Otp Bank S/Adr R

Ladies and gentlemen, welcome to OTP Bank's first quarter 2026 results conference call. Please be advised that this event is being recorded. During the presentation, all participants will remain in a listen-only mode. Following the formal remarks, 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. Good morning or good afternoon, depending where you are, and thank you for joining us today on OTP Group's 2026 First Quarter Results Conference Call. You have the Stock Exchange Report, the Analyst Tables, and the today presentation available on the website. We are also broadcasting the slides as usual as part of this video call. As usual, I will make an attempt to summarize the main developments of the events during the first quarter, and then we will open the floor for your very good usual questions. So the first page It has been pretty stable for a long number of years now, which I think is a good sign, by the way. I think it's quite good that the most important kind of headline features of OTP Group have not changed, and we don't intend to change those, so we working hard for these features to continue to dominate performance. So I'm not going to elaborate too much on this, because I'm sure you know it by heart. Well, talking about first quarter results, unfortunately, just like in previous last couple of years, the first quarter result is very in a way confused, and it's confused by the huge one-off, or kind of the huge extra taxes we have to pay in Hungary, especially, and the fact that we have to account for all these taxes at the beginning of the year. We are not allowed to accrue them, accounting-wise. And in case of extra profit tax, the number we have to book in the first quarter is even bigger than the expected number for the whole year, because we, as you probably know, the system is such that if we acquire a certain amount of Hungarian government bonds, then we can reduce the tax payment, but this eligibility to reduce the tax payment is measured as time goes by during the year, on a monthly basis, basically. So we have to fulfill that criteria, month by month, in order to qualify for this reduction. So the full reduction, actually, will only be reflected in the full year results. By the way, I think it's important information that we have acquired those additional Hungarian government bonds, so we expect the deductions or the reduction of the extra profit tax to actually happen according to our expectations. Now because of these charges we booked for a whole year in the first quarter, the actual kind of representative numbers of our performance and the book numbers in our financial reports differ and therefore on this slide you can actually see both set of numbers so the dark and green or the dark green number is reflects numbers where the crude is one of so over the whole year and this probably I mean for sure provides you with a better representation of actual performance whereas The gray numbers are the ones which are in the financial reports. And then you can see the tax gray number on this slide as well. Trend up year on year by 30%. And again, this is mostly two factors. One is the substantial increase, in fact, doubling of the extra profit tax in Hungary and also the higher tax rate in Ukraine. You may remember last year there was a decision in that they increased the tax on banks' profits to 50%. Last year, that was only 25%. So, I mean, this kind of adjusted number grew 9% year on year. Next slide, you will see that actually FX suggested this number grew 13%. We can still go back, sorry, to the previous one. Yeah. And I think from now on, we will have to take into consideration the exchange, the half rate impact, especially when we compare to previous year numbers, our performance, just because the half has gone through quite an appreciation very recently, and that obviously has an impact on our numbers. So the ratios, return on equity, again, this adjusted one, performed quite well. Post-income ratio, slightly better than all year last year, but worse than first quarter last year. And most importantly, net interest margin continued to somewhat increase. compared to last year, but also compared to the fourth quarter last year. And portfolio quality remained stable with a kind of normal level of risk costs on the credit risk cost rate side. And we actually wrote back part of the provisions we previously created on the Russian government bonds. Almost 20 billion half equivalent of provisions were released. after the payment of the maturing bonds at the end of last year, and therefore the other risk cost was actually a positive number, and the total risk cost was also a smaller number. Now, if you go now to the following page, where we actually present the FX adjusted changes quarter and quarter and year by year and year on a I mean of the first quarter numbers and if you look at this at the end of this presentation we have cross sections for each of these lines I mean the most important P&L lines so by country you can also see these numbers typically on an FX-adjusted level as well, at least where it's relevant, and it's most relevant obviously to the Europe-related countries. So maybe it makes more sense to actually elaborate on these FX-adjusted changes. So year on year, if you compare the first quarter this year, 26, to last year, There were no acquisitions or disposals, so it's a kind of Apple-to-Apple comparison. 