Rising provision costs dent profit of Hungary’s OTP in 2020

Rising provision costs dent profit of Hungary’s OTP in 2020
Risk costs shot up 109% to HUF52bn.
By bne IntelliNews March 5, 2021

Consolidated after-tax profit at Hungary's largest commercial lender OTP fell by 31% y/y to HUF71.5bn (€197mn) in Q4 as risk costs shot up 109% to HUF52bn, according to the IFRS-based data in its earnings report released on March 5.

Full-year profit fell from an all-time high of HUF419bn in 2019 to HUF310bn. The bank did not give guidance for the year due to the uncertainties but expects a rebound in H2.

OTP's credit risk cost rate stood at 1.17% in Q4. Net interest income edged up 1% to HUF197.6bn but net revenue from commissions and fees slipped 3% to HUF83.1bn

For the full year, OTP's after-tax profit dropped 26% to HUF310bn, of which 41% came from foreign units, a 10pp drop from the previous year. Q4 contribution of foreign subsidiaries was 21% as the Croatian, Serbian and Romanian subsidiaries all went into the red.

Net interest income increased by12% to HUF788bn and net revenue from commissions and fees rose 4% to HUF293bn in 2020

Risk costs rocketed three-fold to HUF188bn in 2020.The annual credit risk cost rate was 1.15%.

OTP booked HUF28.3bn for the expected one-off negative effect of repayment moratoria in Hungary and Serbia. Return on equity fell by 9.4pp to 10.9%. Return on assets, adjusted for one-offs, dropped 1pp to 1.4%.

Diluted earnings per share came to HUF1,003 for the year.

OTP had total assets of HUF23.3 trillion at the end of December, up 16%. The retail lending stock rose 5% to HUF8.3 trillion, while corporate loans climbed 6% to HUF5.4 trillion.

Deposit stock increased by 15% to HUF17.9 trillion, of which retail clients accounted for HUF12.8 trillion and corporate stock HUF5 trillion, up 9% and 14% respectively.

NPL grew 0.4 pp to 3.8%, although OTP acknowledged the impact of extended repayment moratoria on portfolio quality.

OTP noted that the moratorium of dividend payment by the central bank MNB on 2019 and 2020 earnings is in place until September 30, 2021. The lender said it deducted HUF119bn of dividends from its regulatory capital, in line with EU rules. OTP may decide to pay in advance dividends after September 30.

The management noted that OTP's safe capital position enables it to look further for acquisition targets, in line with the management's strategic targets, it added. The group's gross operative liquidity reserves stood at €8.9bn at year-end.

In the report, OTP stressed that it is too early to give guidance in view of the significant uncertainties surrounding the pandemic. The management expects a steady rebound in H2.

Adjusted ROE "might be higher than in 2020", while organic, FX-adjusted growth of performing loan volume "might be around 2020 level", OTP said. The net interest margin erosion "might continue", total risk costs "might be lower than in 2020", and the cost-to-asset ratio "might further improve", they added.