Otp Bank S/Adr R

Good morning or good afternoon, depending where you are. I'm Laszlo Bencik speaking and welcome you on OTP Group's 2025 first quarter results conference call presentation and Q&A. I'd like to mention first of all that this conference and the whole session will be recorded. So in case you intend to speak, please take that into consideration. First of all, I have the honor and the privilege to introduce Mr. Peter Csányi, who is our new chief executive officer. Peter is not at all new to the organization. He joined OTP Hungary in 2016, so nine years ago. First, he was the managing director responsible for digital sales and digital development in general, and then became the head of the omnichannel tribe and the head of the daily banking tribe. And then in 2021, he became the head of the digital division and deputy CEO and also a member of the board of directors of the group. And he also, for the last two years, he has been chairman of the newly created executive steering committee, which technically served as the kind of operative, the factor operational leadership committee of the leading committee of the group. So he has been practically in this current role for two years now. Therefore, he is very well known and very, very respected within the organization, professionally and personally as well. Everyone I know has been quite happy to welcome him in this new position. He has, before joining OTP, He had had a long and successful career as a management consultant and as an investment banker at McKinsey & Company, serving financial institutions, primarily in the Central Eastern European region, and also in Deutsche Bank and Merrill Lynch in the City of London as an investment banker. He has a background in economics and management. He has an MBA from Kellogg School of Management a master's degree in financial management from Instituto d'Empresa and a bachelor in economics from City University London. I strongly believe that with Peter as CEO and Mr. Sandor Czajny as continuing in the executive, in the kind of executive chairman position It is fully assured that we can continue on this successful path that we have, what CP Group has achieved during the last 33 years, pretty much, but also creates an opportunity to renew and further improve whatever we do. So with this intro, I'd like to give the floor to Peter Chaney. Please welcome him.

