Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OTP Bank PLC (STU:OTP, Financial) reported a strong capital adequacy ratio above 19%, significantly higher than the European minimum requirement of 5%.
- The company achieved a 19% year-on-year growth after adjusting for last year's one-off items, showcasing robust financial performance.
- Net interest margin stabilized at approximately 4.3%, with significant improvements noted in Hungary.
- The cost-to-income ratio is approaching 40%, indicating improved operational efficiency.
- Foreign operations contributed 70% to earnings, highlighting successful international expansion and diversification.
Negative Points
- The third quarter earnings were slightly lower compared to the previous year due to the absence of one-off positive items from past acquisitions.
- The sale of the Romanian bank, despite efforts, indicates challenges in achieving organic growth in certain markets.
- Risk costs were higher this year, primarily due to extra provisions for Russian bonds.
- The Hungarian GDP growth was lower than expected, which could impact future corporate loan demand.
- Increased transaction taxes in Hungary negatively impacted fee growth in the third quarter.
Q & A Highlights
Q: Can you provide an update on your capital distribution plans, considering your comfortable capital levels and potential Basel IV impacts?
A: We are in a comfortable equity position and are considering our options for capital distribution. Basel IV will have a one-off effect of 80-100 basis points on our common equity Tier 1. We plan to announce our capital distribution strategy, including potential dividends or share buybacks, when we present year-end numbers in early March.
Q: What factors contributed to the improvement in OTP Core's net interest margin, and how sensitive is it to changes in euro rates?
A: The improvement in Hungarian net interest margin was mainly due to strong growth in retail deposits, which we pay low interest on. Our sensitivity to euro rate changes is EUR 110 million per 1 percentage point decline, but we are working to reduce this sensitivity.
Q: Could you elaborate on the expected cost synergies from the Slovenian merger and the timeline for realization?
A: We expect to realize EUR 30-35 million in cost synergies from the Slovenian merger over the next 1.5 years. We have already started combining branches and will focus on realizing these synergies.
Q: How is the automotive sector's struggle in Germany affecting your portfolio, particularly in Hungary?
A: Our direct exposure to the automotive industry is limited, as car producers typically do not use local banks for financing. While there may be an impact on GDP due to the industry's contribution to net exports, we do not foresee a significant effect on our portfolio quality or retail loan demand.
Q: What is your strategy regarding the resolution approach for OTP Banka in Slovenia, and will there be further MREL issuance?
A: OTP Banka Slovenia will remain a stand-alone resolution entity in 2025, and it will continue to provide its own MREL funds. We plan to apply for a change in resolution strategy, which could take effect in 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
