Contents 4 Message from the Chairman and Chief Executive Officer 10 Macroeconomic and financial environment in 2013 15 Management’s analysis 16 Management’s analysis of the 2013 results of the OTP Group 61 Financial reports 62 Independent Auditors’ report (consolidated, in accordance with IFRS) 64 Statement of financial position (consolidated, in accordance with IFRS) 65 Statement of recognized income (consolidated, in accordance with IFRS), Statement of comprehensive income (consolidated, in accordance with IFRS) 66 Statement of cash-flows (consolidated, in accordance with IFRS) 67 Statement of changes in shareholders’ equity (consolidated, in accordance with IFRS) 68 Notes to the consolidated IFRS financial statements for the year ended 31 December 2013 146 Independent Auditors’ report (separate, in accordance with IFRS) 148 Statement of financial position (separate, in accordance with IFRS) 149 Statement of recognized income (separate, in accordance with IFRS), Statement of comprehensive income (separate, in accordance with IFRS) 150 Statement of cash-flows (separate, in accordance with IFRS) 151 Statement of changes in shareholders’ equity (separate, in accordance with IFRS) 152 Notes to the separate IFRS financial statements for the year ended 31 December 2013 225 Corporate Governance 226 Senior management of OTP Bank and executive members of the Board of Directors 228 Non-executive members of the Board of Directors of OTP Bank 230 Members of OTP Bank Supervisory Board 232 Information for Shareholders 235 Statement on Corporate Governance Practice 239 Anti-money laundering measures 240 With trust and responsibility for each other Contents 3 Message from the Chairman & CEO DEAR SHAREHOLDERS, I started my message last year by saying that 2013 would be a tough year. It turned out I was right, though I’m not at all happy about that. Five years after the global financial crisis broke out, we need to get used to the fact that forecasts carry innumerable risks, and there’s no harm in caution. While certain issues appear to be being resolved, or at least are abating, new and often totally unexpected problems, with even more serious outcomes, are surfacing. As regards the global environment, it’s clearly a positive development that the eurozone crisis is now effectively off the agenda, the US economy is performing well, and consequently the Fed has gradually started phasing out its earlier liquidity expansion measures. At the same time the BRIC countries, which formerly displayed dynamic growth, are showing signs of a slump in economic performance; one of the most prominent among the emerging markets, Turkey, underperformed massively last year, and, in a development that directly impacts the OTP Group, we witnessed the growth in domestic political tensions in Ukraine from November 2013 onwards, the toppling of its government in February 2014, followed by an increasingly serious Ukrainian-Russian, and indeed a Russian-European and Russian- American conflict. I don’t believe that anyone allowed for these problems when putting together their 2013 business plans. I mention these events merely in order to give in recent years. I have to say that these factors a sense of how, in an environment such as this, are by no means unrelated to the frequent, factors that promote stable operation, such as, often unpredictable changes in the regulatory for a bank, a sound liquidity and capital position, environment. Efforts to boost the bank’s core take on much greater importance. However, activity, namely lending, are not helped by this does not mean that we are giving up our what is even by international standards an constant search for growth opportunities, unprecedentedly high, and indeed, growing, whether organic or through acquisition. proportion of burdens borne by the banking As far as the Bank Group’s regional operating sector, with no tangible reference point or environment is concerned, the picture is still timetable with respect to their phasing out. mixed: In Hungary, compared to the weak The solving of the problem of foreign currency performance of previous years, the 1.1% GDP borrowers, or to be more precise, the constant growth of 2013 represented something of an mooting of possible solutions, does nothing to upturn, while the financial stability indicators strengthen trust between the banks and their also continued to develop favourably. Inflation customers, but on the other hand, it clearly fell to a record low (1.7%), and the central bank’s damages payment discipline. We trust that after base rate dropped by 275 basis points in the the 2014 elections, government measures will course of 2013. At the same time, the ratio of be aimed at accelerating economic growth and investments is stuck far below the desired substantively increasing employment, and for this, level, especially in the private sector, and in the wholehearted participation of the banking spite of the favourable trend in real wages, sector will also be needed. For its part, with its