Otp Bank S/Adr R

Ladies and gentlemen, welcome to OTP Bank's full-year 2010-25 results conference call. Please be advised that this event is being recorded. During the presentation, all participants will remain in listen-only mode. Following the formal remarks, there will be an opportunity for questions. We are pleased to have two members of our senior management with us today. Peter Csányi, Chief Executive Officer, and Laszlo Benczyk, Chief Financial and Strategic Officer. At this point, it's my pleasure to hand over the floor to Peter Csányi, Chief Executive Officer. Peter, please go ahead.

Thank you very much. Good afternoon to all of you, or good morning, depending on which continent you are located on. It's very nice to have you here for the 2025 result announcements. As per the usual format, we will give a short presentation on the results and then we'll have the Q&A session following thereafter. So kicking off on this page, you can see that We have continued our successful journey last year in 2025. In terms of loan book growth, we have achieved a solid, strong performing 15% organic growth rate, coupled with 22% return on equity, which is very good, especially given the high leverage ratio, 11% leverage ratio, according to Basel IV, which is basically tier one capital over total exposure, which is about one and a half, two times higher than most of our peers. So we can say that our return on equity has been especially strong. Combined with stable portfolio quality, our Stage 3 ratio has been declining slightly from 3.6% to 3.5%. And as usual, very strong capital position with common equity Tier 1 over 18%. and also very strong liquidity profile and a stable deposit-funded kind of franchise. Overall, a 77% net loan-to-deposit ratio and wholesale funding amounting to only 7% of our total assets. So overall, from a high level, we see a good performance in our view in 2025. Talking about the results last year, 1,146 billion Hungarian foreign net income, which is a 7% increase year over year, combined with, as I mentioned earlier, a strong return on equity. Our operating profit grew by 10%, driven primarily by the strong organic growth I have mentioned earlier, and a small margin improvement seen throughout last year. Our taxes on the bad side have increased 15% due to a 7.5 times increase in the Hungarian windfall tax. I will talk a little bit more about this when we talk about the Hungarian operations. Our cost-income ratio has been relatively stable last year, 41%. And in terms of risk ratios, our credit risk and total risk-cost rate has slightly increased, but most of this increase is due to Russia, Ukraine, and Uzbekistan. If you can actually see on the bottom right-hand side of this page, if you look without Russia, Ukraine, and Uzbekistan, the risk-cost rate was more or less stable or even slightly improved over the last year. And if we zoom into Hungary, unfortunately, our profit after tax has slightly declined 2% year over year, despite a very strong organic loan growth, 17%. percent loan growth and a 27 basis point improvement in the net interest margin. The decline in the profit after tax was mainly a result of the increase in the windfall tax and further raised by the Hungarian government. It grew almost eight times, and the transaction tax grew by 33%. Unfortunately, for this year, so 2026, these extra taxes will grow further by around 27%, amounting to around 329 billion Hungarian forints in total. That overall results in a net tax rate of 53% for 2026. And as you can see, this amount of tax is actually higher than the full year profit in 2025. Going into the different business lines performance over last year. If you look at Hungarian retail, the most important development in the retail market was the initiation of a subsidized mortgage loan program introduced by the government in the second half of the year. This represented practically more than three-fourths of the total dispersed mortgage volume in Q4. As you can see, the loan application volumes increased nearly three times from the second quarter to the fourth quarter of 2025. And our market share at the same time in new mortgage volume Lending went up by 2.4 percentage points to 33.5%. It is actually the highest for more than 10 years. And as usual in subsidized loan programs, our market share is even higher. In the new HomeStart loan program, our market share in new disbursements It was around 43% in 2025. We like this product. The NPV of this product is significantly higher than normal market mortgages. So we are happy to see this pick up in mortgage loan volume. In terms of cash loan, our origination was up 36%. So again, a very, very strong growth rate achieved in the cash loan market as well. And our deposit market share has stabilized over 41%. So during the last four years, we don't see a significant change in this. We view this as a very good sign, especially