OTP Bank Nyrt. (OTP) Earnings Call Transcript & Summary

Good morning or good afternoon depending where you are. I'm Laszlo Bencsik speaking. And welcome to the OTP Bank Group's 2025 First Quarter Results Conference Call Presentation and Q&A. I'd like to mention, first of all, that this conference and the whole session will be recorded. So in case you intend to speak please take that into consideration. First of all, I have the honor and the privilege to introduce Mr. Peter Csányi, who is our new Chief Executive Officer, Peter is not at all new to the organization. He joined OTP Hungary in 2016. So 9 years ago. First, he was the Managing Director responsible for digital sales and digital development in general and then became the head of the omnichannel tribe and the head of the daily banking tribe. And then in 2021, he became the Head of the Digital division and Deputy CEO and also a member of the Board of Directors of the group. And he also -- for the last 2 years, he has been Chairman of the newly created Executive Steering Committee, which technically served as the kind of operative de facto operational leadership committee of the -- or leading committee of the group. So he has been practically in this current role for 2 years now, therefore, he is very well known and very, very respected within the organization professionally and personally as well. Everyone I know has been quite happy to welcome him in this new position. He has -- before joining OTP he has had a long and successful career as a management consultant as -- and as an investment banker at McKinsey & Company, serving financial institutions primarily in the Central Eastern European region and also in Deutsche Bank and Merrill Lynch in the city of London as an investment banker. He has a background in economics and management. He has an MBA from Kellogg School of Management, master's degree in financial management from instituto de Empresa, and a Bachelor in Economics from City University, London. I strongly believe that with Peter as CEO; and Mr. Sándor Csányi as continuing in the executive -- in the kind of Executive Chairman position. It is fully assured that we can continue on the successful path that we have -- what OTP Group has achieved during the last 3 years pretty much, but it also creates an opportunity to renew and further improve whatever we do. So with this intro, I'd like to give the floor to Péter Csányi, please welcome him.

