OTP Bank Annual Report 2019 Summary 4 Message from the Chairmain of the Supervisory Board 6 Financial Highlights 8 Main indicators of OTP Group 9 Main indicators of OTP Bank Romania S.A. 10 Macroeconomic and financial environment 14 Business Results 16 History of OTP Bank Romania S.A. 18 OTP Bank Romania’s approach 19 Plans 20 Objectives 20 OTP Bank Romania’s Strategy 22 OTPdirekt 25 Bank Card Business 26 Products for Individuals (Liabilities and Loans) 32 Small and Medium Enterprises 34 Private Banking 36 Corporate Banking 37 Treasury 38 OTP Bank Subsidiaries Present in Romania 44 Activities of other Foreign Subsidiaries of OTP Group 56 Financial Statements 58 Separate Income Statement 59 Separate Statement of Financial Position 60 Separate Statement of Cash Flows 61 Separate Statement of Changes in Equity 62 Notes to the Separate Financial Statements 164 Independent Auditor's Report 170 Corporate Governance 172 Supervisory Board 181 Management Board 188 Corporate Social Responsibility 196 Compliance Function 2 Message from the Chairmain of the Supervisory Board 3 MESSAGE FROM THE CHAIRMAIN OF THE SUPERVISORY BOARD In Romania, the specific European level OTP Bank Romania's involvement in the evo- 2020. At the beginning of the year, even if evolution conditions have exceeded the lution and development of the local bank- at the macroeconomic level the indicators standard, OTP Bank Romania marking a new ing sector continued in 2019. The bank con- showed stability, we sensed a downward year of growth. Thus, OTP Bank Romania stantly contributed to providing financial trend of the economic conditions for the next reported for 2019 a net profit adjusted after tax education for the population through pro- period. Though not on the scale of this his- of 6.31 billion HUF (RON 92 million), which rep- grams created and implemented by the toric global event, with major risks for the resents an increase of 65% compared to 2018. Right to Education Foundation and the first entire world economy. non-formal financial education center in Last year, OTP Bank Romania recorded a Romania, OK Center. The Right to Education As soon as the situation required it, we acti- OTP Group, with over 70 years dynamic progress, with a solid evolution of the Foundation continued and developed new vated the Business Continuity Plan and set of experience in the European bank`s activity parameters, starting from the public or private partnerships, and through priorities both for our own employees and banking sector, consistently lending operations, the volume level of per- the courses held at the national level, the for our clients. We acted quickly, we imple- pursues the business strategy forming loans and the capital adequacy rate. foundation's trainers reached 298 train- mented sanitary and business measures, we focused on efficiency, generating The bank ranks 9th on assets in the top bank- ing sessions during the year, meaning 4071 followed the NBR's guidance to alleviate the value and solutions for ing players in Romania. students from 36 settlements and 89 part- fiscal burden of Romanians, we are operat- shareholders, customers, and nerships with schools and NGOs. In its sec- ing at full capacity and we are ready to take employees in the 12 countries in Local business activity gradually intensified, ond year of activity, the OK Center arranged part in the economic reconstruction that will which it operates. Having direct pursuing the strategy of the bank`s organic 96 financial education courses, counseling, follow. contact with the market and the growth, with a rapid advance in the volume and training in partnership with NGOs, pri- specific customers` needs from the of new mortgages, financing granted to com- vate organizations, entrepreneurs, or pub- Antal György Kovács, CEE region, OTP Group's mission panies and a solid increase in the balance of lic institutions. In addition to all these, other Chairman of the Supervisory Board is innovation and supporting personal loans. At the same time, the imme- 175 internal events of OTP Bank Romania and companies and individual diate liquidity rate increased by 5.87% com- other 859 events organized in the OK Center customers with personalized pared to December 2018, reaching 32.8% (cal- space by external entities. banking services and solutions, culated internally) and the liquidity coverage while consolidating its operations ratio (LCR) reached a level of 148% at the end Following its recent acquisitions, OTP Group in the region. of last year. aims to strengthen capital and integrate the new entities into the OTP ecosystem for During 2019, in a favorable macroeconomic The last year`s positive result is the outcome context, generated by the continued growth of a balanced lending activity that is ori- of