to book them in the first quarter. The biggest of these items was the deposit insurance fee in Bulgaria, which amounted to 11 billion, half equivalent in the first quarter. These are all negative numbers. So altogether, we had 27 billion half equivalent of after-tax profit kind of impact booked in the first quarter, which really kind of applied to the whole year. So if we were only to account in the first quarter, the one quarter of those, then the first quarter after-tax profit would have been 283 billion and the ROE close to 27%. So that's the kind of run rate. If we were to accrue these one-offs in the first quarter, then we had had this number as after-tax profits. Next slide is about the P&L recomposition, but there's nothing new on there, so maybe we skip to the page five, where we talk about the Hungarian performance. And here the after-tax profit is 50 billion. Margin stayed close to the fourth quarter number, which is good. Cost-to-income ratio continued to improve, and as you can see, we had a This was the kind of largest release item in terms of risk-cost in Hungary. So therefore the risk-cost rate was actually negative. That means it contributed to the profit of the entity. And most of these kind of one-offs appeared in Hungary, 40 billion. So again, if we had this 40 billion evenly distributed over the year, then the first quarter result would have been 80 billion and half, 30 billion more than in the actual number. A few words about the kind of business performance in Hungary. And on the retail, we see a very positive development in terms of demand. both mortgage loan and consumer loan, namely cash loan demand, increased substantially in the first quarter. So if you compare to last year's first quarter, then the new contractual amount, so these are the new loan contracts, the amount of the new loan contracts that were signed with clients, in our case, for mortgages, increased almost three times And for the entire market in Hungary, it was more than two times increased. And therefore, our market share from new production, from new contracts, actually increased and exceeded 36%, as you can see on this slide. On the consumer lending side, cash loans, similar positive development. Our contractual amounts increased. year on year by 67% of the market by 48. And therefore our market share from new contractual amounts increased. Now that's, we may not have the same magnitude of improvement for the whole year, but it is definitely a strong start of the year. And especially in housing loans, in mortgage loans, this is a herald of a much stronger performance than last year, which was rather weak. I mean, last year was a kind of substantial drop back, almost 50% decrease happened last year compared to 22. And we may not get back to the 22 level this year, but we can easily get up to 40 50 growth compared to new production last year and that's i think but on both sides on the mortgage loan side and then the cash loan retail cash loan side these are good signs for increasing economic activity it means that consumption generated loan demand is increasing, consumption is increasing, retail consumptions, and households are ready to start investments, and therefore retail investments, which are mostly done in the form of housing, start to pick up. So that's an overall good early sign of economic recovery, I think, and certainly These numbers are better than what we originally expected. I would say considerably better than what we expected at the end of last year. In terms of the saving markets, I mean, as you can see, our deposit share increased. And the good news is that actually retail deposits grew 3% in this one quarter for OTP. And that's, again, a very good improvement compared to last year. I mean, more about this later on. The next slide talks about the corporate situation. Now, this is quite a contrast to what we see in retail, because in corporate, we don't yet see an increasing loan demand. And this is not just Hungary. Across the Central Eastern European countries, we see a rather kind of mild or limited demand for new corporate loans. Typically, corporate clients are doing very well financially. They increase their cash reserves and they rather pay back existing high interest rate credit lines as opposed to utilize new ones. And they seem to be somewhat more cautious or somewhat delaying new investment decisions and that's what we see in Hungary and that's what we see in all the other CE countries. Therefore corporate loan demand and loan growth has not yet manifested and this is probably a second step. We see that clearly already happening in retail and again not just in Hungary but you will see that most basically across the region that retail loan demand started to pick up. And I guess corporate loan demand will come in the second wave. When exactly? Probably second half of the year, but it is kind of hard to tell what exactly the kind of time delay, the time difference between these revival, two revivals, retail loan demand and corporate learned demand will be, maybe there will be also differences country by country. If you look at the financial performance of the entities outside Hungary, I think the picture is very positive. All of these entities contributed positively. And the big turnaround here is clearly a newly acquired bank in Uzbekistan, Hypotheka, which kind of booked 11 billion, half equivalent of profits in the first quarter. And that translates into almost 30% return on equity, which is higher than what the whole group made last year. And now I think we are getting to the level in Uzbekistan what we expected when we brought the bank. And we are very happy to see these results coming through because a lot of our colleagues are working there hard to make this happen. And the potential certainly is very large. I kind of mentioned at the beginning that in case of Bulgaria, there was a rather large item 11 billion half equivalent, the cost of the deposit insurance, deposit insurance fees, which were for the whole year booked in the first quarter in the form