2015
2015
OTP Bank
Annual Report
OTP Bank
Annual Report
2
3
Contents
Message from the Chairman and Chief Executive O cer
Macroeconomic and fi nancial environment in 2015
Management’s Analysis
Management’s analysis of the 2015 results of the OTP Group
Financial Statements
Independent Auditors’ report (consolidated, in accordance with IFRS)
Statement of fi nancial position (consolidated, in accordance with IFRS)
Statement of recognized income (consolidated, in accordance with IFRS),
Statement of comprehensive income (consolidated, in accordance with IFRS)
Statement of cash fl ows (consolidated, in accordance with IFRS)
Statement of changes in shareholders’ equity (consolidated, in accordance with IFRS)
Notes to the consolidated IFRS fi nancial statements for the year ended 31 December 2015
Independent Auditors’ report (separate, in accordance with IFRS)
Statement of fi nancial position (separate, in accordance with IFRS)
Statement of recognized income (separate, in accordance with IFRS),
Statement of comprehensive income (separate, in accordance with IFRS)
Statement of cash fl ows (separate, in accordance with IFRS)
Statement of changes in shareholders’ equity (separate, in accordance with IFRS)
Notes to the separate IFRS fi nancial statements for the year ended 31 December 2015
Corporate Governance
Senior management of OTP Bank and executive members of the Board of Directors
Non-executive members of the Board of Directors of OTP Bank
Members of the Supervisory Board of OTP Bank
Information for Shareholders
Statement on Corporate Governance Practice
Anti-money laundering measures
OTP Bank’s social participation in 2015
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4 OTP Bank Annual Report 2015
Message from the Chairman & CEO
And this past year was by no means a
straightforward one. Although the burdens
related to the settlement and conversion of
foreign currency consumer loans in Hungary
were reflected mainly in the profit figures for
2014, the tasks associated with this placed
massive administrative burdens on the entire
domestic banking sector, OTP included. We’d
never had to cope with so much extra work and
such a drain on our IT capacities as a result
of changes to the law! I’m proud to report that
our colleagues carried out their tasks in an
exemplary fashion.
Last year also represented a turning point in
that the problem of foreign currency lending,
which had been a bugbear for the banks and of
course customers for so many years, and had
put a strain on relations between the banking
sector and the government, was successfully
resolved. The price was enormous, and there
will certainly be players who have remained
unsatisfied, but overall in Hungary we have now
put this issue well and truly behind us.
Indeed, it appears that now that Hungarian
politics have tackled the problem of foreign
currency loans, other countries are following
suit: In Croatia, in September 2015, a law
provided for the settlement and conversion
by banks of CHF-based mortgage loans;
meanwhile in Serbia the central bank has
ordered the banks to give certain rebates,
and in Romania in November our subsidiary
bank launched its own initiative to help foreign
currency borrowers, while in Ukraine a major
restructuring process has got under way as the
result of cooperation between the supervisory
authority and the banks concerned. In the
course of 2015 the Bank Group set aside the
necessary provisions for its expected one-o
financial losses in the various countries where
it does business; the decreasing revenues
realisable on the lower volumes will be largely
compensated for in the years to come by the
fact that the switch from CHF or USD to the
domestic currency or EUR will substantially
reduce the risks of customers, thereby
improving the overall risk profile of the portfolio.
In another favourable development, there was
a significant improvement in the system of
regulatory and operating conditions for banks
in Hungary: In line with the Declaration of Intent
DEAR SHAREHOLDERS,
Based on our performance last year I am happy to report that
2015 marked the end of the seven lean years for the OTP Group,
and overall the Bank Group has emerged stronger from the
global financial crisis that broke out in 2008 and the subsequent
period of forced austerity. Here I’m referring to our – even by
international standards – exceptionally strong capital adequacy
and excellent liquidity. In addition to this, we not only retained
but succeeded in improving our positions in our key markets,
and also had energy to devote to innovation and development.
5Message from the Chairman & CEO
signed in February 2015 by the Government and
the EBRD, from 2016 there will be a substantial
drop of more than 40% in the burden of the
bank tax, which has remained unchanged since
its introduction in 2010, and this will be followed
by a further reduction from 2017. Accordingly,
in 2016 the annual bank tax liability of the
OTP Bank Group in Hungary will decrease,
from the previous figure of HUF 34.9 billion,
to HUF 16.1 billion. In addition to this, an
acceptable decision was also made with regard
to the sensible sharing and settlement of the
losses caused by the brokerage scandals
of 2015. We welcome the fact that this is in
tune with our general eorts to promote a
culture and attitude of awareness among
the consumers of financial products, and to
ensure that responsibility for the financial
consequences of decisions is not borne solely
by the banking sector.
And naturally, we should not forget the
most important factor from the perspective
of banking operations: since 2013, the
performance of the economy has been
improving steadily, and this is not only reflected
in the favourable development of the indicators,
as the structure of growth has also become
significantly healthier. Following the 1.5% GDP
growth of 2013, the economy expanded by a
robust 3.6%, and the 2.9% increase of 2015 also
represents a strong performance. While the rate
of growth in exports remains stable, household
consumption is strengthening in parallel with
the continuous growth in real wages, and
investments also grew at a rate of over 20%.
After years of floundering, the property market
has found its feet again, and turnover is rising
at a convincing rate, the number of new home
construction permit applications is on the rise,
and the occupancy of commercial properties
is improving rapidly. The Government’s latest
measures – such as the lowering of VAT
on new home construction from 27% to 5%
with eect from 2016, or the substantive
expansion of the Family Home Making
Subsidy (CSOK) and the major increase in
the available subsidies – could give a boost
to new home building in Hungary, and thus
to the construction industry, which employs
a considerable number of people; and they
could also lead to an improvement in the
demographic situation by rewarding families
that have more children with a higher amount
of assistance.
Another positive development is that the central
bank, in addition to its use of conventional
monetary policy tools, led the way in creating
the conditions for growth and lending,
continuously and eectively supporting the
healthy, sustainable growth of the economy.
In the first and second phases of the Funding
for Growth Scheme (FGS), launched in 2013,
more than HUF 1,700 billion in loans has been
disbursed to companies in the Hungarian SME
sector. While the scheme is set to be phased
out in 2016, the central bank has also launched
its Support for Growth Scheme (SGS), through
which the central bank aims to assist banks in
making the transition to market-based lending.
In addition to the FGS and SGS, the central
bank’s Self-Funding Scheme assisted a great
deal in making the financing of state debt as
independent as possible from foreign investors,
thereby helping to increase the room for
maneuver in economic policy.
All things considered, I can safely say that
in 2015 we put behind us not only a dicult
financial year, but a tough chapter in our
history. All of this provides a good foundation
on which the Hungarian economy can smoothly
weather the temporary slowing of GDP growth
in 2016, which is a prime consideration in terms
of banking operations too.
Overview of financial performance
in the year 2015
OTP’s share price closed at HUF 6,000 in 2015;
the 63.5% y/y rise was one of the highest
among listed blue chips, not just in Hungary, but
internationally too. I believe that, together with
the favourable macroeconomic developments
and regulatory changes that were supportive
of banking operations, the Bank Group’s
6 OTP Bank Annual Report 2015
fundamental performance also played a key
role in the development of the stock price and
the improvement in our market standing.
In 2015 the Bank Group posted a HUF 120.2
billion adjusted after-tax profit. This exceeded
the performance of the base period by 2%.
The pre-tax adjusted annual profit excluding
one-o items also grew by 3% in comparison to
the previous year. Operating profit dropped by
13%, but this was fully oset by the lower cost
of risk (–20%).
The change witnessed in 2014 in terms of the
relative contributions of individual subsidiaries
to the annual consolidated adjusted after-tax
profit was repeated last year: again it was
OTP Core (HUF 123.4 billion) and DSK Bank
(HUF 52.5 billion) that delivered the
greatest contribution to profit, while the
other Central and Eastern European subsidiary
banks – except Serbia – also achieved a profit,
overall improving the Group’s profit by
HUF 5.9 billion. In contrast, the Ukrainian
and Russian subsidiary banks made adjusted
losses of HUF 40.3 billion and HUF 15.1 billion
respectively; these figures combined
represent a smaller loss than that of 2014.
In 2015 our online bank Touch Bank, which in
legal terms operates as a part of the Russian
subsidiary but in practice functions as a
stand-alone key business line, realised a loss
of HUF 4.8 billion.
The HUF 755 billion in annual consolidated
revenue excluding one-o items represents a
9% decrease. Within this, net interest income
decreased by 13%: net interest income declined
in Hungary and dropped substantially in
Russia and Ukraine, but grew at the Bulgarian,
Romanian, Croatian and Slovak subsidiary
banks. The fall in the Russian and Ukrainian
net interest income is partly attributable to
the exchange rate eect, as both the ruble
and the hryvnia weakened considerably
during the past one year. Besides this, in both
these countries the decline in the performing
portfolios also had a substantial eect on
interest income. Net fee and commission
revenues decreased minimally. Consolidated
operating costs decreased by 5% y/y.
The consolidated annual revenue margin
(6.96%) narrowed by 78 basis points, while
the net interest margin (5.11%) fell short
of the base-period figure by 85 basis points.
The consolidated FX-adjusted gross loan
portfolio shrank by 8% y/y. Because of the
substantial credit write-downs that took place
in the reporting period, a more realistic picture
of the actual trends can be given by describing
the performing (DPD0–90) loan portfolio;
accordingly, the portfolios decreased by 5% at
annual level. In terms of the FX-adjusted change
in the performing portfolios, the greatest
decrease occurred in Russia and Ukraine (26%
each); at OTP Core, the fall was 8%. Within the
consolidated performing retail loan portfolio,
mortgage loans dropped by 6%, and consumer
loan volumes shrank by 8%, but by contrast
the portfolio of micro and small business loans
grew (+16% y/y). The portfolio of loans to large
corporations fell by 3% y/y.
In terms of the performance of the individual
subsidiaries, the Romanian and Serbian
banks saw the highest rate of growth in
the performing gross loan portfolio, while
consumer loans in Russia, which had grown
dynamically in previous years, dropped by 26%,
and in Ukraine by 28%. The mortgage loan
portfolio declined everywhere except at the
Romanian subsidiary. In the large corporate
segment, the performance of the Romanian
and Serbian subsidiaries stands out, with
each achieving growth of more than 30%.
The Hungarian micro and small business
DPD0–90 portfolio expanded by 14% year on
year, due in part to the Funding for Growth
Scheme.
After the dynamic growth of previous years,
FX-adjusted consolidated deposits grew again
in 2015 (+5% y/y). With this, the Group’s net
loan-to-deposit ratio (67%) declined by almost
9% last year, sinking to below 100% in all
countries with the exception of the Romanian
and Serbian subsidiary banks. On 31 December
7Message from the Chairman & CEO
2015 the Bank Group’s gross liquidity reserve
amounted to the equivalent of EUR 8.6 billion.
The DPD90+ portfolio growth trend
(FX-adjusted, stripped of the impacts of sales
and write-downs) presents a favourable picture
of the quality of the portfolio, showing that the
previous year’s record HUF 254 billion portfolio
growth decreased to HUF 133 billion in 2015.
The year-on-year improvement was observed
at virtually all the group members. The cost of
risk amounted to HUF 221 billion at annual level
(–20% y/y). The extent of provisions coverage for
loans more than 90 days past due was 93.4%
at group level at the end of 2015 (+9.1 pp y/y).
Behind this figure, the annual improvement in
coverage was substantial at OTP Core (+9.3 pp),
Ukraine (+21.3 pp), and at DSK Bank (+4.3 pp).
The OTP Group’s IFRS consolidated Common
Equity Tier 1 (CET1) ratio was 13.3% at the end
of 2015. The regulatory capital does not contain
either the positive annual net profit (which can
only be included in the audited profit figure), or
the deduction due to the accrual of dividends.
Individual performances of banks
in the group
OTP Core (the Group’s Hungarian core
operation) achieved a HUF 123.4 billion after-tax
profit excluding correction items in 2015
(–10% y/y). The lower annual adjusted profit
is attributable primarily to the 6% decrease
in net interest income and the 9% increase
in the cost of risk. The likewise 6% drop in
operating profit, excluding one-o revenue
items, was the combined result of the lower
revenues (–2% y/y) and the 2% increase
in operating expenses. The 30 basis-point
drop in the annual interest margin (3.62%)
was primarily due to the environment of low
domestic interest rates, and the increased
weight, within the loan portfolio, of the
lower-margin corporate volumes.
The change in portfolio quality shows a
favourable tendency: the DPD90+ portfolio,
adjusted for exchange rates and stripped of
sales and write-downs, grew by HUF 48 billion
in 2014, but fell by HUF 11 billion in 2015.
The provisions coverage for loans more than
90 days past due increased (85.8%), in addition
to which the DPD90+ ratio declined by 5.4 pp
(to 12.1%) due to write-downs and sales. The
total cost of risk increased by 9% y/y, and with
this the annual risk-cost ratio rose from 0.73%
to 0.84%.
The FX-adjusted gross loan portfolio shrunk by
13% at annual level, predominantly as a result
of the settlement and conversion to forint of retail
mortgage loans implemented during the year.
The retail gross loan portfolio decreased in the
case of both mortgage loans (–19% y/y) and
consumer loans (–17% y/y). Within the corporate
portfolios, the 58% annual drop in municipality
loans reflects the impact of the mid-year early
repayment of debt assumed by the state. In the
medium-sized and large corporate segment
the portfolios decreased by 3% y/y, mainly as
the consequence of early repayments by a few
large clients. At the same time, the portfolio of
loans provided to micro and small enterprises
grew by 11%, partly due to the National Bank of
Hungary’s Funding for Growth Scheme.
Although the 19% drop in the mortgage loan
portfolio is substantial, without the impact of
the settlement and forint conversion of foreign
currency loans the decrease would only have
been 7%; in other words, regular amortisation
and the increasing early repayments still
exceed new disbursements for the time
being. It is encouraging, however, that the
improvement in households’ financial positions
and the continuous rise in property prices are
generating strong demand: In 2015 the volume
of loan applications rose by 24% y/y, and that
of disbursements by 33%.
The FX-adjusted deposit volume, together with
retail bonds, increased by 2% over the year as
a whole. The net loan/deposit ratio dropped
further (47%, –6 pp y/y, FX-adjusted).
Of the Hungarian subsidiaries, Merkantil Bank
and Car realised a HUF 1.6 billion positive
adjusted after-tax profit, which is in contrast
8 OTP Bank Annual Report 2015
to the almost HUF 1.5 billion loss of the
previous year. The improvement is the
combined result of the 13% growth in operating
profit and 32% decrease in the cost of risk.
The several-year decline in the FX-adjusted
total gross loan portfolio came to a halt,
and the volume of newly placed vehicle loans
expanded by 36% y/y.
OTP Fund Management posted a HUF 4.8 billion
profit in 2015. The portfolio of management
funds decreased by 9% y/y against a backdrop
of declining yields, but stabilised in Q4.
The company maintained its leading position in
the domestic fund management market.
The performance of DSK Bank stands out
among the foreign subsidiaries, as the
Bulgarian subsidiary bank realised a
HUF 52.5 billion profit in 2015, which exceeded
the previous year’s figure by 34%. This
exceptional performance was due to strong
revenues from basic banking services, and
the 21% fall in the cost of risk. The annual net
interest margin is stable (5.24%), and the quality
of the portfolio is continuously improving.
The provisions coverage for the DPD90+
portfolio increased substantially (2015: 95.8%)
despite the lower cost of risk; the DPD90+ rate
(14.9%) decreased on a y/y basis. The bank’s
FX-adjusted loan portfolio grew by 1% y/y,
and thus the share of the corporate portfolio
expanded further (+5% y/y), and the bank’s
share of the corporate market also improved.
Owing to the bank’s excellent operation and
market reputation, the FX-adjusted deposit
volume rose by 16%. The bank’s profitability
and eciency is excellent: the annual ROE
was 21% and the cost/income ratio 36.1%.
In recognition of these outstanding results,
The Banker magazine awarded DSK Bank the
title of Bank of the Year of Bulgaria in 2015.
The Russian subsidiary bank remained
loss-making in 2015; the HUF 15.1 billion
negative result excluding Touch Bank exceeds
that of the base period by 4%. The loss
calculated in forint can be attributed primarily
to the 36% y/y drop in operating profit, which
was only partially oset by the 30% decrease
in the cost of risk. In its operations in 2015 the
bank focused on more eective cost control
and collection, an approach that yielded a
number of favourable results: From the second
half of 2015 the deterioration of the portfolio
slowed considerably, while the bank’s operating
expenses decreased by 38% at annual level due
to the headcount reduction and branch closures
carried out during the year. Business activity
remained cautious and targeted, as the bank
primarily focused on consumer goods loans; the
disbursement of personal loans was restrained,
and there was eectively no cross-selling of
credit cards at all. A positive development
was that, in line with the management’s aims,
the risk-cost ratio for consumer goods loans
dropped nearly 10% for the year as a whole,
and an improvement is also being seen in the
case of personal loans. The bank’s annual net
interest margin decreased on a y/y basis, but is
still the highest (15.6%) in the Group.
The loss made in 2015 by the digital bank,
Touch Bank, which in legal terms operates as
a part of the Russian subsidiary but in practice
functions as a stand-alone key business line,
came to HUF 4.8 billion. This was principally a
result of the bank’s operating expenses, which
in turn were due in part to intensive customer
acquisition and marketing activity. The bank’s
customers now number almost 20,000, with
deposits approaching the HUF 4.3 billion mark.
The Ukrainian subsidiary bank generated
a HUF 40.3 billion adjusted negative result,
which is 7% smaller than the loss incurred
one year previously. The cost of risk generated
on the Crimean and East Ukrainian exposures
represented HUF 2.4 billion (after tax); these
were stated as correction items at consolidated
level.
Due to the hryvnia’s substantial y/y weakening
against the forint, the changes in business
results can be better described in terms of the
local currency. On this basis the operating result
improved by 46% over the year as a whole,
and within this, the amount of interest income
9Message from the Chairman & CEO
remained eectively unchanged relative to the
previous year, whereas fee and commission
revenues improved by 19%, and other revenues
improved substantially, due partly to the base
eect. Revenues grew by 22% overall, while
operating expenses dropped by 3%.
The rate of growth in the FX-adjusted DPD90+
portfolio (excluding sales and write-downs)
decreased considerably at annual level
(2014: HUF 61 billion, 2015: HUF 11 billion); the
DPD90+ ratio increased by 2.4 pp y/y (48.6%).
The cost of risk increased by 35% y/y in hryvnia
terms. The provisions coverage of the DPD90+
portfolio rose by 21.3 pp y/y to reach 118.5%.
The FX-adjusted DPD0–90 loan portfolio shrank
by 26% year on year; a more pronounced
decrease occurred in respect of performing
retail loans (–36%), while the corporate loan
portfolio decreased at the more moderate rate
of 22%. Lending activity generally continued to
be restrained and conservative. The customers’
confidence in the bank is reflected in the fact
that the FX-adjusted deposit volume grew by 2%
year on year. The bank’s net loan/deposit ratio
dropped to 85%, which conceals a high degree
of adaptation (–63 pp y/y, FX-adjusted). Parallel
with this, in 2015 the volume of group financing
(including subordinated loan capital) decreased
by almost USD 250 million, amounting to the
equivalent of HUF 107 billion at the end of Q4.
The Romanian subsidiary bank’s adjusted
annual profit almost doubled year on year, to
nearly HUF 1.5 billion. The main balance sheet
and profit-and-loss items were influenced in
a considerable extent by the consolidation of
Banca Millennium S.A. in Q1 of 2015.
The 18% y/y increase in revenues was oset
by the jump in operating expenses (+59%
y/y), and as a result of this, the operating
profit also decreased by 38% in comparison
to the previous year. The annual cost of risk
halved. The FX-adjusted gross loan portfolio
expanded by 23% over the past one-year period
as a result of the acquisition. The volume of
personal loans was 9% higher and the portfolio
of mortgage loans 19% greater than one
year previously. The corporate loan portfolios
expanded at a higher rate than this, at 30%.
Deposits showed strong growth, with volumes
increasing by 51% y/y, and consequently the
net loan/deposit ratio dropped to 142% (–30 pp
y/y, FX-adjusted). The DPD90+ ratio declined to
16.7%, with stable coverage (79.1%).
The almost HUF 3 billion adjusted after-tax
profit attained by the Croatian subsidiary bank
in 2015 represents a substantial improvement
on the previous year’s figure (HUF 104 million).
Operating profit grew dynamically year on
year (+44), and all these factors more than
compensated for the increase in the cost of
risk (+32%) that occurred in the same period.
The bank’s net interest margin for the year
improved (3.12%). The FX-adjusted loan
portfolios showed minimal growth, while
deposits decreased by 2%, with the result
that the net loan-to-deposit ratio increased
slightly (84%). The loan portfolio shows an
improving trend; the ratio of DPD90+ loans
was 13.1%, and their coverage increased
(70.9%).
The Slovak subsidiary bank’s adjusted net
earnings of over HUF 900 million is a major
improvement on the HUF 32 million profit
achieved in 2014. This favourable change
is due to the combined impact of the 12%
improvement in operating profit and a 6% drop
in operating expenses. The bank’s interest
margin was unchanged from the previous
year (3.18%). In the favourable macroeconomic
environment the FX-adjusted loan portfolios
grew by 4% and deposits by 3% y/y.
The proportion of DPD90+ loans decreased by
0.6 pp to 9.7%, and their coverage increased
(61.2%).
The Serbian subsidiary bank was unable to
maintain its profitable operation, eventually
closing the year 2015 with a loss of close to
HUF 400 million. At annual level the operating
profit was weaker (–5%), while the cost of
risk increased by 28%. The FX-adjusted loan
portfolio grew by 9% y/y, with substantial
growth in volumes observed in both the retail
10 OTP Bank Annual Report 2015
and corporate divisions. The ratio of DPD90+
loans decreased further (39.3%), with stable
coverage (74.9%).
The Montenegrin subsidiary bank, as in 2013
and 2014, turned a profit again in 2015
(HUF 909 million), which was more than double
that of the previous year. The 17% y/y drop in
operating profit can primarily be attributed to
the decrease in revenues (–9%); this was only
partially oset by the bank’s eective cost
management. The improvement in after-tax
profit was due to the 35% y/y decrease in the
cost of risk. The FX-adjusted loan portfolio grew
by 5% y/y, and deposits by 4%. The portfolio
of loans more than 90 days in past due grew
(42.7%), but its coverage improved (83%).
Innovation, accolades
Although we continue to have a dominant
branch presence in many of our core markets,
OTP Bank was among the first to recognise the
opportunities inherent in innovations related
to digital channels, and this is one reason why
the Bank is the market leader in respect of all
digital channels in Hungary. It is a strategic
priority of the Bank to achieve full digital
transformation, which, beyond the development
of internal processes, also aims to provide an
outstanding customer experience. As part of
this, the Digital Transformation Programme
was launched, and has set itself the goal of
implementing more than 100 projects.
Meanwhile, the role of the branches is gradually
changing, with simple transactions – where the
role of the online channels is growing steadily –
increasingly giving over to the sale of complex
products and the provision of advice.
Last year we once again received numerous
professional accolades, but the one closest
to my heart was the award that the bank has
now received for many years running, for its
outstanding role in the promotion of financial
literacy. This is all a part of our eorts to
provide the younger generations with a diverse
and varied range of essential skills, within
the context of our active CSR commitments.
Through the OTP Fáy András Foundation’s
Training Centre, since November 2012 tens of
thousands of secondary school students have
received education in finance, economics and
money management, free of charge.
OTP Bank has for many years received the Best
Bank in Hungary award from financial journals
The Banker, Euromoney or Global Finance, but
OTP’s private banking service is also the proud
holder of the title of best domestic, and indeed
regional, service provider.
Expectations for 2016
Given the favourable macroeconomic
environment mentioned in the introduction,
and the constructive attitude displayed by the
regulators, I am essentially optimistic with
regard to 2016. Accordingly, I can confirm
that this year we are steadily approaching
the target that was set at the Annual General
Meeting of 2015, specifically: by 2017 the Bank
Group’s return on equity (ROE) will exceed 15%
(alongside a 12.5% CET1 ratio), and besides the
Hungarian and Slovak bank tax and the revenue
derived from the sale of our stake in Visa
Europe Ltd. (approx. HUF 10.5 billion), there are
no other one-o items that will influence our
consolidated after-tax profit in 2016. In eect,
this means that I expect to see a substantial
improvement in both our accounting profit and
in our after-tax profit adjusted for one-o items.
Furthermore, the previous years’ erosion of
the group-level performing loan portfolio will
come to an end in 2016, and hopefully we can
also expect to see slight growth. I have faith
particularly in lending to the corporate, and
specifically the micro and small enterprise, as
well as the agricultural sector, but decisions
by the Hungarian government may also have
a favourable eect on the growth of domestic
mortgage lending. The consolidated net interest
margin may decline slightly, because for one,
the weight of the higher-margin Russian and
Ukrainian operations will decrease, and for
another, we expect lower margins in both
11Message from the Chairman & CEO
Bulgaria and Hungary, especially if the central
bank carries out further interest rate cuts in the
course of the year. The favourable trends that
have got under way in terms of portfolio quality
will continue, and the cost of risk will decrease
significantly at the Russian and Ukrainian
subsidiary banks, and to a lesser extent in
Hungary and Bulgaria too. Operating expenses
will develop similarly to the 2015 trend; the
nominal extent of these will be substantively
influenced by the fact that a growing number of
group members will incur an obligation to pay
into the National Resolution Funds that must be
established under EU regulations, and by the
amounts payable into deposit protection and
investment protections funds, which are also
rising at annual level.
The greatest positive changes relative to the
past two years is that this year we do not expect
losses at either the Russian or the Ukrainian
operation.
Our stable capital strength makes it possible
for us to increase the dividend payout from year
to year: subject to approval from the General
Meeting, in respect of the 2015 financial year
we expect a dividend payout of HUF 46.2 billion,
which translates to approximately HUF 165
per share. Alongside organic growth, we are
constantly seeking acquisition opportunities:
there have been positive examples of this in
Croatia and Romania; in both countries the
integration related to the bank purchases has
been completed, and the market positions and
profit-generating capacity of our subsidiary
banks were strengthened. Furthermore, in
February 2016 we purchased the Hungarian
portfolio of AXA Bank, which predominantly
consists of mortgage loans. The integration
process could be completed at the end of 2016,
and as a result of the transaction our mortgage
loan portfolio could improve considerably,
by more than 20%, bringing a parallel
improvement in our market positions.
I am confident that 2016 and the years to
come will now be about normal banking
operation, lending growth rates and the
expansion of portfolios, with activities focusing
on improvements to the quality of customers
service, risk management and eectiveness.
While retaining the values that we have always
upheld, there is a need for constant renewal
and innovation. This is not only something that
is dictated by the competition; for ourselves,
too, we need to set objectives that are in line
with what is expected of a market-leading
financial institution, and which also oer a
realistically attainable vision for our employees
and customers. We have every reason to
believe that the OTP Group will fulfil society’s
expectation that, while ensuring stable,
predictable operation, it will provide individuals
and communities with an eective service
and a positive customer experience in the
management of their day-to-day finances.
I ask for your assistance and supportive
contribution in the achievement of these goals!
Dr. Sándor Csányi
Chairman & CEO
12 OTP Bank Annual Report 2015
Macroeconomic and financial
environment in
2015
MACROECONOMIC AND FINANCIAL
DEVELOPMENTS IN HUNGARY
In 2015 Hungary’s macroeconomy was mostly
shaped by the di erent monetary policies
expected from the Fed and the ECB, and by the
continued slump in commodity prices, which
started in 2014. In December 2015, the Fed
embarked on interest rate hikes (0.25–0.5%),
for the fi rst time in seven years, owing to the
accelerating growth and the favourable labour
market developments in the USA. Meanwhile
the ECB decided to extend its asset purchase
programme and cut the interest rate on
overnight deposits further (to –0.3%). For the
fi rst time since the crisis began, the eurozone
posted meaningful growth (1.5%), but with
signifi cant discrepancies among the European
Union’s regions. Preliminary GDP data for Q4
suggest that Central and South Eastern Europe
remained the strongest region.
The several-month-long negotiations with
Greece, which ultimately resulted in a
temporary solution to the country’s debt
crisis, failed to cast a cloud on the supportive
sentiment on global markets.
Commodity prices slumped deeper, owing to
the shrinking demand caused by the structural
changes in China’s economy. Despite the sliding
oil prices, the December meeting of OPEC
members decided to boost output. As a result,
prices hit lows last seen during the crisis in
2008.
The persistently low oil prices shifted infl ation
forecasts lower, providing room for the
monetary policy and helping the continued
easing of monetary conditions.
In line with our forecasts, Hungary’s economy
grew by 2.9% in 2015, after expanding by 3.6%
in 2014. After the election year, the volume of
investments fell, but net exports’ contribution
returned to positive territory from the slump
in the previous year. Nonetheless, the engine
of growth was clearly the further accelerating
consumption of households.
–16
–12
–8
–4
0
4
8
12
–16
–12
–8
–4
0
4
8
12
2006/Q1
2006/Q3
2007/Q1
2007/Q3
2008/Q1
2008/Q3
2009/Q1
2009/Q3
2010/Q1
2010/Q3
2011/Q1
2011/Q3
2012/Q1
2012/Q3
2013/Q1
2013/Q3
2014/Q1
2014/Q3
2015/Q1
2015/Q3
Consumption expenditure of households
Gross fixed investment
Government consumption
Inventories
Net export GDP
Decomposition of Hungary’s GDP growth
by expenditure side items (%)
Sources: HCSO, OTP Research
–8
–6
–4
–2
0
2
4
6
–8
–6
–4
–2
0
2
4
6
Agriculture Construction Market ServicesIndustry
Government Services
Taxes on production less subsidies GDP
Sources: HCSO, OTP Research
2006/Q1
2006/Q3
2007/Q1
2007/Q3
2008/Q1
2008/Q3
2009/Q1
2009/Q3
2010/Q1
2010/Q3
2011/Q1
2011/Q3
2012/Q1
2012/Q3
2013/Q1
2013/Q3
2014/Q1
2014/Q3
2015/Q1
2015/Q3
Decomposition of Hungary’s GDP growth
by production side items (%)
13Macroeconomic and fi nancial environment in 2015
The increase in the value added by market
services has largely contributed to the
economy’s expansion. Even though the
deceleration of Germany’s manufacturing may
pose risks to the demand for Hungary’s export
products, it seems that these fears did not get
in the way of production. Moreover, mostly
owing to the improved terms of trade,
Hungary’s trade surplus also hit an all-time
high, at EUR 8.1 billion (or 8% of GDP) in 2015.
A weaker-than-2014 year pushed agriculture’s
contribution to GDP into negative territory.
Non-farm private sector GDP was as
strong as elsewhere in the CEE region;
it may have grown by more than 4%.
Consumer prices dropped by 0.1% on
average in 2015, thanks to the fall in commodity
prices; demand-sensitive infl ation accelerated
until the end of summer, but somewhat slowed
towards the end of the year.
The further drop in infl ation justifi ed the
continuation of the easing cycle; the latest cut,
in July, brought the base rate to 1.35%.
The MNB’s Self-Financing Programme
introduced a two-pronged plan to boost lending
for SMEs, then the MNB decided to do away with
the two-week deposit bills, to boost commercial
banks’ appetite for government securities.
At the end of 2015, the MNB announced plans to
introduce unconventional monetary policy tools
because infl ation was likely to remain below its
target throughout the forecast horizon.
The further decrease in infl ation made a
case for the continuation of the easing cycle;
therefore the base rate was reduced in
July to 1.35%. As a part of the self-fi nancing
plan, the MNB introduced a Scheme which
aims to boost SME lending, later the MNB
decided to phase out the two-week deposit in
order to boost the demand of banks towards
government bonds.
Due to the fact that infl ation will remain below
the infl ation target over the forecast horizon,
at the end of the year the MNB announced they
plan to introduce new, mainly unconventional
monetary policy tools in the future.
210
220
230
240
250
260
270
280
290
300
310
320
330
1
2
3
4
5
6
7
8
9
10
11
12
13
01.2002.
08.2002.
03.2003.
10.2003.
05.2004.
12.2004.
07.2005.
02.2006.
09.2006.
04.2007.
11.2007.
06.2008.
01.2009.
08.2009.
03.2010.
10.2010.
05.2011.
12.2011.
07.2012.
02.2013.
09.2013.
04.2014.
11.2014.
06.2015.
01.2016.
Base rate HUF/EUR
The HUF/EUR and the base rate
Sources: Reuters, MNB, OTP Research
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
01.2015.
01.2015.
02.2015.
03.2015.
03.2015.
04.2015.
05.2015.
05.2015.
06.2015.
07.2015.
07.2015.
08.2015.
09.2015.
10.2015.
10.2015.
11.2015.
12.2015.
12.2015.
3Y 5Y 10Y
15Y
Government bond yields (%)
Sources: ÁKK, OTP Research
early 2015, the pair spent most of the second
half of the year around 310 levels, largely
owing to the measures taken by the central
bank.
Short-term yields dropped towards the end of
the year, while long-term yields barely moved.
The HUF/EUR oscillated in the 296.6–318.5
range. Following a forint appreciation in
14 OTP Bank Annual Report 2015
The countries where OTP Bank has foreign
subsidiary banks posted mixed economic
performance in 2015. In this respect, the eight
countries can be classified into three groups:
the clearly promising Central and Eastern
Europe, the improving Balkans region, and
commodity producers who are under pressure
but out of recession.
In the first group, the countries of Central
and Eastern Europe further enhanced their
favourable 2014 performance. The low budget
deficit and the shrinking government debt left
room for loosening fiscal policies, and these
countries used this opportunity more than once.
The good fiscal achievements owe a lot to the
low commodity prices and to the surge in EU
co-financing. External debts have decreased,
and external balance positions have improved.
Preliminary data rank Slovakia (+4%) and
Romania (+3.8%) among the most dynamically
expanding economies of the European Union.
The high savings ratio was accompanied by
consumption growth, which suggests to us
that this component’s contribution to GDP will
remain strong. Domestic demand is becoming
increasingly pronounced within economic
growth, which makes these economies resilient
to external tensions. Hungary, Romania and
Bulgaria saw their property markets recover,
which bodes well for a rise in lending in one or
two years.
Slovakia’s balanced economic performance
enabled it to better resist external shocks.
Nonetheless, the biggest risk in the future is
the decline in external demand, mainly that
from Germany. The most important engines
of economic performance are exports and
domestic demand. Romania’s economy
is diversified, its public and private sector
indebtedness is low, and the considerable
MACROECONOMIC AND FINANCIAL
DEVELOPMENTS IN THE COUNTRIES
OF OTP BANK’S FOREIGN SUBSIDIARIES
15Macroeconomic and fi nancial environment in 2015
5
10
15
20
25
30
35
40
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Hungary
Russia
Ukraine
Bulgaria
Romania
Slovakia
Croatia
Serbia
Montenegro
The banking system’s retail loan penetration
(year-end, % of GDP)
Sources: National banks, OTP Research, 2015 forecast
10
15
20
25
30
35
40
45
50
55
60
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
The banking system’s non-financial corporate
loan penetration (year-end, % of GDP)
Sources: National banks, OTP Research, 2015 forecast
Hungary
Russia
Ukraine
Bulgaria
Romania
Slovakia
Croatia
Serbia
Montenegro
fi scal room may give further impetus to
growth. Yet the double-digit wage growth
and the aggressive fi scal loosening may
pose downward risks to short-term growth
prospects. Bulgaria’s growth pace (at 2.8% YoY
in full-year 2015) has also become more robust
than in 2014. What may cloud its outlook is the
low diversifi cation of Bulgaria’s economy and
the lack of industries with high value added.
In the Balkans region, the most important
good news is that economic growth returned
to each country. Montenegro is expanding
at the fastest speed; its GDP grew by 4.2%
in Q3, greatly benefi ting from the increasing
number of infrastructural investments
by the government and from the robust
increase in tourism revenues; unfortunately,
the government fi nances the former from
debts. Serbia continues to face considerable
challenges, mostly owing to the weak economic
performance, and the large fi scal and external
imbalances. Its banking system is stable, but
the ratio of non-performing loans needs to be
further reduced. In our view, Croatia exited the
six-year-long period of recession in 2015, owing
much to the dynamically increasing exports as
well as to the increased consumption caused by
the fall in commodity prices and administrative
changes. Regrettably, signifi cant fi scal and
external balance problems still persist in these
three countries, therefore their growth seem
less sustainable in the medium term than
elsewhere in Central and Eastern Europe. If the
external environment deteriorates, the market
pressure may mount particularly in Croatia.
The situation in Ukraine and Russia di ers
markedly from the above country groups.
In addition to the low commodity prices (steel,
oil), the geopolitical confl ict between these
countries further deepens the recession.
Ukraine’s economy contracted by 10% and that
of Russia shrank 3.7%; both fell more than we
had expected at the beginning of 2015. It is
noteworthy that Ukraine’s Q4 gross domestic
product (–1.2%) has beaten expectations
in year/year comparison. The USD/UAH
increased from 15.62 in early 2015 to 24 by
the end of the year. Infl ation was above 43%
in December. What poses risks for its future
outlook is the uncertainty surrounding the
IMF agreement and the political situation.
In Russia, oil prices’ slump to record lows
weighed heavily on the budget and the steadily
depreciating ruble pushed the USD/RUB above
70 by end-December, up from 54 in January
2015. The weak ruble accelerated infl ation,
thus reducing real wages and consumption as
well as lending. Oil prices, which we expect to
remain low, will justify further fi scal austerity
measures.
16
Management’s Analysis
OTP Bank Annual Report
2015
17
18 OTP Bank Annual Report 2015
Management analysis
of the
2015 results
of the
OTP Group
CONSOLIDATED FINANCIAL
HIGHLIGHTS AND SHARE DATA*
* Structural adjustments made on consolidated IFRS profit and loss statement together with the calculation methodology of adjusted
indicators are detailed in the Supplementary data section of the Business Report.
Main components of the Statement of recognised income 2014 2015 Change
HUF million HUF million %
Consolidated after tax profit (102,258) 63,171 (162)
Adjustments (total) (220,272) (57,074) (74)
Consolidated adjusted after tax profit without the eect of adjustments 118,014 120,245 2
Pre-tax profit 142,341 146,057 3
Operating profit 414,534 362,594 (13)
Total income 826,061 754,912 (9)
Net interest income 636,172 553,659 (13)
Net fees and commissions 169,579 167,250 (1)
Other net non-interest income 20,309 34,003 67
Operating expenses (411,527) (392,318) (5)
Total risk costs (274,749) (220,709) (20)
One o items 2,556 4,172 63
Corporate taxes (24,327) (25,812) 6
Main components of balance sheet closing balances 2014 2015 %
Total assets 10,971,052 10,718,848 (2)
Total customer loans (net, FX-adjusted) 5,828,583 5,409,967 (7)
Total customer loans (gross, FX-adjusted) 6,964,289 6,423,588 (8)
Allowances for possible loan losses (FX-adjusted) (1,135,705) (1,013,621) (11)
Total customer deposits (FX-adjusted) 7,624,295 7,984,579 5
Issued securities 267,084 239,376 (10)
Subordinated loans 281,968 234,784 (17)
Total shareholders’ equity 1,264,166 1,233,659 (2)
Indicators based on one-o adjusted earnings 2014 2015 ppts
ROE (from adjusted net earnings) 8.5% 9.6% 1.1
ROA (from adjusted net earnings) 1.1% 1.1% 0.0
Operating profit margin 3.88% 3.34% (0.54)
Total income margin 7.74% 6.96% (0.78)
Net interest margin 5.96% 5.11% (0.85)
Cost-to-asset ratio 3.85% 3.62% (0.23)
Cost/income ratio 49.8% 52.0% 2.20
Risk cost to average gross loans 3.68% 3.18% (0.50)
Total risk cost-to-asset ratio 2.57% 2.04% (0.53)
Eective tax rate 17.1% 17.7% 0.6
Net loan/(deposit+retail bond) ratio (FX-adjusted) 75% 67% (8)
Capital adequacy ratio (consolidated, IFRS) – Basel3 17.5% 16.2% (1.3)
Tier1 ratio – Basel3 14.1% 13.3% (0.8)
Common Equity Tier1 (‘CET1’) ratio – Basel3 14.1% 13.3% (0.8)
Share Data 2014 2015 %
EPS diluted (HUF) (from unadjusted net earnings) (382) 242 (163)
EPS diluted (HUF) (from adjusted net earnings) 441 458 4
Closing price (HUF) 3,811 6,000 57
Highest closing price (HUF) 4,875 6,065 24
Lowest closing price (HUF) 3,555 3,479 (2)
Market Capitalization (EUR billion) 3.4 5.4 59
Book Value Per Share (HUF) 4,515 4,406 (2)
Tangible Book Value Per Share (HUF) 3,948 3,840 (3)
Price/Book Value 0.8 1.4 75
Price/Tangible Book Value 1.0 1.6 60
P/E (trailing, from accounting net earnings) (10.4) 26.6 (356)
P/E (trailing, from adjusted net earnings) 9.0 14.0 56
Average daily turnover (EUR million) 14 15 7
Average daily turnover (million share) 1.1 0.9 (18)
19
2015 macroeconomic trends in Hungary
turned to be the most favourable since the
onset of the financial crisis in 2008. Despite
some moderation, according to preliminary
figures and as a result of the strong 4Q GDP
growth (+3.2% y-o-y), the economy grew
by 2.9% y-o-y. Balance indicators remained
consistently favourable: supported by stronger
than expected tax revenues the fiscal deficit
was kept below 2% of GDP and the public debt
was reduced to below 76% of GDP, too. Within
that both the share of external debts and
non-residents’ holding contracted massively.
Simultaneously, funding conditions improved
a lot and the vulnerability of the economy
moderated substantially.
As a result of a roughly 3 year continuous
monetary easing the base rate dropped to
1.35% by July 2015. Besides, the central
bank has been using other non-conventional
tools too, steadily and eectively supporting
the balanced and sustainable growth of the
economy. The central bank’s toolset is fairly
rich: apart from the new phases of Funding
for Growth Scheme it also includes the Self
Financing Programme which encourages
banks to increase their government securities
purchases and also the reform of the monetary
policy instruments.
From macroprudential perspective it was of
great importance that with the conversion
of FX-denominated mortgages, car loans
and consumer credits a major systemic risk
factor was eliminated, and the settlement was
completed with practically all aected clients
by end-2015. Simultaneously, the massive
operational burden induced by the settlement
and conversion vanished.
In December 2015 the Government decided
about a substantial reduction of the banking tax
starting from 2016. Also, a new legislation was
approved regarding the reasonable handling
and burden-sharing of the losses stemming
from the brokerage scandals in early 2015.
It was equally important that the Government
significantly eased the conditions of purchasing
new and used flats and widened the range of
eligible families within the framework of the
Housing Subsidy for Families (the so-called
CSOK). Also, from 1 January 2016 applicable
VAT level on newly built houses was scaled back
from 27% to 5%. Those changes might exert
positive impact on mortgage loan demand, too.
Based on those favourable regulatory changes
and macroeconomic developments there is a
strong chance that Hungary will be re-gaining
its investment-grade status in 2016 with the
major rating agencies.
MANAGEMENT’S ANALYSIS OF THE
FULL-YEAR 2015 RESULTS OF OTP GROUP
MOODY’S RATINGS
OTP Bank
Foreign currency long-term deposits Ba2
OTP Mortgage Bank
Covered mortgage bond Baa2
OTP Bank Russia
Foreign currency long-term deposits Ba3
STANDARD & POOR’S RATING
OTP Bank and OTP Mortgage Bank
Long-term credit rating BB
FITCH’S RATING
OTP Bank Russia
Long-term credit rating BB
Management’s analysis of the 2015 results of the OTP Group
3.000
3.500
4.000
4.500
5.000
5.500
6.000
6.500
7.000
31/12/2013 31/12/201530/06/201531/12/201430/06/2014
CECE Banking Sector Index (relative to OTP)
BUX (relative to OTP)
OTP
Share price performance
20 OTP Bank Annual Report 2015
With regard to 2016 economic outlook
OTP Bank’s forecasts are fairly confident: the
bank expects 2.5% GDP growth, 1.7% fiscal
deficit, 0.7% inflation, further easing public
indebtedness and 2% real wage increase. Local
consumption has been gradually becoming the
key engine of growth. New loan disbursements
are expected to keep increasing dynamically,
however loan stocks might increase first of all
in the SME and corporate segments; as for the
households it is dicult to give any ballpark
estimation regarding the potential impact of the
recent Government measures.
According to the preliminary GDP data
published in February 2016 most of the CEE
countries with OTP presence enjoyed a fairly
positive backdrop: the Croatian economy
apparently left behind the recession and
the newly formed government submitted an
ambitious consolidation programme.
The overall Bulgarian, Romanian and
Slovakian macro indicators were equally good.
Furthermore, in certain countries – Croatia,
Serbia and Romania – either as a result of
mandatory conversions or under schemes
initiated by the subsidiary – the settlement and
conversion of CHF-based mortgages is either
underway or practically completed. With their
de-facto completion the banking community
might again focus on business activity.
For the last two years Ukraine and Russia
have been struggling with dierent challenges,
though a moderate consolidation is going on.
The Ukrainian GDP contracted by 10% in 2015
and for 2016 the central bank forecasts only
a moderate 1.1% growth. Ocial headline
inflation is expected to remain well above
10% in 2016 after exceeding 49% in 2015.
The promised structural reforms and the
anti-corruption fight is progressing slowly,
and the IMF raised concern in this respect
suggesting the temporary suspension of
the next round of financial aid what Ukraine
otherwise needs a lot.
As for Russia the most important risk factors
are the low oil price and the weak rouble, as
they fall short of the levels used for making the
2016 budget. Potential expenditure cuts might
take their toll through hampering domestic
demand; ability to pay might deteriorate both
in the corporate and household sectors. Due to
the high inflation induced by the weaker RUB
the central bank left the base rate in its January
rate-setting meeting at 11%, unchanged since
June 2015. In line with the inflation moderating
to single digit the base rate might be cut in 2H
2016. According to the ocial forecast of the
central bank the Russian economy will recover
from the recession only in 2017; for 2016 as a
whole the CBR expects 2% GDP contraction.
On 3 February 2016 OTP Bank announced
the purchase of AXA Bank Hungary’s
(predominantly) mortgage portfolio. According
to the plans, following the closing of the
transaction the integration process can be
completed at the end of 2016.
Legislative acts and decisions
aecting OTP Group’s operation
in Hungary
1. Settlement and conversion of FX-based
consumer contracts into HUF
According to legislations passed in 2014 the
settlement of the existing and matured
(or prepaid) FX mortgage and consumer loan
contracts at OTP Bank and OTP Mortgage Bank
was completed in March 2015. In 1Q 2015 the
conversion of FX mortgage loans into HUF has
been completed (except for OTP Flat Lease).
In 2Q 2015 the settlement with Merkantil and
OTP Flat Lease clients has been executed,
clients’ obligations arising from FX lease
contracts were converted into HUF. In 3Q 2015
the settlement of existing and matured HUF
consumer contracts at OTP Bank, OTP Mortgage
Bank, Merkantil and Flat Lease has been
completed.
According to the Act No. CXLV of 2015 approved
on 22 September 2015 the conversion of FX
car and consumer loans has been completed
by 1 December 2015 (the portfolio held by OTP
Factoring Ltd. has been converted as of January 1,
2016). The applied FX rates were the prevailing
ones on 19 August 2015 (ocial FX rates
published by the central bank: 287.2 HUF/CHF
and 309.2 HUF/EUR). Pursuant to the Act
21
customers enjoyed a benefit which equals to the
dierence between the FX rates applied for con-
verting the FX mortgage loans (256.5 HUF/CHF,
309.0 HUF/EUR) and the ocial FX rate quoted
by the central bank on 19 August 2015. This die-
rence was born jointly by the banks and the State.
2. Banking tax
On 15 December 2015 the Parliament amended
the Act No. CCXVII of 2015 on the banking tax
as a result of continuous conciliation between
the government and the Hungarian Banking
Association. The Act came into force partly
on 23 December 2015 and 1 January 2016.
Accordingly, for 2016 the banking tax rate is
going to be 0.15% for the tax base not exceeding
HUF 50 billion and 0.24% above that threshold.
The tax base will be the adjusted total assets
in 2009. The Act abolished certain concessions
stipulated by previously approved legislations,
such as the potential bank tax refund of maxi-
mum HUF 5 billion on sector-level for those
banks that suered losses in Ukraine, and also
the maximum HUF 10 billion sector-level bank
tax break related to corporate loan growth.
As a result, in 2016 the Hungarian members
of OTP Group will be paying HUF 16.1 billion in
banking tax (HUF 13.2 billion after tax) against
HUF 34.9 billion paid in 2015
(HUF 28.6 billion after tax).
According to the announcement of the Ministry
of National Economy on 10 December 2015
the Government plans to submit the relevant
banking tax legislation valid for 2017 in the first
half of 2016.
3. Deposit Protection Fund, Investor Protection
Fund and Resolution Fund
According to the new regulation eective
from 1 January 2016 the rate of the annual
contribution paid by member institutions into
the Deposit Protection Fund (OBA) was raised to
0.175% (2015: 0.14%).
Eective from 1 January 2016 the rate of the
normal contribution payable into the Investor
Protection Fund (Beva) was increased to 0.175%
versus 0.045% in 2015. Simultaneously, the
compensation threshold changed to EUR
100,000 from the previous EUR 20,000 level.
In 2014 OTP Core (the economic unit for
measuring the result of core business activity
of OTP Group in Hungary) paid in total
HUF 3.6 billion towards OBA, Beva and the
Resolution Fund, and HUF 6.6 billion in 2015.
The annual contribution in 2016 is expected to
go up to around HUF 10 billion. Those paid-in
amounts are booked amongst operational
expenses, not among adjustment items on
consolidated level.
4. Quaestor
On 17 November 2015 the Constitutional
Court made a decision on motions regarding
the Act on the indemnification of Quaestor
victims (Act No. XXXIX of 2015). Accordingly
the Constitutional Court ruled that certain
paragraphs of the Act were unconstitutional.
On 15 December the Parliament approved a
new law (Act No. CCXI of 2015 on compensation
measures aimed at strengthening the stability
of local capital markets) which took into account
the Constitutional Court’s ruling. The Act came
into force on 1 January 2016. Simultaneously
the previous “Quaestor” Act (Act No. XXXIX of
2015 on establishing a compensation fund)
being eective from April 2015 lost eect.