13% overall profit after tax increase, operating profit improvement 9%, and there was some moderation in the risk cost, mostly because this release of provisions on the Russian government bonds, what I just mentioned. I think in the revenue lines, there are some important developments. First of all, net interest income up 17%. And this has been driven by mid-teens volume growth in the loan book and also improvement in the net interest margin overall on a group level. So that's, I think, a pretty strong performance. And again, this is all organic. Now, on the other hand, on the net fee and commission line, you see only 1% here in U-verse, which is somewhat, I mean, obviously a much lower growth rate than we would expect. given the nominal GDP growth of the countries where we operate and given the overall volume growth both in deposits and in loans across the group. There are two important factors here. One is coming from Russia. In Russia, year on year, net fees and commissions went down by more than 20%. And this is related to the transactional income, what we generate in transactions. There's a lower demand typically for the corporate transactions we provide for our typically European corporate clients in Russia. There was a decline there. So those of you who wanted to see our Russian revenues declining and transactional activity declining, it actually has started to happen. And this is not a unique feature to EOTP. This we see if we look at the numbers of other kind of European banks operating in Russia as well. The other factor was that in Hungary we There was a moratorium in the first half of this year on the fees, so we were not allowed to adjust from the start of the year, despite the legal potential or opportunity. There was a strong... So there's a pressure on the bank sector not to apply those increases. So this is going to happen only in the second half of the year. So from July, basically, we do apply the CPI increase on our fees in Hungary. Hopefully the Hungarian numbers in the second half of the year will show a better performance. And there's one other factor here that this very high level of mortgage lending activity generated not just higher volumes and therefore higher future revenues, but also higher commissions to third parties. So this higher commission number also kind of is reflected here in this number when you look at the Hungarian growth rate, which is only 1% year-on-year. Again, due to these two factors, we had to delay the fee increases by six months, and we also incurred quite sizable commission fees on the new lending on mortgages. But again, the NII line, I think that's quite strong and is probably the most important in this sense, and the close to 10% operating profit increase as well. The next one, the next slide is rather technical. For those of you who are interested in the exact numerical details of the difference between the report number and this kind of even recognition of special items adjusted line so that those are the differences and most of the differences as you can see come from Hungary and it's due to the windfall tax mostly right which was most booked in the first quarter 135 36 billion but again, the annual number we expect to be only 110 billion, and then the actual number relevant to the first quarter was 26 billion, so that causes this difference. And this big difference is, again, it's in Hungary, and therefore the Hungarian numbers, which you can see on the following chart, have been even more distorted by this accounting treatment. So again, we actually had losses due to the windfall tax and the other taxes in Hungary in the first quarter. But if you do this adjustment, then the number was actually positive, 120 billion, which is quite a sizable growth year on year. Having said that, I think I have to highlight here that Most of this positive impact from the provision release behind the Russian government bonds happened in Hungary. There was some in Bulgaria, but the bulk of this almost $20 billion release happened in Hungary. And there was also a pre-tax of $19 billion fair value positive adjustment on the subsidized loans in Hungary due to the movements of the yield curves, basically, or the yield curve movements, there was a positive effect in the first quarter. And those two appeared in the Hungarian numbers in the first quarter, and those two may not appear in the second and subsequent quarters in Hungary. Now, and that actually resulted in this high jump in return on equity, again using this kind of adjusted numbers. So it's unlikely that we are going to continue to have this level of earnings in Hungary for the remaining of the year. It may kind of moderate back to the previous end line. That interest margin, on the other hand, kept improving, and although the improvement on a quarterly basis was quite slight, but at least positive. And, again, this cost rate overall was actually a negative provision right back. Again, this is due to this kind of Russian bonds provision release. And here in the kind of right lower quarter, you can see the taxes, the extra taxes. These are our expectations related to what we're going to pay for each of these tax lines. during the course of the year, and those expectations have not changed. Maybe a few deeper thoughts about Hungary and the Hungarian operations. The subsidized mortgage program, which is very popular, continues, and these are the new application volumes, as you can see. As expected, new applications in the first quarter were somewhat lowered in the previous quarter, but still more than double the last year first quarter numbers, so it's still very strong. And our market share