OTP BANK PLC.
SEPARATE FINANCIAL STATEMENTS
IN ACCORDANCE WITH
INTERNATIONAL FINANCIAL REPORTING STANDARDS
AS ADOPTED BY THE EUROPEAN UNION
FOR THE YEAR ENDED
31 DECEMBER 2022
[IMAGE]
2
OTP BANK PLC.
CONTENTS
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4
5
OTP BANK PLC.
SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022
(in HUF mn)
Note
2022
2021
Cash, amounts due from banks and balances with the National Bank of Hungary
5.
1,092,198
474,945
Placements with other banks
6.
2,899,829
2,567,212
Repo receivables
7.
246,529
33,638
Financial assets at fair value through profit or loss
8.
410,012
246,462
Financial assets at fair value through other comprehensive income
9.
797,175
641,939
Securities at amortised cost
10.
3,282,373
3,071,038
Loans at amortised cost
11.
4,825,040
4,032,465
Loans mandatorily measured at fair value through profit or loss
11.
793,242
662,012
Investments in subsidiaries
12.
1,596,717
1,573,008
Property and equipment
13.
94,564
81,817
Intangible assets
13.
69,480
62,161
Right of use assets
39,882
17,231
Investment properties
14.
4,207
4,328
Deferred tax assets
34.
35,742
-
Current tax assets
34.
1,569
-
Derivative financial assets designated as hedge accounting relationships
15.
47,220
17,727
Other assets
16.
329,752
224,488
TOTAL ASSETS
16,565,531
13,710,471
Amounts due to banks and deposits from the National Bank of Hungary and other banks
17.
1,736,128
1,051,203
Repo liabilities
18.
408,366
86,580
Deposits from customers
19.
11,119,158
9,948,532
Leasing liabilities
41,464
17,932
Liabilities from issued securities
20.
498,709
22,153
Financial liabilities designated at fair value through profit or loss
21.
16,576
20,133
Derivative financial liabilities designated as held for trading
22.
373,401
192,261
Derivative financial liabilities designated as hedge accounting relationships
23.
50,623
18,690
Deferred tax liabilities
34.
-
1,507
Current tax liabilities
34.
3,199
4,776
Provisions
24.
29,656
21,527
Other liabilities
24.
313,188
238,437
Subordinated bonds and loans
25.
294,186
271,776
TOTAL LIABILITIES
14,884,654
11,895,507
Share capital
26.
28,000
28,000
Retained earnings and reserves
27.
1,655,601
1,845,836
Treasury shares
28.
(2,724)
(58,872)
TOTAL SHAREHOLDERS' EQUITY
1,680,877
1,814,964
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
16,565,531
13,710,471
Budapest, 31 March 2023
Dr. Sándor Csányi László Wolf
Chairman and Chief Executive Officer Deputy Chief Executive Officer
6
OTP BANK PLC.
SEPARATE STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2022
(in HUF mn)
Note
Year ended 31 December 2022
Year ended 31 December 2021
Interest Income:
Interest income calculated using the effective interest method
29.
721,679
302,373
Income similar to interest income
29.
377,231
105,663
Interest income and similar to interest income total
1,098,910
408,036
Interest Expense:
Interest expenses total
29.
(802,020)
(155,491)
NET INTEREST INCOME
296,890
252,545
Loss allowance on loan, placement and repo receivables losses
6., 7., 11., 30.
(47,687)
(38,841)
Loss allowance on securities at fair value through other comprehensive income and on securities at amortised cost
9., 10., 30.
(53,238)
(1,484)
Provision for loan commitments and financial guarantees given
24., 30.
(5,541)
(130)
Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss
45.4.
11,872
(16,255)
Risk cost total
(94,594)
(56,710)
NET INTEREST INCOME AFTER RISK COST
202,296
195,835
LOSSES ARISING FROM DERECOGNITION OF FINANCIAL ASSETS MEASURED AT AMORTISED COST
(56,195)
(2,700)
MODIFICATION LOSS
4.
(14,856)
(7,017)
Income from fees and commissions
31.
362,444
300,803
Expenses from fees and commissions
31.
(66,087)
(52,276)
NET PROFIT FROM FEES AND COMMISSIONS
296,357
248,527
Foreign exchange gains and (losses)
32.
541
(5,638)
(Losses) and gains on securities, net
32.
(10,605)
2,104
Losses on financial instruments at fair value through profit or loss
32.
(18,790)
(6,494)
Net results on derivative instruments and hedge relationships
32.
9,917
3,436
Dividend income
32.
194,526
99,037
Other operating income
33.
13,775
11,265
Other operating expenses
33.
(131,942)
(41,636)
NET OPERATING INCOME
57,422
62,074
Personnel expenses
33.
(154,303)
(136,126)
Depreciation and amortization
33.
(46,738)
(40,692)
Other administrative expenses
33.
(290,989)
(178,611)
OTHER ADMINISTRATIVE EXPENSES
(492,030)
(355,429)
PROFIT BEFORE INCOME TAX
(7,006)
141,290
Income tax
34.
13,638
(15,951)
PROFIT AFTER INCOME TAX
6,632
125,339
Earnings per share (in HUF)
Basic
43.
24
455
Diluted
43.
24
455
7
OTP BANK PLC.
SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 (in HUF mn)
Note
Year ended 31 December 2022
Year ended 31 December 2021
PROFIT AFTER INCOME TAX
6,632
125,339
Items that may be reclassified subsequently to profit or loss:
Fair value adjustment of debt instruments at fair value through other comprehensive income
(55,804)
(37,163)
Deferred tax (9%) related to fair value adjustment of debt instruments at fair value through other comprehensive income
34.
5,186
3,410
Gains / (Losses) on separated currency spread of financial instruments designated as hedging instrument
(4,887)
1,681
Deferred tax (9%) related to (losses) / gains on separated currency spread of financial instruments designated as hedging instrument
34.
440
(151)
(Losses) / Gains on derivative financial instruments designated as cash flow hedge
(5,641)
(6,307)
Items that will not be reclassified to profit or loss:
Gains on equity instruments at fair value through other comprehensive income
2,675
-
Fair value adjustment of equity instruments at fair value through other comprehensive income
61
1,407
Deferred tax (9%) related to equity instruments at fair value through other comprehensive income
34.
(41)
(281)
Total
(58,011)
(37,404)
TOTAL COMPREHENSIVE INCOME
(51,379)
87,935
8
OTP BANK PLC.
SEPARATE STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022 (in HUF mn)
Note
Share Capital
Capital reserve
Retained earnings and other reserves
Treasury Shares
Total
Balance as at 1 January 2021
28,000
52
1,697,081
(46,799)
1,678,334
Net profit for the period
-
-
125,339
-
125,339
Other comprehensive income
-
-
(37,404)
-
(37,404)
Total comprehensive income
-
-
87,935
-
87,935
Share-based payment
39.
-
-
3,589
-
3,589
Payments to ICES holders
-
-
(3,734)
-
(3,734)
Increase due to termination of ICES bonds
-
-
75,422
-
75,422
Sale of treasury shares
28.
-
-
-
264,360
264,360
Acquisition of treasury shares
28.
-
-
-
(276,433)
(276,433)
Loss on treasury shares
28.
-
-
(15,543)
-
(15,543)
Other transaction with owners
-
-
59,734
(12,073)
47,661
Balance as at 1 January 2022
28,000
52
1,845,784
(58,872)
1,814,964
Net profit for the period
-
-
6,632
-
6,632
Other movement
-
-
2
-
2
Other comprehensive income
-
-
(58,011)
-
(58,011)
Total comprehensive income
-
-
(51,377)
-
(51,377)
Share-based payment
39.
-
-
2,948
-
2,948
Sale of treasury shares
28.
-
-
-
72,416
72,416
Acquisition of treasury shares
28.
-
-
-
(16,268)
(16,268)
Loss on sale of treasury shares
-
-
(21,558)
-
(21,558)
Dividend for the year 2021
-
-
(120,248)
-
(120,248)
Other transaction with owners
-
-
(138,858)
56,148
(82,710)
Balance as at 31 December 2022
28,000
52
1,655,549
(2,724)
1,680,877
9
OTP BANK PLC.
SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022
(in HUF mn)
Note
2022
2021
OPERATING ACTIVITIES
Profit before income tax
(7,006)
141,290
Net accrued interest
(11,196)
(2,205)
Depreciation and amortization
13.
46,873
40,784
Loss allowance on loans and placements
30.
63,939
38,841
Loss allowance on securities at fair value through other comprehensive income
9.
25,615
(551)
Impairment loss / (Reversal of impairment loss) on investments in subsidiaries
12.
93,513
27,420
Loss allowance on securities at amortised cost
10.
27,623
2,035
Loss allowance / (Release of loss allowance) on other assets
16.
2,939
(961)
Provision on off-balance sheet commitments and contingent liabilities
24.
7,598
1,473
Share-based payment
39.
2,948
3,589
Unrealised losses on fair value adjustment of financial instruments at fair value through profit or loss
45.
11,870
23,051
Unrealised losses / (gains) on fair value adjustment of derivative financial instruments
45.
52,840
30,962
Gains on securities
32.
62,354
6,212
Interest expense from leasing liabilities
35.
(1,186)
(214)
Foreign exchange loss
32.
9,359
35,136
Proceeds from sale of tangible and intangible assets
33.
(267)
82
Net changing in assets and liabilities in operating activities
Net increase in placements with other banks and repo receivables before allowance for placement losses
6., 7.
(521,731)
(879,438)
Changes in held for trading securities
8.
(44,181)
(24,178)
Change in financial instruments mandatorily measured at fair value through profit or loss
8.
1,925
6,687
Changes in derivative financial instruments at fair value through profit or loss
8.
136
(1,303)
Net increase in loans
11.
(817,297)
(835,520)
Increase in other assets, excluding advances for investments and before provisions for losses
16.
(99,813)
(49,201)
Net increase in amounts due to banks and deposits from the National Bank of Hungary and other banks and repo liabilities
17., 18.
910,984
224,661
Financial liabilities designated as fair value through profit or loss
21.
(1,625)
(1,853)
Net increase in deposits from customers
19.
971,640
1,989,941
Increase in other liabilities
24.
77,424
114,259
Net increase in the compulsory reserve established by the National Bank of Hungary
5.
(641,125)
(23,270)
Dividend income
12.
(194,526)
(99,037)
Income tax paid
(19,953)
(15,259)
Net cash provided by operating activities
9,674
753,433
10
OTP BANK PLC.
SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
31 DECEMBER 2022
(in HUF mn) [continued]
Note
2022
2021
INVESTING ACTIVITIES
Purchase securities at fair value through other comprehensive income
9.
(1,322,153)
(850,030)
Proceeds from sale of securities at fair value through other comprehensive income
9.
1,074,212
1,081,372
Change in derivative financial instruments designated as hedge accounting
13,805
1,341
Increase in investments in subsidiaries
12.
(117,222)
(51,456)
Decrease in investments in subsidiaries
12.
-
-
Dividend income
194,449
98,091
Increase in securities at amortised cost
10.
(624,476)
(1,253,830)
Redemption of securities at amortised cost
10.
415,975
214,963
Additions to property, equipment and intangible assets
13.
(60,575)
(46,081)
Disposal of property, equipment and intangible assets
13.
648
529
Net (increase) / decrease in investment properties
14.
(14)
(2,484)
Net cash used in investing activities
(425,351)
(807,585)
FINANCING ACTIVITIES
Leasing payments
(6,189)
(5,136)
Cash received from issuance of securities
20.
575,994
5,897
Cash used for redemption of issued securities
20.
(91,635)
(9,051)
Cash received from issuance of subordinated bonds and loans
25.
6,781
1,874
Cash used for redemption of subordinated bonds and loans
25.
(7,523)
(35,518)
Payments to ICES holders
27.
-
(3,735)
Increase of Treasury shares
28.
(16,268)
(276,433)
Decrease of Treasury shares
28.
50,858
248,819
Dividends paid
27.
(120,213)
(10)
Net cash provided by financing activities
391,805
(73,293)
Net decrease in cash and cash equivalents
(23,872)
(127,445)
Cash and cash equivalents at the beginning of the year
375,642
503,087
Cash and cash equivalents at the end of the year
351,770
375,642
Interest received
941,406
345,504
Interest paid
511,635
98,395
OTP Bank Plc Separate Financial Statements 2022
11
NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
1.1. General information
OTP Bank Plc. ("Bank" or "OTP Bank") was established on 31 December 1990, when the previously State-owned company was transformed into a limited liability company.
The Bank’s registered office address is 16, Nádor Street, Budapest 1051. Internet homepage:
http://www.otpbank.hu/
Signatory of the separate financial statements is the Chief Executive Officer, dr. Sándor Csányi and Deputy Chief Executive Officer, László Wolf.
The Bank’s owners have the power to amend the separate financial statements after issue if applicable.
These financial statements are authorised for issue on 31 March 2023 by the Board of Directors.
Responsible person for the control and management of accounting services: Zoltán Tuboly (Budapest), Managing Director of Accounting and Financial Directorate, Registration Number: 177289, IFRS qualified chartered accountant.
Due to Hungarian legislation audit services are statutory for OTP Bank. Disclosure information about the auditor: Ernst & Young Audit Ltd. (001165), 1132 Budapest Váci Street 20. Registered under 01-09-267553 by Budapest- Capital Regional Court, as registry court. Statutory registered auditor: Zsuzsanna Nagyváradiné Szépfalvi, registration number: 005313.
Audit service fee agreed by the Annual General Meeting of the Bank for the year ended 2022 is an amount of HUF 165 million + VAT.
All other fees charged by the Auditor for non-audit services during the financial year are disclosed in the consolidated financial statements of the Bank.
In 1995, the shares of the Bank were introduced on the Budapest and the Luxembourg Stock Exchanges and were also traded on the SEAQ board on the London Stock Exchange and PORTAL in the USA.
The structure of the Share capital by shareholders (%):
2022
2021
Domestic and foreign private and institutional investors
99%
98%
Employees
1%
1%
Treasury shares
-
1%
Total
100%
100%
The Bank’s Registered Capital consists of 280.000.010 pieces of ordinary shares with the nominal value of HUF 100 each, representing the same rights to the shareholders.
The Bank provides a full range of commercial banking services through a nationwide network of 352 branches in Hungary.
2022
2021
Number of employees
10,317
10,078
Average number of employees
10,516
9,934
1.2. Basis of accounting
These Separate Financial Statements were prepared based on the assumption of the Management that the Bank will remain in business for the foreseeable future. The Bank will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.
The Bank maintains its accounting records and prepares their statutory accounts in accordance with the commercial, banking and fiscal regulations prevailing in Hungary.
The presentation and functional currency of the Bank is the Hungarian Forint ("HUF").
The separate financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”).
OTP Bank Plc Separate Financial Statements 2022
12
NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS [continued]
1.2.1. The effect of adopting new and revised IFRS standards effective from 1 January 2022
The following amendments to the existing standards and new interpretation issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period:
Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards”, IFRS 9 “Financial Instruments”, IAS 41 “Agriculture” “Annual Improvements to IFRSs 2018-2020 Cycle” - adopted by EU on 28 June 2021 (effective for annual periods beginning on or after 1 January 2022),
o IFRS 1 First-time Adoption of International Financial Reporting Standards Subsidiary as a first- time adopter The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported in the parent’s consolidated financial statements, based on the parent’s date of transition to IFRS, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. These amendments had no impact on the consolidated financial statements of the Group as it is not a first-time adopter.
o IFRS 9 Financial Instruments Fees in the ’10 per cent’ test for derecognition of financial liabilities The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received betwee n the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. There is no similar amendment proposed for IAS 39 Financial Instruments: Recognition and Measurement. In accordance with the transitional provisions, the Group applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment (the date of initial application). These amendments had no impact on the consolidated financial statements of the Group as there were no fees charged or incurred related to modifications during the period.
o IAS 41 Agriculture Taxation in fair value measurements The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41. These amendments had limited impact on the consolidated financial statements of the Group as it have limited assets in scope of IAS 41 as at the reporti ng date.
Amendments to IFRS 3 “Business Combinations”; IAS 16 “Property, Plant and Equipment”; IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” adopted by the EU on 28 June 2021 Annual Improvements (effective for annual periods beginning on or after 1 January 2022).
o IFRS 3 Business Combinations (Amendments) update a reference in IFRS 3 to the previous version of the IASB’s Conceptual Framework for Financial Reporting to the current version issued in 2018 without significantly changing the accounting requirements for business combinations.
o IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from the cost of property, plant and equipment any proceeds from the sale of items produced while bringing the asset to the location and condition necessary for it be capable of operating in the manner intended by management. Instead, a company recognizes such sales proceeds and related cost in profit or loss.
o IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a company includes in determining the cost of fulfilling a contract for the purpose of assessing whether a contract is onerous. The amendments clarify, the costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to the contract activities.
The adoption of these amendments to the existing standards has not led to any material changes in these Separate Financial Statements.
OTP Bank Plc Separate Financial Statements 2022
13
NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS [continued]
1.2.2. New and revised Standards and Interpretations issued by IASB and adopted by the EU but not yet effective
Amendments to IAS 1 “Presentation of Financial Statements” and IFRS Practice Statement 2 - Disclosure of Accounting policies adopted by the EU on 2 March 2022 (effective for annual periods beginning on or after 1 January 2023 with earlier application permitted )
o The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures.
Amendments to IAS 8 “Accounting policies, Changes in Accounting Estimates and Errors” Definition of Accounting Estimates adopted in the EU on 2 March 2022 (effective for annual periods beginning on or after 1 January 2023 with earlier application permitted and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period )
o The amendments introduce a new definition of accounting estimates, defined as monetary amounts in financial statements that are subject to measurement uncertainty, if they do not result from a correction of prior period error. Also, the amendments clarify what changes in accounting estimates are and how these differ from changes in accounting policies and corrections of errors.