The new Act enlarged the range of clients
eligible for the compensation with the victims of
Hungarian Securities Ltd., however reduced the
maximum amount of compensation each clients
can receive. Accordingly, returns realized since
1 January 2008 must be deducted from the due
compensation. Furthermore, above HUF 3 million
11% co-payment by clients was introduced.
The compensation will be handled technically
by a newly established Fund which can take
a bridge loan from the central bank with
unconditional payment guarantee by the state
for servicing the payments. The bridge loan
will be serviced from the Beva-members’
contributions; however the sector-level
total annual contribution can’t exceed
HUF 7 billion. The contributions are deductible
on sub-consolidated level from dierent
tax obligations (banking tax, corporate tax,
contribution tax, financial transaction tax) in the
year of the payment. The first payments are due
in March 2017.
Management’s analysis of the 2015 results of the OTP Group
22 OTP Bank Annual Report 2015
The deadline for submitting compensation
claims is 15 February 2016 and payments will
start from May 2016. Since the total amount
of those claims is not yet known, OTP Bank’s
share is not calculable either.
5. Legislative changes related to the Hungarian
housing market
With a Government decree (455/2015) published
on 29 December 2015 and eective from
1 January 2016 the range and scale of the
Housing Subsidy for Families (CSOK) was further
enlarged. Modifications in February (government
decrees No. 16/2016 and 17/2016, both published
on 10 February 2016) made some fine-tunings.
Accordingly:
ş Customers can apply for a non-refundable
state subsidy, the so-called CSOK (originally
introduced on 1 July 2015) from 1 January
2016 with more favourable terms. Conditions
are determined by the above government
decrees. Under the current scheme the
amount of the state subsidy for building or
purchasing new flats is linked to the number
of (existing or undertaken) children: the
subsidy is HUF 0.6 million after 1 child,
HUF 2.6 million after 2 and 10 million
after 3 or more. For used-flat purchase or
enlargement the subsidy varies between
HUF 0.6 and 2.75 million, depending on the
number of children.
ş Those families granted CSOK with 3 or more
children are also eligible – under certain
criteria – for maximum HUF 10 million
subsidized loan. The interest rate of these
loans paid by the client is fixed at 3% for the
first 25 years. The formula for calculating
the total maximum interest rate chargeable
by banks is as follows: 3 month average of
the 5 year Government bond yield
¯ 1.3+3%.
Therefore, the interest subsidy by the state
equals to the dierence between the interest
rate paid by the client and the total interest
rate charged by the bank.
ş For those clients building a new house or flat
a tax refund capped at HUF 5 million became
available under certain conditions stipulated
by the legislation.
Furthermore, according to Act No. CCXII
of 2015 the VAT on newly built houses
was reduced from 27% to 5% from
1 January 2016 (under certain limitations
for the maximum ground-space of those
properties).
Changes related to FX mortgage
loans aecting foreign subsidiaries
1. Romania
In November 2015 OTP Bank approved a
conversion programme to be oered by the
Romanian subsidiary to its retail CHF mortgage
borrowers.
The CHF mortgage loan conversion programme
started on 9 December 2015. By the end of
January 2016 more than 10,000 eligible clients
were notified about the bank’s oer. Out of
those around 80% showed interest towards the
scheme, and 3% turned down the conversion
oer. According to recent experiences the
originally expected conversion ratio seems to be
achievable. The conversions de facto have been
started on 25 January 2016.
2. Croatia
Based on the amendments to the Act on
Credit institutions and Customer Lending
approved by the Croatian Parliament on
30 September 2015 the Croatian subsidiary
of OTP Bank announced a conversion
programme (from CHF into EUR) for its retail
CHF borrowers. Due to amendments to the
technical details the de facto conversion was
postponed to 1Q 2016.
3. Ukraine
In early July 2015 the Ukrainian Parliament
approved an Act on the conversion of retail
FX mortgages into UAH, however the President
did not sign the Act and it did not become
eective. At the end of January 2016 the
Parliament voted on the presidential veto,
as a result the Act was taken o the agenda.
In early September 2015 another draft
legislation was published aiming at providing
relief to FX denominated residential mortgage
23
holders. The draft was prepared by the central
bank with the involvement and agreement
of the local commercial banks. Since the
actual version of the draft is currently under
discussion, it has not been submitted to the
Parliament yet.
Consolidated earnings:
HUF 120.2 billion adjusted after-tax
profit, declining income margin and
net interest margin, moderating risk
costs, decelerating portfolio quality
deteriorating from 2H, improving
DPD90+ ratio and provision
coverage
The consolidated accounting profit for the
last 12 months was HUF 63.2 billion versus a
loss of HUF 102.3 billion in the base period.
The material y-o-y change was related mainly
to the adjustment items.
In 2015 the total volume of adjustments
amounted to HUF –57 billion after tax, which
is materially lower than HUF –220 billion
booked in the base period. In 2015 the following
adjustment items were presented:
ş The special banking tax in the amount of
HUF –29.4 billion (after tax);
ş In 2Q and 4Q 2015 impairment was booked
in relation to the Ukrainian investment under
Hungarian Accounting Standards. Though
under IFRS these impairments had no direct
eect either on the consolidated balance
sheet or on the P&L, there was a related
positive tax shield of altogether HUF 6.7 billion
that added to the Group’s IFRS accounting
profit;
ş The Hungarian Competition Authority
imposed a HUF 4 billion fine on the Banking
Association in its January 2016 ruling.
According to HCA’s reasoning the Banking
Association operated a banking database in a
way that could hamper market competition.
The Association has contested the ruling
at the court. For the potential payment
obligations by OTP Group’s aected group
members HUF 813 million other risk cost
was made (HUF 662 million after tax);
ş The one-o impact of regulatory changes
in relation to consumer contracts and the
impact of the related methodological changes
in Hungary was HUF +7.6 billion (after tax);
ş In 2015 the Bank made additional provisions
for its East Ukrainian and Crimean exposures,
resulting in an after-tax negative eect of
altogether HUF 2.4 billion;
ş The business model of OTP Life Annuity Ltd.
was aected by a modification of Act 2003
LX, accordingly from January 2015 only
insurance companies are eligible to conclude
reverse mortgage contracts. Consequently
provisions were made on the Company’s
portfolio which had a negative impact of
HUF 5.5 billion (after tax);
ş The positive impact of badwill related to the
acquisition of Banca Millennium reached
HUF 1.6 billion (after tax);
ş The expected one-o negative impact of the
Romanian CHF mortgage loan conversion
programme is around HUF 25.5 billion (after
tax), assuming that all eligible clients will
participate;
ş The expected one-o negative impact of
regulatory changes related to CHF consumer
contracts in Croatia is HUF 6.3 billion
after tax;
ş In Serbia the central bank made several
decisions on 24 February 2015 related to
FX loans. As a result of these decisions
and also due to subsequent fine-tuning of
the refund calculation methodology the
Serbian subsidiary saw an after-tax negative
result of HUF 211 million presented among
adjustment items on consolidated level;
ş The after tax impact of dividends and net
cash transfers amounted to HUF +144 million.
On 2 November 2015 Visa Inc. and Visa
Europe Limited reached an agreement on the
purchase of the shares of Visa Europe (owned
by European banks) by Visa Inc. According to
the deal the purchase price will be transferred
by cash and Visa Inc.”C-type” preferential
shares with limited marketability, after the
settlement of the transaction (after receiving
all the necessary approvals). In addition, the
framework terms of the transaction provide
for a deferred earn-out payment, which will
Management’s analysis of the 2015 results of the OTP Group
24 OTP Bank Annual Report 2015
be paid in cash after sixteen quarters from
the date of the transaction settlement (if the
relevant criteria of the earn-out component
are reached). According to the notification of
Visa sent in mid-December 2015, the expected
amount of cash is about EUR 34.2 million
(around HUF 10.8 billion, which was calculated
with the closing ocial exchange rate of NBH as
at 31 December 2015). Prior to the transaction
the book value of OTP’s share in Visa Europe
was close to zero, but at the end of 2015 it was
revaluated, which has been recognized on the
of Fair value adjustment of available for sale
securities line in the Consolidated Statement of
Comprehensive Income. The above said cash
component of the purchase price will be booked
in the Consolidated Statement of Recognized
Income at the settlement of the transaction,
and shown presumably in the second quarter
of 2016. For the time being the value of
the earn-out component cannot be reliably
measured.
OTP Group posted HUF 120.2 billion adjusted
profit in 2015 which underpins a y-o-y 2%
increase against the base period. The corporate
tax burden grew by HUF 1.5 billion y-o-y, as a
result, profit before tax advanced by 3% y-o-y.
The operating income dropped by 13%; the
negative impact was o-set by lower risk costs
(–20% y-o-y) and higher one-o revenue items.
As for individual performances, 2015 to
a great extent resembles 2014: it was again
OTP Core with HUF 123.4 billion and DSK Bank
with HUF 52.5 billion contributing the most to
consolidated adjusted earnings. Other Group
members in the CEE region except for Serbia
were profitable, too and in total posted
HUF 5.9 billion profit. Ukraine and Russia,
on the contrary, remained still in red (with
HUF 40.3 billion and HUF 15.1 billion adjusted
loss), still their combined negative result was
slightly lower than in 2014. Starting from 2015
the performance of the Russian online bank,
Touch Bank was presented separately, though
legally it is part of the Russian operation; in
2015 it posted HUF 4.8 billion negative result.
The annual total income represented
HUF 755 billion, by 9% less y-o-y. Within that
net interest income shrunk by 13%: OTP Core
suered a y-o-y 6% decline, more significant
was the drop in Russia and Ukraine (–38%
and –36% respectively); at the same time the
Bulgarian, Romanian, Croatian and Slovakian
subsidiaries managed to increase their net
interest income. The material set-back in
Russia and Ukraine was partly reasoned by the
FX-eect: in RUB the Russian NII erosion was
18%, whereas the Ukrainian NII remained flat in
UAH terms. Also, the erosion of performing loan
volumes in both countries took their toll, too.
The net fee and commission income decreased
marginally (–1% y-o-y). The annual other net
non-interest income surged by 66% y-o-y,
to a great extent attributable to the 4Q 2014
base eect. Furthermore, at OTP Core there
was a higher annual gain realized on the AFS
securities portfolio, and a significant FX gain
was booked in Ukraine in 1Q 2015.
The annual operating expenses melted down by
5% y-o-y.
The consolidated total income margin (6.98%)
eroded by 78 bps in 2015, whereas the net
interest margin (5.11%) shrunk by 85 bps.
The FX-adjusted consolidated loan portfolio
declined by 8% y-o-y. Since there have been
significant write os during 2014, the changes
in the performing DPD0–90 loan volumes
would draw a better picture on real trends.
Accordingly, the performing (DPD0–90) book
eroded by 5% y-o-y. Regarding the FX-adjusted
DPD0–90 volume changes, the most significant
erosion was booked at the Russian and
Ukrainian subsidiaries (26% in each case),
whereas OTP Core suered an 8% y-o-y
set-back. Within the performing retail book
mortgages declined by 6% and consumer
loans by 8% respectively. The SME book, on the
opposite, advanced steadily (+16% y-o-y). Large
corporate volumes dropped by 3% y-o-y.
As for individual performances, in 2015 the
Romanian and Serbian subsidiaries managed
to increase their FX-adjusted loan volumes
the fastest (+25% and 17% respectively); the
remarkable y-o-y increase for all product
segments in Romania was related mainly to
the acquisition. The previously dynamically
expanding Russian consumer book eroded by
26% y-o-y and in Ukraine by 28% respectively.
25
The mortgage portfolio eroded at all banks, but
at the Romanian subsidiary (+20%). As for the
corporate volumes, the Romanian and Serbian
subsidiaries posted remarkable increase (+36%
and 31%, respectively). At OTP Core the SME
DPD0–90 book grew by 14% y-o-y supported
also by the Lending for Growth Programme of
the NBH.
The FX-adjusted deposit volumes kept
advancing dynamically (+5% y-o-y). The biggest
growth was achieved in Bulgaria and Romania
(+16% and 51% y-o-y).
The consolidated net loan to (deposit+retail
bonds) ratio dropped to 67% (–9 ppts y-o-y on
an FX-adjusted basis). All subsidiaries, but the
Romanian and Serbian were below 100%.
The volume of issued securities eroded by 10%
y-o-y mainly due to redemptions at OTP Core
and OTP Bank Russia. The y-o-y 17% decline
of the subordinated debt was reasoned by a
maturity in March 2015 with original face value
of EUR 125 million (the outstanding amount
was only EUR 93 million at redemption); no
redemption or buy-back took place in 2015.
By end-2015 the gross liquidity reserves of the
Group were close to EUR 8.6 billion equivalent.
Similar to 2014 the Group used again the
partial write-o method. In 2015 within the
framework of partial write os around net
HUF 78 billion non-performing exposure was
written o on consolidated level. In Russia
exclusively consumer exposures were involved
(HUF 50 billion), in Ukraine primarily retail
exposures (HUF 19 billion), whereas at DSK
Bank loans to companies were written o
partially (almost HUF 6 billion) and corporate
volumes were aected at OTP Core (roughly
HUF 4 billion). Mainly thanks to the partial write
os the DPD90+ ratio declined by 2.3 ppts to
17%.
DPD90+ loan volume changes adjusted for FX
rate movements and the eect of loan sales and
write-os demonstrated a favourable picture:
against the record level of inflow in 2014
(HUF 254 billion), the new DPD90+ formation in
2015 comprised only HUF 133 billion, of which
4Q 2015 represented HUF 4 billion only.
The y-o-y improving trend was valid for almost
all Group members. In Russia the annual inflow
was almost identical with the previous year’s
level (HUF 110 billion), in 2H there was
a major deceleration (1H 2015: HUF 70 billion,
2H: HUF 40 billion). In Ukraine the 2014 new
DPD90+ formation comprised HUF 60 billion,
but dropped to HUF 11 billion in 2015 (adjusted
for FX changes, write-os and sales).
Consolidated risk costs reached HUF 221 billion
(–20% y-o-y). By the end of 2015 the provision
coverage ratio of DPD90+ loans stood at 93.4%
underpinning a y-o-y 9.1 ppts increase. At
individual levels the provision coverage edged
up significantly at OTP Core (+9.3 ppts y-o-y),
Ukraine (+21.3 ppts) and DSK Bank (+4.3 ppts).
OTP Core: adjusted after-tax profit
declined by 10% y-o-y, moderate
erosion of net interest margin and
FX-adjusted loan book, further
moderating portfolio deterioration,
higher DPD90+ coverage
The adjusted after tax profit of OTP Core
(basic activity in Hungary) reached
HUF 123.4 billion in 2015, underpinning a 10%
y-o-y decline. The key driver behind the lower
annual profit was the y-o-y weaker net interest
income (–6%) and increasing risk costs
(+9%). The operating profit without one-o
revenue items eroded by 6%. Total income
moderated by 2%, whereas operating
expenses grew by the same magnitude.
The yearly net interest margin (3.62%) eroded
by 30 bps y-o-y mainly due to the lower interest
rate environment; also, within the loan book
corporate exposures with typically lower
margins gained ground.
It was positive that the FX-adjusted DPD90+
volume formation kept on demonstrating a
trend-like moderation. In 2014 the DPD90+
loan growth (FX-adjusted, without sales and
write-os) comprised HUF 48 billion, in 2015 it
decreased by HUF 11 billion.
The coverage of the DPD90+ portfolio increased
(85.8%, +9.3 ppts y-o-y). The DPD90+ ratio
(12.1%) dropped by 5.4 ppts. Risk costs
increased by 9% in 2015 and the annual risk
cost rate grew, too (from 0.73% to 0.84%).
Management’s analysis of the 2015 results of the OTP Group
26 OTP Bank Annual Report 2015
The FX-adjusted gross loan portfolio declined
by 13% y-o-y, mainly as a result of the FX
mortgage loan settlement and conversion.
Within the gross retail book mortgages sank by
19%, whereas consumer loans eroded by 17%
y-o-y. The corporate portfolio decline was due to
the municipality book erosion (–58% y-o-y) as a
result of the prepayment of previously assumed
debt by the State. Medium and large corporate
exposures declined by 3% y-o-y due to the
prepayment by a few big clients. Positive though
that partly being supported by the Funding for
Growth Scheme the SME loan portfolio of
OTP Bank grew by 11% y-o-y.
Despite further erosion in mortgage volumes
in 2015, quarterly developments already
demonstrated a decelerating pace of decline.
The improving financial position of households,
as well as the increasing property prices
generated decent loan demand in 2015: at OTP
Core the volume of applications grew by 24%
y-o-y and disbursements by 33%, respectively.
The FX-adjusted deposit book with retail bonds
expanded by 2%. Despite the popularity of
alternative saving forms (government securities
and mutual funds), retail deposits increased by
11% y-o-y. As a result, the net loan to deposit
ratio dropped to new lows (47%, –6 ppts y-o-y,
FX-adjusted).
Merkantil Bank and Merkantil Car posted
HUF 1.6 billion adjusted profit in 2014 versus
HUF 1.5 billion loss in the base period.
The improving performance was the result of
a y-o-y higher operating income (+13%) and
significantly lower risk costs (–32% y-o-y).
The DPD90+ ratio was 10.7%, due to sales and
write os it dropped by 2.7 ppts y-o-y, the cover-
age advanced by 33 ppts and reached 122.5%
as a result of the settlement and conversion.
In 2015 car loan origination soared by 36% y-o-y.
In 2015 OTP Fund Management posted
HUF 4.8 billion after-tax profit, underpinning a
22% y-o-y decline. Net fees and commissions
eroded by 14% y-o-y, operational expenses
grew by 9%. The volume of total assets under
management shrank by 9% y-o-y and stood
at HUF 1,204 billion. The company retained its
market leading position with 23.6% market
share by end-2015.
Foreign subsidiaries’ performance:
all-time high profit in Bulgaria,
y-o-y significantly improving
Croatian, Romanian, Slovakian and
Montenegrin performance, moderate
loss in Serbia, significant negative
results in Ukraine and Russia
The Bulgarian subsidiary posted
HUF 52.5 billion after-tax profit in 2015, by 34%
more than in the base period. The excellent
performance was due to strong core banking
revenues, but also to moderating risk costs
(–21% y-o-y). The net interest income advanced
by 12% driven by lower funding costs, whereas
net fees and commissions expanded by 14%
y-o-y. The annual net interest margin remained
stable (5.24%, –12 bps y-o-y).
Despite lower risk costs and due to the
favourable credit quality trends the coverage
of the DPD90+ volumes improved substantially
(95.8%, +4.3 ppts y-o-y). Those were mainly
portfolio sales and write-os that led to the
y-o-y decline of the DPD90+ ratio.
The FX-adjusted gross loan portfolio increased
by 1% y-o-y, within that the retail portfolio
marginally moderated, however the corporate
book demonstrated a healthy y-o-y growth
(+5%); the bank’s corporate loan market
share also improved. Due to the excellent
performance and strong name recognition of
the bank its FX-adjusted deposits advanced
by 16% enabling DSK to implement ecient
deposit pricing measures and reduce the
average cost of funding. The net loan to deposit
ratio dropped by 11 ppts y-o-y (FX-adjusted)
and reached 67%. Both the profitability and
eciency indicators are excellent at DSK Bank:
its annual ROE was 21%, the cost-to-income
ratio stood at 36.1%.
The Russian subsidiary remained loss-making
in 2015; without Touch Bank it posted
HUF 15.1 billion negative result (+4% y-o-y).
The loss was induced mainly by eroding
operating income (–36% y-o-y in HUF terms);
it could be only partially o-set by lower risk
costs (–30%). As a result of the 26% decrease
of the performing portfolio, net interest income
suered a y-o-y 38% set-back. This line was
27
also negatively aected by the higher liability
costs induced by the sharp rate hike by the
RCB at the end of 2014. The P&L figures
were substantially distorted by the y-o-y 25%
depreciation of RUB against HUF: the operating
income in RUB terms dropped “only” by 16%,
while the net interest income by 18% and
operating expenses by 17%, respectively. As a
result, the annual loss was by 43% higher y-o-y
in RUB terms.
In the bank’s 2015 activity special attention
was paid to cost control and more ecient
collection. In that respect there were some
favourable developments: the DPD90+ inflow
demonstrated a significant decline from
2Q 2015 (1H 2015: HUF 70 billion,
2H: HUF 40 billion). Also, operational expenses
dropped by 38% y-o-y (–17% in RUB terms) as
a result of the layos and closure of branches
during the course of the year.
In general the lending activity remained
cautious and selective: the bank focused mainly
on POS lending. In 4Q seasonality also gave boost
to new disbursement, still volumes suered a
y-o-y 17% set-back. Cash loan origination was
fairly moderate, whereas cross-sale of credit
cards was practically stopped. Overall volumes
were also aected by almost RUB 18 billion
non-performing portfolio sales and write os
executed in the course of 2015.
It was positive, however that in line with the
management’s target the risk cost rate of
POS loans (representing 43% of DPD0–90
volumes) moderated to close to 10% in 2015
and improvement was observed in case of
cash loans, too. Unfortunately, credit card
loans’ risk profile still remained weak coupled
with elevating risk cost rates. With all those
changes the overall risk profile of the consumer
book somewhat improved. The DPD90+ ratio
increased by 4.7 ppts y-o-y to 19.4%; its
coverage remained stable (115.2%).
The annual net interest margin (15.6%) eroded
by 3.2% y-o-y in HUF terms.
The FX-adjusted deposit book declined by 15%
y-o-y. As a result, the net loan-to-deposit ratio
dropped to 99% by the end of 2015.
Touch Bank, the online platform of the Russian
bank is legally part of the Russian subsidiary,
but operates as an independent business line.
Touch Bank is presented as a virtual entity, and
its performance was shown separately from the
Russian bank. In 2015 it posted HUF 4.8 billion
loss, mainly related to operational expenses.
The client base already consists of around
20,000 people; by the end of 2015 the bank
collected about HUF 4.3 billion deposits through
online channels – bulk of it in 4Q.
The Ukrainian subsidiary posted HUF 40.3 billion
adjusted loss in 2015, 4% less than a year
ago. The after-tax eect of risk costs made for
the Crimean and East Ukrainian (Donetsk and
Luhansk) exposures represented HUF 2.4 billion
and were booked amongst the adjustment
items on consolidated level.
Bottom-line quarterly earnings demonstrated
substantial volatility throughout 2015 reasoned
primarily by risk cost developments: in 1Q the
depreciating hryvnia induced higher provisions,
while in 2Q the case was the opposite. Whereas
in 3Q the bank made additional provisions
mostly for the legacy corporate exposure, while
in 4Q elevated risk costs were mainly related to
the USD-based mortgages at the local Factoring
unit. Portfolio deterioration moderated
substantially y-o-y.
Given the massive weakening of UAH against
HUF, it is more accurate to analyse earning
developments in local currency terms:
operating income improved by 46% y-o-y
with net interest income remaining flat y-o-y,
whereas net fee and commission income
increased by 19% y-o-y and other income
improved considerably (partially driven by
base eect). Total revenues went up by 22% in
2015; operational expenses at the same time
moderated by 3%.
Despite the FX-adjusted formation of DPD90+
volumes decelerated substantially (without
sales and write-os in HUF billion: 2014: 61,
2015: 11), the DPD90+ ratio increased by
2.4 ppts y-o-y to 48.6% despite loan sales
and write-os. The mortgage DPD90+ ratio
exceeded 76%. At the same time the corporate
book representing around 70% of the total
performing portfolio remained fairly stable and
its DPD90+ ratio remained below 17%. Risk
costs advanced by 35% y-o-y (in UAH terms).
Management’s analysis of the 2015 results of the OTP Group
28 OTP Bank Annual Report 2015
As a result, the coverage ratio of DPD90+ loans
advanced by 21.3 ppts y-o-y and jumped to
118.5%.
The FX-adjusted DPD0–90 loan volumes
contracted by 26% y-o-y, the performing retail
book suered a meaningful 36% decline,
whereas the corporate book’s erosion was
more moderate (–22%). Lending activity in
general remained moderate and conservative.
It is positive that deposits have been steadily
growing, the deposit portfolio advanced
by 2% y-o-y (FX-adjusted), demonstrating
clients’ trust in the bank. Within overall
deposits corporate deposits grew by 9%,
whereas retail deposits shrank by 2% y-o-y.
As a result, the net loan to deposit ratio
dropped to 85% (–63 ppts y-o-y, FX-adjusted),
reflecting a significant balance sheet
adjustment. Parallel, the net group funding
(including subordinated debt) declined
substantially in the last 12 months, by around
USD 250 million. By the end of 2015 the
intragroup financing to the Ukrainian operation
(including subordinated loans) represented
HUF 107 billion equivalent.
The Romanian subsidiary realized close
to HUF 1.5 billion profit in 2015, almost twice
as much as in the base period. The balance
sheet and P&L lines to a great extent were
influenced by the consolidation of Banca
Millennium S.A. in 1Q 2015. Higher full-year
total income (+18% y-o-y) was o-set by higher
operating costs (+59%), as a result operating
result dropped by 38% y-o-y. Risk costs
halved in 2015.
The FX-adjusted gross loan book advanced
by 23% y-o-y due to the acquisition. Cash loans
increased by 9%, mortgages grew by 19%
over the last 12 months. The corporate
exposure increased by an even bigger
magnitude (+30%). The deposit dynamics
remained strong (+51% y-o-y).
The net-loan-to-deposit ratio shrank
to 142% (–30 ppts y-o-y, FX-adjusted).
The DPD90+ ratio moderated to 16.7%, its
coverage remained stable (79.1%).
The Croatian subsidiary posted around
HUF 3 billion profit in 2015, a material
improvement against the base period (2014:
HUF 104 million). The operating income
increased dynamically y-o-y as well (+44%)
easily o-setting the negative impact of higher
risk costs over the same periods (+32% y-o-y).
The annual net interest margin improved
(3.12%). The FX-adjusted loan portfolio
marginally increased, while deposits eroded by
2% y-o-y. As a result, the net loan-to-deposit
ratio somewhat increased (84%). Portfolio
quality demonstrated improving trend, the
DPD90+ ratio was 13.1% (–0.2 ppt y-o-y), its
coverage improved (70.9%).
The Slovakian subsidiary’s HUF 900 million
adjusted 2015 profit underpins a substantial
increase over the moderate HUF 32 million
positive earnings realized in 2014.
The improvement was the joint result of
higher operating income (+12% y-o-y) and
moderating risk costs (–6%). The net interest
margin remained stable (3.18%). Supported
by favourable macroeconomic conditions the
FX-adjusted loan portfolio grew by 4% y-o-y,
deposits increased by 3%. The DPD90+ ratio
shrank by 0.6 ppt to 9.7% y-o-y; its coverage
improved (61.2%).
The Serbian subsidiary could not repeat its
profit-making performance, in 2015 the bank
posted around HUF 400 million loss (of that 4Q
represented HUF –759 million). The operating
income weakened a bit (–5% y-o-y), whereas
risk costs went up by 28%.
The FX-adjusted gross loan portfolio increased
by 9% y-o-y, both the retail and corporate sector
enjoyed material volume growth. The DPD90+
ratio dropped further (39.3%), its coverage
was stable (74.9%). After 2013 and 2014
the Montenegrin subsidiary remained
profitable and posted HUF 909 million after-tax
results in 2015, more than twice as much as
in the base period. The operating income
dropped by 17% as a result of lower total
income (–9%), since the eective cost
management could only partially mitigate
that. The main driver of bottom-line earnings
was the y-o-y 35% lower risk costs.
FX-adjusted loan volumes eroded by 5% y-o-y,
however deposits grew by 4%. The DPD90+
ratio only modestly grew (42.7%), its coverage
improved (83%).
29
Consolidated and stand-alone capital
adequacy ratio (in accordance with
BASEL III)
By the end of 2015 the consolidated Common
Equity Tier1 ratio under IFRS was 13.3%. Neither
the net earning was included (because of the lack
of audit), nor was the dividend amount accrued in
2015 deducted from the capital when calculating
the IFRS consolidated capital adequacy ratios.
OTP Bank’s stand-alone Common Equity Tier1
ratio stood at 22.6% in 4Q 2015.
During the course of 2015 the following
regulatory dispositions were published about
future capital buer requirements:
ş Pursuant to the Act on Credit institutions the
capital conservation buer (CCB) will amount
to 0.625% in 2016, and it will gradually rise
to 2.5% by 2019. OTP Bank has to comply
with this buer both on consolidated and
standalone level.
ş On 18 November 2015 the Hungarian central
bank announced that it will introduce the
systemic risk buer (SRB) of between 0–2%
for the Hungarian banks, eective from
1 January 2017 (according to available infor-
mation the buer will be introduced only on
consolidated level). The SRB rate is to be cal-
culated from 3Q 2016 data based on the ratio
of problematic project loans to the domestic
Pillar 1 capital requirement. The expected
level of this buer for OTP Group is 0%.
ş According to the announcement published
by the National Bank of Hungary on 15
December 2015 the countercyclical buer
(CB) applicable on standalone level was
set at zero eective from 1 January 2016.
The eective buer on consolidated level will
be the weighted average of the applicable
rates at group members. The central
bank will set the countercyclical capital
buer rate quarterly in a decree, which
will be determined based on cyclical and
vulnerability indicators. Normally the CB can
vary between 0–2.5%, for details see Act on
Credit institutions paragraph 298, section
2. In its press release the National Bank of
Hungary stated that that no change should be
expected in the CB rate within the next 1 year.
ş On 30 December 2015 the National Bank
of Hungary announced the expected O–SII
buers for the identified 9 ‘other systemically
important financial institutions’, ranging from
0.5% to 2%. In case of OTP Group the rate of
the O-SII buer is expected to be 2% from
1 January 2017, and OTP Bank will have to
comply with it on consolidated level. (Actual
capital buer requirements will be set in
form of central bank decrees in 3Q 2016,
based on audited data for the end of 2015.)
Calculation of the sum of the buers:
CCB+CB+max(SRB; O–SII).
Credit rating, shareholder structure
On 17 March 2015 Moody’s placed the long- and
short-term local currency deposit ratings of OTP
Bank and OTP Mortgage Bank under review for
upgrade, while the BFSRs of both banks were
withdrawn. On 26 March 2015 Moody’s down-
graded OTP Bank Ukraine’s local currency deposit
rating to “Caa2” from “Caa1”, with a negative
outlook, and armed the foreign currency deposit
rating at “Ca”. On 18 May 2015 Standard & Poor’s
improved the outlook of OTP Bank and OTP
Mortgage Bank from stable to positive; their rating
of “BB” remained unchanged. On 29 May 2015
Moody’s upgraded OTP Bank’s and OTP Mortgage
Bank’s long-term HUF deposit rating from “Ba1”
to “Baa3” and changed the outlook to stable,
while it armed the long-term FX deposit ratings.
On 3 July 2015 Moody’s downgraded DSK Bank’s
unsolicited long-term BGN deposit rating from
“Ba1” to Ba2”, with stable outlook. Moody’s with-
drew the solicited rating of OTP Bank Ukraine (on
20 July) and DSK Bank (on 24 September) for its
own business reasons. On 11 November 2015
Moody’s improved the outlook on OTP Bank’s
and OTP Mortgage Bank’s long-term FX deposit
rating of “Ba2” from stable to positive.
Regarding the ownership structure of the bank, by
31 December 2015 the following investors had
more than 5% influence (beneficial ownership)
in the Company: the Rahimkulov family (8.96%),
MOL (the Hungarian Oil and Gas Company, 8.69%),
the Groupama Group (8.27%). The Hungarian
National Asset Management Inc. sold its holding
of over 5% on 29 October 2015.
Management’s analysis of the 2015 results of the OTP Group
30 OTP Bank Annual Report 2015
Hungary
ş On 22 January 2016 OTP Bank Plc. announced
that in accordance with the decision of the
Board of Directors of the Bank, e ective from
25 January 2016 Mr. András Tibor Johancsik
is going to run the IT and Operations Division
as the Head of it and after obtaining the
necessary approvals as Deputy CEO.
ş On 3 February 2016 AXA Bank Europe SA
and OTP Bank signed an agreement on
purchasing the business unit of AXA Bank
Hungary. The purchase agreement includes
the take-over of the retail credits and
savings, as well as the corporate portfolio
and the employees of AXA Bank. After the
completion of the purchase OTP Bank’s
mortgage portfolio will increase by almost
25%. According to the plans the integration
process can be completed at the end
of 2016 after obtaining all the necessary
supervisory approvals.
ş From 10 February 2016 the asset
management company established by the
central bank (MARK, Hungarian Restructuring
and Debt Management Ltd.) can start its
operation following the decision of the
European Union. The asset management
company is allowed to start to buy distressed
assets related to real estate fi nancing.
Serbia
ş On January 15 2016 Standard & Poor’s
Ratings Services revised its outlook on the
Republic of Serbia to stable from negative.
The ‘BB-/B’ long- and short-term foreign and
local currency sovereign credit ratings on
Serbia were a rmed.
POST BALANCE SHEET EVENTS
OTP Bank
Hungary
OTP Banka Slovensko
(2002)
Slovakia
JSC OTP Bank
(2006)
Ukraine
OTP Bank Romania
(2004)
Romania
JSC OTP Bank
(2008)
Russia
DSK Bank
(2003)
Bulgaria
CKB (2006)
Montenegro
OTP banka Srbija
(2007)
Serbia
OTP banka Hrvatska
(2005)
Croatia
31Management’s analysis of the 2015 results of the OTP Group
*
Belonging footnotes are in the Supplementary data section of the Report.
2014 2015 Change
HUF million HUF million %/ppts
Consolidated after tax profi t (102,258) 63,171 (162)
Adjustments (total) (220,272) (57,074) (74)
Dividend and total net cash transfers (consolidated) 191 144 (25)
Goodwill/investment impairment charges (after tax) (5,015) 6,683 (233)
Special tax on fi nancial institutions (after corporate income tax) (30,193) (29,383) (3)
Risk cost created in relation to the decision
of the Hungarian Competition Authority (after tax)
0 (662)
E ect of acquisitions (after tax) 4,131 1,550 (62)
One-o impact of regulatory changes in relation to consumer
contracts and the impact of the related methodological changes
in Hungary (after tax)
(155,908) 4,594 (103)
Expected one-o impact of regulatory changes related
to CHF consumer contracts in Croatia (after tax)
0 (6,331)
One-o impact of regulatory changes related
to FX consumer contracts in Serbia (after tax)
0 (211)
Expected one-o impact of the CHF mortgage loan
conversion programme in Romania (after tax)
0 (25,492)
Risk cost created toward Crimean exposures from 2Q 2014 (after tax) (7,943) (169) (98)
Risk cost created toward exposures to Donetsk and Luhansk
from 3Q 2014 (after tax)
(25,536) (2,258) (91)
Revaluation of reverse mortgage portfolio of OTP Life Annuity Ltd.
simultaneous with regulatory changes (after tax)
0 (5,539)
Consolidated adjusted after tax profi t without the e ect of adjustments 118,014 120,245 2
Banks total without one-o items
1
119,013 117,253 (1)
OTP CORE (Hungary)
2
137,418 123,359 (10)
Corporate Centre (after tax)
3
(1,210) (4,286) 254
OTP Bank Russia
4
(14,541) (15,101) 4
Touch Bank (Russia)
5
– (4,840)
OTP Bank Ukraine
6
(43,166) (40,312) (7)
DSK Bank (Bulgaria)
7
39,170 52,537 34
OBR (Romania)
8
765 1,480 94
OTP banka Srbija (Serbia)
9
50 (385) (864)
OBH (Croatia)
10
104 2,968
OBS (Slovakia)
11
32 924
CKB (Montenegro)
12
391 909 132
Leasing (1,587) 1,786 (213)
Merkantil Bank + Merkantil Car, adj. (Hungary)
13
(1,518) 1,625 (207)
Foreign leasing companies (Croatia, Bulgaria, Romania)
14
(69) 161 (334)
Asset Management 5,530 2,713 (51)
OTP Asset Management (Hungary) 6,139 4,817 (22)
Foreign Asset Management Companies (Ukraine, Romania, Bulgaria)
15
(609) (2,104) 245
Other Hungarian Subsidiaries (2,220) (323) (85)
Other Foreign Subsidiaries (Slovakia, United Kingdom, Montenegro, Romania,
Serbia, Croatia, Belize)
16
(2,894) 352 (112)
Eliminations 171 (1,535) (998)
Total adjusted after tax profi t of HUNGARIAN subsidiaries
17
138,780 123,656 (11)
Total adjusted after tax profi t of FOREIGN subsidiaries
18
(20,766) (3,411) (84)
Share of foreign profi t contribution (18%) (3%) 15
CONSOLIDATED AFTER TAX PROFIT
BREAKDOWN BY SUBSIDIARIES (IFRS)*
32 OTP Bank Annual Report 2015
Main components of the Statement of recognized income 2014 2015 Change
HUF million HUF million %
Consolidated after tax profit (102,258) 63,171 (162)
Adjustments (total) (220,272) (57,074) (74)
Dividends and net cash transfers (after tax) 191 144 (25)
Goodwill/investment impairment charges (after tax) (5,015) 6,683 (233)
Special tax on financial institutions (after corporate income tax) (30,193) (29,383) (3)
Risk cost created in relation to the decision
of the Hungarian Competition Authority (after tax)
0 (662)
Eect of acquisitions (after tax) 4,131 1,550 (62)
One-o impact of regulatory changes in relation to consumer contracts
and the impact of the related methodological changes in Hungary (after tax)
(155,908) 4,594 (103)
Expected one-o impact of regulatory changes related to CHF consumer
contracts in Croatia (after tax)
0 (6,331)
One-o impact of regulatory changes related to FX consumer contracts in Serbia (after tax) 0 (211)
Expected one-o impact of the CHF mortgage loan conversion programme in Romania
(after tax)
0 (25,492)
Risk cost created toward Crimean exposures from 2Q 2014 (after tax) (7,943) (169) (98)
Risk cost created toward exposures to Donetsk and Luhansk from 3Q 2014 (after tax) (25,536) (2,258) (91)
Revaluation of reverse mortgage portfolio of OTP Life Annuity Ltd.
simultaneous with regulatory changes (after tax)
0 (5,539)
Consolidated adjusted after tax profit without the eect of adjustments 118,014 120,245 2
Before tax profit 142,341 146,057 3
Operating profit 414,534 362,594 (13)
Total income 826,061 754,912 (9)
Net interest income 636,172 553,659 (13)
Net fees and commissions 169,579 167,250 (1)
Other net non-interest income 20,309 34,003 67
Foreign exchange result, net 11,287 18,476 64
Gain/loss on securities, net 6,489 9,198 42
Net other non-interest result 2,534 6,329 150
Operating expenses (411,527) (392,318) (5)
Personnel expenses (206,335) (187,806) (9)
Depreciation (43,721) (45,463) 4
Other expenses (161,470) (159,049) (1)
Total risk costs (274,749) (220,709) (20)
Provision for loan losses (263,511) (211,663) (20)
Other provision (11,237) (9,046) (19)
Total one-o items 2,556 4,172 63
Revaluation result of FX-swaps at OTP Core (824) (680) (18)
Gain on the repurchase of own Upper and Lower Tier2 Capital 0 0
Result of the treasury share swap at OTP Core 3,380 4,852 44
Corporate taxes (24,327) (25,812) 6
Performance Indicators 2014 2015 %/ppts
ROE (adjusted) 8.5% 9.6% 1.1
ROA (adjusted) 1.1% 1.1% 0.0
Operating profit margin 3.88% 3.34% (0.54)
Total income margin 7.74% 6.96% (0.78)
Net interest margin 5.96% 5.11% (0.85)
Net fee and commission margin 1.59% 1.54% (0.05)
Net other non-interest income margin 0.19% 0.31% 0.12
Cost-to-asset ratio 3.85% 3.62% (0.23)
Cost/income ratio 49.8% 52.0% 2.2
Risk cost for loan losses-to-average gross loans 3.68% 3.18% (0.50)
Risk cost for loan losses-to-average FX-adjusted gross loans 3.66% 3.19% (0.47)
Total risk cost-to-asset ratio 2.57% 2.04% (0.53)
Eective tax rate 17.1% 17.7% 0.6
Non-interest income/total income 23% 27% 4
EPS base (HUF) (from unadjusted net earnings) (382) 242 (163)
EPS diluted (HUF) (from unadjusted net earnings) (382) 242 (163)
EPS base (HUF) (from adjusted net earnings) 442 459 4
EPS diluted (HUF) (from adjusted net earnings) 441 458 4
Comprehensive Income Statement 2014 2015 %
Consolidated after tax profit (102,258) 63,171 (162)
Fair value adjustment of securities available-for-sale (recognised directly through equity) 13,019 (246) (102)
Fair value adjustment of derivative financial instruments designated as cash-flow hedge 507 0 (100)
Fair value adjustment of strategic open FX position hedging net
investment in foreign operations
(4,489) 431 (110)
Foreign currency translation dierence (108,057) (44,301) (59)
Change of actuarial losses (IAS 19) (6) (171)
Net comprehensive income (201,284) 18,884 (109)
o/w Net comprehensive income attributable to equity holders (199,866) 19,582 (110)
Net comprehensive income attributable to non-controlling interest (1,418) (698) (51)
CONSOLIDATED STATEMENT
OF RECOGNIZED INCOME*
* Adjustments on the consolidated Statement of recognized income are summarised in the Supplementary data section of this Report.
33Management’s analysis of the 2015 results of the OTP Group
Average exchange rate of the HUF 2014 2015 Change
HUF HUF %
HUF/EUR 309 310 0
HUF/CHF 254 291 15
HUF/USD 233 279 20
ASSET-LIABILITY MANAGEMENT
Similar to previous periods
OTP Group maintained a strong
and safe liquidity position …
The primary objective of OTP Group in terms of
asset-liability management has not changed,
that is to ensure that the Group’s liquidity is
maintained at a safe level.
Refinancing sources of the European Central
Bank are still available for OTP, thus the
refinancing risk of maturing FX mortgage
bonds is low. As a result of the high level of
liquidity reserves, the Group could safely
function without considerable fund raising, only
refinancing loan of Funding for Growth Scheme
was used in the amount of HUF 43 billion
(HUF 229 billion was the total used amount at
group level as at end 2015).
With maturities of EUR 228 million in 2015
the total liquidity reserves of OTP Bank
remained steadily and substantially above
the safety level. As of 31 December 2015, the
gross liquidity buer was above EUR 8.6 billion
equivalent. This buer is significantly higher
than the maturing debt within one year (at
EUR 527 million equivalent) and the reserves
required to protect against possible liquidity
shocks. Due to governmental FX lending
measures and FX loan conversion FX liquidity
need of the Group has considerably declined.
The FX positions stemming from regulatory
changes are managed on Group level.
The Bank fully hedged the open HUF/EUR
and HUF/CHF positions on the FX tenders of
the National Bank of Hungary, while the open
EUR/CHF and EUR/JPY positions were hedged
on the market until the end of 2014. Thus the
turbulent market environment in January 2015
had no eect on P&L or liquidity. However
the maturing long-term FX-swaps were not
refinanced and the ECB refinancing facilities are
currently not utilized the FX liquidity reserves
are at safe levels (by 31 December 2015 at
EUR 1.1 billion).
The volume of issued securities decreased by
10% y-o-y. On yearly basis Hungarian retail
bond volumes increased by HUF 4 billion (+7%).
In the last 12 months Hungarian mortgage
bonds matured in the amount of about
HUF 5 billion, and the volume of mortgage
bonds issued by the Slovakian bank shrank by
HUF 7 billion equivalent. In the last 12 months
the Russian bank repaid bonds in the amount of
RUB 300 million (about HUF 1.2 billion).
The volume of subordinated debt decreased by
HUF 47 billion y-o-y, reasoned by the repayment
of an EUR 125 million subordinated bond (out of
which 93.5 billion was outstanding at maturity)
on 4 March 2015; and a subordinated loan
repayment by the Ukrainian bank in the amount
of USD 65 million in 4Q.
… and kept its interest-rate risk
exposures low.
Interest-rate risk exposure of OTP Group is
determined primarily by the positions of
OTP Bank Plc. and OTP Mortgage Bank Ltd.
Due to the forint liabilities on OTP Bank’s
balance sheet, which respond to yield changes
only to a moderate extent, the Bank has an
interest-rate risk exposure resulting from
its business operations. The Bank considers
34 OTP Bank Annual Report 2015
the reduction and closing of this exposure
as a strategic matter. Consequently it has
been reducing its interest-rate risk exposure
through the purchase of fixed-rate government
securities in order to oset the negative impact
of declining yields on net interest income.
The Bank maintains a closed interest-rate
position in euro and Swiss franc, consequently
the recent yield volatility has not caused
significant changes in the FX interest income.
Market Risk Exposure of OTP Group
At 31 December 2015 the consolidated capital
requirement of the trading book positions, the
counterparty risk and the FX risk exposure
represented HUF 44.2 billion in total, primarily
due to the capital requirement of the FX risk
exposure at HUF 32.0 billion.
OTP Group is an active participant of the
international FX and derivative market. Open
FX positions of group members are restricted
to individual and global net open position limits
(overnight and intraday), and to stop-loss limits.
The open positions of the group members
outside Hungary except for the Bulgarian
DSK Bank – the EUR/BGN exposure of DSK
under the current exchange rate regime does
not represent real risk – were negligible
measured against either the balance sheet total
or the regulatory capital. Therefore the group
level FX exposure was concentrated at
OTP Bank. Thus the main part of the FX
exposure booked at OTP Bank – in line with
the previous years’ practice – was the strategic
open FX position kept to hedge the currency
risk of the expected FX-denominated net
earnings (EUR 310 million for 2 years) of the
main foreign subsidiaries.
35Management’s analysis of the 2015 results of the OTP Group
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION OF OTP GROUP
Main components of balance sheet 2014 2015 Change
HUF million HUF million %
TOTAL ASSETS 10,971,052 10,718,848 (2)
Cash and amount due from banks 2,307,633 1,878,961 (19)
Placements with other banks 281,006 300,569 7
Financial assets at fair value 289,276 253,782 (12)
Securities available-for-sale 839,153 1,305,486 56
Net customer loans 5,864,240 5,409,967 (8)
Net customer loans (FX-adjusted*) 5,828,583 5,409,967 (7)
Gross customer loans 6,993,325 6,423,588 (8)
Gross customer loans (FX-adjusted*) 6,964,289 6,423,588 (8)
o/w Retail loans 4,682,931 4,259,321 (9)
Retail mortgage loans (incl. home equity) 2,624,855 2,333,342 (11)
Retail consumer loans 1,578,772 1,429,394 (9)
SME loans 479,304 496,585 4
Corporate loans 1,976,990 1,897,873 (4)
Loans to medium and large corporates 1,859,055 1,804,612 (3)
Municipal loans 117,935 93,261 (21)
Car financing loans 242,932 210,598 (13)
Bills and accrued interest receivables related to loans 61,435 55,796 (9)
Allowances for loan losses (1,129,085) (1,013,621) (10)
Allowances for loan losses (FX-adjusted*) (1,135,705) (1,013,621) (11)
Equity investments 23,381 10,028 (57)
Securities held-to-maturity 709,369 926,677 31
Premises, equipment and intangible assets, net 365,161 349,469 (4)
o/w Goodwill, net 101,063 95,994 (5)
Premises, equipment and other intangible assets, net 264,098 253,475 (4)
Other assets 291,835 283,909 (3)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 10,971,052 10,718,848 (2)
Liabilities to credit institutions and governments 708,273 533,310 (25)
Customer deposits 7,673,479 7,984,579 4
Customer deposits (FX-adjusted*) 7,624,295 7,984,579 5
o/w Retail deposits 5,187,316 5,663,952 9
Household deposits 4,430,019 4,741,569 7
SME deposits 757,296 922,383 22
Corporate deposits 2,408,438 2,301,085 (4)
Deposits to medium and large corporates 2,008,990 1,893,350 (6)
Municipal deposits 399,448 407,735 2
Accrued interest payable related to customer deposits 28,541 19,542 (32)
Issued securities 267,084 239,376 (10)
o/w Retail bonds 60,815 64,777 7
Issued securities without retail bonds 206,269 174,599 (15)
Other liabilities 776,082 493,140 (36)
Subordinated bonds and loans 281,968 234,784 (17)
Total shareholders’ equity 1,264,166 1,233,659 (2)
Indicators 2014 2015 %/ppts
Loan/deposit ratio (FX-adjusted*) 91% 80% (11)
Net loan/(deposit + retail bond) ratio (FX-adjusted*) 75% 67% (8)
90+ days past due loan volume 1,339,213 1,085,694 (19)
90+ days past due loans/gross customer loans 19.3% 17.0% (2.3)
Total provisions/90+ days past due loans 84.3% 93.4% 9.1
* For the FX-adjustment, the closing cross currency rates for the current period were used to calculate the HUF equivalent of loan and deposit volumes in the base periods.
