Otp Bank S/Adr R

Ladies and gentlemen, welcome to OTP Bank's conference call regarding the financial results for the first half 2025. Please be advised that this event is being recorded. Kindly note that all participants will remain in a listen-only mode throughout the presentation. Following the presentation, there will be an opportunity to ask questions. At this point, I would like to hand over the floor to Mr. Laszlo Bencik, Chief Financial and Strategic Officer. Laszlo, the stage is yours.

Thank you very much. Good morning or good afternoon, depending where you are. Thank you for joining us today to the conference call following the first half results presentation. As usual, you can have access to the presentation, what we are going to use today, on the website that we are also showing you while I'm talking, and the setup is the usual. I will attempt to give you a short summary presentation following this deck, and then after that you can ask your questions. So, the key highlights regarding OTP Group have not changed so much, so there's nothing substantially new on this slide. But on page 3 you can see the recent results. And there's some noise in the first half results. We already faced this problem during the first quarter. kind of show you the details, but fundamentally the situation is that there are certain expenses, namely the extra profit tax in Hungary, the bank tax in Hungary, and then other supervisory and deposit insurance fee charges, typically in Bulgaria. which accounting wise we have to account for at the beginning of the year. So they appear in the full amount in the first quarter and in this regard they are not accrued. Now it's even more complicated with the windfall tax, the extra profit tax, because it is first booked as the initial maximum amount and then as the year goes by and we fulfill the requirements month by month which are required to reduce this amount due to the level of Hungarian government bonds increase in our portfolio, we can over the year reduce this amount. So, in case of the windfall tax, it's not just the accrual problem, it's also the magnitude of this expense, which kind of reduces over time as we go along the year. Now, in order to better understand what's going on, we provided you with the numbers which are more on a pro-rata or accrual basis and kind of reflect these expenses related to the periods while we consider and therefore probably reflect better the actual performance, or, well, I'm pretty sure they reflect better the actual performance. So, on this slide and some of the following slides, you can see two sets of numbers. The one on the top are this kind of with adjustment or parata or accrued numbers. And on the lower part, you see in gray, the kind of row numbers which were reported. So if you allow me, I will try to explain performance following this adjusted numbers. And based on this, I mean, if you compare the first half result of this year to last year, then profit after tax grew 10%. And the biggest driver of this growth was operating profit. So operating profit actually increased 20% year on year. The reason why we did not have 10% increase in profit after tax was that risk cost also increased compared to the first half of last year. And I'm going to elaborate on this change and the major drivers of this risk cost increase. Which is also reflected in the ratios that you can see on this page. so the four potentially most important categories return on equity first half of this year again this prorated return on equity 23.2% actually pretty close to the number what we had for the whole year last year 23.5 and that interest margin rather flat and it has been so for almost almost two years now and this is in line with what we expected in line with the management guidance and where we see in fact improvement is the cost to income ratio less than 39 percent and so far this is clearly better than what we Guided for, if you remember, the original management guidance was that maybe cost-to-income ratio can be somewhat larger, higher than last year. So far, so good. It's actually somewhat lower. And then on the portfolio quality side, there are kind of mixed messages, because if you just look at the quality of the portfolio per cent, then it's actually quite stable, and this gradual decline of the stage three ratio has very nicely continued into the first half of 2025. However, we did provision more, so we had a higher credit cost, risk cost, than in previous periods, and especially the credit risk was great, ended up being somewhat higher than last year and definitely higher than the first half of last year. I'm going to elaborate more on this phenomenon during the remaining pages of the presentation. So maybe the more technical details on page four, trying to explain this difference between the reported in the prorated numbers. So if you look at the first six months, the difference between the 519 billion, which was reported, and the 592, the number which we explained when we tried to understand the business performance. And here you see line by line. I'm not going to go into details. It's basically reflecting what I just told about this difference. Now, let's see a bit more detail what happened in Hungary in our core business on page 5. Again, a similar problem appears in the Hungarian numbers. And we adjusted these, we looked at this prorated number, and it's probably better to explain performance following these numbers. So year-on-year 4% improvements in profit after tax. And basically, the overall charges increased, especially the windfall tax. Last year, it was $7 billion. This year, we expect $54 billion. That's a big increase in this regulatory charge, and we managed to compensate that with higher operating income and also risk-cost increase, so basically a good growth in operating income counterbalance the fact that the operating profit counterbalance the increase of risk costs and the higher regulatory charges. This was contributed by the net interest margin improvement. As you can see this gradual kind of normalization or improvement of the net interest margin in Hungary continued. I mean we hit a low level two years ago and since then we have been kind of gradually improving Actually, it was three years ago we hit this minimum and then we are improving gradually. And the expectation is that some minor marginal improvement can continue to happen in the future. And if we follow the next phase, phase six, There's some further information regarding Hungarian retail. It's going well, so contractual amounts increased 11% in mortgages, 40% in cash loans, and kind of stable market share in deposits, somewhat declining market share in mortgage contractual amounts. That's due to the fact that there's a very fierce price competition. Some of our competitors are pricing the fixed new mortgages below the sovereign yields. That's hard to understand how they can make profits on that. And we are doing this and therefore there's some erosion in our market share, but pretty small one, and certainly we believe that we maximize the value potential in this portfolio by doing this. On the corporate side in Hungary, you probably remember that we had two long years, 23 and 24, with very limited or no growth at all, so maybe page 7. So the portfolio did not