Amendments to IFRS 17 “Insurance Contracts” adopted by the EU on 19 November 2021 (effective for annual periods beginning on or after 1 January 2023) IFRS 17 is not relevant in case of these Separate Financial Statements
Amendments to IFRS 17 “Insurance Contracts” Initial application of IFRS 17 and IFRS 9 Comparative Information adopted by the EU on 8 September 2022 (effective date for annual periods beginning on or after 1 January 2023 with earlier application permitted, provided the entity also applies IFRS 9 Financial Instruments on or before the date it first applies IFRS 17 ) IFRS 17 is not relevant in case of these Separate Financial Statements.
Amendments to IAS 12 “Income Taxes” Deferred Tax r el ated to Asse t s and Liab ilitie s
arising f rom a Sing le
Transac t ion adopted by the EU on 11 August 2022 (effective for annual periods beginning on or after 1 January 2023; earlier applicaton permitted)
o The amendments narrow the scope of and provide further clarity on the initial recognition exception under IAS 12 and specify how companies should account for deferred tax related to assets and liabilities arising from a single transaction, such as leases and decommissioning obligations. The amendments clarify that where payments that settle a liability are deductible for tax purposes, it is a matter of judgement, having considered the applicable tax law, whether such deductions are attributable for tax purposes to the liability or to the related asset component. Under the amendments, the initial recognition exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. It only applies if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal.
OTP Bank Plc Separate Financial Statements 2022
14
NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS [continued]
1.2.3. Standards and Interpretations issued by IASB but not yet adopted by the EU
At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the IASB except for the following new standards, amendments to the existing standards and new interpretation, which were not endorsed for use in EU as at date of publication of these financial statements:
Amendments to IAS 1 “Presentation of Financial Statements” - Classification of Liabilities as Current or Non-Current (effective for annual periods beginning on or after 1 January 2024; earlier applicaton permitted)
o The objective of the amendments is to clarify the principles in IAS 1 for the classification of liabilities as either current or non-current. The amendments clarify the meaning of a right to defer settlement, the requirement for this right to exist at the end of the reporting period, that management intent does not affect current or non-current classification, that options by the counterparty that could result in settlement by the transfer of the entity’s own equity instruments do not affect current or non-current classification. Also, the amendments specify that only covenants with which an entity must comply on or before the reporting date will affect a liability’s classification. Additional disclosures are also required for non-current liabilities arising from loan arrangements that are subject to covenants to be complied with within twelve months after the reporting period.
Amendments to IFRS 16 “Leases” Lease Liability in a Sale and Leaseback issued by IASB on 22 September 2022 (effective for annual periods beginning on or after 1 January 2024 with earlier application permitted )
o The amendments are intended to improve the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction in IFRS 16, while it does not change the accounting for leases unrelated to sale and leaseback transactions. In particular, the seller-lessee determines ‘lease payments’ or ‘revised lease payments’ in such a way that the seller-lessee would not recognise any amount of the gain or loss that relates to the right of use it retains. Applying these requirements does not prevent the seller-lessee from recognising, in profit or loss, any gain or loss relating to the partial or full termination of a lease. A seller-lessee applies the amendment retrospectively in accordance with IAS 8 to sale and leaseback transactions entered into after the date of initial application, being the beginning of the annual reporting period in which an entity first applied IFRS 16.
Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred indefinitely until the research project on the equity method has been concluded).
o The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting.
The Bank anticipates that the adoption of these new standards, amendments to the existing standards and new interpretations will have no material impact on the financial statements of the Bank in the period of initial application.
OTP Bank Plc Separate Financial Statements 2022
15
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies applied in the preparation of the accompanying separate financial statements are summarized below:
2.1. Basis of presentation
These separate financial statements have been prepared under the historical cost convention with the exception of certain financial instruments, which are recorded at fair value. Revenues and expenses are recorded in the period in which they are earned or incurred. The Bank does not offset assets and liabilities or income and expenses unless it is required or permitted by an IFRS standard.
During the preparation of separate financial statements assets and liabilities, income and expenses are presented separately, except in certain cases, when one of the IFRS standards prescribes net presenting related to certain items. (See below 2.8.)
The presentation of separate financial statements in conformity with IFRS requires the Management of the Bank to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Future changes in economic conditions, business strategies, regulatory requirements, accounting rules and other factors could result in a change in estimates that could have a material impact on future separate financial statements.
2.2. Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into HUF that is the presentation currency, at exchange rates quoted by the National Bank of Hungary ("NBH") as at the date of the separate financial statements. Income and expenses arising in foreign currencies are converted at the rate of exchange on the transaction date. Resulting foreign exchange gains or losses are recorded to the separate statement of profit or loss.
2.3. Consolidated financial statements
These financial statements present the separate financial position and results of operations of the Bank. Consolidated financial statements are prepared by the Bank and consolidated net profit for the year and shareholders’ equity differs significantly from that presented in these separate financial statements. See Note 2.4 for the description of the method of accounting for investments in subsidiaries and associated companies in these separate financial statements. The consolidated financial statements and the separate financial statements will be published on the same date.
2.4. Investments in subsidiaries, associated companies and other investments
Investments in subsidiaries comprise those investments where OTP Bank, through direct and indirect ownership interest, controls the investee. Control is achieved when the Bank has power over the investee, is exposed or has rights, to variable returns from its involvement with the investee and has the ability to use its power to affect its returns.
Investments in subsidiaries are recorded at the cost of acquisition, less impairment for permanent diminution in value, when appropriate. After initial measurement investments in subsidiaries are measured at cost, in the case of foreign currency denominated investments for the measurement the Bank uses the exchange rate at the date of transaction.
Impairment is determined based on the future economic benefits of the subsidiary and macroeconomic factors.
OTP Bank calculates the fair value based on discounted cash flow model. The 3 year period explicit cash flow model serves as a basis for the impairment test by which the Bank defines the impairment need on investment in subsidiaries based on the strategic factors and financial data of its cash-generating units.
OTP Bank in its strategic plan has taken into consideration the cautious recovery of global economic situation and outlook, the associated risks and their possible effect on the financial sector as well as the current and expected availability of wholesale funding.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.5. Securities at amortised cost
The Bank measures at amortized cost those securities which are held for contractual cash collecting purposes, and contractual terms of these securities give rise to cash flows that are solely payment of principal and interest on the principal amount outstanding. The Bank initially recognises these securities at fair value. Securities at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. The amortisation of any discount or premium on the acquisition of a security at amortized cost is part of the amortized cost and is recognised as interest income so that the revenue recognized in each period represents a constant yield on the investment. Securities at amortized cost are accounted for on a trade date basis. Such securities comprise mainly securities issued by the Hungarian Government bonds and corporate bonds.
2.6. Financial assets at fair value through profit or loss
2.6.1. Securities held for trading
Investments in securities are accounted for on a trade date basis and are initially measured at fair value. Securities held for trading are measured at subsequent reporting dates at fair value. Unrealised gains and losses on held for trading securities are recognized in profit or loss and are included in the separate statement of profit or loss for the period. The Bank holds held for trading securities within the business model to obtain short-term gains, consequently realised and unrealised gains and losses are recognized in the net operating income, while interest income is recognised in income similar to interest income. The Bank applies FIFO 1 inventory valuation method for securities held for trading. Such securities consist of discounted and interest bearing Treasury bills, Hungarian Government bonds, mortgage bonds, shares in non-financial commercial companies, shares in investment funds, shares in venture capital funds and shares in financial institutions.
2.6.2. Derivative financial instruments
In the normal course of business, the Bank is a party to contracts for derivative financial instruments, which represent a low initial investment compared to the notional value of the contract and their value depends on value of underlying asset and are settled in the future. The derivative financial instruments used include interest rate forward or swap agreements and currency forward or swap agreements and options. These financial instruments are used by the Bank both for trading purposes and to hedge interest rate risk and currency exposures associated with its transactions in the financial markets. (It is the so-called economic hedge, accounting hedge is described later.)
Derivative financial instruments are accounted for on a trade date basis and are initially measured at fair value and at subsequent reporting dates also at fair value. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. OTP Bank adopts multi curve valuation approach for calculating the net present value of future cash flows based on different curves used for determining forward rates and used for discounting purposes. It shows the best estimation of such derivative deals that are collateralised as OTP Bank has almost its entire open derivative transactions collateralised. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in profit or loss and are included in the separate statement of profit or loss for the period. Each derivative deal is determined as asset when fair value is positive and as liability when fair value is negative.
Certain derivative transactions, while providing effective economic hedges under risk management positions of the Bank, do not qualify for hedge accounting under the specific rules of IFRS 9 and are therefore treated as derivatives held for trading with fair value gains and losses charged directly to the separate statement of profit or loss.
Foreign currency contracts
Foreign currency contracts are agreements to exchange specific amounts of currencies at a specified rate of exchange, at a spot date (settlement occurs two days after the trade date) or at a forward date (settlement occurs more than two days after the trade date). The notional amount of forward contracts does not represent the actual market or credit risk associated with these contracts.
Foreign currency contracts are used by the Bank for risk management and trading purposes. The Bank’s risk management foreign currency contracts were used to hedge the exchange rate fluctuations of loans and deposits denominated in foreign currency.
1 First In First Out
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.6.2 Derivative financial instruments [continued]
Foreign exchange swaps and interest rate swaps
The Bank enters into foreign-exchange swap and interest rate swap (“IRS”) transactions. The swap transaction is a complex agreement concerning the swap of certain financial instruments, which usually consists of a spot and one or more forward contracts.
Interest rate swaps obligate two parties to exchange one or more payments calculated with reference to fixed or periodically reset rates of interest applied to a specific notional principal amount (the base of the interest calculation). Notional principal is the amount upon which interest rates are applied to determine the payment streams under interest rate swaps.
Such notional principal amounts are often used to express the volume of these transactions but are not actually exchanged between the counterparties. The Bank’s interest rate swap contracts can be hedging or held for trading contracts.
Cross-currency interest rate swaps
The Bank enters into cross-currency interest rate swap (“CCIRS”) transactions which have special attributes, i.e. the parties exchange the notional amount at the beginning and also at the maturity of the transaction. A special type of these deals is the mark-to-market CCIRS agreements. At this kind of deals the parties in accordance with the foreign exchange prices – revalue the notional amount during lifetime of the transaction.
Equity and commodity swaps
Equity swaps obligate two parties to exchange more payments calculated with reference periodically reset rates of interest and performance of indices. A specific notional principal amount is the base of the interest calculation. The payment of index return is calculated on the basis of current market price compared to the previous market price. In case of commodity swaps payments are calculated on the basis of the strike price of a predefined commodity compared to its average market price in a period.
Forward rate agreements (“FRA”)
A forward rate agreement is an agreement to settle amounts at a specified future date based on the difference between an interest rate index and an agreed upon fixed rate. Market risk arises from changes in the market value of contractual positions caused by movements in interest rates.
The Bank limits its exposure to market risk by entering into generally matching or offsetting positions and by establishing and monitoring limits on unmatched positions. Credit risk is managed through approval procedures that establish specific limits for individual counter-parties. The Bank’s forward rate agreements were transacted for management of interest rate exposures.
Foreign exchange options
A foreign exchange option is a
derivative
financial instrument that gives the owner the right to exchange money denominated in one
currency
into another currency at a pre-agreed
exchange rate
at a specified future date. The transaction, for a fee, guarantees a worst-case exchange rate for the futures purchase of one currency for another. These options protect against unfavourable currency movements while preserving the ability to participate in favourable movements.
2.7. Hedge accounting
In the case of a financial instrument measured at amortised cost the Bank recognises the hedging gain or loss on the hedged item as the modification of its carrying amount and it is recognised in profit or loss. These adjustmets of the carrying amount are amortised to the profit or loss using the effective interest rate method. The Bank starts the amortisation when the hedged item is no longer adjusted by the hedging gains or losses. If the hedged item is derecognised, the Bank recognises the unamortised fair value in profit or loss immediately.
Derivative financial instruments designated as fair value
Changes in the fair value of derivatives that are designated and qualify as hedging instruments fair value hedges and that prove to be highly effective in relation to the hedged risk, are recorded in the separate statement of profit or loss along with the corresponding change in fair value of the hedged asset or liability that is attributable to the specific hedged risk. Changes in the fair value of the hedging instrument in fair value hedges are charged directly to the separate statement of profit or loss. The conditions of hedge accounting applied by the Bank are the following: formally designated as hedging relationship, proper hedge documentation is prepared, effectiveness test is performed and based on it the hedge is qualified as effective.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.7. Hedge accounting [continued]
Derivative financial instruments designated as fair value [continued]
For the fair value hedges inefficiencies and the net revaluation of hedged and hedging item are recognised in the Net result on derivative instruments and hedge relationships.
Derivative financial instruments designated as cash flow hedge
Changes in fair value of derivatives that are designated and qualify as hedging instrument in cash flow hedges and that prove to be highly effective in relation to hedged risk are recognized as reserve in other comprehensive income. Amounts deferred in other comprehensive income are transferred to the separate statement of profit or loss and classified as revenue or expense in the periods during which the hedged assets and liabilities effect the separate statement of recognized and comprehensive income for the period. The ineffective element of the hedge is charged directly to the separate statement of profit or loss. The Bank terminates the hedge accounting if the hedging instrument expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for hedge accounting. In case of cash flow hedges - in line with the standard hedge accounting is still applied as long as the underlying asset is derecognised or terminated.
When the Bank discontinues hedge accounting to a cash-flow hedge the amount in the cash flow hedge reserve is reclassified to the profit or loss if the hedged future cash flows are no longer expected to occur. If the hedged future cash flows are still expected to occur, the amount remains in the cashflow hedge reserve and reclassified to the profit and loss only when the future cash flows occur.
2.7. Offsetting
Financial assets and liabilities may be offset and the net amount is reported in the statement of financial position when the Bank has a legally enforceable right to set off the recognised amounts and the transactions are intended to be reported in the statement of financial position on a net basis. In the case of the derivative financial instruments the Bank applies offsetting and net presentation in the Statement of Financial Position when the Bank has the right and the ability to settle the assets and liabilities on a net basis.
2.8. Embedded derivatives
Sometimes, a derivative may be a component of a combined or hybrid contract that includes a host contract and a derivative (the embedded derivative) affecting cash flows or otherwise modifying the characteristics of the host instrument. An embedded derivative must be separated from the host instrument and accounted for as a separate derivative if, and only if:
- The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract;
- A separate financial instrument with the same terms as the embedded derivative would meet the definition of a derivative as a stand-alone instrument; and
- The host instrument is not measured at fair or is measured at fair value but changes in fair value are recognised in other comprehensive income.
As long as a hybrid contract contains a host that is a financial asset the general accounting rules for classification, recognition and measurement of financial assets are applicable for the whole contract and no embedded derivative is separated.
Derivatives that are required to be separated are measured at fair value at initial recognition and subsequently. If the Bank is unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent financial reporting period, the Group shall designate the entire hybrid contract as at fair value through profit or loss. The Bank shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the Bank first becomes a party to the contract.
The separation rules for embedded derivatives are only relevant for financial liabilities.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.9. Securities at fair value through other comprehensive income (“FVOCI securities”)
FVOCI securities are held within a business model whose objective is achieved by both collecting of contractual cash flows and selling securities. Furthermore contractual terms of FVOCI securities give rise on specified dates to cash flows that are solely payment of principal and interest on the principal amount outstanding.
Debt instruments
Investments in debt securities are accounted for on a trade date basis and are initially measured at fair value. Securities at fair value through other comprehensive income are measured at subsequent reporting dates at fair value. Unrealised gains and losses on FVOCI financial instruments are recognized in other comprehensive income, except for interest and foreign exchange gains/losses on monetary items, unless such FVOCI security is part of an effective hedge. Such gains and losses will be reported when realised in profit or loss for the applicable period. The Bank applies FIFO 2 inventory valuation method for FVOCI securities.
For debt securities at fair value through other comprehensive income the loss allowance is calculated based on expected credit loss model. The expected credit loss is accounted for against Other Comprehensive Income.
FVOCI securities are remeasured at fair value based on quoted prices or values derived from cash flow models. In circumstances where the quoted market prices are not readily available, the fair value of debt securities is estimated using the present value of the future cash flows and the fair value of any unquoted equity instruments are calculated using the EPS ratio.
Fair value through other comprehensive income option for equity instruments
In some cases the Bank made an irrevocable election at initial recognition for certain non-trading investments in an equity instrument to present subsequent changes in fair value of these securities in other comprehensive income instead of in profit or loss.
The use of the fair value option is based only on direct decision of management of the Bank.
2.10. Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses
The Bank measures Loans, placements with other banks and repo receivables at amortised cost, which are held to collect contractual cash flows, and contractual terms of these assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Bank recognises loans, which are not held for trading and do not give rise contractual cash flows that are solely payments of principal and interest on the principal amount outstanding as loans measured at fair value through profit or loss (“FVTPL loans”).
Loans, placements with other banks and repo receivables are accounted at amortised cost, stated at the principal amounts outstanding including accrued interest, net of allowance for loan or placement losses, respectively.
In case of the above mentioned financial assets measured at amortised cost transaction fees and charges adjust the carrying amount at initial recognition and are included in effective interest calculation. In case of FVTPL loans fees and charges are recognised when incurred in the separate statement of profit or loss.
Loans, placements with other banks and repo receivables loans are derecognised when the contractual rights to the cash flows expire or they are transferred. When a financial asset is derecognised the difference of the carrying amount and the consideration received is recognised in the profit or loss. In case of the above mentioned financial assets at amortised cost gains or losses from derecognition are presented in “Gains/losses arising from derecognition of financial assets at amortised cost” line. In case of FVTPL loans gains or losses from derecognition are presented in “Net operating income”.
Change in the fair value of FVTPL loans is broken down into two components and presented in the separate statement of profit or loss as follows:
Portion of the change in fair value arising from changes in credit risk are presented within “Risk cost” as “Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss”.
The remaining component of the change is presented in fair value within “Net operating income” as “Gains/(Losses) on financial instruments at fair value through profit or loss”.
2 First In First Out
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.11. Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses [continued]
Initially, financial assets shall be recognised at fair value which is usually equal to the transaction value in case of loans and placements. However, when the amounts are not equal, the initial fair value difference should be recognized.
If the fair value of financial assets is based on a valuation technique using only inputs observable in market transactions, the Bank recognises the initial fair value difference in the Separate Statement of Profit or Loss.
