OTP BANK NYRT. OTP BANK PLC.
INTEGRATED ANNUAL REPORT 2023
BUDAPEST, 26 APRIL 2024
Dear Shareholders!
OTP Bank Plc. hereby provides you with the Integrated Annual Report of OTP Bank Plc. for the year 2023, which is based on the audited financial statements approved by the Annual General Meeting of the Company on 26 April 2024.
On behalf of OTP Bank Plc. we declare that, to the best of our knowledge, the separate and consolidated financial statements which have been prepared in accordance with the applicable accounting standards, present a true and fair view of the assets, liabilities, financial position and profit and loss of OTP Bank Plc. and its consolidated subsidiaries and associates, and give a fair view of the position, development and performance of OTP Bank Plc. and its consolidated subsidiaries and associates, describing the principal risks and uncertainties, and do not conceal facts or information which are relevant to the evaluation of the Issuer's position.
26 April 2024, Budapest
dr. Sándor Csányi | László Bencsik |
Chairman & CEO | Deputy CEO |
INTEGRATED ANNUAL REPORT 2023 | 2 |
CONTENTS
BUSINESS REPORT 2023 (CONSOLIDATED) | 30 |
INDEPENDENT AUDITORS' REPORTS 2023 (SEPARATE AND CONSOLIDATED, IN | |
ACCORDANCE WITH IFRS) | 230 |
SEPARATE FINANCIAL STATEMENTS IN ACCORDANCE WITH IFRS (2023) | 255 |
CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH IFRS (2023) | 408 |
OTHER INFORMATIONS | 634 |
CORPORATE GOVERNANCE | 635 |
ANNEX TO SUSTAINABILITY REPORT | 644 |
UNEP FI PRINCIPLES FOR RESPONSIBLE BANKING REPORT | 653 |
INDEPENDENT ACCOUNTANT'S ASSURANCE REPORT | |
ON SUSTAINABILITY REPORTING | 668 |
INTEGRATED ANNUAL REPORT 2023 | 3 |
CHAIRMAN GREETINGS
GRI 2-22
2023 was OTP Group's most successful year to date, and our performance clearly indicates that we have become one of the leading financial groups in the region. The Group's balance sheet total exceeded EUR 100 billion and its profit after tax amounted to EUR 2.5 billion. Last year, we successfully completed two acquisitions, the purchase of NKBM in Slovenia was the Bank's largest ever transaction, while the acquisition of Ipoteka Bank in Uzbekistan marked our exit from the Central and Eastern European region. The bank's capital strength and stable liquidity position provide a favourabl e foundation for organic growth and further value-creating acquisitions, improving our market positions even further.
OTP Group's engagement to meeting its ambitious sustainability targets remains unbroken. We doubled our green loan and bond portfolio during the year, reaching and even exceeding the target set for 2023 by more than HUF 200 billion. At year-end, the Banking Group's green loan portfolio amounted to HUF 656 billion. Corporate lending accounts for the largest share of the portfolio, within whic h project financing represents the largest ratio. Corporate lending has also accounted for the bulk of this year's growth, but we expect to see more expansion in the retail sector and with small and medium -sized enterprises in the coming period.
An important step during the year was the extension of our corporate green loan framework to the group level, involving seven subsidiary banks. This clearly defines which loans qualify as green, which activities and sectors we focus on, and provides the basis for the green rating system we have also developed for the various loans. Obtaining reliable data on environmental performance is as much a challenge for OTP Group as it is for other market players worldwide. But these are as important when building a gre en portfolio as when assessing the impact of the total portfolio of financed loans. It is reassuring that there is continuous and dynamic progress in this area.
Because of its awareness-raising effect, I believe it is a good idea for our retail customers to be able to track their estimated carbon emissions related to their purchases in their mobile bank, which also encourages more environmentally-conscious choices.
In recent years, we have seen a significant increase in phishing attempts against customers. We have always made the security of our systems a top priority, improving it on an ongoing basis, and we support the protection of our customers with awareness messages and campaigns, as well as strategic partnerships at Group level.
OTP Group is similarly committed to improving the financial awareness of the population, and we are taking action to this end in all our countries of operation. Every year, OTP Group's foundations provide training to tens of thousands of young people, expanding their knowledge and shaping their awareness, and we are actively involved in a number of financial awareness initiatives and hundreds of our employees volunteer in this field.
You are kindly invited to review the following pages to see the Banking Group's financial result s and its activities promoting sustainable development.
