OTP Group: 2020 1Q results - Stable liquidity and capital position

12 May 2020
As a result of the potential impact of COVID-19 pandemic the original macroeconomic forecast for both Hungary and countries of foreign OTP Group members became outdated.
 
Currently there is a high degree of uncertainties around the depth and duration of the economic recession caused by the pandemic, as well as the steepness of the expected rebound. Also, now it is difficult to assess the global impact of the pandemic, and the effectiveness of economic protection measures introduced on national and international levels.
 
In connection with 1Q 2020 results it should be emphasized that in the current situation caused by the pandemic:
 
the Management highly evaluates that the business activity of the Group hasn’t suffered any major setback in the first quarter as a whole, home office became the prevailing form of daily operation (not including the branch network), simultaneously online selling channels introduced earlier gained further ground; the Group has placed great emphasis on doing everything possible to protect the health of its employees and customers, to come up with product offers and discounts that best serve the interests of its retail and corporate customers in the current difficult situation; In addition, the Bank supported the most deprived communities in various forms, through financial donations, medical equipment and computer equipment.
in its provisioning policy the Group applied such models and set of macroeconomic assumptions which − according to its expectations − are in line with the current risk factors and uncertainties;
amid the significant provisioning the capital position of the Group remained stable, and it safely complies with all the regulatory requirements even without the recently announced easing in capital buffer requirements;
the liquidity position of the Group is safe, deposit volumes kept increasing in 1Q. By the end of 1Q its liquidity coverage ratio (LCR) stood at 164%.
 
In 1Q 2020, the Group's consolidated accounting loss was HUF 4.1 billion, the volume of the adjustment items jumped significantly to nearly HUF 36 billion, mainly due to the calculated negative impact of the banking tax and the loan moratorium in Hungary. According to the current data, the participation rate in the moratorium is approx. 45-50% at OTP Core, while in the case of foreign subsidiaries, in those countries where loan moratoria were introduced - partly due to the differences in the maturities and other conditions of the moratoria introduced there - the management did not calculate a meaningful effect on the results based on available data so far. 
 
In 1Q 2020 OTP Group posted HUF 31.8 billion adjusted after-tax profit.  During the quarter all Group members suffered q-o-q setbacks in their net earnings as a result of elevated risk provisions induced by COVID-19 pandemic.  Without such forward-looking additional provisioning practice, the run-rate volume of risk costs would have been only around 10% of the de facto provisions; also, without those extra provision OTP Core would have still enjoyed positive risk costs in 1Q 2020.
 
The quarterly surplus was recognized mainly due to the changed external environment due to the epidemic, in line with the expectation of the forward-looking approach of IFRS 9.
 
The Group's capital position is safe, its Common Equity Tier1 capital ratio (CET ratio) was 13.9% at the end of 1Q 2020.
 
The Bank's liquidity position remained stable and strong, deposit volumes kept increasing in 1Q (+1% q-o-q, +HUF 129 billion), all key liquidity ratios (LCR, net loan-to-deposit ratio) are significantly higher or better than the industry average.
 
In 1Q 2020 the consolidated FX-adjusted performing loan volumes organically grew by 3%, by HUF 323 billion q-o-q, of which the Hungarian portfolios grew by 5% q-o-q.