grow and this trend seems to turn around at least in the micro small segments. So as you can see, micro small corporate loans increased 9% on the first six months of the year. These are typically the Hungarian companies. And apparently there's some growth in demand, which is definitely a good sign. And on the large corporate side of the coin, we also saw 2% growth. But this is not that. I believe the sign of a major turnaround in the trend there. We still experience a rather... muted demand from large corporates for new growth. But on the back of this increase in the micro-small segment, our market share actually improved quite considerably. And we are, again, almost reached the previous highest number, close to 20%. If we look at the performance of the foreign banks in the group, in general, I think we can characterize this as stable. In the Euro, or quasi-Euro countries, Bulgaria, Slovenia, Croatia, and Montenegro, certainly we are facing a kind of margin headwind due to the rather sharp decrease in the euro rate, which we have seen the last one and a half years, obviously created a pressure on margins. And this is what we are seeing in these countries, margin erosion. And that, to some extent, reflects in the return on equity numbers as well. But all in all, we are rather satisfied with the performance so far. non-Hungarian subsidiaries first aboard. Maybe just a short detour to the net interest margin story on page 9. I mean, it's pretty flat. And you can see the major drivers are not, I mean, Hungary is somewhat improving. and then some erosion in Russia, Bulgaria, basically. That's the overall kind of breakdown of the NIM development. In terms of sensitivity, rate sensitivity, the half-rate sensitivity continues to be very small, at least in this kind of one, one and a half percentage point range around the current gauge, which is 6.5%. By the way, we expect this level more or less to continue to the end of the year. So we don't expect rate cuts in the half rate. So there's quite little sensitivity around this level. However, ever on the Euro rate, there has been a sensitivity and then we have actually suffered this. I mean, most of this sensitivity has already manifested because the Euro rate has gone down, right? We are down to 2%. And that's already reflected in our numbers. But from Now on, the kind of forward-looking sensitivity is 125 million euro per 100 basis point decline. It's not, it's asymmetric actually, so it's a somewhat bigger loss if it goes down than the gain when it goes up. So this is, it's less than it was at the peak, but certainly not at the kind of historic minimum either. What we have now is basically growing deposits and also now that we are down to 2%, the probability of a further cut is much less when we were up at 3.5. So, and obviously when we adjust the sensitivity, the rate sensitivity, we do that by modeling the expected outcomes and trying to maximize profits given the different scenarios and their probabilities and as the kind of Obviously now another 100 basis point decline in the Euro rate is less probable than it used to be two years ago. So we take a somewhat bigger kind of interest rate risk, but it's not that big. I mean, I think the minimum was around 9500 million. In terms of volume developments, the first six months, 7% total for the group. This is FX adjusted. And That's certainly an acceleration compared to last year. Last year, the whole year was 9% altogether. And this year, during the first six months, we are at 7%. These numbers are not annualized, so that's the actual growth in six months. The guidance was potentially higher than last year growth rate. I mean, last year was 9%, first six months, 7%. So I think we are pretty... doing pretty well to fulfill that guidance. And if you look into the kind of the interesting stories within this. Certainly the biggest turnaround happened in Uzbekistan in Hypotheka. You may remember last year the consumer loan growth, which is the most profitable in the market, and this segment was exploding last year. There was an explosion in volume growth last year. But unfortunately, we were not in a technical, physical state of operations to follow that market growth due to the lack of IT capabilities. Now, due to the very hard, diligent work of our colleagues there, we managed to fix the IT infrastructure I mean, it's not complete yet, but it reached a state, a level of development where now we can safely increase new production volumes. And it's not just increasing volumes, but it's also opening up to a broader scale of client segments. So as you can see, I mean, this 4% six-month growth doesn't look very high, but if you look at the bottom of the page, at first quarter it was zero, second quarter four, and actually June was two. So it's pretty much kind of back-loaded, so there's a strong acceleration in volume growth. And I will have some more information on the following page, but first let me just one word about the Ukrainian consumer loan growth, which is another segment. And when the war started, or after the war started, most of the banks, including us, kind of slowed down loan production. But somewhere a year ago, beginning of last year, we decided to kind of rekindle, reinvigorate our lending activity. And that strategy continues. So we are actually growing the consumer loan portfolio and also the corporate and leasing portfolios quite dynamically in Ukraine. Obviously, still from a low base, but the growth rate, I think, kind of reflects our growth. trust in the future of the market there, and certainly a level of optimism. Now, page 11, there's some more detail on what happened in Uzbekistan at the Poteka Bank, merged more specifically in the cash flow segment, which again, It has been the last two years the highest growing and most profitable segment on the market. And as you can see, unfortunately, our market share declined, stock market share. But again, the good news is that the last monthly figure, June, already showed some improvements. So in June, our stock market share actually grew, improved. And here you can see the volume. So we actually in June this year, we sold three times as much as June last year. So that's the kind of increased capacity. And as I said, it's not just kind of volume and number of loans. It's also our ability to cover potentially higher risk segments or segments where risk management is not straightforward. You actually need more data. You need more analytical capacity, ability to establish whether you want to or willing to give a loan to a client or not and at what rate. So that capacity to differentiate and to run sophisticated models based on data, we managed to develop to the level where we can open up to other segments. Obviously, this development has not ended. I mean, there's still a lot to do in this continuous effort on this front and the kind of promise from the management team is that the market share will continue to grow in this segment for the remaining part of the year. But again, this is not just a promise. We already saw that in the number numbers at the end of June, the first month after two years, one and a half years when our market share increased. Regarding deposits, 5% overall growth in the group, but given that we have an affluent deposit ratio of 75%, so