When the fair value of financial assets is based on models for which inputs are not observable, the difference between the transaction price and the fair value is deferred and only recognised in profit or loss when the instrument is derecognised or the inputs became observable.
Initial fair value of loans lent at interest below market conditions is lower than their transaction price, the subsequent measurement of these loans is under IFRS 9.
Allowance for losses on loans, placements with other banks and repo receivables represent management assessment for potential losses in relation to these activities.
The Bank recognises a loss allowance for expected credit losses on a financial asset at each reporting date. The loss allowance for a financial asset equals to 12-month expected credit loss or equals to the lifetime expected credit losses. The maximum period over which expected credit losses shall be measured is the maximum contractual period over which the Bank is exposed to credit risk.
If the credit risk on a financial asset has not increased significantly since initial recognition then 12-month expected credit losses, otherwise (in case of significant credit risk increase) lifetime expected credit losses should be calculated. The expected credit loss is the present value of the difference between the contractual cash flows that are due to the Bank under the contract and the cash flows that the Bank expects to receive.
When the contractual cash flows of a financial asset are modified and the modification does not result in the derecognition of the financial asset the Bank recalculate the gross carrying amount of the financial asset by discounting the expected future cash flows with the original effective interest rate of the asset. The difference between the carrying amount and the present value of the expected cash flows is recognised as a “Modification gain or loss” in the statement of profit or loss. Interest income and amortised cost are accounted for using the effective interest rate method.
Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and the possibility of further recovery is considered to be remote. The loan is written off against the related account “Loss allowance on loan, placement and repo receivables losses” in the Statement of Profit or loss.
OTP Bank applies partial or full write-off for loans based on the definitions and prescriptions of financial instruments in accordance with IFRS 9. If OTP Bank has no reasonable expectations regarding a financial asset (loan) to be recovered, it will be written off partially or fully at the time of emergence.
The gross amount and loss allowance of the loans shall be written off in the same amount to the estimated maximum recovery amount while the net carrying value remains unchanged.
If there are reasonable expectations of recovery for a financial asset that is written-off fully or partially, OTP Bank shall re-estimate cash flows of a financial asset and write-off reversal is applied in the financial statements.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.11. Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses [continued]
Modification of contractual cash flows
If the net present value of the contracted cash flows changes due to the modification of the contractual terms and it is not qualified as derecognition, modification gain or loss should be calculated and accounted for in the separate statement of profit or loss. Modification gain or loss is accounted in cases like restructuring as defined in internal policies of the Bank prolongation, renewal with unchanged terms, renewal with shorter terms and prescribing capital repayment rate, if it doesn’t exist or has not been earlier.
The changes of net present value should be calculated on portfolio level in case of retail exposures. Each retail contract is restructured based on restructuring frameworks. The Bank has to evaluate these frameworks (and not individual contracts). The changes of net present value should be calculated individually on contract level in case of corporate portfolio.
Among the possible contract amendments, the Bank considers as a derecognition and a new recognition when the discounted present value discounted at the original effective interest rate of the cash flows under the new terms is at least 10 per cent different from the discounted present value of the remaining cash flows. In case of derecognition and new recognition the unamortised fees of the derecognised asset should be presented as Income similar to interest income. The newly recognised financial asset is initially measured at fair value and is placed in stage 1 if the derecognised financial asset was in stage 1 or stage 2 portfolio. The newly recognised financial asset will be purchased or originated credit impaired financial asset (“POCI”) if the derecognised financial asset was in stage 3 portfolio or it was POCI.
The modification gain or loss shall be calculated at each contract amendments unless they are handled as a derecognition and new recognition. In case of modification the Bank recalculates the gross carrying amount of the financial asset. To do this, the new contractual cash flows should be discounted using the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for POCI financial asset). Any costs or fees incurred adjust the carrying amount of the modified financial asset are amortized over the remaining term of the modified financial asset.
Purchased or originated credit impaired financial assets
Purchased or originated financial assets are credit-impaired on initial recognition. A financial asset is credit- impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred.
A purchased credit-impaired asset is likely to be acquired at a deep discount. In unusual circumstances, it may be possible that an entity originates a credit-impaired asset, for example, following a substantial modification of a distressed financial asset that resulted in the derecognition of the original financial asset.
In the case of POCI financial assets, interest income is always recognized by applying the credit-adjusted effective interest rate.
For POCI financial assets, in subsequent reporting periods an entity is required to recognize:
- the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance,
- the impairment gain or loss which is the amount of any change in lifetime expected credit losses.
An impairment gain is recognized (with the parallel increase of the net amortized cost of receivable) if due to the favourable changes after initial recognition the lifetime expected credit loss estimation is becoming lower than the original estimated credit losses at initial recognition.
The POCI qualification remains from initial recognition to derecognition in the Bank’s books.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.11. Loss allowance
Loss Allowance for loans and placements with other banks and repo receivables are recognised by the Bank based on the expected credit loss model in accordance with IFRS 9. Based on the three stage model loss allowance is recognised in amount of 12 month expected credit loss from the initial recognition. Financial assets with significantly increased credit risk or credit impaired financial assets (based on objective evidences) loss allowance is recognised in amount of lifetime expected credit loss.
In case of purchased or originated credit impaired financial assets loss allowance is recognised in amount of lifetime expected credit loss since initial recognition. Impairment gain is recognised if lifetime expected credit loss for purchased or originated credit impaired financial assets at measurement date are less than the estimated credit loss at initial recognition.
Loss allowance for loan and placements are determined at a level that provides coverage for individually identified credit losses. Collective impairment loss is recognised for loans with similar credit risk characteristics when it is not possible to determine the amount of the individually identified credit loss in the absence of objective evidence. The expected cash flows for loan portfolios are estimated based on historical loss experience.
At subsequent measurement the Bank recognises through “Loss allowance on loan, placement and repo receivables losses” in the Statement of Profit or Loss impairment gain or loss as an amount of expected credit losses or reversal that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised in accordance with IFRS 9.
If a financial asset, which previously classified in the first stage, classified subsequently in the second or third stage than loss allowance is adjusted to lifetime expected credit loss. If a financial asset, which previously classified in the second or third stages, classified subsequently in the first stage than loss allowance is adjusted to level of 12 month expected credit loss.
Classification into risk classes
According to the requirements of the IFRS9 standard, the Bank classifies financial assets measured at amortised cost and fair value through other comprehensive income, and loan commitments and financial guarantees into the following categories in accordance with IFRS9:
Stage 1
Performing
Stage 2
Performing, but compared to the initial recognition it shows significant increase in credit risk
Stage 3
Non-performing
POCI
Purchased or originated credit impaired
In the case of trade receivables, contract assets and lease receivables the Group applies the simplified approach and calculates only lifetime expected credit loss. Simplified approach is the following:
for the past 3 years the average annual balance of receivables under simplified approach is calculated,
the written-off receivables under simplified approach are determined in the past 3 years,
the loss allowance ratio will be the sum of the written-off amounts divided by the sum of the average balances,
historical losses are adjusted to reflect information about current conditions and reasonable forecasts of future economic conditions,
the loss allowance is multiplied by the end-of-year balance and it will be the actual loss allowance on these receivables,
loss allowance should be recalculated annually.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.12. Loss allowance [continued]
Classification into risk classes [continued]
The Bank assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the reporting date. This might occur if the financial asset has a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Bank considers souvereign exposures having low credit risk.
Credit risk of financial assets increases significantly at the following conditions:
the payment delay exceeds 30 days,
it is classified as performing forborne,
based on individual decision, its currency suffered a significant "shock" since the disbursement of the loan,
the transaction/client rating exceeds a predefined value or falls into a determined range, or compared to the historic value it deteriorates to a predefined degree,
in the case household mortgage loans, the loan-to-value ratio (“LTV”) exceeds a predefined rate,
default on another loan of the retail client, if no cross-default exists,
in case of corporate and municipal clients:
o financial difficulty (capital requirements, liquidity, impairment of asset quality),
o significant decrease of activity and liquidity in the market of the asset,
o client’s rating reflects higher risk, but better than default,
o collateral value drops significantly, from which the client pays the loan,
o more than 50% decrease in owner’s equity due to net losses,
o client under dissolution,
o negative information from Central Credit Information System: the payment delay exceeds 30 days
Financial assets classifies as non-performing, if the following conditions are met:
default,
non-performing forborne exposures,
in case of corporate and municipal clients:
o breach of contract terms and conditions
o critical financial difficulty of the client (capital requirements, liquidity, impairment of asset quality),
o liquidation, dissolution or debt clearing procedures against client,
o forced deregistration procedures from company registry,
o terminated loans by the Bank,
o in case of fraud,
o negative information from Central Credit Information System: the payment delay exceeds 90 days,
o cessation of active markets of the financial asset,
o default of ISDA based contracts.
For lifetime expected credit losses, the Bank shall estimate the risk of a default occurring on the financial instrument during its expected life. 12-month expected credit losses are a portion of the lifetime expected credit losses and represent cash flow shortfalls that will result if a default occurs in the 12 months after the reporting date (or a shorter period fi the expected life of the financial instrument is less than 12 months), weighted by the probability of that default occurring.
Expected credit losses are measured in a way that reflects:
an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes,
the time value of money, and
reasonable and supportable information that is available without undue cost of effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.12. Option to designate a financial asset/liability measured at fair value through profit or loss (FVTPL option)
The Bank may, at initial recognition, irrevocably designate a financial asset or liability as measured at fair value through profit or loss. The Bank may use FVTPL option in the following cases:
- if doing so eliminates or significantly reduces a measurement or recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases
- if the group of financial liabilities or assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the Bank’s key management personnel.
The use of the fair value option is limited only to special situations, and it can be based only on direct decision of management of the Bank.
2.13. Sale and repurchase agreements, security lending
Where debt or equity securities are sold under a commitment to repurchase them at a pre-determined price, they remain on the statement of financial position and the consideration received is recorded in Other liabilities or Amounts due to banks and deposits from the National Bank of Hungary and other banks, or Deposits from customers. Conversely, debt or equity securities purchased under a commitment to resell are not recognized in the statement of financial position and the consideration paid is recorded either in Placements with other banks or Deposits from customers. Interest is accrued evenly over the life of the repurchase agreement. In the case of security lending transactions the Bank does not recognize or derecognize the securities because it is believed that the transferor retains substantially all the risks and rewards of the ownership of the securities. Only a financial liability or financial receivable is recognized for the consideration amount.
2.14. Property, equipment and intangible assets
Property, equipment and intangible assets are stated at cost, less accumulated depreciation and amortization and impairment, if any. The depreciable amount (book value less residual value) of the non-current assets must be allocated over their useful lives. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets based on the following annual percentages:
Intangible assets
Software
20-33.3%
Property rights
16.7-33.3%
Property
1-2%
Office equipment and vehicles
9-33.3%
Depreciation and amortization on properties, equipment and intangible assets starts on the day when such assets are placed into service. At each balance sheet date, the Bank reviews the carrying value of its tangible and intangible assets to determine if there is any indication that those assets have suffered an impairment loss.
If such indication exists, the recoverable amount of the asset is estimated to determine the extent (if any) of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Bank estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Where the carrying value of property, equipment, other tangible fixed assets and intangible assets is greater than the estimated recoverable amount, it is impaired immediately to the estimated recoverable amount.
2.15. Inventories
The inventories shall be measured at the lower of cost and net realisable value. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The Bank uses generally FIFO formulas to the measurement of inventories. Inventories shall be removed from books when they are sold, unusable or destroyed. When inventories are sold, the carrying amount of those inventories shall be recognized as an expense in the period in which the related revenue is recognized. Repossessed assets are classified as inventories.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.16. Investment properties
Investment properties of the Bank are land, buildings, part of buildings which are held (as the owner or as the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for use in the production or supply of services or for administrative purposes or sale in the ordinary course of business. The Bank measures the investment properties at cost less accumulated depreciation and impairment, if any. The depreciable amount (book value less residual value) of the investment properties must be allocated over their useful lives. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets based on the 1-2% annual percentages.
The fair value of the investment properties is established mainly by external experts. According to the opinion of the Management there is no significant difference between the fair value and the carrying value of these properties.
2.17. Financial liabilities
The financial liabilities are presented within financial liabilities at fair value through profit or loss or financial liabilities measured at amortised cost. In connection to the financial liabilities at fair value through profit or loss, the Bank presents the amount of change in their fair value originated from the changes of market conditions and business environment. Financial liabilities at fair value through profit or loss are either financial liabilities held for trading or they are designated upon initial recognition as at fair value through profit or loss. In the case of financial liabilities measured at amortised cost, fees and commissions related to the origination of the financial liability are recognised through profit or loss during the maturity of the instrument. In certain cases the Bank repurchases a part of financial liabilities (mainly issued securities or subordinated bonds) and the difference between the carrying amount of the financial liability and the amount paid for it is recognised in the statement of profit or loss and included in other operating income.
2.18. Leases
An agreement is a lease or contains a lease if it transfers the rights to control the use of an identified asset for a given period in exchange for compensation.
Expenses related to the use of lease assets, the majority of which were previously recognised in external services costs, will be currently classified as depreciation/amortisation and interest costs. Usufruct rights are depreciated using a straight line method, while lease liabilities are settled using an effective discount rate.
Recognition of lease liabilities
The Bank will recognise lease liabilities related to leases which were previously classified as "operating leases" in accordance with IAS 17 Leases. These liabilities will be measured at the present value of lease payments receivable as at the date of commencement of the application of IFRS 16. Lease payments shall be discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. Interest rate applied by the Bank: weighted average lessee’s incremental borrowing rate: ~1,62%
At their date of initial recognition, lease payments contained in the measurement of lease liabilities comprise the following types of payments for the right to use the underlying asset for the life of the lease:
- fixed lease payments less any lease incentives,
- variable lease payments which are dependent on market indices,
- amounts expected to be payable by the lessee under residual value guarantees,
- the strike price of a purchase option, if it is reasonably certain that the option will be exercised, and
- payment of contractual penalties for terminating the lease, if the lease period reflects that the lessee used the option of terminating the lease.
The Bank makes use of expedients with respect to short-term leases (less than 12 months) as well as in the case of leases in respect of which the underlying asset has a low value (less than HUF 1.4 million) and for which agreements it will not recognise financial liabilities nor any respective right-of-use assets. These types of lease payments will be recognised as costs using the straight-line method during the life of the lease.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.20. Leases [continued]
Recognition of right-of-use assets
Right-of-use assets are initially measured at cost.
The cost of a right-of-use asset comprises:
- the amount of the initial measurement of lease liabilities,
- any lease payments made at or before the commencement date, less any lease incentives received,
- any initial direct costs incurred by the lessee,
- estimates of costs to be incurred by the lessee as a result of an obligation to disassemble and remove an underlying asset or to carry out renovation/restoration.
Right-of-use assets are presented separately in the financial statements.
2.20. Share capital
Share capital is the capital determined in the Articles of Association and registered by the Budapest-Capital Regional Court. Share capital is the capital the Bank raised by issuing common stocks at the date the shares were issued. The amount of share capital has not changed over the current period.
2.21. Treasury shares
Treasury shares are shares which are purchased on the stock exchange and the over-the-counter market by the Bank and are presented in the separate statement of financial position at acquisition cost as a deduction from shareholders’ equity. Gains and losses on the sale of treasury shares are recognised directly to shareholder’s equity. Derecognition of treasury shares is based on the FIFO method.
2.22. Interest income, income similar to interest income and interest expense
Interest income and expenses are recognised in profit or loss in the period to which they relate, using the effective interest rate method.
For exposures categorized into stage 1 and stage 2 the interest income is recognized on a gross basis. For exposures categorized into stage 3 (using effective interest rate) and for POCI (using credit-adjusted effective interest rate) the interest income is recognized on a net basis.
The time-proportional income similar to interest income of derivative financial instruments calculated without using the effective interest method and the positive fair value adjustment of interest rate swaps are also included in income similar to interest income. Interest income of FVTPL loans is calculated based on interest fixed in the contract and presented in “Income similar to interest income” line.
Interest from loans and deposits are accrued on a daily basis. Interest income and expense include certain transaction cost and the amortisation of any discount and premium between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest rate basis.
All interest income and expense recognised are arising from loans, placements with other banks, repo receivables, securities at fair value through other comprehensive income, securities at amortised cost, and amounts due to banks, repo liabilities, deposits from customers, liabilities from issued securities, subordinated bonds and loans are presented under these lines of financial statements
2.23. Fees and Commissions
Fees and commissions that are not involved in the amortised cost model are recognised in the Separate Statement of Profit or Loss on an accrual basis according to IFRS 15. These fees are related to deposits, cash withdrawal, security trading, bank card, etc.
The Bank recognise income if performance obligations related to the certain goods or service are satisfied, performed, and control over the asset is transferred to the customer, and it is probable that consideration payable will probably flow to the entity. In case of those service, where the Bank transfer control over the asset continuously, income is recognised on accrual basis. (For more details see note 31)
The Bank provides foreign exchange trading services to its customers, the profit margin achieved on these transactions is presented as Net profit from fees and commissions in the Separate Statement of Profit or Loss .
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.24. Dividend income
Dividend income refers to any distribution of entity’s earnings to shareholders from stocks or mutual funds that is owned by the Bank. The Bank recognizes dividend income in the separate financial statements when its right to receive the payment is established.
2.25. Income tax
The Bank considers corporate income tax and local business tax and the innovation contribution as income tax in Hungary. The annual taxation charge is based on the tax payable under Hungarian fiscal law, adjusted for deferred taxation. Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences between the tax bases of assets and liabilities and their carrying value for financial reporting purposes, measured at the tax rates that are expected to apply when the asset is realised or the liability is settled.
Deferred tax assets and liabilities are presented in a net way in the statement of financial position. Current tax asset or current tax liability is presented related to income tax and innovation contribution separately in the statement of financial position.
Deferred tax assets are recognized by the Bank for the amounts of income tax that are recoverable in future periods in respect of deductible temporary differences as well as the carry forward of unused tax losses and the carryforward of unused tax credits.
The Bank recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint arrangements, to the extent that, and only to the extent that, it is probable that:
- the temporary difference will reverse in the foreseeable future; and
- taxable profit will be available against which the temporary difference can be utilised.