Thank you very much, Laszlo, and I welcome all of you to the 2025 Q1 conference. I would like to briefly talk about a little bit about the division of responsibilities between the Chairman role and the CEO role to begin with. First of all, what is important to mention, as Laszlo already highlighted that the Chairman will remain in a full-time active Chairman role. He will be -- continue to be, obviously, Chairman of the Board of Directors, and he will continue to head the management committee of the group. Regarding strategic decisions, for example, acquisitions or capital decisions, risk governance, risk governance, risk framework, risk appetite decisions. It is still the Chairman and obviously, the Board of Directors that will make the final decisions on the strategic directions in this regard. He will continue to appoint members of the management committee, so the deputy CEOs of the group, the retail division, corporate division, risk, finance divisions and he will continue to appoint the subsidiary CEOs, both in Hungary and in the subsidiaries -- in the foreign subsidiaries and he will continue to appoint the heads of the Supervisory Boards or Board of Directors depending on the relevant jurisdiction of the subsidiaries. And myself as CEO, I will manage the operational day-to-day activities of the group. As Laszlo mentioned, we have formed the Executive Steering Committee about 1.5 years, almost 2 years ago. It has worked well until now and I strongly believe that we have a better cooperation between the different business units and the enabler functions within the bank for managing the day-to-day operative decisions. Previous roles that have reported directly to the Chairman is -- in a CEO position will report to me. So marketing, HR, compliance, legal and internal audit and bank security will report directly to me. Obviously, what is required by regulation to be reported to -- either the Board of Directors or the supervisory Board will continue to report to these relevant bodies. I strongly believe that this setup will provide a sort of continuity, but at the same time, a renewal for the group, what we see is that -- or what should be highlighted is that this is effectively an increased management capacity for the governance of the group. Me being a full-time CEO, I believe, as I mentioned, lead to a stronger cooperation between the departments and also between the subsidiaries and that will eventually also allow us to make faster decisions and become more flexible as a management team to react to any regulatory changes, any market -- changes in the marketplace and will provide us with a strong foundation for being able to react fast on the market. If we look at the strategy of the last period, we still believe that the strategy has been a successful strategy. We have grown our loan book more than 4x in the last 10 years. We have a strong growth in the net income of the bank and in a very good way, we have both exploited the organic growth opportunities that are available on our markets, which are generally obviously because of our geographic footprint, higher growth markets than that as more developed countries in the Eurozone generally in Western Europe. And we have done, obviously, a number of acquisitions that we have been able to integrate well in the last few years. We still believe that the focus should remain on growth, but at the same time, continue our efforts to provide or to achieve a superior profitability, especially compared to our peer group and do this in a conservative way with regards to business and risk policy and also maintain a relatively strong capital and liquidity position among our peer group. These 4 pillars of the strategy will remain unchanged. As I mentioned to you previously the Board of Directors has the ability to determine the strategy in the final say. We will continue a strong focus on these 3 pillars. At the same time, obviously, this does not mean that we cannot look for areas where we can improve the performance. And we will be looking at 4 categories of initiatives where we will focus on in the next years to continue to improve our performance. Client experience, obviously, we have new entrants, new competitors in the market. We need to enhance our experience and our service offering to a certain extent in order to still be relevant in the marketplace in the long term. So we will be looking at especially our digital offering or not just our digital sales capabilities, but also how we can service our customers through the digital channels in a better way and also expand into potentially beyond banking products, where we have not yet expanded. Obviously, we actively monitor where we have already entered for example, e-commerce, real estate and health care service offerings. We will be looking to grow those businesses and also better integrating them into our offering. Secondly, cost efficiency. We are looking at further improving our cost efficiency ratio, not just separately in the subsidiaries, but also on a group level, and we will be looking at how we can, after successfully integrating being through a period of integrations, utilize group synergies in not just IT, but in other areas as well. Obviously, part of this can come from utilizing new technologies which can serve as a good tool for improving efficiency as we have already started introducing AI tools in customer service and digital sales, for example. And a few years ago, already started robotic process automation throughout the bank. We will continue to put a strong emphasis on further expanding on this potential. And lastly, as a sort of enabler to all of the above, how we can do this in a much more flexible and efficient way. Those who are closely following the bank, obviously, know that we have started the agile transformation already back in 2018, 2019 have gone through a number of waves, not just in Hungary, but a number of subsidiaries. We are constantly looking at how we can have a corporate structure, which is both efficient and being at the same time, flexible. So in a nutshell, we believe the strategy is successful, and we will continue on these 3 pillars shown on this page, but that does not mean that we don't need to fine-tune and be able to improve on certain areas. And in the recent past, we have also appointed several new management members in key areas. Obviously, my successor as the Head of the Digital division, let me start with him, András Sebok has overall 14 years of operational banking experience at smaller Hungarian bank. And in the last 8 years, he has been with McKinsey on different banking IT consulting projects. I believe his experience brings the best in both worlds, so operational banking experience obviously gives him hands-on experience on what works and how to manage banking IT team. And on the other hand, given his consulting background all across Europe, with McKinsey gives him a good experience on what works best in the different banks in the different jurisdictions and can bring in a wealth of best practices from the industry. Secondly, Peter Juhász will be, he's the new Head of Marketing and Communications. He joins us from mainly telecom companies and also several FMCG experience. He will play, I believe, a pivotal role for us in order to enhance our brand, make it more innovative and much more useful which we believe is needed given especially the changing competitive landscape. And lastly, András Hámori, who just recently joined us as the CEO of OTP Bank Slovenia. CEO candidate to be exact because he is still subject to receiving the necessary approvals. He is very seasoned banking executive with a strong digital transformation, skills he got mainly from 2 places, I would highlight, among others, ING Australia, which is a digital-only bank, large bank in Australia where he was heading retail banking. And earlier in his career, he was in charge of ZUNO the digital bank of RBI. Obviously, he will be supporting us strongly on a digital-based Eurozone oriented organic growth platform. And we expect his experience to also benefit us not just in Slovenia, but generally across the whole group. This is, in a nutshell, what I would wanted to explained in the beginning. So the -- and the new setup between the Chairman and the CEO position, the strategy and how we can improve further and regarding new hires. With that, I would turn on to sort of the results of OTP Group. This is the standard page, which I'm sure is not new to you. We generally include it in the conference call presentation sort of overview of the different aspects of our performance. We continue, obviously, to keep our dominant position in Central Eastern European countries. We have top 1 or 2 positions in 5 of the countries that we are present in. As I mentioned earlier, over the last 10 years through 14 acquisitions, we have grown our loan book over 4x. And by now, 75% of our loan book is within the EU and 43% of the loans are in Eurozone or ERM II countries. Our profitability remains excellent, in my opinion, after 23.5% return on equity for the full year in 2024. Our first quarter return on equity in 2025 would have reached 23.7% if the negative items that are booked in one lump sum for the whole year has been recognized evenly. I will talk about this in a bit more detail at later stage. Strong portfolio quality, 38 basis points credit risk cost in '24 and just slightly increasing to 40 basis points in the first quarter of 2025 and our Stage 3 ratio declined further throughout the previous years. We continue to have a stable capital position 18% core Tier 1, 26.8% MREL and our leverage ratio is at 10.3%. And finally, a strong and stable liquidity position, 70% net loan to deposit ratio and liquidity coverage at 238%. And we have still remain committed and further grow our green portfolio and our general commitment to ESG. Diving a little bit into the actual 2025 profit after -- Q1 profit after tax. As I mentioned, Q1 profit after tax has been very much influenced by having to recognize in one lump sum, the full annual amount of the Hungarian special taxes, including the windfall tax and other supervisory charges. If we adjust for this and evenly distributed across the 4 quarters, our Q1 profit after tax would have been HUF 299 billion. And if we compare it with the same adjustment to the 2024 first quarter results, it leads to an increase of 4% overall on a quarterly comparison between the first quarter of last year. Reported return on equity 14.9% for Q1 this year. As I mentioned earlier, had we looked at these adjustments that I mentioned previously, it would have been 23.7%. Relatively flat net interest margin, slightly improving cost/income ratio and practically flat credit risk cost rate throughout the group. As I mentioned, our adjusted profit after tax should we have evened out the distribution of special taxes throughout the 4 quarters of this year would have been HUF 299 million, special taxes relating to the rest of the year and the supervisory charges amounted to HUF 97 billion and HUF 13 