nominally this is quite similar to the long growth Well, we had almost, it's like 50 billion and a half higher in nominal terms, the increase in deposits in one year than the increase in loans, despite the growth rate being lower in deposits than in loans. Now here, again, two very important segments on this chart, retail in Hungary and retail in Bulgaria, but especially in Hungary, where in these two countries you pay very low or close to zero deposit rates, interest rates and deposits, and therefore from a kind of profit generation perspective, these are extremely important segments and Here, 7% growth in the first six months. Hungarian retail deposits, that's a very strong number, and if it continues like this, then it can further contribute to the net interest margin in Hungary. The red number in the middle of the page, Uzbekistan, again, I think it requires some explanation. As you can see, this decline, I mean, the if you look at the last three quarters, first quarter was strong, first quarter was negative, and the second quarter was flat. So basically last year we increased liquidity. We were quite kind of aggressive in deposit collection in order to create the liquidity base for the local currency lending growth this year, but that lending growth actually manifested somewhat later than we had expected last year, so we didn't want to sit so much on these quite expensive retail and corporate deposits, so we let some of the volumes to go out, and once retail, especially retail loan, but in general, Lundros started to accelerate in the second quarter. We kind of stabilized the deposit volumes. So this is, again, somewhat deliberate what happened and follows a kind of profit maximization strategy execution as a result of that. Now, a bit going to the portfolio quality and risk costs story, page 13. So the good thing is that portfolio quality, again, stable across the group and stays through the ratio, continues to decline. So that's a very good news. And that's in line with the guidance, what we made, that portfolio quality this year may be similar to last year. So in terms of the actual quality of the portfolio we see that. Now, what happened is that we actually provisioned more and increased the coverage, especially on the performing Stage 1 and Stage 2 portfolios. So, as you can see, a coverage ratio on performing Stage 1 and 2, 1.9%. That's close to like 500 billion-odd provisions on performing loans, which is like... I don't know, three, four normal years of provisions. That's why we have provision for the performing portfolio. And this level is, I mean, three times of Raiffeisen and, I don't know, almost 10 times of KBC. So that's quite a conservative approach. And even on this stage three portfolio, you can see that we have been rather conservative in the provisioning, which has always been the case for us. So we kind of like to be more conservative, alas. And on page 14, you can see some further detail why the actual risk cost was higher and where this additional provisioning went. Now, we had two lines, two items which were not related to credit risk. One, that the rate cap in Hungary was extended. So there was a 4.4 billion other provision in Hungary. And we continued to provision for the Russian bonds in Hungary and in Bulgaria, roughly 5.1 billion additional provisions. With these additional provisions, we went up to 79% coverage. Nominally, that's 99.5 billion. So if the war was over tomorrow, sanctions lifted, probably this provision could be released. I wish that was the case and the war ended today or tomorrow, but that's just a short-term potential positive impact if this terrible war ends. And then, on top of that, we provisioned in Hungary risk on the credit risk. On a granular basis, on a client by client, corporate client by client basis, the colleagues looked at the portfolio and made an assessment which are the clients who might be negatively impacted by potentially higher tariffs. And and puts additional provisions for the performing and for the non-performing part as well. So this increase in Hungary reflects Actually, not a general provision increase or not a model-based increase, but a detailed review of the portfolio in terms of potential risk coming from higher tariffs. You probably know that Hungary, out of the, you know, countries is one of the highest direct export to the US. Plus, obviously, together with other countries, there's a kind of secondary impact here, especially through the German companies exporting to the US. It has a kind of potential spillover effect on many countries, including Hungary as well. And on top of that, in Serbia, we had IFRS 9 impairment. In Serbia, we adjusted the macro expectations negatively due to the recent domestic political tensions. which on top of the kind of global geopolitical and tariff disputes in case of Serbia resulted in a somewhat bigger adjustment, so that immediately translated into higher IFRS 9 provisioning. And in Russia as well, it's partially the IFRS 9 provisioning, partially just the increase of the volumes of the consumer loan growth, and a kind of relatively high normal level of risk-cost rate on this portfolio, which generates an increase in provisioning. So higher risk-cost, yes, and potentially higher risk-cost rate. for the whole year than last year. So in this sense, we are changing the guidance. But most importantly, we don't see deterioration trends in the underlying portfolio quality. So this higher risk cost is not coming from portfolio deterioration. It's coming from kind of extra conservatism and potential kind of forward-looking provisioning for somewhat worse and macro expectations in the region, which I'm going to talk about later on. Page 15, some information about the capital situation. 18% common equity tier 1 and tier 1 ratios. as you can see in this chart, well above requirements. And here in this water flow, you can see what happened since the end of last year. Eligible profit minus the kind of the potential dividends, which are a calculation based on the EU directives and not the and do not reflect our intentions, how much to pay, or is that a deliberate number, it's just a result of this calculation, but nevertheless it includes 132 billion dividend deduction, so 1.4 percentage point uplift, and then we had Basel IV at the beginning of the year, we talked about this after the first quarter results, and then FX resulting in the capital itself and in the risk-weighted asset more or less hedged, so they cancel each other out, and then this kind of 7% growth in the total long portfolio consumed 0.6 percentage point to 60 basis points of capital. and then the sharp buyback, which we accelerated. We did $60 billion in the first quarter, and then we received approval for another $150 billion buyback, and we have to deduct this from capital on the day when we received the approval from the central banks altogether for this year so far. 210 billion deduction from regulatory capital due to share buyouts. Now, there's always this discussion how high this number is. So to facilitate that discussion, we have the following page, 16. So here you see some of our peers. As we always say, it's obviously the most important is to be well above regulatory requirements, but All banks are well above regulatory