Otp Bank S/Adr R

Ladies and gentlemen, welcome to OTP Bank's conference call regarding the financial results for the first nine months 2025. Please be advised that the conference will be recorded. Kindly note that all participants will be in a listen-only mode. 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 and thank you everyone for joining us today. Good morning or good afternoon, depending where you are. Let me jump into the presentation. As usual, the DAC is available for download in the website, but we're also projecting it parallel to the to the conf call. So maybe we go to page three. There we have the most important numbers, yes. So first of all, we have this kind of noise in the data due to the fact that many, most of these extra taxes or all the extra taxes in Hungary were booked in the first quarter for the entire year and some other supervisory fees as well in various other countries. Therefore, if you want to properly capture the business performance, then we need to accrue those costs over the year. So you can see two sets of numbers, one at the bottom with gray, that's the reported, and then this kind of the other set of numbers with green, where between the quarters, we have accrued, allocated evenly this one, of course. So if we look at these kind of accrued numbers, then the first nine months was 886 billion HUF, that's like 2.2, 2.3 billion euro, 5% up, last year, first nine months. But, I mean, the actual business performance was stronger than that. If you look at the, for instance, the pre-tax profit, then this growth was already 8%. That's due to the fact that the extra taxes, primarily in Hungary, increased a lot. And we put these extra taxes, the bank tax and the extra profit tax into the tax line. And on that line, just in Hungary, the extra profit tax increased by 38 billion year on year. So that's a major factor actually in the profit after tax number. Now, if we were to look at the operating profit year-to-year performance, then it was actually 16% up for the first nine months. And then, obviously, risk cost was somewhat higher, as you can see on this chart, on the credit risk cost rate and the total risk cost rate. Having said that, most of this kind of extra risk cost is coming from Russia due to volume effects. The Russian risk cost rate was 7.6%, so that's part of this kind of consolidated number. And if we were to take out Russia, Ukraine, Uzbekistan from the risk cost rate and the credit risk cost rate and the total risk cost rate, we would get quite similar numbers to last year, actually. So I think it's safe to say that we have had another strong quarter in the third quarter of this year. And there's no reason to believe that the following quarters will be anything worse. So we remain quite optimistic regarding the current trend, the current trend. RAR rate and also the potential future developments. This profit growth has primarily been driven by an especially operating profit growth by volume growth. We indicated at the beginning of the year that we expected more than last year credit growth. Last year we had 9%. And the good news is that already at the end of the nine months this year. The year today performing loan growth is 10% and it's going strong. So, I think it's fair to assume that we will not just have higher numbers than last year, but materially higher, substantially higher growth rate. And this seems to be the run rate at the moment. Return on equity, again, this kind of accrued ratio, 22.7%. Cost to income 39, below 40, very good, and net interest margin stable. And I already a little bit talked about the credit risk cost rates, which are higher than last year, but mostly driven by the contribution from Russia. The following slide is rather technical. It shows this kind of difference between the reported and this kind of accrued or even recognition special items, so I'm not going to dive into this, but that explains this almost 37 billion difference between the two numbers. So let me go to the core performance, OTP Hungary. Again, 5% up year on year, but These extra profit, the windfall tax increase is primarily here or substantially here in Hungary. So the pre-tax number, again, with this even recognition of the one of cost, would have been 15% up. So after-tax profit 5% up. Pre-tax profit 15% up year on year. And this was primarily driven, again, loan growth and some margin improvements. I mean, last year, first nine months, the NIM was 2.84. This year, 3.09. And a slightly increasing quarter by quarter. Here you can see this kind of detailing of the extra burdens in Hungary, and you can see how much the windfall tax, the extra profit tax increased. Last year we paid 7 billion altogether, and this year we expect to pay 54 billion. And there was a strong increase in the transaction tax as well. The tax rates were increased last year and they became effective late last year. And the impact is actually quite substantial for this year. Having said that, there's plenty of good news regarding our performance in Hungary. So if you look at the recent novelty on page 6, this is the Home Start Loan Program, another subsidized program. mortgage program, which started in September this year. And you can see, I mean, if you just look at the stock numbers, the impact is relatively modest given that it only started in September. But if you look at the applications, you can see how much the applications increased. So the September level was kind of three times, more than three times an average monthly level. So this is a very popular program. It provides opportunity for clients to take mortgage loans at 3% fixed. So this is what they pay, and then we receive an interest rate subsidy. And with that subsidy, it is actually a reasonably profitable product. So it is clearly beneficial for clients, and it's also a profitable product for the banking sector. Now this means that the current run rate of, let's say, annualized 12%, because the first nine months as you can see on this chart, mortgage loan growth was 9% year-to-date. We annualize it just roughly, it's like 12%. So this 12% annualized loan rate can increase, and we definitely expect this to increase for the next year, for the next 12 months at least. And that can be up to I mean, high teens even closer to 20% till at least the end of the second quarter next year. If you look at the other product segments in Hungary, consumer loans going strong, almost 39% higher contractual amounts in the first nine months of this year than last year. Our market share is very strong. Now this is a quite attractive profitability product. It's one of the profitability drivers for us in Hungary. So having this strong