36 OTP Bank Annual Report 2015
Consolidated capital adequacy – Basel3 2014 2015 %/ppts
Capital adequacy ratio (consolidated, IFRS) 17.5% 16.2% (–1.3)
Tier1 ratio 14.1% 13.3% (0.8)
Common Equity Tier1 (‘CET1’) capital ratio 14.1% 13.3% (0.8)
Regulatory capital (consolidated) 1,201,874 1,064,383 (11)
o/w Tier1 Capital 969,935 873,124 (10)
o/w Common Equity Tier1 capital 969,935 873,124 (10)
Tier2 Capital 231,939 191,259 (18)
o/w Hybrid Tier2 96,019 92,093 (4)
Consolidated risk weighted assets (RWA) (Credit&Market&Operational risk) 6,859,439 6,576,258 (4)
o/w RWA (Credit risk) 5,625,902 5,245,874 (7)
RWA (Market & Operational risk) 1,233,537 1,330,384 8
Closing exchange rate 2014 2015 Change
HUF HUF %
HUF/EUR 315 313 (1)
HUF/CHF 262 289 10
HUF/USD 259 287 11
37Management’s analysis of the 2015 results of the OTP Group
OTP BANK’S HUNGARIAN CORE BUSINESS
OTP Core Statement of recognized income:
Main components of the Statement of recognized income 2014 2015 Change
HUF million HUF million %
After tax profit without the eect of adjustments 137,418 123,359 (10)
Corporate income tax (23,679) (25,857) 9
Pre-tax profit 161,097 149,216 (7)
Operating profit 181,952 170,598 (6)
Total income 375,668 367,234 (2)
Net interest income 266,329 251,564 (6)
Net fees and commissions 94,244 97,480 3
Other net non-interest income 15,095 18,192 21
Operating expenses (193,716) (196,636) 2
Total risk costs (23,410) (25,555) 9
Provisions for possible loan losses (22,088) (21,550) (2)
Other provisions (1,323) (4,005) 203
Total one-o items 2,556 4,173 63
Revaluation result of FX-swaps (824) (679) (18)
Gain on the repurchase of own Upper and Lower Tier2 Capital 0 0 0
Revaluation result of the treasury share swap agreement 3,380 4,852 44
Revenues by Business Lines 2014 2015 %
RETAIL
Total income 281,268 266,216 (5)
Net interest income 197,473 179,327 (9)
Net fees and commissions 80,598 83,510 4
Other net non-interest income 3,197 3,379 6
CORPORATE
Total income 47,240 43,681 (8)
Net interest income 32,039 27,697 (14)
Net fees and commissions 14,267 14,997 5
Other net non-interest income 934 987 6
Treasury ALM
Total income 45,357 55,626 23
Net interest income 36,817 44,540 21
Net fees and commissions (621) (1,102) 77
Other net non-interest income 9,161 12,187 33
Performance Indicators 2014 2015 ppts
ROE 11.3% 10.3% (1.0)
ROA 2.0% 1.8% (0.2)
Operating profit margin (operating profit/avg. total assets) 2.7% 2.5% (0.2)
Total income margin 5.53% 5.28% (0.25)
Net interest margin 3.92% 3.62% (0.30)
Net fee and commission margin 1.39% 1.40% 0.01
Net other non-interest income margin 0.22% 0.26% 0.04
Operating costs to total assets ratio 2.9% 2.8% 0.1
Cost/income ratio 51.6% 53.5% 1.9
Cost of risk/average gross loans 0.76% 0.84% 0.08
Cost of risk/average gross loans (FX-adjusted) 0.73% 0.84% 0.11
Eective tax rate 14.7% 17.3% 2.6
38 OTP Bank Annual Report 2015
P&L developments
The one-o impact of regulatory changes
in relation to consumer contracts and the
impact of the related methodological changes
were eliminated from OTP Core’s P&L and
were booked among the adjustment items
on consolidated level. The balance sheet was
not adjusted.
Without the e ect of adjustment items*
OTP Core posted a profi t of HUF 123.4 billion
in 2015, underpinning a 10% y-o-y decrease.
The e ective corporate tax burden increased
in 2015, shaped by the tax shield e ect of the
revaluation of subsidiary investments as a
result of HUF volatility. The total amount of
tax savings comprised HUF 3.1 billion in 2015
versus HUF 9.4 billion in 2014.
The yearly pre-tax profi t dropped by 7%. Within
the total income, the net interest income
dropped by 6% y-o-y (HUF –15 billion) reasoned
mainly by the impact of the settlement
and conversion; the declining interest rate
environment took its toll, too.
The HUF 4.2 billion absolute amount of one-o
income in 2015 and its y-o-y increase was
mainly related to the treasury share swap
result shown within one-o items.
In 2015 the net interest income was negatively
a ected (HUF –1 billion) by a reclassifi cation:
from the fourth quarter commissions paid
to agents and previously booked within fee
expenses were shifted to the net interest
income line. Furthermore, structural changes
within the loan book also caused weaker
interest revenues: corporate exposures with
lower margin were gaining ground versus high
margin consumer loans. Annual net fees and
commissions increased by 3% y-o-y.
The cumulated other net non-interest income
advanced by 18% y-o-y due to AFS securities
gains realized mainly on property investment
funds (HUF +2.4 billion y-o-y).
In 2015 operating expenses grew by 2% y-o-y
(HUF +2.9 billion), the increase is entirely
related to higher contributions paid into the
Deposit Protection Fund (OBA) and the Investor
Protection Fund (Beva), as well as fees paid into
the Resolution Fund from in 4Q 2014. OTP’s
annual contribution comprised HUF 3.7 billion
into OBA (HUF +1.0 billion y-o-y), HUF 0.9 billion
into Beva (HUF +0.6 billion y-o-y) and
HUF 2 billion into the Resolution Fund
(HUF +1.4 billion y-o-y). OTP Core paid
HUF 3.6 billion in 2014, HUF 6.6 billion in
2015 into the OBA, Beva and the Resolution
Fund, while the expected amount of these
contributions will be close to HUF 10 billion
in 2016. On the top of that, costs related to
the settlement and conversion during 2015
also added to the expense line. Compared to
the base period the Bank managed to keep
personnel expenses fl at, however amortization
costs and deductible taxes were lower.
2015 risk costs increased by 9% y-o-y, within
that provisions for possible loan losses
moderated by 2%, as a result the yearly risk
cost rate was 84 bps.
In 2015 the DPD90+ loan volumes dropped
by 40%, nominally by around HUF 193 billion.
The key reason was the settlement and
conversion of FX-denominated customer loans
in the fi rst quarter: as a result DPD90+ volumes
declined by HUF 144 billion.
* Special tax on fi nancial institutions, dividends and net cash transfers, goodwill impairment charges, the risk cost created in relation
to the decision of the Hungarian Competition Authority, one-o impact of regulatory changes in relation to consumer contracts and
the impact of the related methodological changes.
ş 273&RUHSRVWHG+8)ELOOLRQDGMXVWHGSURĬWLQŝ\R\GXHWRORZHU
net interest income
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The DPD90+ coverage improved (85.8%)
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39Management’s analysis of the 2015 results of the OTP Group
write-os) demonstrated improving trends
also supported by the positive eect of the
settlement and conversion: versus
HUF 48 billion DPD90+ formation in 2014,
there was an overall decline of HUF 11 billion
in DPD90+ volumes in 2015. The DPD90+ ratio
dropped by 5.4 ppts y-o-y to 12.1%, the lowest
level since 2Q 2011. The DPD90+ coverage
increased by 9.3 ppts y-o-y to 85.8%.
(The settlement of HUF loans in the third
quarter and the conversion of FX consumer
loans in the fourth quarter did not cause
material change in DPD90+ volumes.)
Furthermore, around HUF 66 billion*
FX-adjusted non-performing exposures were
sold or written o in 2015. It is also important
to note that the DPD90+ inflow (adjusted
for FX-changes, as well as loan sales and
Main components of OTP Core’s Statement of financial position:
Main components of balance sheet closing balances 2014 2015 Change
HUF million HUF million %
Total Assets 7,127,611 6,774,200 (5)
Net customer loans 2,384,193 2,145,475 (10)
Net customer loans (FX-adjusted) 2,390,013 2,145,475 (10)
Gross customer loans 2,753,425 2,394,362 (13)
Gross customer loans (FX-adjusted) 2,763,892 2,394,362 (13)
Retail loans 1,941,573 1,624,495 (16)
Retail mortgage loans (incl. home equity) 1,428,303 1,163,731 (19)
Retail consumer loans 384,009 316,986 (17)
SME loans 129,260 143,778 11
Corporate loans 822,320 769,867 (6)
Loans to medium and large corporates 771,435 748,725 (3)
Municipal loans 50,885 21,142 (58)
Provisions (369,232) (248,887) (33)
Provisions (FX-adjusted) (373,880) (248,887) (33)
Deposits from customers + retail bonds 4,459,304 4,559,729 2
Deposits from customers + retail bonds (FX-adjusted) 4,472,731 4,559,729 2
Retail deposits + retail bonds 2,544,429 2,861,177 12
Household deposits + retail bonds 2,132,683 2,359,680 11
o/w: Retail bonds 60,815 64,777 7
SME deposits 411,747 501,497 22
Corporate deposits 1,928,301 1,698,552 (12)
Deposits to medium and large corporates 1,582,897 1,336,096 (16)
Municipal deposits 345,404 362,456 5
Liabilities to credit institutions 503,468 376,886 (25)
Issued securities without retail bonds 196,902 202,309 3
Total shareholders’ equity 1,195,162 1,210,949 1
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 482,770 290,052 (40)
90+ days past due loans/gross customer loans 17.5% 12.1% (5.4)
Total provisions/90+ days past due loans 76.5% 85.8% 9.3
Market Share 2014 2015 ppts
Loans 18.7% 18.6% (0.1)
Deposits 26.0% 25.7% (0.3)
Total Assets 27.9% 25.0% (2.9)
Performance Indicators 2014 2015 ppts
Net loans to (deposits + retail bonds) (FX-adjusted) 53% 47% (6)
Leverage (Shareholder’s Equity/Total Assets) 16.8% 17.9% 1.1
Leverage (Total Assets/Shareholder’s Equity) 6.0x 5.6x
Capital adequacy ratio (OTP Bank, non-consolidated, Basel3, HAS) 19.0% 26.6% 7.6
Common Equity Tier1 ratio (OTP Bank, non-consolidated, Basel3, HAS) 14.8% 22.6% 7.8
* Without the HUF 65 billion FX-adjusted eect of the provision netting at Factoring related to the FX loan conversion.
40 OTP Bank Annual Report 2015
Balance sheet trends
In 2015 the FX-adjusted gross loan portfolio
shrank significantly (–13% y-o-y), mainly as a
result of the settlement and conversion, but
also due to the still sluggish retail loan demand.
As a result of the strong performance during
the last couple of quarters the micro and small
enterprise loan portfolio shows a significant,
11% increase on a yearly base supported
also by the Funding for Growth Scheme of the
National Bank of Hungary.
The retail portfolio kept shrinking further.
The mortgage portfolio declined by 19% and the
consumer portfolio by 17% y-o-y, respectively.
Within the corporate segment the loan volumes
to medium and large corporates eroded by 3%
y-o-y. As for the municipality portfolio by the
end of 2015 the Hungarian State prepaid all
the remaining exposure out of the assumed
volumes (in total HUF 24 billion were prepaid in
2015), as a result the Bank has no further claim
towards the State on this line.
By 31 December 2015 the contractual
period of the second phase of the Funding
for Growth Scheme and the Growth Scheme
Plus was accomplished. Under these two
schemes contracts with a total amount of
around HUF 1,425 billion were signed on
the sector level, of which OTP Bank’s share
represents 19%.
The FX-adjusted mortgage loan volumes
declined by 19% y-o-y in 2015, adjusted
for the settlement and conversion the erosion
would be 7%. It was positive, however that the
volume of mortgage loan applications increased
by 24% y-o-y, whereas disbursements
advanced by 33%. Within 2015 applications
in the amount of HUF 41.9 billion were
related to State subsidized housing loans.
At OTP Bank applications for subsidized
housing loans represented 36% of total housing
loan applications and 30% of total mortgage
loan applications. OTP’s market share in
mortgage loan origination reached 26.6%*
in 2015 (2014: 28.3%).
OTP’s market share in consumer loan stock
remained strong (33.7%, –0.5 ppt y-o-y).
OTP Bank’s market share in the cash loan
disbursement reached 35.5% in 2015.
The change in the total FX-adjusted consumer
loan portfolio (–17% y-o-y) was strongly
influenced by write-os (HUF 38 billion in 2015).
FX-adjusted deposit volumes (with retail
bonds) increased by 2% y-o-y. Apart from
the medium and large corporate segment
all other segments demonstrated increasing
deposit inflows. Despite the low interest rate
environment and further eroding oered
deposit rates retail deposits (with retail bonds)
kept increasing (over 12% y-o-y, FX-adjusted).
As a result of the settlement OTP clients
received a significant amount on their accounts
having a positive impact on overall retail deposit
volumes, but also client acquisition following
the bankruptcy of a few local brokerage firms
played a positive role. SME and corporate
deposits were supported by increasing client
base. The more significant 16% y-o-y corporate
deposit erosion was mainly due to the decline
of the deposits from mutual funds (which
increased in the second half of 2014 due to
the regulatory changes). Municipal deposits
increased by 5% y-o-y.
* According to the new methodology the contracted mortgage loan volumes stem from the monthly statistics of the National Bank of
Hungary, and include the own refinancing and renegotiated loans both in case of the market and OTP figures.
41Management’s analysis of the 2015 results of the OTP Group
The OTP Fund Management posted
HUF 4.8 billion after tax profit in 2015, by 22%
less than last year. The decline is explained by
the moderated net fee and commission income
(–14% y-o-y) and the higher operating expenses
(+9% y-o-y). It was positive that the decreasing
trend of the assets under management stopped
in the fourth quarter.
The y-o-y 13% decline of the total income was
reasoned by the yearly set back of the success
fee due to the annual performance.
The annual increase of operating cost
(9% y-o-y) was caused by the elevating
personnel expenses due to the growing number
of employees.
In 2015 the volume of equity funds increased
y-o-y on the market. Within the total portfolio
mixed, derivative and absolute return funds
enjoyed the strongest capital inflow. As a
consequence of the low interest environment
the money market funds suered capital
outflow during the year.
The volume of investment funds under
management at OTP Fund Management
decreased by 9% y-o-y. On a yearly base only
mixed and security funds could increase; all
other fund categories moderated. OTP Fund
Management maintained its leading market
position, the market share (not adjusted for
duplication**) was 23.6%.
OTP FUND MANAGEMENT (HUNGARY)
Changes in assets under management and financial performance of OTP Fund Management:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profit w/o dividends, net cash transfer and banking tax* 6,139 4,817 (22)
Income tax (1,193) (897) (25)
Profit before income tax 7,332 5,714 (22)
Operating profit 7,288 5,922 (19)
Total income 9,145 7,951 (13)
Net interest income 000
Net fees and commissions 9,261 7,942 (14)
Other net non-interest income (116) 9 (108)
Operating expenses (1,857) (2,029) 9
Other provisions 43 (208) (584)
Main components of balance sheet closing balances 2014 2015 %
Total assets 12,187 12,924 6
Total shareholders’ equity 9,395 8,314 (12)
Asset under management 2014 2015 Change
HUF billion HUF billion %
Assets under management, total (w/o duplicates) 1,659 1,576 (5)
Retail investment funds (closing, w/o duplicates) 1,201 1,079 (10)
Volume of managed assets (closing, w/o duplicates) 458 497 9
Volume of investment funds (with duplicates) 1,318 1,204 (9)
money market 416 378 (9)
bond 476 419 (12)
mixed 20 21 7
security 97 109 12
guaranteed 111 105 (5)
other 197 172 (13)
** According to section 4/D of Act No. LIX of 2014 amended in November 2014, instead of special tax on financial institutions levied on asset management companies from 2015
a special tax will be introduced to be paid by investment funds with a tax rate of 0.05% p.a. based on the investment funds’ assets.
** In the previous quarters the presented market share was adjusted for the estimated duplications. The market share including duplications was 26.6% at the end of 2014.
42 OTP Bank Annual Report 2015
MERKANTIL GROUP (HUNGARY)*
Performance of Merkantil Bank and Merkantil Car:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profit without the eect of adjustments (1,518) 1,625 (207)
Income tax 000
Profit before income tax (1,518) 1,625 (207)
Operating profit 5,900 6,678 13
Total income 11,972 13,062 9
Net interest income 15,490 17,736 14
Net fees and commissions (3,002) (2,536) (16)
Other net non-interest income (517) (2,138) 314
Operating expenses (6,072) (6,384) 5
Total provisions (7,418) (5,053) (32)
Provision for possible loan losses (7,430) (5,064) (32)
Other provision 12 11 (8)
Main components of balance sheet closing balances 2014 2015 %
Total assets 313,033 332,791 6
Gross customer loans 264,313 274,024 4
Gross customer loans (FX-adjusted) 274,255 274,024 0
Retail loans 17,291 22,238 29
Corporate loans 64,289 82,703 29
Car financing loans 192,675 169,083 (12)
Allowances for possible loan losses (31,770) (36,075) 14
Allowances for possible loan losses (FX-adjusted) (32,429) (36,075) 11
Deposits from customers 8,188 10,910 33
Deposits from customer (FX-adjusted) 8,188 10,910 33
Retail deposits 2,766 3,280 19
Corporate deposits 5,422 7,630 41
Liabilities to credit institutions 220,321 256,997 17
Issued securities 33,888 35,004 3
Total shareholders’ equity 19,729 21,146 7
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 35,496 29,451 (17)
90+ days past due loans/gross customer loans 13.4% 10.7% (2.7)
Cost of risk/average gross loans 2.85% 1.88% (0.97)
Cost of risk/average (FX-adjusted) gross loans 2.67% 1.85% (0.82)
Total provisions/90+ days past due loans 89.5% 122.5% 33.0
Performance Indicators 2014 2015 ppts
ROA (0.5%) 0.5% 1.0
ROE (6.4%) 7.9% 14.3
Total income margin 4.02% 4.04% 0.02
Net interest margin 5.20% 5.49% 0.29
Cost/income ratio 50.7% 48.9% (1.8)
* Excluding Merkantil Bérlet Kft. and Merkantil Ingatlanlízing Zrt.
43Management’s analysis of the 2015 results of the OTP Group
Merkantil Bank and Merkantil Car completed
the settlement with FX borrowers in 2Q 2015
and also the settlement with HUF borrowers
in 3Q 2015. During this process the created
provisions were released and refunds
to clients were accomplished. Moreover in 3Q
the provision created for the expected negative
one-o impact of car loans’ conversion was
booked. In 4Q the conversion was completed
in accordance with regulatory prescriptions.
The one-o items related to the above steps were
eliminated from the P&L statement of Merkantil
Bank and Merkantil Car, and were booked
amongst adjustments on consolidated level.
Merkantil Bank and Merkantil Car posted
HUF 1.6 billion aggregated adjusted after tax
profit in 2015 versus HUF 1.5 billion loss in
the base period.
The operating profit for 2015 increased by 13%
compared to the base period. The improving
result was supported mainly by the stronger net
interest income (+14% y-o-y), partially fuelled
by lower average funding costs. The annual net
fee and commission expenditures moderated
by 16%.
The annual operating expenses grew by
5% y-o-y; mostly as a result of increased costs
related to the settlement process in 2Q 2015
(e.g. postal costs).
The ratio of DPD90+ loans declined by 2.7 ppts
y-o-y to 10.7%, meanwhile the coverage ratio
improved by 33 ppts y-o-y; both changes were
mainly driven by the technical eect of the
settlement in 2Q (the amount refunded during
the settlement reduced the delinquent balance).
In 4Q as a result of the FX car loans’ conversion
the DPD90+ portfolio decreased by more than
HUF 3 billion as the delinquent amounts were
added to the principal. In 2015 DPD 90+ ratio
went down y-o-y (–2.7 ppts) and the coverage
ratio improved at the same time (+33 ppts
y-o-y). The annual risk costs decreased by 32%
compared to the base period.
The FX-adjusted loan portfolio stagnated
y-o-y as the expansion in corporate loans
(+29% y-o-y) was counterbalanced by the drop
in car loan volumes (–12% y-o-y) resulted from
the conversion eect. This coupled with the
36% growth of annual car loan disbursements
in 2015.
44 OTP Bank Annual Report 2015
IFRS reports of the main
foreign subsidiaries
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profi t w/o dividends and net cash transfer 39,170 52,537 34
Income tax (4,417) (5,729) 30
Profi t before income tax 43,587 58,266 34
Operating profi t 62,393 73,136 17
Total income 102,239 114,440 12
Net interest income 79,116 88,674 12
Net fees and commissions 20,262 23,013 14
Other net non-interest income 2,860 2,753 (4)
Operating expenses (39,846) (41,304) 4
Total provisions (18,806) (14,870) (21)
Provision for possible loan losses (17,526) (14,650) (16)
Other provision (1,279) (220) (83)
Main components of balance sheet closing balances 2014 2015 %
Total assets 1,603,812 1,778,326 11
Gross customer loans 1,158,516 1,158,894 0
Gross customer loans (FX-adjusted) 1,152,196 1,158,894 1
Retail loans 867,204 858,420 (1)
Corporate loans 284,992 300,474 5
Allowances for possible loan losses (159,015) (164,898) 4
Allowances for possible loan losses (FX-adjusted) (158,275) (164,898) 4
Deposits from customers 1,285,044 1,489,542 16
Deposits from customer (FX-adjusted) 1,283,817 1,489,542 16
Retail deposits 1,125,228 1,251,290 11
Corporate deposits 158,588 238,252 50
Liabilities to credit institutions 47,284 14,951 (68)
Total shareholders’ equity 247,993 253,468 2
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 173,716 172,124 (1)
90+ days past due loans/gross customer loans 15.0% 14.9% (0.1)
Cost of risk/average gross loans 1.53% 1.26% (0.27)
Cost of risk/average (FX-adjusted) gross loans 1.49% 1.27% (0.22)
Total provisions/90+ days past due loans 91.5% 95.8% 4.3
Performance Indicators 2014 2015 ppts
ROA 2.7% 3.1% 0.4
ROE 16.7% 21.0% 4.3
Total income margin 6.94% 6.77% (0.17)
Net interest margin 5.37% 5.24% (0.13)
Cost/income ratio 39.0% 36.1% (2.9)
Net loans to deposits (FX-adjusted) 77% 67% (10)
FX rates 2014 2015 Change
HUF HUF %
HUF/BGN (closing) 161.0 160.1 (1)
HUF/BGN (average) 157.8 158.5 0
DSK GROUP (BULGARIA)
Performance of DSK Group:
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dynamics and moderating risk costs
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45Management’s analysis of the 2015 results of the OTP Group
DSK Group posted an after tax profit of
HUF 52.5 billion in 2015, up by 34% compared
to the base period.
The full-year operating profit grew by 17% y-o-y.
The net interest income advanced by 12% y-o-y
mainly due to lower funding costs: interest
expenses on deposits dropped by 60% despite
the deposit base growing by 16% y-o-y.
Furthermore, the eective management of
excess liquidity played a positive role, too.
The slight y-o-y decline (–12 bps) of the net
interest margin was mainly reasoned by the
deposit inflow which increased total assets and
diluted the net interest margin, furthermore
a methodological change made in the fourth
quarter of 2015 played a role, too. The Bank
changed the methodology eective from
October regarding the accounting treatment of
recoveries collected from DPD90+ exposures.
According to the previous methodology such
recoveries were treated as recoveries of the
previously suspended o-balance sheet interest
income. Starting from October the order of
accounting changed, consequently recoveries
reduce on-balance sheet claims first.
The change in methodology aects the
provisions for possible loan losses, too,
therefore it is neutral for the profit after tax
and influences the structure of the P&L account
only. Without such change net interest income
would have been higher by around
HUF 1 billion.
In 2015 the net fee and commission income
grew by 14% y-o-y explained mainly by
strengthening fee income related to deposits
and transactions. The other net non-interest
revenues eroded by 4% y-o-y.
The operating expenses grew by 4% y-o-y
(HUF +1.5 billion). In the fourth quarter
the contribution paid by the bank into the
Resolution Fund explains HUF 0.9 billion
operating cost increase y-o-y.
In 2015 the volume of DPD90+ loans declined
by 1%. Non-performing loans in the amount
of HUF 8 billion were written o during the
period, of which the so-called partial write-os
represented almost HUF 6 billion. The ratio of
loans with more than 90 days of delay (DPD90+)
moderated by 0.1 ppt to 14.9%. The FX-adjusted
DPD90+ volume changes excluding the
impact of loan sales and write-os remained
favourable (in HUF billion:2013: 15, 2014: 3,
2015: 6).
The bank’s consistently conservative and
prudent provisioning policy has not changed.
Total risk costs demonstrated a 21%
moderation y-o-y in 2015. As a result, the
provision coverage ratio went up to 95.8%
(+4.3% ppts y-o-y). Against the 1.5% risk cost
rate in 2014 it declined to 1.3% for 2015
as a whole.
The FX-adjusted total gross loan portfolio
increased by 1 ppt y-o-y; the performing loan
portfolio grew by the same magnitude
y-o-y. New mortgage loan disbursements
– amid increasing proportion of refinancing –
advanced by three-fourth. However, the overall
mortgage volumes melted down by 3% y-o-y
(on an FX-adjusted basis). New consumer
loan origination surpassed the base period by
16% y-o-y, whereas their volumes advanced by
1% y-o-y.
Corporate and SME loan disbursements
showed an upward trend (+15% y-o-y) thanks
to the strong SME performance. The corporate
portfolio grew by 5% in the last 12 months
(adjusted for the FX-eect). Corporate loan
market share of DSK Bank reached 7.1% at
the end of December 2015, marking a 0.3 ppt
improvement y-o-y.
The deposits grew by 16% y-o-y (FX-adjusted),
despite persistently lower than market average
and even further declining deposit rates oered
by DSK. With retail deposit inflow remaining
steady corporate volumes advanced by 50%
during the second half of the year linked to new
placements of several larger clients.
The capital adequacy ratio of DSK Bank
calculated in accordance with local regulation
stood at 17.3% at the end of 2015. In the second
quarter of 2015 the Bank paid HUF 44 billion
dividend to the mother company.
46 OTP Bank Annual Report 2015
OTP BANK RUSSIA
Performance of OTP Bank Russia:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profi t w/o dividends and net cash transfer (14,541) (15,101) 4
Income tax 3,137 3,318 6
Profi t before income tax (17,678) (18,419) 4
Operating profi t 101,028 64,515 (36)
Total income 179,392 113,052 (37)
Net interest income 158,972 97,871 (38)
Net fees and commissions 21,378 14,478 (32)
Other net non-interest income (958) 703 (173)
Operating expenses (78,364) (48,536) (38)
Total provisions (118,706) (82,934) (30)
Provision for possible loan losses (117,623) (82,060) (30)
Other provision (1,083) (874) (19)
Main components of balance sheet closing balances 2014 2015 %
Total assets 750,747 507,082 (32)
Gross customer loans 568,709 393,914 (31)
Gross customer loans (FX-adjusted) 503,496 393,914 (22)
Retail loans 468,869 363,054 (23)
Corporate loans 32,609 29,184 (11)
Car fi nancing loans 2,018 1,676 (17)
Gross DPD0–90 customer loans (FX-adjusted) 429,320 317,510 (26)
Retail loans 397,381 291,935 (27)
Allowances for possible loan losses (98,436) (88,017) (11)
Allowances for possible loan losses (FX-adjusted) (86,608) (88,017) 2
Deposits from customers 402,729 307,646 (24)
Deposits from customer (FX-adjusted) 362,894 307,646 (15)
Retail deposits 284,620 252,070 (11)
Corporate deposits 78,274 55,576 (29)
Liabilities to credit institutions 107,492 42,974 (60)
Issued securities 4,600 1,024 (78)
Subordinated debt 23,884 21,820 (9)
Total shareholders’ equity 111,779 89,504 (20)
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 83,779 76,403 (9)
90+ days past due loans/gross customer loans 14.7% 19.4% 4.7
Cost of risk/average gross loans 16.78% 17.05% 0.27
Cost of risk/average (FX-adjusted) gross loans 22.95% 18.29% (4.66)
Total provisions/90+ days past due loans 117.5% 115.2% (2.3)
Performance Indicators 2014 2015 ppts
ROA (1.7%) (2.4%) (0.7)
ROE (10.0%) (15.0%) (5.0)
Total income margin 21.22% 17.98% (3.24)
Net interest margin 18.80% 15.56% (3.24)
Cost/income ratio 43.7% 42.9% (0.7)
Net loans to deposits (FX-adjusted) 115% 99% (16)
FX rates 2014 2015 Change
HUF HUF %
HUF/RUB (closing) 4.5 3.9 (13)
HUF/RUB (average) 6.1 4.6 (25)
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47Management’s analysis of the 2015 results of the OTP Group
The HUF denominated financial figures of
OTP Bank Russia are distorted by the HUF/RUB
moves: in 2015 the closing rate showed a y-o-y
13% devaluation of RUB against HUF; whereas
the average 2015 rate depreciated by 25% y-o-y.
Therefore local currency P&L and balance sheet
dynamics can be materially dierent from those
in HUF terms.
The performance of Touch Bank (a virtual entity)
was first presented separately from OTP Bank
Russia in the Summary of the full year
2015 Report; the separation has been done
retroactively beginning from 1Q 2015. Therefore
2014 column includes the performance of
Touch Bank, whereas 2015 column exclude
the performance of Touch Bank.
After tax loss of OTP Bank Russia for 2015 grew
in HUF terms by 4% y-o-y to HUF 15.1 billion;
whereas the RUB denominated loss increased
by 43% y-o-y.
In 2015 the operating profit in RUB terms
dropped by 16% y-o-y, as a result of a 16%
decrease in total income and by 17% lower
operating expenses. Net interest income
declined by 18% y-o-y in rouble terms. This
decline was mainly caused by the decrease
of the performing loan portfolio (–26% y-o-y,
FX-adjusted). Furthermore, funding cost
increased significantly after the series of rate
hikes by the Central Bank of Russia at the end
of 2014, which had a negative influence on NII,
but the funding costs started moderating since
2Q, though still exceeding the levels observed
in 2014. This eect could only partly be oset
by higher interest rates on loans, thus NIM
decreased. The 2015 net fee and commission
income decreased by 10% y-o-y in RUB terms,
mainly related to weak loan disbursements.
As a result of cost rationalisation 2015
operating expenses decreased by 17% y-o-y
in RUB terms in spite of the 16% average
2015 Russian inflation rate. In line with the
decreasing number of employees and smaller
operation personnel expenses and other
expenses declined. Cost/income ratio stood
at 43% in 2015, slightly decreased y-o-y.
In 2015 64 branches were closed down,
thus at the end of 2015 the network consisted
of 134 branches. The number of the Bank’s
employees (without agents) decreased y-o-y
by 20% to 4,787.
Although FX-adjusted DPD90+ volume growth
excluding the impact of sold/written-o
non-performing loans was flat y-o-y for the
whole year, but after the all-time-high level
in 2Q 2015 the pace of portfolio deterioration
significantly moderated in 3Q and 4Q,
respectively (new DPD90+ volumes in
HUF billion: 2Q: 38, 3Q: 24, 4Q: 16). The bank
sold or wrote o loans in 2015 in the amount
of RUB 18 billion. DPD90+ ratio stood at 19.4%
at end-2015. In 2015 risk cost decline was 7%
y-o-y. Provision coverage of DPD90+ loans stood
at 115% by end-December.
The FX-adjusted performing (DPD0–90) loan
volumes dropped by 26% y-o-y. Consumer
loan disbursements are still reflecting
cautiousness, in general. The DPD0–90 POS
portfolio decreased by 17% y-o-y (FX-adjusted).
The FX-adjusted DPD0–90 credit cards portfolio
shrank by 29% y-o-y. FX-adjusted DPD0–90
cash loan portfolio decreased by 36% y-o-y.
FX-adjusted total deposits shrank by 15% y-o-y.
FX-adjusted net loan-to-deposit ratio stood at
99% at the end of 2015 (–15% ppts y-o-y).
The capital adequacy ratio of the bank
calculated in line with local regulation stood at
13.3% at the end of December (+1.1 ppts y-o-y).
48 OTP Bank Annual Report 2015
TOUCH BANK (RUSSIA)
Performance of Touch Bank:
Main components of P&L account 2015
HUF million
After tax profi t w/o dividends and net cash transfer (4,840)
Income tax 1,189
Profi t before income tax (6,029)
Operating profi t (6,020)
Total income (241)
Net interest income (155)
Net fees and commissions (84)
Other net non-interest income (2)
Operating expenses (5,779)
Total provisions (9)
Provision for possible loan losses 0
Other provision (9)
Main components of balance sheet closing balances 2015
Total assets 7,410
Gross customer loans 4
Gross customer loans (FX-adjusted) 4
Retail loans 4
Corporate loans 0
Allowances for possible loan losses 0
Allowances for possible loan losses (FX-adjusted) 0
Deposits from customers 4,250
Deposits from customer (FX-adjusted) 4,250
Retail deposits 4,250
Corporate deposits 0
Liabilities to credit institutions 4
Subordinated debt 1,653
Total shareholders’ equity 1,474
Loan Quality 2015
90+ days past due loan volume (in HUF million) 0
FX rates 2015
HUF
HUF/RUB (closing) 3.9
HUF/RUB (average) 4.6
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Touch Bank is a digital bank being part of
OTP Bank Russia from legal point of view, and it
is operating under the same banking license, but
as a separate business line. In order to provide
transparent information Touch Bank is presented
as a separate virtual entity and as an independent
activity. The performance of Touch Bank was
shown separately from OTP Bank Russia’s
performance for the fi rst time in the Summary of
the full-year 2015 results, with retroactive e ect
from 1Q 2015.
Touch Bank started its operation in April 2015
in Russia, with contemporary services based on
online technologies.
The bank primarily targets young, a uent
customers receptive to innovative high-end
technologies. The services can be accessed
through online platforms and mobile applications.
The activities of Touch Bank expanded gradually
ever since it went live: fi rst it was available in
larger cities, than in September its operations
were supported by intensive marketing campaigns
in St. Petersburg, later, in 4Q in Moscow. By the
end of 2015 Touch Bank had customers form
about 85 cities and registered 20 thousand active
debit cards, while its deposit base approached
HUF 4.3 billion equivalent. Loan product sales
started in the last 2 months of 2015, thus its loan
volumes was not signifi cant at the end of the year.
Total income was negative, so profi t before tax
totalled to HUF 6 billion in 2015 (HUF –4.8 billion
after tax).
49Management’s analysis of the 2015 results of the OTP Group
OTP BANK UKRAINE
Performance of OTP Bank Ukraine:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profi t without the e ect of adjustments (43,166) (40,312) (7)
Income tax 4,156 1,918 (54)
Profi t before income tax (47,322) (42,230) (11)
Operating profi t 27,269 25,185 (8)
Total income 52,078 41,087 (21)
Net interest income 45,327 29,146 (36)
Net fees and commissions 10,306 7,915 (23)
Other net non-interest income (3,555) 4,025 (213)
Operating expenses (24,809) (15,902) (36)
Total provisions (74,591) (67,414) (10)
Provision for possible loan losses (71,947) (65,891) (8)
Other provision (2,644) (1,523) (42)
Main components of balance sheet closing balances 2014 2015 %
Total assets 422,286 292,882 (31)
Gross customer loans 568,214 421,330 (26)
Gross customer loans (FX-adjusted) 569,301 421,330 (26)
Retail loans 303,096 218,465 (28)
Corporate loans 230,404 179,304 (22)
Car fi nancing loans 35,801 23,561 (34)
Gross DPD0–90 customer loans (FX-adjusted) 294,142 216,696 (26)
Retail loans 88,510 56,299 (36)
Corporate loans 191,008 149,328 (22)
Car fi nancing loans 14,624 11,069 (24)
Allowances for possible loan losses (254,881) (242,515) (5)
Allowances for possible loan losses (FX-adjusted) (263,755) (242,515) (8)
Deposits from customers 228,803 211,346 (8)
Deposits from customer (FX-adjusted) 206,576 211,346 2
Retail deposits 128,117 125,832 (2)
Corporate deposits 78,459 85,515 9
Liabilities to credit institutions 143,171 99,083 (31)
Subordinated debt 37,735 8,571 (77)
Total shareholders’ equity 4,383 (34,804) (894)
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 262,187 204,635 (22)
90+ days past due loans/gross customer loans 46.1% 48.6% 2.4
Cost of risk/average gross loans 11.65% 13.32% 1.66
Cost of risk/average (FX-adjusted) gross loans 11.62% 13.30% 1.68
Total provisions/90+ days past due loans 97.2% 118.5% 21.3
Performance Indicators 2014 2015 ppts
ROA (8.3%) (11.3%) (3.0)
ROE (73.4%) n/a
Total income margin 10.01% 11.49% 1.48
Net interest margin 8.72% 8.15% (0.57)
Cost/income ratio 47.6% 38.7% (8.9)
Net loans to deposits (FX-adjusted) 148% 85% (63)
FX rates 2014 2015 Change
HUF HUF %
HUF/UAH (closing) 16.4 11.9 (27)
HUF/UAH (average) 19.9 12.9 (35)
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50 OTP Bank Annual Report 2015
The financial performance and indicators of
OTP Bank Ukraine in HUF terms were
significantly distorted by the HUF/UAH
exchange rate moves: in 2015 the closing
rate of HUF showed a y-o-y 27% appreciation
against UAH, while the annual average rate
strengthened by 35% y-o-y. Therefore local
currency P&L and balance sheet dynamics are
materially dierent from those in HUF terms.
Methodological note: as one-o items not
related to the normal course of business
activity, the risk costs created in relation to
the Crimean exposures from 2Q 2014, as well
as risk costs made for exposures to Donetsk
and Luhansk counties from 3Q 2014 were
eliminated from the Ukrainian P&L and shown
amongst the adjustment items on consolidated
level. Balance sheet lines were not adjusted for
these items.
In 2015 OTP Bank Ukraine posted HUF 40.3 billion
adjusted loss, 7% lower than a year ago.
The significant quarterly earnings volatility was
mainly reasoned by risk costs developments:
in 1Q the HUF 10.2 billion loss was due
mainly to the massive depreciation of the
UAH which required higher provisioning as a
result of the LTV (loan-to-value) eect. On the
opposite, in 2Q the UAH appreciated and also
due to the moderate new DPD90+ formation
risk costs dropped by 90% q-o-q, and the
Ukrainian operation posted a positive result.
The HUF 17.6 billion loss realized in 3Q was
predominantly due to risk costs created on
the corporate portfolio, within that especially
on the legacy corporate book originated
mainly before the crisis. The HUF 13.2 billion
loss in 4Q was mainly due to the portfolio
clean-up at the Factoring unit: as a result of
the additional provisions made predominantly
for retail exposures and within that mainly for
USD-based mortgages disbursed before the
crisis, the net loan portfolio of Factoring shrank
to HUF 5.8 billion (end of December).
The remaining total net loan exposure in Crimea
and also in Donetsk and Luhansk counties
amounted to HUF 0.3 billion equivalent at the
end of December (including accrued interest).
The lending activity in the latter two counties
has been suspended.
With regards to the lending activity for the
rest of the country, new cash loan production
in 2015 dropped by three-fourth y-o-y.
The cross-sale of credit cards was practically
zero in 2015. Within the POS segment newly
sold volumes increased by 13% y-o-y, true,
from a low base. The DPD0–90 consumer loan
portfolio grew by 28% y-o-y (FX-adjusted).
The mortgage book further melted down, given
the lack of new origination. The performing
corporate loan book shrank by 22% y-o-y.
After the deposit withdrawals in 1Q 2015, for
the rest of the year each and every quarter
demonstrated increasing volumes. The net
loan-to-deposit ratio dropped to 85% by the
end of December 2015 (–63 ppts y-o-y on an
FX-adjusted basis).
The intra-group financing (including sub-
ordinated debt) declined by around
USD 250 million in the last 12 months.
The intra-group funding (including subordinated
debt) exposure stood at HUF 107 billion
equivalent by the end of 2015.
Regarding the P&L items, the full-year operating
profit decreased by 8% y-o-y in HUF terms, but
improved by 46% in UAH terms.
The underlying business performance is better
described by changes expressed in UAH terms:
within total income the annual net interest
income remained stable y-o-y. The steady
erosion of performing loan volumes (in original
currency terms) had a negative impact on net
interest income dynamics; on the opposite,
the weakening UAH supported the interest
revenues on FX loans in UAH terms. The volatile
quarterly net interest income development was
partly reasoned by the bank’s own restructuring
scheme: at the time of the restructuring the
total NPV decline for the whole duration of the
loan is accounted for in one sum on the net
interest income line.
The net fee and commission income realized
in 2015 increased by 19% y-o-y in UAH terms
due to the repayment of the subordinated debt
facility to third party as no further fee expenses
occurred.
The y-o-y change in other net non-interest
income was mainly induced by a significant FX
gain booked in 1Q 2015 on the back of volatile
51
cross currency rates and also by the base eect
due to reclassifications in 4Q 2014.
Operating expenses moderated by 3% y-o-y in
UAH terms, though during the same period of
time average consumer prices surged by 48.7%.
In the last twelve months 31 units were closed
(–27%),while the workforce was also scaled
back: the number of employees (including
employed selling agents) declined by 37% y-o-y.
Total risk costs advanced by 35% y-o-y in
UAH terms. The material increase in 2015
was related to the drastic depreciation of UAH
mainly in 1Q and the portfolio clean-up in the
second half of 2015.
In 2015 the portfolio quality deterioration
decelerated y-o-y (FX-adjusted DPD90+ volume
growth excluding the impact of loan sales and
write-os in HUF billion: 2014: 60, 2015: 11).
In 2015 loans worth of HUF 81 billion were sold
or written o. As a result of the above factors
the DPD90+ ratio increased by more than
2.4ppts (48.6%), the provision coverage ratio
improved to 118.5% marking a 21.3 ppts jump
y-o-y.
During 2015 the total amount of the recognized
deferred tax asset reached HUF 1.9 billion.
Under the scope of the Bank’s own
restructuring programme the volume of FX
mortgage loans converted into UAH at market
FX rate got close to UAH 1.8 billion by the end of
2015. Under the scheme the Bank oers either
certain debt forgiveness and/or an interest rate
concession at the beginning of the maturity.
The shareholders’ equity of the Ukrainian
banking group under IFRS was HUF –34.8
billion at the end of 2015. The Ukrainian
shareholders’ equity includes that of 3 entities:
the Bank, the Leasing and Factoring companies’
equity. The standalone equity of the Bank under
IFRS reached HUF 20 billion. The standalone
capital adequacy ratio of the Bank under
local regulation stood at 15.7% at the end of
December 2015 (+5.3 ppts y-o-y). The increase
already reflects the impact of the conversion
of subordinated debt and funding to equity
(in the amount of close to USD 110 million in
total). The shareholders’ equity of the Leasing
Company comprised HUF –2.2 billion by the end
of December, whereas the Factoring Company
also had a negative equity of HUF 52.6 billion.
The key reason behind the lower subordinated
loan volumes on one hand is the repayment
of a facility to a third party at maturity, as well
as the partial conversion of the outstanding
intra-group subordinated debt into equity (close
to USD 115 million in total).
Management’s analysis of the 2015 results of the OTP Group
52 OTP Bank Annual Report 2015
On 30 July 2014 OTP Bank Romania agreed on
purchasing 100% stake of Banca Millennium
S.A. for EUR 39 million. The transaction was
completed on 8 January 2015 and through
the fi nancial settlement OTP Bank Romania
acquired 100% ownership in Banca Millennium.
The Romanian P&L was adjusted for the
items directly related to the acquisition; these
corrections are shown on consolidated level
among adjustment items.
Banca Millennium was consolidated in 1Q 2015.
Methodological note: in November 2015
a decision was taken about a conversion
programme o ered to retail CHF mortgage
borrowers. The expected one-o negative
impact of the programme was recognised in
OTP BANK ROMANIA
Performance of OTP Bank Romania:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profi t without the e ect of adjustments 765 1,480 94
Income tax 0 (100)
Profi t before income tax 765 1,580 107
Operating profi t 9,806 6,074 (38)
Total income 23,409 27,662 18
Net interest income 19,388 22,904 18
Net fees and commissions 2,429 3,773 55
Other net non-interest income 1,593 985 (38)
Operating expenses (13,603) (21,588) 59
Total provisions (9,041) (4,493) (50)
Provision for possible loan losses (8,881) (6,598) (26)
Other provision (161) 2,105
Main components of balance sheet closing balances 2014 2015 %
Total assets 476,352 646,042 36
Gross customer loans 428,995 546,148 27
Gross customer loans (FX-adjusted) 444,243 546,148 23
Retail loans 336,652 405,938 21
Corporate loans 107,591 140,210 30
Allowances for possible loan losses (61,538) (72,305) 17
Allowances for possible loan losses (FX-adjusted) (64,293) (72,305) 12
Deposits from customers 222,126 334,346 51
Deposits from customer (FX-adjusted) 221,146 334,346 51
Retail deposits 180,040 257,480 43
Corporate deposits 41,106 76,866 87
Liabilities to credit institutions 209,315 201,187 (4)
Total shareholders’ equity 34,980 46,667 33
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 76,564 91,359 19
90+ days past due loans/gross customer loans 17.8% 16.7% (1.1)
Cost of risk/average gross loans 2.12% 1.35% (0.77)
Cost of risk/average (FX-adjusted) gross loans 1.98% 1.33% (0.65)
Total provisions/90+ days past due loans 80.4% 79.1% (1.3)
Performance Indicators 2014 2015 ppts
ROA 0.2% 0.3% 0.1
ROE 2.4% 3.6% 1.2
Total income margin 5.06% 4.93% (0.13)
Net interest margin 4.19% 4.08% (0.11)
Cost/income ratio 58.1% 78.3% 20.2
Net loans to deposits (FX-adjusted) 172% 142% (30)
FX rates 2014 2015 Change
HUF HUF %
HUF/RON (closing) 70.2 69.2 (1)
HUF/RON (average) 69.5 69.7 0
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53Management’s analysis of the 2015 results of the OTP Group
3Q 2015. This item was eliminated from the
Romanian results and was presented among
the adjustment items on consolidated level.
OTP Bank Romania delivered HUF 1.5 billion
profit after tax in 2015 (+94% y-o-y) including
the result of Banca Millennium.
The operating profit declined by 38% y-o-y as
a result of higher revenues on one hand, but
surging operational expenses on the other.
The higher full-year net interest income
(+18% y-o-y) was shaped by several factors:
on one hand the consolidation of Banca
Millennium played a positive role. At the same
time the lower interest spread oered for
clients having floating rate CHF mortgage
loans reduced the net interest income by
almost HUF 0.6 billion in the first twelve
months. At the same time, interest revenues
on the FX loans were positively aected by the
appreciating CHF against RON.
The 55% y-o-y increase in the full-year net fee
and commission income was primarily due to
the contribution of Banca Millennium.
The annual other net non-interest income was
by 38% lower y-o-y. HUF 0.8 billion contraction
is explained by one-o negative items emerged
in 4Q 2015 on the other net non-interest income
line (asset write os related to the branch
closures in 4Q, real estate revaluation losses,
negative results realized on real estate sales
and write-down of one of the IT-systems).
Operating expenses surged by 59% y-o-y as a
result of the acquisition related costs (around
HUF 2.1 billion in 2015) and the consolidation of
the operating expenses of Banca Millennium.
As a result of the take-over of 56 branches
of Banca Millennium and closure of mainly
former Banca millennium branches in 2H 2015
the total number of outlets increased by
24 units in the course of 2015. The increase
of operating expenses was partially owing to
the integration costs of Banca Millennium,
parallel other provisions made earlier were
released. That was the main reason behind
the release of other risk costs in 2015.
The total risk costs in 2015 were by 50%
lower than a year ago. The DPD90+ loan volume
growth (adjusted for FX rate changes and
sold and written o volumes) amounted to
HUF 10 billion* in 2015 versus HUF 6 billion
in 2014. The deterioration of the mortgage
portfolio decelerated in 2H 2015. The DPD90+
ratio stood at to 16.7%, the 1.1 ppts y-o-y
improvement was attributable to non-performing
loan sales and write-os (HUF 4.1 billion in
2015), but also to the composition eect of
the lower DPD90+ ratio of Banca Millennium.
The coverage ratio of DPD90+ loans declined by
1.2 ppts (79.1%).
The FX-adjusted gross loan portfolio expanded
by 23% y-o-y. Despite increasing competition
cash loan disbursements grew by 6% y-o-y.
Cash loan volumes, however dropped by 9%
y-o-y. As a result of stronger new disbursements
(+77% y-o-y) and the positive impact of the
acquisition, mortgage volumes increased by
19% y-o-y on an FX-adjusted basis.
The corporate loan dynamics were aected by
reclassifications, too: corporate exposures were
shifted to the SME line within retail loans. Due
to improving corporate loan disbursements the
large corporate portfolio advanced by 30% y-o-y
(FX-adjusted).
The total FX-adjusted deposit volumes increased
to more than one and a half times y-o-y.
Household deposit interest rates continued to
decline in line with overall market trends. The
net loan-to-deposit ratio dropped to 142%.
According to the local regulation the Bank’s
standalone capital adequacy ratio stood at
14.2% at the end of December (–0.2 ppt y-o-y).
During 4Q 2015 RON 296 million capital
increase was completed, partially warranted
by the transfer of exposures back to OTP Bank
Romania S.A., but also the potential negative
impact of the CHF mortgage conversion
programme.
In the course of 4Q 2015 the Romanian
Parliament voted on the amendment to the
law on the foreclosure process, which would
give more rights to non-performing mortgage
borrowers compared to the eective regulation.
The amendment would allow retail mortgage
debtors to forego a real estate asset that is
used as collateral for a mortgage, thus getting
rid of the debt. The President did not sign
the act and sent it back to the Parliament for
reconsideration.
* Excluding the newly consolidated DPD90+ loan volumes of Banca Millennium in 1Q 2015.
54 OTP Bank Annual Report 2015
OTP BANKA HRVATSKA (CROATIA)
Performance of OTP banka Hrvatska:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profi t without the e ect of adjustments 104 2,968
Income tax (524) 1,257 (340)
Profi t before income tax 628 1,711 173
Operating profi t 7,528 10,844 44
Total income 25,427 28,020 10
Net interest income 17,923 20,345 14
Net fees and commissions 5,203 5,309 2
Other net non-interest income 2,300 2,367 3
Operating expenses (17,899) (17,177) (4)
Total provisions (6,900) (9,132) 32
Provision for possible loan losses (5,747) (6,812) 19
Other provision (1,153) (2,320) 101
Main components of balance sheet closing balances 2014 2015 %
Total assets 654,793 649,870 (1)
Gross customer loans 467,749 470,862 1
Gross customer loans (FX-adjusted) 468,282 470,862 1
Retail loans 299,589 300,541 0
Corporate loans 168,418 170,160 1
Allowances for possible loan losses (38,725) (43,905) 13
Allowances for possible loan losses (FX-adjusted) (38,745) (43,905) 13
Deposits from customers 518,313 509,317 (2)
Deposits from customer (FX-adjusted) 521,794 509,317 (2)
Retail deposits 467,332 451,530 (3)
Corporate deposits 54,462 57,787 6
Liabilities to credit institutions 51,453 48,974 (5)
Total shareholders’ equity 71,156 69,563 (2)
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 62,222 61,906 (1)
90+ days past due loans/gross customer loans 13.3% 13.1% (0.2)
Cost of risk/average gross loans 1.36% 1.45% 0.09
Cost of risk/average (FX-adjusted) gross loans 1.32% 1.45% 0.13
Total provisions/90+ days past due loans 62.2% 70.9% 8.7
Performance Indicators 2014 2015 ppts
ROA 0.0% 0.5% 0.5
ROE 0.2% 4.2% 4.1
Total income margin 4.26% 4.30% 0.03
Net interest margin 3.01% 3.12% 0.11
Cost/income ratio 70.4% 61.3% (9.1)
Net loans to deposits (FX-adjusted) 82% 84% 2
FX rates 2014 2015 Change
HUF HUF %
HUF/HRK (closing) 41.1 41.0 0
HUF/HRK (average) 40.4 40.7 1
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55Management’s analysis of the 2015 results of the OTP Group
Methodological note: on 18 September 2015 the
Croatian Parliament adopted amendments to
the Consumer Lending Act, which determined
the conditions of the conversion of CHF
denominated retail loans into EUR at an
exchange rate valid at origination. The one-o
negative impact due to the amendments of
the Act has been eliminated from the Croatian
P&L and is booked on consolidated level within
adjustment items. Balance sheet data have not
been adjusted.