given the increasing competition in Hungary, not just from local players, but also from cross-border financial service providers. We view this as a positive sign that we are able to retain a high market share in retail deposits. Now, turning on to the Hungarian corporate segment, we have seen a very positive development in the Hungarian corporate segment. On the top left-hand side, you can see the large corporate loan volume changes. And as you can see, after practically two years of stagnation, we have seen a very strong pickup, 18% growth in corporate loan volumes in 2025. and this is not just the case in the large corporate segment on the bottom left hand side you can see that micro and small business loan growth volume have has also picked up 13 percent growth throughout last year and we are also very happy to see that it's not just a strong organic growth but we have actually improved our competitive position and increased our market share. This you can see on the right hand side on the top. We have reached our highest ever corporate market share, 21%. 20 years ago, as you can see, it was less than 7%. Now, Regarding our expectations for this segment, we are kind of cautiously optimistic that this is kind of a U-turn and not just a temporary pickup in growth rate. We are hoping that this is going to be the case going forward. But obviously, we can only be cautiously optimistic. Now, turning the page and zooming out a little bit on the other markets, outside of Hungary, the overall foreign profit after tax growth was relatively strong, 11% year-over-year growth. Our non-Hungarian group members delivered 71% of the consolidated profit in 2025. We see a profit growth in Eurozone countries was relatively modest, despite a strong 8% to 18% organic loan growth volume. due to the margin pressure driven by the 100 basis point year over year decline in the Euro rate environment and relatively fierce price competition especially in certain segments and certain countries. If we dig a little bit deeper into margin, development throughout 2025. The good news is that the year over year decline, especially in the Eurozone and Euro driven countries, especially Serbia, where a large share of our loans are denominated in Euros, By the second half of the year, and especially in the fourth quarter, margins have stabilized across the group. Our sensitivity to 100 basis point euro rate decline in terms of annual net interest income of the group was negative 130 million euros at the end of 2025. However, regarding the euro rate, we expect a stable decline. environment in 2026. On the other hand, the normalization of inflation in Hungary close to the central bank target rate suggests that there can be rate cuts from the current 6.25% base rate level. So one cut has actually already happened on the 24th of February, that was a 25 basis point cut. And for the remainder of 25, we expect another one in the first half of the year. These two rate cuts are actually factored into our management guidance that I will talk a little bit later. Regarding rate sensitivity on the half side, 100 basis point half rate cut is approximately negative 20 billion Hungarian forints in terms of impact on that interest income level for the full year. Now, beyond The acceleration of mortgage and corporate growth in Hungary that I have talked about in the previous pages. Across the group, we see very strong growth rates, especially in Bulgaria, and in Bulgaria, especially mortgages. which grew 30% over last year. Since 2021, actually, mortgage volumes doubled in Bulgaria. In all non-EU countries, consumer loan growth was particularly strong, ranging between 19% and 76%. growth rates in these countries. And I would like to highlight that we have discussed Uzbekistan in somewhat of a detail in the previous results announcements. We have seen a positive turnaround in Uzbekistan from the second quarter 2025. loan growth actually accelerated and we started to regain the market shares in consumer lending. So we are very optimistic that we have turned around the situation in cash lending in in Uzbekistan. On the deposit side, we see a strong 11% overall growth in deposits. in retail a 14% growth, which is actually more than double than what we had in 2024. And it supported very strongly the profitability of the group. Most importantly, you know, in Hungary, Croatia, Serbia, deposit growth was between 12 and 14%. And in Bulgaria, retail deposits grew exceptionally high by 22%, most likely, obviously, as a result of a very successful Eurozone accession. So, overall, our loan-to-deposit ratio, as I mentioned in the beginning, stands currently at 77%, stood at the end of 2025 at 77%. Turning on to risk, despite the strong 15% loan growth that we have seen last year, our Stage 3 ratio actually declined from 3.6% to 3.5%, which is very positive news for us. Stage 1 ratio increased by 3.2 percentage