OTP Group: full year 2023 results

OTP Group: full year 2023 results

The consolidated profit after tax of OTP Group rose to HUF 990.5 billion, an increase of almost 3 times y-o-y, as a result the annual ROE improved to 27.2% (+16.2 pps y-o-y).

The balance of adjustment items showed -HUF 18 billion against -HUF 245 billion a year ago. Those items which were a drag on 2022 earnings and were related to the Russian-Ukrainian war practically disappeared or dropped substantially, namely goodwill impairment and the impairment recognized on the Russian government bonds, furthermore the balance of special taxes in Hungary also dropped by around 1/3 y-o-y. At the same time the negative impact of the interest rate caps stayed in place: besides Hungary, Serbia also introduced such measure from 3Q 2023. The single most important positive item was the badwill impact booked in relation to the Slovenian and Uzbek acquisitions.

With the exception of Ipoteka Bank all Group members were profitable in 2023. Most of the subsidiaries demonstrated material profit improvement y-o-y, the Bulgarian operation’s adjusted earnings exceeded HUF 200 billion, while the pro forma Slovenian operation posted a profit after tax close to HUF 130 billion; the combined profit incorporated only 11 months net earnings contribution from NKBM. Ipoteka Bank, Uzbekistan posted HUF 22 billion negative results in 2H 2023 mainly due to the significant amount of credit risk costs.

The overall performance of OTP Group was shaped mainly by the y-o-y 45% increase in operating profit, but total risk costs also dropped by 78%.

y-o-y. Within the dynamic, y-o-y 34% increase of total income the net interest income surged by 33%, whereas net fees & commissions grew by lower pace, +20% y-o-y. Other non-interest income jumped by 73%. Adjusted for the two acquisitions in 2023, the FX-adjusted operating income grew by 37%, total income by 28%, NII by 25% and NF&C by 15%, respectively.

The consolidated annual NIM improved by 42 bps y-o-y reaching 3.93%.

The amount of the annual operating expenses increased by 22% y-o-y, the high, though declining inflation had its negative impact on all cost items.

The amount of consolidated total risk costs amounted to -HUF 38.5 billion, less than a quarter of the balance booked in 2022; without the impact of acquisitions the total risk cost showed a positive balance of HUF 20 billion. Within that, the provisions for impairment on loan losses amounted to -HUF 35 billion (2022: -HUF 135 billion). The annual risk cost rate moderated to 16 bps (-56 bps y-o-y), bulk of that was related to impairments in Uzbekistan.

In 4Q 2023 OTP Group posted HUF 132.6 billion consolidated profit after tax. The q-o-q 53% drop is mainly reasoned by the increased negative balance of adjustment items as a result of the sale of the Romanian subsidiary, as well as by lower operating income; besides, risk cost also jumped q-o-q, to a great extent due to the still meaningful provisioning in Uzbekistan.

The cumulated total income increased by 4% q-o-q on the Group level, within that the NII improved by 11%, whereas the net fee and commission income advanced by 6% q-o-q. The HUF 43 billion q-o-q surge in NII was mainly related to OTP Core (+HUF 31 billion) and to a smaller extent to Romania (+HUF 8 billion). Net fee and commission income was shaped by seasonality, within that the year-end success fee booked at OTP Fund Management was substantial. Other non-interest income decreased by 28% q-o-q with part of the decline was offset against NII.

The consolidated 4Q NIM improved by 31 bps q-o-q reaching 4.26%.

In 4Q 2023 adjustment items were a drag on the consolidated profit after tax by -HUF 97 billion (after tax). The major items were as follows:

• -HUF 80 billion effect of acquisitions (after tax), mainly related to the sale of the Romanian operation. Since the selling price was smaller than the net asset value of the to be sold subsidiaries recognized in the consolidated accounts, the transaction resulted in a negative P&L impact of HUF 59.5 billion (after tax) on consolidated level. Furthermore, mainly the Slovenian, Albanian and Uzbek integration costs appeared on this line. Also, -HUF 17.8 billion (after tax) was induced by the adjustment of badwill related to the acquisition of Ipoteka Bank; according to the accounting standards, the badwill can be adjusted within one year following the transaction;
• the interest rate cap effective in Hungary for certain outstanding floater-based SME and housing loans was extended until 1 April and 30 June 2024, respectively. As a result,
• -HUF 8.3 billion was booked as the expected impact;
• -HUF 3.4 billion tax shield effect of the reversal of previously booked investment impairment charges at certain Hungarian and foreign subsidiaries;
• -HUF 2.8 billion impairments on Russian government bonds held at DSK Bank (after tax).