requirements across Europe, so just saying that is not very informative. And therefore, more or less what we follow is that we want to look good. We want to look well capitalized compared to our peers. Here are some of our peers which we consider relevant. They are the kind of multi-country banking groups who are active in our region, where we are active. And since we don't have alternative Tier 1 paper, for us Common Equity Tier 1 and Tier 1 ratios are the same. So this comparison we tend to do on the level of Tier 1 ratio. which was 18%. Now, if we include the transitional adjustments, which are going to disappear by the end of the year, that's 30 basis points. So, if you load the 18% number with these transitional adjustments, then it's 17.7. So, maybe this 17.7 is the right number to compare on the tier one lever ratio to these other banks, and we look okay, right? I mean, Unicredit is exactly at the same level, Raiffeisen without Russia, after deconsolidating Russia, somewhat higher, Airst is somewhat higher, but obviously this number does not include the expected decline due to the acquisition, what they are doing, so after acquisition, probably They will go lower than we are. I mean, KBC increases somewhat lower. So this is, it looks okay, right? I mean, it's clear that we are kind of at the top of this range, around the top of this range of comparable banks, which is okay, but there's still room if we were to acquire a meaningful target to go somewhat lower or somewhat more lower temporarily. if it is justified. We like to show some external perspective as well. We like to look at external perspectives, and the more objective the better. So there are two examples here. Page 17, these are the results of the recent EBA stress test. On the previous one, we were, we ranked number four. On this one, we ranked number 13. And I mean, the ranking, we typically look at in terms of the reduction in the common equity tier one ratio in case of stress test scenario. And the larger the decline, the worse the performance, obviously. So here you see how we compare to the kind of same regional comparable peers or regionally active banking groups. We compare well, but the result was the ranking is somewhat lower than last year. It's not because our stress handling capacity declined. It is because others... improved. I mean certainly as the euro rate is higher than it was when the previous stress test was done. Margins are better for Eurozone banks. They have higher profits, so the starting point of the stress test is higher. They have more risk and loss absorption potential because of higher earnings and margins, which is a good sign, I think, in general. Our interpretation is that it's good. The European banking sector is stronger, more efficient, able to absorb losses in case they happen in a stress scenario. Now the other external kind of source we started to look at especially last year is S&P Capital's market intelligence, S&P Global Market Intelligence Unit. They compare the 50 largest listed European banks based on actually a quite broad and relevant list of KPIs. And last year, based on the 24 performance, we were number one in this list. This year, we are number two based on the 24 annual performance. So that's really good. And I think this is a rather objective external view on our relative performance compared to some other banks in Europe. In terms of liquidity and the ECM activity, liquidity situation is strong, as you can see the ratio, so liquidity coverage ratio 230%. Net stable funding ratio under 52. Net loan to deposit 75. Leverage 10.3, very low leverage. And these numbers compare quite well and quite conservative to, again, to some of these other banks in the region. And quite modest call date profile. As you can see, if you compare it to total assets being about 100 billion now, I mean, it's much less than the yearly earning what we have to pay back in the following years. And our activity was not, was somewhat muted during the second quarter. We did at the beginning of the year, the tier two, and then we did a basically an offshore Chinese yuan bond. This is not in million euro, this is in million yuan. It's somewhat confusing, but it's in the current, I mean, the numbers are in the currency denomination, but you can see they're not in the same currency. But in euro terms, it's around 100 million CISO. wasn't big, but we are trying to divest our kind of funding source and explore potential investors in the Asian markets as well. So this is a kind of important step. A few words about the future and what we expect. So if we look at the macro forecast, it's somewhat deteriorated. due to uncertainty and tariffs, that's clearly negative, marginally negative. So as you can see, it's like typically around 50 basis point adjustment due to the expected somewhat lower growth given by the new global tariffs environment. And that has happened basically across all the countries where we operate, except Uzbekistan. Uzbekistan doesn't seem to be directly affected negatively by it, and growth is by far the strongest there. So we're very happy that we are present on that market and started to do very well in terms of performance as well. I'm in Hungary, 0.6%. That's probably the biggest decline not too long ago when we, before seeing the first quarter GDP growth numbers, we expected even close to 2.5%. GDP growth this year. Now, that's not going to happen for sure. Our best guess today, or best, it's not a guess, it's actually based on very detailed modeling, so our best estimate for the potential is 0.6% GDP growth in Hungary. I mean, Hungary and Slovenia are not very kind of rather slowing down. But the rest of the countries, Bulgaria 2.5, Croatia 2.9, Serbia 2.8, Montenegro 2.8, Albania 3.5. So these are still quite robust growth rates and GDP growth numbers in a number of countries where we operate in the city. And finally, a few words about the guidance. I think going through this pack, it's obvious where we had to make some kind of smaller changes to our guidance. The first one related to long rows. maybe higher than 9% last year. I think it still strongly stands. So after this good 7% performance in the first half, this is a very valid guidance. Flat margins, again, almost exactly flat. And this continues to be what we expect. Post-income ratio, we were somewhat optimistic. pessimistic apparently when we made the guidance on the original budget we originally expected somewhat higher higher number than last year the last year 41.3 now we kind of given the first half year performance less than 39 and we kind of modestly put this wording that we expect the cost to incur ratio to be close to 41.3%. And portfolio quality, I mean, the previous guidance was that portfolio quality indicators or portfolio quality trends might be similar to last year. Now this we have to clarify and actually break it down into two. So in terms of the underlying portfolio quality, we still expect the previous trend to continue and more or less stable quality. Whereas in terms of risk cost and in terms of coverage, we expect somewhat higher risk-cost rate than last year, last year 38 basis points. So, pretty much this was it, what I wanted to present. I hope it was useful, and please ask your questions, and I'd like to answer them.