Thank you very much, Laszlo, and I welcome all of you to the 2025 Q1 conference. I would like to briefly talk a little bit about the division of responsibilities between the chairman role and the CEO role to begin with. First of all, what is important to mention, as Laszlo already highlighted, that the chairman will remain in a full-time active chairman role. He will continue to be obviously chairman of the board of directors and he will continue to head the management committee of the group. Regarding strategic decisions, for example, acquisitions or capital decisions, risk governance, risk framework, risk appetite decisions, it is still the chairman and obviously the board of directors that will make the final decisions on the strategic directions in this regard. He will continue to appoint members of the management committee, so the deputy CEOs of the group, the retail division, corporate division, risk finance divisions, and he will continue to appoint the subsidiary CEOs, both in Hungary and in the foreign subsidiaries, and he will continue to appoint the heads of the supervisory boards or board of directors, depending on the relevant jurisdiction of the foreign subsidiaries. And myself as a CEO, I will manage the operational day-to-day activities of the group. As Laszlo mentioned, we have formed the executive steering committee about a year and a half, almost two years ago. It has worked well until now. And I strongly believe that we have a better cooperation between the different business units and the enabler functions within the bank for managing the day-to-day operative decisions. Previous roles that have reported directly to the chairman in a CEO position, will report to me. So marketing, HR, compliance, legal and internal audit, and bank security will report directly to me. Obviously, what is required by regulation to be reported to either the board of directors or the supervisory board will continue to report to these relevant bodies. I strongly believe that this setup will provide a sort of continuity but at the same time a renewal for the group. What we see is that or what should be highlighted is that this is effectively an increased management capacity for the governance of the group. Me being a full-time CEO, I believe as I mentioned, lead to a stronger cooperation between the departments and also between the subsidiaries that will eventually also allow us to make faster decisions and become more flexible as a management team to react to any regulatory changes, any market changes in the marketplace and will provide us with a a strong foundation for being able to react fast on the market. If we look at the strategy of the last period, we still believe that the strategy has been a successful strategy. We have grown our loan book more than four times in the last 10 years. We have a strong growth in the net income of the bank and in a very good way we have both exploited the organic growth opportunities that are available under our markets which are generally obviously because of our geographic footprint higher growth markets than that of more developed countries in the Eurozone, generally in Western Europe. And we have done, obviously, a number of acquisitions that we have been able to integrate. Well, in the last few years, we still believe that the focus should remain on growth. same time continue our efforts to provide or to achieve a superior profitability, especially compared to our peer group and do this in a conservative way with regards to business and risk policy and also maintain a relatively strong capital and liquidity position among our peer group. These four pillars of the strategy will remain unchanged. As I mentioned to you previously, the board of directors will has the ability to determine the strategy in the final say, we will continue a strong focus on these three pillars. At the same time, obviously this does not mean that we cannot look for areas where we can improve the performance and we will be looking at four categories of initiatives where we will focus on in the next years to continue to improve our performance. Client experience, obviously we have new entrants, new competitors in the market. We need to enhance our and our service offering to a certain extent in order to still be relevant in the marketplace in the long term. So we will be looking at especially our digital offering, not just our digital sales capabilities, but also how we can service our customers through the digital channels in a better way and also expand into potentially beyond banking products where we have not yet expanded obviously we actively monitor where we have already entered for example e-commerce real estate and healthcare service offerings we will be looking to grow those businesses and also better integrating them into our offering. Secondly, cost efficiency. We are looking at further improving our cost efficiency ratio, not just separately in the subsidiaries, but also on a group level. And we will be looking at how we can, after successfully integrating our being through a period of integrations, utilize group synergies in not just IT, but in other areas as well. Obviously, part of this can come from utilizing new technologies, which can serve as a good tool for improving efficiency, as we have already started introducing AI tools in customer service and digital sales, for example. And a few years ago, already started robotic process automation throughout at the bank. We will continue to put a strong emphasis on further expanding on this potential. And lastly, as a... sort of enabler to all of the above, how we can do this in a much more flexible and efficient way. Those who are closely following the bank obviously know that we have started the agile transformation already back in 2018, 2019, have gone through a number of waves, not just in Hungary, number of subsidiaries and we are constantly looking at how we can have a corporate structure which is both efficient and and being at the same time flexible so in a nutshell we believe the strategy is successful and we will continue on these three pillars shown on this page but that does not mean that we don't need to fine tune and be able to improve on certain areas. And in the recent past, we have also appointed several new management members in key areas. Obviously, my successor as the head of the digital division, let me start with him. András Sebők has overall 14 years of operational banking experience at a smaller Hungarian bank. And in the last eight years, he has been with McKinsey on different banking IT consulting projects. I believe his experience... brings the best in both worlds. So operational banking experience obviously gives him hands-on experience on what works and how to manage a banking IT team. And on the other hand, given his consulting background all across Europe with McKinsey, gives him a good experience on... what works best in the different banks, in the different jurisdictions and can bring in a wealth of, um, best practices from the industry. Secondly, Peter Juhasz, uh, will be, uh, is the new head of marketing and communication. Uh, he joins us, uh, from, uh, uh, mainly telecom, uh, companies and also, um, several FMCG experience. He will play, I believe, a pivotal role for us in order to enhance our brand, make it more innovative and much more youthful, which we believe is needed given especially the changing competitive landscape. And lastly, András Hamori, who just recently joined us as the CEO of OTP Bank Slovenia, CEO candidate to be exact, because it is still subject to receiving the necessary approvals. He is a very seasoned banking executive with strong digital transformation skills. He got mainly from two places. I would highlight, among others, ING Australia, which is a digital-only bank, a large bank in Australia, where he was heading retail banking. And earlier in his career, he was in charge of Zuno, the digital bank of RBI. Obviously, he will be supporting us strongly on a digital-based Eurozone-oriented organic growth platform. And we expect his experience to also benefit us, not just in Slovenia, but generally across the whole group. This is in a nutshell what I would wanted to explain in the beginning. So the new setup between the chairman and the CEO position, the strategy and how we can improve further and regarding new hires. With that, I would turn on to sort of the results of OTP group. This is the standard page which I'm sure is not new to you. We generally include it in the conference call presentation sort of overview of the different aspects of our performance. We continue obviously to keep our dominant position in Central Eastern European countries. We have top one or two positions in five of the countries that we are present in. As I mentioned earlier, over the last 10 years, through 14 acquisitions, we have grown our loan book over four times. And by now, 75% of our loan book is within the EU and 43% of the loans are in Eurozone or ERM2. Our profitability remains excellent, in my opinion, after 23.5% return on equity for the full year in 2024. Our first quarter return on equity in 2025 would have reached 23.7%. If the negative items that are booked in one lump sum for the whole year had been recognized evenly, I will talk about this in a bit more detail at a later stage. Strong portfolio quality, 38 basis points credit risk cost in 24 and just slightly increasing to 40 basis points in the first quarter of 2025 and our stage three ratio declined further as throughout the previous years. We continue to have a stable capital position, 80% core tier one, 26.8 MREL, and our leverage ratio is at 10.3%. And finally, strong and stable liquidity position, 70% net loan to deposit ratio and liquidity coverage at 238%. And we have still remain committed and further grow our green portfolio and our general commitment to ESG. Diving a little bit into the actual 2025 Q1 profit after tax. As I mentioned, Q1 profit after tax has been very much influenced by having to recognize in one lump sum the full annual amount of the Hungarian special taxes, including the windfall tax and other supervisory charges. If we adjust for this and evenly distribute it across the four quarters, our Q1 profit after tax would have been 299%. billion off and if we compare it with the same adjustment to the 2024 first quarter results it leads to an increase of 4% overall on a quarterly comparison between the first quarter of last year. Reported return on equity is 14.9% for Q1 this year. As I mentioned earlier, had we looked at these adjustments that I mentioned previously, it would have been 23.7%. Relatively flat net interest margin slightly improving cost-income ratio and a practically flat credit risk cost rate throughout the group. As I mentioned, our adjusted profit after tax, should we have evened out the distribution of special taxes throughout Europe, The four quarters of this year would have been 299 million. Special taxes relating to the rest of the year and the supervisory charges amounted to 97 billion half and 13 