The Bank considers the availability of qualifying taxable temporary differences and the probability of other future taxable profits to determine whether future taxable profits will be available.
The Bank recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied:
- the Bank is able to control the timing of the reversal of the temporary difference, and
- it is probable that the temporary difference will not reverse in the foreseeable future.
The Bank only offsets its deferred tax liabilities against deferred tax assets when:
- there is a legally enforceable right to set-off current tax liabilities against current tax assets, and
- the taxes are levied by the same taxation authorities on either
the same taxable entity or
different taxable entities which intend to settle current tax liabilities and assets on a net basis.
2.26. Banking tax
The Bank is obliged to pay banking tax based on Act LIX of 2006. As the calculation is not based on the taxable profit (but the adjusted Assets total calculated based on the Separate Financial Statements for the second period preceding the current tax year), banking tax is not considered as income tax. Therefore, the banking tax is considered as an other administrative expense, not as income tax.
Pursuant to Government Decree No. 197/2022 published on 4 June 2022, the Hungarian Government decided to impose a windfall tax on credit institutions and financial enterprises temporarily, that is for 2022 and 2023.
As for 2022, the base of the windfall tax is the net revenues based on the 2021 financial statements, calculated according to local tax law, whereas the tax rate is 10%.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.27. Off-balance sheet commitments and contingent liabilities, provisions
In the ordinary course of its business, the Bank has entered into off-balance sheet commitments such as guarantees, commitments to extend credit, letters of credit and transactions with financial instruments. The provision on off- balance sheet commitments and contingent liabilities is maintained at a level adequate to absorb probable future losses which are probable and relate to present obligations.
Those commitments and contingent liabilities Management determines the adequacy of the provision based upon reviews of individual items, recent loss experience, current economic conditions, the risk characteristics of the various categories of transactions and other pertinent factors.
The Bank recognizes a provision for off-balance sheet commitment and contingent liabilities in accordance with IAS 37 when it has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation.
Expected credit loss model is applied for given financial guarantees and loan commitments which are under IFRS 9 the, when the provision is calculated (see more details in Note 2.12.). After initial recognition the Group subsequently measures those contracts at a higher of the amount of the loss allowance or of the amount initially recognised less the cumulative amount of income recognized in accordance with IFRS 15.
2.28. Share-based payment and employee benefits
The Bank has applied the requirements of IFRS 2 Share-based Payment.
The Bank issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the grant date. The fair value determined at the grant date of the equity-settled share- based payments is expensed on a straight-line basis over the year, based on the Bank’s estimate of shares that will eventually vest.
Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on Management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
The Bank has applied the requirement of IAS 19 Employee Benefits. The Bank’s short-term employee benefits are wages, salaries and bonuses, premium, paid annual leave and paid sick leave and other free services (health care, reward holiday). Short-term employee benefits are expected to pay by the Bank within 12 month. These benefits are recognised as an expense and liability undiscounted in the separate financial statements.
Long-term employee benefits are mostly the jubilee reward. Long-term employee benefits are recognised as an expense and liability in the separate financial statements. Liabilities are regularly remeasured. Gains or losses due to the remeasurement are recognised in the separate statement of profit or loss.
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NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.29. Separate statement of cash flows
Cash flows arising from the operating, investing or financing activities are reported in the Statement of Cash- Flows of the Bank primarily on a gross basis. Net basis reporting are applied by the Bank in the following cases:
when the cash flows reflect the activities of the customer rather than those of the Bank, and
for items in which the turnover is quick, the amounts are large, and the maturities are short.
For the purposes of reporting cash flows “Cash, due from banks and balances with the NBH” line item excluding compulsory reserve are considered as cash and cash equivalents by the Bank. This line item shows balances of HUF and foreign currency cash amounts, and sight depos from NBH and from other banks, furthermore balances of current accounts.
Cash flows from hedging activities are classified in the same category as the item being hedged. The unrealised gains and losses from the translation of monetary items to the closing foreign exchange rates and the unrealised gains and losses from derivative financial instruments are presented separately net in the statement of cash flows for the monetary items which have been revaluated.
2.30. Segment reporting
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Bank that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.
At separate level, the Management does not separate and makes decisions based on different segments; the segments are identified by the Bank only at consolidated level in line with IFRS 8 paragraph 4. At Group level the segments identified by the Bank are the business and geographical segments.
The Group’s operating segments under IFRS 8 are therefore as follows: OTP Core Hungary, Russia, Ukraine, Bulgaria, Romania, Serbia, Croatia, Montenegro, Albania, Moldova, Slovenia, Merkantil Group, Asset Management subsidiaries, other subsidiaries, Corporate Centre.
2.31. Comparative figures
These separate financial statements are prepared in accordance with the same accounting policies in all respects as the Financial Statements prepared in accordance with IFRS as adopted by the EU for the year ended 31 December 2021
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NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE
APPLICATION OF ACCOUNTING POLICIES
The presentation of separate financial statements in conformity with IFRS requires the Management of the Bank to make judgements about estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on expected loss and other factors that are considered to be relevant. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period. Actual results could differ from those estimates. Significant areas of subjective judgements include:
3.1. Loss allowance on financial instruments
The Bank regularly assesses its financial instruments for impairment. Management determines the adequacy of the allowances based upon reviews of individual loans and placements, recent loss experience, current economic conditions, the risk characteristics of the various categories of loans and other pertinent factors. The use of a new, three stage model was implemented for IFRS 9 purposes. The new impairment methodology is used to classify financial instruments in order to determine whether credit risk has significantly increased since initial recognition and able to identify credit-impaired assets. For instruments with credit-impairment or significant increase of credit risk lifetime expected losses will be recognize d. (For details see note 36.1.1.)
3.2. Valuation of instruments without direct quotations
Financial instruments without direct quotations in an active market are valued using the valuation model technique. The models are regularly reviewed and each model is calibrated for the most recent available market data. While the models are built only on available data, their use is subject to certain assumptions and estimates (e.g. for correlations, volatilities, etc). Changes in the model assumptions may affect the reported fair value of the relevant financial instruments.
IFRS 13 Fair Value Measurement seeks to increase consistency and comparability in
fair value measurements
and related
disclosures
through a 'fair value hierarchy'. The hierarchy categorises the inputs used in valuation
techniques
into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Bank evaluates the levelling at each reporting period on an instrument-by-instrument basis and reclassifies instruments when necessary, based on the facts at the beginning of the reporting period. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions.
3.3. Provisions
Provision is recognised and measured for commitments to extend credit and for warranties arising from banking activities based on IFRS 9 Financial Instruments. Provision for these instruments is recognised based on the credit conversion factor, which shows the proportion of the undrawn credit line that will be probably drawn.
Other provision is recognised and measured based on IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Bank is involved in a number of ongoing legal disputes. Based upon historical experience and expert reports, the Bank assesses the developments in these cases, and the likelihood and the amount of potential financial losses which are appropriately provided for. (See Note 24.)
Other provision for off-balance sheet items includes provision for litigation, provision for retirement and expected liabilities and provision for Confirmed letter of credit.
A provision is recognised by the Bank when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
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NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE
APPLICATION OF ACCOUNTING POLICIES [continued]
3.4. Business models
A business model refers how the Bank manages its financial instruments in order to generate cash flows. It is determined at a level that reflects how groups of financial instruments are managed rather than at an instrument level.
The financial assets held by the Bank are classified into three categories depending on the business model within the financial assets are managed.
Business model whose objective is to hold financial assets in order to collect contractual cash flows. Some sales can be consistent with hold to collect business model and the Bank assesses the nature, frequency and significance of any sales occurring. The Bank does not consider the sale frequent when at least six months have elapsed between sales. The significant sales are those when the sales exceed 2% of the total hold to collect portfolio. Within this business model the Bank manages mainly loans and advances and long term securities and other financial assets.
Business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. Within this business model the Bank only manages securities.
Business model whose objective is to achieve gains in a short term period. Within this business model the Bank manages securities and derivative financial instrument.
If cash flows are realised in a way that is different from the expectations at the date that the Bank assessed the business model, that does not give rise to a prior error in the Bank’s financial statements nor does it change the classification of the remaining financial assets held in that business model.
When, and only when the Bank changes its business model for managing financial assets it reclassifies all affected assets. Such changes are determined by the Bank’s senior management as a result of external or internal changes and must be significant to the Bank’s operations and demonstrable to external parties. The Bank shall not reclassify any financial liability.
3.5. Contractual cash-flow characteristics of financial assets
Classification of a financial asset is based on the characteristics of its contractual cash flows if the financial asset is held within a business model whose objective is to hold assets to collect contractual cash flows or within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
The Bank should determine whether the asset’s contractual cash flows are solely payments of principal and interest on the principal amount outstanding (SPPI test). Contractual cash flows that are solely payments of principal and interest on the principal amount outstanding are consistent with a basic lending arrangement.
Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The Bank assesses whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding for the currency in which the financial asset is denominated.
Time value of money is the element of interest that provides consideration for only the passage of time. However, in some cases, the time value of money element may be modified. In such cases, the Bank assesses the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding.
When assessing a modified time value of money element, the objective is to determine how different the undiscounted contractual cash flows could be from undiscounted cash flows that would arise if the time value of money element was not modified (the benchmark cash flows). The benchmark instrument can be an actual or a hypothetical financial asset. If the undiscounted contractual cash flows significantly above 2% differ from the undiscounted benchmark cash flows, the financial asset should be subsequently measured at fair value through profit or loss.
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NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
The Covid-19 pandemic and the volatile economic environment in the post-Covid-19 era
Since the outbreak of the COVID-19 pandemic, OTP Group has regularly updated its forecasts in light of the pandemic and the impact of the pandemic on the operations of OTP Group. However, the continuance of new waves of the pandemic emerging may require further revision by OTP Group to such macroeconomic scenarios and its estimations of credit impairments.
Over the last 2 years, the COVID-19 pandemic severely impacted the evolution of the global economy. The supply- chain and logistic relationships were disrupted by periodic lockdowns and social distancing requirements and the supply of several key raw materials dropped significantly, leading to a more volatile economic environment compared to previous years. Raw material and energy prices rose steeply, leading to higher inflation and interest rates in some of OTP Group’s operating countries. The conflict between Russian and Ukraine and the subsequent implementation of sanctions on Russia have accelerated supply shortages and resulted in higher energy prices and more broad-based inflation. Several major central banks have already raised or are considering raising interest rates earlier than previously expected. The Hungarian central bank has already hiked rates since the summer of 2021. The risk of local currency devaluations versus EUR or USD has increased and could lead to a more volatile operating environment for OTP Group.
This volatile environment could cause financial difficulties for OTP Group’s customers. The deteriorating credit quality of OTP Group’s customers may in particular result in increasing defaults and arrears in monthly payments on loans, higher credit impairments on the loan portfolios of OTP Group. Furthermore, lower demand for, and origination of, new loans could have a material adverse effect on the OTP Group’s results of operations.
The OTP Group’s activities and the profitability of its operations are strongly affected by the macroeconomic environment and the domestic and international perception of the economies in which it operates.
Furthermore, the OTP Group relies on models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures, conducting stress testing and assessing capital adequacy. Models are, by their nature, imperfect and incomplete representations of reality because they rely on assumptions and inputs, and as such assumptions may later potentially prove to be incorrect, this can affect the accuracy of their outputs. This may be exacerbated when dealing with unprecedented scenarios, due to the lack of reliable historical reference points and data.
Any and all such events mentioned above could have a material adverse effect on the OTP Group’s business, financial condition, results of operations, prospects, liquidity, capital position and credit ratings, as well as on the OTP Group’s customers, employees and suppliers.
Macro economy and financial situation
Hungary
The rapid recovery following the Covid crisis has created capacity bottlenecks in many sectors, which, coupled with rising commodity and energy prices, have significantly increased inflation in advanced economies. In the USA, the rate of inflation has not been at this level since the 1970s. The rapidly rising and increasingly broad- based inflation prompted the Fed to take action and to become the first major central bank to start raising interest rates. This move has significantly strengthened the dollar, and US 10-year yields rose to 4.3%. In the USA, inflation clearly peaked in mid-2022, and has been on a downward trend since then. Inflation also rose rapidly in Europe, where the dramatically growing gas and electricity prices posed the bigger problem. However, inflation also peaked in the euro area by the end of 2022, and has been on a downward trend since October 2022. As the Russia-Ukraine war had a much stronger impact on Europe’s economic outlook, and the labour market was much less tight than in the USA, the ECB was slower to react to the rise in inflation. Still, European short-term interest rates also rose to 2% by the end of 2022.
The USA went into a technical recession in the first half of 2022, but this turned out to be temporary, and the US economy resumed growth in the second half-year. Europe’s economies proved more resilient than had been expected to the effects of the Russia-Ukraine war. In the first half of the year, growth benefited from the sectors that recovered after the pandemic, but the currency area also avoided recession in the second half of the year, and grew by 3.5% in full year 2022.
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NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
Macro economy and financial situation [continued]
Hungary [continued]
The main factor that affected Hungary’s economy in 2022 was the war in a neighbouring country. Although the Hungarian economy grew by 8.2% year-on-year in the first quarter and by 6.5% in the second, this was largely fuelled by massive one-off transfers at the beginning of 2022. By the second half of the year, however, the economy had lost steam and entered technical recession (two consecutive quarters of economic contraction) by the end of 2022. As a result, the Hungarian economy grew by 4.6% in 2022 as a whole. Inflation, which went beyond 20% by the end of the year, played a significant role in the downturn, significantly eroding real income, and turning its growth negative by the end of 2022.
The strong domestic demand at the beginning of the year allowed businesses to pass through the ongoing cost shocks to prices. From the second half of the year, a number of administrative measures (tightening of KATA tax rules, windfall taxes, increasing the public heath product tax, scrapping some price caps, etc.) also boosted inflation. As a consequence, Hungary’s inflation decoupled from the developments in the euro area, where inflation peaked around 10%, and from the CEE region, where it peaked at 15-17%. In Hungary, inflation did not peak in 2022.
Given that Hungary is a major net energy importer, the sharp rise in energy prices has significantly worsened the Hungarian economy’s external balance, which put the forint under depreciation pressure. In addition, the continued delay in agreeing on EU funds has increased the risk premium on HUF assets, which also contributed to the forint’s weakening the MNB could reverse this only by a drastic interest rate hike, when the HUF/EUR was nearing 435. As a result, the effective reference rate rose to 18%. The falling gas prices, and the agreement reached with the EU at the end of 2022 had a benign effect on the HUF’s exchange rate.
Falling real incomes and high interest rates have considerably slowed credit market growth. The housing loan market saw the sharpest slowdown: by the end of 2022 (as the Green Home Programme credit line ended), the contracted amount had fallen to half of the level seen in 2021.
Despite the rapidly eroding real incomes, household consumption was still relatively buoyant. But this came at a price: households’ ability to save has sharply fallen. Outflows from demand deposits was particularly strong; these amounts flowed into foreign currency deposits and investment fund units.
The principles used in the preparation of the Separate Statement of Financial Position as at 31 December 2022 in connection with the evaluation of Russian and Ukrainian exposures
Going concern principle
Russia launched an operation against Ukraine on February 24, 2022, which has not ended even as of the date of these Consolidated Financial Statements. Because of the armed conflict, many countries and the European Union have imposed sanctions against Russia, Russian companies and citizens in several rounds. Russia responded to these sanctions with similar sanctions measures.
Armed conflict and international sanctions significantly affect business and economic activity worldwide.
Under an unexpected and extremely negative scenario of deconsolidating the Ukrainian entity and writing down the outstanding gross intragroup exposures as well, the effect for the consolidated CET1 ratio would be +1 bp, whereas in the case of Russia the impact would be -71 bps, based on the end of December 2022 numbers.
OTP Group’s Ukrainian operation incorporates the Ukrainian bank, as well as the leasing and factoring companies. The country-consolidated Ukrainian total assets represented HUF 1,049 billion at the end of 2022 (3.2% of total consolidated assets), while net loans comprised HUF 414 billion (2.2% of consolidated net loans) and shareholders’ equity HUF 122 billion (3.7% of the consolidated total equity).
At the end of 2022 the gross intragroup funding towards the Ukrainian operation represented HUF 84 billion.
In 2022 the Ukrainian operation posted an adjusted after-tax loss of HUF 15.9 billion. Regarding the trajectory of the quarterly results, following the loss of HUF 34.4 billion realized in the first quarter, the financial performance of the Ukrainian operation stabilized: in the second quarter around break-even result, then both in the third and the fourth quarter a positive result was achieved.
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NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
The principles used in the preparation of the Separate Statement of Financial Position as at 31 December 2022 in connection with the evaluation of Russian and Ukrainian exposures [continued]
Going concern principle [continued]
The total assets of the Group’s Russian operation represented HUF 1,030 billion at the end of 2022 (3.1% of consolidated total assets), while net loans comprised HUF 612 billion (3.3% of consolidated net loans) and shareholders’ equity HUF 306 billion (9.2% of consolidated total equity). As the Russian subsidiary repaid its maturing intragroup loans in the fourth quarter of 2022, the gross intragroup funding towards the Russian operation declined from HUF 75 billion equivalent at the end of 2021 to HUF 10 billion equivalent at the end of 2022 (these figures are practically the same as the net group funding due to the lack of deposits placement by Russia in the Group). The remaining intragroup exposure toward the Russian operation at the end of 2022 was a subordinated loan.The Russian operation posted HUF 42.5 billion adjusted profit in 2022. Within that, HUF 27.2 billion loss was suffered in the first quarter, followed by profitable quarters in the remaining part of the year.
In the case of Ukraine and Russia OTP management applies a „going concern” approach, however in Russia the management is still considering all strategic options, though a Russian Presidential decree in October 2022 prohibited the sale of foreign owned banks.
Based on the current evaluation of the Bank's management, the Ukrainian-Russian conflict does not have a significant negative impact on the OTP Group's business activities, financial situation, effectiveness of its activities, liquidity, and capital situation. Even after the recognition of the potential losses and write-offs outlined above, the Group's capital adequacy remains above the expected regulatory level. There is no sign of significant uncertainties having been arisen regarding carrying out its business as a going concern.