Yours sincerely,
Dr. Sándor Csányi
Chairman and CEO
INTEGRATED ANNUAL REPORT 2023 | 4 |
BUSINESS REPORT 2023 (SEPARATE)
INTEGRATED ANNUAL REPORT 2023 | 5 |
OTP BANK | BUSINESS REPORT 2023 (SEPARATE) |
SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023
(in HUF million) | Note | 31 December 2023 | 31 December 2022 |
Cash, amounts due from banks and balances | |||
with the National Bank of Hungary | 5. | 2,708,232 | 1,092,198 |
Placements with other banks | 6. | 2,702,433 | 2,899,829 |
Repo receivables | 7. | 201,658 | 246,529 |
Financial assets at fair value through profit or | |||
loss | 8. | 257,535 | 410,012 |
Financial assets at fair value through other | |||
comprehensive income | 9. | 559,527 | 797,175 |
Securities at amortised cost | 10. | 2,710,848 | 3,282,373 |
Loans at amortised cost | 11. | 4,681,359 | 4,825,040 |
Loans mandatorily measured at fair value | |||
through profit or loss | 11. | 934,848 | 793,242 |
Investments in subsidiaries | 12. | 2,001,952 | 1,596,717 |
Property and equipment | 13. | 107,306 | 94,564 |
Intangible assets | 13. | 98,115 | 69,480 |
Right of use assets | 66,222 | 39,882 | |
Investment properties | 14. | 4,203 | 4,207 |
Deferred tax assets | 34. | 408 | 35,742 |
Current tax assets | 34. | - | 1,569 |
Derivative financial assets designated as hedge | |||
accounting relationships | 15. | 21,628 | 47,220 |
Non-current assets held for sale | 46. | 130,718 | - |
Other assets | 16. | 365,961 | 329,752 |
TOTAL ASSETS | 17,552,953 | 16,565,531 | |
Amounts due to banks and deposits from the | |||
National Bank of Hungary and other banks | 17. | 1,761,579 | 1,736,128 |
Repo liabilities | 18. | 443,694 | 408,366 |
Deposits from customers | 19. | 10,734,325 | 11,119,158 |
Leasing liabilities | 68,282 | 41,464 | |
Liabilities from issued securities | 20. | 1,163,109 | 498,709 |
Financial liabilities designated at fair value | |||
through profit or loss | 21. | 19,786 | 16,576 |
Derivative financial liabilities designated as held | |||
for trading | 22. | 183,565 | 373,401 |
Derivative financial liabilities designated as | |||
hedge accounting relationships | 23. | 27,423 | 50,623 |
Deferred tax liabilities | 34. | - | - |
Current tax liabilities | 34. | 14,393 | 3,199 |
Provisions | 24. | 22,497 | 29,656 |
Other liabilities | 24. | 295,399 | 313,188 |
Subordinated bonds and loans | 25. | 520,296 | 294,186 |
TOTAL LIABILITIES | 15,254,348 | 14,884,654 | |
Share capital | 26. | 28,000 | 28,000 |
Retained earnings and reserves | 27. | 2,276,759 | 1,655,601 |
Treasury shares | 28. | (6,154) | (2,724) |
TOTAL SHAREHOLDERS' EQUITY | 2,298,605 | 1,680,877 | |
TOTAL LIABILITIES AND SHAREHOLDERS' | |||
EQUITY | 17,552,953 | 16,565,531 |
SEPARATE STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2023
INTEGRATED ANNUAL REPORT 2023 | 6 |
OTP BANK | BUSINESS REPORT 2023 (SEPARATE) | ||
Year ended 31 | Year ended 31 | ||
(in HUF million) | Note | December 2023 | December 2022 |
Interest Income: | |||
Interest income calculated using the effective interest | |||
method | 29. | 1,227,173 | 721,679 |
Income similar to interest income | 29. | 795,906 | 377,231 |
Interest income and similar to interest income total | 2,023,079 | 1,098,910 | |
Interest Expense: | |||
Interest expenses total | 29. | (1,556,361) | (802,020) |
NET INTEREST INCOME | 466,718 | 296,890 | |
(Release of loss allowance) / Loss allowance on loan, | |||
placement and repo receivables losses | 6., 7., 11., 30. | 8,616 | (47,687) |
(Release of loss allowance) / Loss allowance on securities | |||
at fair value through other comprehensive income and on | |||
securities at amortised cost | 9., 10., 30. | 11,879 | (53,238) |
(Release of provision) / Provision for loan commitments | |||
and financial guarantees given | 24., 30. | 7,172 | (5,541) |
Change in the fair value attributable to changes in the | |||
credit risk of loans mandatorily measured at fair value | |||
through profit of loss | 45.4. | (980) | 11,872 |
Risk cost total | 26,687 | (94,594) | |
NET INTEREST INCOME AFTER RISK COST | 493,405 | 202,296 | |
LOSSES ARISING FROM DERECOGNITION OF | |||
FINANCIAL ASSETS MEASURED AT AMORTISED | |||
COST | (19,707) | (56,195) | |
MODIFICATION LOSS | 4. | (9,017) | (14,856) |
Income from fees and commissions | 31. | 402,885 | 362,444 |
Expenses from fees and commissions | 31. | (78,755) | (66,087) |
NET PROFIT FROM FEES AND COMMISSIONS | 324,130 | 296,357 | |
Foreign exchange (losses) and gains | 32. | (12,269) | 541 |