billion half respectively. Obviously, these had effect on the return on equity that you can see on the right-hand side of the page and the cost income ratio, both of them obviously a positive impact if we adjust for these two effects. If we deep dive a little bit into Hungary, for the next couple of pages, we see that obviously The first quarter 2025 reported profit after tax is negative 32 billion half, which results in a negative return on equity. But we have a slightly increasing net interest margin, which is a very positive sign for us. and we have relatively flat, slightly decreasing cost-income ratio, and our credit risk-cost rate is still relatively – is still flat, practically 13 basis points. And – Obviously, you see a little bit of a detail here on the different levies that the Hungarian state is imposing on the group. I believe what's important to mention is that since the last quarterly conference call, the government has announced the extension of the extra profit tax for 2026. And so we will continue to bear a burden. To the exact extent, we are not exactly sure yet. I'm sure it will receive more detail in the upcoming quarters. But that's obviously negative news for us. I think what's also important to mention on this page is that as you can see on the right hand chart on the bottom that we booked 94 billion half for the windfall tax, but overall for the year we expect 54 billion half windfall tax. The reason why we booked more is because of the way how we have to book this. So in essence, we have to book the full extent of the windfall tax and throughout the following quarters of 2025, if we increase the stock of government securities required, then we receive, then we can decrease the, basically receive back the paid-in tax in the first quarter. So practically in the following quarters, the windfall tax will, if we increase the government securities, will be a positive effect, not a negative effect on the quarterly results we look at different business lines in Hungary in retail we see very good trend in retail mortgage loans 19% increase in the first quarter in the contractual amounts Our market share is slightly decreasing, but that is a conscious decision as we don't want to engage in pricing competition. We have a very strong market share as always in the subsidized loans. And if we look at the cash loans also, very strong growth, 43% growth in contractual amounts and 43.5% market share in the first quarter, which is a continuation of our strong market share performance that we have seen in the last three years. In terms of... Retail savings and retail deposits, we see very good trends. Relatively large stock of high coupon government bonds have been expiring in the first quarter or have switched to lower coupon payments going forward. So... that obviously had a positive impact on the savings market share and we also see a pickup, a strong pickup in the retail deposits and I believe this is a very good indication that we have a good offering on the market. In terms of corporate, our Corporate loan volume is rather stagnant. We still have not seen a general pickup in the corporate segment, obviously, mainly attributable to the current macroeconomic landscape. And The GDP, we have seen a very sharp decline in investments. We have yet to see the turnaround in the corporate segment. But still, our market share is very stable, 19.8%. And in the corporate segment also, we have a very strong market share in the subsidized government subsidized products switching to the foreign subsidiaries overall very strong continued strong contribution to group results we see Good ROEs, relatively good ROEs in both the small markets and the larger markets. Within the EU markets, so the top three, around 10% to 19% return on equity for the first quarter of 2025 and obviously higher return on equity Outside the EU, as expected, obviously, different risk profile, different expectations on return. And as I mentioned, overall good evolution of the cost-income ratio on a group level. has improved in the first quarter of 2025. If we dig a little bit deeper on the drivers behind the group performance, net interest margin has practically remained flat on a quarter over a quarter basis. on a year over year basis, very strong contribution from Hungary. And our sensitivity, our Euro sensitivity has decreased from 190 million back in the third quarter in 2023 to 105 million at the end of Q1 2025. should a 100 basis point decline in euro rates occur this is in our view manageable and and on the half sensitivity practically at 6.5% base rate practically insignificant Sensitivity, obviously, was a different case when the base rate was 18% for a while. Regarding volume growth in terms of performing loans, 3% increase quarter over quarter, effects adjusted. balanced composition among all of the retail and corporate lines. We highlight Ukraine, 14% growth in consumer lending. This is, again, a strong growth following the good performance from last year. And also in deposits, 3% growth. As I already talked about, significant growth in Hungary, 7%, both strong performance from retail and corporate. And overall, this has allowed us to keep our loan-to-deposit ratio at 73%. In terms of portfolio quality, our Stage 3 ratio decreased further to 3.5%, even without Russia, Ukraine, and Uzbekistan. It's a decreasing trend, and if we look at our coverage ratios, we have a We have a conservative approach and we still have a significantly higher coverage ratio than most of our peers. And this is not just because of Russia, Ukraine, Uzbekistan. As you can see, even without these countries, it is higher coverage. higher compared to our regional peers at the end of the first quarter this year. Turning to capital, our core tier one ratio in the first quarter of 2025 decreased to 18%. Our capital adequacy ratio is standing at 20%. MRAL ratio at 26.8. The decrease in the core tier one ratio was mainly attributed to the introduction of Basel IV regulations as of the 1st of January, which on the right-hand side of the page you can see the breakdown impacted core tier 1 ratio by 86 basis points negatively the good news obviously is that most majority practically all of the effect for this year has already been booked in the first quarter of this year so we don't expect to see such a extent of negative negative effect due to Basel 4 for the upcoming in the upcoming quarters. This also obviously includes the 43 billion half dividend deduction that the AGM has approved a couple of weeks ago. And if we look a little bit at the decomposition, as I mentioned, our ratio is standing at 18%, and it includes, if we look at it on a fully loaded basis, one should take into account two additional factors. One is the phasing out of previous COVID-19 capital release which were provided during the COVID pandemic and also the effect of 150 billion half share buyback that we announced in the second quarter of 2025. If we look at it on a loaded basis, the core tier one ratio is 17.2%. And compared to the benchmarks, to the peers, yes, it is somewhat on the conservative side. We do have a bit of reserve, but it's not, in our view, excessive when especially comparing to the benchmarks on a tier one ratio level and if you look at the leverage ratio, 10.3% in Hungary is higher than for the peers obviously. This is due to certain more conservative approach by the Hungarian Central Bank and more stringent regulations that we have to abide. Obviously, we have no AT1 capital and our tier two is not fully utilized. We view this, the full utilization of tier two and the potential issuance of AT1 as potential reserves for strategic acquisitions. but we are not sort of putting additional reserves on top, any additional reserves on top for acquisitions. So obviously our goal for the tier two is to have it fully utilized and we still have a significant room potentially in AT1 issuance if we find a potential acquisition opportunity where we have a good market potential. We have a favorable market to enter or a favorable market where we would like to expand and we find a target which is healthy and a price point at which a deal would make sense. Regarding our liquidity position, as I mentioned previously, 73% loan to deposit ratio. Our liquidity coverage is at 238%. Compared to the last conference call, there have been no new issuances of bonds However, a positive news should we want to issue bonds is that the S&P Standard & Poor's upgraded our credit rating and is currently actually one notch above the Hungarian sovereign rating, which we view obviously as a positive news. You can see on the right-hand side of this page on the top, our MREL call date and maturity profile is manageable in 2026 and further years, especially given our current profit generating capabilities. And to close off with, as usual, with the management guidance, we don't see a reason at this moment to change our 2025 group guidance. So our loan growth volume could be slightly above 9% in 2024. Based on our first quarter results, we still believe this is achievable. Our net interest margin could be similar to the levels in 2024. Our cost income may be higher, but not much. Then in 2024, our risk profile will be similar and our return on equity may be somewhat lower given the expected decrease in leverage. Based on the first quarter results in 2025, we reaffirm this guidance for for the full year and obviously the AGM approved as I mentioned earlier 270 billion dividend payment in April and also we have received the approval from the central bank for an additional 150 billion of treasury share buyback until the end of this year. At this stage, We still don't consider treasury shares to be a significant share within the, so we will make a decision later on in what sequence and to what amount we would like to use this permission that was granted to us. That was my presentation on the performance and the guidance for 2025. I am planning to go to London next week. We are doing a non-deal roadshow which is being arranged by JP Morgan and we both in person uh, format and, uh, also, uh, going to, uh, schedule or scheduled calls are, are taking place, um, with investors from USA and other countries. Um, there will be a fireside chat and dinner, uh, with analysts on the 15th of May. Anyone who would like to join and actually meet me in person, meet us in person, uh, please contact the people displayed on this page. In general, I would like to post result presentations once a year. It will probably be the full year. results presentations that are in March going forward and I will myself personally take part in at least one or two roadshows during the year and obviously if there is any extraordinary circumstances I am here but for the rest of the results presentations and roadshows Laszlo will continue to take the lead and be the key point of contact for investor analyst presentations. So with that, thank you for your attention and I would like to hand over to the Q&A and we are happy to answer all your questions with the last law.