Significant estimates affected by the Russian-Ukrainian conflict during the preparation of these Separate Financial Statements
During the preparation of these Separate Financial Statements, the Bank identified the following estimates, which were significantly affected by the Russian-Ukrainian conflict:
1) Evaluation of Russian sovereign exposures (government securities) and related reserves for expected credit losses at OTP Bank (as parent company)
2) Evaluation of Ukrainian sovereign exposures (government securities) and related reserves for expected credit losses at OTP Bank (as parent company)
3) Evaluation of derivative transactions denominated in Russian rubles
4) Evaluation of derivative transactions denominated in the Ukrainian hryvnia
5) Provisions for expected credit losses related to Russian and Ukrainian interbank claims and customer loans (following direct exposure to the Russian and Ukrainian markets, non-Russian and Ukrainian bank exposures)
6) Evaluation of investments
Reference
Gross value
Impairment
Securities at amortized cost
1
37,103
(12,676)
Securities at fair value through other comprehensive income
1
27,415
(24,399)
Investments
6
459,960
(302,502)
TOTAL ASSETS
524,478
(339,577)
During the evaluation of these assets, the Bank applied the evaluation principles detailed below, which evaluation contains significant estimates on the part of the Management. The results of the estimates may vary significantly depending on the development of the situation in the Russian-Ukrainian conflict.
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NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
The principles used in the preparation of the Separate Statement of Financial Position as at 31 December 2022 in connection with the evaluation of Russian and Ukrainian exposures [continued]
References
1. Evaluation of Russian sovereign exposures and related reserves for expected credit losses - other exposures of the group
Outside of Russia, the marketability of Russian government securities is significantly limited due to sanctions and capital market participants turning away from Russian securities. The credit rating of the Russian state was withdrawn in 2022, the Group classifies the Russian state as non-performing, and in accordance with this, it assigned the affected exposures to the Stage 3 category. The Russian state not only recognizes its obligation and has the necessary financial reserves, but would also be willing to pay, so the increased loss potential is caused by non-traditional credit risks.
2. Valuation of Ukrainian sovereign exposures and related reserves for expected credit losses - other exposures of the group
Ukrainian government securities are exclusively in the books of the Ukrainian subsidiary.
3. Valuation of Russian derivative transactions
Similar to the bond market, in 2022 the money market inside and outside Russia will also be separated. In the case of futures contracts concluded with local partners on the Russian market, the evaluation is carried out using yield curves available and observable on the local market. In cases where one of the partners is not Russian, the evaluation is done using yield curves available and observable on the international market.
In 2022, there was one case of non-performance, the impact of which was HUF 13.8 billion.
4. Valuation of Ukrainian derivatives
Similar to the bond market, in 2022 the liquidity and number of transactions in the Ukrainian money market were limited. The Treasury turnover of the Ukrainian bank is low, and a significant part of the derivative transactions are related to the bank's risk management and concluded with the parent company. During the actual evaluation, the expected cash-flow is discounted using yield curves observed based on current market benchmarks (published by the National Bank of Ukraine).
5. Provisions for expected credit losses related to Russian and Ukrainian interbank claims and customer loans (following direct exposure to the Russian and Ukrainian markets, non-Russian and Ukrainian bank exposures)
As part of the quarterly monitoring activity, the Bank has identified and analysed the secondary and tertiary negative effects of the war in the corporate segment. Changes related to the meanwhile imposed sanctions which should have been taken into consideration at analysis - have been followed up. As part of the individual monitoring activity separate monitoring methodology and assessment were prepared for exposures above HUF 250 million as follows:
i) sectors vulnerable to the risk arising from changes of energy / interest / foreign exchange
ii) customers from sectors with high risks according to the loan policy, especially the hotel industry and real estate utilisation industry
iii) municipalities, customers owned by municipalities
Customers identified during monitoring activity were classified into Stage 2, expected credit losses were recognised at the corresponding level and amount. As at 31 December 2022 the concerning exposures (HUF 92.7 billion) had HUF 4 billion of expected credit loss, from which impairment loss was recognised in amount of HUF 3 billion.
OTP Bank Plc Separate Financial Statements 2022
36
NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
The principles used in the preparation of the Separate Statement of Financial Position as at 31 December 2022 in connection with the evaluation of Russian and Ukrainian exposures [continued]
References [continued]
5. Provisions for expected credit losses related to Russian and Ukrainian interbank claims and customer loans (following direct exposure to the Russian and Ukrainian markets, non-Russian and Ukrainian bank exposures) [continued]
When technical or objective default occured due to sanctions the affected exposures were classified into Stage 3. In these cases at least two scenarios were taken into consideration as the estimation of expected cash flows for impairment calculation. At least one scenario represents that case when significant differences occur between the expected and the contractual cash flows. Probabilities shall be allocated to represent the occurence of credit loss, even in that case when most likely there is no need to recognise impairment loss. As at 31 December 2022 gross value of the above mentioned exposures are HUF 11.3 billion and the allocated credit loss is HUF 6.9 billion.
6. Evaluation of investments
The Bank has evaluated its investments in 3 countries concerning the Russian-Ukrainian conflict based on discounted cash flows, and as a result impairment loss was recognised for the year ended 31 December 2022 as follows:
by Country
Impairment loss for the year
Ukraine
73,366
Russia
18,576
Moldova
3,163
Total
95,105
OTP Bank Plc Separate Financial Statements 2022
37
NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
Summary of economic policy measures made and other relevant regulatory changes in the period under review
In the section below, the measures and developments which have been made since the beginning of 2022, and in OTP Bank’s view are relevant and have materially influenced / can materially influence the operation of the Group members.
OTP Bank excludes any liability for the completeness and accuracy of the measures presented herein.
Hungary
On 5 April 2022 the National Bank of Hungary raised the available amount under the Green Home Programme by an additional HUF 100 billion, up from the originally announced HUF 200 billion.
Pursuant to Government Decree No. 150/2022 published on 14 April 2022, effective from 29 April the intermediary and other fees paid by the State to commercial banks were amended in the case of the Housing Subsidy for Families (CSOK), the VAT refund subsidy for newly built homes, the repayment by the State of housing loan taken out by families with children, and the baby loans. These fees are now set as absolute amounts, instead of the previous percentage terms. Furthermore, the interest subsidy paid by the state was reduced by one percentage point in the case of baby loans requested afte r 29 April.
According to the press release made by the National Bank of Hungary on 30 June 2022, the counter- cyclical capital buffer rate will be increased, for the first time since its introduction 6 years ago, to 0.5% effective from 1 July 2023.
The baby loan programme which was originally meant to expire by the end of 2022 was extended by 2 years, till the end of 2024.
Interest rate cap
For the period between 1 January and 30 June 2022 the Hungarian Government introduced an interest rate cap for variable-rate retail mortgage loans, and with its decision announced on 18 February for housing purposes financial leasing contracts, too. Accordingly, the affected exposures’ reference rate cannot be higher than the relevant contractual reference rate as at 27 October 2021. The modification loss related to the interest rate cap for variable rate mortgage loans announced was recognized in the Bank’s 2021 financial accounts. The extension of the interest rate cap to housing purposes financial leasing contracts did not have a significant negative effect.
Pursuant to Government Decree No. 215/2022 (issued on 17 June) the Government extended the interest rate cap for variable-rate retail mortgage loans by an additional 6 months, i.e. until 31 December 2022. The expected one- off effect of the extension of the interest rate cap amounted to -HUF 10.1 billion (after tax) and was booked in the second quarter of 2022.
The details of the extension of the interest rate cap scheme were revealed on 14 October 2022. Firstly, the interest rate cap was further extended by 6 months, until the end of June 2023. Secondly, from 1 November 2022 the provisions of the interest rate cap must applied to the market-based mortgages with up to 5 years interest rate repricing period, too.
On 22 October 2022 the Government announced that starting from 15 November until 30 June 2023, the reference rate of certain MSE loans will also be capped, as set out by Government Decree 415/2022 (X. 26.) published on 26 October. Accordingly, the provisions shall be applied to HUF denominated, non-subsidized, floating rate loans to micro and small enterprises and financial lease contracts, excluding overdraft loan agreements. In this period, the reference rate of these exposures cannot be higher than the relevant reference rate as specified in the contract as at 28 June 2022 (on that day the 3M BUBOR stood at 7.77%). The financial burden of the MSE rate cap must be shouldered by the banks. The cost of the rate cap scheme is borne by the banks.
The expected negative after tax effect of the measures taken in October 2022 amounted to HUF 26.4 billion and was accounted for in the fourth quarter of 2022 in one sum.
OTP Bank Plc Separate Financial Statements 2022
38
NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
Summary of economic policy measures made and other relevant regulatory changes in the period under review [continued]
Moratorium, one-off effect
In Hungary the first phase of the moratorium on loan payments was effective from 19 March 2020 to 31 December 2020. At the end of 2020 the moratorium was extended in unchanged form for the period between 1 January 2021 and 30 June 2021. Furthermore, according to Government Decree No. 317/2021. (VI. 9.) released on 9 June 2021 the payment moratorium was extended with unchanged conditions until 30 September 2021. Pursuant to Government Decree 536/2021. (IX. 15.) published on 15 September, the Government decided to extend the debt repayment moratorium: the blanket moratorium was extended by an additional month, until the end of October, in an unchanged form. Furthermore, from the beginning of November 2021 until 30 June 2022 only the eligible borrowers can participate in the moratorium provided that they submitted a request to their banks about their intention to stay. Similarly, with its Government Decree No. 216/2022 published on 17 June, the Government further extended the expiry of the moratorium, until the end on 2022. Eligible clients had to notify their bank about their intention to participate in the payment holiday until the end of July 2022. The general payment holiday expired at the end of 2022.
Starting from September 2022 to the end of 2023, due to the severe draught, agricultural companies can enjoy a payment moratorium on their working capital and investment loans. Eligible borrowers can decide whether to join the scheme or not. At the end of 2022, HUF 41 billion worth of loans were subject to the moratorium for agricultural companies, making up 0.6% of OTP Core’s total gross loan volume.
During the term of the moratorium OTP Bank accrues the unpaid interest in its statement of recognized income, amongst the revenues. At the same time, due to the fact that interest cannot be charged on the unpaid interest, and the unpaid interest will be repaid later, in the course of 2020, 2021 and 2022 altogether HUF 44.1 billion one-off loss emerged in Hungary (after tax).
OTP Bank Plc Separate Financial Statements 2022
39
NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
Financial assets modified during the year ended 31 December 2022
Modification due to prolongation of deadline of covid moratoria till 31 July 2022 (opt in)
Gross carrying amount before modification
79,253
Modification loss
(301)
Gross carrying amount after modification
78,952
Loss allowance before modification
(23,965)
Net amortised cost after modification
54,987
Modification due to prolongation of interest rate cap (30 June 2022)
Gross carrying amount before modification
66,133
Modification loss
(2,405)
Gross carrying amount after modification
63,728
Loss allowance before modification
(1,580)
Net amortised cost after modification
62,148
Modification due to moratoria related to agriculture and prolongation of the existing moratoria ( 30 September 2022)
Gross carrying amount before modification
95,560
Modification loss
(1,562)
Gross carrying amount after modification
93,998
Loss allowance before modification
(19,404)
Net amortised cost after modification
74,594
Modification due to prolongation of interest rate cap (30 November 2022)
Gross carrying amount before modification
151,318
Modification loss
(531)
Gross carrying amount after modification
150,787
Loss allowance before modification
(6,094)
Net amortised cost after modification
144,693
Modification due to scope extension (mortgage loans with 5 year fixing without subsidy) and prolongation of the existing interest rate cap (31 December 2022)
Gross carrying amount before modification
205,891
Modification loss
(10,058)
Gross carrying amount after modification
195,833
Loss allowance before modification
(6,915)
Net amortised cost after modification
188,918
OTP Bank Plc Separate Financial Statements 2022
40
NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK
[continued]
Financial assets modified during the year ended 31 December 2021 related to covid moratorium
Modification due to prolongation of deadline of covid moratoria till 30 September 2021
Gross carrying amount before modification
668,312
Modification loss due to covid moratoria
(5,284)
Gross carrying amount after modification
663,028
Loss allowance before modification
(55,180)
Net amortised cost after modification
607,848
Modification due to prolongation of deadline of covid moratoria till 31 October 2021
Gross carrying amount before modification
665,620
Modification loss due to covid moratoria
(1,292)
Gross carrying amount after modification
664,328
Loss allowance before modification
(58,412)
Net amortised cost after modification
605,916
In case of credit card and overdraft loans interest charged during the moratoria period should be refunded to the debtors in amount determined as a difference between the charged interest and a premoratoria personal loan interest at 11,99%. The Bank has managed this government measure as loan agreement modification in the financial statements.
Gross carrying amount before modification
57,892
Modification loss due to covid moratoria
(1,983)
Gross carrying amount after modification
55,909
Loss allowance before modification
(9,234)
Net amortised cost after modification
46,675
Modification due to prolongation of deadline of covid moratoria till 30 June 2022
Gross carrying amount before modification
82,438
Modification loss due to covid moratoria
(1,614)
Gross carrying amount after modification
80,824
Loss allowance before modification
(23,516)
Net amortised cost after modification
57,308
On 24 December 2021 new regulation was issued on fixing of retail loan product’s interest, under that interest rates of mortgage loans with variable interest shall be fixed at reference rates of 27 October 2021, predictably till 30 June 2022.
Gross carrying amount before modification
67,108
Modification loss due to covid moratoria
(703)
Gross carrying amount after modification
66,405
Loss allowance before modification
(1,625)
Net amortised cost after modification
64,780
OTP Bank Plc Separate Financial Statements 2022
41
NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL
BANK OF HUNGARY (in HUF mn)
2022
2021
Cash on hand:
In HUF
80,809
82,839
In foreign currency
20,506
21,182
101,315
104,021
Amounts due from banks and balances with National Bank of Hungary:
Within one year:
In HUF
739,382
81,513
In foreign currency
252,854
289,596
992,236
371,109
Subtotal
1,093,551
475,130
Loss allowance
(1,353)
(185)
Subtotal
1,092,198
474,945
Average amount of compulsory reserve
740,428
99,303
Total
351,770
375,642
Rate of the compulsory reserve
6%
1%
The Bank shall deposit compulsory reserve in a determined percent of its liabilities at NBH. Liabilities considered in compulsory reserve calculation are as follows:
a) deposits and loans,
b) debt instruments,
c) repo transactions.
The amount of the compulsory reserve is the multiplication of the daily average of the liabilities considered in the compulsory reserve calculation and compulsory reserve rate, which are determined by the NBH in a specific decree. The Bank is required to complete compulsory reserve requirements in average in the second month after the reserve calculation period, requirements shall be completed once a month on the last calendar day. The Bank complies with the compulsory reserve requirements by the deposit of the adequate amount of cash as the calculated compulsory reserve on the bank account at NBH in monthly average.
Based on NBH decision compulsory reserve shall be 5%, which is effective from 1 October 2022.
An analysis of the change in the loss allowance on placement losses is as follows:
2022
2021
Balance as at 1 January
185
-
Loss allowance
5,023
185
Release of loss allowance
(3,813)
-
FX movement
(42)
-
Closing balance
1,353
185
OTP Bank Plc Separate Financial Statements 2022
42
NOTE 6: PLACEMENTS WITH OTHER BANKS (in HUF mn)
2022
2021
Within one year:
In HUF
825,820
1,388,709
In foreign currency
366,574
372,361
1,192,394
1,761,070
Over one year
In HUF
1,215,114
747,871
In foreign currency
511,103
65,761
1,726,217
813,632
Total placements
2,918,611
2,574,702
Loss allowance on placement losses
(18,782)
(7,490)
Total
2,899,829
2,567,212
An analysis of the change in the loss allowance on placement losses is as follows:
2022
2021
Balance as at 1 January
7,490
5,819
Loss allowance
27,571
20,524
Release of loss allowance
(17,026)
(18,911)
Use of loss allowance
-
(2)
FX movement
747
60
Closing balance
18,782
7,490
Interest conditions of placements with other banks (%):
2022
2021
Placements with other banks in HUF
0%-25.7%
0% - 5.9%
Placements with other banks in foreign currency
0%-13.29%
(0.59%) - 29%
Average interest of placements with other banks
7.51%
1.63%
OTP Bank Plc Separate Financial Statements 2022
43
NOTE 7: REPO RECEIVABLES (in HUF mn)
2022
2021
Within one year:
In HUF
248,696
33,710
248,696
33,710
Total gross amount
248,696
33,710
Loss allowance on repo receivables
(2,167)
(72)
Total repo receivables
246,529
33,638
An analysis of the change in the loss allowance on repo receivables is as follows:
2022
2021
Balance as at 1 January
72
292
Loss allowance
4,480
449
Release of loss allowance
(2,385)
(669)
Closing balance
2,167
72
Interest conditions of repo receivables (%):
2022
2021
Repo receivables in HUF
10.7%-18%
2%-3.2%
Average interest of repo receivables
7.31%
0.29%
OTP Bank Plc Separate Financial Statements 2022
44
NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn)
2022
2021
Held for trading securities:
Government bonds
67,521
30,827
Other non-interest bearing securities
274
1,134
Hungarian government discounted Treasury Bills
4,785
869
Corporate shares and investments
385
599
Mortgage bonds
82
116
Other securities
1,748
2,088
Subtotal
74,795
35,633
Securities mandatorily measured at fair value through profit or loss
Shares in investment funds
29,029
25,126
Shares
1,469
2,935
Subtotal
30,498
28,061
Held for trading derivative financial instruments:
Foreign currency swaps
121,854
38,811
Interest rate swaps
121,506
59,097
CCIRS and mark-to-market CCIRS swaps
14,847
11,649
Other derivative transactions
46,512
73,211
Subtotal
304,719
182,768
Total
410,012
246,462
Interest conditions and the remaining maturities of securities held for trading are as follows:
2022
2021
Within one year:
variable interest
3,041
111
fixed interest
10,467
4,163
13,508
4,274
Over one year:
variable interest
9,535
1,544
fixed interest
51,093
28,083
60,628
29,627
Non-interest bearing securities
659
1,732
Total
74,795
35,633
Securities held for trading denominated in HUF
89%
81%
Securities held for trading denominated in foreign currency
11%
19%
Securities held for trading total
100%
100%
Government bonds denominated in HUF
90%
83%
Government bonds denominated in foreign currency
10%
17%
Government securities total
100%
100%
Interest rates on securities held for trading in HUF
0%-16.69%
0%-6.75%
Interest rates on securities held for trading in foreign currency
0%-7.63%
0%-5.75%
Average interest on securities held for trading
6.44%
1.17%
OTP Bank Plc Separate Financial Statements 2022
45
NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn)
[continued]
Interest conditions and the remaining maturities of securities mandatorily measured at fair value through profit or loss are as follows:
2022
2021
Non-interest bearing securities
30,498
28,061
Total
30,498
28,061
Securities mandatorily measured at fair value through profit or loss denominated in HUF
69%
67%
Securities mandatorily measured at fair value through profit or loss denominated in foreign currency
31%
33%
Securities mandatorily measured at fair value through profit or loss total
100%
100%
NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
(in HUF mn)
2022
2021
Securities at fair value through other comprehensive income
Government bonds
177,393
278,875
Mortgage bonds
356,540
217,941
Interest bearing treasury bills
182,726
63,115
Other securities
62,594
64,870
Listed securities
7,290
43,759
in HUF
-
2,896
in foreign currency
7,290
40,863
Non-listed securities
55,304
21,111
in HUF
14,304
15,487
in foreign currency
41,000
5,624
Subtotal
779,253
624,801
Non-trading equity instruments
-non-listed securities
17,922
17,138
in HUF
528
529
in foreign currency
17,394
16,609
17,922
17,138
Securities at fair value through other comprehensive income total
797,175
641,939
OTP Bank Plc Separate Financial Statements 2022
46
NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in
HUF mn) [continued]
Detailed information of the non-trading equity instruments to be measured at fair value through other comprehensive income:
Name
Currency
2022
2021
Garantiqa
HUF
392
392
Hage / Közvil / Pénzügykut
HUF
136
136
OBS
EUR
11,915
13,222
VISA A Preferred
USD
5,479
3,388
17,922
17,138
Interest conditions and the remaining maturities of FVOCI securities can be analysed as follows:
2022
2021
Within one year:
variable interest
-
1,089
fixed interest
261,529
66,970
261,529
68,059
Over one year:
variable interest
235,661
71,344
fixed interest
282,063
485,398
517,724
556,742
Non-interest bearing securities
17,922
17,138
Total
797,175
641,939
FVOCI securities denominated in HUF
83%
73%
FVOCI securities denominated in foreign currency
17%
27%
FVOCI securities total
100%
100%
Interest rates on FVOCI securities denominated in HUF
1.25%-17.36%
1.25%-11%
Interest rates on FVOCI securities denominated in foreign currency
0.74%-16%
0%-16%
Average interest on FVOCI securities
5.27%
2.85%
Certain fixed-rate mortgage bonds and other securities are hedged against interest rate risk. (See Note 45.4.)