is also, you can see from the contracted amounts, our market share jumped up to higher than 40%. Before the introduction of this program, it was in the low 30s. And by the way, this is quite typical. So we tend to have much higher market share in case of subsidized programs than on the market-based structures. And that's primarily because these are typically more complicated products. The sales process, the client interaction is much more complicated. It requires more resources, more skilled resources, more physical presence, and overall scale in order to be able to handle the sudden dramatic increase in demand. And we are typically much better positioned to provide these this performance than some of the other banks. So that's the reason primarily. In other products, cash flows and savings deposits, again, the market share in newly contracted cash flows somewhat declined, and that's due to basically price competition. There's increasing price competition in this segment. And we try to balance or maximize future earnings by positioning our price points in a way that we, again, maximize the MPV of production. And that resulted in a somewhat lower market share. But the kind of year-on-year growth of new production is still quite strong, 17%. And And in baby loans, as you can see, we have also quite remaining high market share. Having said that, even more important on this slide, I think, probably the most important in Hungary, is that we continue to increase our retail deposits market share, and despite the very low rates that we provide, what all the banks provide, and... And we consider this number extremely important because we consider that this number is probably the best gauge to suggest how deep and strong a Bankston action is with reset lines in a given country. And this number going up and has been going up for quite a long time. So that's very positive. Corporate. Similarly, positive news in Hungary, our market sharing corporate loans continue to increase and it has again reached a historic height, 21.6%. And you can also see the long-term development there, which is very positive. The other good news is that in line with the I would say somewhat positively surprisingly high, first quarter GDP number in Hungary. Corporate lot growth continued. Overall, it was 2% on a quarterly level, which is somewhat a slowdown compared to the second half of last year, but still much more than what we grew altogether in 2023-2024. But most interestingly, micro and small volumes continue to grow, and actually the growth rate there accelerated considerably, 6% growth in just one quarter, and this is the micro small sector. Again, that's quite promising when you want to have a view on the fundamental activities level in the in the local economy, in the local corporate sector service day, because micro, small are typically local. Part of the large corporates, mid-corporates are obviously multinationals as well, or kind of the sector which is serving multinationals. Page 10, you have an overview of the performance of the various units, the various countries across the group. It has solid performance, however, typically not better than last year, with the exception of Uzbekistan, which managed to improve profitability, and this is good, ROE is closer to 30%, so that's actually quite promising, and we are happy to see these numbers. And we had a big decline in profitability in Russia, Again, this is related to what I just explained, the demand for these corporate transfers and FX conversions started to decline, and that reflects in our numbers. Now, if we go to page 11, where you can see the net interest margin development on a quarterly basis, 11 basis points, up And as you can see, small improvements in Hungary, Bulgaria, Uzbekistan, Russia, and a bigger chunk of this improvement actually came from the composition effect, mainly higher margin countries provided higher growth rates in the first quarter. And it's not just the quarter-on-quarter, but also the year-on-year number which has grown a lot, and here obviously the contribution of the Hungarian business is much better. So more than half of the margin improvement we can see year on year came from the Hungarian business. The rate sensitivity has increased, primarily because of, and especially in Hungary, because of very rapid growth of deposits. You will see the deposit growth rates in Hungary in the first quarter, and that's obviously very, very good in terms of profitability and earnings, but somewhat increased in the half-rate sensitivity, which now stands at 24 billion annualized NII, in case of the 100 basis point change. or in this case, the potential decrease in the rate environment. And likewise in the Euro sensitivity, it went up to 125 million Euro annualized NII potential impact based on 100 basis points. Now, looking at loan growth, it was 3% in the first quarter, It was actually 3.4, but we have kind of rounded numbers here, so this was rounded down to 3%, but actually it was 3.4% FX-adjusted performing low growth, which was quite in line with our expectations. And some countries provided actually quite remarkable performance. Actually, you know, I mean, the good news is that these are the three biggest countries, Hungary, Bulgaria and Slovenia in the group, who had a very strong performance, 5%, 4%. Just to remind you, last year, the whole year, Hungarian loan growth was 17%, Bulgarian 18%, and Slovenia was 8% for the whole year 25%. Now, In this case, Hungary first border 5%, Bulgaria 5%, Slovenia 4%. In Hungary, this is primarily, I mean, to a large extent, even by the subsidized mortgage program, but there's no such program in Bulgaria or Slovenia. The other country which kind of grew quite fast was Ukraine, 9% growth. And now we actually, I mean, last year we had decent growth as well, Last year, there was 27% annual growth. Therefore, the base is getting bigger as well. And on a higher base, now we have an acceleration in the run rate in Ukraine, which is, again, fairly good news. Deposits. 