of 11 billion. So if we were to adjust with that, then the kind of quarterly result, the kind of run rate is more around 50 billion. Well, just a quick look at the different, In terms of net interest income, 30% year-on-year growth and without acquisitions, if we include the acquisitions, then it was actually 40% year-on-year difference. Obviously, in the first quarter, NKBM, the newly acquired Slovenian bank, was only included for February and March. So in last year's results, MKPM was not included yet in January. And then the other item which was missing from the current group a year ago is Uzbekistan. We consolidated it in terms of revenues in the third quarters and the first half of the year in the basis we were missing. So kind of without the fact of acquisitions, 30% year-on-year growth. in terms of NII and poorly 2%. We have some noise in different cases, especially in Hungary, we have this slight decrease, but to be fair, it's rather, I mean, fundamentally it's an increase because there was a quite big positive one of effect in the fourth quarter, 13 billion. So this minus one development was, despite the fact that the base was 13 billion higher just due to technical one of elements. So actually this minus one decline translates into 12 billion improvement if you take out this kind of base effect. And that is due to the kind of growing deposits, retail deposits effect. primarily, which is quite positive. Bulgaria, the quarterly and the yearly growth is, especially the quarterly growth is not driven by name, it's driven by volumes, a very strong volume dynamics. Quarterly basis, in particular, there's a technical reclassification between revenue lines, and this is going to be permanent. So you will see that the margin, what we have in in particular is the likely kind of run rate. In Russia, there was an improvement, but again, more than half of it was related to technical negative one-off appearing in the fourth quarter. And then basically that's it. Net interest margin wise, Again, Hungary more or less stable, which is good. And here you can see the quarterly improvement compared to a year ago, which is very strong. In general, in the kind of Euro or Euro-linked countries, we have kind of year-on-year improvement and quarter-on-quarter more or less flat rates. And there's this improvement in this hypotheca in Uzbekistan, which is again technical, but it will remain with us. So this is a kind of permanent improvement declassification of certain revenues. And there's Moldova where there was a big drop year on year in the net interest margin. It's not really important for the overall group as such because it's quite small. But as a story, I think it is very, very interesting. I don't remember seeing such a huge improvement in one year or decline in one year. year in the year rate environment. In Moldova, a year ago, in the first quarter of last year, the base rate was 20% or higher. And today, at the end of the first quarter, it was 375. So incredible improvement and recovery in terms of the rate environment. And today, it's actually lower than the Euro rate. which I did not expect to happen a year ago. Talking a bit about volumes, and starting with loan volumes, overall, 1% FX adjusted performing loan growth. But Romania was negative, and we showed the Romanian numbers more or less as if everything was normal, but you have to take into consideration that we already signed the share purchase agreement. So this bank is about to be sold. And if you look at our financial statements, then actually the Romanian operation is shown as for sale or, and therefore it's not, consolidated as a line by line. Nevertheless, we showed the dynamics as if it was normal. But if we take out Romania, which we will most probably during the course of the third quarter this year, then actually with Romania, the growth was 2% on the group level. I think the most important number here is probably just because of the sheer size of the portfolios in Hungarian mortgages, which in one quarter increased by 2%. But this trend, which I just explained that we see strong dynamics in consumer lending and in mortgages across the group, I think it's quite visible on this slide that we had in the first quarter 4% growth. in one quarter in consumer loans and 3% in mortgages. And as you can see, corporate growth overall negative and rather muted across the board. And that's the comment I made that it seems that corporate loan demand revival will have a kind of time lag compared to the retail ones. In terms of deposits, Overall group level 1%, so not much has changed, but very importantly, Hungarian retail grew 3%. I mean, this is fundamental for the profitability of our Hungarian business and has a rather material impact on the group level as well, again, just because of its size. So that's also quite important. What you see here, 3% growth. just in one quarter. You probably remember this was one of the pain points. It used to be one of our pain points in Hungary and for the whole group that for a period of more than a year, retail deposit growth was actually negative in Hungary. And that was extremely painful for us, given that we don't pay much interest on these deposits and therefore they have a strong profit contribution. The income. Year on year without acquisitions they went up by 14%. First quarter they went down quarter on quarter 9%. And there's always this seasonality. In Hungary we have one offs as usual each year. So the one-offs were actually together. I mean, we had positive one-offs in Q4 and negative one-offs in Q1. And the difference in one-offs is 4.6 billion negative, so actually more than the decline. And usually the fourth quarter is just seasonally worse than all the other quarters. The other... And a bigger item here is the last one on the list, the fund management. You probably remember that during the first fourth quarter last year, at the end of the year, we received a management bonus due to the very strong performance compared to the market of the asset management company.

Other income.