OTP Group announces the financial results for the first nine months of 2019. According to the report published in Budapest, which presents the consolidated result adjusted in accordance with the Group’s reporting standards, OTP Bank Romania recorded a consolidated after-tax profit of RON 79 million (HUF 5.4 billion), with 14% higher than the base period.
In the third quarter the Romanian operation posted RON 26 million (HUF 1.8 billion) profit, 28% less than in 2Q, owing to higher risk costs, that grew due to the impairment recognised by OTP Factoring SRL (which is presented as part of the Romanian operation) for its subsidiaries because of their negative own capital.
The 9M operating profit grew by 18%, as a result of a 24% y-o-y increase in total income, and 28% growth in operating expenses. The 23% y-o-y improvement in net interest income was largely supported by the strong dynamics in performing (Stage 1+2) loan volumes. The 9M net interest margin slightly dropped, while total assets increased materially y-o-y on average.
On the third quarter, business activity has meaningfully intensified: mortgage lending surged 68% y-o-y and the disbursement of cash loans went up by 25% in 3Q. The FX-adjusted performing (Stage 1+2) loan volume grew dynamically, by 7% q-o-q. This increase was supported by both the retail (+15%
y-o-y, +3% q-o-q) and the corporate (+21% y-o-y, +1% q-o-q) segments. Performing (Stage 1+2) loans expanded by 23% y-o-y (FX-adjusted).
In 3Q net interest income increased by 10% q-o-q and by 21% y-o-y. Performing (Stage 1+2) loan volumes rose by 7% q-o-q, and net interest margin also grew (+12 bps q-o-q). The margin expansion is due to the fact that the reference rate, which serves as a basis for deposit pricing, declined by an average of 19 bps q-o-q, while the benchmark interest rate for the pricing of variable-rate loans has slightly picked up in q-o-q terms.
Regarding loan quality, DPD90+ loans (FX-adjusted, without sales and write-offs) rose in q-o-q terms in 3Q, albeit at a slower rate. The ratio of Stage 3 loans to total gross loans was at 8.3%
(‑1 pp y-o-y, and -0.6 pp q-o-q). Reasons for the lower ratio include selling and writing off bad loans; its relative decline was supported by the higher gross loan volume. The own coverage of Stage 3 loans rose by 36 bps q-o-q in the third quarter, reaching 48.4% at the end of the reporting period.
FX-adjusted deposit volumes increased by 20% y-o-y, driven by both the retail and corporate segments. Net loan-to-deposit ratio stood at 132% at the end of 3Q (-1 pp y-o-y).
According to local regulation, the Bank’s standalone total assets posted RON 12.4 billion, a net profit after tax of RON 60.5 million, and the capital adequacy ratio climbed to 20.5% from 17.11% posted in the previous quarter, due to the fact that OTP Bank Romania received a RON 320 million (about HUF 22 billion) increase in capital by its parent bank in the third quarter.
In 9M 2019 OTP Group posted HUF 313.1 billion adjusted after-tax profit underpinning a 19% y-o-y increase, q-o-q decelerating operational cost increase, accelerating loan volume growth with improving loan quality indicators, but q-o-q higher risk cost. The profit of OTP Core improved by 4% y-o-y and comprised HUF 145.7 billion. The share of the non-Hungarian operations’ profit contribution to the Group’s profit improved y-o-y (9M 2018: 41%, 9M 2019: 47%).The consolidated adjusted 9M ROE increased to 21.3% (+0.3 pp y-o-y).