Thank you, ladies and gentlemen. We will now proceed with the question and answer session. If you wish to ask a question, please use the raise hand icon or press star 9 on your phone's keypad. Yes, the first question is from Matthew in MSUVS.

Yes, good afternoon and thank you for the presentation. I have two questions, please. The first one would be on the Hungarian net interest margin. It's clear we are seeing a quite consistent upward convergence in the margin there. And we are also seeing quite strong inflows on the deposit side, especially retail deposits. Could you talk about your expectations around those deposit inflows, how long those inflows could continue, and what those inflows and perhaps some other factors could mean for the net interest margin, again, specifically in Hungary? And the second question would be on loan growth. We are seeing really good loan growth pretty much across the board on the retail side, consumer and also mortgages. What seems to be lagging in some of your larger markets, I guess notably Hungary and Bulgaria, is stronger growth in corporate lending. I'm just wondering if you could give us a sense, what do you see in terms of the pipeline and when could we see more meaningful growth also in the large corporate segment? Thank you.

Yeah, I'm hearing a name. again, especially on the back of the retail deposit growth, improves. We don't see a major reason why this could change, certainly not short term. Elections are coming. Next year is election year. If anything, I think further loosening is possible. So I don't see consumer kind of tightening coming in the next 12 months. So I think the labor market is still okay. Not as solid as it used to be, but still quite solid. And And inflation has kind of moderated. So I don't see why this should change next 12 months. If all goes well, this can continue at this rate, but at least somewhat similar. So in this sense, we are quite optimistic. And obviously that should translate into kind of marginally slowly improving margins in Hungary as well. Now, long-growth large corporate in Hungary, again, as I presented it, we have this, maybe not this slide, but the one which shows the Hungarian corporate growth. Yeah, if we go back, yeah, this one. So this 2% in the first half, that's not a, it's not a turnaround in the trend, right? It's just a noise pretty much. So no, we don't yet see, especially in Hungary, this turnaround in large corporate. A very kind of positive is the is the micro and small which started to grow. And then these are primarily the Hungarians. The micro and small companies are not the multinationals, right? And that's probably also given by services and retail and trade flows and things like that. So on that side, I think we can say that something started to grow and happened. Now, the question is where the bottom of the investment cycle is and have we already reached that or not? I wish I could say that I believe that the situation has changed in Hungary, not yet. Bulgaria is somewhat different. In Bulgaria, the pipeline is actually strong. The Eurozone accession is going to happen 1st of January next year. That usually coincides with upgrades and increased investor confidence and higher FDI. So in Bulgaria, there's something happening, right? So in Bulgaria, we do see on the ground quite some excitement and potential. So I'm more optimistic about Bulgarian large corporate growth in the next 12 months than Hungarian.