points to 87%. As usual, we are continuing our conservative approach to provisioning. As you can see on the right-hand side, our provision coverage on performing loans, even without Russia, Ukraine and Uzbekistan, was ranging from 1.5 to 6 times higher than our relevant peer group that we like to compare ourselves now turning to capital as you can see on the on the top left we are well above the regulatory Minimums in capital are strong profit generation, created around 400 basis points of common equity Tier 1 in 2025, as you see on the decomposition on the right-hand side of the page, or 15% loan growth actually consumed 1.8 percentage points of common equity tier. And we have last year bought back, performed shared buybacks, which corresponded to approximately 1.7%. percentage points of core tier one. So the dividends and the share buybacks last year was 1.7%. The amount of share buybacks that we eventually performed until the end of last year was 192 billion. And this year we suggest 300 billion dividends, four-inches of dividends to be paid after the 2025 after-tax profits. So these two items overall in 2025 constituted 43% of profit after-tax. And there have been also regulatory changes that took away 1.2 percentage points of common equity tier one. So overall, we consider our capital position to be very stable, especially if we compare ourselves to our relevant benchmarks. This is especially important because in times of crisis, we don't want to be the weakest link. So we actually want to maintain a strong capital position, not just compared to regulatory requirements, but to our peers. And if you look on this page, on a capital car ratio level, so the third column on this page, You can actually see that we are more or less in the middle compared to our peer benchmarks. And on a tier one level, we are more or less on the higher end of this, on this range. This is a position that we are comfortable with, obviously. as if and when our benchmarks actually sort of go down, we may consider going a little bit lower as well. Now, as you can see, our common equity tier one is actually materially higher, but as you know that we don't have any alternative tier one instruments. So practically the same situation remains that our biggest difference compared to our relevant benchmarks is the actual leverage ratio, which you see on the very right hand side of this page, our regulatory leverage ratio defined as tier one equity over total exposure is about one and a half to two times higher than that of other banks, which is a result of a conservative approach by the Hungarian Central Bank, which did not yet provide us with a sensible room to move to an internal model, basically. methodology for defining the pillar one capital requirements turning on to liquidity position see the usual page our liquidity position is is obviously a very strong retail oriented commercial banking business model, relatively well diversified retail deposit base. As I mentioned, 77% net loan to deposit ratio or liquidity coverage ratios and net stable funding ratios are also higher than those who are relevant peers that you can see on the bottom left-hand side of this page. And in terms of outlook for this year, we have 1.1 billion euros of total callables this year. That cannot be considered significant, given that it only constitutes, just for the sake of comparison, 37% of last year's profits and in total less than 1% of our total profits. total assets. And as you can see, in terms of reducing our dependency on wholesale assets, back in 2008 we had 25% share of wholesale debt compared to where we stand end of last year at 7%. Overall, a very stable funding structure in our opinion now this is a more for debt investors rather than our our equity investors on this call um our credit rating is always a sensitive topic for us we believe that moody's ba3 and snp's triple b kind of still relatively understate our real quality and are somewhat maybe a little bit limited by the perception of the Hungarian sovereign risk, despite the fact that Hungary is only less than 30% of the actual group profit after tax. Nevertheless, obviously, we give credit to SNP for starting to break away from this approach and assigning a rating not higher than the Hungarian sovereign for OTP banks. This is something that we are particularly proud of, Standard & Poor's Global Market Intelligence, every year does a rating on the European banks, top 50 publicly traded European banks. In 2024, we were number one on this list. Last year, we ended up coming second on this list. As you can see, this is kind of a composite performance indicator as it looks at seven different financial metrics. But we are very proud that we managed to retain kind of this very strong ranking in this independent survey. And last year, EBA The European Banking Authority performed the stress test and we were number 13th on this