market share and having this strong growth rate, this is quite good news. Our market share recently increased. The other kind of important market share number on this slide I think is in the kind of lower right corner and 41.4 percent is our market share from retail deposits and it's again quarter and quarter increased a little bit. You may remember that the first half of the year a large chunk of retail government bonds were repriced and that caused some reallocation of funds by retail clients. And the good news is that we seem to be able to manage this transition well and our market share again started to grow in deposits. Corporate is probably even more exciting. It does seem to be that finally we see a turnaround in corporate loan growth, especially in micro small. So as you can see on this chart, micro small year-to-date growth rate was 12%, large corporate or total corporate 5%. And that's a big improvement compared to 23, 24, where volumes were basically flat. And we read this now as an indicator of a potential turnaround, at least in our client portfolio. Obviously, this trend reversal has been supported by the current subsidized scheme, which is the Sechenyi Card Max Plus scheme, targeting micro-small corporates in Hungary. Our market share is very strong in this product. And due to all these changes, as you can see on this page, we reached a historic high in terms of our market share to the Hungarian corporates. Loads to Hungarian corporates above 20% historic, the highest number. Very good news. We are very happy about this. On page 9, you see some of the, well, all of the non-Hungarian bank performances. I think it's quite solid across the board. Maybe the only kind of glitches in Uzbekistan, we talked about this, as you can see, both the nominal profit declined, materially compared to last year and the ROE also went down. I mean, this is something we discussed in detail in previous presentations. We had to limit the volume growth of consumer loans for quite a long period for almost one year until it fixed the IT infrastructure and then kind of restarted the growth of consumer lending somewhere in the second half of the second quarter this year. And these results are very strong and very, very promising. I will show you in a few slides I will show you the details how well new production is building up in Ipoteka, Uzbekistan. So I'm very hopeful that starting from now, quarter by quarter, we will be able to improve our performance and reach back potentially to previous levels. The name development, that inheritance margin development, again, it's fairly stable, quarter on quarter, even on a basis point level. And since the beginning of the year, five basis point improvement. The improvement is primarily coming from Hungary, Hungarian margin improvement. keeps improving, while in some of the other banks, in Uzbekistan, where cost of funding increased, in Bulgaria, where it's a Euro rate environment, and this is due to the Euro crisis, So a lower rate than last year overall, and Serbia having some hit, but primarily the improvement, as I said, was driven by Hungary improvements. Let's have a look at the volume trends, the performing loan volume trends across the group. 10% year-to-date. And again, we don't have any reason to assume that growth slows down. It's actually quite the opposite. In Hungarian mortgages, we expect definitely acceleration in the last quarter, in this quarter, and also in Uzbekistan. As you can see, this 13% increase here today is not evenly distributed between the quarters. First quarter was flat, second quarter 4% growth, and third quarter 9% growth just in one quarter. So this is when we are kind of up to maybe not full, but much higher speed than previously. The other, I think, important development is Ukraine. As you can see, somewhere at the end of last year, we decided to be more active in landing in Ukraine, and that resulted in more than 50% growth in consumer landing. Obviously, this is from a relatively low base, but nevertheless, we started to grow. And also corporate and leasing started to grow meaningfully this year. And this is in line with our kind of strategic decision to be active on the lending side in Ukraine, obviously selectively, but we believe that there's a valid fine, actually a broad segment of clients who are quite interested able to take on some leverage and land. Maybe a few more words about the Uzbekistan development, because this is important for us strategically. As you can see, on this one, you see the cash flow volume changes and disbursement numbers by quarters and our market share. And we had this difficult period starting from the first quarter last year, which period pretty much ended a year after and in this time we lost market share our operating results declined and our profits declined but Now I believe we have reached a turnaround. And as you can see, our market share started to grow in the third quarter. And you can see how much we were able to ramp up production of cash loans. And now we believe that we are giving these loans based on sound understanding of clients' credit worthiness. And it's well supported by data. So we feel confident that these are going to be quite profitable vintages which we are churning out. In terms of deposits, again a strong performance here today, 9%. And just to remind you, the net loan to deposit ratio of the group, is 74%. So nominally we have 50% more deposits than loans. So despite the somewhat low wealth growth rate, the actual nominal increase was substantially more in deposits than in loans. So the group level kind of liquidity situation improved due to this. And the primary drivers here are in These are the two countries where we have dominant market share in retail deposits, around 40% in both countries. And in both of these countries, retail deposits are very profitable. So this is a kind of growth and profit engine of the whole group. Retail deposits in those two countries and so far so good. Quite strong performance in both sides. In Bulgaria, there's an additional big event. By the end, by 1st of January, Bulgaria finally joins the Eurozone after around 25 years in a currency board, in a fixed currency, successfully fixed currency regimes, very well deserved, and we expect further positive ramifications from this, from the accession to the Eurozone. And the only, I mean, where we had decrease, it was Uzbekistan, but again, funding a special retail deposit is quite expensive and the growth, the volume growth in retail loans was not as strong as we originally planned for. So therefore we scaled back somewhat the deposit volumes in order to optimize for profitability. But