Thank you very much. Thank you.

Thank you. The next question is from an attendee joined by a phone. I open the line. You will receive an automatic message about it. Please press bar 6 to unmute. May I ask your name and the company, please?

Yes. Hi. Good afternoon. It's Joran Sikimic from OdoBHF. I hope you hear me right. Yes. Loud and clear. Good. Thanks a lot. I have a question on this recently presented, this home loan program in Hungary. What do you see the benefits for the bank? Where do you see, let's say, mortgage or housing lending picking up and what's your, let's say, first take on that? And have you also considered this in your guidance for loan growth? this year, because I think, I mean, I don't know whether it is rather story for this year or maybe for next year, but maybe would like to have your thoughts on that. And another one question also linked to long growth. I mean, you were clearly saying that you downgraded economic assumptions for almost entire footprint, right? But still, I mean, after 7% year to date, so 9%, seems to me rather conservative, right? So do you see already some kind of slowdown in some market, or is it just, let's say, conservative assumption? Thanks a lot.

Well, the guidance was more than last year. Last year was 9%. We didn't say how much more. So maybe I wasn't clear. So I wasn't suggesting 9% expected this year. I said that the previous guidance, which was more than last year, more than 9%, seems very likely. So it can be much more. And, yeah, I mean, we don't see slowdowns really coming. So it's more than 9%. Now, in terms of this specific program, it starts in September. It's very attractive for potential eligible clients. It's 3% fixed rate in HUB. It can be used for kind of new development and buying an existing property. The price of the property is kind of, there's a cap on that, 100 million and a half, and there are some restrictions on who can take the loan, but it's pretty broad. So I think demand will be strong. Obviously, the pickup will be relatively slow because, I mean, I don't expect September numbers to skyrocket, but it will take a few months, maybe two, three months to reach a kind of full potential in terms of volume growth of this. It's certainly going to push prices up because supply is not going to increase in such a short notice. But I mean, it's It is a profitable product for us, so we are very happy to distribute it and we will put a big effort in order to make it successful and to reach every interested eligible client. So this is certainly a plus for volume growth and it's plus for earnings.

Yes, super great. If I may add just maybe one on margin outside Hungary, particularly in Euro area. I mean, there was some, of course, some erosion as you stressed. At what point would you see kind of stabilization maybe thanks to deposit repricing and so on?

Well, it depends. I mean, if there are no further rate cuts in the urate, then I think not much further erosion is expected. Okay. Okay. Okay. Thank you. Pretty clear. Thanks a lot. Thank you. Sure. Thank you.

Thank you. The next question is from Gábor Kemény, Autonomous Research.

A few brief questions from me, please. Apologies if I missed anything. I joined a little late. Firstly, on provisioning, would you be able to share any views, any sensitivities to this possibility of the US introducing secondary sanctions against Russia? I believe Hungary's exports could be potentially impacted here. I'm not sure if you've done some provisioning already, or if you could share some sensitivities around this. Secondly, a very solid 18% CET1 ratio. Again, it would be interesting to hear your latest thoughts on the M&A pipeline, please. And just finally, on Andreas Schöberg's appointment to the FTC CEO. Can you talk a bit about his role and what his responsibilities are going to look like? Peter Chang told about your increased focus on digital banking, but would be interested to hear your views on his appointment. Thank you.

Secondary sanctions in terms of provisioning where? I mean, your first question.

Yeah, I mean, Hungary's macro being potentially impacted by the secondary sanctions against Russia. I mean, the indirect impact, that would be the question. I believe, the way I understand this, this would impact Hungary's exports. That was the origin of the question. I don't think we export much into Russia, so, I mean... Not to Russia, to the US, sorry, but maybe I misunderstood, but that's my... Oh, yeah, higher tariffs, because, okay, yeah.