Thank you, ladies and gentlemen. We will now begin our question and answer session. If you have a question for our speaker, please click on raise hand icon or press star nine on your phone's dial pad. The first question is from Matthew Nemesh, UBS.

Yes, good afternoon, and thank you for the presentation. Peter, congratulations to the appointment, and thank you for presenting the results. I have a couple of questions, please. The first one is on the next five years. If you could just share qualitatively, quantitatively, what would you consider a successful tenor in, say, five years' time? How would you assess that? The second question would be on cost efficiency. You clearly highlighted that as a potential focus area of improvement. And you also mentioned there's scope to improve group synergies beyond technology and IT. Are you referring to central support functions here like HR, finance, ops? And can you give us a sense of the magnitude of the improvement opportunity on this front? And the last question would be on inorganic growth and M&A. I think you alluded to that in the presentation as well. Can you update us on your latest thoughts on M&A? Where do you see opportunities? And also, if you could specifically comment on any interest in Poland, how do you assess the opportunity in the country? Thank you.

Thank you. Thank you for congratulating me. Next five years and sort of financial performance KPIs. If you follow obviously closely OTP Bank, we generally don't give guidance, long-term guidance on key metrics. Obviously, that does not mean that internally or I myself don't have... ambitions in this regard. Obviously, this is why we are actively looking at improving our cost efficiency, improving our operational structure, our governance structure. But typically, beyond the yearly guidance that we give, we try to avoid giving longer term guidance. The environment that we are operating in, the geopolitical environment, the macroeconomic uncertainties, I don't think would warrant any kind of strong dependence on such KPIs. Our approach has been always to remain conservative, be rather prepared, uh, for any, uh, uncertainty and be able to manage it, uh, swiftly. So I would, uh, um, I would, uh, yeah, not going to guidance for, for the five years. Obviously, as I mentioned at the beginning, the three pillars, growth, uh, profitability and stability, uh, will remain a core part of the strategy. And, uh, we'd like to see, uh, obviously in, uh, growth uh still strong growth in the in in the long term at least keep our profitability if possible at the current levels and operate with the same kind of stability regarding capital and liquidity position um your cost efficiency group synergies uh yes obviously so so what is um It's kind of already ongoing, right? IT synergies, we have ongoing initiatives. For example, core banking replacement, core banking being obviously a significant part cost and significant project for a group we are utilizing we are implementing the same system in Hungary and in Bulgaria and we have a number of ongoing group projects in internal internal procedures processes especially in lending origination CRM and certain obviously basic operational, organizational operational tools that are common across the group already. We continue to do this, and obviously what Your question referred to is outside of IT what we are looking at. Could be potentially operational services which we provide throughout the group, but I generally try not just to focus on IT, but for example, common product development, having a common product in different countries, for example. So very much go outside IT and see if there are any synergies in other areas. We will continue to look at these. The exact magnitude, I mean, it's We look at it on a project and project basis. As with most of the projects, we look at it on an NPV level. But I would not go as far as to say a magnitude because the actual performance of the bank in the end is determined by a lot of factors, not just on the actual achieved synergies in terms of costs. M&A activity, we have been closely looking at Poland for a number of years and we have looked at several banks closely within Poland over the several years. I believe you are quite familiar with the Polish work, quite know the sort of opportunities in the Polish market, but we also see the risks in the Polish market, that mainly being obviously the foreign exchange mortgage loans, which have still not allowed us to be fully comfortable with the Polish market in terms of entering. Otherwise, we see The Polish market is an attractive market. It's a large market. Very developed banks, digitally very developed banks as well. So would there be a good opportunity? We will definitely consider it. If the risks would be properly mitigatable, um, in the, in the, in the short run. And should we find something which is at a reasonable price point, but, uh, at the moment, uh, only banks are relatively expensive at, uh, around, uh, two or even higher price to book value. And, uh, just, uh, with, with other markets, obviously, uh, we are looking, uh, We are opportunistic, and we will look at any market which has a high growth potential. It's generally a market where we see potential, not just new markets. We will also consider acquisitions in markets where we are already present and we can grow further.