OTP banka Hrvatska posted HUF 3 billion after
tax profit in 2015 against HUF 0.1 billion profit
in the base period. The annual profit improved
considerably, even if adjusted for the one-o
elements (in total HUF +400 million after tax)*
occurred in 2Q 2015.
The y-o-y 44% higher 2015 operating profit
was supported by increasing total income
as well as contained operating expenses.
In addition to the BPC consolidation a further
boost was given to the growth of annual net
interest income (+14%) by the reclassification
of rental income from other income into interest
income eective from 4Q 2014. Operating
expenses dropped by 4% y-o-y. The number of
employees decreased by 10% y-o-y. As a result
of the acquisition the number of branches grew
by 33 units in 2Q 2014, since then 25 branches
have been closed down. The improving
eciency of the operation is signalled by the
y-o-y 40 bps decrease of the cost to asset ratio,
and the more than 9 ppts y-o-y improvement of
cost-to-income ratio.
The DPD90+ ratio (13.1%) improved by
0.2 ppt y-o-y. In 2015 risk cost went up by 19%.
Coverage of DPD90+ loans increased by
8.7 ppts y-o-y to 70.9%. In 2015 other risk cost
doubled: mainly due to the
HUF 1.2 billion other risk cost created in 4Q,
most of which is related to litigations.
FX-adjusted gross loans increased by 1% both
y-o-y. Mainly corporate loans demonstrated
growth (1% y-o-y). Retail loans were stable, and
the focus of retail lending was gradually shifted
towards consumer lending. In 2015 consumer
loan disbursement increased by 39% y-o-y.
FX-adjusted total deposits eroded by 2% y-o-y.
As a result the net loan-to-deposit ratio
increased by 2 ppts y-o-y to 84%.
In spite of the profitable operation, due to the
expected losses in relation to the legislative
changes aecting the CHF consumer loans the
shareholder’s equity decreased by 2% y-o-y.
The capital adequacy ratio stood at 15.6% by
end-4Q.
* In 2Q 2015 the after tax profit was positively aected by income tax refund, which was related to the tax was imposed on badwill
of the Banco Popolare Croatia acquisition in 2Q 2014 (it was shown on consolidated level, among adjustments); furthermore,
the Bank utilized the BPC’s deferred tax of former years (these two items improved the profit by HUF +1.5 billion on the income tax
line). Another item emerged on other risk cost line in relation to the provision on litigation of the Bank’s predecessor in the amount
of HUF 1.4 billion (the after tax eect was HUF –1.1 billion).
56 OTP Bank Annual Report 2015
OTP BANKA SLOVENSKO (SLOVAKIA)
Performance of OTP Banka Slovensko*:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profi t without the e ect of adjustments 32 924
Income tax (334) (489) 46
Profi t before income tax 366 1,413 286
Operating profi t 5,894 6,601 12
Total income 17,098 17,672 3
Net interest income 14,207 14,568 3
Net fees and commissions 3,000 3,386 13
Other net non-interest income (108) (282) 161
Operating expenses (11,204) (11,071) (1)
Total provisions (5,528) (5,188) (6)
Provision for possible loan losses (5,277) (5,144) (3)
Other provision (251) (44) (83)
Main components of balance sheet closing balances 2014 2015 %
Total assets 464,296 450,819 (3)
Gross customer loans 369,624 382,500 3
Gross customer loans (FX-adjusted) 367,547 382,500 4
Retail loans 296,434 315,316 6
Corporate loans 70,834 67,042 (5)
Car fi nancing loans 279 142 (49)
Allowances for possible loan losses (22,785) (22,702) 0
Allowances for possible loan losses (FX-adjusted) (22,657) (22,702) 0
Deposits from customers 375,687 385,082 3
Deposits from customer (FX-adjusted) 374,238 385,082 3
Retail deposits 357,535 362,394 1
Corporate deposits 16,703 22,688 36
Liabilities to credit institutions 18,135 11,113 (39)
Issued securities 18,609 10,869 (41)
Subordinated debt 14,818 6,262 (58)
Total shareholders’ equity 29,787 30,430 2
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 38,211 37,099 (3)
90+ days past due loans/gross customer loans 10.3% 9.7% (0.6)
Cost of risk/average gross loans 1.49% 1.37% (0.12)
Cost of risk/average (FX-adjusted) gross loans 1.45% 1.37% (0.08)
Total provisions/90+ days past due loans 59.6% 61.2% 1.6
Performance Indicators 2014 2015 ppts
ROA 0.0% 0.2% 0.2
ROE 0.1% 3.1% 3.0
Total income margin 3.84% 3.86% 0.02
Net interest margin 3.19% 3.18% (0.01)
Cost/income ratio 65.5% 62.6% (2.9)
Net loans to deposits (FX-adjusted) 92% 93% 1
FX rates 2014 2015 Change
HUF HUF %
HUF/EUR (closing) 314.9 313.1 (1)
HUF/EUR (average) 308.7 309.9 0
* P&L lines and indicators are adjusted for banking tax, Deposit Protection Fund contributions and payment to the Resolution Fund.
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and moderating risk cost
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57Management’s analysis of the 2015 results of the OTP Group
* Adjustments include the elimination of banking tax, DPF contribution paid by OBS and payment to the Resolution Fund
(HUF 819 million after tax in 2015); these items were booked as adjustments in the consolidated results.
OTP Banka Slovensko reached HUF 924 million
adjusted* after tax profit in 2015 versus
HUF 32 million in 2014, supported by 12%
improvement in operating profit and 6%
decrease in risk cost.
The annual operating profit increased due to
the 3% growth in total income. The annual net
interest income improved by 3% y-o-y as a
result of the increasing DPD0–90 loan volumes.
The NIM remained stable, supported by
the decrease of the interest paid for deposits.
The annual net fees and commissions income
advanced by 13% y-o-y reasoned by the
increase of early repayments and improved fee
income related to deposits.
The evolution of annual operating expenses
demonstrates eective cost control (–1%).
The cost/income ratio improved by 2.9 ppts
y-o-y to 62.6%.
The total risk cost dropped by 6% y-o-y
in 2015.
The DPD90+ ratio due to write-os (–0.6 ppt
y-o-y). In 2015 HUF 6 billion non-performing
loan write-o was made, while in 4Q the
amount of write-os was around HUF 4 billion.
The DPD90+ coverage improved by
1.6 ppts y-o-y.
The FX-adjusted loan book expanded by
4% y-o-y as a result of dynamic growth in
retail loans (+6% y-o-y). The disbursement of
consumer loans continued to show upward
trend (annual disbursement grew by 10% y-o-y.
The corporate portfolio eroded by 5% y-o-y.
Total deposits grew by 3% y-o-y (FX-adjusted).
The volume of subordinated debt halved in
2015 compared to 2014 as EUR 29 million
subordinated debt was repaid in 1H 2015.
The CAR stood at 13.4% at the end of 2015.
OTP BANKA SRBIJA (SERBIA)
Performance of OTP banka Srbija:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profit without the eect of adjustments 50 (385) (670)
Income tax 4 9 125
Profit before income tax 46 (394) (950)
Operating profit 1,360 1,292 (5)
Total income 8,556 8,359 (2)
Net interest income 6,612 6,407 (3)
Net fees and commissions 1,851 1,747 (6)
Other net non-interest income 92 205 122
Operating expenses (7,197) (7,067) (2)
Total provisions (1,313) (1,686) 28
Provision for possible loan losses (1,202) (922) (23)
Other provision (111) (764) 587
Main components of balance sheet closing balances 2014 2015 %
Total assets 109,509 119,224 9
Gross customer loans 99,011 108,327 9
Gross customer loans (FX-adjusted) 99,332 108,327 9
Retail loans 44,940 46,170 3
Corporate loans 54,392 62,157 14
Allowances for possible loan losses (33,010) (31,835) (4)
Allowances for possible loan losses (FX-adjusted) (32,908) (31,835) (3)
Deposits from customers 66,934 73,385 10
Deposits from customer (FX-adjusted) 66,686 73,385 10
Retail deposits 43,693 44,999 3
Corporate deposits 22,992 28,386 23
Liabilities to credit institutions 6,206 10,234 65
Subordinated debt 2,542 2,532 0
Total shareholders’ equity 30,197 29,377 (3)
58 OTP Bank Annual Report 2015
Methodological note: due to a series of
decisions on FX mortgages made by the central
bank on 24 February 2015 the bank su ered a
loss of HUF 211 million in 2015. Those losses
were taken out of the P&L of the Serbian
subsidiary and were presented on consolidated
level within adjustment items.
OTP banka Srbija posted HUF 385 million
adjusted loss in 2015. After three profi table
quarters the 4Q 2015 results turned into red
(HUF –759 million), due to the hiking risk costs.
Operating profi t in 2015 declined by 5% y-o-y,
as a result of total income and operating
expenses contracting by 2%. Net interest
income declined by 3% y-o-y (–1% in local
curreny terms), while net interest margin
shrank by 120 bps y-o-y. Net fees and
commissions income in 2015 decreased by 6%
y-o-y.
2015 operating costs moderated by 2% y-o-y
(+0.8% in local currency) mainly due to lower
personnel expenses.
For the whole year provisions for possible
loan losses dropped by 23% y-o-y, but due to
the high other risk cost in 4Q related mostly to
litigation, total risk cost increased by 28% on
the yearly basis. The DPD90+ ratio decreased to
39.3%, owing to portfolio quality improvement.
The 4.5 ppts y-o-y improvement of the ratio was
positively a ected by around HUF 2.2 billion
non-performing loan write-o s during the last
12 months; also the settlement of FX mortgages
resulted in lower delinquent volumes in 3Q.
The coverage ratio of DPD90+ loans reached
74.9% (–1.3 ppts y-o-y).
The FX-adjusted loan book expanded by by 9%
y-o-y. The increase was mainly reasoned by the
large corporate loan book expansion (+14% y-o-y),
also retail consumer and mortgage lending
gained momentum. Consumer loan portfolio
grew by 7% y-o-y (FX-adjusted).
FX-adjusted deposits increased by 10% y-o-y.
The capital adequacy ratio of the bank stood at
25.8% at the end of December.
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Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 43,355 42,519 (2)
90+ days past due loans/gross customer loans 43.8% 39.3% (4.5)
Cost of risk/average gross loans 1.26% 0.89% (0.37)
Cost of risk/average (FX-adjusted) gross loans 1.24% 0.89% (0.35)
Total provisions/90+ days past due loans 76.1% 74.9% (1.3)
Performance Indicators 2014 2015 ppts
ROA 0.1% (0.3%) (0.4)
ROE 0.2% (1.3%) (1.5)
Total income margin 8.75% 7.31% (1.44)
Net interest margin 6.76% 5.60% (1.16)
Cost/income ratio 84.1% 84.5% 0.4
Net loans to deposits (FX-adjusted) 100% 104% 4
FX rates 2014 2015 Change
HUF HUF %
HUF/RSD (closing) 2.6 2.6 (1)
HUF/RSD (average) 2.6 2.6 (2)
59Management’s analysis of the 2015 results of the OTP Group
CRNOGORSKA KOMERCIJALNA BANKA
(MONTENEGRO)
Performance of CKB:
Main components of P&L account 2014 2015 Change
HUF million HUF million %
After tax profi t w/o dividends and net cash transfer 391 909 132
Income tax 19 1 (97)
Profi t before income tax 372 908 144
Operating profi t 3,789 3,146 (17)
Total income 11,518 10,468 (9)
Net interest income 8,359 7,228 (14)
Net fees and commissions 2,877 2,996 4
Other net non-interest income 282 244 (13)
Operating expenses (7,729) (7,322) (5)
Total provisions (3,417) (2,238) (35)
Provision for possible loan losses (3,069) (2,266) (26)
Other provision (348) 28 (108)
Main components of balance sheet closing balances 2014 2015 %
Total assets 195,770 199,800 2
Gross customer loans 158,297 149,775 (5)
Gross customer loans (FX-adjusted) 157,407 149,775 (5)
Retail loans 70,556 73,065 4
Corporate loans 86,851 76,710 (12)
Allowances for possible loan losses (50,981) (52,991) 4
Allowances for possible loan losses (FX-adjusted) (50,695) (52,991) 5
Deposits from customers 142,593 148,117 4
Deposits from customer (FX-adjusted) 142,446 148,117 4
Retail deposits 114,369 114,427 0
Corporate deposits 28,077 33,690 20
Liabilities to credit institutions 19,990 21,829 9
Subordinated debt 2,219 0 (100)
Total shareholders’ equity 22,840 23,091 1
Loan Quality 2014 2015 %/ppts
90+ days past due loan volume (in HUF million) 62,808 63,881 2
90+ days past due loans/gross customer loans 39.7% 42.7% 3.0
Cost of risk/average gross loans 1.90% 1.47% (0.43)
Cost of risk/average (FX-adjusted) gross loans 1.86% 1.48% (0.38)
Total provisions/90+ days past due loans 81.2% 83.0% 1.8
Performance Indicators 2014 2015 ppts
ROA 0.2% 0.5% 0.3
ROE 1.8% 4.0% 2.2
Total income margin 5.88% 5.29% (0.59)
Net interest margin 4.26% 3.65% (0.61)
Cost/income ratio 67.1% 69.9% 2.8
Net loans to deposits (FX-adjusted) 75% 65% (10)
FX rates 2014 2015 Change
HUF HUF %
HUF/EUR (closing) 314.9 313.1 (1)
HUF/EUR (average) 308.7 309.9 0
The Montenegrin CKB Bank posted HUF 909
million after tax profi t in 2015 (+132% y-o-y).
The operating profi t for 2015 decreased by
17% as a result of declining total income
(–9% y-o-y) and diminishing operating
expenses (–5% y-o-y).
The interest expenses on customer deposits
almost halved y-o-y as a consequence of
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60 OTP Bank Annual Report 2015
lowered deposit rates aimed at reducing the
excess liquidity of the Bank. At the same time
as a result of moderating lending interest rates
and shrinking performing loan book the 12M
net interest income dropped by 14% y-o-y.
The net fee and commission income improved
by 4% y-o-y. The yearly decline in operating
expenses was mainly due to the rationalization
of workforce in 2014. In 2015 the total risk cost
dropped by one third.
The loan portfolio quality deteriorated
somewhat, the DPD90+ ratio increased by
3 ppts y-o-y mainly due to a technical eect
(the interest of retail loans transferred to the
Factoring was added to the principal thus
causing an increase in the volume of DPD90+
loans). Furthermore, continued contraction of
the loan portfolio also shaped the development
of DPD90+ ratio. The FX-adjusted growth of
DPD90+ loans (excluding the impact of loan
sales and write-os) reached HUF 1.2 billion
in full-year 2015. The coverage of the loans
increased by 1.8 ppts y-o-y and reached 83%.
The FX-adjusted loan portfolio shrank by 5%
y-o-y, reasoned mainly by the repayment of
large scale corporate loans. On the opposite,
the retail loan portfolio grew by 4% y-o-y mainly
attributable to the improvement in consumer
loan volumes.
The FX-adjusted deposit base grew by 4% y-o-y.
The net loan-to-deposit ratio sank to 65%
(–10 ppts y-o-y, FX-adjusted).
The year-end capital adequacy ratio stood at
16.2% (+0.5 ppt y-o-y).
The closing sta number of OTP Group (full-
time equivalent (FTE), including the number of
employed selling agents) was 31,713 as of
31 December 2015. During the year the head-
count decreased in Russia and the Ukraine, while
increased in Romania due to the acquisition.
OTP Group provides services through 1,340
branches and more than 3,800 ATMs in
9 countries of the CEE-region. In Hungary,
OTP Bank has an extensive distribution
network, which includes 375 branches and
1,895 ATM terminals. The bank (Hungary) has
more than 75 thousands POS terminals.
The branch network significantly decreased in
Russia and the Ukraine (–64 and –31 units y-o-y,
respectively).
STAFF LEVEL AND OTHER INFORMATION
31/12/2015 31/12/2014
Branches ATM POS Headcount
(closing)
Branches ATM POS Headcount
(closing)
OTP Core 375 1,895 55,288 8,142 380 1,976 52,336 8,244
DSK Group 383 874 5,207 4,502 385 883 4,936 4,527
OTP Bank Russia (w/o employed agents) 134 233 1,751 4,787 198 228 1,203 5,992
Touch Bank (Russia) 0 0 1,751 219 ––– –
OTP Bank Ukraine (w/o employed agents) 85 105 315 2,146 116 133 317 3,004
OTP Bank Romania* 108 150 2,848 1,139 84 122 1,471 918
OTP banka Hrvatska 110 247 2,048 1,082 117 242 1,967 1,201
OTP Banka Slovenko 60 141 216 678 61 139 196 668
OTP banka Srbija 56 128 2,248 633 51 121 2,305 642
CKB 29 84 4,895 431 29 80 4,821 427
Foreign subsidiaries, total 965 1,962 21,279 15,615 1,041 1,948 17,216 17,379
Other Hungarian and foreign subsidiaries** 1,206 818
OTP Group (w/o employed agents) 24,963 26,441
OTP Bank Russia – employed agents 6,328 7,722
273%DQN8NUDLQHŝHPSOR\HGDJHQWV 423 1,077
OTP Group (aggregated) 1,340 3,857 76,567 31,713 1,421 3,924 69,552 35,240
* In Romania the expansion of sales network is explained by the acquisition of Banca Millennium.
** Due to the broadening of the data provider group members, the historical employee figures of the other Hungarian and foreign subsidiaries are not comparable.
61Management’s analysis of the 2015 results of the OTP Group
Footnotes to the table
‘consolidated net profit breakdown
by subsidiaries (IFRS)’
General note: regarding OTP Core and other
subsidiaries, profit after tax is calculated
without received dividends and net cash
transfers. Dividends and net cash transfers
UHFHLYHGIURPQRQJURXSPHPEHUFRPSDQLHV
are shown on a separate line in one sum in the
table, regardless to the particular receiver or
payer group member company.
(1) OTP Core, Corporate Centre and foreign
banks aggregated, excluding one-timers.
(2) OTP Core is an economic unit for
measuring the result of core business
activity of OTP Group in Hungary. Financials
of OTP Core are calculated from the
partially consolidated IFRS financial
statements of the companies engaged in
OTP Group’s underlying banking operation
in Hungary. These companies include
OTP Bank Hungary Plc., OTP Mortgage
Bank Ltd., OTP Building Society Ltd.,
OTP Factoring Ltd., OTP Financial Point
Ltd., and companies providing intragroup
financing. The consolidated accounting
results of these companies are segmented
into OTP Core and Corporate Centre. Latter
is a virtual entity.
(3) Within OTP Group, the Corporate Centre
acts as a virtual entity established by
the equity investment of OTP Core for
managing the wholesale financing activity
for all the subsidiaries within OTP Group
but outside OTP Core. Therefore the
balance sheet of the Corporate Centre is
funded by the equity and intragroup lending
received from OTP Core, the intragroup
lending received from other subsidiaries,
and the subordinated debt and senior notes
arranged by OTP Bank under its running
EMTN program. From this funding pool, the
Corporate Centre is to provide intragroup
lending to, and hold equity stakes in
OTP subsidiaries outside OTP Core. Main
subsidiaries financed by Corporate Centre
are as follows: Hungarians: Merkantil
Bank Ltd., Merkantil Car Ltd., Merkantil
Leasing Ltd., OTP Real Estate Leasing Ltd.,
OTP Fund Management Ltd., OTP Real
Estate Fund Management Ltd., OTP Life
Annuity Ltd.; foreigners: banks, leasing
companies, factoring companies.
(4) From 1Q 2015 the performance of
OTP Bank Russia does not contain the
volumes and financial result of Touch
Bank. (The performance of Touch Bank
was shown separately from OTP Bank
Russia’s performance for the first time in
the Summary of the full-year 2015 results,
with retroactive eect from 1Q 2015.)
From 1Q 2015 the statement of recognised
income and balance sheet of LLC MFO
OTP Finance” was included in the Russian
performance. The pre-tax gain realised on
the perpetual EUR 500 million subordinated
Notes transaction within the Group in 3Q
2014 was eliminated from the performance
of OTP Bank Russia.
(5) Touch Bank is a digital bank being part of
OTP Bank Russia from legal point of view,
and it is operating under the same banking
license, but as a separate business line.
In order to provide transparent information
Touch Bank is presented as a separate
virtual entity and as an independent activity.
The performance of Touch Bank was
shown separately from OTP Bank Russia’s
performance for the first time in the
Summary of the full-year 2015 results, with
retroactive eect from 1Q 2015.
(6) From 4Q 2008 figures are based on the
aggregated financial statements of
OTP Bank JSC and LLC OTP Leasing
Ukraine, from 4Q 2009 the result of
LLC OTP Factoring Ukraine was also
aggregated, while in 4Q 2010 the statement
of recognised income and balance sheet of
LLC OTP Credit was also added.
(7) From 3Q 2010, statements are based on
the aggregated financials of DSK Group and
SUPPLEMENTARY DATA
62 OTP Bank Annual Report 2015
the newly established Bulgarian collection
company, OTP Factoring Bulgaria LLC.
DSK Group balance sheet contains the
loans sold to the factoring company at
before sale gross value and the related
provisions as well.
(8) Net earnings are adjusted with the result
of CIRS swap transactions executed with
OTP Bank Hungary in relation to interbank
financing. Before transfer balance sheet
numbers are displayed. From 2Q 2010 the
statement of recognised income and
balance sheet of OTP Faktoring SRL was
included. Banca Millennium was con-
solidated into OBR’s results from 1Q 2015.
(9) Including the financial performance of
OTP Factoring Serbia d.o.o from 4Q 2010.
(10) Banco Popolare Croatia was consolidated
into OBH’s results from 2Q 2014. From
1Q 2015 including the financial result and
volumes of OTP Faktoring d.o.o.
(11) From 2011 on the balance sheet contains
consolidated data of OTP Banka Slovensko
and OTP Faktor Slovensko s.r.o., adjusted
for loans sold to OTP Bank Plc. and
OTP Factoring Ltd., and the related
interbank financing in the net amount of
the sold loans. The recoveries of sold loans
to OTP Faktoring are recognised in the P&L
accounts as risk cost decreasing elements
since 2011. From 2012 on P&L data and
related indices are adjusted for the special
banking tax and the Slovakian Deposit
Protection Fund contributions being
introduced again in 2014, as well as the
contribution into the Resolution Fund.
(12) Including the financial performance of
OTP Factoring Montenegro d.o.o.
(13) Aggregated after tax profit of Merkantil Bank
and Merkantil Car without dividends, net cash
transfer, other adjustment items and provi-
sioning for investments in subsidiaries.
(14) From 4Q 2009: OTP Leasing Romania IFN
S.A. (Romania), Z plus d.o.o. (Croatia)
(until 3Q 2011), OTP Leasing d.d. (Croatia),
DSK Leasing AD (Bulgaria).
(15) LLC AMC OTP Capitol (Ukraine) and
OTP Asset Management SAI S.A. (Romania),
DSK Asset Management (Bulgaria).
(16) HIF Ltd. (United Kingdom), OTP Faktoring
Slovensko (Slovakia) (until 1Q 2011),
OTP Buildings (Slovakia), OTP Real Slo-
vensko (Slovakia), Velvin Ventures Ltd.
(Belize), Debt Management Project 1
Montenegro d.o.o. (Montenegro), R.E. Four
d.o.o., Novi Sad (Serbia), SC Aloha Buzz
SRL, SC Favo Consultanta SRL, SC Tezaur
Cont SRL (Romania), Cresco d.o.o. (Croatia).
(17) Total Hungarian subsidiaries: sum of the
adjusted after tax results of Hungarian
group members, Corporate Centre and
related eliminations.
(18) Total Foreign subsidiaries: sum of the
adjusted after tax profits of foreign
subsidiaries and one-o items (after tax).
Calculation of adjusted lines
of IFRS profit and loss statements
presented in the business report
In order to present Group level trends in a
comprehensive way in the Interim Management
Report, the presented consolidated and
separate profit and loss statements of the
Report were adjusted in the following way, and
the adjusted P&Ls are shown and analysed in
the Report. Consolidated accounting figures
together with Separate accounting figures of
OTP Bank are still disclosed in the Financial
Data section of the Report.
Adjustments:
ş As non-recurring results, the after tax eect
of the following items are shown separately
on the Statement of Recognised Income:
received dividends, received and paid cash
transfers, goodwill write-os, the tax shield
eect of investment write-os, special tax on
financial institutions, the one-timer payment
compensating the underperformance of
the financial transaction tax in 2013, the
fine imposed by the Hungarian Competition
Authority and the risk cost created in relation
to the decision of the Hungarian Competition
Authority, the corporate tax impact of the
transfer of general risk reserves to retained
earnings, the eect of acquisitions, the
63Management’s analysis of the 2015 results of the OTP Group
one-o impact of regulatory changes in
relation to consumer contracts and the
impact of the related methodological changes
in Hungary, the expected one-o impact of
regulatory changes related to CHF consumer
contracts in Croatia, the one-o impact of
regulatory changes related to FX consumer
contracts in Serbia, the expected one-o
impact of the CHF mortgage loan conversion
programme in Romania, the risk cost created
toward Crimean exposures from 2Q 2014, the
risk cost related toward exposure to Donetsk
and Luhansk from 3Q 2014, the revaluation
of reverse mortgage portfolio of OTP Life
Annuity Ltd. simultaneous with regulatory
changes, and the net loss from early
repayment of FX mortgage loans in Hungary.
Beside the Slovakian banking levy, the total
amount of the special banking tax includes
and the Slovakian Deposit Protection Fund
contributions being introduced again in 2014,
and the contribution into the Resolution Fund
in Slovakia, too.
ş Other non-interest income elements
stemming from provisioning release in
connection with provisions on loans
originated before the acquisitions of the
subsidiaries have been reclassified to and
deducted from the volume of provisions for
possible loan losses in the income statement.
ş From 2Q 2014 OTP Bank’s share in the
change in the shareholders’ equity of
companies consolidated with equity method
is reclassified from the After tax dividends
and net cash transfers line to the Net other
non-interest result (adj.) without one-os line.
ş Other non-interest income is shown together
with gains/losses on real estate transactions,
but without the above mentioned income
from the release of pre-acquisition provisions
and without received cash transfers. However
other non-interest expenses stemming
from non-financial activities are added to
the adjusted net other non-interest income
line, therefore the latter incorporates the net
amount of other non-interest income from
non-financial activities.
ş Out of other expenses, other provisions are
deducted and shown separately as other
risk costs in the adjusted income statement.
Other provisions contain provisioning
on o-balance sheet liabilities and on
legal contests, provisioning on securities,
shares and other investments as well as
provisioning on other assets.
ş Other administrative expenses have been
adjusted in the following way in order to
create a category comprising administrative
cost items exclusively. Other costs and
expenses and other non-interest expenses
were included into the adjusted Other
non-interest expenses. At the same time,
the following cost items were excluded
from adjusted other non-interest expenses:
paid cash transfers – except for movie
subsidies and cash transfers to public
benefit organisations –, Other non-interest
expenses stemming from non-financial
activities, Special tax on financial institutions
and the one-timer payment compensating
the underperformance of the financial
transaction tax.
ş From 4Q 2010 onwards, the fee expenses
paid by Merkantil Group to car dealers
(‘dealer fees’) were registered as interest
expense in the accounting income statement.
Earlier this item had been booked as fee
expense. In order to create a comparable
time series, since 4Q 2010 dealer fees have
been reclassified from net interest income
to net fees and commissions – both on the
consolidated and on a standalone level.
ş Within the aggregated income statement
of Merkantil Bank and Merkantil Car, other
risk cost related to leasing companies – as
investments of the Merkantil Group – is
eliminated. The reason behind is that this
provisioning is eliminated in the consolidated
income statement of OTP Group, and only
the net result of the leasing companies is
making part of OTP Group’s consolidated net
earnings.
ş Performing indicators such as cost/income
ratio, net interest margin, risk cost to
average gross loans as well as ROA and
ROE ratios are calculated on the basis of
the adjusted profit and loss statement,
excluding adjustment items such as
64 OTP Bank Annual Report 2015
received dividends and net cash transfers,
goodwill write-os, the tax shield eect
of investment write-os, special tax on
financial institutions, the one-timer payment
compensating the underperformance of
the financial transaction tax in 2013, the
fine imposed by the Hungarian Competition
Authority and the risk cost created in relation
to the decision of the Hungarian Competition
Authority, the corporate tax impact of the
transfer of general risk reserves to retained
earnings, the eect of Banco Popolare Croatia
acquisitions, the one-o impact of regulatory
changes in relation to consumer contracts
and the impact of the related methodological
changes in Hungary, the expected one-o
impact of regulatory changes related to CHF
consumer contracts in Croatia, the one-o
impact of regulatory changes related to FX
consumer contracts in Serbia, the expected
one-o impact of the CHF mortgage loan
conversion programme in Romania, the risk
cost created toward Crimean exposures
from 2Q 2014, the risk cost related
toward exposure to Donetsk and Luhansk
from 3Q 2014, the revaluation of reverse
mortgage portfolio of OTP Life Annuity Ltd.
simultaneous with regulatory changes, and
the net loss from early repayment of FX
mortgage loans in Hungary.
ş OTP Group is hedging the revaluation result
of the FX provisions on its FX loans by
keeping hedging open FX positions. In the
accounting statement of recognized income,
the revaluation of FX provisions is part of
the risk costs (within line “Provision for loan
losses”) and Other provisions, whereas the
revaluation result of the hedging open FX
positions is made through other non-interest
income (within line “Foreign exchange result,
net”). The two items have the same absolute
amount but an opposite sign. As an adjust-
ment to the accounting statement of income,
these items are eliminated from the adjusted
P&L. By modifying only the structure of the
income statement, this correction does not
have any impact on the bottom line net profits.
ş In 3Q 2012 and in 2Q 2013, seven subsidiaries
of OTP Real Estate Ltd. were for the first time
consolidated into OTP Group. The cumulated
loss of the companies’ previous operation
was recognised as Other expenses in the
accounting P&L, while loan loss and other
provisioning earlier made by OTP Bank
and OTP Real Estate in relation to these
companies were released. By influencing only
the structure of the income statement, the
net eect of these two entries was neutral to
consolidated net earnings. As an adjustment
to the accounting statement of income, these
items are eliminated from the adjusted P&L.
ş Taxdeductible transfers paid by Hungarian
group members from 3Q 2012 were
reclassified from Other non-interest
expenses to Corporate income tax. As a
result, the net P&L eect of the transfers
(i.e. the paid transfer less the related tax
allowances) is recognised in the corporate
income tax line of the adjusted P&L.
ş From 2012 credit institutions’ contribution tax
was recognised in the accounting P&L of OTP
Group and OTP Core as OTP Core’s burden
share in the fixed exchange rate scheme
provided to Hungarian FX mortgage debtors.
The paid contribution tax equals 50% of the
forgiveness provided on the interest payments
of the clients. In the adjusted P&L the contri-
bution tax is reclassified from other (administ-
rative) expenses and to a lesser extent from
other risk cost to net interest income.
ş The financial transaction tax paid from the
beginning of 2013 in Hungary is reclassified
from other (administrative) expenses to
net fee and commission income, both on
consolidated and OTP Core level.
ş Due to regulatory changes related to
consumer contracts in Hungary the actual
negative eects of the financial settlement
with clients and the conversion of FX
consumer contracts prescribed by regulatory
changes related to consumer contracts in
Hungary as well as the impact of the related
methodological changes were recognized
within the accounting P&L in each quarters
of 2015 on the net interest income, net fees
and commissions, foreign exchange gains
(net), net other non-interest result, other
non-interest expenses, provision for loan
65Management’s analysis of the 2015 results of the OTP Group
losses, other risk cost and dividends and net
cash transfers lines. These items booked in
these periods were eliminated from all of the
aected lines and were shown separately
among adjustment items on consolidated
level, whereas the estimate on the one-o
negative impact of regulatory changes
related to consumer contracts was booked on
the other risk cost line in the accounting P&L.
ş The revaluation result booked on Other
provisions line due to regulatory changes
related to FX mortgage loans in Hungary
were moved to the Foreign exchange result
line in 4Q 2014.
ş Within the report, FX-adjusted statistics
for business volume developments and their
product breakdown are disclosed, too.
For FX-adjustment, the closing cross
currency rates for the current period were
used to calculate the HUF equivalent of loan
and deposit volumes in the base periods.
(In Hungary in case of FX mortgage loans
converted into HUF in 1Q 2015 pursuant
to the Act No. LXXVII of 2014 the fixed
FX rates stipulated by the law were used for
the FX-adjustment.) Thus the FX-adjusted
volumes will be dierent from those
published earlier.
66 OTP Bank Annual Report 2015
2014 2015
HUF million HUF million
Net interest income 636,099 550,430
(–) Agent fees paid to car dealers by Merkantil Group (2,047) (2,084)
(+) Credit institutions’ contribution tax paid in relation to the fixed exchange rate scheme (2,798) (232)
(–) One-o impact of regulatory changes in relation to consumer contracts and the impact
of the related methodological changes in Hungary
(698)
Net interest income (adj.) with one-os 635,348 552,980
(–) Revaluation result of FX-swaps at OTP Core (booked within net interest income) (824) (679)
Net interest income (adj.) without one-os 636,172 553,659
Net profit from fees and commissions 215,656 213,872
(+) Net interest accruals related to agent fees at OTP Mortgage Bank 0 0
(+) Agent fees paid to car dealers by Merkantil Group (2,047) (2,084)
(+) Financial Transaction Tax (44,029) (45,076)
(–) One-o impact of regulatory changes in relation to consumer contracts and the impact
of the related methodological changes in Hungary
(538)
Net fees and commissions (adj.) 169,579 167,250
Foreign exchange result 156,918 116,682
(–) Revaluation result of FX positions hedging the revaluation of FX provisions 144,203 96,814
(+) Revaluation result booked on Other risk cost line due to regulatory changes related
to FX mortgage loans in Hungary
(1,428) 0
(–) One-o impact of regulatory changes in relation to consumer contracts
and the impact of the related methodological changes in Hungary
1,320
(–) Expected one-o impact of regulatory changes related to CHF consumer contracts in Croatia 70
Foreign exchange result (adj.) with one-os 11,287 18,476
Foreign exchange result (adj.) without one-os 11,287 18,476
Gain/loss on securities, net 6,911 11,616
Gain/loss on securities, net (adj.) with one-os 6,911 11,616
(–) Revaluation result of the treasury share swap agreement
(booked as Gain on securities, net (adj.) at OTP Core)
423 2,418
Gain/loss on securities, net (adj.) without one-os 6,489 9,197
Other operating income 14,379 22,973
(–) Received cash transfers 59
(–) Non-interest income from the release of pre-acquisition provisions 1,260 1,518
(+) Other other non-interest expenses (7,666) (182,726)
(+) Change in shareholders’ equity of companies consolidated with equity method 1,648 690
(–) Badwill booked in relation to acquisitions 4,563 1,845
(–) One-o impact of regulatory changes in relation to consumer contracts
and the impact of the related methodological changes in Hungary
(170,420)
(–) One-o impact of regulatory changes related to FX consumer contracts in Serbia (212)
(–) Adjustment of the one-o reclassification between Net other non-interest result
and Other provisions in 4Q 2015
1,868
Net other non-interest result (adj.) with one-os 2,534 6,329
(–) Gain on the repurchase of own Upper and Lower Tier2 Capital (booked as Net other
non-interest result (adj.) at OTP Core and at the Corporate Centre)
00
Net other non-interest result (adj.) without one-os 2,534 6,329
Provision for loan losses (446,830) (318,683)
(+) Non-interest income from the release of pre-acquisition provisions 1,260 1,518
(–) Revaluation result of FX provisions (144,203) (95,783)
(–) Risk cost created toward Crimean exposures from 2Q 2014 (8,953) (240)
(–) Risk cost created toward exposures to Donetsk and Luhansk from 3Q 2014 (28,903) (2,684)
(–) Expected one-o impact of regulatory changes related to CHF consumer contracts in Croatia 2,058
(–) One-o impact of regulatory changes in relation to consumer contracts
and the impact of the related methodological changes in Hungary
(8,853)
Provision for loan losses (adj.) (263,511) (211,663)
After tax dividends and net cash transfers (7,481) (12,508)
(–) Sponsorships, subsidies and cash transfers to public benefit organisations (12,277) (15,473)
(–) Dividend income of swap counterparty shares kept under the treasury share swap agreement 2,957 2,433
(–) Change in shareholders’ equity of companies consolidated with equity method 1,648 690
(–) One-o impact of regulatory changes in relation to consumer contracts
and the impact of the related methodological changes in Hungary
(302)
After tax dividends and net cash transfers 191 144
Adjustments on the Consolidated Statement of recognized income (IFRS):
67
2014 2015
HUF million HUF million
Depreciation and amortization (43,722) (45,463)
(+)Goodwill impairment (22,225) 0
(–) Goodwill impairment charges (22,225) 0
Depreciation (adj.) (43,721) (45,463)
Income taxes 51,385 3,147
(–) Corporate tax impact of goodwill/investment impairment charges 17,210 6,683
(–) Corporate tax impact of the special tax on financial institutions 6,818 6,609
(+) Tax deductible transfers (9,734) (12,200)
(–) Corporate tax impact of the risk cost created in relation to the decision
of the Hungarian Competition Authority
0 151
(–) Corporate tax impact of the badwill booked in relation to acquisitions (913) (295)
(–) Corporate tax shield on previous losses of acquired banks 913 0
(–) Corporate tax impact of provision on potential merger expenses 108 0
(–) Corporate tax impact of the one-o eect of regulatory changes in relation
to consumer contracts and the impact of the related methodological changes in Hungary
37,464 (4,173)
(–) Corporate tax impact of risk cost created toward Crimean exposures from 2Q 2014 1,010 71
(–) Corporate tax impact of risk cost created toward exposures to Donetsk and Luhansk from 3Q 2014 3,367 426
(–) Corporate tax impact of revaluation of reverse mortgage portfolio of OTP Life Annuity Ltd.
simultaneous with regulatory changes
1,299
(–) Corporate tax impact of the expected one-o impact of regulatory changes related
to CHF consumer contracts in Croatia
1,583
(–) Corporate tax impact of the one-o impact of regulatory changes related
to FX consumer contracts in Serbia
0
(–) Corporate tax impact of the expected one-o impact of the CHF mortgage loan
conversion programme in Romania
4,407
Corporate income tax (adj.) (24,327) (25,813)
Other operating expense (232,609) (74,680)
(+) Provision on securities available-for-sale and held-to-maturity (297) (15)
(–) Other costs and expenses (6,354) (14,211)
(–) Other non-interest expenses (19,976) (198,588)
(–) Other risk costs recognised in relation to the fixed exchange rate scheme 0 0
(–) Provision on potential merger expenses (539) 0
(–) One-o impact of regulatory changes in relation to consumer contracts
and the impact of the related methodological changes in Hungary
(193,371) 197,569
(–) Revaluation result booked on Other risk cost line due to regulatory changes related
to FX mortgage loans in Hungary
(1,428) 0
(–) Revaluation of reverse mortgage portfolio of OTP Life Annuity Ltd. simultaneous
with regulatory changes (booked within other risk cost)
(6,838)
(–) Revaluation result of FX other provisions (1,031)
(–) Expected one-o impact of regulatory changes related to CHF consumer contracts in Croatia (10,042)
(–) Expected one-o impact of the CHF mortgage loan conversion programme in Romania (29,827)
(–) Risk cost created in relation to the decision of the Hungarian Competition Authority (813)
(–) Adjustment of the one-o reclassification between Net other non-interest result
and Other provisions in 4Q 2015
(1,868)
Other provisions (adj.) (11,237) (9,046)
Other administrative expenses (236,410) (232,247)
(+) Other costs and expenses (6,354) (14,211)
(+) Other non-interest expenses (19,976) (198,588)
(–) Paid cash transfers (12,309) (15,862)
(+) Film subsidies and cash transfers to public benefit organisations (12,277) (15,473)
(–) Other other non-interest expenses (7,666) (182,726)
(–) Special tax on financial institutions (recognised as other administrative expenses) (37,011) (35,992)
(–) Tax deductible transfers (9,734) (12,200)
(–) Credit institutions’ contribution tax paid in relation to the fixed exchange rate scheme (2,798) (232)
(–) Financial Transaction Tax (44,029) (45,076)
(–) One-o impact of regulatory changes in relation to consumer contracts
and the impact of the related methodological changes in Hungary
(9,312)
(–) Expected one-o impact of the CHF mortgage loan conversion programme in Romania (72)
Other non-interest expenses (adj.) (161,470) (159,048)
Management’s analysis of the 2015 results of the OTP Group
68 OTP Bank Annual Report 2015
Main figures of statement of recognized income of OTP Bank Plc., according to hungarian
accounting standards (unconsolidated, audited):
2014 2015 Change
HUF million HUF million %
Net interest income 223,408 174,250 (22)
Interest received and similar income 436,638 372,403 (15)
Interest paid and similar charges (213,230) (198,153) (7)
Net fee and commission income 143,473 160,090 12
Commissions and fees received or due 169,874 187,617 10
Commissions and fees paid or payable (26,401) (27,527) 4
Other income 65,320 468,758 618
Income from securities 43,095 58,597 36
Net profit or net loss on financial operations (60,686) (12,308) (80)
Other operating income 82,911 422,469 410
General administrative expenses (132,303) (135,018) 2
Depreciation (16,692) (16,413) (2)
Other operating charges (294,483) (526,752) 79
Value adjustments in respect of loans and advances and risk provisions
for contingent liabilities and for (future) commitments
(28,377) (52,827) 86
Value readjustments in respect of loans and advances and risk provisions
for contingent liabilities and for (future) commitments
37,508 25,891 (31)
Dierence between formation and utilization of general risk provisions 0 0 0
Value adjustments in respect of transferable debt securities held as financial
fixed assets, shares and participations in aliated companies and in other
companies linked by virtue of participating interests
(25,439) (39,373) 55
Value readjustments in respect of transferable debt securities held as financial
fixed assets, shares and participations in aliated companies and in other
companies linked by virtue of participating interests
724 81 (89)
Profit or loss on ordinary activities (26,861) 58,687 (318)
Extraordinary profit or loss (13,490) (155,910) 1056
Profit or loss before tax (40,351) (97,223) 141
Taxes on income (1,367) (871) (36)
Profit or loss after tax (41,718) (98,094) 135
General reserve 41,718 98,094 135
Profit reserves used for dividends and profit-sharing 40,600 46,200 14
Dividend and profit-sharing payable (40,600) (46,200) 14
Profit or loss for the financial year 0 0 0
69
Main figures of balance sheet of OTP Bank Plc., according to hungarian accounting standards
(unconsolidated, audited):
2014 2015 Change
HUF million HUF million %
Total assets 7,319,679 6,883,826 (6)
1. Liquid assets 1,897,146 1,324,505 (30)
2. Treasury bills and similar securities 1,028,682 1,577,974 53
3. Loans and advances to credit institutions 738,467 663,431 (10)
4. Loans and advances to customers 1,922,912 1,693,195 (12)
5. Debt securities, including fixed-income securities 804,952 674,896 (16)
6. Shares and other variable-yield securities 121,241 129,853 7
7. Shares and participations in corporations held as financial fixed assets 588 584 (1)
8. Shares and participating interests in aliated companies 488,226 490,984 1
9. Intangible assets 63,945 65,365 2
10. Tangible assets 68,114 65,734 (3)
11. Own shares 7,073 9,168 30
12. Other assets 37,851 79,616 110
13. Prepayments and accrued income 140,482 108,521 (23)
Total liabilities 7,319,679 6,883,826 (6)
1. Amounts owed to credit institutions 1,153,744 837,020 (27)
2. Amounts owed to customers 4,277,541 4,366,507 2
3. Debts evidenced by certificates 199,822 187,569 (6)
4. Other liabilities 78,536 101,049 29
5. Accruals and deferred income 185,053 81,146 (56)
6. Provisions for liabilities and charges 111,841 88,465 (21)
7. Subordinated liabilities 344,316 313,120 (9)
8. Shareholders’ equity 968,826 908,950 (6)
Management’s analysis of the 2015 results of the OTP Group
70 OTP Bank Annual Report 2015
Consolidated statement of recognized income of OTP Bank Plc. for the year ended
31 december 2015, according to ifrs standards (audited, accounting structure):
2015 2014 Change
HUF million HUF million %
Loans 575,619 708,873 (19)
Placements with other banks 114,025 94,941 20
Securities available-for-sale 31,063 41,969 (26)
Securities held-to-maturity 46,619 39,934 17
Amounts due from banks and balances with the National Banks 27,496 16,498 67
Other 7,606 7,015 8
Total Interest income 802,428 909,230 (12)
Amounts due to banks, the Hungarian Government, deposits
from the National Banks and other banks
116,713 100,615 16
Deposits from customers 108,023 138,179 (22)
Liabilities from issued securities 6,786 13,826 (51)
Subordinated bonds and loans 13,633 13,883 (2)
Other 6,843 6,630 3
Total Interest expense 251,998 273,133 (8)
NET INTEREST INCOME 550,430 636,097 (13)
Provision for impairment on loan and placement losses 318,683 446,830 (29)
NET INRETEST INCOME AFTER PROVISION FOR IMPAIRMENT
ON LOAN AND PLACEMENT LOSSES
231,747 189,267 22
Income from fees and commissions 257,431 265,392 (3)
Expense from fees and commissions 43,559 49,736 (12)
NET PROFIT FROM FEES AND COMMISSIONS 213,872 215,656 (1)
Foreign exchange gains, net 116,682 156,918 (26)
Gains on securities, net 11,616 6,911 68
Dividend income 3,345 4,824 (31)
Provision on securities available-for-sale and held-to-maturity (15) (297) 135
Other operating income 22,973 14,379 60
Other operating expense (74,680) (232,609) (68)
from this: release of provision/(provision) on contingent liabilities due to regulations
related to customer loans
196,574 (194,798)
NET OPERATING GAIN/(LOSS) 79,921 49,874 (260)
Personnel expenses 187,806 206,335 (9)
Depreciation and amortization 45,463 43,722 (31)
Goodwill impairment 0 22,225
Other administrative expenses 232,247 236,410 (2)
OTHER ADMINISTRATIVE EXPENSES 465,516 508,692 (8)
PROFIT/(LOSS) BEFORE INCOME TAX 60,024 (153,643) (139)
Income tax 3,147 51,385 (94)
NET PROFIT/(LOSS) FOR THE YEAR 63,171 (102,258) (162)
From this, attributable to:
Non-controlling interest (412) (273) 51
Owners of the company 63,583 (101,985) (162)
71
Consolidated statement of financial position of OTP Bank Plc. as at 31 december 2015,
according to ifrs standards (audited):
2015 2014 Change
HUF million HUF million %
Cash, amounts due from banks and balances with the National Banks 1,878,960 2,307,632 (19)
Placements with other banks, net of allowance for placement losses 300,568 281,006 7
Financial assets at fair value through profit or loss 253,782 289,275 (12)
Securities available-for-sale 1,305,486 839,153 56
Loans, net of allowance for loan losses 5,409,967 5,864,241 (8)
Associates and other investments 10,028 23,381 (57)
Securities held-to-maturity 926,677 709,369 31
Property and equipment 193,661 206,440 (6)
Intangible assets 155,809 158,721 (2)
Other assets 283,910 291,835 (3)
TOTAL ASSETS 10,718,848 10,971,052 (2)
Amounts due to banks and Hungarian Government, deposits
from the National Banks and other banks
533,310 708,274 (25)
Deposits from customers 7,984,579 7,673,478 4
Liabilities from issued securities 239,376 267,084 (10)
Financial liabilities at fair value through profit or loss 101,561 183,994 (45)
Other liabilities 391,579 592,088 (34)
Subordinated bonds and loans 234,784 281,968 (17)
TOTAL LIABILITIES 9,485,189 9,706,886 (2)
Share capital 28,000 28,000 0
Retained earnings and reserves 1,261,029 1,288,757 (2)
Treasury shares (58,021) (55,940) 4
Non-controlling interest 2,651 3,349 (21)
TOTAL SHAREHOLDERS’ EQUITY 1,233,659 1,264,166 (2)
TOTAL LIABILTITIES AND SHAREHOLDERS’ EQUITY 10,718,848 10,971,052 (2)
Management’s analysis of the 2015 results of the OTP Group
72
Financial Statements
OTP Bank Annual Report
2015
73
74 OTP Bank Annual Report 2015
75IFRS consolidated fi nancial statements
76 OTP Bank Annual Report 2015
Statement of fi nancial position
(consolidated, based on IFRS, as at 31 December 2015, in HUF million)
Note 2015 2014
Cash, amounts due from banks and balances with the National Banks 4 1,878,960 2,307,632
Placements with other banks, net of allowance for placement losses 5 300,568 281,006
Financial assets at fair value through profit or loss 6 253,782 289,275
Securities available-for-sale 7 1,305,486 839,152
Loans, net of allowance for loan losses 8 5,409,967 5,864,241
Associates and other investments 9 10,028 23,381
Securities held-to-maturity 10 926,677 709,369
Property and equipment 11 193,661 206,440
Intangible assets 11 155,809 158,721
Other assets 12 283,910 291,835
TOTAL ASSETS 10,718,848 10,971,052
Amounts due to banks, the Hungarian Government,
deposits from the National Banks and other banks
13 533,310 708,274
Deposits from customers 14 7,984,579 7,673,478
Liabilities from issued securities 15 239,376 267,084
Financial liabilities at fair value through profit or loss 16 101,561 183,994
Other liabilities 17 391,579 592,088
Subordinated bonds and loans 18 234,784 281,968
TOTAL LIABILITIES 9,485,189 9,706,886
Share capital 19 28,000 28,000
Retained earnings and reserves 1,261,029 1,288,757
Treasury shares 21 (58,021) (55,940)
Non-controlling interest 22 2,651 3,349
TOTAL SHAREHOLDERS’ EQUITY 1,233,659 1,264,166
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 10,718,848 10,971,052
Budapest, 18 March 2016
The accompanying notes to consolidated fi nancial statements on pages 80 to 159 form an integral part of these Consolidated Financial
Statements prepared in accordance with International Financial Reporting Standards.