list. If I'm not mistaken, they look at 60 largest banks in Europe and we managed to be in the top third of this group. And this basically measures what would be the reduction in common equity tier one ratio given a significant stress scenario. So this is a very, very good result for us. And obviously not an accident. This is a result of the conservative approach. capital and risk strategy that we are following. I haven't mentioned ESG yet, but our green lending actually remains a priority for us. We have set out a very ambitious goal of reaching 1,500 billion foreign green lending volume. We have actually overachieve that at the end of 2025 by 13%. And these efforts that we have placed on ESG has actually been rewarded by two notches upgrade by MSCI ESG rating last year in November. Now turning towards kind of the macroeconomic expectations going forward. Overall, we can expect a reasonably supportive operating environment to continue or even improve in 2026. We do expect an acceleration in GDP growth in Hungary. Last year, it was 0.4%. We expect that growth rate to come out about 2-2.5% in 2026. And as I mentioned, inflation has already actually moderated quite a lot, and the central bank has cut rates. Expect potentially further rate cuts. Now, obviously... Regarding inflation expectations, the Iran invasion is causing somewhat of an uncertainty obviously, which is hard to predict what will be the effects given that we don't really know how long this situation will last. will persist. So probably our inflation expectation here displayed on this page is more or less on an optimistic note, given the developments over the last few days. However, we still remain optimistic because GDP should pick up. Two other countries where we expect a pretty strong acceleration in GDP is Slovenia and Serbia. The rest of the countries may probably be similar to what we have seen last year. And obviously, there is always a potential upside if there is a peace agreement between Ukraine and Russia. Now turning on to our management guidance for 2026. Now, you know, obviously we assume that kind of a supportive macroeconomic environment can be expected in 2026. Then what we expect is a similarly strong kind of organic growth. The loan volume growth may be around 15% that we have achieved last year. With similar margins, our expectation is 4.34% that we have reached also last year. So we expect that to be kind of similar and also a very similar portfolio quality. We may expect, we may see a slightly higher cost income and a slightly lower return on equity. Obviously, a return on equity mainly due to rather the accumulation of equity throughout the year. And as I mentioned to you in the previous pages are Suggestion for the Board of Directors for the dividend to be paid after the 2025 financial year is 300 billion Hungarian forints, which is 1,071 forints per share. Now, obviously, the actual DPS will be more, given that treasury shares do not receive But this is obviously, I believe, a good figure, 26% of 25 net income. We would like to maintain the intention to pay more dividends on an absolute level and also retain some room for any potential add-on acquisition. Our organic growth is obviously our strategic priority, but we will and we are continuing to look for value generating acquisitions. We would be happy to buy banks in pretty much any of our existing countries except in Russia. But we may also move outside. I don't want to go into naming any concrete countries, but obviously our of geographical focus um maybe unsurprisingly is still pretty much central and eastern europe and also we are exploring opportunities in in central asia now our position regarding buybacks cancellations of shares 81 tier 2 have not changed materially. We will obviously announce any share buybacks once we receive a regulatory approval for them. We do not propose any cancellation of the shares. Obviously, the cancellation of the shares is anyway requires an annual general meeting and the approval of shareholders. 81, we don't really plan at the moment, but we still view it as a potential bucket that we can utilize for any larger acquisition opportunity that we could not finance Otherwise, from our other existing buckets, we will continue to fill up our Tier 2 bucket. We have about a 750 million euro plant for this year that will kind of serve for any higher than expected organic growth or any potential acquisition that we see going forward. So that's pretty much the presentation that I wanted to go through. Now I would be very happy to hand over to any questions that you may have. Thank you very much.

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 to indicate. One moment for the first question. The first question is from Máté Nemes, UBS. The first question is from Máté Nemes, UBS. Now we could hear you just for a moment. Would you try to use your microphone? No, it's okay.