OTP Bank - Profit Beat On Main Lines, Foreign Branches Drove Earnings
Profit beat on main lines, foreign branches drove earnings
OTP reported HUF 189.2 bln net profit in the second quarter, well ahead of the consensus (+28%) and our estimates (+9%) on better revenues, lower provisioning. Higher profit compared to our estimate is basically explained by larger other income line.
Key positives
- OTP had a beat relative to market expectations on all core lines including net interest income (4% ahead the market) and fees (5% over exp.) paired with flattish provisioning&moderate OPEX growth. Russia was the second (!) largest contributor to earnings with its HUF 38.4 bln net profit. Capital ratio is stable at 16.4% (CET1) and portfolio quality stayed sound in Q3 with NPL ratio still on the decline, coverage still comfortable at 162%.
Key negatives
- The Hungarian subsidiary was weak compared to foreign subsidiaries. Despite the exceptionally high rate environment, NIM declined by 23 bps q-o-q as corporate segment repricing was unfavourable in the quarter and the bond portfolio is still bearing very low interest income. Romania was loss-making in the quarter on higher provisions which was not offset by the higher operating profit, we suspect this is attributed to OTP’s low market share on the local market.
OTP Bank is a financial institution based in Hungary. Co. is engaged in retail banking (account management, bankcards and Electronic sevices - OTPdirekt) corporate banking and private banking. In Hungary traditional banking operations are performed by Co. while specialized services, including car leasing, investment funds and insurance are developed and offered by Co.'s subsidiaries. Co. expands its operations throughout the region via its foreign subsidiaries. As of Dec 31 2011, Co. had total assets of HUF10,200,527,000,000 and deposits of HUF6,398,853,000,000.
Concorde Securities Ltd. is Hungary’s leading independent company engaged in investment banking activities. It provides its clients with integrated financial services, including securities trading, research, corporate financing advisory, capital market transactions, wealth management and investment advisory. The operational management of the company is the responsibility of the CEO, while the owners/managers (who control one-third of the company through their shares and options) are in charge of its strategic governance. Concorde Securities Ltd. is a member of the Budapest, Frankfurt, Warsaw and Bucharest stock exchanges, as well as of the Hungarian Association of Investment Service Providers.
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