billion, respectively. Obviously, these had effect on the return on equity that you can see on the right-hand side of the page and the cost income ratio both of them, obviously a positive impact if we adjust for these 2 effects. If we deep dive a little bit into Hungary in the next -- for the next couple of pages. We see that, obviously, the first quarter 2025 reported profit after tax is a negative HUF 32 billion, which results in a negative risk on equity. But we have a slightly increasing net interest margin, which is very positive sign for us. And we have a relatively flat, slightly decreasing cost/income ratio and our credit risk cost rate is still relatively -- still flat practically 13 basis points. And obviously, you see a little bit of detail here on the different levies that the Hungarian state is imposing on the group. I believe what's important to mention is that since the last quarterly conference call, the government has announced the extension of the extra profit tax for 2026. And so we will continue to bear a burden to exact extent, we are not exactly sure yet. I'm sure it will receive more detail in the upcoming quarters. But that's obviously negative news for us. I think what's also important to mention on this page is that as you can see on the right-hand chart on the bottom, that we booked HUF 94 billion for the windfall tax. But overall, for the year, we expect HUF 54 billion windfall tax. The reason why we booked more is because of the way how we have to book this. So in essence, we have to book the full extent of the windfall tax. And throughout the following quarters of 2025, if we increased the stock of government securities required, then we receive -- then we can decrease the basically receive back the paid in tax in the first quarter. So practically, in the following quarters, the windfall tax will if we increase the government stock -- government securities will be a positive effect, not a negative effect on the quarterly results. We look in the different business lines in Hungary. In retail, we see very good trend in retail mortgage loans, 19% increase in the first quarter in the contractual amounts. Our market share is slightly decreasing, but that is a conscious decision as we don't want to engage in pricing competition. And we have a very strong market share in the -- as always, in the subsidized loans. And if we look at the cash loans also very strong growth, 43% growth in contractual amounts and 43.5% market share in the first quarter, which is the continuation of our strong market share performance that we have seen in the last 3 years. In terms of retail savings and retail deposits, we see very good trends relatively large stock of high coupon government bonds have been expiring in the first quarter, and -- or have switched to lower coupon payments going forward. So retail, that obviously had a positive impact on the savings market share, and we also see a pickup, a strong pickup in the retail deposits, I believe this is a very good indication that we have a good offering on the market. In terms of corporate, our corporate loan volume is rather stagnant. We still have not seen a general pickup in the corporate segment, obviously, mainly attributable to the current macroeconomic landscape. And the GDP, we have seen a very sharp decline instruments. We have yet to see the turnaround in the corporate segment. But still, our market share is very stable 19.8% in the corporate segment, also, we have a very strong market share in the subsidized -- government subsidized products. Switching to the foreign subsidiaries. Overall, a very strong -- continued strong contribution to group results. We see good ROEs in -- relatively good ROEs in both the small markets and larger markets within the EU market, so the top 3, around 10% to 19% return on equity for the first quarter of 2025. And obviously, higher return on equity outside the EU, as expected, obviously, different risk profile, different expectations on return. And as I mentioned, overall, good evolution of the cost/income ratio, which on a group level has improved in the first quarter of 2025. If we dig a little bit deeper on drivers behind the group performance. Net interest margin has practically remained flat on a quarter-over-quarter basis, on a year-over-year basis, very strong contribution from Hungary. And our sensitivity, our euro sensitivity has decreased from HUF 190 million back in the first quarter in 2023 to HUF 205 million at the end of Q1 2025 should a 100 basis point decline in euro rates occur. This is in our view manageable. And on the HUF sensitivity practically at 6.5% base rate practically insignificant sensitivity. Obviously, it was a different case when the base rate was 18% for a while. Regarding volume growth in terms of performing loans, a 3% increase quarter-over-quarter. FX adjusted balanced composition among all of the retail and corporate lines. I would -- we highlight Ukraine, 14% growth in consumer lending. This is again a strong growth following the good performance from last year. And also in deposits, a 3% growth as I already talked about, significant growth in Hungary, 7%, both a strong performance from retail and corporate and overall this has allowed us to keep our loan-to-deposit ratio at 73%. In terms of portfolio quality, our Stage 3 ratio decreased further to 3.5%, even without Russia, Ukraine and Uzbekistan, it's decreasing trend. And if we look at our coverage ratios, we have a conservative approach, and we still have a significantly higher coverage ratio than most of our peers. And this is not just because of Russia, Ukraine, Uzbekistan, as you can see, even without these countries, it is higher compared to our regional peers at the end of the first quarter this year. Turning to capital. Our Core Tier 1 ratio in the first quarter of 2025 decreased to 18%, our capital adequacy ratio is standing at 20%, MREL ratio at 26.8%. The decrease in the core Tier 1 ratio was mainly attributed to the introduction of Basel IV regulations as of the 1st of January. It's on the right-hand side of the page, you can see the breakdown impacted core Tier 1 ratio by 86 basis points negatively. The good news, obviously, is that most -- majority, practically all of the effect in -- for this year has already been booked in the first quarter of this year. So we don't expect to see such an extent of a negative effect due to Basel IV for the upcoming -- in the upcoming quarters. This also obviously includes the HUF 43 billion dividend deduction that AGM has approved a couple of weeks ago. And if we look a little bit at the composition, as I mentioned our ratio is standing at 18%. And it includes -- if we look at it on a fully loaded basis, one should take into account 2 additional factors. One is the phasing out of previous COVID capital release, which were provided during the COVID pandemic and also the effect of HUF 150 billion of share buyback that we announced in the second quarter of 2025. If you look at it on a loaded basis, the core Tier 1 usually is 17.2%. And compared to the benchmarks to the peers. Yes, it is somewhat on the conservative side. We are -- we do have a bit of reserve, but it's not, in our view, excessive when especially comparing to the benchmarks on a Tier 1 ratio level. And if you look at the leverage ratio, 10.3% in Hungary, is higher than for the peers. Obviously, this is due to more conservative approach by the Hungarian Central Bank and more stringent regulations that we have to abide. Obviously, we have no AT1 capital and our Tier 2 is not fully utilized. We view this -- the full utilization of Tier 2 and the potential issuance of AT1 as potential reserves for strategic acquisitions. But we are not sort of putting additional reserves on top, any additional reserves on top for acquisitions. So obviously, our goal for the Tier 2 is to have it fully utilized, and we still have a significant potential in AT1 issuance. If we find a potential acquisition opportunity where we have a good market potential, we have a favorable market to enter or a favorable market where we would like to expand and define the target which is healthy and a price point at which a deal would make sense. Regarding our liquidity position. As I mentioned previously, 73% loan-to-deposit ratio. Our liquidity coverage is at 238% compared to the last conference call, there have been no new issuances of bonds. However, a positive news should you want to issue bonds is that S&P, Standard & Poor's upgraded our credit rating and is currently actually one notch above the Hungarian Sovereign rating, which we view, obviously, as a positive news. You can see on the right-hand side of this page, on the top our call, MREL call date and maturity profile is manageable in 2026 and further years, especially given our current profit-generating capabilities. And to close off with as usual with the management guidance, we don't see a reason at this moment to change our 2025 group guidance. So our loan growth volume could be slightly above 9%. In 2024, based on our first quarter results, we still believe this is achievable. Our net interest margin could be similar to the levels in 2024. Our cost-to-income may be higher, but not much. Then in 2024 our risk profile will be similar in our return on equity and maybe somewhat lower given the expected decrease in leverage. Based on the first quarter results in 2025, we reaffirm this guidance for the full year. And obviously the AGM approved, as I mentioned earlier, HUF 270 billion dividend payment in April. And also, we have received the approval from the Central Bank for an additional HUF 150 billion of treasury share buyback until the end of this year. At this stage, we still don't consider treasury shares to be a significant share within the -- so we will make a decision later on in what sequence and to what amount we would like to use this permission that was granted to us. That was my presentation on the performance and the guidance for 2025. I am planning to go to London next week. We are doing a Non-Deal Roadshow, which is being arranged by JPMorgan. And both in-person format and also going to -- our scheduled calls are taking place with investors from U.S.A. and other countries. There will be a fireside chat and dinner with analysts on the 15th of May. Anyone who would like to join and actually meet me in person, meet us in person, please contact the people displayed on this page. In general, I would like to post result presentations once a year, probably be the full year presentations that are in March. Going forward, then I will myself first want to take part in at least 1 or 2 roadshows during the year. And obviously, if there is any extraordinary circumstances I am here. But for the rest of the results presentations and roadshows, Laszlo will continue to take the lead and be the key point of contact for investor and analyst presentations. So with that, thank you for your attention, and I would like to hand over to the Q&A, and we are happy to answer all your questions with Laszlo.