This is helpful. Thank you very much.

Thank you. The next question is from Gabor Kemi, Autonomous Research.

Oh, hi, Peter. Pleasure to be talking to you. Firstly, maybe on your agenda and related to the business initiatives, I mean, just given OTP's franchise, your market positions, we normally think about a bank of your caliber as being on the offense. Do you see areas where... OTP might be on the defense. I mean, thinking about digital disruption, how you react to that, regulatory headwinds or any other areas you would like to highlight to us. My second question would be on capital. Shall we interpret it as this 17-ish percent CET1 ratio? Do you view yourself here as having excess capital Or is it the level where you would like to be roughly? And let's say you assume that you would finance, you would be able to finance acquisitions through future profit generation, 81 issuance, tier two issuance. Is this how we should think about it? And just finally, on your point of the retail savings or retail held government bonds issue, expiring and some of them finding their way into retail deposits. Uh, to what extent have you captured this in your, in your guidance? I'm thinking about it in terms of, um, in terms of, uh, the retail deposits being a very profitable product for you wondered if this could offer any upside to your stable name guidance for the year. Thank you.

Thank you very much. Uh, hi Gabor. Um, regarding your first question, um, we like to be obviously on the offense if there is a good opportunity and as I mentioned previously it is worth being on the offense in certain markets we are very strong where the pricing can be where the pricing makes sense I'm not just talking in terms of sort of M&A, but also from a business perspective. So I mentioned that, for example, in Hungary, in mortgage, we don't want to go into unnecessary... We don't want to decrease prices to a level where we see that it's not profit-maximizing. So we'll be on the offense as long as it... as we believe it maximizes our profit rather than our size or our general growth. On certain new entrants, I mentioned to you that, and I mentioned this on a lot of forums, that certain cross-border competitors can offer a better value proposition in Hungary, partly due to the different cost structure that they can achieve because they don't have to pay some of the Hungarian special levies that we are paying, transaction tax. They don't have to take part in some of the government initiatives that are imposed on the banking sector. And I'm strongly against that. I hope that will change, not just in Hungary, but I believe this is a wider question. This is much more of a European question, that similar activity should have similar regulation across the different jurisdictions within the EU. Regarding capital, we do have some, as I mentioned, reserves. What we would like is to be relatively well capitalized compared to our peers. And I would like to highlight here compared to our peers part we believe that in times of crisis obviously it matters the capitalization and it's not just up to us in a sense not just up to our capital adequacy that people will judge investors will judge us but also compared to our peer group and I'm not you're not saying we want to be excessively capitalized but we want to be relatively at least in line if not a little bit above our peer group and as I mentioned we don't put additional reserves for acquisitions. We see plenty of, we see a strong continued profit generation capability. As I mentioned, we still have the tier two bucket part that is unutilized and we have the 81. And should an even bigger acquisition opportunity come, nobody said we cannot issue any more capital. So we don't want to hold any sort of significant excess capital for acquisitions. On the retail government bonds and the deposits, I would like to ask Laszlo to answer.

Thank you. As you rightly spotted, in the first quarter in Hungary, we had an unusually strong retail deposit development, 6%, in just one quarter. And that is mostly due to this fact that a quite large amount of retail government bonds turned into lower coupons. But also there was another effect, and that's the 13th month's pension, which was paid for pensioners in February. And neither of these are going to continue for the rest of the year so much. There will be some remaining positive effect in the second quarter coming from the retail mortgages. A lower amount of retail mortgages turning to a lower yield, and it might induce some deposit development. So Most of this kind of positive one-off effect, you can already see in the numbers in the first quarter. Obviously, it's a question of what percentage of these kind of extra deposits are going to stay long-term, how much people will spend, and how much they will eventually invest, either in the form of buying real estate or cars or putting them into securities. The very short answer to your question, no, it wasn't specifically part of our kind of original guidance. And yes, maybe this, due to this effect, it's certainly kind of improving the expectations, so to say. So it's certainly positive compared to the original expectations. But then... Then again, there have been other developments, unfortunately, the U.S. policy measures, for instance, and the potential impact of higher tariffs and exports from Hungary to the U.S. Or as a ramification of that, maybe somewhat lower, even lower euro rate, which on the other hand might have a somewhat negative impact on on our expected potential NIM and margin environment. So yes, this specific item, it's positive marginally compared to our original guidance, but there have been other developments or might happen other developments as well, which are not so positive. So all in all, we don't think that this kind of justifies to change the guidance for the year or something like that. But it is marginally positive, it's true. Are you happy, Gabor?

Yes, thanks very much. All very clear and helpful. Appreciate your thoughts.

Thank you.

Thank you. The next question is from Gabor Bukta, Concord Securities. Gábor, click on the small microphone icon. Gábor, book the Concord Securities.