2022
2021
Net gain / (loss) reclassified from other comprehensive income to statement of profit or loss
(22,816)
(26,440)
Fair value of the hedged securities:
Government bonds
118,979
143,184
Other bonds
43,870
42,326
162,849
185,510
During the year ended 31 December 2022 and the year ended 31 December 2021 the Bank didn’t sell any of equity instruments designated to measure at fair value through other comprehensive income.
OTP Bank Plc Separate Financial Statements 2022
47
NOTE 10: SECURITIES AT AMORTISED COST (in HUF mn)
2022
2021
Government bonds
2,979,400
2,863,259
Other bonds
314,237
190,155
Mortgage bonds
24,586
24,309
Subtotal
3,318,223
3,077,723
Loss allowance
(35,850)
(6,685)
Total
3,282,373
3,071,038
Interest conditions and the remaining maturities of securities at amortised cost can be analysed as follows:
2022
2021
Within one year:
variable interest
-
8,101
fixed interest
321,879
305,694
321,879
313,795
Over one year:
variable interest
24,601
5,122
fixed interest
2,971,743
2,758,806
2,996,344
2,763,928
Total
3,318,223
3,077,723
The distribution of the securities at amortised cost by currency (%):
2022
2021
Securities at amortised cost denominated in HUF
72%
83%
Securities at amortised cost denominated in foreign currency
28%
17%
Securities at amortised cost total
100%
100%
Interest rates on securities at amortised cost
0.1%-17.74%
0.1%-12.75%
Average interest on securities at amortised cost denominated in HUF
2.93%
2.84%
An analysis of change in the loss allowance on securities at amortised cost:
2022
2021
Balance as at 1 January
6,685
3,288
Reclassification
-
1,281
Balance as at 1 January
6,685
4,569
Loss allowance
31,696
4,404
Release of loss allowance
(4,073)
(2,370)
FX movement
1,542
82
Closing balance
35,850
6,685
OTP Bank Plc Separate Financial Statements 2022
48
NOTE 11: LOANS (in HUF mn)
Loans measured at fair value through profit or loss
2022
2021
Within one year
39,694
32,091
Over one year
753,548
629,921
Loans measured at fair value through profit or loss total
793,242
662,012
Loans measured at fair value through profit or loss are mandatorily measured at fair value through profit or loss.
Loans measured at amortised cost, net of allowance for loan losses
2022
2021
Within one year
2,481,249
2,125,908
Over one year
2,518,671
2,062,114
Loans at amortised cost gross total
4,999,920
4,188,022
Loss allowance on loan losses
(174,880)
(155,557)
Loans at amortised cost total
4,825,040
4,032,465
An analysis of the loan portfolio by currency (%):
2022
2021
In HUF
58%
62%
In foreign currency
42%
38%
Total
100%
100%
Interest rates of the loan portfolio mandatorily measured at fair value through profit or loss are as follows (%):
2022
2021
Loans denominated in HUF
2,89%-18,26%
1.5% - 9.85%
Average interest on loans denominated in HUF
4.94%
4.56%
Interest rates of the loan portfolio measured at amortised cost are as follows (%):
2022
2021
Loans denominated in HUF
0%-43.7%
0%-37.5%
Loans denominated in foreign currency
(0.1%)-20.1%
(0.59%)-13%
Average interest on loans denominated in HUF
9.77%
6.64%
Average interest on loans denominated in foreign currency
2.74%
1.48%
OTP Bank Plc Separate Financial Statements 2022
49
NOTE 11: LOANS (in HUF mn) [continued]
For an analysis of the loan portfolio by stages, countries and rating categories please see Note 36.1.
An analysis of the change in the loss allowance on loans at amortised cost is as follows:
2022
2021
Balance as at 1 January
155,557
123,670
Reclassification
-
(1,281)
Balance as at 1 January
155,557
122,389
Loss allowance
252,002
221,084
Release of loss allowance
(210,342)
(180,291)
Use of loss allowance
(21,274)
(6,951)
Partial write-off
(7,348)
(1,733)
FX movement
6,285
1,059
Closing balance
174,880
155,557
The Bank sells non-performing loans without recourse at estimated fair value to a wholly owned subsidiary, OTP Factoring Ltd.
OTP Bank Plc Separate Financial Statements 2022
50
NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND
OTHER INVESTMENTS (in HUF mn)
2022
2021
Investments in subsidiaries:
Controlling interest
2,116,059
2,006,178
Other
23,427
16,086
Subtotal
2,139,486
2,022,264
Impairment loss
(542,769)
(449,256)
Total
1,596,717
1,573,008
Other investments contain certain securities accounted at cost.
Significant subsidiaries
Investments in companies in which the Bank has a controlling interest (direct) are detailed below. All companies are incorporated in Hungary unless indicated otherwise:
2022
2021
% Held (direct/indirect)
Gross book value
% Held (direct/indirect)
Gross book value
OTP Bank JSC (Ukraine)
100%
311,390
100%
311,390
DSK Bank EAD (Bulgaria)
100%
280,722
100%
280,692
OTP banka Srbija akcionarsko drustvo Novi Sad (Serbia)
100%
262,759
100%
262,759
OTP banka Hrvatska d.d. (Croatia)
100%
205,349
100%
205,349
OTP Bank Romania S.A. (Romania)
100%
167,764
100%
167,764
OTP Mortgage Bank Ltd.
100%
199,294
100%
154,294
SKB Banka d.d. Ljubljana (Slovenia)
100%
107,689
100%
107,689
JSC "OTP Bank" (Russia)
98%
74,337
98%
74,337
Crnogorska komercijalna banka a.d. (Montenegro)
100%
72,784
100%
72,784
OOO AlyansReserv (Russia)
100%
50,074
100%
50,074
Air-Invest Llc.
100%
39,248
100%
39,248
OTP Holding Malta Ltd.
100%
32,359
100%
32,359
Balansz Private Open-end Investment Fund
100%
60,630
100%
29,150
Bank Center No. 1. Ltd.
100%
26,063
100%
26,063
OTP Factoring Ltd.
100%
25,411
100%
25,411
Other
200,186
166,815
Total
2,116,059
2,006,178
An analysis of the change in the impairment loss is as follows:
2022
2021
Balance as at 1 January
449,256
425,163
Impairment loss for the period
147,712
59,132
Reversal of impairment loss
(54,199)
(31,712)
Use of impairment loss
-
(3,327)
Closing balance
542,769
449,256
OTP Bank Plc Separate Financial Statements 2022
51
NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER
INVESTMENTS (in HUF mn) [continued]
The Bank decided that the recoverable amount is determined based on fair value less cost of disposal. The Bank prepared impairment tests of the subsidiaries based on two different net present value calculation methods that show the same result; however they represent different economical logics. On one hand is the discount cash flow method (“DCF”) that calculates the value of the subsidiaries by discounting their expected cash flow; on the other hand the economic value added (“EVA”) method estimates the value of the subsidiaries from the initial invested capital and the present value of the economic profit that the companies are expected to generate in the future. Applying the EVA method was more practically than DCF method because it gives a more realistic picture about how the explicit period and the residual value can contribute to the value of the company.
The Bank, in its strategic plan, has taken into consideration the effects of the present global economic situation, the cautious recovery of economic situation and outlook, the associated risks and their possible effect on the financial sector as well as the current and expected availability of wholesale funding.
An analysis of the impairment loss by significant subsidiaries is as follows:
2022
2021
OTP Bank JSC (Ukraine)
280,763
207,397
OTP Bank Romania S.A. (Romania)
77,962
77,962
OTP Mortgage Bank Ltd.
84,707
65,096
OTP banka Srbija akcionarsko drustvo Novi Sad (Serbia)
23,452
43,477
JSC "OTP Bank" (Russia)
2,775
-
LLC Alliance Reserve (Russia)
15,801
-
OTP Life Annuity Ltd.
10,969
10,969
Air-Invest Ltd.
10,965
10,491
Monicomp Ltd.
8,632
8,632
Crnogorska komercijalna banka a.d. (Montenegro)
4,495
6,697
Balansz Private Open-end Investment Fund
5,110
5,566
OTP Real Estate Ltd.
5,557
5,557
R.E. Four d.o.o. (Serbia)
3,763
3,763
Total
534,951
445,607
Dividend income from significant subsidiaries and shares held-for-trading and shares measured at fair value through other comprehensive income is as follows:
2022
2021
DSK Bank EAD (Bulgaria)
74,314
-
OTP Factoring Ltd.
45,000
44,000
OTP Mortgage Bank Ltd.
18,000
-
OTP banka dioničko društvo (Croatia)
14,637
12,244
Merkantil Bank Ltd.
8,000
-
OTP Holding Ltd. (Cyprus)
7,800
-
OTP Holding Malta Ltd. (Malta)
4,803
5,531
OTP Real Estate Investment Fund Management Ltd.
3,500
3,500
OTP Bank JSC (Ukraine)
-
12,853
Inga Kettő Llc.
-
11,000
Monicomp Ltd.
-
1,173
Other
6,099
4,741
Subtotal
182,153
95,042
Dividend from shares held-for-trading
12,166
3,844
Dividend from shares fair value through other comprehensive income
207
151
Total
194,526
99,037
OTP Bank Plc Separate Financial Statements 2022
52
NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND
OTHER INVESTMENTS (in HUF mn) [continued]
Significant associates and joint ventures
The main figures of the Bank’s indirectly owned associates and joint ventures at cost 1 :
As at 31 December 2022
List of associated entities
Carrying amount
Ownership of OTP Bank
Profit after tax
Country / Headquarter
Activity
OTP Risk Fund I.
520
44.12%
(52)
Hungary /Budapest
Trusts, funds and similar financial entities
OTP-DayOne Magvető Fund
683
22.00%
13
Hungary /Budapest
Trusts, funds and similar financial entities
Company for Cash Services AD
392
25.00%
183
Bulgaria / Sofia
Other financial service activities, except insurance and pension funding
Edrone spółka z ograniczoną odpowiedzialnością
822
23.54%
(516)
Poland / Krakow
Computer programming activities
NovaKid Inc.
1,723
4.07%
(5,409)
USA / San Francisco
Online kids English learning platform operator
Banzai Cloud Closed Co. Plc.
216
17.42%
267
Hungary /Budapest
Computer programming activities
ClodeCool Ltd.
1,323
20.15%
1
Hungary /Budapest
Other education
Pepita.hu Closed Co. Plc.
1,323
40.00%
(157)
Hungary / Szeghalom
Retail sale via mail order houses or via Internet
Seon Holdings Ltd.
8,689
19.26%
(3)
UK / London
Computer programming activities
VCC Live Group Closed Co. Plc.
1,308
24.75%
(226)
Hungary /Budapest
Computer programming activities
Cursor Insight Ltd.
75
6.75%
n.a.
UK / London
Computer programming activities
Fabetker Ltd.
1
20.48%
135
Hungary / Nádudvar
Manufacture of concrete products for construction purposes
OneSoil Ag.
362
3.72%
(514)
Switzerland / Zurich
Computer programming activities
Packhelp Spółka Akcyjna
1,168
3.15%
(3,385)
Poland / Warsaw
Manufacture of corrugated paper and paperboard and of containers of paper and paperboard
Phoenix Play Invest closed Co. Plc.
2,350
21.69%
(1)
Hungary /Budapest
Activities of holding companies
Algorithmiq Invest Closed Co. Plc.
8,195
21.69%
792
Hungary /Budapest
Activities of holding companies
NGY Propertiers Investment SRL
11,735
14.54%
(22,567)
Romania / Bucharest
Renting and operating of own or leased real estate
Deligo Vision Technologies Ltd.
205
2.50%
(15)
Hungary /Budapest
Other information service activities
GRADUW Invest Closed Co. Plc.
4,803
3.81%
131
Hungary /Budapest
Sale and purchase of own real estate
SEH-Partner Ltd.
6,403
30.56%
n.a.
Hungary /Budapest
Activities of holding companies
Simonyi út 20. Ingatlanhasznosító Ltd.
90
47.62%
-
Hungary /Debrecen
Renting and operating of own or leased real estate
Fintech CEE Software Invest Ltd.
127
20.04%
n.a.
Hungary /Budapest
Activities of holding companies
New Frontier Technology Invest SARL
3,393
14.01%
n.a.
Luxemburg / Luxembourg
Activities of holding companies
Mindgram sp. z.o.o
200
2.38%
(328)
Poland / Warsaw
Other human health activities
1 Based on unaudited financial statements.
OTP Bank Plc Separate Financial Statements 2022
53
NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND
OTHER INVESTMENTS (in HUF mn) [continued]
Significant associates and joint ventures [continued]
As at 31 December 2021
List of associated entities
Carrying amount
Ownership of OTP Bank
Profit after tax
Country / Headquarter
Activity
OTP Kockázati Fund I.
526
44.12%
(52)
Hungary /Budapest
Trusts, funds and similar financial entities
OTP-DayOne Magvető Fund
288
22.00%
13
Hungary /Budapest
Trusts, funds and similar financial entities
Company for Cash Services AD
392
25.00%
(183)
Bulgaria / Sofia
Other financial service activities, exc. insurance and pension funding
Edrone spółka z ograniczoną odpowiedzialnością
779
17.34%
(293)
Poland / Krakow
Computer programming activities
Graboplast Closed Co. Plc.
700
7.00%
n.a.
Hungary / Győr
Manufacture of builders’ ware of plastic
NovaKid Inc.
2,006
4.17%
(4,621)
USA / San Francisco
Online kids English learning platform operator
Banzai Cloud Closed Co. Plc.
374
17.42%
n.a.
Hungary /Budapest
Computer programming activities
ClodeCool Ltd.
1,770
20.15%
1
Hungary /Budapest
Other education n.e.c.
Pepita.hu Closed Co. Plc.
516
34.00%
(132)
Hungary / Szeghalom
Retail sale via mail order houses or via Internet
Seon Holdings Ltd.
4,756
23.86%
(4)
UK / London
Computer programming activities
Starschema Ltd.
3,944
36.19%
n.a.
Hungary /Budapest
Computer consultancy activities
VCC Live Group Closed Co. Plc.
1,672
49.56%
(203)
Hungary /Budapest
Computer programming activities
Virtual Solutaion Ltd.
-
8.33%
n.a.
Hungary /Budapest
Computer programming activities
Yieldigo s.r.o.
76
1.97%
(168)
Czech Republic/Prague
Computer programming activities
Szallas.hu Closed Co. Plc.
8,809
51.19%
1,278
Hungary / Miskolc
Web portals
Cursor Insight LTD
146
6.75%
(247)
UK / London
Computer programming activities
Fabetker Ltd.
1
20.48%
132
Hungary / Nádudvar
Manufacture of concrete products for construction purposes
OneSoil Ag.
318
3.72%
(1,058)
Switzerland / Zurich
Computer programming activities
Packhelp Spółka Akcyjna
2,160
1.00%
(3,038)
Poland / Warsaw
Manufacture of corrugated paper and paperboard and of containers of paper and paperboard
PHOENIX PLAY Invest closed Co. Plc.
3,081
21.69%
(1)
Hungary /Budapest
Activities of holding companies
ALGORITHMIQ Invest Closed Co. Plc.