77
Statement of comprehensive income
(consolidated, based on IFRS, for the year ended 31 December 2015, in HUF million)
2015 2014
NET PROFIT/(LOSS) FOR THE YEAR 63,171 (102,258)
Fair value adjustment of securities available-for-sale (880) 16,065
Deferred tax related to securities available-for-sale 633 (3,046)
Derivative financial instruments designated as Cash-flow hedge – 507
Net investment hedge in foreign operations 431 (4,489)
Foreign currency translation difference (44,301) (108,057)
Change of actuarial losses related to employee benefits (170) (6)
NET COMPREHENSIVE INCOME 18,884 (201,284)
From this, attributable to:
Non-controlling interest (698) (1,418)
Owners of the company 19,582 (199,866)
The accompanying notes to consolidated fi nancial statements on pages 80 to 159 form an integral part of these Consolidated Financial
Statements prepared in accordance with International Financial Reporting Standards.
Statement of recognized income
(consolidated, based on IFRS, for the year ended 31 December 2015, in HUF million)
Note 2015 2014
Interest Income
Loans 575,619 708,873
Placements with other banks 114,025 94,941
Securities available-for-sale 31,063 41,969
Securities held-to-maturity 46,619 39,934
Amounts due from banks and balances with the National Banks 27,496 16,498
Other 7,606 7,015
Total Interest Income 802,428 909,230
Interest Expense
Amounts due to banks, the Hungarian Government,
deposits from the National Banks and other banks
116,713 100,615
Deposits from customers 108,023 138,179
Liabilities from issued securities 6,786 13,826
Subordinated bonds and loans 13,633 13,883
Other 6,843 6,630
Total Interest Expense 251,998 273,133
NET INTEREST INCOME 550,430 636,097
Provision for impairment on loan and placement losses 5, 8, 23 318,683 446,830
NET INTEREST INCOME AFTER PROVISION FOR
IMPAIRMENT ON LOAN AND PLACEMENT LOSSES
231,747 189,267
Income from fees and commissions 24 257,431 265,392
Expense from fees and commissions 24 43,559 49,736
Net profi t from fees and commissions 213,872 215,656
Foreign exchange gains, net 116,682 156,918
Gains on securities, net 11,616 6,911
Dividend income 3,345 4,824
Provision on securities available-for-sale and held-to maturity (15) (297)
Other operating income 25 22,973 14,379
Other operating expense 25 (74,680) (232,609)
from this: release of provision/(provision) on contingent liabilities due
to regulations related to customer loans
25 196,574 (194,798)
Net operating gain/(loss) 79,921 (49,874)
Personnel expenses 25 187,806 206,335
Depreciation and amortization 11 45,463 43,722
Goodwill impairment 11 – 22,225
Other administrative expenses 25 232,247 236,410
Other administrative expenses 465,516 508,692
PROFIT/(LOSS) BEFORE INCOME TAX 60,024 (153,643)
Income tax 26 3,147 51,385
NET PROFIT/(LOSS) FOR THE YEAR 63,171 (102,258)
From this, attributable to:
Non-controlling interest (412) (273)
Owners of the company 63,583 (101,985)
Consolidated earnings per share (in HUF)
Basic 38 242 (382)
Diluted 38 242 (382)
IFRS consolidated fi nancial statements
78 OTP Bank Annual Report 2015
Statement of cash-fl ows
(consolidated, based on IFRS, for the year ended 31 December 2015, in HUF million)
OPERATING ACTIVITIES Note 2015 2014
Profit/(Loss) before income tax 60,024 (153,643)
Dividend income (3,345) (4,824)
Goodwill impairment 11 – 22,225
Depreciation and amortization 11 45,463 43,722
Provision for impairment on securities 7, 10 15 297
Provision for impairment on loan and placement losses 5, 8, 23 318,683 446,830
Provision for impairment on investments 9 1,094 1,244
Provision for impairment on other assets 12 6,696 5,066
Provision on assets subject to operating leases 12 350 1,048
Provision on investment properties 101 3,612
(Release of provision)/Provision for impairment on off-balance sheet
commitments and contingent liabilities
17 (146,360) 195,310
Share-based payment 2, 29 3,810 4,393
Change of actuarial losses related to employee benefits (171) (6)
Unrealized losses on fair value change of securities held for trading (12,098) (2,907)
Unrealized gains/(losses) on fair value change of derivative financial instruments 7,793 (33,140)
1HWFKDQJHVLQDVVHWVDQGOLDELOLWLHVLQRSHUDWLQJDFWLYLWLHV
Changes in financial assets at fair value through profit or loss (5,238) 250,821
Net decrease/(increase) in loans, net of allowance for loan losses 40,677 (48,611)
(Increase)/Decrease in other assets before provisions for impairment (739) 20,557
Decrease/(Increase) in assets subject to operating lease before
provisions for impairment
1,248 (24,442)
Increase in investment properties before provision for impairment (2,134) (27,034)
Net increase in deposits from customers 311,102 806,872
Increase/(Decrease) in other liabilities 24,613 (26,908)
Net increase in compulsory reserves at the National Banks (147,360) (41,130)
Income tax paid (14,676) (20,571)
Net Cash Provided by Operating Activities 489,548 1,418,781
Interest received 803,868 911,671
Interest paid (242,622) (258,929)
INVESTING ACTIVITIES
Net increase in placement with other banks before allowance for placements losses (19,556) (7,537)
Purchase of securities available-for-sale (842,886) (15,402,966)
Proceeds from sale of securities available-for-sale 373,078 16,213,064
Net decrease/(increase) in investments in associates 11,832 (2,185)
Net decrease in investments in other companies 427 1,397
Dividend income 3,345 4,824
Increase in securities held-to-maturity (1,036,805) (156,594)
Decrease in securities held-to-maturity 822,634 31,094
Additions to property, equipment and intangible assets (50,376) 11,526
Disposals of property, equipment and intangible assets 21,107 12,455
Net decrease/(increase) in advances for investments included in other assets 28 (27)
Net Cash (Used in)/Provided by Investing Activities (717,172) 705,051
FINANCING ACTIVITIES
Net decrease in amounts due to banks, the Hungarian Government,
deposits from the National Banks and other banks
(174,964) (75,938)
Cash received from issuance of securities 60,944 56,165
Cash used for redemption of issued securities (88,652) (234,299)
(Decrease)/Increase in subordinated bonds and loans (47,184) 14,806
Decrease in non-controlling interest (698) (1,418)
Payments to ICES holders 20 (3,928) (4,002)
Increase in Treasury shares 24,641 27,180
Decrease in Treasury shares (34,093) (31,430)
Dividend paid (40,473) (40,594)
Net Cash Used in Financing Activities (304,407) (289,530)
Net (decrease)/increase in cash and cash equivalents (532,031) 1,834,302
Cash and cash equivalents at the beginning of the period 2,003,324 275,947
Foreign currency translation (44,001) (106,925)
Cash and cash equivalents at the end of the period 1,427,292 2,003,324
Analysis of cash and cash equivalents
Cash, amounts due from banks and balances with the National Banks 2,310,313 539,125
Net cash outfl ow due to acquisition (2,681) –
Compulsory reserve established by the National Banks (304,308) (263,178)
Cash and cash equivalents at the beginning of the period 2.003.324 275.947
Cash, amounts due from banks and balances with the National Banks 4 1,874,306 2,310,313
Net cash infl ow/(outfl ow) due to acquisition 31 4,654 (2,681)
Compulsory reserve established by the National Banks 4 (451,668) (304,308)
Cash and cash equivalents at the end of the period 1,427,292 2,003,324
The accompanying notes to consolidated fi nancial statements on pages 80 to 159 form an integral part of these Consolidated Financial
Statements prepared in accordance with International Financial Reporting Standards.
79
Statement of changes in shareholders’ equity
(consolidated, based on IFRS, for the year ended 31 December 2015, in HUF million)
Note Share
capital
Capital
reserve
Share–based
Payment
reserve
Retained
earnings and
reserves
Put
option
reserve
Treasury
shares
*
Non–
controlling
interest
Total
Balance as at 1 January 2014 28,000 52 16,504 1,571,076 (55,468) (55,599) 4,767 1,509,332
Net profit for the year – – – (101,985) – – (273) (102,258)
Other Comprehensive Income – – – (97,881) – – (1,145) (99,026)
Share–based payment 29 – – 4,393 – – – – 4,393
Dividend for the year 2013 – – – (40,600) – – – (40,600)
Sale of Treasury shares 21 – – – – – 27,180 – 27,180
Treasury shares
– loss on sale – – – (3,908) – – – (3,908)
– acquisition 21 – – – – – (27,522) – (27,522)
Payments to ICES holders 20 – – – (3,425) – – – (3,425)
Balance as at 31 December 2014 28,000 52 20,897 1,323,277 (55,468) (55,941) 3,349 1,264,166
Net profit for the year – – – 63,583 – – (412) 63,171
Other Comprehensive Income – – – (44,001) – – (286) (44,287)
Share–based payment 29 – – 3,810 – – – – 3,810
Dividend for the year 2014 – – – (40,600) – – – (40,600)
Sale of Treasury shares 21 – – – – – 24,641 – 24,641
Treasury shares
– loss on sale – – – (7,372) – – – (7,372)
– acquisition 21 – – – – – (26,721) – (26,721)
Payments to ICES holders 20 – – – (3,149) – – – (3,149)
Balance as at 31 December 2015 28,000 52 24,707 1,291,738 (55,468) (58,021) 2,651 1,233,659
The accompanying notes to consolidated fi nancial statements on pages 80 to 159 form an integral part of these Consolidated Financial
Statements prepared in accordance with International Financial Reporting Standards.
IFRS consolidated fi nancial statements
* See Note 17.
80 OTP Bank Annual Report 2015
The Bank and its subsidiaries (“Entities of the
Group“, together the “Group”) provide a full range
of commercial banking services through a wide
1.2 Base of Accounting
The Entities of the Group maintain their
accounting records and prepare its statutory
accounts in accordance with the commercial,
banking and fi scal regulations prevailing in
Hungary and in case of foreign subsidiaries in
accordance with the local commercial, banking
and fi scal regulations.
network of 1,400 branches. The Group has operat-
ions in Hungary, Bulgaria, Russia, Ukraine, Croatia,
Romania, Slovakia, Serbia and Montenegro.
The Group’s presentation currency is the
Hungarian Forint (“HUF”).
Due to the fact that the Bank is listed on
international and national stock exchanges,
the Bank is obliged to present its fi nancial
position in accordance with International
Financial Reporting Standards (“IFRS”) as
adopted by the European Union (the “EU”).
2015 2014
The structure of the Share capital by shareholders:
Domestic and foreign private and institutional investors 97% 97%
Employees 2% 2%
Treasury shares 1% 1%
Total 100% 100%
2015 2014
The number of employees at the Group:
The number of employees at the Group 38,203 35,919
The average number of employees at the Group 38,114 35,796
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2015
NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL
STATEMENTS
1.1 General information
OTP Bank Plc. (the “Bank” or “OTP”) was
established on 31 December 1990, when the
previously State-owned company was
transformed into a public liability company.
The Bank’s registered o ce address is
16 Nádor Street, Budapest 1051.
In 1995, the shares of the Bank were listed
on the Budapest and the Luxembourg Stock
Exchanges and were also listed on the SEAQ
board on the London Stock Exchange and
PORTAL in the USA.
These Consolidated Financial Statements
were approved by the Board of Directors and
authorised for issue on 18 March 2016.
81
Certain adjustments have been made to the
entities’ statutory accounts in order to present
the Consolidated Financial Position and
Statement of Recognized and Comprehensive
Income of the Bank in accordance with all
standards and interpretations approved by
the International Accounting Standards Board
(“IASB”).
The Consolidated Financial Statements have
been prepared in accordance with IFRS
as adopted by the EU. IFRS as adopted by
the EU do not currently di er from IFRS as
issued by the IASB, except for portfolio hedge
accounting under IAS 39 Financial Instruments:
Recognition and Measurement (“IAS 39”) which
has not been approved by the EU. As the Group
does not apply portfolio hedge accounting under
IAS 39, there would be no impact on these
Consolidated Financial Statements, had it been
approved by the EU before the preparation of
these fi nancial statement.
1.2.1 The e ect of adopting new
and revised International Financial
Reporting Standards e ective from
1 January 2015
The following standards, amendments to the
existing standards and interpretations issued by
the IASB and adopted by the EU are e ective for
the current period:
ş $PHQGPHQWVWRYDULRXVVWDQGDUGV
“Improvements to IFRSs (cycle 2011–2013)”
resulting from the annual improvement
project of IFRS (IFRS 3, IFRS 13 and IAS
40) primarily with a view to removing
inconsistencies and clarifying wording –
adopted by the EU on 18 December 2014
(amendments are to be applied for annual
periods beginning on or after 1 January
2015),
ş ,)5,&ŕ/HYLHVŖDGRSWHGE\WKH(8RQ
13 June 2014 (e ective for annual periods
beginning on or after 17 June 2014).
The adoption of these amendments to
the existing standards and interpretations
has not led to any changes in the Group’s
accounting policies.
1.2.2 New and revised Standards
and Interpretations issued by IASB
and adopted by the EU but not yet
e ective
At the date of authorization of these fi nancial
statements, the following standards,
amendments to the existing standards and
interpretations issued by IASB and adopted by
the EU were in issue but not yet e ective:
ş $PHQGPHQWVWR,)56ŕ-RLQW
Arrangements” – Accounting for Acquisitions
of Interests in Joint Operations – adopted by
the EU on 24 November 2015 (e ective for
annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,$6ŕ3UHVHQWDWLRQRI
Financial Statements” – Disclosure Initiative –
adopted by the EU on 18 December 2015
(e ective for annual periods beginning on or
after 1 January 2016),
ş $PHQGPHQWVWR,$6ŕ3URSHUW\3ODQWDQG
Equipment” and IAS 38 “Intangible Assets”
– Clarifi cation of Acceptable Methods of
Depreciation and Amortisation – adopted by
the EU on 2 December 2015 (e ective for
annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,$6ŕ3URSHUW\3ODQW
and Equipment” and IAS 41 “Agriculture”
– Agriculture: Bearer Plants – adopted by
the EU on 23 November 2015 (e ective for
annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,$6ŕ(PSOR\HH%HQHĬWVŖ
– Defi ned Benefi t Plans: Employee Con-
tributions – adopted by the EU on 17 Decem-
ber 2014 (e ective for annual periods
beginning on or after 1 February 2015),
ş $PHQGPHQWVWR,$6ŕ6HSDUDWH)LQDQFLDO
Statements” – Equity Method in Separate
Financial Statements – adopted by
the EU on 18 December 2015 (e ective
for annual periods beginning on or after
1 January 2016),
IFRS consolidated fi nancial statements
82 OTP Bank Annual Report 2015
ş $PHQGPHQWVWRYDULRXVVWDQGDUGV
“Improvements to IFRSs (cycle 2010–2012)”
resulting from the annual improvement
project of IFRS (IFRS 2, IFRS 3, IFRS 8, IFRS
13, IAS 16, IAS 24 and IAS 38) primarily
with a view to removing inconsistencies and
clarifying wording – adopted by the EU on
17 December 2014 (amendments are to be
applied for annual periods beginning on or
after 1 February 2015),
ş $PHQGPHQWVWRYDULRXVVWDQGDUGV
“Improvements to IFRSs (cycle 2012–2014)”
resulting from the annual improvement
project of IFRS (IFRS 5, IFRS 7, IAS 19 and
IAS 34) primarily with a view to removing
inconsistencies and clarifying wording
– adopted by the EU on 15 December 2015
(amendments are to be applied for
annual periods beginning on or after
1 January 2016).
1.2.3 Standards and Interpretations
issued by IASB, but not yet adopted
by the EU
ş ,)56ŕ)LQDQFLDO,QVWUXPHQWVŖHıHFWLYH
for annual periods beginning on or after
1 January 2018),
ş ,)56ŕ5HJXODWRU\'HIHUUDO$FFRXQWVŖ
(e ective for annual periods beginning on
or after 1 January 2016) – the European
Commission has decided not to launch
the endorsement process of this interim
standard and to wait for the fi nal standard,
ş ,)56ŕ5HYHQXHIURP&RQWUDFWVZLWK
Customers” and further amendments
(e ective for annual periods beginning
on or after 1 January 2018),
ş ,)56ŕ/HDVHVŖHıHFWLYHIRUDQQXDOSHULRGV
beginning on or after 1 January 2019),
ş $PHQGPHQWVWR,)56ŕ&RQVROLGDWHG
Financial Statements”, IFRS 12 “Disclosure
of Interests in Other Entities” and IAS
28 “Investments in Associates and Joint
Ventures” – Investment Entities: Applying
the Consolidation Exception (e ective for
annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,)56ŕ&RQVROLGDWHG
Financial Statements” and IAS 28
“Investments in Associates and Joint
Ventures” – Sale or Contribution of Assets
between an Investor and its Associate or
Joint Venture and further amendments
(e ective date was deferred indefi nitely until
the research project on the equity method
has been concluded),
ş $PHQGPHQWVWR,$6ŕ,QFRPH7D[HVŖ
– Recognition of Deferred Tax Assets
for Unrealised Losses (e ective for
annual periods beginning on or after
1 January 2017).
Hedge accounting regarding the portfolio of
fi nancial assets and liabilities, whose principles
have not been adopted by the EU, is still
unregulated.
According to the Group’s estimates, application
of hedge accounting for the portfolio of
fi nancial assets or liabilities pursuant to
IAS 39: “Financial Instruments: Recognition and
Measurement”, would not signifi cantly impact
the fi nancial statements, if applied as at the
balance sheet date.
The adoption of the above presented
Amendments to the existing Standards, new
Standards and Interpretations would have no
signifi cant impact on the Consolidated Financial
Statements except of the application of IFRS
9 and IFRS 16 which might have signifi cant
impact on the Group Consolidated Financial
Statements, the Group is planning to assess the
impact in 2016.
83
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IFRS consolidated fi nancial statements
Signifi cant accounting policies applied in the
preparation of the accompanying Consolidated
Financial Statements are summarized below:
2.1 Basis of Presentation
These Consolidated Financial Statements
have been prepared under the historical
cost convention with the exception of certain
fi nancial instruments, which are recorded at
fair value. Revenues and expenses are recorded
in the period in which they are earned or
incurred.
The presentation of Consolidated Financial
Statements in conformity with IFRS requires
the Management of the Group to make
estimates and assumptions that a ect the
reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as
of the date of the fi nancial statements and their
reported amounts of revenues and expenses
during the reporting period. Actual results could
di er from those estimates.
Future changes in economic conditions,
business strategies, regulatory requirements,
accounting rules and other factors could result
in a change in estimates that could have a
material impact on future fi nancial statements.
2.2 Foreign currency translation
In preparing the fi nancial statements of
each individual group entity, transactions in
currencies other than the entity’s presentation
currency are translated into HUF are recognized
at the rates of exchange prevailing at the
dates of the transactions. At the end of each
reporting period, monetary items denominated
in foreign currencies are retranslated at the
exchange rates quoted by the National Bank
of Hungary (“NBH”), or if there is no o cial
rate, at exchange rates quoted by OTP as at the
date of the Consolidated Financial Statements.
Non-monetary items carried at fair value
that are denominated in foreign currencies
are retranslated at the rates prevailing at the
date when the fair value was determined.
Non-monetary items that are measured in
terms of historical cost in a foreign currency
are not retranslated.
Exchange di erences on monetary items are
recognized in profi t or loss in the period in
which they arise except for:
ş H[FKDQJHGLıHUHQFHVRQIRUHLJQFXUUHQF\
borrowings relating to assets under
construction for future productive use, which
are included in the cost of those assets
when they are regarded as an adjustment
to interest costs on those foreign currency
borrowings;
ş H[FKDQJHGLıHUHQFHVRQWUDQVDFWLRQV
entered into in order to hedge certain foreign
currency risks (see note 2.7 below for
hedging accounting policies); and
ş H[FKDQJHGLıHUHQFHVRQPRQHWDU\LWHPV
receivable from or payable to a foreign
operation for which settlement is neither
planned nor likely to occur (therefore
forming part of the net investment in the
foreign operation), which are recognized
initially in Other Comprehensive Income and
reclassifi ed from equity to profi t or loss on
repayment of the monetary items.
For the purposes of presenting Consolidated
Financial Statements, the assets and liabilities
of the Group’s foreign operations are translated
into HUF using exchange rates prevailing at the
end of each reporting period. Income and expense
items are translated at the average exchange
rates for the period, unless exchange rates
fl uctuate signifi cantly during that period, in which
case the exchange rates at the dates of the trans-
actions are used. Exchange di erences arising,
if any, are recognized in Other Comprehensive
Income and accumulated in equity (attributed to
non-controlling interests as appropriate).
On the disposal of a foreign operation
(i.e. a disposal of the Group’s entire interest
84 OTP Bank Annual Report 2015
in a foreign operation, or a disposal involving
loss of control over a subsidiary that includes
a foreign operation, a disposal involving loss
of joint control over a jointly controlled entity
that includes a foreign operation, or a disposal
involving loss of signifi cant infl uence over an
associate that includes a foreign operation), all
of the exchange di erences accumulated in
equity in respect of that operation attributable
to the owners of the Group are reclassifi ed to
profi t or loss.
In addition, in relation to a partial disposal
of a subsidiary that does not result in the
Group losing control over the subsidiary, the
proportionate share of accumulated exchange
di erences are re-attributed to non-controlling
interests and are not recognized in profi t or
loss. For all other partial disposals (i.e. partial
disposals of associates or jointly controlled
entities that do not result in the Group losing
signifi cant infl uence or joint control), the pro-
portionate share of the accumulated exchange
di erences is reclassifi ed to profi t or loss.
Goodwill and fair value adjustments on
identifi able assets and liabilities acquired
arising on the acquisition of a foreign operation
are treated as assets and liabilities of the
foreign operation and translated at the rate
of exchange prevailing at the end of each
reporting period. Exchange di erences arising
are recognized in Other Comprehensive Income
and accumulated in equity.
2.3 Principles of consolidation
Included in these Consolidated Financial
Statements are the accounts of those
subsidiaries in which the Bank exercises
control. The list of the major fully consolidated
subsidiaries, the percentage of issued capital
owned by the Bank and the description of
their activities is provided in Note 32.
However, certain subsidiaries in which the
Bank holds a signifi cant interest have not been
consolidated because the e ect of consolidating
such companies is not material to the
Consolidated Financial Statements as a whole
(see Note 2.13).
As the ultimate parent, the Bank is preparing
consolidated fi nancial statement of the Group.
2.4 Accounting for acquisitions
Business combinations are accounted for using
purchase method of accounting. Any goodwill
arising on acquisition is recognized in the
Consolidated Statement of Financial Position
and accounted for as indicated below.
The acquisition date is the date on which
the acquirer e ectively obtains control over
the acquiree. Before this date, it should be
presented as Advance for investments within
Other assets.
Goodwill, which represents the residual cost of
the acquisition after obtaining the control over
the acquiree in the fair value of the identifi able
assets, liabilities and contingent liabilities
acquired, is held as an intangible asset
and recorded at cost less any accumulated
impairment losses in the Consolidated Financial
Statements.
If the Group loses control of a subsidiary,
derecognizes the assets (including any
goodwill) and liabilities of the subsidiary at their
carrying amounts at the date when control is
lost and recognizes any di erence as a gain
or loss on the sale attributable to the parent in
Statement of Recognized Income.
Goodwill acquired in a business combination
is tested for impairment annually or more
frequently if events or changes in circum-
stances indicate. The goodwill is allocated to
the cost generating units that are expected to
benefi t from the synergies of the combinations.
The Group calculates the fair value based on
discounted cash-fl ow model. The 5 year period
explicit cash-fl ow model serves as a basis for
the impairment test by which the Group defi nes
the impairment need on goodwill based on
the strategic factors and fi nancial data of its
cash-generating units.
The Group, in its strategic plan, has taken into
consideration the e ects of the present global
85
economic situation, the cautious recovery of
economic situation and outlook, the associated
risks and their possible e ect on the fi nancial
sector as well as the current and expected
availability of wholesale funding.
Negative goodwill (gain from bargain purchase),
when the interest of the acquirer in the net fair
value of the acquired identifi able net assets
exceeds the cost of the business combination,
is recognized immediately in the Consolidated
Statement of Recognized Income as other
income.
2.5 Securities held-to-maturity
Investments in securities, traded in active
market (with fi xed or determinable cash-fl ows)
are accounted for on a settlement date basis
and are initially measured at fair value.
At subsequent reporting dates, securities that
the Group has the expressed intention and
ability to hold to maturity are measured at
amortised cost, less any impairment losses
recognized to refl ect irrecoverable amounts.
The annual amortisation of any discount
or premium on the acquisition of a
held-to-maturity security is aggregated with
other investment income receivable over the
term of the investment so that the revenue
recognized in each period represents a constant
yield on the investment.
Such securities comprise mainly securities
issued by the Hungarian and foreign
Government, discounted Treasury bills and
corporate bonds.
2.6 Financial assets at fair value
through profi t or loss
2.6.1 Securities held for trading
Investments in securities are accounted for
on a settlement date basis and are initially
measured at fair value. Securities held for
trading are measured at subsequent reporting
dates at fair value. Unrealized gains and losses
on held for trading securities are recognized in
profi t or loss and included in the Consolidated
Statement of Recognized Income for the period.
The Group mainly holds these securities to
obtain short-term gains consequently realised
and unrealised gains and losses are recognized
in the net operating income Such securities
consist of corporate shares, Hungarian and
foreign government bonds, discounted and
interest bearing treasury bills, mortgage bonds
and other securities.
2.6.2 Derivative fi nancial
instruments
In the normal course of business, the Group
is a party to contracts for derivative fi nancial
instruments, which represent a very low initial
investment compared to the notional value
of the contract and their value depends on
value of underlying asset and are settled in
the future. The derivative fi nancial instruments
used include interest rate forward or swap
agreements and currency forward or swap
agreements and options. These fi nancial
instruments are used by the Group both for
trading purposes and to hedge interest rate
risk and currency exposures associated with its
transactions in the fi nancial markets.
Derivative fi nancial instruments are accounted
for on a trade date basis and are initially
measured at fair value and at subsequent
reporting dates also at fair value. Fair values
are obtained from quoted market prices,
discounted cash-fl ow models and option pricing
models as appropriate. The Group adopts multi
curve valuation approach for calculating the net
present value of future cash-fl ows – based on
di erent curves used for determining forward
rates and used for discounting purposes. It
shows the best estimation of such derivative
deals that are collateralised as the Group has
almost all of its open derivative transactions
collateralised.
Changes in the fair value of derivative fi nancial
instruments that do not qualify for hedge
IFRS consolidated fi nancial statements
86 OTP Bank Annual Report 2015
accounting are recognized in profi t or loss and
are included in the Consolidated Statement
of Recognized Income for the period. Each
derivative deal is determined as asset when fair
value is positive and as liability when fair value
is negative.
Certain derivative transactions, while providing
e ective economic hedges under the risk
management policy of the Group, do not qualify
for hedge accounting under the specifi c rules of
IAS 39 and are therefore treated as derivatives
held for trading with fair value gains and losses
charged directly to the Consolidated Statement
of Recognized Income.
Foreign currency contracts
Foreign currency contracts are agreements
to exchange specifi c amounts of currencies
at a specifi ed rate of exchange, at a spot date
(settlement occurs two days after the trade
date) or at a forward date (settlement occurs
more than two days after the trade date).
The notional amount of these spot contracts
does not represent the actual market or credit
risk associated with these contracts.
Foreign currency contracts are used by the
Group for risk management and trading
purposes. The risk management foreign
currency contracts of the Group were used to
hedge the exchange rate fl uctuations of loans
and deposits to credit institutions denominated
in foreign currency.
Foreign exchange swaps and
interest rate swaps
The Group enters into foreign exchange swap
and interest rate swap transactions. The swap
transaction is a complex agreement concerning
the swap of certain fi nancial instruments, which
usually consists of a prompt and one or more
forward contracts.
Interest rate swaps oblige two parties to
exchange one or more payments calculated
with reference to fi xed or periodically reset
rates of interest applied to a specifi c notional
principal amount (the base of the interest
calculation). Notional principal is the amount
upon which interest rates are applied to
determine the payment streams under interest
rate swaps. Such notional principal amounts
often are used to express the volume of these
transactions but are not actually exchanged
between the counterparties.
The interest rate swaps are used by the Group
for risk management and trading purposes.
Cross-currency interest rate swaps
The Bank enters into cross-currency interest
rate swap (CCIRS) transactions which have
special attributes, i.e. the parties exchange the
notional amount at the beginning and also at
the maturity of the transaction. A special type
of these deals is the mark-to-market CCIRS
agreements. At this kind of deals the parties
– in accordance with the foreign exchange
prices – revalue the notional amount during
lifetime of the transaction.
Equity and commodity swaps
Equity swaps obligate two parties to exchange
more payments calculated with reference
periodically reset rates of interest and
performance of indexes. A specifi c notional
principal amount is the base of the interest
calculation. The payment of index return is
calculated on the basis of current market price
compared to the previous market price. In case
of commodity swaps payments are calculated
on the basis of the strike price of a predefi ned
commodity compared to its average market
price in a period.
Forward rate agreements (FRA)
A forward rate agreement is an agreement to
settle amounts at a specifi ed future date based
on the di erence between an interest rate
index and an agreed upon fi xed rate. Market
risk arises from changes in the market value
of contractual positions caused by movements
in interest rates.
The Group limits its exposure to market risk by
entering into generally matching or o setting
positions and by establishing and monitoring
limits on unmatched positions. Credit risk
is managed through approval procedures
87
that establish specifi c limits for individual
counterparties. The Group’s forward rate
agreements were transacted for management
of interest rate exposures and have been
accounted for at mark-to-market fair value.
Foreign exchange options
A foreign exchange option is a derivative
fi nancial instrument that gives the owner the
right to exchange money denominated in one
currency into another currency at a pre-agreed
exchange rate at a specifi ed future date.
The transaction, for a fee, guarantees a
worst-case exchange rate for the futures
purchase of one currency for another. These
options protect against unfavourable currency
movements while preserving the ability to
participate in favourable movements.
2.7 Derivative fi nancial instruments
designated as a fair-value
or cash-fl ow hedge
Changes in the fair value of derivatives that
are designated and qualify as fair value
hedges and that prove to be highly e ective
in relation to the hedged risk, are recorded
in the Consolidated Statement of Recognized
Income along with the corresponding change
in fair value of the hedged asset or liability that
is attributable to the specifi c hedged risk.
The ine ective element of the hedge is charged
directly to the Consolidated Statement of
Recognized Income.
The conditions of hedge accounting applied
by the Bank are the following: formally
designed as hedge, proper hedge docu-
mentation is prepared, e ectiveness test
is performed and based on it the hedge is
qualifi ed as e ective.
Changes in fair value of derivatives that are
designated and qualify as cash-fl ow hedges and
that prove to be highly e ective in relation to the
hedged risk are recognized as reserve in other
comprehensive income. Amounts deferred
in equity are transferred to the Consolidated
Statement of Recognized Income and classifi ed
as revenue or expense in the periods during
which the hedged assets and liabilities e ect
the Consolidated Statement of Recognized
Income for the period. The ine ective element
of the hedge is charged directly to the
Consolidated Statement of Recognized Income.
The Group terminates the hedge accounting
if the hedging instrument expires or is sold,
terminated or exercised, or the hedge no longer
meets the criteria for hedge accounting or the
Group revokes the designation.
2.8 O setting
Financial assets and liabilities may be
o set and the net amount is reported in the
Consolidated Statement of Financial Position
when the Group has a legally enforceable right
to set o the recognized amounts and the
transactions are intended to be reported in the
Consolidated Statement of Financial Position
on a net basis. The Group does not o set any
fi nancial assets and fi nancial liabilities.
2.9 Embedded derivatives
Sometimes, a derivative may be a component
of a combined fi nancial instrument that
includes a host contract and a derivative
(the embedded derivative) e ecting cash-fl ows
or otherwise modifying the characteristics of
the host instrument. An embedded derivative
must be separated from the host instrument
and accounted for as a separate derivative if,
and only if:
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embedded derivative are not closely related
to the economic characteristics and risks of
the host contract;
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same terms as the embedded derivative
would meet the defi nition of a derivative as a
stand-alone instrument; and
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or is measured at fair value but changes
in fair value are recognized in Other
Comprehensive Income.
IFRS consolidated fi nancial statements
88 OTP Bank Annual Report 2015
2.10 Securities available-for-sale
Investments in securities are accounted
for on a settlement date basis and are
initially measured at fair value. Securities
available-for-sale are measured at subsequent
reporting dates at fair value. Unrealized gains
and losses on available-for-sale fi nancial
instruments are recognized directly in Other
Comprehensive Income, except for interest and
foreign exchange gains/losses on monetary
items, unless such available-for-sale security
is part of an e ective hedge. Such gains and
losses will be reported when realized in
Consolidated Statement of Recognized Income
for the applicable period.
Such securities consist of Hungarian and
foreign government bonds, corporate bonds,
discounted Treasury bills and other securities.
Other securities include shares in investment
funds, shares in non-fi nancing companies and
venture capital fund bonds.
The provision for impairment is calculated
based on discounted cash-fl ow methodology
for debt instruments and calculated based on
fair valuation on equity instruments, using the
expected future cash-fl ow and original e ective
interest rate if there is objective evidence of
impairment based on signifi cant or prolonged
decrease in fair value.
Securities available-for-sale are remeasured
at fair value based on quoted prices or
amounts derived from cash-fl ow models. In
circumstances where the quoted market prices
are not readily available, the fair value of debt
securities is estimated using the present value
of future cash-fl ows and the fair value of any
unquoted equity instruments are calculated
using the EPS ratio.
Those available-for-sale fi nancial assets that
do not have a quoted market price and whose
fair value cannot be reliably measured by
other models mentioned above, are measured
at cost, less provision for impairment, when
appropriate. This exception is related only
to equity instruments. Impairment on equity
available-for-sale securities is accounted only
if there is a signifi cant or prolonged decrease in
the market value. Impairment losses recognised
in profi t or loss for equity AFS securities is not
reversed through profi t or loss.
2.11 Loans, placements with other
banks and allowance for loan and
placement losses
Loans and placements with other banks are
accounted at amortized cost, stated at the
principal amounts outstanding (including
accrued interest), net of allowance for loan or
placement losses, respectively. Transaction fees
and charges should adjust the carrying amount
at initial recognition and be included in e ective
interest calculation. Loans and placements
with other banks are derecognised when the
contractual rights to the cash-fl ows expire or
they are transferred. Interest and amortised
cost are accounted using e ective interest rate
method.
When a borrower is unable to meet payments
as they fall due or, in the opinion of the
Management, there is an indication that a
borrower may be unable to meet payments as
they fall due, all unpaid interest is impaired.
According to IAS 39, initially fi nancial asset
shall be recognized at fair value which is
usually equal to transaction value of loans
and receivables. Initial fair value of loans and
receivables lent at interest below market
conditions is lower than their transaction
price. As a consequence the Bank is deferring
the di erence between the fair value at initial
recognition and the transaction price relating
to loans and receivables because input data
for measuring the fair values are not available
on observable markets.
The amount of allowance is the di erence
between the carrying amount and the
recoverable amount, being the present value
of the expected cash-fl ows, including amounts
recoverable from guarantees and collateral,
discounted at the original e ective interest rate.
89
Allowance for loan and placement losses with
other banks represent Management assessment
for potential losses in relation to these activities.
The allowances for loan and placement losses
are maintained to cover losses that have been
specifi cally identifi ed. Collective impairment
losses of portfolios of loans, for which no
objective evidence of impairment has been
identifi ed on an individual basis, are maintained
to reduce the carrying amount of the portfolios
of fi nancial assets with similar credit risk
characteristics to their estimated recoverable
amounts at the balance sheet date.
The expected cash-fl ows for portfolios of
similar assets are estimated based on historical
loss experience. Historical loss experience is
the basis for calculating the expected loss,
which is adjusted by the loss confi rmation
period, which represents the average time
lag between occurrence of a loss event and
confi rmation of the loss. This concept enables
recognition of those losses that have occurred
in the portfolio at the balance sheet date.
If the reason for provisioning is no longer
deemed appropriate, the redundant provi-
sioning charge is released into net operating
income. If, in a subsequent period, the amount
of the impairment loss decreases and the
decrease can be related objectively to an event
occurring after the impairment was recognised
(such as an improvement in the debtor’s credit
rating), the previously recognised impairment
loss shall be reversed by adjusting an
allowance account. The reversal shall not result
in a carrying amount of the fi nancial asset that
exceeds what the amortised cost would have
been had the impairment not been recognised
at the date the impairment is reversed.
Write-o s are generally recorded after
all reasonable restructuring or collection
activities have taken place and the possibility
of further recovery is considered to be remote.
The loan is written o against the related
account “Provision for impairment on loan
and placement losses” in the Consolidated
Statement of Recognized Income.
The Group applies partial or full write-o for loans
based on the defi nitions and prescriptions of
fi nancial instruments in accordance with IAS 39.
If the Group has no reasonable expectations re-
garding a fi nancial asset (loan) to be recovered,
it will be written o partially or fully at the time
of emergence. A loan will be written o if it is
overdue or was terminated by the Group.
The gross amount and impairment loss of the
loans shall be written o in the same amount to
the estimated maximum recovery amount while
the net carrying value remains unchanged.
Loan receivables legally demanded from clients
are equal to the former gross amount of the
loan before the partial write-o .
2.12 Sale and repurchase
agreements, security lending
Where debt or equity securities are sold
under a commitment to repurchase them
at a pre-determined price, they remain on
Statement of Financial Position and the
consideration received is recorded in Other
liabilities or Amounts due to banks, the
Hungarian Government, deposits from the
National Banks and other banks. Conversely,
debt or equity securities purchased under
a commitment to resell are not recognized
in the Statement of Financial Position and
the consideration paid is recorded either in
Placements with other banks or Deposits from
customers. Interest is accrued evenly over the
life of the repurchase agreement.
In the case of security lending transactions the
Group doesn’t recognize or derecognize the
securities because believes that the transferor
retains substantially all the risks and rewards
of the ownership of the securities. Only a
fi nancial liability or fi nancial receivable is
recognized for the consideration amount.
2.13 Associates and other
investments
Companies where the Bank has the ability to
exercise signifi cant infl uence are accounted
IFRS consolidated fi nancial statements
90 OTP Bank Annual Report 2015
for using the equity method. However, certain
associated companies in which the Bank holds
a signifi cant interest have not been accounted
for in accordance with the equity method
because the e ect of using the equity method
to account for such companies is not material
to the Consolidated Financial Statements as
a whole.
Unconsolidated subsidiaries and associated
companies that were not accounted for using
the equity method and other investments where
the Bank does not hold a signifi cant interest are
recorded according to IAS 39, when appropriate.
Gains and losses on the sale of investments
are determined on the basis of the specifi c
identifi cation of the cost of each investment.
2.14 Property and equipment,
Intangible assets
Property and equipment and Intangible
assets are stated at cost, less accumulated
depreciation and amortization and impairment,
if any. The depreciable amount (book value less
residual value) of the non-current assets must
be allocated over the useful lives.
Depreciation and amortization are computed
using the straight-line method over the
estimated useful lives of the assets based on
the following annual percentages:
Intangible assets
Software 3.33–50%
Property rights 5–50%
Property 1–33%
O ce equipment and vehicles 2–50%
Depreciation and amortization on Property
and equipment and Intangible assets
commence on the day such assets are placed
into service.
At each balance sheet date, the Group
reviews the carrying value of its Property and
equipment and Intangible assets to determine
if there is any indication that those assets
have su ered an impairment loss. If any such
indication exists, the recoverable amount of
the asset is estimated to determine the extent
(if any) of the impairment loss. Where it is not
possible to estimate the recoverable amount
of an individual asset, the Group estimates
the recoverable amount of the cash-generating
unit to which the asset belongs.
Where the carrying value of Property and
equipment and Intangible assets is greater than
the estimated recoverable amount,
it is impaired immediately to the estimated
recoverable amount.
The Group may conclude contracts for
purchasing property, equipment and intangible
assets, where the purchase price is settled
in foreign currency. By entering into such
agreements, fi rm commitment in foreign
currency due on a specifi ed future date arises
at the Group.
Reducing the foreign currency risk caused by
fi rm commitment, forward foreign currency
contracts may be concluded to ensure the
amount payable in foreign currency on a
specifi ed future date on one hand and to
eliminate the foreign currency risk arising until
settlement date of the contract on the other hand.
In the case of e ective hedge the realised
profi t or loss of hedging instrument is stated as
the part of the cost of the hedged asset as
it has arisen until recognising the asset and
it is tightly connecting to the purchasing.
2.15 Financial liabilities
The fi nancial liabilities are presented within
fi nancial liabilities at fair value through profi t
or loss or fi nancial liabilities measured at
amortized costs. In connection to the fi nancial
liabilities at fair value through profi t or loss,
the Group presents the amount of change in
their fair value originated from the changes of
market conditions and business environment.
Financial liabilities at fair value through profi t
or loss are either fi nancial liabilities held for
trading or they are designated upon initial
recognition as at fair value through profi t or
91
loss. In the case of fi nancial liabilities measured
at amortized cost fees and commissions related
to the origination of the fi nancial liability are
recognized through profi t or loss during the
maturity of the instrument. In certain cases the
Group repurchases a part of fi nancial liabilities
(mainly issued securities or subordinated
bonds) and the di erence between the carrying
amount of the fi nancial liability and the amount
paid for it is recognized in the net profi t or loss
for the period and included in other operating
income.
2.16 Leases
Leases are classifi ed as fi nance leases
whenever the terms of the lease transfer
substantially all the risks and rewards
of ownership to the lessee. All other leases
are classifi ed as operating leases.
The Group as a lessor
Amounts due from lessees under fi nance
leases are recorded as other receivables at the
amount of the net investment in the lease of
the Group. Finance lease income is allocated to
accounting periods so as to refl ect a constant
rate of return on the net investment outstanding
of the Group in respect of the leases. Direct
costs such as commissions are included in
the initial measurement of the fi nance lease
receivables.
Rental income from operating leases is
recognized on a straight-line basis over the
term of the relevant lease.
The Group as a lessee
Assets held under fi nance leases, which confer
rights and obligations similar to those attached
to owned assets, are capitalised at their fair
value and depreciated over the useful lives of
assets. The principal element of each future
lease obligation is recorded as a liability,
while the interest elements are charged to
the Consolidated Statement of Recognized
Income over the period of the leases to produce
a constant rate of charge on the balance of
principal payments outstanding.
Payments made under operating leases are
charged to the Consolidated Statement of
Recognized and Comprehensive Income on a
straight-line basis over the term of the lease.
When an operating lease is terminated before
the lease period has expired, any payment
required to be made to the lessor by way of
penalty is recognized as an expense in the
period in which termination takes place.
2.17 Investment properties
Investment properties of the Group are land,
buildings, part of buildings which held (as the
owner or as the lessee under a fi nance lease) to
earn rentals or for capital appreciation or both,
rather than for use in the production or supply
of services or for administrative purposes or
sale in the ordinary course of business. The
Group measures the investment properties at
amortized cost and according to the opinion
of the Management there isn’t signifi cant
di erence between the fair value and the
carrying value of the these properties.
2.18 Treasury shares
Treasury shares are shares which are
purchased on the stock exchange and the
over-the-counter market by the Bank and
its subsidiaries and are presented in the
Consolidated Financial Position at cost as a
deduction from Consolidated Shareholders’
Equity.
Gains and losses on the sale of treasury
shares are credited or charged directly to
shareholder’s equity. Derecognition of treasury
shares is based on the FIFO method.
2.19 Interest income and interest
expense
Interest income and expenses are recognized in
profi t or loss in the period to which they relate,
using the e ective interest rate method. Interest
from loans and deposits are accrued on a daily
IFRS consolidated fi nancial statements
92 OTP Bank Annual Report 2015
basis. Interest income and expenses include
relevant transaction costs and the amortisation
of any discount or premium between the
initial carrying amount of an interest-bearing
instrument and its amount at maturity
calculated on an e ective interest rate basis.
The Group recognizes interest income when
assumes that the interest associated with
the transaction will fl ow to the Group and the
amount of the revenue can be reasonably
measured. All interest income and expense
recognized are arising from loans, placements
with other banks, securities held for trading,
securities available-for-sale, securities
held-to-maturity and amounts due to banks,
deposits from customers, liabilities from
issued securities, subordinated bond and loans
are presented under these lines of fi nancial
statements.
2.20 Fees and Commissions
Fees and commissions are recognized using
the e ective interest method referring to
provisions of IAS 39, when they relate and have
to be included in amortized cost model. Certain
fees and commissions that are not involved in
the amortized cost model are recognized in the
Consolidated Statement of Recognized Income
on an accrual basis based on IAS 18.
2.21 Dividend income
The Group recognizes dividend income in the
Consolidated Financial Statements when its
right to receive payment is established.
2.22 Income tax
The annual taxation charge is based on the tax
payable under fi scal regulations prevailing in
the country where the company is incorporated,
adjusted for deferred taxation.
Deferred taxation is accounted for using the
balance sheet liability method in respect of
temporary di erences between the tax bases
of assets and liabilities and their carrying value
for fi nancial reporting purposes, measured
at the tax rates that apply to the future period
when the asset is expected to be realized or the
liability is settled.
Deferred tax assets are recognized by the
Group for the amounts of income taxes that
are recoverable in future periods in respect of
deductible temporary di erences as well as
the carryforward of unused tax losses and the
carryforward of unused tax credits.
2.23 O -balance sheet
commitments and contingent
liabilities
In the ordinary course of its business, the Group
enters into o -balance sheet commitments
such as guarantees, letters of credit,
commitments to extend credit and transactions
with fi nancial instruments. The provision for
impairment on o -balance sheet commitments
and contingent liabilities is maintained at a level
adequate to absorb future cash outfl ows which
are probable and relate to present obligations.
Management determines the adequacy of the
allowance based upon reviews of individual
items, recent loss experience, current economic
conditions, the risk characteristics of the
various categories of transactions and other
pertinent factors.
The Group recognizes provision when it has a
present obligation as a result of a past event;
it is probable that an outfl ow of resources
embodying economic benefi ts will be required
to settle the obligation; and a reliable estimate
can be made of the obligation.
2.24 Share-based payment
and employee benefi t
The Bank has applied the requirements of IFRS
2 Share-based Payment.
93IFRS consolidated fi nancial statements
The Bank issues equity-settled share-based
payment to certain employees. Equity-settled
share-based payment is measured at fair value
at the grant date. The fair value determined at
the grant date of the equity-settled share-based
payment is expensed on a straight-line basis
over the year, based on the Bank’s estimate of
shares that will eventually vest. Share-based
payment is recorded in Consolidated Statement
of Recognized Income as Personnel expenses.
Fair value is measured by use of a binomial
model. The expected life used in the model has
been adjusted, based on Management’s best
estimate, for the e ects of non-transferability,
exercise restrictions, and behavioural
considerations. The Group has applied the
requirement of IAS 19 Employee Benefi ts.
IAS 19 requires to recognise employee benefi ts
to be paid as a liability and as an expense in the
Consolidated Financial Statements.
2.25 Consolidated Statement
of Cash-fl ows
For the purposes of reporting Consolidated
Statement of Cash-fl ows, cash and cash
equivalents include cash, due from banks and
balances with the National Banks, excluding the
compulsory reserve established by the National
Banks. Consolidated cash-fl ows from hedging
activities are classifi ed in the same category
as the item being hedged. The unrealized gains
and losses from the translation of monetary
items to the closing foreign exchange rates and
unrealized gains and losses from derivative
fi nancial instruments are presented net in the
statement of cash-fl ows for the monetary items
which were being revaluated.
2.26 Segment reporting
IFRS 8 Operating Segments requires operating
segments to be identifi ed on the basis of
internal reports about components of the
Group that are regularly reviewed by the chief
operating decision maker in order to allocate
resources to the segments and to assess their
performance.
Based on the above, the segments identifi ed by
the Group are the business and geographical
segments.
The Group’s operating segments under IFRS
8 are therefore as follows: OTP Core Hungary,
Russia, Ukraine, Bulgaria, Romania, Serbia,
Croatia, Slovakia, Montenegro, Leasing
subsidiaries, Asset Management subsidiaries,
Other subsidiaries, Corporate Center.
2.27 Comparative fi gures
There were no changes in prior period data
due to either prior period error or change in
accounting policies. In some notes certain
amounts in the Consolidated Financial
Statements for the year ended 31 December
2014 have been restructured within the
particular note to conform with the current
year presentation and these amounts are not
signifi cant.
2.28 Government measures related
to customer loan contracts
Based on the Act XXXVIII of 2014 on “Settlement
of certain issues concerning the Uniformity
Decision of the Supreme Court related to
customer loan agreements provided by
fi nancial institutions” (“Curia Law”) and the
Act XL of 2014 on “Rules of the settlement and
certain other issues put in Act XXXVIII of 2014
on Settlement of certain issues concerning
the Uniformity Decision of the Supreme Court
related to customer loan agreements provided
by fi nancial institutions” (“Act on Settlement”),
the Group met its settlement obligation as
prescribed by law related to foreign currency
loans.
a) Act on Settlement
Based on these regulations expense in the
amount of HUF 179.6 billion was recognised in
2014 as amounts charged to clients related to
customer loans contracts were assumed unfair.