[Operator Instructions] The first question is from Mate Nemes, UBS.

Peter, congratulations to the appointment, and thank you for presenting the results. I have a couple of questions, please. The first one is on, over the next 5 years. If you could just share qualitatively and quantitatively, what would you consider a successful tenure in, say, 5 years' time? How would you assess that? And second question would be on cost efficiency. You clearly highlighted that as a potential focus area of improvement. And you also mentioned there is scope to improve group synergies beyond technology and IT. Are you referring to central support functions here like HR, finance, ops and can you give us a sense of the magnitude of the improvement opportunity on this front? And the last question would be on inorganic growth and M&A. I think you alluded to that in the presentation as well. Can you update us on your latest thoughts on M&A? Where do you see opportunities? And also if you could specifically comment on any interest in Poland, how do you assess the opportunity in the country?

Thank you. And thank you for congratulating [ also ]. Next 5 years and sort of financial performance KPIs. If you follow, obviously, closely OTP Bank, we generally don't give guidance, long-term guidance on key metrics. Obviously, that does not mean that internally or I myself don't have ambitions in this regard. Obviously, this is why we are actively looking at improving our cost efficiency, improving our operational structure, our governance structure. But typically, beyond the yearly guidance that we give, we try to avoid giving longer-term guidance. The environment that we are operating in, the geopolitical environment, the macroeconomic uncertainties, I don't think would warrant any kind of strong dependence on such KPIs. Our approach has been always to remain conservative, be rather prepared for any uncertainty and be able to manage it swiftly. So I would not go into guidance for the 5 years. Obviously, as I mentioned at the beginning, the 3 pillars: growth, profitability and stability will remain a core part of the strategy, and I would like to see, obviously, growth. Still strong growth in the long term, at least keep our profitability, if possible, at the current levels and operate with the same kind of stability regarding capital and liquidity position. Cost efficiency, group synergies, yes, obviously, so what is kind of already ongoing, right? IT synergies, we have ongoing initiatives for example, core banking replacement, core banking being obviously a significant cost, and a significant project for a group. We are utilizing, we are implementing the same system in Hungary and in Bulgaria. And we have a number of ongoing group projects in internal procedures, processes especially in lending origination, CRM and certain, obviously, basic operational -- organizational operational tools that are common across the group already. We continue to do this. And obviously, what your question referred to is outside of IT, what we are looking at, could be potentially operational services, which we provide throughout the group. But I generally try not just to focus on IT, but for example, a common product development, having a common product in different countries, for example. So very much go outside IT and see if there are any synergies in other areas we will continue to look at these. The exact magnitude. I mean, it's -- we look at it on a project and project basis. As with most of the projects, we look at it on an NPV level. But I would not go as far as to say a magnitude because the actual performance of the bank in the end is determined by a lot of factors, not just on the actual achieved synergies in terms of cost. M&A activity. We have been closely looking at Poland for a number of years. And we have looked at several banks closely within Poland over the several years. I believe you are quite familiar with the Polish or quite know the sort of opportunities in the Polish market, but we also see the risks in the Polish market that mainly being obviously the foreign exchange mortgage loans, which have still not allowed us to be fully comfortable with the Polish market in terms of entering otherwise, we see the Polish market as an attractive market. It's a large market, very developed banks, digitally very developed banks as well. So would there be a good opportunity, we will definitely consider it. If the risks would be properly mitigatable in the short run. And should we find something which is at a reasonable price point. But at the moment, banks are relatively expensive at around 2 or even higher price to book value. And that -- just with other markets, obviously, we are looking -- we are opportunistic, and we will look at any market, which has a higher growth potential is generally a market where we see potential, not just new markets, we will also consider acquisitions in markets where we are already present in, and we can grow further.

