Pandemic: Surging Risk Costs at OTP Bank

Hungary's OTP Bank Plc. has announced that the summary of its first quarter 2020 results has been prepared on the basis of its non-audited separate and consolidated IFRS financial statements for March 31, 2020 or derived from that. Q1 2020 results were shaped mainly by the surging risk costs due to the assumed negative impact of the coronavirus.

Consolidated earnings in the first quarter of this year amounted to HUF 31.8 billion adjusted profit after tax with q-o-q 2% organic performing loan volume growth; as well as surging risk costs as a result of the pandemic, further declining Stage 3 ratio, stable liquidity and capital position.

The document states that 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pandemic the original macroeconomic forecast for both Hungary and countries of foreign OTP Group members became outdated. In order to smooth the negative effects of the pandemic, and create the necessary conditions for restarting economic activities, a series of government, central bank and supervisory measures were introduced.

At the time of compiling the 1Q 2020 Summary the issuer assumed a GDP contraction of 1-5% within OTP universe as a baseline scenario. Such forecast is broadly in line with IMF’s global economic forecast published in April.

However, 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, at the moment, it is difficult to assess the global impact of the pandemic, and the effectiveness of economic protection measures introduced on national and international levels.
Accordingly, the management has withdrawn its 2020 Guidance published on March 6, 2020 and will not make any new forecast for the rest of the year as long as there is no comprehensive information about the state of the macroeconomic and operational environment.