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.