The next question is from Gabor Kemeny, Autonomous Research.

Peter, pleasure to be talking to you. Firstly, maybe on your agenda and related to the business initiatives, I mean, just given OTP's franchise, your market positions, we normally think about a bank of your caliber as being on the offense. Do you see areas where OTP might be on the defense? I mean thinking about digital disruption, how you react to that regulatory headwinds or any other areas you would like to highlight to us. My second question would be on capital. Shall we interpret it as this 17-ish-percent CET1 ratio. Do you view yourself here as having excess capital or is this the level where you would like to be roughly? And let's say you assumed that you would finance -- you would be able to finance acquisitions through future profit generation, AT1 issuance, Tier 2 issuance, is this how we should think about it? And just finally, on your point of the retail savings or retail health, government bonds expiring and some of them finding their way into retail deposits. To what extent have you captured this in your guidance? I'm thinking about it in terms of the retail deposits being a very profitable product for you. I wondered if this could offer any upside to your stable NIM guidance for the year.

Thank you very much, Gabor. Regarding your first question we like to be, obviously, on the offense if there is a good opportunity. And as I mentioned previously, it is worth being on the offense. In certain markets, we are very strong where the pricing can be, where the pricing makes sense. I'm not just talking in terms of sort of M&A but also from a business perspective. So I mentioned that, for example, in Hungary in mortgage, we don't want to go into unnecessary, we don't want to decrease prices to a level where we see there is not profit maximizing. So we'll be on the offense as long as it -- we believe it maximizes our profit rather than our size or our general growth. On certain new entrants, I mentioned to you that -- and I mentioned this on a lot of forums that certain cross-border competitors can offer a better value proposition in Hungary, partly due to the different cost structure that they can achieve because they don't have to pay some of the Hungarian special levies that we are paying, transaction tax, they don't have to take part in some of the government initiatives that are imposed on the banking sector. And I'm strongly against that. I hope that will change, not just in Hungary, but I believe this is a wider question. This is much more of a European question that similar activity should have similar regulation across the different jurisdictions within the EU. Regarding capital we do have some, as I mentioned, reserves, what we would like is to be relatively well capitalized compared to our peers. And I would like to highlight here compared to our peers part. We believe that in times of crisis, obviously, it matters, the capitalization, and it's not just up to us in a sense, not just up to our capital adequacy that people will judge -- investors will judge us, but also compared to our peer group. And I'm not -- we're not saying we want to be excessively capitalized, but we want to be relatively at least in line, if not a little bit above our peer group. And as I mentioned, we don't put additional reserves for acquisitions. We see plenty of -- we see a strong continued profit generation capability. As I mentioned, we still have the Tier 2 bucket part that is unutilized and we have the AT1 and should an even bigger acquisition opportunity come, nobody said we cannot issue any more capital. So we don't want to hold any sort of significant excess capital for acquisitions. On the retail government bonds and the deposits, I would like to ask Laszlo to answer.

As you rightly spotted in the first quarter in Hungary, we had an unusually strong retail deposit development, 6% in just one quarter and that is mostly due to this fact that a quite a large amount of retail government bonds turn into lower coupons, but also there was another effect and there's the 13 month pension, which was paid for pensioners in February. And neither of these are going to continue for the rest of the year. So March, there will be some remaining positive effect in the second quarter coming from the retail mortgages. A lower amount of retail mortgages turning to a lower yield and it might induce some deposit development. So most of this kind of positive one-off effect you can already see in the numbers in the first quarter. Obviously, it's a question of what percentage of these kind of extra deposits are going to stay long term, how much people will spend and how much they will eventually invest either in the form of buying real estate or cars or putting them into securities. The very short answer to your question, no, it wasn't specifically part of our kind of original guidance. And yes, maybe this -- due to this effect, it's certainly kind of improving the expectation, so to say. So it's certainly positive compared to the original expectations. But then again, there have been other developments, unfortunately, the U.S. policy measures, for instance, and the potential impact of higher tariffs and exports from Hungary to the U.S. or as a ramification of that may be somewhat lower, even lower euro rate, which on the other hand, might have a somewhat negative impact on our expected potential NIM and margin environment. So yes, this specific item, it's positive marginally compared to our original guidance, but there have been other developments or might happen other developments as well, which and not so positive. So all in all, we don't think that this kind of justifies to change the guidance for the year or something like that. But it is marginally positive. It's true. Are you happy Gabor?