94 OTP Bank Annual Report 2015
The provision related to the settlement was
released during the year of 2015.
b) Act on Conversion mortgage backed loans
into HUF
Based on the Act LXXVII of 2014 on “Settlement
of certain issues concerning the modifi cation
of the currency and interest conditions related
to customer loan agreements” the Group
completed the conversion of foreign currency
customer mortgage loans and relating amounts
(accrued interests, provision for impairment)
into HUF.
c) Act on Conversion customer loans into HUF
On 2 October 2015 the Hungarian Government
accepted the Act CXLV of 2015 on “Resolving
issues concerning the HUF conversion of
receivables from certain customer loan
agreements”. Accordingly, the applicable
exchange rates were the spot market rates on
19 August 2015 (o cial exchange rates of the
NBH on 19 August 2015 were 287.20 HUF/CHF
and 309.20 HUF/EUR, respectively). Based on
this regulation HUF 6.7 billion was recognized
as expense in the Group’s result.
However, based on the law a subsidy was
given to clients in the amount of the di erence
between the FX rates used for the conversion
of FX mortgage loans (256.47 HUF/CHF,
308.97 HUF/EUR) and the 19 August 2015 FX
rates was borne equally by the banks and the
State. The conversion was not mandatory for
the clients.
The Group completed the conversion of foreign
currency customer loans, and the relating
subsidy was settled with the clients which has
no signifi cant e ect to the Group’s profi tability.
95IFRS consolidated fi nancial statements
NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS
IN THE APPLICATION OF ACCOUNTING POLICIES
The presentation of fi nancial statements
in conformity with IFRS requires the
Management of the Group to make judgement
about estimates and assumptions that a ect
the reported amounts of assets and liabilities
and the disclosure of contingent assets
and liabilities as at the date of the fi nancial
statements and their reported amounts
of revenues and expenses during the
reporting period. The estimates and
associated assumptions are based on
historical experience and other factors that
are considered to be relevant. The estimates
and underlying assumptions are reviewed
on ongoing basis. Revisions to accounting
estimates are recognized in the period.
Actual results could di er from those estimates.
Signifi cant areas of subjective judgement
include:
3.1 Impairment on loans
and placements
The Group regularly assesses its loan portfolio
for impairment. Management determines
the adequacy of the allowances based upon
reviews of individual loans and placements,
recent loss experience, current economic
conditions, the risk characteristics of the
various categories of loans and other
pertinent factors. Provisioning involves many
uncertainties about the outcome of those
risks and requires the Management of the
Group to make many subjective judgements in
estimating the loss amounts. An impairment
loss is incurred when there is objective
evidence of impairment due to one or more
events that occurred after the initial recognition
of the asset (‘a loss event’), when the loss has
a reliably measurable impact on the expected
future cash fl ows from the fi nancial asset or
group of fi nancial assets. Future cash fl ows
are assessed by the Group on the basis of
estimates based on historical parameters.
The adopted methodology used for estimating
impairment allowances will be developed
in line with the further possibilities of
accumulations of historic impairment data
from the existing information systems and
applications. As a consequence, acquiring
new data by the Group could a ect the level
of impairment allowances in the future.
3.2 Valuation of instruments
without direct quotations
Financial instruments without direct quotations
in an active market are valued using the
valuation model technique. The models are
regularly reviewed and each model is calibrated
for the most recent available market data. While
the models are built only on available data,
their use is subject to certain assumptions and
estimates (e.g. correlations, volatilities etc.).
Changes in the model assumptions may a ect
the reported fair value of the relevant fi nancial
instruments.
IFRS 13 Fair Value Measurement seeks to
increase consistency and comparability in fair
value measurements and related disclosures
through a ‘fair value hierarchy’. The hierarchy
categorises the inputs used in valuation
techniques into three levels. The hierarchy
gives the highest priority to (unadjusted)
quoted prices in active markets for identical
assets or liabilities and the lowest priority to
unobservable inputs. The objective of a fair
value measurement is to estimate the price
at which an orderly transaction to sell the
asset or to transfer the liability would take
place between market participants at the
measurement date under current market
conditions.
3.3 Provisions
Provisions are recognized and measured
based on IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. The Group is
involved in a number of ongoing legal disputes.
96 OTP Bank Annual Report 2015
Based upon historical experience and expert
reports, the Group assesses the developments
in these cases, and the likelihood and
the amount of potential fi nancial losses
which are appropriately provided for
(see Note 17).
A provision is recognized by the Group when
it has a present obligation as a result of a past
event, it is probable that an outfl ow of resources
embodying economic benefi ts will be required
to settle the obligation, and a reliable estimate
can be made of the amount of the obligation.
Provision for o -balance sheet items includes
provision for litigation, provision for retirement
and expected liabilities, for commitments to
extend credit, provision for warranties arising
from banking activities and provision for
confi rmed letter of credit.
3.4 Impairment on goodwill
Goodwill acquired in a business combination
is tested for impairment annually or more
frequently when there is an indication that the
unit might be impaired, in accordance with IAS
36 “Impairment of assets”.
The Group calculates the fair value based on
discounted cash-fl ow model. The 5 year period
explicit cash-fl ow model serves as a basis for
the impairment test by which the Group defi nes
the impairment need on goodwill based on
the strategic factors and fi nancial data of its
cash-generating units. In the calculation of the
goodwill impairment, also the expectations
about possible variations in the amount or
timing of those future cash-fl ows, the time
value of money, represented by the current
market risk-free rate of interest and other
factors are refl ected.
NOTE 4: CASH, AMOUNTS DUE FROM BANKS AND BALANCES
WITH THE NATIONAL BANKS (in HUF mn)
2015 2014
Cash on hand
In HUF 78,182 66,332
In foreign currency 146,718 143,668
224,900 210,000
Amounts due from banks and balances with the National Banks
Within one year:
In HUF 1,203,223 1,798,959
In foreign currency 449,139 298,035
1,652,362 2,096,994
Over one year:
In HUF 2 –
In foreign currency – –
2 –
Accrued interest 1,696 638
1,654,060 2,097,632
Total 1,878,960 2,307,632
Compulsory reserve set by the National Banks 451,668 304,308
97IFRS consolidated fi nancial statements
NOTE 5: PLACEMENTS WITH OTHER BANKS, NET OF ALLOWANCE
FOR PLACEMENT LOSSES (in HUF mn)
2015 2014
Within one year:
In HUF 57,207 12,522
In foreign currency 241,952 266,384
299,159 278,906
Over one year:
In HUF – –
In foreign currency 1,396 2,032
1,396 2,032
Accrued interest 63 115
Provision for impairment on placement losses (50) (47)
Total 300,568 281,006
NOTE 6: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT
OR LOSS (in HUF mn)
2015 2014
Shares 72,620 59,231
Government bonds 25,866 22,942
Discounted Treasury bills 366 3,414
Other securities 7,946 4,439
Other non-interest bearing securities 4,507 3,989
111,305 94,015
Accrued interest 671 625
Total 111,976 94,640
Interest conditions of placements with other banks:
2015 2014
In HUF 0.1%–6.4% 0.4%–6.6%
In foreign currency 0.01%–14.9% 0.01%–14.9%
Average interest rates on placements with other banks 0.88% 1.22%
Securities held for trading:
An analysis of the change in the provision for impairment on placement
with other banks is as follows:
2015 2014
Balance as at 1 January 47 31
Provision for the year 3 874
Release of provision for the year – (854)
Foreign currency translation di erence – (4)
Closing balance 50 47
Positive fair value of derivative fi nancial instruments classifi ed held for trading:
2015 2014
CCIRS and mark-to-market CCIRS* classifi ed as held for trading 84,270 85,010
Interest rate swaps classifi ed as held for trading 33,770 43,401
Foreign exchange swaps classifi ed as held for trading 15,551 48,636
Foreign exchange forward contracts classified as held for trading 124 6,237
Other derivative transactions classifi ed as held for trading 8,091 11,351
141,806 194,635
Total 253,782 289,275
* CCIRS: Cross Currency Interest Rate Swaps (see Note 2.6.2).
98 OTP Bank Annual Report 2015
An analysis of securities held for trading portfolio by currency:
2015 2014
Denominated in HUF 84.0% 81.7%
Denominated in foreign currency 16.0% 18.3%
Total 100.0% 100.0%
An analysis of government bond portfolio by currency:
2015 2014
Denominated in HUF 48.4% 54.0%
Denominated in foreign currency 51.6% 46.0%
Total 100.0% 100.0%
Interest rates on securities held for trading 1.1%–8.75% 1.5%–11.0%
Average interest rates on securities held for trading 4.33% 2.06%
Interest conditions and the remaining maturities of securities held for trading
can be analysed as follows:
2015 2014
Within fi ve years:
With variable interest 2,194 1,125
With fi xed interest 22,918 23,466
25,112 24,591
Over fi ve years:
With variable interest 5 6
With fi xed interest 9,061 6,198
9,066 6,204
Non-interest bearing securities 77,127 63,220
Total 111,305 94,015
NOTE 7: SECURITIES AVAILABLE-FOR-SALE (in HUF mn)
2015 2014
Government bonds 1,142,470 680,323
Corporate bonds 51,278 37,457
from this:
Listed securities:
,Q+8) ––
In foreign currency 7,399 11,598
7,399 11,598
1RQOLVWHGVHFXULWLHV
,Q+8) 43,879 3,261
In foreign currency – 22,598
43,879 25,859
Discounted Treasury bills 33,970 42,168
Other securities 12,422 21,138
Other non-interest bearing securities 45,222 43,646
from this:
Listed securities:
,Q+8) 1,218 –
In foreign currency 7,410 7,114
8,628 7,114
1RQOLVWHGVHFXULWLHV
,Q+8) 17,562 28,346
In foreign currency 19,032 8,186
36,594 36,532
1,285,362 824,732
Accrued interest 20,507 15,694
Provision for impairment on securities available-for-sale (383) (1,274)
Total 1,305,486 839,152
99IFRS consolidated fi nancial statements
An analysis of government bonds by currency:
2015 2014
Denominated in HUF 78.5% 81.2%
Denominated in foreign currency 21.5% 18.8%
Total 100.0% 100.0%
Interest conditions and the remaining maturities of available-for-sale fi nancial assets
can be analysed as follows:
2015 2014
Within fi ve years:
With variable interest 2,179 2,701
With fi xed interest 1,040,809 616,404
1,042,988 619,105
Over fi ve years:
With variable interest 40,624 117
With fi xed interest 156,528 161,864
197,152 161,981
Non-interest bearing securities 45,222 43,646
Total 1,285,362 824,732
2015 2014
Short-term loans and promissory notes (within one year) 2,112,909 2,245,818
Long-term loans and promissory notes (over one year) 4,260,765 4,690,266
6,373,674 6,936,084
Accrued interest 49,913 57,242
Provision for impairment on loan losses (1,013,620) (1,129,085)
Total 5,409,967 5,864,241
2015 2014
Interest rates on securities available-for-sale denominated in HUF 0.8%–7.5% 1.7%–8.0%
Interest rates on securities available-for-sale denominated
in foreign currency
0.4%–28.0% 0.3%–28.0%
Average interest rates on securities available-for-sale
denominated in HUF
2.96% 3.07%
Average interest rates on securities available-for-sale
denominated in foreign currency
3.48% 5.85%
NOTE 8: LOANS, NET OF ALLOWANCE FOR LOAN LOSSES (in HUF mn)
An analysis of the change in the provision for impairment
on securities available-for-sale is as follows:
2015 2014
Balance as at 1 January 1,274 966
Provision for the year 17 297
Release of provision – –
Use of provision (831) –
Foreign currency translation di erence (77) 11
Closing balance 383 1,274
An analysis of securities available-for sale by currency:
2015 2014
Denominated in HUF 74.8% 84.6%
Denominated in foreign currency 25.2% 15.4%
Total 100.0% 100.0%
Certain securities are hedged against interest rate risk. See Note 40.
100 OTP Bank Annual Report 2015
An analysis of the gross loan portfolio by currency:
2015 2014
In HUF 36% 29%
In foreign currency 64% 71%
Total 100% 100%
Interest rates of the loan portfolio are as follows:
2015 2014
Short-term loans denominated in HUF 0.01%–40.7% 0.04%–42.0%
Long-term loans denominated in HUF 0.01%–40.7% 0.04%–42.0%
Short-term loans denominated in foreign currency 0.01%–66.9% 0.01%–64.9%
Long-term loans denominated in foreign currency 0.01%–59.7% 0.01%–66.9%
Average interest rates on loans denominated in HUF 4.53% 4.68%
Average interest rates on loans denominated in foreign currency 15.77% 16.23%
Gross loan portfolio on which interest to customers is not being accrued 16.9% 17.9%
An analysis of the change in the provision for impairment on loan losses is as follows:
2015 2014
Balance as at 1 January 1,129,085 1,235,634
Provision for the year 607,856 708,743
Release of provision (332,171) (319,393)
Use of provision (195,846) (85,494)
Partial write-o * (84,537) (237,593)
Increase due to acquisition – 772
Foreign currency translation di erence (110,767) (173,584)
Closing balance 1,013,620 1,129,085
Provision for impairment on loan and placement losses is summarized as below:
2015 2014
(Release of provision)/Provision for impairment on placement losses (6) 10
Provision for impairment on loan losses 318,689 446,820
Total 318,683 446,830
2015 2014
Investments**
Investments in associates (non-listed) 5,936 17,768
Other investments (non-listed) at cost 7,974 8,917
13,910 26,685
Provision for impairment on investments (3,882) (3,304)
Total 10,028 23,381
NOTE 9: ASSOCIATES AND OTHER INVESTMENTS (in HUF mn)
* See details in Note 2.11.
** These instruments do not have a quoted market price in an active market and whose fair value cannot be reliably measured.
An analysis of the change in the provision for impairment on investments is as follows:
2015 2014
Balance as at 1 January 3,304 4,231
Provision for the year 1,094 1,244
Use of provision (139) (245)
Change due to merge (375) (1,927)
Foreign currency translation di erence (2) 1
Closing balance 3,882 3,304
101IFRS consolidated fi nancial statements
An analysis of the change in the provision for impairment
on securities held-to-maturity is as follows:
2015 2014
Balance as at 1 January 814 775
Provision for the year 15 –
Release of provision (17) –
Use of provision (2) –
Foreign currency translation di erence (3) 39
Closing balance 807 814
2015 2014
Interest rates of securities held-to-maturity with variable interest 0.01%–0.6% 0.02%–2.5%
Interest rates of securities held-to-maturity with fi xed interest 0.1%–20.7% 0.9%–12.0%
Average interest rates on securities held-to-maturity 5.82% 6.34%
2015 2014
Government bonds 909,556 692,410
Discounted Treasury bills 116 519
Corporate bonds 5 7
Mortgage bonds – 522
909,677 693,458
Accrued interest 17,807 16,725
Provision for impairment on securities held-to-maturity (807) (814)
Total 926,677 709,369
NOTE 10: SECURITIES HELD-TO-MATURITY (in HUF mn)
An analysis of securities held-to-maturity by currency:
2015 2014
Denominated in HUF 89.6% 92.7%
Denominated in foreign currency 10.4% 7.3%
Total 100.0% 100%
In most cases, interest on variable rate bonds is
based on the interest rates of 90 day Hungarian
government Treasury bills and is adjusted
semi-annually. Interest on fi xed rate
and variable rate securities is, in most cases,
paid semi-annually.
Interest conditions and the remaining maturities of securities held-to-maturity
can be analysed as follows:
2015 2014
Within fi ve years:
With variable interest 3,534 7,438
With fi xed interest 455,898 375,972
459,432 383,410
Over fi ve years:
With variable interest – –
With fi xed interest 450,245 310,048
450,245 310,048
Total 909,677 693,458
102 OTP Bank Annual Report 2015
For the year ended 31 December 2015:
NOTE 11: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn)
An analysis of the changes in the goodwill for the year ended 31 December 2015 is as follows:
Goodwill
Cost
Balance as at 1 January 101,062
Additions 419
Foreign currency translation di erence (5,487)
Impairment for the current period –
Balance as at 31 December 95,994
Net book value
Balance as at 1 January 101,062
Balance as at 31 December 95,994
An analysis of the intangible assets for the year ended 31 December 2015 is as follows:
Self-developed Other Total
Intangible assets
Gross values 8,333 197,212 205,545
Depreciation and amortization 4,934 140,796 145,730
Book value of the goodwill allocated to the appropriate cash generation units:
List of units HUF million
JSC “OTP Bank” (Russia) 36,451
DSK Bank EAD 28,541
OTP banka Hrvatska d.d. 18,177
OTP Bank Romania S.A. 6,222
Monicomp Ltd. 5,732
OTP Banka Slovensko a.s. 517
Other* 354
Total 95,994
Intangible
assets
and goodwill
Property O ce
equipment
and vehicles
Construction
in progress
Total
Cost
Balance as at 1 January
345,855 196,923 161,855 11,983 716,616
Additions
39,057 13,068 14,950 15,484 82,559
Foreign currency translation di erences
(8,707) (3,534) (3,535) (110) (15,886)
Disposals
(74,719) (8,626) (14,311) (17,347) (115,003)
Change in consolidation scope
53 1 26 – 80
Balance as at 31 December
301,539 197,832 158,985 10,010 668,366
Depreciation and Amortization
Balance as at 1 January
187,134 46,745 117,576 – 351,455
Charge for the year (without goodwill impairment)
22,476 7,888 15,099 – 45,463
Foreign currency translation di erences
(476) 437 (1,434) – (1,473)
Disposals
(63,404) (1,619) (11,526) – (76,549)
Balance as at 31 December
145,730 53,451 119,715 – 318,896
Net book value
Balance as at 1 January 158,721 150,178 44,279 11,983 365,161
Balance as at 31 December
155,809 144,381 39,270 10,010 349,470
* Other category includes: OTP Real Estate Leasing Ltd., Nimo 2002 Ltd., POK DSK-Rodina a.d.
103IFRS consolidated fi nancial statements
The Bank decided that the recoverable amount
is determined based on fair value less cost
of disposal. The Bank prepared goodwill
impairment tests of the subsidiaries based
on two di erent net present value calculation
methods that shows the same result; however
they represent di erent economical logics.
On one hand is the discount cash-fl ow
method (DCF) that calculates the value of the
subsidiaries by discounting their expected
cash-fl ow; on the other hand the economic
value added (EVA) method estimates the value
of the subsidiaries from the initial invested
capital and the present value of the economic
profi t that the companies are expected to
generate in the future. Applying the EVA method
was more practically than DCF method because
it gives a more realistic picture about how
the explicit period and the residual value can
contribute to the value of the company.
As at 31 December 2015 the Bank prepared
impairment test where in case of two
companies JSC “OTP Bank” (Russia) and
OTP Bank JSC (Ukraine) a fi ve-year (2016–2020)
cash-fl ow model while in case of the other
subsidiaries three-year cash-fl ow model
was applied with an explicit period between
2016–2018. The base of the estimation was the
annual fi nancial strategic plan for year 2015,
while for the three-year explicit period the Bank
applied the prognosis for year 2016 accepted by
the Management Committee of the subsidiaries
and on the base of this prognosis the prepared
medium-term (2017–2018) forecasts. When the
Bank prepared the calculations for the period
2016–2018, considered the actual worldwide
economic situations, the expected economic
growth for the following years, their possible
e ects on the fi nancial sector, the plans for
growing which result from these and the
expected changes of the mentioned factors.
Present value calculation
with the DCF method
The Bank calculated the expected cash-fl ow for
the given period based on the expected after
tax profi t of the companies. For calculating
the discount factor as risk free rates in case
of OTP Bank JSC (Ukraine) the base rate of
the Ukrainian National Bank was considered
presented in the actual macro forecasts, while
in case of the other subsidiaries the Bank
applied the yield of these local government
bonds in foreign currency with a period of
one year. The Bank calculated risk premiums
on the base of information from the country
risk premiums that are published on
damodaran.com, which were modifi ed with
CDS spread in case of OTP Banka Slovensko
a.s and Crnogorska komercijalna banka a.d.,
since according to the Bank’s assumption
the risk free interest rate includes the
country-dependent risks in an implicit way.
The values of the subsidiaries in the DCF
method were then calculated as the sum of the
discounted cash-fl ows of the explicit period, the
present value of the terminal values and the
initial free capital assuming an e ective capital
structure.
Present value calculation
with the EVA method
A company creates positive economic
profi t/value if the profi tability of the invested
capital is higher than the normal profi t
– the profi t that can be usually generated in
the banking sector –, which means that the
company’s profi tability exceeds the expected
yield. The economic profi t of the subsidiaries
was calculated by deducting the cost of invested
capital from the net profi t for the year.
The applied discount factor and the indicators
used for calculating the residual value
(long-term cost of capital and growth rate) are
the same that are used in the DCF method.
Summary of the impairment test for
the year ended 31 December 2015
Based on the valuations of the subsidiaries no
goodwill impairment was needed on Group
level as at 31 December 2015, while as at
31 December 2014 the total IFRS goodwill in
the amount of HUF 22,225 million, recorded for
OTP Bank JSC (Ukraine) as at the balance sheet
date, was impaired.
104 OTP Bank Annual Report 2015
An analysis of the changes in the goodwill for the year ended 31 December 2014 is as follows:
Book value of the goodwill allocated to the appropriate cash generation units:
Goodwill
Cost
Balance as at 1 January 145,564
Additions –
Foreign currency translation di erence (22,277)
Impairment for the current period (22,225)
Balance as at 31 December 101,062
Net book value
Balance as at 1 January 145,564
Balance as at 31 December 101,062
Based on the valuations of the subsidiaries, the
total IFRS goodwill, recorded for OTP Bank JSC
(Ukraine) as at the balance sheet date,
was impaired, which meant HUF 22,225 million
consolidated IFRS goodwill impairment as at
31 December 2014.
Summary of the impairment test for the year ended 31 December 2014
List of units HUF million
JSC “OTP Bank” (Russia) 41,806
DSK Bank EAD 28,541
OTP banka Hrvatska d.d. 18,280
OTP Bank Romania S.A. 6,257
Monicomp Ltd. 5,732
OTP Banka Slovensko a.s. 93
Other* 353
Total 101,062
For the year ended 31 December 2014:
An analysis of the intangible assets for the year ended 31 December 2014 is as follows:
Self-developed Other Total
Intangible assets
Gross values 9,657 207,666 217,323
Depreciation and amortization 4,268 155,395 159,663
Intangible assets
and goodwill
Property O ce equipment
and vehicles
Construction
in progress
Total
Cost
Balance as at 1 January 374,911 222,634 188,906 26,341 812,792
Additions 41,354 7,292 14,785 18,246 81,677
Acquisition 252 1,472 430 2 2,156
Foreign currency translation di erences (20,986) (3,887) (5,142) 165 (29,850)
Disposals (49,075) (2,398) (16,275) (32,777) (100,525)
Transfer (628) (28,190) (20,939) – (49,757)
Change in consolidation scope 27 – 90 6 123
Balance as at 31 December 345,855 196,923 161,855 11,983 716,616
Depreciation and Amortization
Balance as at 1 January 181,190 49,799 126,559 – 357,548
Charge for the year (without goodwill impairment) 22,614 5,346 15,762 – 43,722
Goodwill impairment 22,225 – – – 22,225
Foreign currency translation di erences 3,207 (1,311) (4,219) – (2,323)
Disposals (41,945) (180) (13,168) – (55,293)
Transfer (179) (6,909) (7,403) – (14,491)
Change in consolidation scope 22 – 45 – 67
Balance as at 31 December 187,134 46,745 117,576 – 351,455
Net book value
Balance as at 1 January 193,721 172,835 62,347 26,341 455,244
Balance as at 31 December
158,721 150,178 44,279 11,983 365,161
* Other category includes: OTP Real Estate Leasing Ltd., Nimo 2002 Ltd., POK DSK-Rodina a.d.
105IFRS consolidated fi nancial statements
* Other assets – except income tax receivable and fair value of derivative fi nancial instruments designated as fair value hedge – are
expected to be recovered or settled no more than twelve months after the reporting period. Income tax receivable will be enforced
in the tax return for the year 2015. Unrealised gains/losses on derivative fi nancial instruments are recovering in accordance with
their maturity.
** See Note 26.
*** Provision for impairment on other assets mainly consists of provision for impairment on investment properties and trade
receivables.
NOTE 12: OTHER ASSETS* (in HUF mn)
2015 2014
Deferred tax receivables** 73,079 61,009
Inventories 46,195 43,936
Investment properties 33,420 31,322
Prepayments and accrued income 25,136 24,513
Assets subject to operating lease 23,415 24,668
Current income tax receivable 20,492 8,843
Fair value of derivative fi nancial instrument designated
as fair value hedge
16,009 30,454
Trade receivables 10,891 12,121
Receivables from card operations 7,865 9,615
Other advances 7,083 5,695
Receivable from the National Asset Management 6,645 9,718
Receivables from investment services 6,369 3,960
Receivables due from pension funds and investment funds 2,516 3,874
Loans sold under deferred payment scheme 2,410 2,299
Stock exchange deals 2,163 3,996
Receivables from leasing activities 1,470 1,086
Other receivables from Hungarian Government 1,233 2,233
Advances for securities and investments 663 691
Other 34,338 44,704
Subtotal 321,392 324,737
Provision for impairment on other assets*** (37,482) (32,902)
Total 283,910 291,835
An analysis of the movement in the provision for impairment on other assets is as follows:
2015 2014
Balance as at 1 January 32,902 23,247
Provision for the year 7,019 9,726
Use of provision (1,569) (2,573)
Provision due to transfer – 2,353
Foreign currency translation di erence (870) 149
Closing balance 37,482 32,902
Positive fair value of derivative fi nancial instruments designated as fair value hedge:
2015 2014
Interest rate swaps designated as fair value hedge 15,393 14,032
CCIRS and mark-to-market CCIRS designated as fair value hedge 604 13,940
Foreign exchange swaps designated as fair value hedge – 2,437
Other transactions designated as fair value hedge 12 45
Total 16,009 30,454
106 OTP Bank Annual Report 2015
2015 2014
Within one year:
In HUF 3,565,248 3,716,886
In foreign currency 4,121,267 3,667,694
7,686,515 7,384,580
Over one year:
In HUF 169,177 101,733
In foreign currency 109,345 158,624
278,522 260,357
Accrued interest 19,542 28,541
Total 7,984,579 7,673,478
Interest rates on deposits from customers are as follows:
2015 2014
Within one year:
In HUF 0.01%–4.0% 0.01%–10.3%
In foreign currency 0.01%–24.5% 0.01%–29.0%
Over one year:
In HUF 0.01%–6.85% 0.01%–3.1%
In foreign currency 0.01%–20.5% 0.01%–26.0%
Average interest rates on deposits from customers
denominated in HUF
0.48% 0.80%
Average interest rates on deposits from customers
denominated in foreign currency
4.27% 5.52%
NOTE 14: DEPOSITS FROM CUSTOMERS (in HUF mn)
NOTE 13: AMOUNTS DUE TO BANKS, THE HUNGARIAN GOVERNMENT,
DEPOSITS FROM THE NATIONAL BANKS AND OTHER BANKS
(in HUF mn)
2015 2014
Within one year:
In HUF 134,081 148,264
In foreign currency 115,423 302,971
249,504 451,235
Over one year:
In HUF 205,221 150,012
In foreign currency 78,015 106,137
283,236 256,149
Accrued interest 570 890
Total* 533,310 708,274
Interest rates on amounts due to banks, the Hungarian Government,
deposits from the National Banks and other banks are as follows:
2015 2014
Within one year:
In HUF (1)%–3.6% 1.2%–5.2%
In foreign currency 0.01%–11.75% 0.05%–18.8%
Over one year:
In HUF 0%–3.2% 0.1%–5.2 %
In foreign currency 0.1%–17.0% 0.1%–18.0%
Average interest rates on amounts due to banks, the Hungarian
Government, deposits from the National Banks and other banks
denominated in HUF
1.97% 1.83%
Average interest rates on amounts due to banks, the Hungarian
Government, deposits from the National Banks and other banks
denominated in foreign currency
1.54% 1.59%
* It contains loans lent among the frame of Funding for Growth Scheme, which are accounted as government grant regulated by IAS
20 standard. See more details in Note 44.
107IFRS consolidated fi nancial statements
An analysis of deposits from customers by type, without accrued interest liability, is as follows:
2015 2014
Retail deposits 5,663,139 71% 4,566,737 60%
Corporate deposits 1,948,422 25% 2,693,704 35%
Municipality deposits 353,476 4% 384,496 5%
Total 7,965,037 100% 7,644,937 100%
NOTE 15: LIABILITIES FROM ISSUED SECURITIES (in HUF mn)
2015 2014
With original maturity
Within one year:
In HUF 18,388 28,812
In foreign currency 64,762 53,225
83,150 82,037
Over one year:
In HUF 146,011 162,582
In foreign currency 784 13,051
146,795 175,633
Accrued interest 9,431 9,414
Total 239,376 267,084
Interest rates on liabilities from issued securities are as follows:
2015 2014
Issued securities denominated in HUF 0.01%–10.0% 0.10%–10.0%
Issued securities denominated in foreign currency 0.52%–12.8% 0.23%–10.5%
Average interest rates on issued securities
denominated in HUF
3.21% 3.33%
Average interest rates on issued securities
denominated in foreign currency
1.71% 5.04%
108 OTP Bank Annual Report 2015
Name Date of issue Maturity Nominal
value
(in HUF mn)
Interest conditions
(in % p.a.)
Hedged
1. OTP TBSZ 2016/I 14/01/2011–05/08/2011 15/12/2016 1,166 5.5 fi xed
2. OTP TBSZ 2016/II 26/08/2011–29/12/2011 15/12/2016 626 5.5 fixed
3. OTP TBSZ 4 2016/I 18/01/2013–15/02/2013 15/12/2016 156 5 fixed
4. OTP TBSZ 6 2017/I 13/01/2012–22/06/2012 15/12/2017 231 6.5 fixed
5. OTP 2016/Ax 11/11/2010 03/11/2016 3,525 indexed floating hedged
6. OTP 2016/Bx 16/12/2010 19/12/2016 2,589 indexed floating hedged
7. OTP 2016/Ex 28/12/2012 27/12/2016 301 indexed floating hedged
8. OTP 2016/Fx 22/03/2013 24/03/2016 649 indexed floating hedged
9. OTP 2017/Ax 01/04/2011 31/03/2017 4,065 indexed floating hedged
10. OTP 2017/Bx 17/06/2011 20/06/2017 3,926 indexed floating hedged
11. OTP 2017/Cx 19/09/2011 25/09/2017 3,006 indexed floating hedged
12. OTP 2017/Dx 20/10/2011 19/10/2017 431 indexed floating hedged
13. OTP 2017/Ex 21/12/2011 28/12/2017 3,227 indexed floating hedged
14. OTP 2018/Ax 03/01/2012 09/01/2018 547 indexed floating hedged
15. OTP 2018/Bx 22/03/2012 22/03/2018 3,832 indexed floating hedged
16. OTP 2018/Cx 18/07/2012 18/07/2018 3,289 indexed floating hedged
17. OTP 2018/Dx 29/10/2012 26/10/2018 2,767 indexed floating hedged
18. OTP 2018/Ex 28/12/2012 28/12/2018 2,814 indexed floating hedged
19. OTP 2019/Ax 25/06/2009 01/07/2019 255 indexed floating hedged
20. OTP 2019/Bx 05/10/2009–05/02/2010 14/10/2019 355 indexed floating hedged
21. OTP 2019/Cx 14/12/2009 20/12/2019 285 indexed floating hedged
22. OTP 2019/Dx 22/03/2013 21/03/2019 4,098 indexed floating hedged
23. OTP 2019/Ex 28/06/2013 24/06/2019 3,183 indexed floating hedged
24. OTP 2020/Ax 25/03/2010 30/03/2020 328 indexed floating hedged
25. OTP 2020/Bx 28/06/2010 09/07/2020 332 indexed floating hedged
26. OTP 2020/Cx 11/11/2010 05/11/2020 206 indexed floating hedged
27. OTP 2020/Dx 16/12/2010 18/12/2020 215 indexed floating hedged
28. OTP 2020/Ex 18/06/2014 22/06/2020 3,889 indexed floating hedged
29. OTP 2020/Fx 10/10/2014 16/10/2020 3,408 indexed floating hedged
30. OTP 2020/Gx 15/12/2014 21/12/2020 2,898 indexed floating hedged
31. OTP 2021/Ax 01/04/2011 01/04/2021 289 indexed floating hedged
32. OTP 2021/Bx 17/06/2011 21/06/2021 311 indexed floating hedged
33. OTP 2021/Cx 19/09/2011 24/09/2021 287 indexed floating hedged
34. OTP 2021/Dx 21/12/2011 27/12/2021 351 indexed floating hedged
35. OTP 2022/Ax 22/03/2012 23/03/2022 264 indexed floating hedged
36. OTP 2022/Bx 18/07/2012 18/07/2022 240 indexed floating hedged
37. OTP 2022/Cx 29/10/2012 28/10/2022 270 indexed floating hedged
38. OTP 2022/Dx 28/12/2012 27/12/2022 316 indexed fl oating hedged
39. OTP 2023/Ax 22/03/2013 24/03/2023 395 indexed floating hedged
40. OTP 2023/Bx 28/06/2013 26/06/2023 265 indexed floating hedged
41. OTP 2024/Ax 18/06/2014 21/06/2024 270 indexed floating hedged
42. OTP 2024/Bx 10/10/2014 16/10/2024 385 indexed floating hedged
43. OTP 2024/Cx 15/12/2014 20/12/2024 320 indexed floating hedged
44. OTP 2020/RF/A 12/07/2010 20/07/2020 2,739 indexed floating hedged
45. OTP 2020/RF/B 12/07/2010 20/07/2020 1,280 indexed floating hedged
46. OTP 2020/RF/C 11/11/2010 05/11/2020 2,937 indexed floating hedged
47. OTP 2021/RF/A 05/07/2011 13/07/2021 2,484 indexed floating hedged
48. OTP 2021/RF/B 20/10/2011 25/10/2021 2,487 indexed floating hedged
49. OTP 2021/RF/C 21/12/2011 30/12/2021 492 indexed floating hedged
50. OTP 2021/RF/D 21/12/2011
30/12/2021 328 indexed floating hedged
51. OTP 2021/RF/E 21/12/2011 30/12/2021 49 indexed floating hedged
52. OTP 2022/RF/A 22/03/2012 23/03/2022 1,414 indexed floating hedged
53. OTP 2022/RF/B 22/03/2012 23/03/2022 458 indexed floating hedged
54. OTP 2022/RF/C 28/06/2012 28/06/2022 146 indexed floating hedged
55. OTP 2022/RF/D 28/06/2012 28/06/2022 188 indexed floating hedged
56. OTP 2022/RF/E 29/10/2012 31/10/2022 485 indexed floating hedged
57. OTP 2022/RF/F 28/12/2012 28/12/2022 363 indexed floating hedged
58. OTP 2023/RF/A 22/03/2013 24/03/2023 415 indexed floating hedged
59. OTP OJK 2016/I 26/08/2011–21/12/2011 26/08/2016 30 6.14 fixed
60. OTP OJK 2017/I 27/01/2012–13/07/2012 27/01/2017 14 7 fixed
61. OJB 2016/I 03/02/2006 03/02/2016 1,253 7.5 fi xed
62. OJB 2016/II 31/08/2006 31/08/2016 4,648 10 fixed
63. OJB 2016/J 18/04/2006 28/09/2016 51 7.59 fixed
64. OJB 2019/I 17/03/2004 18/03/2019 31,517 9.48 fixed
65. OJB 2019/II 25/05/2011 18/03/2019 1,079 9.48 fixed
66. OJB 2020/I 19/11/2004 12/11/2020 5,503 9 fixed
67. OJB 2020/II 25/05/2011 12/11/2020 1,486 9 fixed
68. Other* 35,154
Subtotal issued securities in HUF 157,562
Unamortized premium (6,202)
Fair value adjustment 13,039
Total issued securities in HUF 164,399
Issued securities denominated in HUF as at 31 December 2015:
* From the total amount HUF 34,923 million is mobil deposits of Merkantil Bank Ltd.
109IFRS consolidated fi nancial statements
Name Date of issue Maturity Type of
FX
Nominal value
(FX mn) (HUF mn)
Interest conditions
(in % p.a.)
Hedged
1. OTP EUR 1 2015/XXV 19/12/2014 02/01/2016 EUR 9.14 2,860 1.1 fi xed
2. OTP EUR 1 2015/XXVI 09/01/2015 23/01/2016 EUR 4.23 1,325 1.1 fixed
3. OTP EUR 1 2016/I 30/01/2015 13/02/2016 EUR 9.93 3,109 1.1 fixed
4. OTP EUR 1 2016/II 20/02/2015 06/03/2016 EUR 8.27 2,590 1.0 fixed
5. OTP EUR 1 2016/III 20/03/2015 03/04/2016 EUR 12.94 4,052 0.9 fixed
6. OTP EUR 1 2016/IV 10/04/2015 24/04/2016 EUR 7.14 2,237 0.9 fixed
7. OTP EUR 1 2016/V 24/04/2015 08/05/2016 EUR 3.58 1,121 0.9 fixed
8. OTP EUR 1 2016/VI 29/05/2015 12/06/2016 EUR 10.19 3,190 0.8 fixed
9. OTP EUR 1 2016/VII 30/06/2015 14/07/2016 EUR 10.06 3,150 0.8 fixed
10. OTP EUR 1 2016/VIII J003 24/07/2015 07/08/2016 EUR 6.13 1,919 0.7 fixed
11. OTP EUR 1 2016/IX J003 25/09/2015 09/10/2016 EUR 21.34 6,681 0.6 fixed
12. OTP EUR 1 2016/X 30/10/2015 13/11/2016 EUR 14.9 4,667 0.6 fixed
13. OTP EUR 1 2016/XI 11/11/2015 25/11/2016 EUR 8.85 2,772 0.6 fixed
14. OTP EUR 1 2016/XII 27/11/2015 11/12/2016 EUR 6.03 1,887 0.5 fixed
15. OTP EUR 1 2016/XIII 30/12/2015 13/01/2017 EUR 26.09 8,168 0.5 fixed
16. OTP EUR 2 2016/I 17/01/2014 17/01/2016 EUR 0.89 280 2.0 fixed
17. OTP EUR 2 2016/II 31/01/2014 31/01/2016 EUR 0.82 256 2.0 fixed
18. OTP EUR 2 2016/III 14/02/2014 14/02/2016 EUR 0.94 296 2.0 fixed
19. OTP EUR 2 2016/IV 28/02/2014 28/02/2016 EUR 0.63 197 1.9 fixed
20. OTP EUR 2 2016/V 14/03/2014 14/03/2016 EUR 0.72 227 1.8 fixed
21. OTP EUR 2 2016/VI 21/03/2014 21/03/2016 EUR 0.21 66 1.8 fixed
22. OTP EUR 2 2016/VII 11/04/2014 11/04/2016 EUR 0.71 223 1.8 fixed
23. OTP EUR 2 2016/VIII 18/04/2014 18/04/2016 EUR 0.20 63 1.8 fixed
24. OTP EUR 2 2016/IX 09/05/2014 09/05/2016 EUR 0.61 190 1.8 fixed
25. OTP EUR 2 2016/X 23/05/2014 23/05/2016 EUR 0.60 187 1.8 fixed
26. OTP EUR 2 2016/XI 06/06/2014 06/06/2016 EUR 0.64 200 1.8 fixed
27. OTP EUR 2 2016/XII 20/06/2014 20/06/2016 EUR 0.59 185 1.5 fixed
28. OTP EUR 2 2016/XIII 04/07/2014 04/07/2016 EUR 0.46 145 1.5 fixed
29. OTP EUR 2 2016/XIV 18/07/2014 18/07/2016 EUR 0.31 98 1.5 fixed
30. OTP EUR 2 2016/XV 30/07/2014 30/07/2016 EUR 1.55 484 1.5 fixed
31. OTP EUR 2 2016/XVI 08/08/2014 08/08/2016 EUR 0.37 115 1.5 fixed
32. OTP EUR 2 2016/XVII 29/08/2014 29/08/2016 EUR 1.31 412 1.5 fixed
33. OTP EUR 2 2016/XVIII 12/09/2014 12/09/2016 EUR 0.99 309 1.5 fixed
34. OTP EUR 2 2016/XIX 03/10/2014 03/10/2016 EUR 1.92 601 1.5 fixed
35. OTP 2016/Cx 22/04/2011 22/04/2016 EUR 1.42 446 indexed hedged
36. OTP 2016/Dx 22/12/2011 29/12/2016 EUR 1.08 339 indexed hedged
37. OTP 2017/Fx 19/06/2012 16/06/2017 EUR 0.78 243 indexed hedged
38. OTP 2018/Fx 19/12/2013 21/12/2018 EUR 0.62 194 indexed hedged
39. OTP_VK_USD_1_2016/I 24/04/2015–02/07/2015 24/04/2016 USD 3.27 937 1.0 floating
40. OTP_VK_USD_1_2016/II 24/07/2015 24/07/2016 USD 0.87 249 0.9 floating
41. OTP_VK_USD_1_2016/III 25/09/2015–30/12/2015 25/09/2016 USD 7.61 2,182 0.8 floating
42. OTP_VK_USD_2_2016/I 28/11/2014 28/11/2016 USD 6.76 1,937 1.4 floating
43. OTP_VK_USD_2_2017/I 10/04/2015 10/04/2017 USD 0.33 95 1.1 floating
44. Mortgage bonds OTP XXV 28/09/2012
28/09/2016 EUR 7.96 2,493 4.0 fixed
45. Other* 2,296
Subtotal issued securities in FX 65,673
Unamortized premium (189)
Fair value adjustment 62
Total issued securities in FX 65,546
Accrued interest 9,431
Total issued securities 239,376
Issued securities denominated in foreign currency as at 31 December 2015:
* Other category includes promissory notes issued by OTP Banka Slovensko a.s. in the amount of HUF 1,190 million and by JSC “OTP Bank” (Russia) in the amount of
HUF 1,106 million.
Term Note Program in the value
of HUF 500 billion for the year
of 2014/2015
On 8 July 2014 the Bank initiated term note
program in the value of HUF 500 billion
with the intention of issuing registered
dematerialized bonds in public. The NBH
approved on 29 July 2014 the prospectus
of Term Note Program and the disclosure
as at 25 July 2014. The prospectus is valid for
12 months following the disclosure.
The Issuer can initiate to introduce the bonds
issued under the program to the Budapest,
Slovakian, Romanian and Bulgarian Stock
Exchange without any obligations.
110 OTP Bank Annual Report 2015
and amount of the structure if any based on a
notional amount which is equal to the notional
amount of the hedged bond. In certain cases
amount of the structure is hedged by options
which give the owner the right to get amount
of the structure which is equal to the structure
of the hedged bond. The hedge is highly
e ective if changes in fair value or cash-fl ows
attributable to the hedged risk during the period
for which the hedge is designated are within a
range of 80–125 per cent.
The cash-fl ows of the fi xed rate securities issued
by the Bank are exposed to the change in the
HUF/EUR foreign exchange rate and the risk of
change in the quoted interest rates of EUR and
HUF. The interest rate risk and foreign exchange
risk related to these securities are hedged with
EUR and HUF IRS transactions, where the fi xed
interests were swapped to payments linked to
3 month HUF BUBOR and EURIBOR, resulting
a decrease in the interest rate and foreign
exchange exposure of issued securities.
Term Note Program in the value
of HUF 200 billion for the year
of 2015/2016
On 30 June 2015 the Bank initiated term note
program in the value of HUF 200 billion with
the intention of issuing registered
dematerialized bonds in public. The NBH
approved on 14 August 2015 the prospectus
of Term Note Program and the disclosure
as at 12 August 2015. The prospectus is valid
for 12 months following the disclosure.
The Issuer can initiate to introduce the bonds
issued under the program to the Budapest,
Slovakian, Romanian and Bulgarian Stock
Exchange without any obligations.
Certain structured bonds are hedged by interest
rate swaps (“IRS”) which may transfer to a
transferee a fi xed rate and enter into an interest
rate swap with the transferee to receive a fi xed
interest rate and pay a variable interest rate
NOTE 16: FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT
OR LOSS (in HUF mn)
2015 2014
CCIRS and mark-to-market CCIRS classifi ed as held for trading 55,875 53,724
Interest rate swaps classifi ed as held for trading 30,453 63,691
Foreign exchange swaps classifi ed as held for trading 7,687 51,537
Foreign exchange forward contracts classifi ed as held for trading 3,551 5,582
Option contracts classifi ed as held for trading 1,899 6,215
Forward security agreements classifi ed as held for trading 860 478
Forward rate agreements classifi ed as held for trading (FRA) 29 61
Other transactions classifi ed as held for trading 1,207 2,706
Total 101,561 183,994
Negative fair value of derivative fi nancial instruments classifi ed
as held for trading by type of contracts:
111IFRS consolidated fi nancial statements
NOTE 17: OTHER LIABILITIES* (in HUF mn)
2015 2014
Provision for impairment on o -balance sheet commitments
and contingent liabilities
70,999 217,351
Financial liabilities from OTP–MOL share swap transaction** 66,787 56,445
Liabilities from investment services 39,413 41,264
Accrued expenses 33,153 33,015
Liabilities connected to Cafeteria benefi ts 27,811 22,700
Accounts payable 25,455 22,373
Salaries and social security payable 25,423 25,583
Fair value of derivative fi nancial instruments designated
as fair value hedge
13,723 85,679
Current income tax payable 13,684 14,707
Clearing, settlement and pending accounts 12,065 7,284
Giro clearing accounts 11,302 13,119
Liabilities from repo transactions 7,452 6,980
Liabilities from card transactions 5,804 4,992
Deferred tax liabilities 4,610 9,855
Advances received from customers 4,271 3,266
Liabilities connected to leasing activities 1,583 1,080
Liabilities related to housing loans 1,523 244
Liabilities connected to loans for collection 876 909
Loans from government 683 738
Dividend payable 546 140
Other 24,159 24,130
Subtotal 391,322 591,854
Accrued interest 257 234
Total 391,579 592,088
* Other liabilities – except fi nancial liabilities from OTP–MOL share swap transaction, deferred tax liabilities and fair value of
derivative fi nancial instruments designated as fair value hedge – are expected to be recovered or settled no more than twelve
months after the reporting period. Unrealised gains/losses on OTP–MOL share swap transaction is settled in June of each year
until the maturity date. The fair value adjustment of the swap transaction is HUF 3,236 million as at 31 December 2015. Unrealised
gains/losses on derivative fi nancial instruments is recovering in accordance with their maturity. Besides the total other liabilities
mentioned above which are expected to be recovered or settled more than twelve months after the reporting period it should be
mentioned accrued contractual liabilities, compulsory pension reserve, guarantee deposits in relation with leasing activities, loans
from government and liabilities from preferential dividend shares.
** On 16 April 2009 OTP Bank Plc. and MOL Hungarian Oil and Gas Plc. entered into a 3 years share swap transaction. MOL obtained
24 million pieces of Bank’s ordinary shares (8.57% of the ordinary shares) and OTP obtained approximately 5 million pieces of MOL
shares. Both parties were granted by an American style call and put option to initiate the gross physical settlement of shares back
to the issuer until 11 July 2012. On 11 July 2012 the parties amended the fi nal maturity of the share swap agreement for 11 July
2017 until which any party can initiate cash or physical settlement of the transaction. There is no compulsory settlement of shares
at the maturity of the swap agreement. The agreement contains additional settlement provisions in case of certain movement of
relative share prices of the parties subject to net cash or net share settlement. Due to the loss of control over the Treasury shares,
the Treasury shares were derecognized and MOL shares were recognized as held for trading securities. The written put option
over OTP ordinary shares were accounted as a deduction from equity with the amount of HUF 55.5 billion and a recognition of a
corresponding liability. As at 31 December 2015 and 2014 HUF 66,787 million and HUF 56,445 million liability was presented in
other liabilities. The measurement is based on the fair value of MOL shares to be delivered at the potential exercise of the call and
put options adjusted with the expected present value of the net cash or net share settlement due to certain movement of relative
share prices.
*** See details in Note 2.28.
2015 2014
Provision for expected losses due to CHF loans conversion
at foreign subsidiaries
39,314 –
Provision for losses on other o -balance sheet commitments
and contingent liabilities related to lending
7,010 3,566
Provision for litigation 6,680 7,454
Provision for expected pension commitments 2,664 3,430
Provision on contingent liabilities due to regulations related
to customer loans***
– 196,574
Provision for other liabilities 15,331 6,327
Total 70,999 217,351
The provision for losses on o -balance sheet commitments
and contingent liabilities are detailed as follows:
112 OTP Bank Annual Report 2015
NOTE 18: SUBORDINATED BONDS AND LOANS (in HUF mn)
The movements of provision for losses on o -balance sheet commitments
and contingent liabilities can be summarized as follows:
2015 2014
Within one year:
In HUF ––
In foreign currency 156,487 16,779
156,487 16,779
Over one year:
In HUF ––
In foreign currency 77,200 264,018
77,200 264,018
Accrued interest 1,097 1,171
Total 234,784 281,968
Interest rates on subordinated bonds and loans are as follows:
2015 2014
Denominated in foreign currency 5.3%–5.9% 0.6%–8.25%
Average interest rates on subordinated bonds and loans 4.72% 4.82%
2015 2014
Balance as at 1 January 217,351 22,180
(Release of provision)/Provision for the year (146,360) 195,310
Use of provision (1,838) (1,031)
Change due to acquisition 3,115 1,756
Foreign currency translation di erences (1,269) (864)
Closing balance 70,999 217,351
The negative fair value of derivative fi nancial instruments designated
as fair value hedge by type of contracts:
2015 2014
Interest rate swaps designated as fair value hedge 13,723 3,463
CCIRS and mark-to-market CCIRS designated as fair value hedge – 79,940
Foreign exchange swaps designated as fair value hedge – 2,276
Total 13,723 85,679
Subordinated bonds and loans can be detailed as follows:
Type Nominal
value
Date
of issuance
Date
of maturity
Issue price Interest
conditions
Interest rate
as at 31 December
2015
Subordinated bond EUR 247.5 million 07/11/2006
Perpetual, but
callable after
10 years
99.375%
Fixed 5.875% annual in the first
10 years (payable annually),
three month EURIBOR + 3%,
variable after year 10
(payable quarterly)
5.875%
Subordinated bond
(under EMTN*
program)
EUR 300 million 19/09/2006 19/09/2016 100% Fixed 5.27% annual 5.27%
Subordinated bond
(under EMTN*
program)
EUR 200 million 26/02/2007 19/09/2016 100% Fixed 5.27% annual 5.27%
* European Medium Term Note Program.
