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OTP Bank may hike dividends from 2020 as M&A spree peters out

OTP Bank Nyrt. has no plans for further acquisitions after it closes the two deals in its pipeline and could increase dividends if growth remains as strong as in the first half of 2019, according to Chief Financial and Strategic Officer László Bencsik.

The Hungary-based lender has been on an M&A spree across central and Eastern Europe since 2017, when it revealed plans to spend about $1 billion on acquisitions in the region. In the first half of 2019 alone, OTP Bank completed the acquisitions of Bulgaria-based Expressbank AD and Banka OTP Albania sh.a., both previously owned by French bank Société Générale SA. OTP has also agreed to buy SocGen's Montenegro-based subsidiary Podgorička banka AD Podgorica and its units in Moldova and Slovenia.

In late 2018, OTP agreed to buy SocGen's Serbia-based unit after purchasing the French group's Croatian subsidiary in 2017.

The acquisitions in Moldova and Montenegro were completed in July and OTP is looking to close the Serbian and Slovenian transactions by the end of 2019, Bencsik told analysts during a second-quarter earnings presentation.

Foreign subsidiaries drove OTP group's results as the share of profit contribution from these units surged to 45% in the first half of 2019, from 39% in the same period of 2018. OTP's first-half adjusted after-tax profit climbed 19% year over year to 202.6 billion forints, helped by the newly included figures of Banka OTP Albania and Bulgaria-based Expressbank. Excluding those figures, the profit stood at 191.6 billion forints.

OTP's Bulgarian subsidiary DSK Bank, through which the Hungarian group completed the acquisition of the new Bulgarian unit, Expressbank, remained the second-largest contributor to group profit.

After completing the deals in Serbia and Slovenia, OTP will most likely not seek further acquisitions for the foreseeable future as there are no other interesting opportunities in the CEE markets at the moment, Bencsik said.

Dividends

And if the group continues to generate higher profits, it would naturally lead to a higher return for shareholders, he said. The bank's management will discuss the matter in detail toward the end of 2019 and, as announced at the annual general meeting, the bank will announce a new dividend policy in the first quarter of 2020, he added.

The results achieved over the first half of 2019 indicated further strong performance, Bencsik said, referring to the group's return on equity of 21.9% in the second quarter and 18.9% in the first half of the year. The numbers are well above the group's full-year target of ROE of around 15%, he said.

OTP was cheered by the stock market, with its shares trading up by more than 2% throughout the Aug. 9 session. At 4 p.m. CET on the Budapest Stock Exchange, the share price was trading 2.6% higher than the prior-day close at 12.65 forints apiece. The share outperformed the BUX benchmark index, which was trading up 0.56% on the previous day.

For 2018, OTP paid a dividend equal to 219% on the face value of the bank's ordinary shares, based on net earnings for 2017. The percentage was the same for 2017, up from 190% for 2016.

As of Aug. 8, US$1 was equivalent to 289.37 Hungarian forints.