Yes.

The next question is from Gabor Bukta from Concorde Securities. [Operator Instructions]

Can you hear me? Sorry.

Yes. Now, we can hear you.

Congrats to your new role, Peter. I have 2 questions. The first one is coming with regard to Ipoteka because when I looked at the performance of Ipoteka, I saw that it was quite poor. If I can say, as incomes dropped, both on annual and quarterly basis. And I see that the market is growing on the other hand. So deposit outflow was also massive. Yes, there was some explanation behind the drop in deposits. But can you give us more color what's happening there? And if you have any plans to acquire bank or grow organically, it would be nice to hear more about that. And the second question is reflecting on the Russian bank coverage. It was 73% at the end of December and 74% at the end of March. And you booked around HUF 6 billion during Q1. Can you give context of it as the gross exposure was around HUF 130 billion. So it would be great to know was it the FX impact or what was the difference between the 2 methodology at the end of Q4 and at the end of Q1?

I will ask Laszlo to answer these 2 questions.

When Ipoteka as we kind of talked about it last year, despite the very strong development in consumer planning in a market, we somewhat dropped behind, and that was partially due to -- or mostly due to operational kind of weaknesses. And for us, it's taking time to bring up the kind of operational level of the bank in order to be able to service the large volumes, the ever-increasing volumes given the strong market. And these are typically IT developments and they took time. And originally, we expect it to be fully ready by the end of last year. Now it seems that it takes -- took somewhat longer and it also took the first quarter. But by now, we can say and we just we have been very close and Peter personally kind of talking to the management team thereby weekly and having a status. So this is something we follow closely from here. And it seems by now that the -- mostly this kind of operational weaknesses have been improved. And now we actually, especially in April, we started to book much higher volumes, and this should continue to build up over the year. And the promise from our in CEO in Uzbekistan is that second half of the year, the retail market shares in consumer loans and in mortgages are going to start to grow so we hope to turn around this negative trend in retail, which has been there for a year due to our operational weaknesses primarily. It was primary operational weakness, but it was also our -- a somewhat more conservative approach to retail risk than some of our competitors. So we've seen that we are in a way more conservative in taking into consideration income, for instance. So unverified income we have not taken into consideration so far. And I mean, you could argue whether it has been a -- one of our local strong competitors, recent kind of quarterly results and the publicly available information that they run into difficulties in terms of retail credit quality. So I think to some extent, our approach has been therefore verified. But this is a situation we are not happy with. We are turning this around and most of the operational work, which had to be done, has been done. In terms of our plans, we would -- we do like the country and we -- if anything, it has by far over exceeded already our original expectations in terms of the robustness of growth and business potential. So if there were a suitable target, we would certainly consider that, not necessarily the larger banks because that's -- we are going to be present in the corporate segment, but that's not our primary focus. And the large kind of remaining large banks, state-owned banks are much more corporate oriented than we are. But if we could find maybe a smaller, more retail-oriented bank for sale at a good value, we would certainly consider that. We also don't exclude potentially buying another big bank, but that's not maybe the primary goal. In terms of organic growth, again, the opportunity is huge and especially compared to our recent performance, it can further improve certainly. Your second question regarding the increased provisioning on the Russian bonds, there hasn't been any particular development. We are pretty much following the kind of guidance and expectations of our supervisor here in Hungary. If you remember, we started to increase this provision somewhere in the second quarter last year following the kind of strong guidance from a supervisor, we, in general, would like to provision more and not less. So we tend to be conservative and we agree with this approach. But this is rather theoretical. So I wouldn't say that there has been a major change in the underlying valuation of the situation. It's more the level of conservativeness what is applied and in that respect, we follow willingly our supervisor in Hungary. All in all, we have HUF 97 billion. So this is a provision on these amounts. And if you were to ask what could be the potential impact, if there's an end to the war and maybe really partial release of the sanctions on Russia, then obviously, you can look at this amount as a potential for release.

So I mean the provision coverage was 73% at the end of December...

Oh yes the difference -- I mean that's the FX, yes. That's due to the FX. These are dollar exposures. And these numbers we reported in HUF, right? So obviously, we provision in dollar and the stock of provision is kind of big enough and the dollar actually weakened compared to the HUF. So that's why -- that's the discrepancy.

Next question is from Simon Nellis.

Welcome, Peter. I'm sure Laszlo will be happy to share the burden of dealing with us analysts and the investor community. We can be tricky sometimes. I guess my first question for you would be on your priorities. I mean you've given a pretty long list of things you want to do. What do you think you can do differently, better quickly. And then just on beyond banking products, I mean, I think it's been quite tricky for banks to -- some banks have done quite well there, others have not. I think OTP Simple wasn't a particular success. I'm just wondering how you think you could expand into the -- on banking products in a successful way. And then I have one specific question back on the Uzbek business. Your competitor, TBC had issues with data integrity around the tax registry apparently, there were some fraudulent able to upload fraudulent salary data. So I was just wondering if you face similar issues in Uzbekistan and you're aware of that particular fraud and are tackling it?