Well, I don't know, I mean, again, the tariff problem, we actually developed very deeply into it, our risk people did, and... And in this case, we went through the Hungarian corporate clients and we assessed the potential impact coming from primary or secondary tariff effects. So Hungary has actually pretty, out of these three countries, one of the highest direct export to the U.S., as percentage of GDP, plus there's a secondary impact through the kind of core European exports to the U.S. and supplying that. So the risk colleagues have gone through the portfolios and put extra provisions on a case-by-case basis. And this is the reason why you see most of the credit risk increase in Hungary. So that's exactly the result of this exercise. So we did that to our best knowledge, and it's already reflected in the second quarter numbers. And indeed that's why Hungarian risk was higher in the second quarter than usual. Now M&A, I mean, obviously I'm not allowed to say anything other than the usual stuff that we are active, we are interested, and we are We are engaged in discussions, parallel discussions, and we are hopeful that we can find a situation where we strongly believe that we create value for shareholders, and then we do that. But there's nothing concrete we can report on at this stage. He is the successor of Peter Czajny in the role of head of digital and IT division. So he has inherited exactly the same organization unit. It's digital banking in Hungary, so it's actually a mix of IT operations, development, and also digital banking, retail digital banking, and payments are there. So it's actually a combination of classic IT and digital, plus some business responsibility as well. If this is what you wanted to hear.

Yeah, maybe anything on his objectives, near-term objectives, like your objectives in the areas of IT operations development in the near future, anything new and noteworthy?

We are in the middle of a huge IT transformation. We are changing the core system. We are changing the core security system. We are changing the card system. back-office system, we in-house develop the digital channels, so it's quite a transitional development heavy period. So that's clearly potentially the first focus is just to deliver on these initiatives and deliver them on time, on budgets, and with good results. And these are huge, huge IT changes. I mean, the last time this happened was 30 years ago, when the core system was replaced in Android. So, he has to continue and finish those large initiatives, and on top of that, obviously, digital, digital, digital, AI, better service levels for the digitally transacting clients and higher penetration in that segment. Yeah.

Yeah, sounds like a busy agenda. Thank you.

It's a very experienced and very, very experienced Very motivated and a very, very kind and good person. So I didn't know him before. I mean, despite our kind of sharing, I mean, he was much later at McKinsey than me. than myself, obviously, potentially more than 10, 15 years difference. But nevertheless, so I didn't know him before. He's a very, very positive person. So I think we will do very well with him.

Thanks for the call. Good luck.

Thank you.

Thank you. The next question is from David Taranto, Bank of America Securities. Thank you.

Good afternoon. Thanks for taking my question. Regarding Russia, could you elaborate on your strategy there? Year-to-date loan growth has reached 20% in FX-adjusted terms and in half terms it's much higher. And while Russia accounts for 6% of loans, its contribution to the bottom line is significantly stronger, even surpassing Bulgaria now. How's your lending appetite in this market, and where do you see the sustainable profitability levels in this market? Thank you.

I mean, in a sense, we are... In Russia, we are kind of hostage of the war and the situation. And in this very... difficult in St.Germain when we tried to do our best to adapt to the situation. And strategically, since the war started, we have focused on three agendas or three pillars, and that has not changed, and I don't see why they should change. until the war over is and the situation changes fundamentally. So first of all, the most important objective is to fulfill every rule and regulation applicable to the activities there. This is by far the most important. And then second, that we voluntarily reduce the scope of our activities. And that was a strategic decision. We completely discontinued corporate lending. And that continues to be the case. So we have zero appetite to finance any corporate or any state entity in Russia. And we also kind of limited the scope of transactional activity, especially across border areas. We only do Euro to European counterparties. And we were the first one who stopped altogether dollar transactions more than two years ago. And the third is that we want to reduce our exposure as much as possible. And our definition to reduce the exposure is is that we want to take as much money out of Russia to get back the equity which got stuck there and the group funding which got stuck there when the war started. So we have been doing that, I think, to a relatively... successful level, we have been able to repatriate dividends, the group funding was paid back as early as 2022. And in that context, in that framework, again, compliance, regulatory compliance, avoid potentially controversial activities and limiting the scope of activities and try to take out as much money from the country as possible. In that context, we allowed the bank to grow. And that means consumer lending, which has been historically the profile of this bank. And this is a kind of subprime mass market retail bank. Point of sales loan, credit cards, cash loans, lending. We don't do any mortgages. And this segment is growing and we are competitive and profitable. And on top of that, we do transactional banking, retail and corporate deposits. And this has been the strategy for the last three years, three and a half years. So there's no change in that. Okay, thank you. Thank you.

Thank you. The next question is from Marta Wasilewska, Wood & Company.

Hi, can you hear me? Yes. Oh, thank you. Thank you. Thank you for the presentation. I have two questions. One to elaborate a bit more about Russia. And maybe a direct question, but have you been able to get the dividend from Russia this year as well? Or are there any plans of that for the second half of the year? And the second question is about... the comment of the CEO that I have seen probably mid-July about the potential acquisition being executed until the end of 2025. I wanted to ask if there is any color on how you may be looking at the potential acquisition Obviously, I'm trying to hint towards sustainability of return on equity, given how much Tier 1 capital we are producing. And just a final question. How should we think about the dividend payments from OTP if you don't succeed with any acquisition until the end of the year? Clearly, capital ratio T1, 20% seems to be rich and very comfortable.

