OTP Bank Nyrt., the largest Hungarian bank, had a "record" 2017, CFO László Bencsik said March 2 as he announced that most stated financial targets were exceeded, with the exception of costs, amid a tightening labor market and growing IT expenditure.
Return on equity reached 18.5%, compared to a 15% target, as the bank posted consolidated after-tax profit of 281.1 billion Hungarian forints, up 39% from 202.2 billion forints in 2016. Despite guiding for a maximum 4% increase in spending, costs grew over 2017 by 4.6%, with a further 6% jump expected in 2018, the bank said.
"Operating expenses unfortunately grew somewhat more than originally expected," Bencsik said. "This is actually pressure primarily coming from the labor market," he explained, pointing to a 9.5% increase in real wages in Hungary in 2017 and similar trends across most other countries where OTP is present.
"The labor markets are extremely tight, and at the same time we are quite ambitious in terms of modernizing and further developing the bank, especially the IT infrastructure," he said. "Our service is going more into digital, which is obviously costly in technology and even more so in terms of people."
Staff expenses in Hungary will be partly mitigated by cuts in social security contributions, Bencsik noted.
Dividends will be hiked by 15%, in line with previous indications, and OTP remains on the lookout for acquisitions, the CFO told the audience. He noted that the 18.5% ROE "generates a substantial amount of capital which is available for organic and non-organic growth."
OTP's common equity Tier 1 ratio was 12.7% at the end of 2017, down from 13.7% at the same time the previous year.
Bencsik also said investors should expect a similar rate of lending growth in 2018 as in 2017, i.e. 10% to 12% overall, but with a turn in the mix toward retail and away from corporate credit. OTP does not wish to grow its market share in business loans in 2018, instead focusing on higher-quality corporate borrowers and increasing retail lending secured against property in its home country, Bencsik said.
"There is a small number but it is very important: 2.5% mortgage growth in Hungary," he said, referring to 2017 figures. "Last year was a turnaround year, a kind of watershed, because this is the year when mortgage volumes on a yearly basis started to grow, and this is where we expect further acceleration."
The bank's net interest margin amounted to 4.56% for the full year, down 26 basis points from a year earlier, but stood at 4.38% in the fourth quarter alone, compared to 4.80% in the first quarter. The margin in 2018 could fall a further 10 to 15 basis points from the fourth-quarter 2017 level, with Bencsik forecasting that interest rates and margins will start growing again in 2019.
As of March 1, US$1 was equivalent to 257.26 Hungarian forints.