Gains and (losses) on securities, net | 32. | 7,073 | (10,605) |
Gains / (losses) on financial instruments at fair value | |||
through profit or loss | 32. | 91,268 | (18,790) |
Net results on derivative instruments and hedge | |||
relationships | 32. | 13,055 | 9,917 |
Dividend income | 32. | 275,705 | 194,526 |
Other operating income | 33. | 26,184 | 13,775 |
Other operating expenses | 33. | 63,590 | (131,942) |
NET OPERATING INCOME | 464,606 | 57,422 | |
Personnel expenses | 33. | (195,404) | (154,303) |
Depreciation and amortization | 33. | (50,814) | (46,738) |
Other administrative expenses | 33. | (281,918) | (290,989) |
OTHER ADMINISTRATIVE EXPENSES | (528,136) | (492,030) | |
PROFIT BEFORE INCOME TAX | 725,281 | (7,006) | |
Income tax | 34. | (70,293) | 13,638 |
PROFIT AFTER INCOME TAX | 654,988 | 6,632 | |
Earnings per share (in HUF) | |||
Basic | 43. | 2,344 | 24 |
Diluted | 43. | 2,344 | 24 |
INTEGRATED ANNUAL REPORT 2023 | 7 |
OTP BANK | BUSINESS REPORT 2023 (SEPARATE) |
SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023
(in HUF million)
PROFIT AFTER INCOME TAX
Items that may be reclassified subsequently to profit or loss:
Fair value adjustment of debt instruments at fair value through other comprehensive income
Deferred tax related to fair value adjustment of debt instruments at fair value through other comprehensive income
Gains / (Losses) on separated currency spread of financial instruments designated as hedging instrument
Deferred tax related to (losses) / gains on separated currency spread of financial instruments designated as hedging instrument
(Losses) / Gains on derivative financial instruments designated as cash flow hedge
Deferred tax related to gains on derivative financial instruments designated as cash flow hedge
Items that will not be reclassified to profit or loss:
Gains on equity instruments at fair value through other comprehensive income
Fair value adjustment of equity instruments at fair value through other comprehensive income
Deferred tax related to equity instruments at fair value through other comprehensive income
Year ended | Year ended | |
31 December | 31 December | |
Note | 2023 | 2022 |
654,988 | 6,632 |
37,917 | (55,804) | |
34. | (3,503) | 5,186 |
3,752 | (4,887) | |
34. | (338) | 440 |
5,700 | (5,641) | |
34. | - | - |
- | 2,675 | |
3,308 | 61 | |
34. | (374) | (41) |
Total | 46,462 | (58,011) |
TOTAL COMPREHENSIVE INCOME | 701,450 | (51,379) |
INTEGRATED ANNUAL REPORT 2023 | 8 |
OTP BANK | BUSINESS REPORT 2023 (SEPARATE) |
POST-BALANCE SHEET EVENTS
Post-balance sheet events cover the period until 20 February 2024.
Hungary
- On 23 January 2023 OTP Bank announced that notes were issued with a value date of 31 January 2024, in the aggregate nominal amount of EUR 600 million. The 5 years, Non-Call 4 years Senior Preferred Notes were priced on 23 January 2024.
- On 26 January 2024 Scope Ratings affirmed Hungary's long-term local- and foreign-currency issuer and senior unsecured debt ratings at 'BBB' with stable outlook.
- On 29 January 2024 the Ministry for National Economy announced that following discussions between the Government and the Banking Association, based on the banks' voluntary commitment, from 1 February to 1 May 2024, the interest margin above BUBOR rate for newly contracted Hungarian Forint-based, variable- rate corporate loan contracts (regardless of the purpose of the loan) will be 0%, and the margin will remain at 0% for 6 months from the date of disbursement of the loan, after which it may return to the normal level. At the same time, the Government indicated that the rate cap on outstanding variable rate MSE loans, which expires on 1 April 2024 according to the current legislation, will not be further extended.
- On 30 January 2024 the National Bank of Hungary cut its key policy rate by 75 bps to 10.0%.
- On 2 February 2024 OTP Bank announced that it decided to terminate the project aiming at establishing a consumer finance joint venture company with its partners in China with a 15%shareholding, as the condition precedents were not fulfilled until the pertaining contractual deadlines.
- On 9 February 2024 OTP Bank announced that it concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. ('BT'). OTP Group is also selling its 100% shareholdings in its other Romanian subsidiaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to BT under the transaction. The financial closing of the transaction is expected in 2024 subject to the necessary regulatory approvals.