8,996
21.69%
792
Hungary /Budapest
Activities of holding companies
NGY Propertiers Investment SRL
12,331
14.54%
(22,567)
Romania / Bucharest
Renting and operating of own or leased real estate
OTP Bank Plc Separate Financial Statements 2022
54
NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND
OTHER INVESTMENTS (in HUF mn) [continued]
Significant events related to investments
The registered capital of the Romanian subsidiary of OTP Bank was increased to RON 2.279.253.360 from RON 2.079.253.200
The financial closure of the transaction to purchase 100% shareholding of Alpha Bank Albania SH.A., the Albanian subsidiary of the Alpha Bank Group has been completed on 18 July 2022, based on the share sale and purchase agreement concluded between OTP Bank and Alpha Bank Group’s member, Alpha International Holdings Single Member S.A., on 6 December 2021. The integration of OTP Bank Albania and Alpha Bank Albania is expected to be completed in 2023.
25 October 2022 the Metropolitan Court of Registration has registered a capital increase at OTP Mortgage Bank Ltd. The registered capital of OTP Mortgage Bank Ltd. was increased to HUF 57,000,000,000 from HUF 37,000,000,000.
12 December 2022 OTP Bank signed a purchase and sale contract for the purchase of the majority stake of Ipoteka Bank and its subsidiaries with the Ministry of Finance of the Republic of Uzbekistan. OTP Bank will purchase 100% of the shares held by the Ministry of Finance of the Republic of Uzbekistan (nearly 97% total shareholding) in two steps: 75% of the shares now and the remaining 25% three years after the financial closing of the first transaction. Ipoteka Bank is the fifth largest bank in Uzbekistan, with a market share of 8.5% based on total assets on 1 October 2022, with more than 1.6 million retail customers and a significant corporate clientele.
31 December 2022 the registered capital of OTP Mortgage Bank Ltd. was increased to HUF 82,000,000,000 from HUF 57,000,000,000.
The financial completion of the transaction to purchase 100% shareholding of Nova KBM d.d. and its subsidiary after obtaining all necessary regulatory approvals has been completed on 6 February 2023, based on the share sale and purchase agreement concluded between OTP Bank, funds managed by affiliates of Apollo Global Management, Inc. and EBRD, on 31 May 2021. The acquisition of the bank is the most significant acquisition in the history of OTP Group. With a market share of 20.7% in terms of total assets as of September 2022 and more than 1,500 employees as of the end of 2022, Nova KBM d.d. is the 2 nd largest bank in the Slovenian banking market. As a universal bank, it has been active in the retail and corporate segments as well. With the transaction closing of Nova KBM, OTP Group has around 30% share in the Slovenian banking market on a pro-forma basis. The integration process of the two Slovenian subsidiaries, SKB banka purchased in 2019 and Nova KBM is expected to be completed in 2024. The new bank will be the largest foreign subsidiary of OTP Group.
OTP Bank Plc Separate Financial Statements 2022
55
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn)
For the year ended 31 December 2022
Intangible assets
Property
Office equipment and vehicles
Vehicles
Construction in progress
Right of use assets
Total
Cost
Balance as at 1 January
188,853
74,506
103,469
199
9,425
31,118
407,570
Additions
59,839
5,979
15,804
12
28,117
29,156
138,907
Disposals
(35,607)
(1,890)
(6,349)
(14)
(21,892)
(925)
(66,677)
Balance as at 31 Decembere
213,085
78,595
112,924
197
15,650
59,349
479,800
Depreciation and Amortization
Balance as at 1 January
126,692
28,316
77,404
62
-
13,887
246,361
Charge for the year
24,768
4,347
10,211
29
-
7,383
46,738
Disposals
(7,855)
(2,515)
(5,038)
(14)
-
(1,803)
(17,225)
Balance as at 31 Decembere
143,605
30,148
82,577
77
-
19,467
275,874
Net book value
Balance as at 1 January
62,161
46,190
26,065
137
9,425
17,231
161,209
Balance as at 31 December
69,480
48,447
30,347
120
15,650
39,882
203,926
For the year ended 31 December 2021
Intangible assets
Property
Office equipment and vehicles
Vehicles
Construction in progress
Right of use assets
Total
Cost
Balance as at 1 January
164,875
72,277
93,878
160
9,421
22,443
363,054
Additions
52,130
4,074
13,434
87
20,394
8,675
98,794
Disposals
(28,152)
(1,845)
(3,843)
(48)
(20,390)
-
(54,278)
Balance as at 31 December
188,853
74,506
103,469
199
9,425
31,118
407,570
Depreciation and Amortization
Balance as at 1 January
107,236
25,789
71,899
74
-
8,964
213,962
Charge for the year
23,032
3,284
9,190
25
-
5,161
40,692
Disposals
(3,576)
(757)
(3,685)
(37)
-
(238)
(8,293)
Balance as at 31 December
126,692
28,316
77,404
62
-
13,887
246,361
Net book value
Balance as at 1 January
57,639
46,488
21,979
86
9,421
13,479
149,092
Balance as at 31 December
62,161
46,190
26,065
137
9,425
17,231
161,209
The Bank has no intangible assets with indefinite useful life.
OTP Bank Plc Separate Financial Statements 2022
56
NOTE 14: INVESTMENT PROPERTIES (in HUF mn)
For the year ended 31 December 2022 and 2021, respectively
2022
2021
Property
Cost
Balance as at 1 January
5,013
2,577
Additions result from subsequent expenditure
14
2,640
Disposals
-
(204)
Closing balance
5,027
5,013
Depreciation and Amortization
Balance as at 1 January
685
641
Charge for the period
135
92
Disposals
-
(48)
Closing balance
820
685
Net book value
Balance as at 1 January
4,328
1,936
Closing balance
4,207
4,328
According to the opinion of the Management there is no significant difference between the fair value and the carrying value of these properties.
Income and Expenses
2022
2021
Rental income
8
6
Depreciation
135
92
NOTE 15: FAIR VALUE OF DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE
ACCOUNTING (in HUF mn)
Positive fair value of derivative financial assets designated as hedge accounting:
2022
2021
Interest rate swaps designated as fair value hedge
29,139
13,276
CCIRS designated as fair value hedge
20,732
5,471
Interest rate swaps designated as cash flow hedge
(2,651)
(1,020)
Total
47,220
17,727
OTP Bank Plc Separate Financial Statements 2022
57
NOTE 16: OTHER ASSETS 1 (in HUF mn)
2022
2021
Other financial assets
Receivables from OTP Employee Stock Ownership Program (OTP ESOP)
119,123
84,304
Prepayments and accrued income
15,674
16,391
Receivables from investment services
34,828
16,074
Stock exchange deposit
30,939
11,643
Trade receivables
11,053
10,519
Receivables from card operations
34,783
10,423
Receivables from suppliers
6,621
5,812
Other
9,130
3,729
262,151
158,895
Loss allowance
(7,026)
(5,148)
Other financial assets total
255,125
153,747
Other non-financial assets
Prepayments and accrued income
44,106
44,411
Receivable related to Hungarian Government subsidies
19,076
14,281
Other
12,144
12,563
75,326
71,255
Provision for impairment on other assets
(699)
(514)
Other non-financial assets total
74,627
70,741
Total
329,752
224,488
An analysis of the movement in the loss allowance on other financial assets is as follows:
2022
2021
Balance as at 1 January
5,148
7,928
Charge for the period
10,572
3,888
Release of loss allowance
(7,715)
(5,972)
Use of loss allowance
(982)
(707)
FX movement
3
11
Balance as at 31 December
7,026
5,148
An analysis of the movement in the loss allowance on other non-financial assets is as follows:
2022
2021
Balance as at 1 January
514
482
Charge for the period
255
86
Release of provision
(106)
(74)
FX movement
36
20
Balance as at 31 December
699
514
1 Other assets are expected to be recovered or settled no more than twelve months after the reporting period.
OTP Bank Plc Separate Financial Statements 2022
58
NOTE 17: AMOUNTS DUE TO BANKS AND DEPOSITS FROM THE NATIONAL BANK OF
HUNGARY AND OTHER BANKS (in HUF mn)
2022
2021
Within one year:
In HUF
554,794
354,647
In foreign currency
448,935
81,550
1,003,729
436,197
Over one year:
In HUF
392,947
588,161
In foreign currency
339,452
26,845
732,399
615,006
Subtotal
1,736,128
1,051,203
Total
1,736,128
1,051,203
Interest rates on amounts due to banks and deposits from the NBH and other banks are as follows (%):
2022
2021
Within one year:
In HUF
(2.4%) - 18%
(2.4%)-4.5%
In foreign currency
(2.31%) - 5.9%
(2.4%)-8.5%
Over one year:
In HUF
(2.4%) - 9.23%
(2.4%)-1.3%
In foreign currency
(2.4%) - 6.84%
(2.4%)-1.5%
Average interest on amounts due to banks in HUF
3.24%
1.26%
Average interest on amounts due to banks in foreign currency
1.50%
1.14%
NOTE 18: REPO LIABILITIES (in HUF mn)
2022
2021
Within one year:
In HUF
122,676
49,726
In foreign currency
15,561
-
138,237
49,726
Over one year:
In HUF
82,200
-
In foreign currency
187,929
36,854
270,129
36,854
Subtotal
408,366
86,580
Total
408,366
86,580
Interest rates on repo liabilities are as follows (%):
2022
2021
Within one year:
In HUF
11.5% - 15.47%
1.5%-2.8%
In foreign currency
2.47%-5.2%
-
Over one year:
In HUF
15%
-
In foreign currency
3.58%-3.69%
(0.35)%
Average interest on repo liabilities in HUF
9.31%
11.67%
Average interest on repo liabilities in foreign currency
0.30%
0.67%
OTP Bank Plc Separate Financial Statements 2022
59
NOTE 19: DEPOSITS FROM CUSTOMERS (in HUF mn)
2022
2021
Within one year:
In HUF
7,982,882
7,823,118
In foreign currency
3,112,937
2,079,643
11,095,819
9,902,761
Over one year:
In HUF
23,339
45,771
23,339
45,771
Total
11,119,158
9,948,532
Interest rates on deposits from customers are as follows (%):
2022
2021
Within one year in HUF
0%-17.95%
(2.48%)-7.96%
Over one year in HUF
0%-13%
0.01%-2.4%
In foreign currency
(0.4%)-45.1%
(0.6%)-17.2%
Average interest on deposits from customers in HUF
2.32%
0.16%
Average interest on deposits from customers in foreign currency
0.12%
0.01%
An analysis of deposits from customers by type, not including accrued interest, is as follows:
2022
2021
Retail deposits
4,756,881
43%
4,475,933
45%
Household deposits
4,756,881
43%
4,475,933
45%
Corporate deposits
6,362,277
57%
5,472,599
55%
Deposits to medium and large corporates
5,570,866
50%
4,639,198
47%
Municipality deposits
791,411
7%
833,401
8%
Total
11,119,158
100%
9,948,532
100%
OTP Bank Plc Separate Financial Statements 2022
60
NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn)
2022
2021
Within one year:
In HUF
4,311
12,048
In foreign currency
6,351
-
10,662
12,048
Over one year:
In HUF
46,192
10,105
In foreign currency
441,855
-
488,047
10,105
Total
498,709
22,153
Interest rates on liabilities from issued securities are as follows (%):
2022
2021
Issued securities denominated in HUF
0,6%-15%
0%-1.7%
Issued securities denominated in foreign currency
5,5%-7,35%
-
Average interest on issued securities denominated in HUF
2.63%
4.9%
Average interest on issued securities denominated in foreign currency
2.95%
-
Term Note Program in the value of HUF 200 billion for the year of 2022/2023
On 10 May 2022 the Bank initiated term note program in the value of HUF 200 billion with the intention of issuing registered dematerialized bonds in public. The NBH approved on 10 August 2022 the prospectus of Term Note Program. The prospectus is valid for 12 months following the disclosure.
The Issuer can initiate to introduce the bonds issued under the program to the Hungarian and to other stock exchanges without any obligations.
Term Note Program in the value of HUF 200 billion for the year of 2021/2022
On 28 May 2021 the Bank initiated term note program in the value of HUF 200 billion with the intention of issuing registered dematerialized bonds in public. The NBH approved on 8 July 2021 the prospectus of Term Note Program. The prospectus is valid for 12 months following the disclosure.
The Issuer can initiate to introduce the bonds issued under the program to the Hungarian and to other stock exchanges without any obligations.
Green Senior Preferred Notes issued in amount of EUR 400 million
„Green” notes have been issued by the Bank on 13 July 2022 as value date in the aggregate nominal amount of EUR 400 million. The non-call 2 years senior preferred notes have a three years term and carry an annually paid fixed coupon of 5.500% in the first two years. With respect to the third year, the quarterly coupon is calculated as the sum of the initial margin (of 426.5 basis points) and the 3 month EURIBOR rate. The notes are rated ’BBB’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange.
Green Senior Preferred Notes issued in amount of USD 60 million
The Bank has issued “green” notes on 29 September 2022 in the aggregate nominal amount of USD 60 million. The notes are rated ’BBB’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange.
Green Senior Preferred Notes issued in amount of EUR 650 million
Notes were issued on 1 December 2022 as value date, in the aggregate nominal amount of EUR 650 million. The 3.25 Non-Call 2.25 years Senior Preferred Notes were priced on 23 November 2022. Notes are rated ’BBB’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH.The notes are listed on the Luxembourg Stock Exchange.
OTP Bank Plc Separate Financial Statements 2022
61
NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued]
Notes issued in amount of USD 650 million
See details about the event in Note 47.
Hedge accounting
Certain issued structured securities are hedged by the Bank with interest rate swaps (“IRS”) which exchange the fixed and floating interest rate with the interest rate of the securities between the parties at a notional amount that equals the nominal amount of the hedged securities. These are considered as fair value hedge relationships as they cover the interest rate risk arising from the coupons of the hedged securities. OTP Bank does not intend to be exposed to the risk embedded in the structured bonds, consequently as part of interest rate swap transaction the structured interest payments are swapped to floating interest rate. This hedging relationship meets all of the following hedge effectiveness requirements:
there is an economic relationship between the hedged item and the hedging instrument
the effect of credit risk does not dominate the value changes that result from that economic relationship
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Bank actually hedges and the quantity of the hedging instrument that the Bank actually uses to hedge that quantity of hedged item
The cash-flows of the fixed rate securities issued by the Bank are exposed to the changes in the HUF/EUR foreign exchange rate and the volatility of the quoted interest rates of EUR and HUF. The interest rate risk and foreign exchange risk related to these securities are hedged with EUR and HUF IRS transactions, where the fixed interests were swapped to payments linked to 3 month HUF BUBOR and EURIBOR, resulting in a decrease in the interest rate and foreign exchange exposure of issued securities.
Issued securities denominated in foreign currency as at 31 December 2022.