3% increase in deposit volumes just in one quarter, and especially Hungarian retail was strong. This is not surprising, given that it was the last quarter before the elections, and therefore some fiscal transfers happened to the electorate, and quite far of it actually landed in bank deposits. So, I don't think I have to tell you that this is actually very positive for earnings and NIR specifically. So I think this is the kind of biggest news on the deposit front. Portfolio quality, page 14, remains stable. Slight improvement in the stage 3 ratio in the first quarter. down to 3.4%, 2.6% without the higher MPI ratio of countries like Russia, Ukraine and Uzbekistan. Coverage remained similarly high to previous quarters, so there's not much event here. Next page is about the capital adequacy ratio, which actually decreased from 18.1 to 17.6, the common equity theorem ratio. And in this waterfall, you can see the factors which affected this ratio. So the profit itself would have increased the ratio by 90 basis points. But in case the one-offs, these large taxes were accounted for evenly during the year, but they were not. So this kind of accounting for all the taxes in the first quarter that had a 40 basis point negative impact and then dividend, which we calculate according to the EU regulations. So this is not a guidance on the potential dividend payment. Organic growth consumed 40 basis points and some temporary measures were phased out, so that's another 30 basis point negative, and there were some other effects. But the bottom line is that although the reported number was 17.6, if we recalculate these one-offs, and again evenly distribute over the year in Hungary, this kind of adjusted profit number, and we recalculate the adequacy ratio with the sweet-stated number, then the rounded number was actually at 17.9, so close to 18%. And in comparison to, I mean, just anticipating the discussion about why our capital adequacy is or is not. So indeed, the 17.6, even in a tier one ratio level, seems to be quite strong. And here we can account for, I mean, we can say that, again, the real number was probably, or the kind of, the number which better reflects our, the actual situation was closer to 17.9%. And that's quite a decent number. And that created some room to again restart share buybacks. We just announced that there was another $60.5 billion approval received from the national bank. So we have now we can start a new program to continue to buy back shares. and the approved number was $16 billion up. And ultimately, there's some room for more acquisitions as well, given this higher ever ratio, if there was an opportunity to do so. On page 17, you can see the liquidity and the capital markets activity. of the group. Liquidity ratio is very good. We remain to be funded by deposits, right? I mean, 77% deposit ratio, pretty stable across last year. And liquidity coverage ratio 227, stable funding ratio 151, so quite some levels. And And relatively, compared to the size of the profits and the size of the balance sheet, the call date profile is relatively modest. So there's 1.1 billion call dates coming through this year. And the overall profile share of wholesale funding in the balance sheet is still less than 10%. It's 8%, as you can see at the bottom of the chart in the right corner. So we are not really laggard at all in terms of market funding. Rating. There has been no change recently. I mean, this is obviously an interesting topic You've probably heard about the new government in Hungary and the plans, the economic policy plans of the new Hungarian government. They seem to be quite serious about targeting the preparation for Eurozone accession, and they want to meet the Maastricht accession criteria set in four years. And that obviously assumes a trajectory, a fiscal trajectory, which may open up the space for hopefully for rate improvements in the sovereign, which may hopefully reflect in our rating as well. But this... This is to be seen, right? So we will see how it goes and how it develops. And I'm going to talk a little bit about our expectations in terms of Hungarian micro later in the presentation. I mean, these are the next two slides are the ones we always include just here. reinforce our message that it's not only us who consider our performance to be reasonably good, but some other external objective views as well seem to confirm that, and it's researched, and the EBA assessed this result. And then sustainability and green landing, which is our phase 21, which is our strongest focus in terms of sustainability to contribute to most of our ability in terms of doing green landing and we achieved the the quite ambitious target as we said a couple of years ago at the end of last year and even compared to that there was an acceleration in the growth rate and just in one quarter we achieved 9% growth in green landing volumes. If it continues like this, then we will, I'm sure, surpass the 28 targets that we set and achieve them much earlier, which is a good news.

Now, macroeconomics.