Hi, can you hear me? Sorry. Yes, now we can hear you. Thank you for the presentation and congrats to your new role, Peter. I have two questions. The first one is coming with regard to Ipoteca. Because when I looked at the performance of Ipoteca, I saw that it was quite poor. if I can say, as incomes dropped both on annual and quarterly basis. And I see that the market is growing on the other hand. So the deposit flow was also massive. Yeah, there was some explanation behind the drop in deposits. But can you give us more color what's happening there? And if you have any plans to acquire the bank or grow organically, it would be nice to hear more about that. And the second question is reflecting on the Russian bond coverage. It was 73% at the end of December and 74% at the end of March. And you booked around 6 billion forints during Q1. Can you give context of it? As the gross exposure was around 130 billion forints. So it would be great to know, was it the FX impact or was... What was the difference between the two methodology at the end of Q4 and at the end of Q1? Thank you.

I will ask Laszlo to answer these two questions.

In Ipotec, as we kind of talked about it last year, despite the very strong development in consumer lending in the market, we somewhat dropped behind. And that was partially due to or mostly due to operational kind of weaknesses. And for us, it's taking time to bring up the kind of operational level of the bank in order to be able to service the large volumes, the ever-increasing volumes given the strong market. And these are typically IT developments, and they took time. And originally, we expected to be fully ready by the end of last year. Now, it seems that it took somewhat longer, and it also took the first quarter. But by now, we can say, and we just have been – I mean, we are following this very closely, and Peter personally – kind of talking to the management team there biweekly and having a status. So this is something we follow closely from here. And it seems by now that mostly these kind of operational weaknesses have been improved. And now we actually, especially in April, we started to book much higher volumes. And this should continue to build up over the years. And the promise from our CEO in Uzbekistan is that second half of the year, the retail market shares in consumer loans and in mortgages are going to start to grow. So we hope to turn around this negative trend in retail, which has been there for a year due to our operational weaknesses primarily. It was primarily operational weakness, but it was also our somewhat more conservative approach to read the risk than some of our competitors. So we seem that we are in a way more conservative in taking into consideration income, for instance, so unverified income we have not taken into consideration so far, and I mean, you could argue whether it has been a good or bad strategy. We understand from one of our local strong competitors recent kind of quarterly results and the publicly available information that they run into difficulties in terms of retail credit quality. So I think to some extent our approach has been therefore verified. But this is a situation we are not happy with. We are turning this around and most of the operational work which had to be done has been done. In terms of our plans, we do like the country and we, if anything, it has by far over exceeded already our original expectations in terms of the robustness of growth and business potential. So if they were a suitable target, we would certainly consider that. Not necessarily the larger banks because we are going to be present in the corporate segment, but that's not our primary focus. And the large kind of remaining large banks, state-owned banks, are much more corporate-oriented than we are. But if we could find maybe a smaller, more retail-oriented bank for sale at a good value, we would certainly consider that. We also don't exclude potentially buying another big bank, but that's not maybe the primary goal. In terms of organic growth, again, the opportunity is huge, and especially compared to our recent performance, it can further improve, certainly. Your second question regarding the increased provisioning on the Russian bonds, There hasn't been any particular development. We are pretty much following the kind of guidance and expectations of our supervisor here in Hungary. If you remember, we started to increase these provisions somewhere in the second quarter last year, following the kind of strong guidance from From my supervisor, we, in general, we like to provision more and not less. So we tend to be conservative and we agree with this approach, but this is rather theoretical. So I wouldn't say that there has been a major change in the underlying valuation of the situation. It's more the level of conservativeness that is applied. And in that respect, we follow willingly the our supervisor in Hungary. All in all, we have 97 billion. So this is a provision on these amounts. And if you were to ask what could be the potential impact if there's an end to the war and maybe really partial release of the sanctions on Russia, then obviously you can look at this amount as a potential Thank you.

So, I mean, the provision coverage was 73%. Oh, yeah, the difference.

I mean, that's FX. Yeah, that's due to the FX. These are dollar exporters, and these numbers were reported in half, right? obviously we provision in dollar and the stock of provision is kind of big enough and the dollar actually we can compare to the half. So that's why there's the discrepancy.

Okay, absolutely. Thank you very much. Sure.

Thank you. The next question is from Simon. The floor is open.

Thank you very much and welcome, Peter. I'm sure Laszlo will... be happy to share the burden of dealing with us analysts and the investor community. We can be tricky sometimes. I guess my first question for you would be on your priorities. I mean, you've given a pretty long list of things you want to do. What do you think you can do differently, better, quickly? And then just on beyond banking products, I mean, I think it's been quite tricky for banks to, you know, some banks have done quite well there, others, I think OTP Simple wasn't a particular success. I'm just wondering how you think you could expand into Beyond Banking products in a successful way. And then I'd have one specific question back on the Uzbek business. Your competitor, TBC, had issues with data integrity around the tax registry. Apparently, there were some fraudulent actors that were able to upload fraudulent salary data. So I was just wondering if you faced similar issues in Uzbekistan and you're aware of that particular fraud and are tackling it. Thank you.

