OTP Group preserved its stable operating earning capability during the crisis
OTP Group managed to preserve its stable operating earning capability during the crisis, its capital and liquidity positions remained outstanding in international comparison. Furthermore, foreign operations – partly as a result of the steadily growing Russian profit contribution – could offset the decline in Hungarian profitability. In 2011 OTP Group posted HUF 161.4 billion adjusted net earnings (without the impact of the bank levy, early FX mortgage repayment and goodwill write-off). The profit somewhat fell short of 2010 adjusted earnings.
The annual accounting profit was HUF 83.8 billion showing a 29% y-o-y decline. The key items making the HUF 77.6 billion difference between accounting and adjusted profits were as follows: goodwill write offs related to the Croatian, Montenegrin and Serbian operations (after tax HUF 17.1 billion), the banking levy (after tax HUF 29 billion) and the loss from early repayment of FX mortgage loans in Hungary booked for 2011 (after tax HUF 31.6).
Given the roughly similar impact of goodwill write-offs and banking levy in 2010 and 2011, the significant drop in accounting profit was related to the early repayment.
Foreign subsidiaries managed to triple their earnings realizing HUF 51 billion versus HUF 17 billion a year before. Within that OTP Bank Russia posted twice as much as in 2010, while the overall losses from smaller operations dropped a lot. As a result, out of the total adjusted earnings foreign profit contribution represented 32% versus 10% in 2010.
In the last year the fastest loan portfolio growth was achieved in Russia: the FX-adjusted loan book advanced by 30% y-o-y supported by strong retail consumer lending. The Romanian and Bulgarian loan portfolio also kept growing, though less dynamically (by 6% and 2% respectively). It was also a positive momentum that the Ukrainian loan book stabilized as a result of steadily improving POS- and reviving corporate lending activity. On the negative, volumes dropped significantly at OTP Core (-7%), also in Serbia (-9%) and Montenegro (-6%).
As for the deposits, the fastest y-o-y growth was captured at the Ukrainian (+16%), Russian (+12%) and Bulgarian (+7%) subsidiaries, whereas the biggest drop was realized in Serbia (-12%). At OTP Core deposits with retail bonds remained unchanged y-o-y. As for the quarterly changes, deposit volumes grew the fastest in Ukraine (+4%) and Russia (+12%).
The Group maintains stable liquidity positions. Since the beginning of the crisis the consolidated net loan-to-deposit ratio continuously declined. The Bank used its excess liquidity generated by banking business for redeeming its external obligations. Since May 2008 no major scale capital market transaction was executed. In Hungary OTP Bank launched a household targeted bond issuance program, outstanding volumes reached HUF 345 billion by the end of 2011.
The loan portfolio deterioration generated HUF 234 billion risk cost in 2011, by 11% falling short of 2010 provisioning. At the same time The DPD90+ coverage level improved by 2.3% y-o-y and reached 76.7% (without risk cost related to FX early repayment). In 4Q the consolidated risk cost amounted to HUF 67.5 billion, as a result the DPD90+ coverage grew by 1.6%-points q-o-q. The DPD90+ ratio kept growing throughout 2011 from 13.7% to 16.6%. After a more significant increase in 1Q, for the rest of the year the loan quality worsening was quite even: up by 0.6% in each quarter. The FX-adjusted DPD90+ formation shows a declining trend, in 4Q volumes advanced by HUF 44 billion (in HUF billions 1Q: 72, 2Q: 54, 3Q:49).
The consolidated IFRS capital adequacy ratio (‘CAR’) reached 17.2% by December 2011. The Tier1 ratio stood at 13.3% declining by 0.8%-point in the past three months. The Common Equity Tier1 (‘CET1’) of the Group was 12.3%. The stand alone CAR of OTP Bank under the local regulation stood at 17.9% by end-December, down by 0.5%-point q-o-q. In 4Q OTP Bank injected capital into its Serbian and Slovakian subsidiaries, EUR 20 million and EUR 10 million respectively.
Under the second stress test arranged by EBA in summer 2011, OTP had the third highest Tier1 level amongst the inspected European banks. In December 2011 EBA had another test focusing on the banks securities exposure, the result again was convincing: OTP Group safely meets the 9% Core Tier1 requirement. The Group has no significant exposure to any peripheral Eurozone countries.