113IFRS consolidated fi nancial statements
NOTE 19: SHARE CAPITAL (in HUF mn)
2015 2014
Authorized, issued and fully paid:
Ordinary shares 28,000 28,000
The reserves of the Bank under Hungarian Accounting Standards (“HAS”) are as follows
(the reserves under IFRS are detailed in consolidated statement of changes in equity):
NOTE 20: RETAINED EARNINGS AND RESERVES (in HUF mn)
2015 2014
Capital reserve 52 52
General reserve 14,123 112,217
Retained earnings 856,990 814,399
Tied-up reserve 9,785 8,558
Total 880,950 935,226
The legal reserves (general reserve and tied-up
reserve) are not available for distribution.
The dividend has been determined on the basis
of the net profi t for the year determined in the
separate fi nancial statements in accordance
with the HAS.
Capital reserve is the amount that the entity
receives from the owners above the share
capital without obligation to repay it. According
to HAS general reserve can be established
of profi t after tax and in case of loss after tax
general reserve shall be used up to amount
of loss or general reserve. Retained earnings
are cumulated sum of net profi t or loss from
previous years. Tied-up reserve contains
cost of treasury shares and book value of
experimental development reclassifi ed from
retained earnings in accordance with
regulations of HAS.
These Financial Statements subject to approval
by the Board of Directors in the Annual General
Meeting in April 2016. In 2015 the Bank paid
dividend of HUF 40,600 million from the profi t
of the year 2014, which meant 145 HUF payable
dividend by share to the shareholders.
In 2016 dividend of HUF 46,200 million are
expected to be proposed by the Management
from the profi t of the year 2015, which means
165 HUF payable dividends by share to the
shareholders.
The retained earnings and reserves according
to IFRS contains the retained earnings
(HUF 480,058 million and HUF 686,000 million)
and reserves (HUF 780,971 million and
HUF 602,757 million) as at 31 December
2015 and 31 December 2014 respectively.
The reserves include mainly net profi t for
the year attributable to the owners of the
company, the fair value adjustment of securities
available-for-sale, additional reserves of
Income Certifi cates Exchangeable for Shares
(“ICES”), changes in equity accumulated in the
previous year at the subsidiaries, changes due
to consolidation and exchange di erences.
In the Consolidated Financial Statement the
Group recognizes the non-monetary items
on historical cost. The di erence between
the historical cost of the non-monetary items
in forint amount and the translated foreign
currencies into the presentation currency using
the exchange rate at the balance sheet date,
is presented among the shareholders’ equity
as di erence of translation. The accumulated
amounts of exchange di erences were
HUF 165,308 million and HUF 121,306 million
as at 31 December 2015 and 2014 respectively.
On 19 October 2006, the Bank sold 14.5 million
Treasury shares owned by the Group through
an issue of ICES. Within the transaction
10 million shares owned by OTP, and further
4.5 million shares owned by OTP Group were
114 OTP Bank Annual Report 2015
sold during the underwriting period of ICES
on the weighted average market price
(HUF 7,080) of the Budapest Stock Exchange.
The shares have been purchased by Opus
Securities S.A. (“OPUS”), which issued an
exchangeable bond with a total face value of
EUR 514,274,000 backed by those shares.
The exchangeable bonds have been sold at
a 32% premium over the selling price of the
shares. The EUR denominated exchangeable
bonds are perpetual and the investors can
exercise the conversion right between year
6 and 10. The bonds carry a fi xed coupon
of 3.95% during the fi rst 10 years, thereafter
the Issuer has the right to redeem the bonds
at face value. Following the year 10,
the bonds carry a coupon of 3 month EURIBOR
+3%. OTP has discretional right to cancel
the interest payments. The interest payable is
non-cumulative.
Due to the conditions described above, ICES
was accounted as an equity instrument and
therefore any payment was accounted as equity
distribution paid to ICES holders.
NOTE 21: TREASURY SHARES (in HUF mn)
The changes in the carrying value of treasury
shares are due to repurchase and sale
transactions on market authorised by the
General Assembly.
2015 2014
Nominal value (Ordinary shares) 1,814 1,818
Carrying value at acquisition cost 58,021 55,940
Change in number of shares: 2015 2014
Number of shares as at 1 January 18,175,347 17,972,405
Additions 5,284,354 6,474,942
Disposals (5,316,728) (6,272,000)
Closing number of shares 18,142,973 18,175,347
Change in carrying value: 2015 2014
Balance as at 1 January 55,940 55,599
Additions 26,721 27,522
Disposals (24,640) (27,181)
Closing balance 58,021 55,940
NOTE 22: NON-CONTROLLING INTEREST (in HUF mn)
2015 2014
Balance as at 1 January 3,349 4,767
Changes due to ownership structure (18) (177)
Non-controlling interest included in net profi t for the year (412) (273)
Foreign currency translation di erence (268) (968)
Closing balance 2,651 3,349
115IFRS consolidated fi nancial statements
NOTE 23: PROVISION FOR IMPAIRMENT ON LOAN
AND PLACEMENT LOSSES (in HUF mn)
2015 2014
Provision for impairment on loan losses
Provision for the year 607,856 708,743
Release of provision (332,171) (319,393)
Provision for impairment on loan losses 43,004 57,470
318,689 446,820
(Release of provision)/Provision for impairment
on placement losses
Provision for the year 3 874
Release of provision – (854)
Release of provision for impairment on placement losses (9) (10)
(6) 10
Provision for impairment on loan and placement losses 318,683 446,830
NOTE 24: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn)
2015 2014
Deposit and account maintenance fees and commissions 111,280 109,765
Fees and commissions related to the issued bank cards 42,573 45,997
Fees related to cash withdrawal 27,706 29,477
Fees and commissions related to fund management 18,184 20,215
Fees and commissions related to lending 17,277 21,495
Fees and commissions related to security trading 14,697 12,643
Other 25,714 25,800
Total 257,431 265,392
2015 2014
Fees and commissions related to issued bank cards 13,170 11,907
Fees and commissions paid on loans 7,070 12,489
Interchange fees 6,634 7,351
Fees and commissions related to deposits 2,596 2,579
Cash withdrawal transaction fees 1,791 2,158
Fees and commissions related to security trading 1,707 1,610
Fees and commissions related to collection of loans 1,660 2,856
Money market transaction fees and commissions 1,101 794
Postal fees 1,017 836
Insurance fees 257 532
Other 6,556 6,624
Total 43,559 49,736
Net profi t from fees and commissions 213,872 215,656
Income from fees and commissions:
Expense from fees and commissions:
116 OTP Bank Annual Report 2015
NOTE 25: OTHER OPERATING INCOME AND EXPENSES
AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn)
Other operating income 2015 2014
Refund by the State of cancelled receivables from
customer loans converted into HUF*
6,631 –
Gains on transactions related to property activities 1,724 734
Other income from non-fi nancial activities 14,618 13,645
Total 22,973 14,379
Other operating expenses 2015 2014
Expenses from regulations related to customer loans** 186,269 –
Provision for expected losses due to CHF loans conversion at
foreign subsidiaries
39,827 –
Financial support for sport association and organization
of public utility
13,918 10,929
Provision for o -balance sheet commitments
and contingent liabilities
10,387 512
Provision for impairment on other assets 6,696 5,066
Provision for impairment on investments*** 1,094 1,244
Provision for assets subject to operating lease 350 1,048
Provision on investment properties 101 3,612
(Release of provision)/Provision on contingent liabilities due
to regulations related to customer loans**
(196,574) 194,798
Other 12,612 15,400
Total 74,680 232,609
* The amount is concerned for the Group. In 2016 the amount of the refund is deductible from special tax of financial institutions
and financial transaction duty.
** See details in Note 2.28.
*** See details in Note 9.
**** See details in Note 11.
***** Special tax of financial institutions was paid by the Group in the amount of HUF 35 billion for the year 2015 and HUF 37 billion for
the year 2014 respectively, recognized as an expense thus decreased the corporate tax base. In the year ended 31 December 2015
financial transaction duty was paid by the Bank in the amount of HUF 45 billion.
Other administrative expenses 2015 2014
Personnel expenses
Wages 137,250 151,467
Taxes related to personnel expenses 37,304 41,319
Other personnel expenses 13,252 13,549
Subtotal 187,806 206,335
Depreciation and amortization**** 45,463 65,947
Other administrative expenses
Taxes, other than income tax***** 110,102 116,148
Administration expenses, including rental fees 46,137 51,119
Services 44,400 40,515
Professional fees 20,344 16,892
Advertising 11,264 11,736
Subtotal 232,247 236,410
Total 465,516 508,692
NOTE 26: INCOME TAX (in HUF mn)
The Group is presently liable for income tax at
rates between 9% and 35% of taxable income.
Deferred tax is calculated at the income
tax rate of 9% in Montenegro, 10% in Bulgaria,
12.5% in Cyprus, 15% in Serbia, 16% in
Romania, 18% in Ukraine, 19% in Hungary,
20% in Croatia and Russia, 22% in Slovakia,
25% in the Netherlands and 35%
in Malta.
117IFRS consolidated fi nancial statements
The breakdown of the income tax expense is:
2015 2014
Current tax expense 11,624 16,520
Deferred tax benefi t (14,771) (67,905)
Total (3,147) (51,385)
A reconciliation of the net deferred tax asset/liability is as follows:
2015 2014
Balance as at 1 January 51,154 (12,273)
Deferred tax benefi t 14,771 67,905
Deferred tax related to items recognized directly in equity
and in Other Comprehensive Income
6,288 (1,418)
Foreign currency translation di erence (3,744) (3,060)
Closing balance 68,469 51,154
A reconciliation of the income tax income/expense is as follows:
2015 2014
Profi t/(Loss) before income tax 66,024 (153,643)
Income tax expense/(income) at statutory tax rates 1,197 (26,793)
A breakdown of the deferred tax assets are as follows:
2015 2014
Tax accrual caused by negative taxable income 43,265 15,207
Unused tax allowance 19,014 6,794
Fair value adjustment of securities held for trading
and securities available-for-sale
8,330 8,704
Provision for impairment on investments (Goodwill) 8,030 10,705
Refundable tax in accordance with Acts on Customer Loans* 6,341 33,226
Repurchase agreement and security lending 4,102 4,176
Provision for o -balance sheet commitments
and contingent liabilities, derivative fi nancial instruments
2,582 593
Premium and discount amortization on bonds 1,959 177
Adjustment from e ective interest rate method 1,272 –
Di erence in depreciation and amortization 170 73
Di erence in accounting for leases 160 177
Fair value adjustment of derivative fi nancial instruments 84 8
Fair value adjustment related to customer loans 80 –
Other 14,373 16,373
Deferred tax asset 109,762 96,213
Fair value adjustment of securities held for trading
and securities available-for-sale
(16,506) (16,193)
Fair value adjustment of derivative fi nancial instruments (7,809) (5,031)
Di erence in depreciation and amortization (4,971) (5,051)
Adjustment from e ective interest rate method (4,258) (2,380)
Temporary di erences arising on consolidation (2,988) (1,817)
Net e ect of treasury share transactions (2,009) (2,681)
Accounting of equity instrument (ICES) (556) (1,333)
Di erence in accounting for leases (139) (3,992)
Premium and discount amortization on bonds (14) (23)
Provision for o -balance sheet commitments
and contingent liabilities, derivative fi nancial instruments
– (110)
Other (2,043) (6,448)
Deferred tax liabilities (41,293) (45,059)
Net deferred tax asset 68,469 51,154
* See details in Note 2.28.
118 OTP Bank Annual Report 2015
Income tax adjustments due to permanent di erences are as follows:
2015 2014
Tax refund in accordance with Acts on Customer Loans 22,776 (28,306)
Provision on expected liability 8,230 –
Share-based payment – 835
Use of tax allowance in the current year – (2,479)
Di erence of accounting of equity instrument (ICES) (9) (211)
OTP–MOL share swap transaction (615) (80)
Treasury share transactions (1,729) (917)
Revaluation of investments denominated in foreign currency
to historical cost
(4,601) (185)
Deferred use of tax allowance (11,028) (6,335)
Di erences in carrying value of subsidiaries (16,039) 14,982
Other (1,330) (1,896)
Income tax (3,147) (51,385)
E ective tax rate (5.2%) 33.44%
NOTE 27: FINANCIAL RISK MANAGEMENT (in HUF mn)
A fi nancial instrument is any contract that
gives rise to a fi nancial asset of one entity and
a fi nancial liability or equity instrument of
another entity.
Financial instruments may result in certain
risks to the Group. The most signifi cant risks
the Group faces include:
27.1 Credit risk
The Group takes on exposure to credit risk
which is the risk that a counter-party will be
unable to pay amounts in full when due.
The Group structures the levels of credit risk
it undertakes by placing limits on the amount
of risk accepted in relation to one borrower,
or banks of borrowers, and to geographical
areas and loan types. Such risks are monitored
on a periodical basis and subject to an annual
or more frequent review. The exposure to
any borrower including banks and brokers is
further restricted by sub-limits covering on and
o -balance sheet exposures and daily delivery
risk limits in relation to trading items such as
forward foreign exchange contracts. Actual
exposures against limits are monitored daily.
Exposure to credit risk is managed through
E ective tax rate was negative because income tax and income tax adjustments are altogether
negative in 2015.
regular analysis of the ability of borrowers
and potential borrowers to meet interest
and principal repayment obligations and by
changing these lending limits when appropriate.
Exposure to credit risk is managed by obtaining
collateral, corporate and personal guarantees.
27.1.1 Analysis by loan types
and by DPD categories
Classifi cation into DPD categories
The Group presents the non-performing loan
portfolio according delay of payment above
90 days past due. When determining the
impairment beside the delay of payment
other information available for the Group
is also taking into consideration.
The foreseeable risks and expected losses
are considered, when the Group during
determining the result of the current year,
calculates and accounts impairment and
credits provisions. The impairments and
provisions are accounted notwithstanding
whether the result recognized in the current
year is gain or loss. The Group when calculates
the impairment of the loans applies the
119IFRS consolidated fi nancial statements
requirement of IFRS and the principles defi ned
in the impairment policy of the Group.
Exposures with small amounts are subject
to collective valuation method, which is a
simplifi ed assessment. The exposures subject
to collective valuation method are classifi ed into
fi ve valuation groups which have been formed
based on past due days from which there
classes were presented (A: 0–90 days past
due – DPD, B: 91–360 DPD, C: above 360 days
past due). The three new groups do not match
one by one to the earlier used risk classes, the
composition of the classes has changed due to
the di erent criteria.
The Group intends – where a great number of
items and su cient long-term historical data
is available – to apply models on statistical
bases. The impairment is calculated according
to the possibility of listing the loan into default
categories examined on the base of objective
valuation criteria (delay of payment, change of
exchange) and the expected recovery from the
collecting. If the loss of the exposure can’t be
modelled reliably, the impairment is determined
by expert keys.
Impairment on claims above the limit are under
individual assessment method. Depending on
the incurred loss of each item is determined
based on the consideration of all of the
following criteria:
ş WKHFUHGLWUDWLQJRIWKHFXVWRPHURUWKH
partner: the fi nancial position, stability and
income-generating capacity a ected by the
fi nancial or investment service and issuer of
the security, and any changes thereto;
ş FRPSOLDQFHZLWKWKHUXOHVRIUHSD\PHQW
(delay): delays in the repayment of the loan
principal and its interests, regularity of the
fulfi llment of payment obligations;
ş WKHVWDWXVRIWKHUHVWUXFWXULQJUHQHJRWLDWLQJ
of risk taking contracts;
ş WKHFRXQWU\ULVNUHODWLQJWRWKHFXVWRPHU
(both political and transfer risks) and any
changes thereto;
ş WKHYDOXHRIFROODWHUDOVWKHLUOLTXLGLW\DQG
accessibility, and any changes therein;
ş WKHWUDQVIHUDELOLW\DQGOLTXLGLW\RIWKH
exposures (the market conditions of supply
and demand, the available market prices and
participation in the shareholders’ equity of
the issuer in proportion to the investment);
ş WKHIXWXUHSD\PHQWREOLJDWLRQUHFRJQL]HGDVD
loss arising from the exposure.
The expected future losses of the individually
assessed item are determined by taking into
considerations the above listed objective
valuation aspects. The expected loss, the
volume of the necessary reserve is defi ned by
taking into account the value of the collaterals,
comparing with the value of the collaterals
relating to the exposure. The expected recovery
is calculated by applying the e ective interest
rate method and the discounted cash-fl ow
method. The impairment accounted for the item
before should be completed to this level by
increasing the amount of the impairment or by
releasing the provision accounted before.
120 OTP Bank Annual Report 2015
An analysis of the gross loan portfolio by loan types and DPD categories is as follows:
As at 31 December 2015:
Loan type Up to 90
days
91–360
days
Above 360
days
Total carrying
amount/allowance
Mortgage loans 1,907,505 83,564 342,273 2,333,342
Loans to medium and large corporates 1,494,209 34,287 276,116 1,804,612
Consumer loans 1,215,742 75,731 137,921 1,429,394
Loans to micro and small enterprises 377,634 11,819 107,132 496,585
Car-finance loans 175,023 4,671 30,904 210,598
Municipal loans 93,134 74 53 93,261
Gross portfolio 5,263,247 210,146 894,399 6,367,792
Placement with other banks 300,503 – 52 300,555
Bill of exchange 5,882 – – 5,882
Total gross portfolio 5,569,632 210,146 894,451 6,674,229
Allowance for loans (181,302) (129,033) (703,285) (1,013,620)
Allowance for placements (3)
–
(47) (50)
Total allowance (181,305) (129,033) (703,332) (1,013,670)
Total net portfolio 5,388,327 81,113 191,119 5,660,559
Accrued interest
for loans 49,913
for placements 63
Total accrued interest 49,976
Total net loans 5,409,967
Total net placements 300,568
Total net exposures 5,710,535
As at 31 December 2014:
Loan type Up to 90
days
91–360
days
Above 360
days
Total carrying
amount/allowance
Mortgage loans 2,014,737 95,472 480,123 2,590,332
Loans to medium and large corporates 1,565,654 49,286 242,997 1,857,937
Consumer loans 1,389,289 115,644 155,581 1,660,514
Loans to micro and small enterprises 329,030 15,931 129,515 474,476
Car-finance loans 175,980 17,755 36,584 230,319
Municipal loans 117,988 262 63 118,313
Gross portfolio 5,592,678 294,350 1,044,863 6,931,891
Placement with other banks 280,917 12 9 280,938
Bill of exchange 4,193 – – 4,193
Total gross portfolio 5,877,788 294,362 1,044,872 7,217,022
Allowance for loans (169,562) (180,880) (778,643) (1,129,085)
Allowance for placements (26) (12) (9) (47)
Total allowance (169,588) (180,892) (778,652) (1,129,132)
Total net portfolio 5,708,200 113,470 266,220 6,087,890
Accrued interest
for loans 57,242
for placements 115
Total accrued interest 57,357
Total net loans 5,864,242
Total net placements 281,006
Total net exposures 6,145,248
The Group’s loan portfolio decreased by 7.5%
in year 2015. Analysing the contribution of
loan types to the loan portfolio, the share of
the consumer loan types slightly decreased,
the loans to medium and large enterprises
slightly increased, while the other types of loans
remained almost the same as at 31 December
2015 comparing with the previous year.
The qualifi cation of the loan portfolio started to
improve from the previous year, and now for
the end of year 2015 the ratio of the more than
90 days past due to the above 360 days past
due loans compared to the gross loan portfolio
decreased from 18.6% to 16.6%. Among the
qualifi ed loan portfolio, the loans classifi ed to
the risk class of “more than 90 until 360 days
past due” narrowed at the fastest level.
The Group has a prudent provisioning policy, the
indicator which describes the coverage of loans
by provision for impairment on loans classifi ed
as “Above 360 days”, was 78.6% and 74.5% as
at 31 December 2015 and 2014 respectively.
121IFRS consolidated fi nancial statements
Loan type Not past
due
Up to 90
days
91–360
days
Above 360
days
Total
Mortgage loans 1,615,942 265,692 1,084 1,487 1,884,205
Loans to medium and large corporates 1,204,462 25,952 461 3,939 1,234,814
Consumer loans 1,055,559 146,514 78 114 1,202,265
Loans to micro and small enterprises 340,979 22,815 58 1,192 365,044
Placement with other banks 300,502 – – 6 300,508
Car-finance loans 143,808 31,095 2 7 174,912
Municipal loans 89,134 1,193 74 – 90,401
Total 4,750,386 493,261 1,757 6,745 5,252,149
Loan type Not past
due
Up to 90
days
91–360
days
Above 360
days
Total
Mortgage loans 1,732,423 245,115 2,827 6,508 1,986,873
Loans to medium and large corporates 1,225,143 27,730 630 1,152 1,254,655
Consumer loans 1,206,231 170,679 75 26 1,377,011
Loans to micro and small enterprises 289,677 15,455 619 710 306,461
Placement with other banks 280,891 – – – –
Car-finance loans 148,523 20,314 895 1,210 170,942
Municipal loans 96,629 2,066 1,279 34 100,008
Total 4,979,517 481,359 6,325 9,640 5,476,841
Loans not past due or past due, but not
impaired cover only balance sheet items.
The ratio of the gross value of the loans neither
past due nor impaired compared to the whole
portfolio signifi cantly increased from 69% to
71.2% as at 31 December 2015 comparing to
the end of the previous year. The ratio of the
mortgage loans and consumer loans compared
to the portfolio of loans neither past due nor
impaired decreased slightly 31 December 2015,
while the ratio of the loans to micro and small
enterprises increased mostly.
The loans that are past due but not impaired
are concentrated mainly in the mortgage loan
type while in the other loan types the low level
of loans past due but not impaired is
a consequence of the prudent provisioning
policy of the Group. The ratio of the mortgage
and car-fi nance loans compared to the
portfolio of loans past due but not impaired
increased slightly and the ratio of the
consumer loans decreased in the year ended
31 December 2015.
Loans individually assessed
for provision
The individually rated exposures contain
both the loans and the o -balance sheet
commitments. The rating has been performed
based on the factors used at determining the
provision for impairment for them.
The loan portfolio analysis of the gross values of the loans that are not impaired, not past due
and past due is as follows:
As at 31 December 2015:
As at 31 December 2014:
Not impaired loan portfolio
122 OTP Bank Annual Report 2015
Considered factors Carrying value Allowance for
impairment
Collateral
value
O -balance
sheet
commitments
Provision for
o -balance sheet
commitments
Delay of payment 210,913 134,907 117,029 23 –
Legal proceedings 183,527 155,876 49,023 110 58
Decrease of client classification 108,640 44,791 79,469 1,884 292
Loan characteristics 54,682 9,780 35,618 – –
Country risk 53,284 27,153 15,416 – –
Cross default 50,230 20,950 9,824 133 47
Business lines risks 12,114 4,331 6,234 2,768 138
Restructuring 7,537 5,385 3,994 – –
Regularity of payment 134 44 105 – –
Other 15,512 5,205 14,140 2,889 384
Corporate total 696,573 408,422 330,852 7,807 919
Delay of payment 2,828 105 822 – –
Legal proceedings 41 41 – – –
Municipal total 2,869 146 822 – –
Placements with other banks – – – – –
Total 699,442 408,568 331,674 7,807 919
An analysis of fi nancial assets that are individually determined to be impaired, the factors
taken into consideration at the assessment, the provision for impairment for them
and the collaterals considered as at 31 December 2015 and 2014 is as follows:
As at 31 December 2015:
Considered factors Carrying value Allowance for
impairment
Collateral
value
O -balance
sheet
commitments
Provision for
o -balance sheet
commitments
Delay of payment 300,591 192,597 148,144 850 121
Legal proceedings 78,037 54,745 48,845 84 47
Decrease of client classification 182,472 49,221 137,716 11,041 3,835
Loan characteristics 39,370 1,975 27,341 – –
Country risk 33,145 7,935 13,752 – –
Cross default 28,229 4,498 12,188 590 51
Business lines risks 16,125 3,670 8,454 12,639 390
Restructuring 1,954 1,014 1,054 – –
Regularity of payment 48,373 37,290 12,790 – –
Other 10,061 2,030 10,402 4,721 161
Corporate total 738,357 354,975 420,686 29,925 4,605
Delay of payment 8,895 468 4,927 – –
Decrease of client classification 234 122 – 3 –
Legal proceedings 592 235 1,267 – –
Other 96 1 – 381 4
Municipal total 9,817 826 6,194 384 4
Placements with other banks – – – – –
Total 748,174 355,801 426,880 30,309 4,609
As at 31 December 2014:
By 31 December 2015 the volume of the
individually rated portfolio decreased by 5.7%
in the corporate loan type. Among the rating
factors of the corporate loan type, the decrease
is mostly based on the regularity of payment
and on the decrease of client classifi cation,
while increase is based on the restructuring
and legal proceedings as at 31 December 2015.
The decrease was 70.8% in the municipal loan
portfolio comparing with the end of the previous
year, where the decrease is mostly based on
the decreasing number of legal proceedings as
well as the decrease of the delay of payment
and on the improving client classifi cation.
Increase was not experienced at all according to
none of the above listed factors.
123IFRS consolidated fi nancial statements
Transactions with high level of risk
Loans to customers are classifi ed by using this
category name if the clients are performing
according to the contracts but the risks of the
transactions are higher than usual (balloon
payment, using loan to fi nance the monetary
expenditures in the phase of investment).
Business lines risks
Transactions are classifi ed by using this
category name, if the client works in a business
line which was most exposed to the fi nancial
crisis (vehicle industry, building industry, real
estate services, metal processing, fi nancial
services).
2015 2014
Country Carrying amount
of gross loan and placement
with other banks portfolio
Allowance Carrying amount
of gross loan and placement
with other banks portfolio
Allowance
Hungary 2,585,533 291,976 2,888,007 357,121
Bulgaria 1,226,958 165,843 1,220,609 160,427
Romania 565,103 37,120 484,602 69,475
Croatia 502,823 44,555 510,344 39,442
Russia 448,751 90,683 588,601 101,079
Ukraine 426,158 243,752 578,876 254,910
Slovakia 381,571 22,164 370,649 22,920
Montenegro 157,764 58,945 186,890 71,542
Serbia 135,040 31,858 112,822 33,037
United Kingdom 59,813 2,251 123,716 2,075
Cyprus 42,293 18,344 47,333 10,476
Germany 28,583 89 22,440 91
Belgium 23,896 23 86 6
Austria 22,489 3 9,981 5
Switzerland 14,577 88 8,267 149
United States of America 12,990 36 24,387 51
France 7,992 15 5,284 1
Norway 5,813 – 4,649 25
Seychelles 4,818 4,818 4,877 4,855
Czech Republic 4,074 7 6,829 13
Poland 3,918 5 1,454 –
The Netherlands 1,774 84 1,067 21
Turkey 1,434 11 1,812 8
Bosnia and Herzegovina 865 708 954 685
Denmark 601 – 1,660 –
Ireland 459 70 193 69
Japan 405 – 157 –
United Arab Emirates 319 13 19 13
Italy 293 12 4,598 3
Sweden 290 10 263 8
Kazakhstan 175 60 171 30
Greece 160 22 139 21
Egypt 87 6 685 480
Canada 79 – 38 –
Spain 67 5 57 1
Latvia 52 36 58 32
Luxembourg 42 – – –
Island 41 28 41 29
Australia 19 – 55 –
Other* 228 30 159 32
Total** 6,668,347 1,013,670 7,212,829 1,129,132
An analysis of the non-qualifi ed and qualifi ed gross loan portfolio in a country breakdown
is as follows:
Loan portfolio by countries
** Other category in year of 2015 includes e.g.: China, Hong Kong, Moldova, Macedonia, Armenia, Israel, Singapore, Brazil, Vietnam, Finland, Slovenia, Morocco, Kyrgyzstan and
Georgia.
** Without the amount of bill of exchange.
124 OTP Bank Annual Report 2015
The loan portfolio decreased mostly in Ukraine,
Russia, Montenegro and Hungary and increased
in Serbia and Romania but there were no signi-
fi cant changes in the other countries of Group
members’. Their stock of provision increased
mostly in Croatia and decreased mostly in
Romania, Hungary, Montenegro and Russia
due to the slightly decreased loan portfolio in
some countries but there were no signifi cant
movements in none of the other countries.
In some countries the stock of provision
increased due to local regulations on the base
of which it is compulsory to account fi x rate of
provision on the non-qualifi ed portfolio.
27.1.2 Collaterals
The values of collaterals held by the Group
by types are as follows (total collaterals). The
collaterals cover loans as well as o -balance
sheet exposures.
Types of collaterals 2015 2014
Mortgages 5,694,831 5,323,528
Assignments (revenue or other receivables) 387,422 407,051
Guarantees of state or organizations owned by state 103,498 277,260
Guarantees and warranties 268,361 114,034
Cash deposits 73,245 74,435
Securities 193,706 34,508
Other 799,489 793,137
Total 7,520,552 7,023,953
Types of collaterals 2015 2014
Mortgages 2,801,423 2,737,324
Assignments (revenue or other receivables) 320,728 330,466
Guarantees of state or organizations owned by state 92,216 207,379
Guarantees and warranties 172,853 86,475
Cash deposits 39,387 42,956
Securities 155,886 16,723
Other 455,688 455,811
Total 4,038,181 3,877,134
The values of collaterals held by the Group
by types are as follows (to the extent of the
The coverage level of the loan portfolio (total
collaterals) increased by 9.7%, as well as the
exposures). The collaterals cover loans as well
as o -balance sheet exposures.
coverage level to the extent of the exposures
increased by 3.98% as at 31 December 2015.
27.1.3 Restructured loans
2015 2014
Gross
portfolio
Allowance Gross
portfolio
Allowance
Loans to medium and large corporates* 171,394 60,019 197,382 43,685
Retail loans 74,733 18,153 76,124 6,636
Loans to micro and small enterprises 11,134 1,570 14,046 2,018
Municipal loans – – 71 3
Total 257,261 79,742 287,623 52,342
* They include project and syndicated loans.
125IFRS consolidated fi nancial statements
Restructured portfolio defi nition
Restructured portfolio for retail business
line contains every loan which is relevant
restructured and less than 91 days delinquent.
Loan is considered as relevant restructured if:
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ago, but the connected preferential period is
not expired or expired in the last 12 months.
Hungarian FX mortgage loans in the fi xed
exchange rate scheme are not included.
In case of loans that have been restructured
more than once the last restructuring is
considered.
Restructured portfolio for medium and large
corporates/micro and small enterprises/
municipal business line contains every loan
which is relevant restructured and less than
91 days delinquent. Loan is considered as
relevant restructured if:
ş LQGHSHQGHQWO\IURPWKHGDWHRIWKH
restructuring the following restructuring tool
was applied:
– cancellation of principal outstanding
(cancelled or partially cancelled principal
receivables);
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or the loan was restructured more than
12 months ago, but the connected
preferential period is not expired or expired
in the last 12 months, and any of the
following restructuring tools were applied:
– cancellation of interest rate (fi nal or
temporary reduction of the interest margin,
cancellation of due interest), or
– restructuring of interest payments
(postponement of the interest payment,
capitalization of the interest), or
– restructuring of principal repayment (partial
or full postponement of repayment of a given
instalment, rescheduling one or more
instalments within the original term or
with extension of the term simultaneously).
Other modifi cations of contract not mentioned
above are not considered as restructuring
(i.e. modifying the collateral structure,
modifi cation of the credit purpose).
In case of loans that have been restructured more
than once the last restructuring is considered.
Aaa Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Not
rated
Total
Shares 11 19 24 66 54 59
– 27 26 6 72,328 72,620
Government bonds – – – – – – 8,222 4,903 12,613 128 – 25,866
Discounted Treasury bills ––––– – – – 366 ––366
Other securities – – – – – – – – 7,786 – 160 7,946
Other non-interest
bearing securities
– – – – – – – 1,580 – – 2,927 4,507
Total 11 19 24 66 54 59 8,222 6,510 20,791 134 75,415 111,305
Accrued interest 671
Total 111,976
Securities held for trading as at 31 December 2015:
27.1.4 Financial instruments
by rating categories*
* Moody’s ratings.
126 OTP Bank Annual Report 2015
A2 Baa2 Baa3 Ba1 Caa3 Not
rated
Total
Government bonds
22,505 1,135 14,347 814,755 35,790 21,024 909,556
Discounted Treasury bills – – – – – 116 116
Corporate bonds –––––55
Total 22,505 1,135 14,347 814,755 35,790 21,145 909,677
Accrued interest 17,807
Total 927,484
Securities held-to-maturity as at 31 December 2015:
A1 Baa2 Baa3 Ba1 Ba2 Caa3 C Not
rated
Total
Government bonds – 66,897 – 1,065,097 3,385 2,902 10 4,179 1,142,470
Corporate bonds – – – 78 4,180 – 2 47,018 51,278
Discounted Treasury bills – – 14,422 19,548 – – – – 33,970
Other securities 1,136 – – – 10,855 – – 431 12,422
Other non–interest
bearing securities
25 – 1,511 – – – – 43,686 45,222
Total 1,161 66,897 15,933 1,084,723 18,420 2,902 12 95,314 1,285,362
Accrued interest 20,507
Total 1,305,869
Securities available-for-sale as at 31 December 2015:
27.2 Market risk
The Group takes on exposure to market risks.
Market risks arise from open positions in
interest rate, currency and equity products, all
of which are exposed to general and specifi c
market movements.
The Group applies a ‘Value-at-Risk’
methodology to estimate the market risk
of positions held and the maximum losses
expected, based upon a number of assumptions
for various changes in market conditions.
The Management Board sets limits on the
value of risk that may be accepted, which is
monitored on a daily basis.
(Analysis of liquidity risk is, foreign currency
risk and interest rate risk is detailed
in Note 35, 36 and 37, respectively.)
27.2.1 Market Risk sensitivity analysis
The VaR risk measure estimates the potential
loss in pre-tax profi t over a given holding period
for a specifi ed confi dence level.
The VaR methodology is a statistically defi ned,
probability-based approach that takes into
account market volatilities as well as risk diver-
sifi cation by recognizing o setting positions
and correlations between products and markets.
Risks can be measured consistently across all
markets and products, and risk measures can
be aggregated to arrive at a single risk number.
The one-day 99% VaR number used by the
Group refl ects the 99% probability that the daily
loss will not exceed the reported VaR.
VaR methodologies are employed to calculate
daily risk numbers include the historical and
variance-covariance approach. In addition
to these two methodologies, Monte Carlo
simulations are applied to the various portfolios
on a monthly basis to determine potential
future exposure.
127IFRS consolidated fi nancial statements
Historical VaR (99%, one-day) by risk type
Average
in HUF million
2015 2014
Foreign exchange 441 1,263
Interest rate 459 391
Equity instruments 3 12
Diversifi cation (215) (278)
Total VaR exposure 688 1,388
The VaR of the trading portfolio can be summarized as follows (in HUF mn):
While VaR captures the Group’s daily exposure
to currency and interest rate risk, sensitivity
analysis evaluates the impact of a reasonably
possible change in interest or foreign currency
rates over a year. The longer time frame of
sensitivity analysis complements VaR and helps
the Group to assess its market risk exposures.
Details of sensitivity analysis for foreign
currency risk are set out in Note 27.2.2, for
interest rate risk in Note 27.2.3, and for equity
price sensitivity analysis in Note 27.2.4 below.
27.2.2 Foreign currency sensitivity
analysis
The following table details the Group’s
sensitivity to an increase and decrease in the
HUF exchange rate against the EUR and USD,
over a 3 months period. Monte Carlo simulation
is used when reporting foreign currency risk
internally to key management personnel and
represents Management’s assessment of the
reasonably possible change in foreign exchange
rates. The sensitivity analysis includes only
outstanding foreign currency denominated
monetary items as strategic open positions
related to foreign activities.
The strategic open position related to the
foreign operations was short, amounted to
EUR 310 million ( kept to hedge the currency
risk of the expected FX-denominated net
earnings of the main foreign subsidiaries) as
at 31 December 2015. High portion of strategic
positions is considered as e ective hedge of the
net investment in foreign subsidiaries – net
investment hedge is applied at Group level –,
and so FX risk a ects the Group’s other
comprehensive income and not its earnings.
A positive number below indicates an increase
in profi t where the HUF strengthens against
the EUR. For a weakening of the HUF against
the EUR, there would be an equal and opposite
impact on the profi t, and the balances below
would be negative.
Probability
E ects to the Consolidated Statement of
Recognized Income in 3 months period
in HUF billion
2015 2014
1% (14.6) (15.2)
5% (10.0) (10.6)
25% (4.4) (4.6)
50% (0.5) (0.8)
25% 3.1 2.9
5% 7.8 7.9
1% 10.9 11.7
Notes:
(1) The short-term loss on the strategic open
position is compensated by the long-term
exchange rate gain on the foreign operations.
(2) Monte Carlo simulation is based on
the empirical distribution of the historical
exchange rate movements between
2002 and 2015.
128 OTP Bank Annual Report 2015
27.2.3 Interest rate sensitivity
analysis
The sensitivity analyses below have been
determined based on the exposure to interest
rates for both derivatives and non-derivative
instruments at the balance sheet date.
The analysis is prepared assuming the amount
of assets and liabilities outstanding at the
balance sheet date was outstanding for the
whole year. The analysis was prepared by
assuming only adverse interest rate changes.
The main assumptions were as follows:
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repriced to the modelled benchmark yields at
the repricing dates assuming the unchanged
margin compared to the last repricing.
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at the contractual maturity date.
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feature by the Bank were assumed to be
repriced with two-weeks delay, assuming no
change in the margin compared to the last
repricing date.
ş $VVHWVDQGOLDELOLWLHVZLWKDQLQWHUHVWUDWH
lower than 0.3% were assumed to be
unchanged for the whole period.
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BUBOR, EURIBOR and USD LIBOR is analyzed.
The simulations were prepared by assuming
two scenarios:
(1) HUF base rate and BUBOR decreases
gradually to 0.85% (probable scenario)
(2) HUF base rate and BUBOR decreases
gradually to 0.35% (alternative scenario)
The net interest income in a one year period
after 31 December 2015 would be decreased
by HUF 1,616 million (probable scenario) and
HUF 3,874 million (alternative scenario) as a
result of these simulation. The same simulation
indicated HUF 1,030 million (probable scenario)
and HUF 4,098 million (alternative scenario)
decrease in the Net interest income in a one
year period after 31 December 2014.
This e ect is counterbalanced by capital gains
(HUF 291 million for probable scenario,
HUF 1,109 million for alternative scenario) as
at 31 December 2015 and (HUF 899 million
for probable scenario, HUF 3,689 million for
alternative scenario) as at 31 December 2014
on the government bond portfolio held for
hedging (economic).
2015 2014
Description E ects to the
net interest income
(one-year period)
E ects to capital
(Price change of AFS
government bonds)
E ects to the
net interest income
(one-year period)
E ects to capital
(Price change of AFS
government bonds)
HUF (0.1%) parallel shift (588) 195 (361) 374
EUR (0.1%) parallel shift (614) – (503) –
USD (0.1%) parallel shift (41) – (50) –
Total (1,243) 195 (914) 374
The e ects of the parallel shifts of the yield-curves to the net interest income on a one-year
period and to the market value of the hedge government bond portfolio booked against capital
can be summarized as follows (in HUF million):
27.2.4 Equity price sensitivity
analysis
The following table shows the e ect of the equity
price sensitivity. The Group uses VaR calculation
with 1 day holding period and a 99% confi dence
level. The VaR methodology is a statistically
defi ned, probability-based approach that takes
into account market volatilities as well as
risk diversifi cation by recognizing o setting
positions and correlations between products
and markets. The daily loss will not exceed the
reported VaR number with 99% of probability.
The stress test assumes the largest price
movement of the last year and calculates with it
as the adverse direction. These scenarios show
the loss of the portfolio when all prices change
with the maximum amount of the last year.
129IFRS consolidated fi nancial statements
Description 2015 2014
VaR (99%, one day, HUF million) (3) (13)
Stress test (HUF million) (53) (43)
27.2.5 Capital management
Capital management
The primary objective of the capital
management of the Group is to ensure the
prudent operation, the entire compliance
with the prescriptions of the regulator for a
persistent business operation and maximising
the shareholder value, accompanied by an
optimal fi nancing structure.
The capital management of the Group members
includes the management and evaluation of
the shareholders’ equity available for hedging
risks, other types of funds to be recorded in the
equity and all material risks to be covered by
the capital.
The basis of the capital management of
the Group members in the short run is the
continuous monitoring of their capital position,
in the long run the strategic and the business
planning, which includes the monitoring and
forecast of the capital position.
The Group members maintain the capital
adequacy required by the regulatory bodies
and the planned risk taking mainly by means
of ensuring and developing their profi tability.
In case the planned risk level of a Group
member exceeded its Core and the previously
raised Supplementary capital, it ensures the
prudent operation by occasional measures.
A further tool in the capital management of the
Bank is the dividend policy, and the transactions
performed with the treasury shares.
Capital adequacy
The Capital Requirements Directive package
(CRDIV/CRR) transposes the new global
standards on banking regulation (known as
the Basel III agreement) into the EU legal
framework. The new rules are applied from
1 January 2014. They set stronger prudential
requirements for institutions, requiring them
to keep su cient capital reserves and liquidity.
This new framework makes institutions in the
EU more solid and strengthens their capacity
to adequately manage the risks linked to their
activities, and absorb any losses they may incur
in doing business.
The capital adequacy of the Group is supervised
based on the fi nancial statements data
prepared in accordance with IFRS applying the
current directives, rulings and indicators from
1 January 2014.
The Group has entirely complied with the
regulatory capital requirements in year 2015 as
well as in 2014.
The Group uses the standard method
for determining the regulatory capital
requirements of the credit risk and market risk,
and parallel to that, the base indicator method
and the advanced method (AMA) in case of the
operational risk.
For international comparison purposes, the
Group calculated the Regulatory capital based
on IFRS data, and the consolidated Capital
adequacy ratio based on this in accordance with
the regulations of Basel III. The Capital adequacy
ratio of the Group (IFRS) was 16.2%, the
Regulatory capital was HUF 1,064,383 million
and the Total regulatory capital requirement
was HUF 526,101 million as at 31 December
2015. The same ratios calculated as at
31 December 2014 were the following: 17.5%,
HUF 1,201,874 million and HUF 548,755 million.
130 OTP Bank Annual Report 2015
Calculation on IFRS basis 2015 2014
Core capital (Tier1) = Common Equity Tier1 (CET1) 873,124 969,935
Issued capital 28,000 28,000
Reserves 1,230,035 1,280,396
Fair value corrections 28,125 25,389
Other capital components (152,808) (113,047)
Non-controlling interests 572 736
Treasury shares (58,021) (55,940)
Goodwill and other intangible assets (158,370) (158,681)
Other adjustments (44,409) (36,918)
Additional Tier1 (AT1) – –
Supplementary capital (Tier2) 191,259 231,939
Subordinated bonds and loans 99,054 133,217
Other issued capital components 92,092 96,019
Components recognized in T2 capital
issued by subsidiaries
113 2,703
Regulatory capital* 1,064,383 1,201,874
Credit risk capital requirement 419,670 450,073
Market risk capital requirement 37,183 26,848
Operational risk capital requirement 69,248 71,834
Total requirement regulatory capital 526,101 548,755
Surplus capital 538,282 653,119
CET1 ratio 13.3% 14.1%
Tier1 ratio 13.3% 14.1%
Capital adequacy ratio 16.2% 17.5%
* The regulatory capital doesn’t contain the payable dividend from the result of 2015 and 2014 in accordance with ITS 680/2014/EU.
Basel III
The components of the Common Equity Tier1
capital (CET1) are the following: Issued capital,
Reserves (Profi t reserves, Other reserves,
Changes in the equity of subsidiaries, Profi t for
the year, Changes due to consolidation) Fair
value adjustments, Other capital components,
(Revaluation reserves, Share based payments,
Cash-fl ow hedges, Net investment hedge in
foreign operations), Non-controlling interest,
Treasury shares, Goodwill and other Intangible
assets, other adjustments (due to prudential
fi lters, due to deferred tax receivables, due to
temporary regulations).
Supplementary capital (Tier2): Subordinated
loan capital, Supplementary loan capital,
Other issued capital components,
Components recognized in T2 capital issued
by subsidiaries.
The ratios of the foreign subsidiaries exceed the requirements of the local regulations in every cases.
The compliance of the capital adequacy ratios of the foreign subsidiary banks prescribed
by the local regulator, is as follows:
Subsidiary bank Country 2015 2014
JSC “OTP Bank” (Russia) Russia 13.3% 12.1%
OTP Bank JSC (Ukraine) Ukraine 15.7% 10.4%
DSK Bank EAD Bulgaria 17.3% 18.0%
OTP Bank Romania S.A. Romania 14.2% 12.6%
OTP banka Srbija a.d. Serbia 25.8% 30.8%
OTP banka Hrvatska d.d. Croatia 15.6% 16.5%
OTP Banka Slovensko a. s. Slovakia 13.4% 13.7%
Crnogorska komercijalna banka a.d. Montenegro 16.3% 15.7%
131IFRS consolidated fi nancial statements
In the normal course of business, the
Group becomes a party to various fi nancial
transactions that are not refl ected on the
Consolidated Statement of Financial Position
and are referred to as o -balance sheet
fi nancial instruments. The following represent
notional amounts of these o -balance sheet
fi nancial instruments, unless stated otherwise.
NOTE 28: OFF-BALANCE SHEET ITEMS AND DERIVATIVE
FINANCIAL INSTRUMENTS (in HUF mn)
2015 2014
Commitments to extend credit 1,166,386 999,732
Guarantees arising from banking activities 374,422 368,670
Legal disputes (disputed value) 54,732 71,808
Confirmed letters of credit 18,237 25,581
Contingent liabilities ordered by law related
to customer loans*
– 157,693
Other 283,819 208,915
Total 1,897,596 1,832,399
Contingent liabilities:
* See details in Note 2.28.
Legal disputes
At the balance sheet date the Group was
involved in various claims and legal
proceedings of a nature considered normal
to its business. The level of these claims
and legal proceedings corresponds to the level
of claims and legal proceedings in previous
years.
The Group believes that the various asserted
claims and litigations in which it is involved
will not materially a ect its fi nancial position,
future operating results or cash-fl ows, although
no assurance can be given with respect to the
ultimate outcome of any such claim or litigation.
Provisions due to legal disputes were
HUF 6,680 million and HUF 7,454 million as at
31 December 2015 and 2014, respectively
(see Note 17).
Commitments to extend credit,
guarantees and letters of credit
The primary purpose of these instruments is to
ensure that funds are available to a customer
as required. Guarantees and standby letters of
credit, which represent irrevocable assurances
that the Group will make payments in the event
that a customer cannot meet its obligations
to third parties, carry the same credit risk as
loans.
Documentary and commercial letters of credit,
which are written undertakings by the Group on
behalf of a customer authorising a third party
to draw drafts on the Group up to a stipulated
amount under specifi c terms and conditions,
are collateralised by the underlying shipments
of goods to which they relate and therefore
carry less risk than a direct borrowing.
Commitments to extend credit represent
unused portions of authorisations to extend
credit in the form of loans, guarantees or
letters of credit. With respect to credit risk on
commitments to extend credit, the Group is
potentially exposed to loss in an amount equal
to the total unused commitments. However,
the likely amount of loss is less than the total
unused commitments since most commitments
to extend credit are contingent upon customers
maintaining specifi c credit standards.
Guarantees, irrevocable letters of credit and
undrawn loan commitments are subject
to similar credit risk monitoring and credit
policies as utilised in the extension of loans.
The Management of the Group believes the
132 OTP Bank Annual Report 2015
market risk associated with guarantees,
irrevocable letters of credit and undrawn loan
commitments are minimal.
Guarantees, payment undertakings
arising from banking activities
Payment undertaking is a promise by the Group
to assume responsibility for the debt obligation
of a borrower if that borrower defaults until a
determined amount, until a determined date,
in case of fulfi lling conditions, without checking
the undermined transactions. The guarantee’s
liability is joint and primary with the principal,
in case of payment undertaking, while the
Group assumes the obligation derived from
guarantee independently by the conditions
established by the Group.
A guarantee is most typically required when
the ability of the primary obligor or principal
to perform its obligations under a contract is
in question, or when there is some public or
private interest which requires protection from
the consequences of the principal’s default or
delinquency. A contract of guarantee is subject
to the statute of frauds (or its equivalent local
laws) and is only enforceable if recorded
in writing and signed by the surety and the
principal.
If the surety is required to pay or perform due
to the principal’s failure to do so, the law will
usually give the surety a right of subrogation,
allowing the surety to use the surety’s contrac-
tual rights to recover the cost of making pay-
ment or performing on the principal’s behalf,
even in the absence of an express agreement to
that e ect between the surety and the principal.
Derivatives
The Group maintains strict control limits on
net open derivative positions, i.e. the di erence
between purchase and sale contracts, by both
amount and term. At any one time the amount
subject to credit risk is limited to the current
fair value of instruments that are favourable
to the Group (i.e. assets), which in relation
to derivatives is only a small fraction of the
contract or notional values used to express the
volume of instruments outstanding. This credit
risk exposure is managed as part of the overall
lending limits with customers, together with
potential exposures from market movements.
Collateral or other security is not usually
obtained for credit risk exposures on these
instruments, except for trading with clients,
where the Group in most of the cases requires
margin deposits.
NOTE 29: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS
(in HUF mn)
Previously approved option program required
a modifi cation thanks to the introduction
of the Bank Group Policy on Payments
accepted in resolution of Annual General
Meeting regarding to the amendment of CRD III.
directives and Act on Credit Institutions
and Financial Enterprises.
Key management personnel a ected by the
Bank Group Policy receive compensation based
on performance assessment generally in the
form of cash bonus and equity shares in a ratio
of 50–50%. Assignment is based on OTP shares,
furthermore performance based payments are
deferred in accordance with the rules of Credit
Institutions Act.
The Bank ensures the share-based payment
part for the management personnel of the
Group members.
The value of the discounted share-based
payment at the performance assessment is
determined by the Supervisory Board* based
on the average of the three previous trade day’s
middle rate of the Bank’s equity shares fi xed on
the Budapest Stock Exchange.
* Until the end of 2014 Board of Directors.
133IFRS consolidated fi nancial statements
Discounted share-based payment shall
contain maximum HUF 2,000 discount at the
assessment date, and earnings for the shares
at the payment date is determined by the
Supervisory Board, maximum HUF 4,000.