Thank you very much. First question on priorities. As I mentioned in the beginning, Our strategy has been successful and I believe, I strongly believe that we have one of the best management teams in the group. So part of one of my key priorities as I mentioned in the beginning is that we have a much better coordination internally and be able to make decisions more quickly to react and this has been positive effect of the executive steering committee that we have been operating for the last year and a half now going forward obviously we are as I mentioned reviewing where we can be better right so not just in Hungary but across the group we are reviewing sort of our initiatives that are ongoing in the group we are reviewing what we can do better what we should speed up what we should actually potentially deprioritize and in order to facilitate this discussion we are actually dedicating management time and attention to as we speak in the next couple of weeks but as I mentioned we generally don't give very strong guidance on actually sort of performance and long-term performance. Regarding beyond banking, obviously it's tricky, right? And it's a field which is relatively new for, not just for us, I think for any banking player which has entered into different industries. Obviously, we see good examples, a lot from Asia. Obviously, DBS has made a significant entry into Beyond Banking and several good examples from other banks where they've managed to really expand embed into the service offering beyond banking products where it complimented or secured for the longer term the market share for the traditional banking products. Our aim is to do the same. Our aim is to, in my view, a customer doesn't come to OTP or the bank to get a loan and walk out happily from the branch or log out from our digital channel and be happy that they got a mortgage and they can pay interest going forward, but actually needs a solution, right? For a certain life event or a certain change of needs. And this is what we are trying to serve. And this is much more about putting a, uh, more emphasis, significantly more emphasis on customer satisfaction and customer experience. Um, now obviously, um, it would be great if, uh, we could, um, uh, look at these, uh, adjacent industries, uh, let's say, and, um, uh, be able to say that standalone, it makes, um, uh, sense financially, um, to be present in those markets. In many cases, it's a much more nuanced view. As I mentioned, it complements either to keep our existing market share, keep our profitability, be able to offer superior services for our clients. And this is the view that we take. And I think so far we have been relatively conservative. We really entered into areas such as what you mentioned, simple in payments, which are relatively closer to banking, to the traditional banking industries. Yes, I believe not all of them will necessarily be a success, but this is a kind of a, manageable risk that we need to take and say that, um, uh, we will look at, um, um, entry and, and expanding our service offering, even if, um, not 10 out of 10, uh, will be necessarily a hundred percent success. Simple, by the way, has been on one hand, um, not so successful regarding the app, but, um, Simple is doing more than 80% of the card acquiring, both in transactions and volumes in Hungary. And the card acquiring is actually a very good fee generation business for OTP. And it allowed us to be able to innovate in one of the fastest changing landscapes, being payments. in a very flexible way. We entered e-commerce. We launched last year Fizz.hu. We see significant month-over-month growth in products being sold in terms of volume. We see increasing commission revenue, but obviously hasn't been practically a year since we launched it. So I would need to give it a bit more time. Healthcare, relatively small investment into healthcare, private appointment booking. These are... Visible, potentially, but not significant investments. If we look at the group, I think we would make a bigger mistake if we don't try entering these adjacent industries. And your second question on Uzbekistan salary fraud and data integrity, we don't see We haven't been, you know, Laszlo mentioned in the previous question, we have been relatively conservative in the segment that we are targeting and the kind of requirements we take in terms of credit policy in Uzbekistan, partly as a reason why we have not been able to develop with the market as fast as the market We don't see this as a big issue.

Thank you.

Thank you. We continue our question and answer session. The next question is from Valentina Stojkova, Barclays. The floor is open.

Hi, good afternoon. Thank you very much for the presentation and congratulations on the new role, Peter. So my questions are related to your Uzbekistan business. I was just wondering whether you can give us a bit more color on your strategy there regarding the de-risking and the cleaning of the balance sheet. And what should we expect with regards to key financial metrics for this year? Any guidance on net interest margins, cost of risk, capital metrics will be super helpful. And then it will be great if we can also share the capital ratios and buffers over minimums for Q1 of Ipteka and your refinancing plans for the upcoming senior Eurobond maturity. Do you plan to refinance it within the group or in the markets? I'm referring to the Ipteka Eurobonds that are due in November this year.

Well, I think I tried to answer this last time, but it won't be as satisfactory as you would like. I mean, as Peter mentioned, I mean, we have a rather kind of strict approach what guidance we give, even on a group level. So specific to one of the entities in the group, which is even not the largest, I don't think it would be appropriate to kind of give line by line a But I think the most important metrics at this stage, I think, is market share. And our market share declined quite materially in consumer loans. And consumer loans are the most profitable business options. on the market and growing very fast. So that's potentially the most important short-term KPI for us to turn around this trend, the declining trend, which has been there for a year. It was up at higher than 14%, and now we are actually somewhat lower than 10% in terms of market share. So this trend we want to turn around, and I said before, our CEO, in Uzbekistan just promised us, the management team in the HQ, that this day will most probably achieve starting from the beginning of the second half of the year. So that's one expectation. The other expectation is regarding mortgage market shares again. We have seen some erosion of the market share in mortgages. Ipoteka is still by far the largest mortgage lender in the country, but our market share started to erode somewhat. And this is not by far much less than in consumer lending, but still it did. And that's the second point in metrics terms where we want to turn around. And then, obviously, if that happens, then it should have a positive impact on revenues and earnings. Unfortunately, what you've seen in the first quarter is that actually operating profit declined year on year by 30%, primarily because revenues declined by 17-18% and this is a very negative trend we have to turn around and we will so that's the kind of primarily target in terms of if you look at the bottom line that was reasonably strong despite all of this in the first quarter and that is due to the fact that we started to see ridebacks from the quite sizable provisions, what we created in the second half of 23 when some of the corporate book went into stage three. So due to our very hard work in terms of work out on these exposures, we started to see improvements, paybacks, and kind of solutions for these situations. And and they can kind of bolster or smooth out somewhat the actual profit after tax line, even when there's a temporary decline in the operational profits. And that's what you could see in the first quarter, and there's some probability that it's going to continue to happen over the course of the year that we might be able to further release some of the provisions what we created back in 23. Regarding the bond which matures in November, it's a Euro bond, 300 million. We are looking at, obviously, it will depend on market conditions and it will depend on the liquidity needs in FX of the bank. And that pretty much depends on our corporate lending activity growth. because retail lending is all local currency. And I mean, the capital markets are not very developed. So it's swapping, FX swaps don't so much exist in a large scale in the market. So these, the different currency markets are pretty kind of segregated. So FX funding, we may need for corporate growth and, and, And we are actually revisiting and renewing our corporate strategy as we speak. So this is something we are going to do during the next couple of months to gauge our kind of growth appetite and strategic intention related to corporate. Obviously, we want to be a universal bank, a retail focus, but universal banks or corporate is important. And depending on the outcome of that exercise and also on market conditions, we may renew that bond or may not. So that has not yet been decided. But I think we prepare as if we were to renew it and then see. But in terms of kind of strategic approach to Uzbekistan, we remain very, very positive. The market is strong. The country is developing fast and is on the right track. and the way they handled geopolitically and kind of locally, domestically the last couple of years, I think that has been a very good example of good management. So we are quite happy to be there and our ambitions are very high.