both Hungary and at the european level, ented towards supporting the local economy, the Group's activity developed in a dynamic through the financial support provided to a and organic way, also through its acquisi- mixed portfolio of companies and SMEs. At the tions. Last year, OTP Group recorded the same time, the bank endorsed the Romanians` largest consolidated net profit to date, of savings activities, by offering products lined EUR 1.27 billion in 2019, compared to the up to their current needs. The net loans/depos- result of 2018, EUR 998 million. its indicator was 122% at the end of last year. 4 OTP Bank Romania Annual Report 2019 Message from the Chairmain of the Supervisory Board 5 OTP BANK ROMANIA S.A. OTP BANK ROMANIA S.A. Notes to the Separate Financial Statements for the period ended December 31, 2019 Notes to the Separate Financial Statements for the period ended December 31, 2019 OTP Bank România S.A. Annual Report Financial Highlights 2019 66 OTP Bank Romania Annual Report 2019 Financial Highlights 77 OTP BANK ROMANIA S.A. OTP BANK ROMANIA S.A. Notes to the Separate Financial Statements for the period ended December 31, 2019 Notes to the Separate Financial Statements for the period ended December 31, 2019 Financial Highlights Financial Highlights MAIN FINANCIAL INDICATORS OF MAIN FINANCIAL INDICATORS OF OTP GROUP OTP BANK ROMANIA SA Main components of the Statement of recognised income in RON million 2018 2019 Y-o-Y Consolidated after tax profit 4,646 6,017 30% Adjustments (total) -102 -94 -8% "Consolidated adjusted after tax profit without the effect of adjustments 4,749 6,112 29% Pre-tax profit 5,294 6,796 28% Operating profit 5,618 7,439 32% Total income 12,870 15,718 22% Net interest income 8,755 10,301 18% Net fees and commissions 3,222 4,120 28% Main components of the Statement of recognised income in RON million 2018 2019 Y-o-Y Other net non-interest income 893 1,297 45% Operating expenses -7,252 -8,280 14% Profit after tax 26.2 70.5 269% Total risk costs -382 -687 80% Pre-tax profit 43.6 70.5 162% One off items 58 44 -24% Operating profit 164.4 175.0 106% Corporate taxes -546 -684 25% Total income 470.7 549.3 117% Main components of balance sheet closing balances in RON million 2018 2019 YTD Net interest income 345.0 403.2 117% Total assets 211,423 291,282 38% Net fees and commissions 48.8 42.0 86% Total customer loans (net, FX adjusted) 120,370 177,295 47% Other net non-interest income 76.9 104.0 135% Total customer loans (gross, FX adjusted) 130,439 187,348 44% Operating expenses -306.2 -374.3 122% Allowances for possible loan losses (FX adjusted) -10,069 -10,053 0% Total risk cost -120.9 -104.4 86% Total customer deposits (FX adjusted) 167,330 224,705 34% Corporate taxes -17.4 0.0 0% Issued securities 6,057 5,691 -6% Main components of balance sheet closing balance in RON million 2018 2019 Y-o-Y Subordinated loans 1,180 3,618 207% Total assets 11,053 13,242 120% Total shareholders' equity 26,469 33,169 25% Total customer loans (net) 7,704 9,139 119% Indicators based on adjusted earnings % based on HUF numbers 2018 2019 Y-o-Y Total customer loans (gross) 8,120 9,589 118% ROE (from accounting net earnings) based on HUF numbers 18.7% 20.3% 1.6%p Allowances for possible loan losses -416 -450 108% ROE (from adjusted net earnings) 19.1% 20.6% 1.5%p Total customer deposits 7,033 7,975 113% ROA (from adjusted net earnings) 2.3% 2.4% 0.1%p Issued securities - - Operating profit margin 2.76% 2.97% 0.21%p Subordinated loans - - Total income margin 6.33% 6.28% -0.04%p Total shareholders' equity 1,215 1,618 133% Net interest margin 4.30% 4.12% -0.19%p Indicators based on actual earnings % 2018 2019 Y-o-Y Cost-to-asset ratio 3.57% 3.31% -0.26%p ROE (from net earnings) 2.2% 5.0% 2.8% Cost/income ratio 56.3% 52.7% -3.7%p ROA (from net earnings) 0.3% 0.6% 0.3% Provision for impairment on loan and placement losses-to-average gross loans ratio 0.23% 0.28% 0.05%p Operating profit margin 1.5% 1.3% -0.2% Total risk cost-to-asset ratio 0.19% 0.27% 0.09%p Total income margin 4.7% 4.5% -0.1% Effective tax rate 10.3% 10.1% -0.2%p Net interest margin 3.4% 3.3% -0.1% Net loan/ (deposit+retail bond) ratio (FX adjusted) 72% 79% 7%p Cost-to-asset ratio 3.0% 3.1% 0.0% Cost/income ratio 65.1% 68.1% 3.1% Capital adequacy ratio (consolidated, IFRS) - Basel3 18.3% 16.3% -2.0%p Risk cost to average gross loans 1.6% 1.2% -0.4% Tier1 ratio - Basel3 16.5% 13.9% -2.6%p Total risk cost-to-asset ratio 1.2% 0.9% -0.3% Common Equity Tier 1 ('CET1') ratio - Basel3 16.5% 13.9% -2.6%p Effective tax rate 39.8% 0.0% -39.8% Share Data 2018 2019 Y-o-Y Net loan/deposit ratio 110% 115% 5.0% EPS diluted (HUF) (from unadjusted net earnings) 1,215 1,575 30% EPS diluted (HUF) (from adjusted net earnings) 1,242 1,602 29% Capital adequacy ratio