In 4Q 2023 the consolidated adjusted profit after tax reached HUF 230 billion (-25% q-o-q), as a result OTP Group posted HUF 1,009 billion annual adjusted profit in (+70% y-o-y). The profit contribution of foreign subsidiaries comprised 64% of the adjusted consolidated profit after tax. In 4Q the adjusted ROE was 22.5%, whereas in 2023 it reached 27.7% (+9 pps y-o-y).

The quarterly results were shaped by the q-o-q moderately increasing total income, seasonally higher operating expenses and somewhat higher risk costs. Despite the q-o-q 15% lower profit before tax, in 4Q the corporate tax burden jumped as a result of the hike of corporate income tax rate in Ukraine from 18% to 50% for full-year 2023.

In 4Q the consolidated operating result declined by 6% q-o-q, since the increase of operating expenses significantly outpaced income dynamics.

Quarterly operating expenses increased by 20% q-o-q. Personnel expenses grew due to seasonality (bonus payments), but administrative expenses, such as IT and marketing expenses as well as expert fees advanced, too. The consolidated 4Q cost-to-income ratio jumped to 45.3% (+6.1 pps q-o-q).

The quality of the consolidated credit portfolio remained stable with the major credit quality indicators shaping favourably. The Stage 3 ratio under IFRS 9 comprised 4.3% of the gross loans at the end of 4Q 2023, underpinning a 0.6 pp y-o-y decrease; q-o-q the ratio remained stable. The Stage 3 ratio practically improved q-o-q at all Group members, however it grew to 11.9% at Ipoteka Bank. At the same time, in both the Ukrainian and Russian Stage 3 rates improved q-o-q. The own coverage ratio of Stage 3 exposures was close to 61% at the end of 2023.

The 4Q amount of consolidated total risk costs comprised -HUF 38.5 billion versus -HUF 3.2 billion in 3Q. Within that, the provisions for impairment on loan losses amounted to -HUF 29.4 billion, as a result the annual balance was -HUF 35 billion (2022: -HUF 135 billion).

During 4Q all group members, but Merkantil Group and Ipoteka Bank were profitable. Out of the individual performances the Hungarian Fund Management excelled itself with doubling earnings as a result of booking significant success fees at the end of the year.

The FX-adjusted consolidated performing (Stage 1+2) loan volumes increased by HUF 294 billion or 1% q-o-q and got close to HUF 21,500 billion. In 2023 the loan portfolio grew by 6% y-o-y organically (FX-adjusted).

As for individual Group members, the Russian, Bulgarian and Croatian operations demonstrated the largest FX-adjusted volume expansion with 26%, 20% and 8% y-o-y growth. The biggest drop was suffered by the Ukrainian subsidiary (-22% y-o-y). In 4Q also the Russian and Bulgarian subsidiaries enjoying the fastest expansion (+ 9% and 4% q-o-q), along with Montenegro (+3% q-o-q). As for OTP Core, despite the declining annual GDP, loan volumes increased by 3% y-o-y (+1% q-o-q).

As for the major segments, in 4Q the FX-adjusted performing consumer book grew by 5% q-o-q, while the mortgage portfolio by 3%, respectively. The q-o-q stagnation in the corporate loan book was explained by the portfolio migration into Stage 3 category at Ipoteka Bank; SME volumes eroded by 7% q-o-q.

FX-adjusted deposits on a consolidated level grew by 3% q-o-q and got close to HUF 29,500 billion. In 4Q the retail deposits increased by 3% q-o-q, the corporate by 4% and the SME by 5%, respectively. In 4Q the Uzbek and Russian deposit volumes grew the fastest q-o-q (+16% each), followed by the Romanian volumes (+11%). In 4Q overall deposit volumes stagnated at OTP Core, although household deposits grew by 2%.

The consolidated net loan/(deposit + retail bond) ratio moderated to 72% (-1 pp q-o-q).

At the end of 2023, the consolidated CET1 ratio under the prudential scope of consolidation according to IFRS was 16.6% (+0.2 pp q-o-q). This equals to the Tier 1 ratio. Consolidated CAR increased to 18.9%.

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