Thank you. Thanks a lot.

Thank you. If you have a question for our speaker, please indicate it The next question is from .

Yes, thank you. I had two more questions, two follow-ups, please. The first one is on the Euro rate sensitivity. I think it's 105 million now for 100 basis points. This has gone up slightly, I think, since year end. Could you comment on what the reason for this is? Is there any change in your securities portfolios or any other reason? And the other question would be on corporate loan growth. I think you commented that we haven't seen a turnaround in corporate credit growth yet. Clearly, there's some positive momentum, at least visible in the numbers, but... Particularly in Hungary, what do you see in terms of investment sentiment and credit demand when talking to clients? A large German bank CEO this morning clearly said they are seeing improving sentiment in the Mittelstand or large SME segment in the country. When do you think this could translate to higher credit demand specifically in your region?

Yeah, indeed, somewhat increase the the Euro rate sensitivity. This is, I mean, I mean, this number is kind of fluctuating somewhat. Deposit growth was reasonably strong. We issued a tier two, relatively large size, and that increased the liability fixed size. And we are kind of reaching the limits of our ability to uh, to buy a fixed, uh, yield securities on the asset side. Um, uh, primarily from, from risk point of view. Um, and, um, regarding, uh, uh, credit swaps, which are obviously there as a potential, the, the, the, the recent environment have, has been quite volatile in a way. So, so, uh, rate expectations have been going up and down almost every second day. So we have been relatively kind of less active than we could have in a way. But there's nothing kind of major, large change here underlying this. And it's most likely to stabilize around this 100 million euro per year NII equivalent. So I don't see large opportunity to further decrease this. But we also try to maintain it close to this level. But there is this kind of plus minus 5, 10 million volatility in this number, which is subject to typically many smaller changes in the balance sheet structure. Corporate loan growth in Hungary. This was a This was an area where I personally, I was quite hopeful or optimistic and maybe somewhat more optimistic than reality so far proved. The first quarter so far this year, the growth on the non-retail side was mostly micro and small, where we still have subsidized structures And within those subsidized structures, we have up to 50% market share. So we actually had 5% growth in micro small corporates in Hungary. But large corporate was technically flat. And we have not yet seen a shift or a major change in the sentiment or intention of corporates to start investing in a major way in the country. And... But what you just said, we do expect to eventually kind of spill over to sea in general and Hungary in particular, certainly given the large export exposure of the country and most of those exports being oriented to Germany. And we do hear as well these kind of – voices from Germany itself that they might turn around their investment cycle and actually start to invest again but it has not yet appeared domestically in Hungary it's going to do so I mean again I've been personally kind of over optimistic so I don't want to do that again So I don't want to give you kind of promises or something like that. But we do see this potential positive development coming from core Europe and sooner or later it's going to reach Hungary as well. Hopefully in the second half of the year, but maybe only next year.

Understood. Thank you, Laszlo.

Thank you, Máté. The next question is from an attendee joined via phone. I opened the line. you will receive an automatic message about it. Please press star six to unmute. Please press star six to unmute.

Lots of hi, this is Nick Dimitrov, Morgan Stanley Investment Management in New York. Just a quick question going back to Uzbekistan. There's been a new regulation that caps consumer loans at 25% of the loan book. How is that going to change the dynamics in your investment thesis behind being in Uzbekistan? I know that this has been kind of the product line that's been very lucrative and of most interest for you.

I mean, this is an advantage for us because our biggest competitors in this segment have They typically only have consumer loans. And they are the strongest growing and by far the most sophisticated competitors. So if anything, this is going to limit their future growth potential. Having said that, this is not something which is applied from today on. There are a couple of years, I think five years or something, by which date banks have to comply with this. So we see it as potentially positive for our competitive positioning on the market because this is going to clearly limit our most aggressive competitors in this segment. And again, I mean, we are much bigger in mortgage lending, so that's a strong part. And again, we do have intentions to... I mean, we don't want to be a corporate bank, but we want to develop a universal bank. So corporate lending will continue. So therefore, we anyway wanted to have a kind of balanced asset structure. So this we interpret as rather positive for us.

It's very interesting. Great. Thank you so much. Thank you.

Thank you so much. If you have further questions, please indicate it. As there are no further questions, I hand back to the speakers.

Ladies and gentlemen, thank you very much for joining us today. I hope we gave an insightful presentation and we managed to answer all your questions. As I mentioned to you, I will be in London. Anyone who wants to join, please reach out to the contact details that are at the end of the presentation. And with that, we are ready to close this conference call. Thank you very much and have a good rest of the day.