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Summary of the First Quarter 2020 Results

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Summary of the First Quarter 2020 Results OTP Bank Plc. Summary of the first quarter 2020 results (English translation of the original report submitted to the Budapest Stock Exchange) Budapest, 8 May 2020 SUMMARY OF THE FIRST QUARTER 2020 RESULTS CONSOLIDATED FINANCIAL HIGHLIGHTS1 AND SHARE DATA Main components of the Statement of recognised income 1Q 2019 4Q 2019 1Q 2020 Q-o-Q Y-o-Y in HUF million Consolidated after tax profit 72,581 102,979 -4,072 -104% -106% Adjustments (total) -17,819 -2,971 -35,904 101% Consolidated adjusted after tax profit 90,400 105,950 31,832 -70% -65% without the effect of adjustments Pre-tax profit 101,826 114,585 35,850 -69% -65% Operating profit 108,758 139,991 127,183 -9% 17% Total income 239,716 305,518 283,873 -7% 18% Net interest income 162,670 195,875 200,280 2% 23% Net fees and commissions 57,223 85,503 69,234 -19% 21% Other net non-interest income 19,823 24,140 14,359 -41% -28% Operating expenses -130,958 -165,527 -156,690 -5% 20% Total risk costs -6,197 -24,891 -91,694 268% One off items -735 -515 360 -170% -149% Corporate taxes -11,426 -8,635 -4,018 -53% -65% Main components of balance sheet 1Q 2019 4Q 2019 1Q 2020 Q-o-Q Y-o-Y closing balances in HUF million Total assets 16,107,501 20,121,767 21,858,302 9% 36% Total customer loans (net, FX adjusted) 9,717,035 12,836,927 13,078,701 2% 35% Total customer loans (gross, FX adjusted) 10,441,544 13,548,983 13,876,067 2% 33% Allowances for possible loan losses (FX adjusted) -724,509 -712,055 -797,367 12% 10% Total customer deposits (FX adjusted) 13,197,120 16,228,237 16,355,462 1% 24% Issued securities 381,912 393,167 399,603 2% 5% Subordinated loans 81,201 249,937 272,320 9% 235% Total shareholders' equity 1,870,102 2,291,288 2,315,540 1% 24% Indicators based on adjusted earnings 1Q 2019 4Q 2019 1Q 2020 Q-o-Q Y-o-Y ROE (from accounting net earnings) 15.9% 18.2% -0.7% -18.9%p -16.6%p ROE (from adjusted net earnings) 19.7% 18.8% 5.5% -13.3%p -14.2%p ROA (from adjusted net earnings) 2.4% 2.2% 0.6% -1.6%p -1.7%p Operating profit margin 2.84% 2.90% 2.46% -0.44%p -0.38%p Total income margin 6.26% 6.34% 5.49% -0.85%p -0.77%p Net interest margin 4.25% 4.06% 3.87% -0.19%p -0.38%p Cost-to-asset ratio 3.42% 3.43% 3.03% -0.40%p -0.39%p Cost/income ratio 54.6% 54.2% 55.2% 1.0%p 0.6%p Provision for impairment on loan and placement losses-to-average 0.24% 0.45% 2.57% 2.13%p 2.33%p gross loans ratio Total risk cost-to-asset ratio 0.16% 0.52% 1.77% 1.26%p 1.61%p Effective tax rate 11.2% 7.5% 11.2% 3.7%p 0.0%p Net loan/(deposit+retail bond) ratio (FX adjusted) 74% 79% 80% 1%p 6%p Capital adequacy ratio2 (consolidated, IFRS) - Basel3 16.5% 16.8% 16.2% -0.5%p -0.3%p Tier1 ratio2 - Basel3 14.9% 14.4% 13.9% -0.5%p -1.1%p Common Equity Tier 1 ('CET1') ratio2 - Basel3 14.9% 14.4% 13.9% -0.5%p -1.1%p Share Data 1Q 2019 4Q 2019 1Q 2020 Q-o-Q Y-o-Y EPS diluted (HUF) (from unadjusted net earnings) 277 391 -16 -104% -106% EPS diluted (HUF) (from adjusted net earnings) 346 404 121 -70% -65% Closing price (HUF) 12,600 15,430 9,500 -38% -25% Highest closing price (HUF) 12,980 15,600 15,630 0% 20% Lowest closing price (HUF) 11,270 12,410 8,425 -32% -25% Market Capitalization (EUR billion) 11.0 13.1 7.4 -43% -33% Book Value Per Share (HUF) 6,679 8,183 8,270 1% 24% Tangible Book Value Per Share (HUF) 5,974 7,362 7,444 1% 25% Price/Book Value 1.9 1.9 1.1 -39% -39% Price/Tangible Book Value 2.1 2.1 1.3 -39% -39% P/E (trailing, from accounting net earnings) 10.8 10.5 7.9 -24% -27% P/E (trailing, from adjusted net earnings) 10.5 10.3 7.4 -28% -30% Average daily turnover (EUR million) 18 17 27 54% 52% Average daily turnover (million share) 0.5 0.4 0.7 80% 58% SHARE PRICE PERFORMANCE 17,000 S&P GLOBAL RATINGS CECE Banking Sector Index (relative to OTP) OTP Bank and OTP Mortgage Bank – FX Long term credit rating BBB Bloomberg EMEA Banks Index (relative to OTP) 15,000 OTP MOODY’S RATINGS 13,000 OTP Bank – FX long term deposits Baa3 OTP Bank – Subordinated Foreign Currency Debt Ba1 11,000 OTP Mortgage Bank – Covered mortgage bond Baa1 9,000 FITCH'S RATINGS 7,000 OTP Bank Russia – Long term credit rating BB+ Expressbank Bulgaria – Long term credit rating BB+ 5,000 31/12/2017 30/06/2018 31/12/2018 30/06/2019 31/12/2019 1 Structural adjustments made on consolidated IFRS profit and loss statement and balance sheet, together with the calculation methodology of adjusted indicators, are detailed in the Supplementary data section of the Report. 