Yeah, the Russian entities paid dividends this year. So far, 10 billion rubles. And we expect further payments coming. Basically, on a quarterly basis, you can take out around 50% of the quarterly earnings. And that means that so far, the total payment was close to 52 billion rubles since the start of the war, which, I mean, practically started two years ago, so in two years this is what we did. Potential acquisitions, again, I cannot say anything regarding... concrete progress because if I could we would have done already an announcement so I am not in a position to make any comment other than what I have so we continue to work on possible deals and once any of these deals come to the stage where we should report about them, we will. I mean, actually, closing an acquisition this year, I think that's rather aggressive. I think we kind of announcing a new deal, that means that we have a signed shared purchase agreement with the seller, that that's That is possible. I think closing a deal in six months without having an agreement, I mean, usually regulatory approval procedures take much longer than that. So I think it's not likely that we can finalize and close an acquisition this year, but hopefully we can announce a deal which will be value-creating for the whole group. And that's what we try to do. Dividends, there's no communication regarding dividends at this stage. We make the dividend payment suggestion decision typically Our board makes it typically kind of February after the financial year. So that's when the proposal to the shareholders will be decided. And then we will share those numbers with you. when we report the full year results somewhere in March next year. Obviously, if there's no acquisition, then naturally there's more room to return more to shareholders. And if we have a larger position, then there's less room to return to shareholders. And to some extent, it has implications on dividend payment, potentially paid dividends as well, obviously. But that's kind of stating the obvious, I guess. But other than that, there's not much I can share with you at this stage.

Thank you. Thank you.

Thank you. The next question is from Gabor Bukta, Concord Securities.

Hi. Thank you for the presentation. I have a follow-up question regarding Russia. So the equity was hovering around 300 billion forints by the end of 2024, and it was up 34% year-to-date. Is there any plan or how much of the profit is expected to be brought out to OTP core this year. And the second question is also regarding Russia. On the 25th of July, the Central Bank of Russia cut interest rates to 18% from 20%. And We also experienced that the net interest margin in Russia declined by around 30 bps in this quarter. So what is the sensitivity for further rate cuts in Russia? Thank you.

Yes, certainly our margin in Russia is sensitive to the rate. I mean, part of the earnings that we made there is based on just spreads on deposits or kind of risk-free earning, and that depends on the central bank rate. I mean, I don't have top of my head the actual number-wise sensitivity, but it is sensitive. So the lower the rate, the less the earnings in Russia. That's very clear. And again, each dividend payment is subject to the central bank approval. Well, it's not particularly the dividend payment, but it's subject to really approval is the repatriation of the dividend payment. to Hungary from Russia, right? So that requires paying out the dividends. Because you can pay dividends in Russia, but the normal procedure is that the proceeds go to a special locked account, the SEER account. So in order for the dividends not to pay to the SEER account, you need approval. I mean, this is... I mean, there's no guarantee that we're going to get these approvals, but... so far we got them and they i mean our understanding is that until we we maintain this scope of activities i mean primarily the consumer lending this this we can continue to do so i think the kind of rule of thumb is that you can expect it's a fair expectation to say that 50 of the earnings in russia can be paid out in terms of dividends to the Hungarian entity.

Thank you. And if I may, one more. Today, the Russian court has lifted a temporary freeze of shares held by Raiffeisen. And I'm just wondering if you could make a bid for Raiffeisen Russia, if you can.

I mean, we have not thought about this. I don't know.

Okay, thank you.

Thank you. The next question is from Simon Nellis of DT Group. Simon, the floor is open.

Hi, Laszlo. Thanks for the opportunity. I still can't unclick mute four years after COVID or whatever. Just a quick follow-up on capital return. I know you're probably not going to say much, but can you give us any steer on further buybacks? What's the plan there? Thank you.

We have this recent approval of $150 billion in equivalent of shared web. Actually, I think Friday last week we were in the presentation

Last day. It was 32 billion.

Yeah, 32, exactly. You are really good, right? Not with muting, but with numbers. Not with muting, exactly. That's the important part, okay? So we have done so far 32, and we obviously continue as long as this... And then we will see once this runs out. Then... subject to how much money we make, subject to acquisitions, and so on and so on. We may or may not continue or apply for another round of buybacks. Okay, thank you.

Thank you. Thank you. If you have a question to our speaker, please do not hesitate to indicate. As there are no further questions, I hand back to the speaker.

Thank you. Thank you very much for joining us today on this early August day, which usually should be on holiday, and I hope you will be on holiday, and you can take a good rest before the autumn intensity starts again. So thank you again for joining. Thank you for your very good questions, and I hope to... for your participation on the next conference call. And in the meantime, I hope we can see each other in Turkey. We are going to go to New York, to the States, to London roadshows. So we'll be quite active in September, October. Hope to see you personally. Thank you. Bye-bye.

Thank you for your participation. The first half 2025 conference call is closed now.