Name
Date of issuance
Maturity
Currency
Nominal value in FX million
Nominal value in HUF million
Amortised cost in FX million
Amortised cost in HUF million
Interest conditions (in % actual)
1
XS2560693181
01/12/2022
04/03/2026
EUR
650
260,136
653
261,341
variable
7.35
2
XS2499691330
13/07/2022
13/07/2025
EUR
399
159,859
409
163,893
variable
5.50
3
XS2536446649
29/09/2022
29/09/2026
USD
60
22,541
61
22,972
variable
7.25
Subtotal issued securities in foreign currency
1,109
442,536
1,124
448,206
OTP Bank Plc Separate Financial Statements 2022
62
NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued]
Issued securities denominated in HUF as at 31 December 2022
Name
Date of issuance
Maturity
Nominal value in HUF million
Amortised cost in HUF million
Interest conditions
Hedged
1
OTP_HUF_25/1
11/18/2022
11/18/2025
25,562
26,046
indexed
15.00
2
OTP_HUF_26/1
12/22/2022
1/5/2026
10,229
10,270
indexed
12.00
3
OTPRF2023A
3/22/2013
3/24/2023
1,010
1,215
indexed
1.70
hedged
4
OTP_DK_25/3
5/31/2021
5/31/2025
1,215
1,160
discount
5
OTP_DK_23/II
5/29/2020
5/31/2023
997
992
discount
6
OTP_DK_24/3
5/31/2021
5/31/2024
883
862
discount
7
OTP_DK_27/3
3/31/2022
5/31/2027
1,092
826
discount
8
OTP_DK_27/II
5/31/2021
5/31/2027
795
719
discount
9
OTP_DK_23/I
12/15/2018
5/31/2023
717
710
discount
10
OTP_DK_26/II
5/31/2021
5/31/2026
707
658
discount
11
OTP_DK_26/3
3/31/2022
5/31/2026
783
631
discount
12
OTP_DK_28/I
5/31/2021
5/31/2028
669
586
discount
13
OTP_DK_24/II
5/29/2020
5/31/2024
592
581
discount
14
OTP_DK_25/II
5/29/2020
5/31/2025
592
572
discount
15
OTP_DK_24/I
5/30/2019
5/31/2024
426
411
discount
16
OTPX2023A
3/22/2013
3/24/2023
312
410
indexed
hedged
17
OTP_DK_28/II
3/31/2022
5/31/2028
554
394
discount
18
OTP_DK_26/I
5/29/2020
5/31/2026
392
372
discount
19
OTP_DK_29/II
3/31/2022
5/31/2029
554
372
discount
20
OTP_DK_30/II
3/31/2022
5/31/2030
554
350
discount
21
OTP_DK_29/I
5/31/2021
5/31/2029
403
341
discount
22
OTPX2024B
10/10/2014
10/16/2024
295
378
indexed
0.70
hedged
23
OTPX2024A
6/18/2014
6/21/2024
241
310
indexed
1.30
hedged
24
OTPX2024C
12/15/2014
12/20/2024
242
309
indexed
0.60
hedged
25
OTPX2023B
6/28/2013
6/26/2023
198
260
indexed
0.60
hedged
26
OTP_DK_31/I
3/31/2022
5/31/2031
384
228
discount
27
OTP_DK_25/I
5/30/2019
5/31/2025
104
97
discount
28
OTP_DK_27/I
5/29/2020
5/31/2027
95
88
discount
29
OTP_DK_30/I
5/31/2021
5/31/2030
104
85
discount
30
OTP_DK_32/I
3/31/2022
5/31/2032
105
59
discount
Other
211
211
indexed
Subtotal issued securities in HUF
51,017
50,503
Total
493,553
498,709
OTP Bank Plc Separate Financial Statements 2022
63
NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued]
Issued securities denominated in HUF as at 31 December 2021
Name
Date of issuance
Maturity
Nominal value in HUF million
Amortised cost in HUF million
Interest conditions
Hedged
1
OTP_DK_22/II
5/29/2020
5/31/2022
3,173
3,164
discount
2
OTPRF2022A
3/22/2012
3/23/2022
2,321
2,513
indexed
1.70
hedged
3
OTP_DK_25/3
5/31/2021
5/31/2025
1,216
1,138
discount
4
OTPRF2022B
3/22/2012
3/23/2022
934
1,011
indexed
1.70
hedged
5
OTP_DK_22/I
12/15/2018
5/31/2022
993
985
discount
6
OTP_DK_23/II
5/29/2020
5/31/2023
997
981
discount
7
OTPRF2023A
3/22/2013
3/24/2023
899
977
indexed
1.70
hedged
8
OTPRF2022E
10/29/2012
10/31/2022
862
933
indexed
1.70
hedged
9
OTP_DK_24/3
5/31/2021
5/31/2024
883
848
discount
10
OTPRF2022F
12/28/2012
12/28/2022
708
773
indexed
1.70
hedged
11
OTP_DK_27/II
5/31/2021
5/31/2027
795
703
discount
12
OTP_DK_23/I
12/15/2018
5/31/2023
717
694
discount
13
OTP_DK_26/II
5/31/2021
5/31/2026
707
644
discount
14
OTP_DK_24/II
5/29/2020
5/31/2024
592
573
discount
15
OTP_DK_28/I
5/31/2021
5/31/2028
669
572
discount
16
OTP_DK_25/II
5/29/2020
5/31/2025
592
564
discount
17
OTPX2022B
7/18/2012
7/18/2022
164
549
indexed
1.70
hedged
18
OTP_DK_24/I
5/30/2019
5/31/2024
426
400
discount
19
OTP_DK_26/I
5/29/2020
5/31/2026
392
366
discount
20
OTPX2023A
3/22/2013
3/24/2023
312
366
indexed
1.70
hedged
21
OTPX2024B
10/10/2014
10/16/2024
295
336
indexed
0.70
hedged
22
OTP_DK_29/I
5/31/2021
5/31/2029
403
332
discount
23
OTPRF2022D
6/28/2012
6/28/2022
286
324
indexed
1.70
hedged
24
OTPX2022C
10/29/2012
10/28/2022
177
317
indexed
1.70
hedged
25
OTPX2022D
12/28/2012
12/27/2022
238
290
indexed
1.70
hedged
26
OTPX2024A
6/18/2014
6/21/2024
241
277
indexed
1.30
hedged
27
OTPX2024C
12/15/2014
12/20/2024
242
275
indexed
0.60
hedged
28
OTPX2023B
6/28/2013
6/26/2023
198
272
indexed
0.60
hedged
29
OTPRF2022C
6/28/2012
6/28/2022
209
266
indexed
1.70
hedged
30
OTPX2022A
3/22/2012
3/23/2022
175
236
indexed
-
hedged
31
OTP_DK_25/I
5/30/2019
5/31/2025
104
94
discount
32
OTP_DK_27/I
5/29/2020
5/31/2027
95
87
discount
33
OTP_DK_30/I
5/31/2021
5/31/2030
104
82
discount
Other
211
211
Subtotal issued securities in HUF
21,330
22,153
Total
21,330
22,153
OTP Bank Plc Separate Financial Statements 2022
64
NOTE 21: FINANCIAL LIABILITIES DESIGNATED AS FAIR VALUE THROUGH PROFIT OR
LOSS (in HUF mn)
2022
2021
Within one year:
In HUF
1,716
1,784
1,716
1,784
Over one year:
In HUF
14,860
18,349
14,860
18,349
Total
16,576
20,133
Contractual amount outstanding
19,853
21,479
Interest rates on financial liabilities designated as fair value through profit or loss are as follows (%):
2022
2021
Within one year:
In HUF
2,19-3.96%
0.46% - 2.46%
Over one year:
In HUF
0,01%-4.63%
0.01% - 2.9%
Average interest on amounts due to banks in HUF
3.06%
2.15%
Certain MFB refinanced loan receivables are categorised as fair value through profit or loss based on SPPI test. Related refinancing loans at the liability side are categorised as fair value through profit or loss based on fair value option due to accounting mismatch as provided by the IFRS 9 standard.
NOTE 22: HELD FOR TRADING DERIVATIVE FINANCIAL LIABILITIES (in HUF mn)
Negative fair value of held for trading derivative financial liabilities by deal types:
2022
2021
Interest rate swaps
221,647
78,066
Foreign currency swaps
87,988
45,884
CCIRS and mark-to-market CCIRS
15,711
7,786
Other derivative contracts
48,055
60,525
Total
373,401
192,261
NOTE 23: FAIR VALUE OF DERIVATIVE FINANCIAL LIABLITIES DESIGNATED AS
HEDGE ACCOUNTING (in HUF mn)
Fair value of derivative financial liabilities designated as hedge accounting is detailed as follows:
2022
2021
IRS designated as fair value hedge
22,551
5,747
CCIRS designated as fair value hedge
5,398
5,325
IRS designated as cash flow hedge
22,674
7,618
Total
50,623
18,690
OTP Bank Plc Separate Financial Statements 2022
65
NOTE 24: OTHER LIABILITIES 1 AND PROVISIONS (in HUF mn)
2022
2021
Other financial liabilities
Liabilities from investment services
108,284
87,582
Accrued expenses
21,183
27,546
Accounts payable
27,127
18,754
Liabilities due to short positions
24,596
16,904
Liabilities from customer's credit card payments
52,274
14,574
Other
25,007
11,383
Other financial liabilities total
258,471
176,743
Other non-financial liabilities
Technical accounts
32,338
41,186
Current income tax payable
12,371
10,080
Social contribution
5,275
4,516
Accrued expenses
2,829
3,062
Other
1,904
2,850
Other non-financial liabilities total
54,717
61,694
Other liabilities total
313,188
238,437
The provision on other liabilities, off-balance sheet commitments and contingent liabilities are detailed as follows:
2022
2021
Provision for losses on other off-balance sheet commitments and contingent liabilities
23,632
17,768
Provisions in accordance with IFRS 9
23,632
17,768
Provision for litigation
1,917
259
Provision for retirement pension and severance pay
1,527
975
Provision on other liabilities
2,580
2,525
Provisions in accordance with IAS 37
6,024
3,759
Total
29,656
21,527
Movements in the provision for losses on commitments and contingent liabilities in accordance with IFRS 9 can be summarized as follows:
2022
2021
Opening balance
17,768
17,490
Provision for the period
49,698
47,626
Release of provision for the period
(44,157)
(47,496)
FX revaluation
323
148
Closing balance
23,632
17,768
Movements in the provision for losses on commitments and contingent liabilities in accordance with IAS 37 can be summarized as follows:
2022
2021
Opening balance
3,759
2,416
Provision for the period
8,128
14,286
Release of provision
(933)
(11,608)
Use of provision
(5,138)
(1,335)
FX revaluation
208
-
Closing balance
6,024
3,759
1 Other liabilities are expected to be recovered or settled no more than twelve months after the reporting period.
OTP Bank Plc Separate Financial Statements 2022
66
NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn)
2022
2021
Within one year
In foreign currency
3,395
2,841
3,395
2,841
Over one year:
In foreign currency
290,791
268,935
290,791
268,935
Total
294,186
271,776
Interest rates on subordinated bonds and loans are as follows (%):
2022
2021
Subordinated bonds and loans denominated in foreign currency
2.9%-4.7%
2.5%-2.9%
Average interest on subordinated bonds and loans denominated in foreign currency
3.06%
2.74%
Subordinated loans and bonds are detailed as follows as at 31 December 2022:
Type
Nominal value
Date of issuance
Date of maturity
Issue price
Interest conditions
Current interest rate
Subordinated bond
EUR 231 million
7 November 2006
Perpetual
99.375%
Three-month EURIBOR + 3%, variable (payable quarterly)
4.742%
Subordinated bond
EUR 499 million
15 July
2019
15 July
2029
99.738%
Fixed 2.875% annual in the first 5 years and callable after 5 years, variable after year 5 (payable annually) calculated as a sum of the initial margin (320 basis point) and the 5 year mid-swap rate prevailing at the and of the 5 year.
2.875%
NOTE 26: SHARE CAPITAL (in HUF mn)
2022
2021
Authorized, issued and fully paid:
Ordinary shares
28,000
28,000
The nominal value of the shares is HUF 100 per shares. All of the shares are ordinary shares representing the same rights to the shareholders. Furthermore there are no restrictions on the distribution of dividends and the repayment of capital.
OTP Bank Plc Separate Financial Statements 2022
67
NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn)
Based on the instructions of Act C of 2000 on accounting (“Act on Accounting”) financial statements of the Bank are prepared in accordance with IFRS as issued by the IASB as adopted by the EU.
In 2021, the Bank did not pay dividend based on the earlier NBH warnings issued due to covid moratoria. In 2022 dividend of HUF 119 billion from the profit of the years 2019 and 2020 and HUF 1 billion from the profit of the year 2021 (totally HUF 120 billion) was paid, which means HUF 425,89 (for the year 2019 and 2020) and HUF 3,57 (for the year 2021) dividend per share payable to shareholders.
In 2023 dividend of HUF 84,000 million are expected to be proposed by the Management from the profit of the year 2022, which means HUF 300 dividend per share payable to the shareholders.
Based on paragraph 114/B of Act on Accounting Equity Correlation Table is prepared and disclosed as a part of the explanatory notes for the reporting date by the Bank.
Equity correlation table shall contain the opening and closing balances of the shareholder’s equity in accordance with IFRS, furthermore deducted from this the opening and closing balances of the specified equity elements. Equity correlation table shall contain also untied retained earnings available for the payment of dividends, covering retained earnings from the last financial year for which accounts have been adopted comprising net profit for the period of that financial year minus cumulative unrealized gains claimed in connection with any increase in the fair value of investment properties, as provided in IAS 40 - Investment Property, reduced by the cumulative income tax accounted for under IAS 12 - Income Taxes.
Share capital
Share capital is the portion of the Bank’s equity that has been obtained by the issue of
shares
in the corporation to a shareholder, usually for
cash
.
Share-based payment reserve
Share-based payment reserve represents the increase in the equity due to the goods or services were received by the Bank in an equity-settled share-based payment transaction, valued at the fair value of the goods or services received.
Retained earnings
Profit of previous years generated by the Bank that are not distributed to shareholders as dividends.
Put option reserve
OTP Bank Plc. and MOL Plc. entered into a share swap agreement in 16 April 2009, whereby OTP has changed 24,000,000 OTP ordinary shares for 5,010,501 „A series” MOL shares. The amended final maturity of the share swap agreement is 11 July 2027, until which any party can initiate cash or physical settlement of the transaction.
Put option reserve represents the written put option over OTP ordinary shares were accounted as a deduction from equity at the date of OTP-MOL share swap transaction.
Other comprehensive income
Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs.
General reserve
The Bank shall place ten per cent of the after-tax profit of the year into general reserve prescribed by the Act CCXXXVII of 2013 on Credit Institutions and Financial Enterprises. The Bank is allowed to use general reserves only to cover operating losses arising from their activities.
Tied-up reserve
The tied-up reserve shall consist of sums tied up from the capital reserve and from the retained earnings.
OTP Bank Plc Separate Financial Statements 2022
68
NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued]
The equity correlation table of the Bank based on paragraph 114/B of Act on Accounting as at 31 December 2022:
31 December 2022
Closing balance
Share Capital
Capital reserve
Share-based payment reserve
Retained earnings and reserves
Option reserve
Treasury Shares
Revaluation reserve
Tied-up reserve
Net profit for the year
Total
Components of Shareholder’s equity in accordance with IFRS
28,000
52
49,110
1,661,907
(55,468)
(2,724)
-
-
-
1,680,877
Unused portion of reserve for developments
-
-
-
-
-
-
-
-
-
-
Other comprehensive income
-
-
-
52,933
-
-
(52,933)
-
-
-
Portion of supplementary payment recognised as an asset
-
-
-
-
-
-
-
-
-
-
Option reserve
-
(55,468)
-
-
55,468
-
-
-
-
-
Treasury shares
-
(2,724)
-
-
-
2,724
-
-
-
-
Share based payments
-
49,110
(49,110)
-
-
-
-
-
-
-
Net profit for the year
-
-
-
(6,632)
-
-
-
-
6,632
-
General reserve
-
-
-
(118,568)
-
-
-
118,568
-
-
Components of Shareholder’s equity in accordance with paragraph 114/B of Act on Accounting
28,000
(9,030)
-
1,589,640
-
-
(52,933)
118,568
6,632
1,680,877
OTP Bank Plc Separate Financial Statements 2022
69
NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued]
The equity correlation table of the Bank based on paragraph 114/B of Act on Accounting as at 1 January 2022:
1 January 2022
Opening balance
Share Capital
Capital reserve
Share-based payment reserve
Retained earnings and reserves
Option reserve
Treasury Shares
Revaluation reserve
Tied-up reserve
Net profit for the year
Total
Components of Shareholder’s equity in accordance with IFRS
28,000
52
46,162
1,855,090
(55,468)
(58,872)
-
-
-
1,814,964
Unused portion of reserve for developments
-
-
-
(497)
-
-
-
497
-
-
Other comprehensive income
-
-
-
(5,078)
-
-
5,078
-
-
-
Portion of supplementary payment recognised as an asset
-
-
-
-
-
-
-
-
-
-
Option reserve
-
(55,468)
-
-
55,468
-
-
-
-
-
Treasury shares
-
(58,872)
-
-
-
58,872
-
-
-
-
Share based payments
-
46,162
(46,162)
-
-
-
-
-
-
-
Net profit for the year
-
-
-
(125,339)
-
-
-
-
125,339
-
General reserve
-
-
-
(117,905)
-
-
-
117,905
-
-
Components of Shareholder’s equity in accordance with paragraph 114/B of Act on Accounting
28,000
(68,126)
-
1,606,271
-
-
5,078
118,402
125,339
1,814,964
OTP Bank Plc Separate Financial Statements 2022
70
NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued]
Calculated untied retained earnings in accordance with paragraph 114/B of Act on Accounting
2022
2021
Retained earnings
1,589,640
1,606,271
Net profit for the year
6,632
125,339
Untied retained earnings
1,596,272
1,731,610
Items of retained earnings and other reserves
2022
2021
Retained earnings
1,580,770
1,606,770
Capital reserve
52
52
Option reserve
(55,468)
(55,468)
Other reserves
127,438
117,903
Fair value of financial instruments measured at fair value through other comprehensive income
(43,723)
8,646
Share-based payment reserve
49,110
46,162
Fair value of derivative financial instruments designated as cash- flow hedge
(9,210)
(3,568)
Net profit for the period
6,632
125,339
Retained earnings and other reserves
1,655,601
1,845,836
Fair value adjustment of securities at fair value through other comprehensive income
2022
2021
Balance as at 1 January
145
36,441
Change of fair value correction
(88,350)
(34,484)
Deferred tax related to change of fair value correction
5,299
2,801
Other transfer to retained earnings
-
(5,070)
Deferred tax related to other transfer to retained earnings
-
457
Closing balance
(82,906)
145
Expected credit loss on securities at fair value through other comprehensive income
2022
2021
Balance as at 1 January
1,174
1,714
Increase of loss allowance
33,946
1,103
Release of loss allowance
(8,331)
(1,654)
Fx movement
2,372
11
Closing balance
29,161
1,174
Fair value changes of equity instruments as at fair value through other comprehensive income
2022
2021
Balance as at 1 January
7,327
6,201
Change of fair value correction
3,631
1,407
Deferred tax related to change of fair value correction
(936)
(281)
Closing balance
10,022
7,327
OTP Bank Plc Separate Financial Statements 2022
71
NOTE 28: TREASURY SHARES (in HUF mn)
2022
2021
Nominal value (ordinary shares)
35
325
Carrying value at acquisition cost
2,724
58,872
The changes in the carrying value of treasury shares are due to repurchase and sale transactions on market authorised by the General Assembly.
Change in number of shares:
2022
2021
Number of shares as at 1 January
3,249,984
4,331,169
Additions
1,801,256
16,251,451
Disposals
(4,698,896)
(17,332,636)
Number of shares at the end of the period
352,344
3,249,984
Change in carrying value:
2022
2021
Balance as at 1 January
58,872
46,799
Additions
16,268
276,433
Disposals
(72,416)
(264,360)
Closing Balance
2,724
58,872
2022
2021
Face value of treasury shares held by OTP Group members
1,097
766
OTP Bank Plc Separate Financial Statements 2022
72
NOTE 29: INTEREST INCOME AND EXPENSES (in HUF mn)
2022
2021
Interest income accounted for using the effective interest rate method from / on
Loans at amortised cost
297,727
168,388
FVOCI securities
39,988
21,456
Securities at amortised cost
92,948
61,085
Placements with other banks
204,479
33,544
Financial liabilities
20,098
3,337
Amounts due from banks and balances with National Bank of Hungary
56,204
14,245
Repo receivables
10,235
318
Subtotal
721,679
302,373
Income similar to interest income
Loans mandatorily measured at fair value through profit or loss
35,927
26,045
Swap and forward deals related to Placements with other banks
273,322
68,975
Swap and forward deals related to Loans at amortised cost
60,744
11,487
Swap and forward deals related to FVOCI securities
7,230
(850)
Investment properties
8
6
Subtotal
377,231
105,663
Interest income total
1,098,910
408,036
Interest expense due to / from / on
Amounts due to banks and deposits from the National Bank of Hungary and other banks
408,865
107,928
Deposits from customers
301,657
33,403
Leasing liabilities
1,186
214
Liabilities from issued securities
7,742
377
Subordinated bonds and loans