Your first question on priorities. So as I mentioned in the beginning, our strategy has been successful, and I believe -- I strongly believe that we have one of the best management teams in the group. So part of -- one of my key priorities, as I mentioned at the beginning, is that we have a much better coordination internally and be able to make decisions more quickly to react and this been positive effect of the Executive Steering Community that we have been operating for the last 1.5 years. Now going forward, obviously, we are, as I mentioned, reviewing where we can be better, right? So not just in Hungary, but across the group. We are reviewing sort of our initiatives that are ongoing in the group. We are reviewing what we can do better, what we could speed up, what we should actually potentially be prioritized in order to facilitate this discussion, we are actually dedicating management time and attention to as we speak in the next couple of weeks. But as I mentioned, we generally don't give very strong guidance and actually sort of performance and long-term performance. Regarding beyond banking, obviously, it's tricky, right? And it's a field which is relatively new for -- not just for us. I think for any banking player, which has entered into different industries. Obviously, we see good examples. A lot from Asia. Obviously, DBS has made a significant entry into beyond banking and several good examples from other banks where they've managed to really embedding to the service offering beyond banking products, very complemented or secured for the longer term, the market share for the traditional banking products. We are -- our aim is to do the same. Our aim is to -- in my view, a customer doesn't come to OTP or the bank to get a loan and walk out happily from the branch or log out from our digital channel and be happy that they got the mortgage and they can pay interest going forward. But actually needs a solution, right, for a certain life event or a certain change of needs, and this is what we are trying to serve. And this is much more about putting more -- significantly more emphasis on customer satisfaction and customer experience. Now obviously, it would be great if we could look at these adjacent industries, let's say, and be able to say that stand-alone, it makes sense financially to be present in those markets. In many cases, it's a much more nuanced view. As I mentioned, it complements either to keep our existing market share, keep our profitability, be able to offer superior services for our clients. And this is the view that we take. And I think so far, we have been relatively conservative. We really entered into areas such as what you mentioned, Simple in payments, which are relatively closer to banking to the traditional banking industries. Yes, I believe not all of them will necessarily be a success, but this is a kind of a manageable risk that we need to take and say that we will look at entry and expanding our service offering even if not 10 out of 10 will be necessarily 100% success. Simple, by the way, has been, on one hand, not so successful regarding the app, but Simple is doing more than 80% of the card acquiring both in transactions and volumes in Hungary. So and the card acquiring is actually a very good fee generation business for OTP. And it allowed us to innovate in one of the fastest changing landscapes being payments in a very flexible way. We entered e-commerce. We launched last year fizz.hu. It's -- we see significant month-over-month growth in products being sold. In terms of volume, we see increase in commission revenue. But obviously, hasn't been practically a year since we launched it. So I would need to give it a bit more time. Health care, a relatively small investment into a health care private appointment booking. These are visible potentially, but not significant investments. If we look at the group, I think we would make a bigger mistake if we don't try entering these adjacent industries. And your second question on Uzbekistan salary, fraud and data integrity. We don't see we haven't been -- Laszlo mentioned in the previous question, we have been relatively conservative in the segment that we are targeting and the kind of requirements we take in terms of credit policy in Uzbekistan, partly is the reason why we have not been able to develop with the market as fast as the market. We don't see this as a big issue.

The next question is from Valentina Stoykova Barclays.

Congratulations on the new role, Peter. So my questions are related to your Uzbekistan business. I was just wondering whether you can give us a bit more color on your there regarding the derisking and the cleaning of the balance sheet and what should we expect with regards to key financial metrics for this year? Any guidance on net interest margins, cost of risk, capital metrics will be super helpful and then it will be great if we can also share the capital ratios and the buffers over many months for Q1 of Ipoteka and your refinancing plans for the upcoming senior Eurobond maturity? Do you plan to refinance it within the group or in the markets I'm referring to the Ipoteka Eurobonds I think due in November this year.

Well, I think I tried to answer this. I'm Laszlo, but -- it won't be as satisfactory as you would like. I mean -- as Peter mentioned, I mean we have a rather kind of strict approach to what guidance we gave even on a group level. So specific to one of the entities in the group, which is were not the largest -- I don't think it will be appropriate to kind of give line-by-line guidance. But I think the most important metrics at this stage, I think, is market share and our market share declined quite materially in consumer loans and consumer loans are the most profitable business on the market and growing very fast. So that's potentially the most important short-term KPI for us to turn around this trend, the declining trend, which has been there for -- it was up at higher than 14%, and now we are actually somewhat lower than 10% in terms of market share. So we -- this trend we want to turn around and I said before, our CEO in Uzbekistan just promised us the management team in the HQ that this deal will most probably achieve starting from the beginning of the second half of the year. So that's one expectation. The other expectation is regarding mortgage market shares again. We have seen some erosion of the market share in mortgages. Ipoteka is still by far the largest mortgage lender in the country but our market share started to erode somewhat. And this is not by far much less than in consumer lending but still it did. And that's the -- there's a second point in metrics terms where we want to turn around. And then obviously that happens and it should have a positive impact on the -- on revenues and earnings. Unfortunately, what you've seen in the first quarter is that actually operating profit decline year-on-year by 30%, primarily because revenues declined by 17%, 18%. And this is a very negative trend where we have to turn around and we will. So that's the kind of primarily target. In terms of -- if you look at the bottom line, that was reasonably strong despite all of this in the first quarter, and that is due to the fact that we started to see write-backs from the quite sizable provisions what we created in the second half of '23 when the -- some of the corporate book went into Stage 3. So due to our very hard work in terms of workout on these exposures, we started to see improvements, paybacks and kind of solutions for these situations. And they can kind of bolster or smooth at somewhat the actual profit after tax line even when there's a temporarily decline in the operational profit. And that's what you could see in the first quarter, and there are some probability that is going to continue to happen over the course of the year that we might be able to further release some of the provisions that we created back in '23. Regarding the bond, which matures in November, it's Eurobonds HUF 300 million. We are looking at -- obviously, we -- it will depend on market conditions, and it will depend on the liquidity needs in FX of the bank, and that pretty much depends on our corporate lending activity growth because retail lending is all local currency and I mean the capital markets are not very developed so it's swapping. FX swaps don't so much exists in a large scale in the market. So these -- the different currency markets are pretty kind of segregated. So FX funding we may need for corporate growth, and we are actually revisiting our -- and renewing our corporate strategy as we speak. So this is something we are going to do during the next couple of months to gauge our kind of growth appetite and strategic intention related to corporate. Obviously, we want to be a universal bank, a retail-focused but universal banks. So corporate is important. And depending on the outcome of that exercise and also on market conditions, we may renew that bond or may not. So that has not yet been decided. But I think we prepare as if we were to renew it and then see. But in terms of kind of a strategic approach to Uzbekistan, we remain very, very positive. The market is strong. The country is developing fast and is on the right track. Stable and the way they handle geopolitically and kind of locally, domestically, the last couple of years. I think that has been a very good example of good management. So we are quite happy to be there, and our ambitions are very high.