again, this recently, as the volume rose, recovered, we again started to somewhat increase deposit volume. So this is subject to pricing, basically. On page 14, credit quality, again, state-free ratio compared to the end of last year, improved compared to the second quarter. flat, strong coverage, as you can see in comparison to some of the other players as well. There's no major development on that front. In terms of capital adequacy, 18.4%, which is Still a decline compared to end of last year, but that's mainly due to the Basel IV impact, which kicked in 1st of January, 90 bps negative. And there's still 20 basis points, transitionary measures being outpaced by the end of this year. So they're kind of a fully loaded number year on year. If you fully load with the changes expected to 1st of January, then it would have been 18.2. Nevertheless, strong and well of our regulatory requirement. In terms of liquidity, I mean, quite liquid. The liquidity coverage ratio, 235%. Again, the minimum required is 100%. um we during this year we started with the tier 2 in january and then we have done two cover bonds very successful um quite uh we're quite happy with the the pricing levels and a senior preferred an offshore yuan bond another one we are trying to diversify our investor based on the debt capital markets as well. Now, so this is the kind of internal performance and then some reflections in the mirror, right? How others see us. First of all, rating. There have been many upgrades. Moody's was the very recent one. They improved the counterparty rating of OTP Bank to A3, and the senior preferred bond, the negative outlook disappeared, so now it's BA3 stable. And also the tier two rating improved to BA1. And then previously during the year, S&P improved our rating so there the senior preferred rating is BBB which is actually a notch higher than the sovereign rating which is BBB minus the Hungarian sovereign rating so again this is I think a rare event that a bank is rated higher than the sovereign, but I believe this is very less realistic situation. So, scope rating even higher, and we have a fixed rating for Ipoteka Bank, or Uzbekistan Bank, which also improved during the year, and they have been through a very successful insurance. They just printed a bond recently, which was very well received by the market. Page 18, that's the, we like to show this one, this is S&P kind of capital global market intelligence unit. It's just a financial comparison of Comparison of financial performance of the largest European banks. Last year we were number one, this year number two. So next year we want to get back to number one as well. And then EBA stress test 13, that was done during the early part of the year. So we are in the first kind of one quarter of the year. For instance, very recently this week, there was an ESG upgrade. MSCI upgraded our ESG rating to A. So, I mean, forward-looking, we are... I'm sure you will ask questions about that, but as usual, we will share with you our expectations, our guidance for next year when we present the annual numbers, and that's going to be the first week of March as usual on a Friday, so I won't talk much about next year. But I think it's clear that we have a strong momentum, and there's no reason to believe that that this strong momentum should deteriorate so i mean especially if we if we look at the macro environment on very high level we expect basically gdp growth improvements in most of the countries where we operate and and where it's not improving the the the kind of slowing down is quite moderate and from quite high levels so as Bulgaria slowing down to 3%, Croatia up to 2.9%. But these can be better numbers, to be honest, because the recent data in these countries actually outperformed our previous expectations. And maybe Uzbekistan also slowing down, but in the case of Uzbekistan, again, the latest GDP data was much better than what the market expected. So even these countries are doing well. And the biggest kind of improvement in terms of GDP growth is expected in Hungary, where, I mean, next year, our expectation is 3%. It's an election year. Consumption, the order of the strong consumption is going to further accelerate. And then we don't expect further decline in the investment. So this actually seems quite realistic. expectation to go up to 3% after three difficult years, 23, 24, and 25. The short-term expectation, we decided not to formally change them compared to what we did at the end of the second quarter, but I think it's very obvious that long-volume growth which already 10% compared to 9% last year. So this nine months here today, 10%, and obviously we expect the run rate to continue or even somewhat improve, as I said, in case of Hungarian mortgages and in case of this big consumer loans for sure. So we are not just going to have higher number, but I think it's going to be a materially higher number in the long rows, and that's going to have obviously positive impact for next year earnings. Margin, again, I mean, it's actually very stable. So again, no reason to believe that it's going to be otherwise. Cost to income ratio, this is where we kind of improved the guidance at the end of the second quarter. And now the new guidances are close to 41.3. We are still below 40. So I think this is, again, quite likely. And in terms of risk-cost, the risk-cost rate, Actually, first-line mass was higher than last year, but again, this was primarily driven by especially the rational volume growth and higher rate there. And ROE 22.7, again, strong number. And it's, I mean, the denominator is obviously much bigger than last year. We are accumulating capital faster. That's the reason. That's the reason behind the return on equity, somewhat lower still this year than last year. In terms of capital actions or capital strategy, I'm sure, again, that you will have questions, but we will keep our usual custom and announce how much dividend payment the management will propose to the AGM next year when we present the annual numbers first week of March next year. What we do now, we are executing this buyback program. We did 60 billion half at the beginning of the year, and then we started another 150 billion program at the end of April, and we got the second package approval from the central bank, and we are at 88 billion, and we continue this program. So that's pretty much the kind of short presentation going through the highlights, so to say, of the year or the third quarter. And please, if you have questions, ask them and we try our best to answer.

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. The first question is from Gábor Kemi, Autonomous Research.