- On 12 February 2024 OTP Bank received a single permission from the Hungarian National Bank for the repurchase of treasury shares, accordingly the Bank is entitled to repurchase its own shares in the amount of HUF 60 billion until 31 December 2024. The total amount specified in the permission shall immediately be deducted from the own funds in accordance with the law.
INTEGRATED ANNUAL REPORT 2023 | 9 |
OTP BANK | BUSINESS REPORT 2023 (SEPARATE) |
ACQUISITIONS
On 31 May 2021 OTP Bank signed a share sale and purchase agreement on purchasing 100% shareholding of OTP Luxembourg S.a.r.l. and its subsidiaries - Nova KBM d.d. and Aleja Finance d.o.o., which are 80% owned by funds managed by affiliates of Apollo Global Management, Inc. and 20% by EBRD. The financial closing of the transaction took place on 6 February 2023, after obtaining all the necessar y regulatory approvals.
In line with the sale and purchase agreement concluded on 12 December 2022 between OTP Bank and the Ministry of Economy and Finance of the Republic of Uzbekistan, the first step of the Ipoteka Bank acquisition was completed on 13 June 2023. Consequently, OTP Bank became the majority shareholder of Ipoteka Bank by acquiring a 73.71% stake and became indirect shareholder of Ipoteka Bank's wholly -owned subsidiaries. In the second step of the transaction, the shares that remained in the ownership of the Ministry will be bought three years after the first step.
MACROECONOMIC OVERVIEW
Following the rapid recovery after the Covid crisis and the outbreak of the Russian-Ukrainian war, inflation has already started to fall in advanced economies in 2023 and, as the year was nearing its end, the debate on the possible timing of an interest rate cut has begun. Meanwhile, the labour market remained tight, with low unemployment and strong wage dynamics. Developed markets' long yields fell sharply by the end of 2023, from the multi-decade highs hit in the autumn.
However, economic growth printed different patterns on the two sides of the Atlantic. In the USA, 2023 brought a much stronger-than-expected economic performance, and growth shifted into higher gear in the second half of the year. The robust figures were driven by supportive fiscal policy, a surge in household savings during the pandemic, and low interest rates on loans. Headline inflation peaked in June 2022 (+8.9%), but the subsequent decline briefly stalled in the middle of 2023. However, core inflation continued to fall, easing to 3.9% (y-o-y) by the end of 2023. The very loose fiscal policy, which raised the budget deficit from around 5% to 8% of GDP, required very tight monetary policy to bring inflation down. The Fed has aggressively raised the base rate to 5.25-5.5% while beginning to shrink its balance sheet.
The energy crisis brought the euro area to its knees, and the economy has been unable to recover from it: amid high inflation and high interest rates, output has been practically stagnant since the 3Q of 2022. Countries with industries that used to rely heavily on Russian energy (e.g. Germany) were hit particularly hard. High interest rates have led to a slowdown in lending, which has also weighed on growth in Europe. Disinflation was very strong in the euro area in 2023: headline and core inflation fell to 2.8% and 3.3%, respectively by the end of the year. The biggest concern in this context is services sector CPI, which has been stagnant at 4.0% (y-o-y) since November 2023. Despite all the weakness in the economy and strong disinflation, the ECB has not yet considered cutting interest rates, and the euro area ended last year with a deposit rate of 4% and a lending rate of 4.5%.
Hungary's economy fell into a longer and deeper recession than the rest of the CEE region in 2023 (GDP y-o-y:1Q:-0.9%;2Q:-2.4%;3Q:-0.4%). However, the recession ended in the third quarter, as growth started to pick up on quarterly basis, helped by the base effect of an unprecedented poor agriculture season in 2022. Inflation peaked at 25.7%, 10%points higher than the region's average, before disinflation started in the spring. From the middle of the year, real wages started to rise again on a monthly basis, but this was only very moderately passed on to consumer spending. Following an over 8% current account deficit in 2022, Hungary's external balance turned into surplus last year, as gas prices collapsed and imports fell, due to a drop in domestic demand. The initial budget deficit target of 3.9% of GDP turned out to be unsustainable and ended up near 6% of GDP in 2023. The MNB cut the effective interest rate in several steps by 725 basis points, to 10.75% by the end of the year, which had been raised to 18% in autumn 2022, and the base rate regained its role in September, when the former overnight deposit facility was phased out. The EUR/HUF fell from around 400 at the beginning of the year to below 370 at one point in the summer, but stabilized around 380 by the end of 2023.
Progress on EU funds was made at the end of last year when the European Commission approved the so-called horizontal enabling conditions for the judicial reform in December. The government was able to unblock about EUR 11 billion of EU funds, thanks to a range of measures implemented last year.
INTEGRATED ANNUAL REPORT 2023 | 10 |
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OTP Bank Nyrt. published this content on 26 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 April 2024 15:00:33 UTC.