household consumption remains exceptionally liquidity and capital, OTP Bank is fully prepared restrained, and the country’s ability to attract to participate actively in such a process, and as capital investment has dropped significantly the figures of last year show, so far the Bank 4 OTP Bank Annual Report 2013 has made the fullest possible use of all available demonstration of just how complex the tasks we opportunities to expand its loan portfolio. have had to grapple with in the past five years For the other members of the Bank Group, have been, and I cannot claim that the years overall the economic environment improved ahead will be any easier either. in 2013; the signs of our activities focused on In 2013 the Bank Group achieved a consolidated, consumer lending are observable everywhere, adjusted after-tax profit of HUF 146 billion; and the efforts made since the crisis to our profitability, liquidity position and capital strengthen self-financing capacity have led to a adequacy continue to be exceptionally good by notable improvement in the base of deposits at international standards. Although our foreign the subsidiary banks. In 2014 we expect to see a subsidiary banks’ contribution to profit was more continuation of these processes, owing to which modest than in previous years – primarily as a the consolidated exchange rate-adjusted loan negative consequence of the drop in profit at the portfolio could finally begin to grow. Russian subsidiary bank – none of these factors In my introduction I made special mention of alter our strategic objective of supplementing Ukraine and Russia: In view of the fact that our relatively limited growth opportunities in the our subsidiary banks in these two countries domestic market with other markets and market represent some 15% of the overall balance sheet segments that can compensate for the declining total, in terms of the Group’s short and medium- performance of the Hungarian operation in the term performance the way events unfold there long term through more rapid growth, greater is by no means irrelevant. The performance of penetration and higher operating margins. our Ukrainian subsidiary depends largely on Our activities focused on consumer lending which scenario develops. We hope and trust yielded tangible results again in 2013: many of that the current political tension will abate; our subsidiaries produced solid, double-digit the country has received a financial package growth in this segment, while our successful from the European Union and international acquisition in Croatia, which began in 2013 but financial organisations that assures the was completed in February 2014, has further protection of national solvency, and also serves reinforced our strategy in this regard. as a guarantee that the necessary structural reforms will get under way. This could stabilise the local currency and strengthen investors’ Overview of financial performance confidence in the country. If the opposite were in the year 2013 to occur, however, this would raise the prospect of negative processes similar to those seen The OTP Group achieved an adjusted after-tax in 2008, of an unsustainable macroeconomic profit of HUF 146 billion in 2013, which environment, and of sustained domestic political was 3% below the previous year’s figure. The tensions. In the case of Russia, a big question accounting profit, which includes one-off items, is how willing the political leadership is to was significantly lower than this, amounting to compromise with respect to Ukraine, and what a total of HUF 64 billion. The substantial annual impact the international sanctions could have drop of 48% in the latter is essentially due on the growth prospects of the already slowing to a tripling of correction items. Firstly, Russian economy. the HUF 28.9 billion Hungarian bank tax bill In other words, the year ahead of us remains accounted for in the first quarter of 2013 was fraught with challenges, although there are added to in the second quarter by a one-off also developments that give cause for cautious HUF 13.2 billion transaction-duty charge. optimism. In addition to this, the Slovakian bank tax In my view, the more-detailed-than-usual represented a burden of some HUF 1 billion at examination of the factors that fundamentally annual level. Furthermore, in the third quarter, determine our activity should not be construed some HUF 37.2 billion out of the HUF 64.0 billion as an attempt to explain away the fact that in goodwill recorded in relation to the Ukrainian profit in 2013 was slightly lower than analysts subsidiary under IFRS was written off. Of the had expected. Instead, it should be seen as a total write-off, HUF 6.4 billion was recognised Message from the Chairman & CEO 5 against equity, and HUF 30.8 billion against profit branches were opened, and in both these and loss. In the fourth quarter two more items markets consumer lending resulted in a further – of which the management had given prior expansion of the network of agents.