The positive trends were continuing in 1Q 2011: in most of the countries industrial production grew steadily and export performance was strongly supported by the robust German economy as well as with global demand for commodities. Simultaneously, there is a strong opinion amongst the investor community that the growth potential of the CEE region will significantly exceed that of in Western Europe for the simple reason of facing much less structural challenges. In the previous three months there was a significant capital flow into the region both in terms of foreign direct and portfolio investments, CDS-levels heavily contracted since January 2011.
Despite the improving macroeconomic conditions, OTP Group’s banking activity still remained moderate: the overall loan demand is fairly weak and the DPD90+ ratio yet kept growing due to stagnating volumes. That was basically in line with the management’s predictions; however, from 2H 2011 a positive turnaround is expected.
In 1Q 2011 OTP Group posted HUF 37.2 billion after tax accounting profit, including the negative effect of the Hungarian banking tax. Excluding this one-off item, the adjusted net earnings reached HUF 44.1 billion, underpinning a 4% y-o-y growth and a 37% q-o-q improvement. Another positive momentum in 1Q was the significant turnaround in profit contribution of foreign subsidiaries. Against the loss of HUF 1.6 billion realized in 1Q 2010, they reached a profit of HUF 11.2 billion, mainly due to the good performance in Russia and Bulgaria.
Against the 1Q 2010 cumulative loss of HUF 1.6 billion and the HUF 2.1 billion positive earnings in 4Q, in 1Q 2011 foreign operations of the Group contributed HUF 11.2 billion to the consolidated results. Within that Russia, Bulgaria and Ukraine, i.e. the three core players, who are predicted to contribute a growing share of total earnings in medium run, also performed nicely. While in the base period they generated only HUF 5.9 billion due to the seasonally weak profit in Russia and in the Ukraine, in 1Q 2011 the three banks together made HUF 12.1 billion.
Between January and March the Group posted HUF 105.5 billion adjusted operating profit being basically flat q-o-q. At the same time the net interest income grew by 6% y-o-y and net fee and commission grew, too (+5%). On a quarterly base both earning items dropped by 2% and 13% respectively. The 1Q net interest margin (6.33%) advanced by 33 bps y-o-y (+10 bps q-o-q).
The FX-adjusted loan volumes somewhat declined q-o-q (-0.8%) with deposits posting a 3% q-o-q growth. As a result, the net loan/(deposits + retail bonds) ratio (102%) further improved (-7%-points y-o-y and -5%-points q-o-q).
In the past 12 months it was only the Russian market that could achieve a significant volume expansion: the FX-adjusted loan portfolio advanced by 25% y-o-y, within that the retail consumer book grew by 60%. Other markets witnessed either stagnation or a smaller decline.
As for the deposits, it was the Serbian subsidiary that captured the biggest y-o-y volume increase (+19%), followed by Russia (+9%) and Croatia (+7%). In 1Q 2011 the Hungarian and Bulgarian performance are worth mentioning (+6% and +2% q-o-q respectively).
The consolidated IFRS capital adequacy ratio (‘CAR’) reached 17.7.% by March 2011. The Tier1 ratio (14.8%) grew by 1.0%-points in the past twelve months. Both levels are significantly higher than that of for OTP’s main competitors in the region.
The stand alone CAR of OTP Bank under the local regulation stood at 18.6%, underpinning a y-o-y growth of 1.0%-points (+0.5%-points q-o-q).