[Operator Instructions] The next question is from Máté Nemes, UBS.

I had 2 more questions, 2 follow-ups, please. The first one is on the euro rate sensitivity. I think it's HUF 105 million now for 100 basis points. This has gone up slightly, I think, since year-end. Could you comment on what the reason for this is? Is there any change in your securities portfolios or the reason? And the other question would be on corporate loan growth. I think you commented that we haven't seen a turnaround in corporate credit growth adds. Clearly, there's some positive momentum at least visible in the numbers, but particularly in Hungary, what do you see in terms of investment sentiments and credit demand when talking to clients. A large German bank CEO this morning, clearly said they are seeing improving sentiment in the mittelstand large SME segment in the country. When do you think this could translate to higher credit demand, specifically in your region?

Yes, indeed, somewhat increased the euro rate sensitivity. This is -- I mean, this number is kind of fluctuating somewhat. Deposit growth was reasonably strong. We issued a Tier 2 relatively large size and that increased the liability fixed side. And we are kind of reaching the limits of our ability to buy fixed yield, securities on the asset side, primarily from a risk point of view. And regarding credit swaps, which are obviously there as a potentially. The recent environment has been quite volatile in a way. So rate expectations have been going up and down almost every second day. So we have been relatively kind of less active than we could have in a way but there's nothing kind of major large change here underlying this. And it's most likely to stabilize around this EUR 100 million per year NII equivalent. So I don't see a large opportunity to further decrease this, but we also try to maintain it close to this level. But there is this kind of plus/minus HUF 5 million, HUF 10 million volatility in this number, which is subject to typically manage smaller changes in the balance sheet structure. Corporate loan growth in Hungary, this is an area where I personally -- I was quite hopeful or optimistic and maybe somewhat more optimistic than reality so far. The first quarter so far this year, the growth on the nonretail side was mostly micro and small where we still have subsidized structures. And within the subsidized structures, we have up to 50% market share. So we actually had 5% growth in micro small corporates in Hungary, but large corporates was technically flat. And we have not yet seen a shift or a major change in the sentiment or intention of corporates to start investing in a major way in the country. And but what you just said, we do expect to eventually kind of spill over to see in general in Hungary in particular. Certainly, given the large export exposure of the country and most of those exports being oriented to Germany. And we do hear as well these kind of voices from Germany itself that they might turn around their investment cycle and actually start to invest again. But it has not yet appeared domestically in Hungary, it's going to do. So I mean, again, I've been personally kind of overoptimistic, so I don't want to do that again. So I don't want to give you a kind of promises or something like that. But we do see this potential positive development coming from core Europe and sooner or later, it's going to reach Hungary as well. Hopefully, in the second half of the year, but maybe only next year.

The next question is from an attendee joined via phone [Operator Instructions]

This is Nik Dimitrov, Morgan Stanley Investment Management in New York. Just a quick question going back to Uzbekistan. There's been a new regulation that caps consumer loans at 25% of the loan book. How is that going to change the dynamics in your investment thesis behind being in Uzbekistan. I know that this has been kind of the product line that's been very lucrative and of most interest for you?

I mean this is an advantage because our biggest competitors in this segment have -- they typically only have consumer loans. [indiscernible] yes. And they are the strongest growing and by far, the most sophisticated competitors. So if anything, it's going to limit their future growth potential. Having said that, this is not something which is applied from today on. There are a couple of years -- I think 5 years or something by which date banks have to comply with this. So this is -- we see it as potentially positive for our competitive positioning on the market because this is going to clearly limit our most aggressive competitors in this segment. And again, as -- I mean, we are bigger mortgage lending. So that's a strong part. And again, we do have intentions to maybe -- I mean we don't want to be a corporate bank but we want to develop a universal banks. So corporate lending will continue. So therefore, we anyway wanted to have a kind of balanced asset structure. So this -- we interpret it is rather positive for us.

[Operator Instructions] As there are no further questions, I hand back to the speakers.

Ladies and gentlemen, thank you very much for joining us today. I hope we gave insightful presentation, and we managed to answer all your questions. As I mentioned to you, I will be in London, anyone who wants to join, please reach out to the contact details that are at the end of the presentation. And with that, we are ready to close this conference call. Thank you very much, and have a good rest of the day.