2 Concerning 4Q 2019 capital adequacy ratios, the figures presented in this report do not include dividend payment. This is consistent with the decision made by the Board of Directors on the 30th of April 2020, acting on behalf of the AGM, about the retainment of profit generated in 2019. These capital adequacy ratios differ from those presented in the Summary of the Group’s 4Q 2019 results, and the 2019 Annual Report. 2/82 SUMMARY OF THE FIRST QUARTER 2020 RESULTS SUMMARY – OTP BANK’S RESULTS FOR FIRST QUARTER 2020 Summary of the first quarter 2020 results of OTP Bank Plc. has been prepared on the basis of its non-audited separate and consolidated IFRS financial statements for 31 March 2020 or derived from that. SUMMARY OF FIRST QUARTER 2020 As a result of the potential impact of COVID-19 channels introduced earlier gained further pandemic the original macroeconomic forecast for ground; both Hungary and countries of foreign OTP Group in its provisioning policy the Group applied members became outdated. such models and set of macroeconomic assumptions which − according to its In order to smooth the negative effects of the expectations − are in line with the current pandemic, and create the necessary conditions for risk factors and uncertainties; restarting economic activities, a series of government, central bank and supervisory amid the significant provisioning the capital measures were introduced (the detailed summary of position of the Group remained stable, and those toolsets is presented in a unified structure it safely complies with all the regulatory after each subsidiary’s quarterly report). requirements even without the recently announced easing in capital buffer At the time of compiling the 1Q 2020 Summary the requirements; issuer assumed a GDP contraction of 1-5% within the liquidity position of the Group is safe, OTP universe as a baseline scenario. Such forecast deposit volumes kept increasing in 1Q. By is broadly in line with IMF’s global economic forecast the end of 1Q its liquidity coverage ratio published in April. (LCR) stood at 164%. However, currently there is a high degree of uncertainties around the depth and duration of the In 1Q the consolidated accounting loss was economic recession caused by the pandemic, as HUF 4 billion which already incorporates the profit well as the steepness of the expected rebound. Also, contribution of the Slovenian SKB Banka purchased at the moment it is difficult to assess the global from Societe Generale. impact of the pandemic, and the effectiveness of The total volume of adjustment items in 1Q economic protection measures introduced on represented -HUF 35.9 billion (after tax) with the national and international levels. following major items: Accordingly, the management has withdrawn its -HUF 16.7 billion banking tax at OTP Core and 2020 Guidance published on 6 March 2020 and the Slovakian subsidiary (after tax); will not make any new forecast for the rest of the -HUF 20.2 billion (after tax) negative potential year as long as there is no comprehensive impact of the loan moratorium in Hungary information about the state of the effective from 19 March. This amount was macroeconomic and operational environment. calculated with the de facto participation at Consolidated earnings: HUF 31.8 billion OTP Core on 23 April (HUF 21.3 billion) and adjusted profit after tax with q-o-q 2% organic Merkantil Group on 31 March (HUF 0.75 billion). performing loan volume growth; surging risk Regarding the foreign subsidiaries, in those costs as a result of the pandemic, further countries where loan moratoria were introduced, declining Stage 3 ratio, stable liquidity and though in different times, with different capital position effectiveness, participation rules or interest calculation methodologies, the Bank didn’t 1Q 2020 results were shaped mainly by the surging calculate with meaningful negative impact based risk costs due to the assumed negative impact of the on available statistics as of 31 March; coronavirus. +HUF 0.9 billion acquisition impact (after tax). It should be emphasized that According to the Government decree 108/2020.
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