Expanding Profit at OTP Bank

Consolidated earnings at the Hungarian financial institution were HUF 826 billion profit after tax in January-September 2024 with an ROE of 24.9%; 3Q profit expanded by 19% q-o-q on the back of higher revenues and moderating impairments; 2% q-o-q organic increase in both performing loans and deposits, improving capital adequacy ratios.

The Group’s cumulated profit after tax amounted to HUF 826 billion, with ROE reaching 24.9%. The 4% y-o-y decrease in the profit after tax was due to the HUF 166 billion (after tax) one-off direct effect of the inclusion of the two newly acquired banks in the base period; in contrast, in 9M 2024 no adjustment items occurred on group level.

In January-September 2024, all geographical segments reported positive results, the share of foreign profit contribution reached 69%. The P&L dynamics in the first nine months were shaped, on one hand, by the consolidation of the newly acquired Ipoteka Bank in Uzbekistan, the on-going P&L contribution of which was included from July 2023, and it made HUF 42 billion profit after tax in 9M 2023. On the other hand, in the wake of the Romanian bank’s sale completed in July 2024, HUF 10.5 billion positive one-off gain was recognized in the third quarter.

Thirdly, FX rate changes also influenced P&L dynamics: the average rate of HUF typically weakened against the EUR (by 2.5%) and the currencies of other foreign subsidiaries but strengthened against the UAH and RUB.

Cumulated adjusted profit after tax improved by 19%, whereas the organic2 and FX-adjusted growth was 14% y-o-y.

The cumulated operating profit increased by 22%, mainly driven by the 28% increase in net interest income (+25% organically and FX-adjusted), boosted by both expanding business volumes and improving margins. It was the margin improvement at OTP Core that was particularly salient: from the lows hit in 1Q 2023, it climbed back to levels prevailing before the war and the extremely high-rate environment.

As for margin developments in Eurozone and ERM 2 countries, following a trend-like improvement in the preceding quarters, in the second half of last year margins plateaued, then started to moderately recede. In the first nine months, net fees and commissions grew by 14% organically and FX-adjusted. The drop in other net non-interest income was driven mainly by the y-o-y lower fair value adjustment of subsidized housing and baby loans at OTP Core. Operating costs went up by 14%, while the
organic and FX-adjusted cost growth hit 13%. The cumulated cost to income ratio improved by 1.7 pps to 41.0%.

Total risk costs increased by 69%, within that credit risk costs moderated by 5%, primarily due to releases in the OTP Core (Hungary) and Croatian segments. The jump in other risk costs was caused by impairments on Russian bonds held in the balance sheet of OTP Core and DSK Bank (Bulgaria).

The cumulated effective tax rate increased by 0.6 pp y-o-y, to 22.8%. The statutory corporate income tax rates were raised in many countries compared to the levels effective in 1-9M 2023: from 19% to 22% in Slovenia, from 18% to 25% in Ukraine in the case of banks, and from 10% to 15% in Bulgaria as the global minimum corporate tax rate was adopted from 2024.

As opposed to this, total special banking taxes presented on the corporate income tax line moderated y-o-y.

In October 2024, Ukraine’s parliament passed a bill that imposed 50% corporate tax on banks retroactively for full-year 2024, and 25% corporate tax on other financial corporations from the beginning of the year 2025.

The HUF 319 billion profit after tax realized in the third quarter of 2024 was consistent with 19% or HUF 51 billion q-o-q increase, driven mainly by the HUF 21 billion higher other income and the HUF 19 billion decrease in impairment charges.