During implementation of the Remuneration
Policy of the Group appeared that in case
of certain foreign subsidiaries it is not
possible to ensure the originally determined
share-based payment because of legal reasons
– incompatible with concerning EU-directives –,
therefore a decision was made to cancel the
share-based payment in the referred countries.
Employee benefi ts are all forms of
consideration given by an entity in exchange
for service rendered by employees or for the
termination of employment. IAS 19 Employee
Benefi ts shall be applied in accounting for
all employee benefi ts, except those to which
IFRS 2 Share-based Payment applies. In case
of the jubilee benefi ts both standards contain
regulations.
Short-term employee benefi ts are employee
benefi ts (other than termination benefi ts) that
are expected to be settled wholly before twelve
months after the end of the annual reporting
period in which the employees render the
related service. Post-employment benefi ts
are employee benefi ts (other than termination
and short-term employee benefi ts) that are
payable after the completion of employment.
Post-employment benefi t plans are formal
or informal arrangements under which
an entity provides post-employment benefi ts
for one or more employees. Post-employment
benefi t plans are classifi ed as either defi ned
contribution plans or defi ned benefi t plans,
depending on the economic substance of the
plan as derived from its principal terms and
conditions.
Termination benefi ts are employee benefi ts
provided in exchange for the termination of an
employee’s employment as a result of either:
an entity’s decision to terminate an employee’s
employment before the normal retirement date
or an employee’s decision to accept an o er
of benefi ts in exchange for the termination
of employment. Other long-term employee
benefi ts are all employee benefi ts other than
short-term employee benefi ts, postemployment
benefi ts and termination benefi ts.
The parameters for the share-based payment relating to the year 2010–2014 were determined
by Board of Directors, and relating to years from 2015 by the Supervisory Board for periods
of each year as follows:
Year Exercise
price
per share
Maximum
earnings
per share
Exercise
price
per share
Maximum
earnings
per share
Exercise
price per
share
Maximum
earnings
per share
Exercise
price per
share
Maximum
earnings
per share
Exercise
price per
share
Maximum
earnings
per share
for the year 2010 for the year 2011 for the year 2012 for the year 2013 for the year 2014
2011 3,946 2,500 – – – – – – – –
2012 3,946 3,000 1,370 3,000 – – – – – –
2013 4,446 3,500 1,870 3,000 2,886 3,000 – – – –
2014 4,946 3,500 1,870 4,000 2,886 3,000 2,522 2,500 – –
2015 – – 1,870 4,000 2,886 3,000 2,522 3,000 3,930 2,500
2016 – – – – 2,886 3,500 2,522 3,500 3,930 3,000
2017 – – – – – – 2,522 3,500 3,930 3,000
2018 – – – – – – – – 3,930 3,000
Based on parameters accepted by Board of Directors relating to the year 2010 e ective pieces
are follows as at 31 December 2015:
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2011 – 340,950 11,622 5,731 329,328
Share purchasing period started in 2012 – 735,722 714,791 4,593 20,931
Share purchasing period started in 2013 – 419,479 31,789 4,808 387,690
Share purchasing period started in 2014 – 497,451 495,720 5,838 1,731
134 OTP Bank Annual Report 2015
E ective pieces are follows in exercise periods of each year relating
to the year 2011 as at 31 December 2015:
E ective pieces are follows in exercise periods of each year relating
to the year 2012 as at 31 December 2015:
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2012 – 471,240 464,753 3,758 6,487
Share purchasing period started in 2013 – 1,267,173 1,256,529 4,886 10,644
Share purchasing period started in 2014 – 609,137 609,137 4,799 –
Share purchasing period started in 2015 670 608,118 607,448 5,618 –
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2013 – 450,861 445,671 4,413 5,190
Share purchasing period started in 2014 – 1,156,631 1,151,890 4,982 4,741
Share purchasing period started in 2015 1,971 555,845 553,874 5,654 –
Share purchasing period starting in 2016 688,990 – – – –
E ective pieces are follows in exercise periods of each year relating
to the year 2013 as at 31 December 2015:
E ective pieces are follows in exercise periods of each year relating
to the year 2014 as at 31 December 2015:
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2014 – 406,044 404,263 4,369 1,781
Share purchasing period started in 2015 1,494 804,469 802,975 4,912 –
Share purchasing period starting in 2016 495,340 – – – –
Share purchasing period starting in 2017 549,909 – – – –
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2015 – 176,459 176,459 5,828 –
Share purchasing period starting in 2016 366,669 – – – –
Share purchasing period starting in 2017 214,392 – – – –
Share purchasing period starting in 2018 237,013 – – – –
E ective pieces relating to the periods starting
in 2016–2018 settled during valuation of per-
formance of year 2012–2014, can be modifi ed
based on risk assessment and personal
changes.
In connection with shares as a part of the
Bank Group Policy on Payments modifi ed by
8/2014 resolution of Annual General Meeting
and the share-based compensation for Board
of Directors detailed in 8/2013 resolution
of Annual General Meeting and connecting
compensation based on performance assess-
ment accounted as equity-settled share based
transactions, HUF 3,810 million was recognized
as expense as at 31 December 2015.
135IFRS consolidated fi nancial statements
NOTE 30: RELATED PARTY TRANSACTIONS (in HUF mn)
The compensation of key management
personnel, such as the members of the Board
of Directors, members of the Supervisory
Board, key employees of the Bank and its major
The members of the Board of Directors,
members of the Supervisory Board, chief
executives and their close family members
owned credit line “A” in the amount of
HUF 168 million and HUF 164.3 million as
at 31 December 2015 and 2014.
subsidiaries involved in the decision-making
process in accordance with the compensation
categories defi ned in IAS 24 Related Party
Disclosures, is summarised below:
Compensations 2015 2014
Short-term employee benefits 6,227 8,373
Share-based payment 2,276 2,937
Other long-term employee benefits 532 739
Termination benefits 42 135
Total 9,077 12,184
Commitments to extend credit and guarantees 33,943 15,690
Loans provided to companies owned by the Management
(normal course of business)
25,734 13,357
Credit lines of the members of Board of Directors and the Supervisory
Board and their close family members (at normal market conditions)
340 334
Loans provided to unconsolidated subsidiaries 1,790 1,304
Interest income on loan provided to unconsolidated subsidiaries 42 44
2015 2014
Members of Board of Directors and their close family members 24 24
Members of Supervisory Board 2 4
Chief executives
22
2015 2014
Members of Board of Directors and their close family members 35 38
Members of Supervisory Board – –
An analysis of credit limit related to MasterCard Gold is as follows:
An analysis of credit limit related to Visa Card is as follows:
One member of Board of Directors and its
family member owned AMEX Blue credit card
loan in the amount of HUF 0.6 million as at
31 December 2015 and 2014, respectively.
Chief executives owned AMEX Gold credit card
loan in the amount of HUF 3.5 million as at
31 December 2015 and 2014, respectively.
The members of the Board of Directors,
members of the Supervisory Board, chief
executives and their close family members
owned AMEX Platinum credit card loan in
the amount of HUF 48.8 and 23.5 million ,
respectively as at 31 December 2015 and 2014,
respectively.
The members of Board of Directors and its
close family members owned other kinds of
credit card loan, which are not listed above in
the amount of HUF 16 and 18.2 million as at
31 December 2015 and 2014, respectively.
136 OTP Bank Annual Report 2015
In the normal course of business,
the Bank enters into other transactions
with its subsidiaries, the amounts and
volumes of which are not signifi cant to
these consolidated fi nancial statements taken
as a whole.
2015 2014
Members of Board of Directors 1,767 1,739
Members of Supervisory Board 144 147
Total 1,911 1,886
An analysis of payment to chief executives of the Group related to their activity
in Board of Directors and Supervisory Board is as follows:
b) Analysis of net outfl ow of cash in respect
of purchase of subsidiaries
Banca
Millennium S.A.
Banco Popolare
Croatia d.d.
Cash, amounts due from banks and balances with the National Banks (16,933) (1,719)
Placements with other banks, net of allowance for placement losses (7,376) (26,797)
Financial assets at fair value through profit or loss (25) –
Securities available-for-sale (14,757) (4,555)
Loans, net of allowance for loan losses (117,893) (52,566)
Associates and other investments (2) –
Securities held-to-maturity (5,272) –
Property and equipment (2,205) (2,320)
Intangible assets (80) (248)
Other assets (4,999) (188)
Amounts due to banks, the Hungarian Government,
deposits from the National Banks and other banks
52,928 4,067
Deposits from customers 98,370 72,565
Liabilities from issued securities ––
Financial liabilities at fair value through profit or loss – –
Other liabilities 4,120 2,798
Subordinated bonds and loans ––
Net assets (14,124) (8,963)
Non-controlling interest ––
Negative goodwill 1,845 4,563
Cash consideration (12,279) (4,400)
2015 2014
Cash consideration (12,279) (4,400)
Cash acquired 16,933 1,719
Net cash outflow 4,654 (2,681)
The fair value of the assets and liabilities acquired, and the related negative goodwill
(gain from bargain purchase, which was reasoned by the market situation
of the banking sector in the relevant countries) is as follows:
NOTE 31: ACQUISITION (in HUF mn)
a) Purchase and consolidation of subsidiaries
On 31 January 2014 OTP banka Hrvatska d.d.
signed a purchase agreement with the Croatian
Banco Popolare d.d. on acquiring a 98.37% stake
in the bank. The transaction was closed by setting
the purchase price on 24 April 2014. The acqui-
sition contributes to a more optimal economies
of scale of the Bank in Croatia. On 30 July 2014
OTP Bank Romania S.A. agreed on purchasing
100% stake of Banca Millennium S.A. for
EUR 39 million. The transaction was completed
on 8 January 2015 and through the fi nancial
settlement OTP Bank Romania S.A. acquired
100% ownership in Banca Millennium S.A.
137IFRS consolidated fi nancial statements
NOTE 32: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn)
Investments in companies in which the Bank
has a signifi cant interest are detailed below.
They are fully consolidated companies and
incorporated in Hungary unless otherwise
stated. The Bank considers the subsidiaries as
cash generating units.
Name Ownership (Direct and Indirect) Activity
2015 2014
DSK Bank EAD (Bulgaria) 100.00% 100.00% commercial banking services
OTP Bank JSC (Ukraine) 100.00% 100.00% commercial banking services
JSC “OTP Bank” (Russia) 97.87% 97.86% commercial banking services
OTP banka Hrvatska d.d. (Croatia) 100.00% 100.00% commercial banking services
OTP Bank Romania S.A. (Romania) 100.00% 100.00% commercial banking services
OTP banka Srbija a.d. (Serbia) 97.92% 97.90% commercial banking services
OTP Banka Slovensko a. s. (Slovakia) 99.26% 99.26% commercial banking services
OTP Financing Malta Company Ltd. (Malta) 100.00% 100.00% refinancing activities
OTP Factoring Ltd. 100.00% 100.00% work-out
OTP Mortgage Bank Ltd. 100.00% 100.00% mortgage lending
OTP Real Estate Ltd. 100.00% 100.00% real estate management and development
Merkantil Bank Ltd. 100.00% 100.00% finance lease
Merkantil Car Ltd. 100.00% 100.00% finance lease
OTP Building Society Ltd. 100.00% 100.00% flat finance and reconstruction
OTP Fund Management Ltd. 100.00% 100.00% fund management
R.E. Four d.o.o. (Serbia) 100.00% 100.00% real estate management
Crnogorska komercijalna banka a.d. (Montenegro) 100.00% 100.00% commercial banking services
OTP Financing Netherlands B.V. (the Netherlands) 100.00% 100.00% refinancing activities
OTP Holding Ltd. (Cyprus) 100.00% 100.00% refinancing activities
OTP Financing Cyprus Ltd. 100.00% 100.00% refinancing activities
Bank Center No. 1. Ltd. 100.00% 100.00% real estate lease
Inga Kettő Ltd. 100.00% 100.00% property management
OTP Funds Servicing and Consulting Ltd. 100.00% 100.00% fund services
OTP Real Estate Leasing Ltd.
(previously OTP Flat Lease Ltd.)
100.00% 100.00% real estate leasing
OTP Life Annuity Ltd. 100.00% 100.00% life annuity services
Signifi cant subsidiaries
Szallas.hu Ltd. D-ÉG
Thermoset Ltd.
Company for Cash
Services Ltd.
Suzuki Pénzügyi
Szolgáltató Ltd.
Total
Total assets 722 5,356 2,296 584 8,958
Total liabilities 296 4,090 110 2 4,498
Shareholders’ equity 426 1,266 2,186 582 4,460
Total revenues 1,891 6,736 1,192 17 9,836
Most signifi cant indicators of associates and joint ventures which are accounted
or not accounted for using the equity method is as follows:
As at 31 December 2015:
Signifi cant associates
and joint ventures*
* Based on unaudited financial statements.
138 OTP Bank Annual Report 2015
NOTE 33: TRUST ACTIVITIES (in HUF mn)
The Bank acts as a trustee for certain loans
granted by companies or employers to their
employees, mainly for housing purposes.
The ultimate risk for these loans rests with
the party advancing the funds.
There were no other signifi cant concentrations
of the assets or liabilities of the Group as at
31 December 2015 or 2014.
The Group continuously provides the Authority
with reports on the extent of dependency
on large depositors as well as the exposure
of the biggest 50 depositors towards the
Group.
Further to this obligatory reporting to the
Authority, the Group pays particular attention on
the exposure of its largest partners and cares
As these loans and related funds are not
considered to be assets or liabilities of the
Group, they have been excluded from
the accompanying Consolidated Statement
of Financial Position.
for maintaining a closer relationship with these
partners in order to secure the stability of the
level of deposits.
The organisational unit of the Group in charge of
partner-risk management analyses the biggest
partners on a constant basis and sets limits on
the Bank’s and the Group’s exposure separately
partner-by-partner. If necessary, it modifi es
partner-limits in due course thereby reducing
the room for manoeuvring of the Treasury and
other business areas.
2015 2014
The amount of loans managed by the Group as a trustee 37,554 39,706
NOTE 34: CONCENTRATION OF ASSETS AND LIABILITIES
In the percentage of the total assets
2015 2014
Receivables from, or securities issued
by the Hungarian Government or the NBH
28.2% 27.9%
Liquidity risk is a measure of the extent
to which the Group may be required to raise
funds to meet its commitments associated
with fi nancial instruments. The Group main-
tains its liquidity profi les in accordance
with regulations prescribed by the NBH.
The essential of the liquidity risk management
strategy is to identify all relevant systemic and
idiosyncratic sources of liquidity risk and to
measure the probability and severity of such
NOTE 35: MATURITY ANALYSIS OF LIABILITIES AND LIQUIDITY RISK
(in HUF mn)
As at 31 December 2014:
KITE Mezőgazdasági
Szolgáltató és
Kereskedelmi Ltd.
D-ÉG
Thermoset Ltd.
Company for Cash
Services Ltd.
Suzuki Pénzügyi
Szolgáltató Ltd.
Total
Total assets
56,717 5,758 2,292 587 65,354
Total liabilities 23,637 4,465 106 3 28,211
Shareholders’ equity 33,080 1,293 2,186 584 37,143
Total revenues 245,370 7,268 1,144 21 253,803
139IFRS consolidated fi nancial statements
events. During liquidity risk management the
Group considers the e ect of liquidity risk
events caused by reasons arising in the bank
business line (deposit withdrawal), the national
economy (exchange rate shock yield curve
shock) and the global fi nancial system (capital
market shock).
In line with the Group’s risk management policy
liquidity risks are measured and managed
on multiply hierarchy levels and applying
integrated unifi ed VaR based methodology.
The basic requirement is that the Group must
keep high quality liquidity reserves by means
it can fulfi ll all liabilities when they fall due
without material additional costs.
The liquidity reserves can be divided to two
parts. There are separate decentralized liquid
asset portfolios at subsidiary level and a
centralized fl exible liquidity pool at Group’s
level. The reserves at subsidiary levels are held
to cover the relevant shocks of the subsidiaries
which may arise in local currencies (deposit
withdrawal, local capital market shock,
unexpected business expansion), while the
centralized liquidity pool is held to cover the
Bank’s separate shocks (deposit-, yield curve-
and exchange rate shocks) and all group
member’s potential shocks that may arise in
foreign currencies (deposit withdrawal, capital
market shock).
The recalculation of shocks is made at least
quarterly while the recalibration of shock
measurement models and review of the
risk management methodology is an annual
process. The monitoring of liquidity reserves for
both centralized and decentralized liquid asset
portfolio has been built in the daily reporting
process.
Due to the balance sheet adjustment process
(deleveraging) experienced in the last few years,
the liquidity reserves of the Group increased
signifi cantly while the liquidity risk exposure
has decreased considerably. Currently the
(over)coverage of risk liquidity risk exposure
by high quality liquid assets is in all-time
record highs. In year 2015 there were no
material changes in liquidity risk management
process.
The contractual amounts disclosed in the
maturity analyses are the contractual
undiscounted cash-fl ows like gross fi nance
lease obligations (before deducting fi nance
charges); prices specifi ed in forward
agreements to purchase fi nancial assets for
cash; net amounts for pay-fl oating/receive-fi xed
interest rate swaps for which net cash-fl ows
are exchanged; contractual amounts to be
exchanged in a derivative fi nancial instrument
for which gross cash-fl ows are exchanged;
gross loan commitments.
Such undiscounted cash-fl ows di er from
the amount included in the statement of
fi nancial position because the amount in that
statement is based on discounted cash-fl ows.
When the amount payable is not fi xed,
the amount disclosed is determined
by reference to the conditions existing at the
end of the reporting period. For example,
when the amount payable varies with
changes in an index, the amount disclosed
may be based on the level of the index at the
end of the period.
The following tables provide an analysis of
liabilities about the non-discounted cash-fl ow
into relevant maturity groupings based on the
remaining period from the balance sheet date
to the contractual maturity date. It is presented
under the most prudent consideration of
maturity dates where options or repayment
schedules allow for early repayment
possibilities.
140 OTP Bank Annual Report 2015
Within
3 months
Within
one year and
over 3 months
Within
5 year and
over one year
Over
5 years
Without
maturity
Total
Amounts due to banks, the Hungarian
Government, deposits from
the National Banks and other banks
413,402 42,767 98,259 166,929 – 721,357
Deposits from customers 6,219,811 1,223,544 251,098 19,366 – 7,713,819
Liabilities from issued securities 35,666 52,087 130,622 23,422 – 241,797
Other liabilities* 417,716 151,980 4,718 2,444 – 576,858
Subordinated bonds and loans 30,593 17,897 140,051 – 111,191 ** 299,732
TOTAL LIABILITIES 7,117,188 1,488,275 624,748 212,161 111,191 9,553,563
Receivables from derivative financial
instruments classified as held for trading
1,480,795 339,420 47,408 19,340 – 1,886,963
Liabilities from derivative financial
instruments classified as held for trading
(1,393,686) (304,425) (9,408) (5,578) – (1,713,097)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWV
classified as held for trading
87,109 34,995 38,000 13,762 – 173,866
Receivables from derivative financial
instruments designated as fair value hedge
203,857 552,775 338,138 3,898 – 1,098,668
Liabilities from derivative financial
instruments designated as fair value hedge
(199,337) (500,996) (308,413) (3,273) – (1,012,019)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWV
designated as fair value hedge
4,520 51,779 29,725 625 – 86,649
Net position of derivative financial
instruments total
91,629 86,774 67,725 14,387 – 260,515
Commitments to extend credit 414,398 411,093 115,034 59,207 – 999,732
Bank guarantees 61,818 82,014 64,519 160,319 – 368,670
Off-balance sheet commitments 476,216 493,107 179,553 219,526 – 1,368,402
Within
3 months
Within
one year and
over 3 months
Within
5 year and
over one year
Over
5 years
Without
maturity
Total
Amounts due to banks, the Hungarian
Government, deposits from
the National Banks and other banks
171,469 57,073 168,058 157,092 – 553,692
Deposits from customers 6,615,990 1,107,398 242,363 40,337 1 8,006,089
Liabilities from issued securities 42,910 60,197 105,590 34,370 – 243,067
Other liabilities* 296,857 82,815 3,395 8,785 9,302 401,154
Subordinated bonds and loans** 1,817 127,336 9,292 8,439 110,566 257,450
TOTAL LIABILITIES 7,129,043 1,434,819 528,698 249,023 119,869 9,461,452
Receivables from derivative financial
instruments classified as held for trading
763,344 391,447 157,808 2,640 – 1,315,239
Liabilities from derivative financial
instruments classified as held for trading
(781,065) (427,003) (195,825) (17,375) – (1,421,268)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWV
classified as held for trading
(17,721) (35,556) (38,017) (14,735) – (106,029)
Receivables from derivative financial
instruments designated as fair value hedge
5,553 70 17,851 154 – 23,628
Liabilities from derivative financial
instruments designated as fair value hedge
(5,554) (151) (35,068) (67) – (40,840)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWVGHVLJQDWHG
as fair value hedge
(1) (81) (17,217) 87 – (17,212)
Net position of derivative financial
instruments total
(17,722) (35,637) (55,234) (14,648) – (123,241)
Commitments to extend credit 347,477 562,694 241,577 14,638 – 1,166,386
Bank guarantees 74,107 79,463 123,525 96,792 535 374,422
Off-balance sheet commitments 421,584 642,157 365,102 111,430 535 1,540,808
As at 31 December 2015:
As at 31 December 2014:
* Without derivative financial instruments designated as fair value hedge.
** See Note 18.
141IFRS consolidated fi nancial statements
Interest rate risk is the risk that the value of
a fi nancial instrument will fl uctuate due to
changes in market interest rates. The length of
time for which the rate of interest is fi xed on
a fi nancial instrument, therefore, indicates to
what extent it is exposed to interest rate risk.
The majority of the interest bearing assets
and liabilities of the Group are structured to
match either short-term assets and short-term
liabilities, or long-term assets and liabilities
with repricing opportunities within one year, or
long-term assets and corresponding liabilities
where repricing is performed simultaneously.
In addition, the signifi cant spread existing
between the di erent types of interest
bearing assets and liabilities enables the
Group to benefi t from a high level of fl exibility
in adjusting for its interest rate matching and
interest rate risk exposure.
The following table presents the interest
repricing dates of the Group. Variable yield
assets and liabilities have been reported
in accordance with their next repricing
date. Fixed income assets and liabilities have
been reported in accordance with their
maturity.
NOTE 37: INTEREST RATE RISK MANAGEMENT (in HUF mn)
The table above provides an analysis of the
main foreign currency exposures of the Group.
The remaining foreign currencies are shown
within ‘Others’. ‘Others’ category contains
mainly foreign currencies in RON, RSD,
HRK, UAH, RUB and BGN. Whilst the Group
monitors its foreign exchange position for
compliance with the regulatory requirements
of the National Banks and own limit system
established in respect of limits on open
positions. The measurement of the open
foreign currency position of the Group involves
monitoring the “VaR” limit on the foreign
exchange exposure of the Group.
NOTE 36: NET FOREIGN CURRENCY POSITION
AND FOREIGN CURRENCY RISK (in HUF mn)
USD EUR CHF Others Total
Assets 391,278 1,532,788 182,303 2,299,124 4,405,493
Liabilities (573,631) (1,750,994) (62,898) (2,123,107) (4,510,630)
Off-balance sheet assets and liabilities, net 159,599 552,473 (59,785) 182,171 834,458
Net position (22,754) 334,267 59,620 358,188 729,321
USD EUR CHF Others Total
Assets 434,794 1,887,373 817,241 2,278,135 5,417,543
from this: loans concerned
in conversion into HUF*
– 27,842 402,150 74,704 504,696
Liabilities
(428,962) (1,887,894) (139,131) (2,263,759) (4,719,746)
from this: provision for loans concerned
in conversion into HUF*
– (1,531) (73,854) (3,870) (79,255)
Off-balance sheet assets and liabilities, net (9,117) (40,166) (277,512) 55,425 (271,370)
Net position (3,285) (40,687) 400,598 69,801 426,427
* Loans were converted into HUF at foreign exchange rates applied in conversion due to Acts on Customer loans, so these do not bear further foreign currency risk or exposure.
Loans denominated in JPY are included by others.
As at 31 December 2015:
As at 31 December 2014:
142 OTP Bank Annual Report 2015
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
ASSETS
Cash, amounts due from banks and
balances with the National Banks
1,204,852 124,465 251 129 – 18 – – – – 78,000 471,245 1,283,103 595,857 1,878,960
fixed rate
1,203,663 68,286 – 40 – 18 – – – – – – 1,203,663 68,344 1,272,007
variable rate
1,189 56,179 251 89 – – – – – – – – 1,440 56,268 57,708
non-interest-bearing
– – – – – – – – – – 78,000 471,245 78,000 471,245 549,245
Placements with other banks, net of
allowance for placements losses
40,110 158,875 5,083 40,634 26 13,270 3 696 11,983 4,780 15 25,093 57,220 243,348 300,568
fixed rate
37,814 110,924 498 7,847 26 8,343 3 696 11,983 4,002 – – 50,324 131,812 182,136
variable rate
2,296 47,951 4,585 32,787 – 4,927 – – – 778 – – 6,881 86,443 93,324
non-interest-bearing
– – – – – – – – – – 15 25,093 15 25,093 25,108
Securities held for trading
1,201 – 2,124 339 7,863 72 141 4,216 10,335 8,745 72,253 4,687 93,917 18,059 111,976
fixed rate
299 – 1,856 339 5,950 54 141 4,216 10,335 8,745 – – 18,581 13,354 31,935
variable rate
902 – 268 – 1,913 18 – – – – – – 3,083 18 3,101
non-interest-bearing
– – – – – – – – – – 72,253 4,687 72,253 4,687 76,940
Securities available-for-sale
21,671 15,155 18,953 19,551 9,271 70,052 21,419 58,096 854,494 137,196 50,940 28,688 976,748 328,738 1,305,486
fixed rate
– 12,975 – 19,551 9,271 65,079 21,419 58,096 854,494 136,060 – – 885,184 291,761 1,176,945
variable rate
21,671 2,180 18,953 – – 4,973 – – – 1,136 – – 40,624 8,289 48,913
non-interest-bearing
– – – – – – – – – – 50,940 28,688 50,940 28,688 79,628
Loans, net of allowance
for loan losses
494,685 1,679,202 565,545 830,627 263,497 284,342 153,606 121,203 506,656 255,515 86,347 168,742 2,070,336 3,339,631 5,409,967
fixed rate
8,566 253,898 9,926 102,394 58,511 174,813 50,003 104,835 113,882 232,971 – – 240,888 868,911 1,109,799
variable rate
486,119 1,425,304 555,619 728,233 204,986 109,529 103,603 16,368 392,774 22,544 – – 1,743,101 2,301,978 4,045,079
non-interest-bearing
– – – – – – – – – – 86,347 168,742 86,347 168,742 255,089
Securities held-to-maturity
– 37,159 16,085 5,858 35,710 2,429 86,409 1,376 678,012 47,847 14,767 1,025 830,983 95,694 926,677
fixed rate
– 36,984 12,746 5,858 35,710 2,409 86,409 1,376 678,012 47,847 – – 812,877 94,474 907,351
variable rate
– 175 3,339 – – 20 – – – – – – 3,339 195 3,534
non-interest-bearing
– – – – – – – – – – 14,767 1,025 14,767 1,025 15,792
Derivative financial instruments
673,749 668,051 1,351,732 384,757 217,206 109,734 46,773 149,426 39,414 29,997 346,498 194,146 2,675,372 1,536,111 4,211,483
fixed rate
500,878 227,526 428,021 135,754 216,291 66,795 46,773 149,426 39,414 29,997 – – 1,231,377 609,498 1,840,875
variable rate
172,871 440,525 923,711 249,003 915 42,939 – – – – – – 1,097,497 732,467 1,829,964
non-interest-bearing
– – – – – – – – – – 346,498 194,146 346,498 194,146 540,644
As at 31 December 2015:
As at 31 December 2015:
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
LIABILITIES
Amounts due to banks,
the Hungarian Government,
deposits from the National Bank
of Hungary and other banks
95,241 129,524 8,142 45,391 54,483 5,982 10,760 3,651 170,320 5,707 8 4,101 338,954 194,356 533,310
fixed rate
95,174 64,590 7,049 7,382 23,383 5,427 10,760 3,651 170,320 5,706 – – 306,686 86,756 393,442
variable rate
67 64,934 1,093 38,009 31,100 555 – – – 1 – – 32,260 103,499 135,759
non-interest-bearing
– – – – – – – – – – 8 4,101 8 4,101 4,109
Deposits from customers
1,306,653 2,484,899 472,572 473,728 136,025 703,014 2,224 68,831 1,818,548 397,140 3,230 117,715 3,739,252 4,245,327 7,984,579
fixed rate
706,888 1,252,940 472,558 471,863 136,025 703,004 2,224 68,831 259,993 101,191 – – 1,577,688 2,597,829 4,175,517
variable rate
599,765 1,231,959 14 1,865 – 10 – – 1,558,555 295,949 – – 2,158,334 1,529,783 3,688,117
non-interest-bearing
– – – – – – – – – – 3,230 117,715 3,230 117,715 120,945
Liabilities from issued securities
1,916 6,202 157 9,082 11,002 41,623 16,153 8,443 137,495 236 7,021 46 173,744 65,632 239,376
fixed rate
1,916 5,953 157 6,929 11,002 38,667 16,153 8,443 137,495 236 – – 166,723 60,228 226,951
variable rate
– 249 – 2,153 – 2,956 – – – – – – – 5,358 5,358
non-interest-bearing
– – – – – – – – – – 7,021 46 7,021 46 7,067
Derivative financial instruments
1,248,271 98,165 1,083,679 636,911 158,671 134,008 190,632 6,931 40,977 72,001 227,762 275,151 2,949,992 1,223,167 4,173,159
fixed rate
635,192 89,002 418,185 143,566 157,950 125,122 190,632 6,931 40,977 72,001 – – 1,442,936 436,622 1,879,558
variable rate
613,079 9,163 665,494 493,345 721 8,886 – – – – – – 1,279,294 511,394 1,790,688
non-interest-bearing
– – – – – – – – – – 227,762 275,151 227,762 275,151 502,913
Subordinated bonds and loans
– – – 5 – 234,773 – – – – – 6 – 234,784 234,784
fixed rate
– – – – – 234,773 – – – – – – – 234,773 234,773
variable rate
– – – 5 – – – – – – – – – 5 5
non-interest-bearing
– – – – – – – – – – – 6 – 6 6
Net position
(215,813) (35,883) 395,223 116,778 173,392 (639,483) 88,582 247,157 (66,446) 8,996 410,799 496,607 785,737 194,172 979,909
143IFRS consolidated fi nancial statements
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
ASSETS
Cash, amounts due from banks and
balances with the National Banks
1,798,973 69,581 105 105 – 16 ––––66,822 372,030 1,865,900 441,732 2,307,632
fixed rate 1,796,928 30,478 – 16 – 16––––––1,796,928 30,510 1,827,438
variable rate 2,045 39,103 105 89––––––––2,150 39,192 41,342
non-interest-bearing – – ––––––––66,822 372,030 66,822 372,030 438,852
Placements with other banks, net of
allowance for placements losses
12,497 149,304 23 78,015 – 15,303 – 1,079 – 994 70 23,721 12,590 268,416 281,006
fixed rate 808 68,411 23 6,729 – 1,924 – 1,079 – 4 – – 831 78,147 78,978
variable rate 11,689 80,893 – 71,286 – 13,379 – – – 990 – – 11,689 166,548 178,237
non-interest-bearing – – ––––––––7023,721 70 23,721 23,791
Securities held for trading 752 28 1,381 2,922 3,866 3,251 87 407 11,431 7,171 59,710 3,634 77,227 17,413 94,640
fixed rate 179 28 1,252 2,922 3,052 3,143 87 407 11,431 7,171 – – 16,001 13,671 29,672
variable rate 573 – 129 – 814 108––––––1,516 108 1,624
non-interest-bearing – – ––––––––59,710 3,634 59,710 3,634 63,344
Securities available-for-sale 2,427 14,087 18,832 36,295 25,771 48,118 9,377 42,792 503,653 77,539 39,896 20,365 599,956 239,196 839,152
fixed rate 2,427 11,732 18,832 36,295 25,771 47,656 9,377 42,792 503,653 77,539 – – 560,060 216,014 776,074
variable rate – 2,355 – – – 462–––––– –2,817 2,817
non-interest-bearing – – ––––––––39,896 20,365 39,896 20,365 60,261
Loans, net of allowance
for loan losses
774,424 2,567,850 236,522 367,622 83,801 354,337 89,224 207,272 399,251 433,738 38,733 311,467 1,621,955 4,242,286 5,864,241
fixed rate 6,848 283,372 5,392 79,611 23,311 252,269 35,647 164,949 88,045 353,642 – – 159,243 1,133,843 1,293,086
variable rate 767,576 2,284,478 231,130 288,011 60,490 102,068 53,577 42,323 311,206 80,096 – – 1,423,979 2,796,976 4,220,955
non-interest-bearing – – ––––––––38,733 311,467 38,733 311,467 350,200
Securities held-to-maturity – 10,860 63,374 5,076 1,527 1,481 36,902 2,541 542,000 30,974 14,036 598 657,839 51,530 709,369
fixed rate – 10,648 56,697 4,553 1,527 1,454 36,902 2,541 542,000 30,974 – – 637,126 50,170 687,296
variable rate – 212 6,677 523 – 27––––––6,677 762 7,439
non-interest-bearing –
–––––––––14,036 598 14,036 598 14,634
Derivative financial instruments 889,464 1,377,086 873,489 2,361,421 136,282 812,239 8,578 19,996 31,973 41,671 – 34,609 1,939,786 4,647,022 6,586,808
fixed rate 511,452 1,154,470 121,432 819,747 85,034 809,065 8,578 19,996 31,973 41,671 – – 758,469 2,844,949 3,603,418
variable rate 378,012 222,616 752,057 1,541,674 51,248 3,174 ––––––1,181,317 1,767,464 2,948,781
non-interest-bearing – – –––––––––34,609 – 34,609 34,609
As at 31 December 2014:
As at 31 December 2014:
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
LIABILITIES
Amounts due to banks,
the Hungarian Government,
deposits from the National Bank
of Hungary and other banks
48,545 379,132 2,698 43,788 35,659 14,911 5,144 4,051 146,454 5,863 220 21,809 238,720 469,554 708,274
fixed rate 48,545 241,159 1,209 17,169 9,371 13,890 5,144 4,051 146,454 5,863 – – 210,723 282,132 492,855
variable rate – 137,973 1,489 26,619 26,288 1,021 ––––––27,777 165,613 193,390
non-interest-bearing – – ––––––––22021,809 220 21,809 22,029
Deposits from customers 1,976,745 2,380,597 449,672 367,013 178,753 604,481 37,652 68,263 1,172,388 264,464 9,572 163,878 3,824,782 3,848,696 7,673,478
fixed rate 1,557,114 980,269 441,702 349,788 178,753 588,534 37,652 54,368 41,176 26,410 – – 2,256,397 1,999,369 4,255,766
variable rate 419,631 1,400,328 7,970 17,225 – 15,947 – 13,895 1,131,212 238,054 – – 1,558,813 1,685,449 3,244,262
non-interest-bearing – – ––––––––9,572 163,878 9,572 163,878 173,450
Liabilities from issued securities 6,142 5,995 5,683 15,831 12,544 32,782 21,526 11,148 144,393 506 8,022 2,512 198,310 68,774 267,084
fixed rate 6,142 5,384 5,683 7,365 12,544 32,420 21,526 11,148 144,393 506 – – 190,288 56,823 247,111
variable rate – 611 – 8,466 – 362–––––– –9,439 9,439
non-interest-bearing – – ––––––––8,022 2,512 8,022 2,512 10,534
Derivative financial instruments 794,288 1,514,836 982,978 2,318,214 193,875 732,283 6,698 19,847 23,515 41,313 26 3,635 2,001,380 4,630,128 6,631,508
fixed rate 628,184 1,033,097 172,690 1,013,732 190,851 701,466 6,698 19,847 23,515 41,313 – – 1,021,938 2,809,455 3,831,393
variable rate 166,104 481,739 810,288 1,304,482 3,024 30,817 ––––––979,416 1,817,038 2,796,454
non-interest-bearing – – ––––––––263,635 26 3,635 3,661
Subordinated bonds and loans – – – 29,375 – 16,779–––234,642 – 1,172 – 281,968 281,968
fixed rate – – –––––––234,642 – – – 234,642 234,642
variable rate – – – 29,375 – 16,779 –––––– –46,154 46,154
non-interest-bearing – – –––––––––1,172 – 1,172 1,172
Net position 652,817 (91,764) (247,305) 77,235 (169,584) (166,491) 73,148 170,778 1,558 45,299 201,427 573,418 512,061 608,475 1,120,536
144 OTP Bank Annual Report 2015
Consolidated Earnings per share attributable
to the ordinary shares of the Group are
determined by dividing consolidated Net
profi t for the year attributable to ordinary
shareholders, after the deduction of declared
The ICES bonds could potentially dilute basic
EPS in the future, but were not included in the
preference dividends, by the weighted average
number of ordinary shares outstanding during
the year. Dilutive potential ordinary shares are
deemed to have been converted into ordinary
shares.
calculation of diluted EPS because they are
antidilutive for the year presented.
NOTE 38: CONSOLIDATED EARNINGS PER SHARE (in HUF mn)
2015 2014
Consolidated net profit for the year attributable to ordinary
shareholders (in HUF mn)
63,583 (101,985)
Weighted average number of ordinary shares outstanding during
the year for calculating basic EPS (number of share)
262,204,162 267,035,159
Basic Earnings per share (in HUF) 242 (382)
Consolidated net profit for the year attributable to ordinary
shareholders (in HUF mn)
63,583 (101,985)
Modified weighted average number of ordinary shares outstanding
during the year for calculating diluted EPS (number of share)
262,419,544 267,323,299
Diluted Earnings per share (in HUF) 242 (382)
Weighted average number of ordinary shares 280,000,010 280,000,010
Average number of Treasury shares 17,795,848 12,964,851
Weighted average number of ordinary shares
outstanding during the year for calculating basic EPS
262,204,162 267,035,159
Dilutive effects of options issued in accordance
with the Remuneration Policy/Management Option Program
and convertible into ordinary shares*
215,382 288,140
The modified weighted average number of ordinary shares
outstanding during the year for calculating diluted EPS
262,419,544 267,323,299
* Both in 2015 and 2014 the dilutive effect is in connection with the Remuneration Policy.
145
NOTE 39: NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS
(in HUF mn)
As at 31 December 2015:
Net interest
gain and loss
Net non-interest
gain and loss
Provision for
impairment
Other
Comprehensive
Income
Cash, amounts due from banks and balances
with the National Banks
27,496 – – –
Placements with other banks,
net of allowance for placements losses
2,765 – 6 –
Securities held for trading – 1,067 – –
Securities available-for-sale 31,063 7,324 (17) (304)
Loans, net of allowance for loan losses 572,120 10,207 (318,689) –
Securities held-to-maturity 46,619 – 2 –
Other assets 3,050 – – –
Derivative financial instruments 5,467 (618) – –
Amounts due to banks , the Hungarian Government,
deposits from the National Banks and other banks
(10,627) – – –
Deposits from customers (107,104) 157,368 – –
Liabilities from issued securities
(6,786) –––
Subordinated bonds and loans (13,633) – – –
Total 550,430 175,348 (318,698) (304)
IFRS consolidated fi nancial statements
As at 31 December 2014:
Net interest
gain and loss
Net non-interest
gain and loss
Provision for
impairment
Other
Comprehensive
Income
Cash, amounts due from banks and balances
with the National Banks
16,498 – – –
Placements with other banks,
net of allowance for placements losses
3,683 – (10) –
Securities held for trading – 4,275 – –
Securities available-for-sale 41,969 4,299 (297) 16,073
Loans, net of allowance for loan losses 700,265 9,007 (446,820) –
Securities held-to-maturity 39,934 – – –
Other assets 2,549 – – –
Derivative financial instruments 6,529 (162) – –
Amounts due to banks, the Hungarian Government,
deposits from the National Banks and other banks
(12,541) – – –
Deposits from customers (135,080) 161,242 – –
Liabilities from issued securities
(13,826) –––
Subordinated bonds and loans (13,883) – – –
Total 636,097 178,661 (447,127) 16,073
146 OTP Bank Annual Report 2015
In determining the fair value of a fi nancial asset
or liability the Group in the case of instruments
that are quoted on an active market uses
the market price. In most cases market
price is not publicly available so the Group
has to make assumptions or use valuation
techniques to determine the fair value of a
fi nancial instrument. See Note 40. e) for more
information about fair value classes applied for
fi nancial assets and liabilities measured at fair
value in these fi nancial statements.
To provide a reliable estimate of the fair value
of those fi nancial instrument that are originally
measured at amortized cost, the Group used
the discounted cash-fl ow analyses (loans,
placements with other banks, amounts due to
banks, deposits from customers). The fair value
of issued securities and subordinated bonds is
based on quoted prices (e.g. Reuters). Cash and
amounts due from banks and balances with the
National Banks represent amounts available
immediately thus the fair value equals to the cost.
The assumptions used when calculating the fair
value of fi nancial assets and liabilities when
using valuation technique are the following:
ş WKHGLVFRXQWUDWHVDUHWKHULVNIUHHUDWHV
related to the denomination currency
adjusted by the appropriate risk premium as
of the end of the reporting period,
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for the performing loans and for the
non-performing loans, the amortized cost
less impairment is considered as fair value,
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instruments are estimated from the yield
curves as of the end of the reporting period,
ş WKHIDLUYDOXHRIWKHGHSRVLWZKLFKFDQEHGXH
in demand cannot be lower than the amount
payable on demand.
Classes of assets and liabilities not measured
at fair value in the statement of fi nancial
position, income approach was used to convert
future cash-fl ows to a single current amount.
Fair value of current assets is equal to carrying
amount, fair value of liabilities from issued
securities and other bond-type classes of
assets and liabilities not measured at fair
value measured based on Reuters market
rates, fair value of other classes not measured
at fair value of the statement of fi nancial
position measured at discounted cash-fl ow
method. Fair value of loans, net of allowance
for loan losses measured at discount rate
adjustment technique, the discount rate is
derived from observed rates of return for
comparable assets or liabilities that are traded
in the market.
Fair value measurements – in relation
with instruments measured not at fair value –
are categorized in level 2 of the fair value
hierarchy.
NOTE 40: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn)
147
2015 2014
Carrying
amount
Fair value Carrying
amount
Fair value
Cash, amounts due from banks and balances
with the National Banks
1,878,960 1,880,223 2,307,632 2,307,632
Placements with other banks, net of allowance
for placements losses
300,568 318,972 281,006 280,999
Financial assets at fair value through profit or loss 253,782 253,782 289,275 289,275
Securities held for trading 111,976 111,976 94,640 94,640
Fair value of derivative financial instruments
classified as held for trading
141,806 141,806 194,635 194,635
Securities available-for-sale 1,305,486 1,305,486 839,152 839,152
Loans, net of allowance for loan losses 5,409,967 6,028,495 5,864,241 6,506,922
Securities held-to-maturity 926,677 1,010,112 709,369 704,875
Fair value of derivative financial instruments
designated as fair value hedge
16,009 16,151 30,454 30,454
Financial assets total 10,091,449 10,813,221 10,321,129 10,959,309
Amounts due to banks, the Hungarian Government,
deposits from the National Banks and other banks
533,310 533,338 708,274 708,284
Deposits from customers 7,984,579 7,969,922 7,673,478 7,672,819
Liabilities from issued securities 239,376 351,488 267,084 317,834
Fair value of derivative financial instruments
designated as fair value hedge
13,723 13,723 85,679 85,679
Fair value of derivative financial instruments
classified as held for trading
101,561 101,561 183,994 183,994
Subordinated bonds and loans 234,784 240,619 281,968 281,968
Financial liabilities total 9,107,333 9,210,651 9,200,477 9,250,578
Fair value Notional value, net
2015 2014 2015 2014
Interest rate swaps classified as held for trading
Positive fair value of interest rate swaps classified as held for trading 33,770 43,401 40,475 45,929
Negative fair value of interest rate swaps classified as held for trading (30,453) (63,691) (37,135) (67,678)
Foreign exchange swaps classified as held for trading
Positive fair value of foreign exchange swaps classified as held for trading 15,551 48,636 14,083 42,458
Negative fair value of foreign exchange swaps classified as held for trading (7,687) (51,537) (8,000) (48,154)
Interest rate swaps designated as fair value hedge
Positive fair value of interest rate swaps designated as fair value hedge 15,393 14,032 7,932 8,539
Negative fair value of interest rate swaps designated as fair value hedge (13,723) (3,463) (17,211) (4,602)
Foreign exchange swaps designated as fair value hedge
Positive fair value of foreign exchange swaps designated as fair value hedge – 2,437 – 2,276
Negative fair value of foreign exchange swaps designated as fair value hedge – (2,276) – (2,066)
CCIRS classified as held for trading
Positive fair value of CCIRS classified as held for trading 84,270 85,010 84,721 83,611
Negative fair value of CCIRS classified as held for trading (53,505) (53,724) (54,309) (51,012)
Mark-to-market CCIRS classified as held for trading
Positive fair value of mark-to-market CCIRS classified as held for trading – – – –
Negative fair value of mark-to-market CCIRS classified as held for trading (2,370) – (2,143) –
CCIRS designated as fair value hedge
Positive fair value of CCIRS designated as fair value hedge 604 13,940 693 14,095
Negative fair value of CCIRS designated as fair value hedge – (70,364) – (70,124)
Mark-to-market CCIRS designated as fair value hedge
Positive fair value of mark-to-market CCIRS designated as fair value hedge – – – –
Negative fair value of mark-to-market CCIRS designated as fair value hedge – (9,576) – (9,856)
Other derivative contracts designated as fair value hedge
Positive fair value of other derivative contracts designated as fair value hedge 12 45 12 39
Negative fair value of other derivative contracts designated as fair value hedge – – – –
Other derivative contracts classified as held for trading
Positive fair value of other derivative contracts classified as held for trading 8,215 17,588 5,098 14,592
Negative fair value of other derivative contracts classified as held for trading (7,546) (15,042) (4,290) (11,844)
Derivative financial assets total 157,815 225,089 153,014 211,539
Derivative financial liabilities total (115,284) (269,673) (123,088) (265,336)
Derivative financial instruments total 42,531 (44,584) 29,926 (53,797)
a) Fair value of fi nancial assets and liabilities
b) Fair value of derivative instruments
IFRS consolidated fi nancial statements
148 OTP Bank Annual Report 2015
The summary of the hedging transactions of the Group are as follows:
c) Hedge accounting
d) Fair value hedges
As at 31 December 2015:
As at 31 December 2014:
The Group regularly enters into hedging trans-
actions in order to decrease its fi nancial risks.
However some economically hedging trans-
1. Deposits from customers
The interest payment cash-fl ows of some
structured deposits of the Group denominated
in HUF and EUR are exposed to the change
of equity prices, equity indices or the change
of HUF/EUR exchange rate. In order to hedge
2. Securities available-for-sale
The Group holds fi xed interest rate securities
denominated in foreign currencies and fi xed
interest rate government bonds denominated
in HUF and EUR within the available-for-sale
portfolio. These fi xed interest rate securities
and bonds are exposed to the fair value risk
driven by the changes in the risk-free interest
rates.
action do not meet the criteria to account for
hedge accounting, therefore these transactions
were accounted as derivatives held for trading.
the interest rate risk of the interest payments
the Group entered into interest rate swap
transactions, where the risk of the cash-fl ow’s
from the structured deposits were swapped
to payments linked to 3 month BUBOR or
EURIBOR, resulting in a decrease in the fair
value exposure of the deposits from customers.
In order to hedge the interest rate risk of
the cash-fl ows the Group entered into pay
fi xed-receive fl oater interest rate swap
transactions, where the risk from the
cash-fl ows of the securities are swapped to
payments linked to 3 or 12 month EURIBOR
and the risk from the cash-fl ows of the bonds
are swapped to payments linked to 6 month
BUBOR, resulting in a decrease in the fair value
exposure of the securities available-for-sale.
Types of the hedges
Description of the
hedging instrument
Fair value of the
hedging instrument
The nature of the
risk being hedged
Cash-flow hedges – – –
Fair value hedges IRS HUF 1,670 million Interest rate
Fair value hedges CCIRS HUF (3,603) million Interest rate/Foreign currency
Net investment hedge
in foreign operations*
CCIRS and issued
securities
HUF 548 million Foreign exchange
Types of the hedges
Description of the
hedging instrument
Fair value of the
hedging instrument
The nature of the
risk being hedged
Cash-flow hedges – – –
Fair value hedges IRS/Index option HUF 10,578 million Interest rate
Net investment hedge
in foreign operations*
CCIRS and issued
securities
HUF (5,575) million Foreign exchange
2015 2014
Fair value of the hedging instruments – 107
2015 2014
Fair value of the hedging IRS instruments (11,266) (2,570)
* The objective of these hedge relationships is to mitigate the risk of changes in value of net investments in foreign subsidiaries
(namely: OTP Banka Slovensko a.s., DSK Bank EAD, Crnogorska komercijalna banka a.d., OTP banka Hrvatska d.d.) due to change in
foreign exchange rates.
149
2015 2014
Fair value of the hedging IRS instruments (165) (417)
Fair value of the hedging CCIRS instruments 65 –
2015 2014
Fair value of the hedging IRS instruments 13,101 13,449
Fair value of the hedging index option instruments – 9
3. Loans to customers/corporates
The Group has fi xed interest rate loans
denominated in various currencies. These fi xed
interest rate loans are exposed to fair value risk
of changes of risk-free interest rates. In order
to hedge the interest rate risk of the cash-fl ows
the Group entered into pay-fi xed, receive-fl oater
interest rate swap transactions, where the risk
of the payments from the loans are swapped to
4. Issued securities
The cash-fl ows of the fi xed rate securities
issued by the Group are exposed to the change
in the HUF/EUR foreign exchange rate and the
risk of change in the risk-free interest rates of
EUR and HUF. The interest rate risk and foreign
exchange risk related to these securities are
hedged with EUR and HUF IRS and index option
payments linked to 3 month EURIBOR or BUBOR
resulting in a decrease in the interest-rate fair
value exposure of the loans to customers.
The Bank has further fl oating interest rate loans
denominated in RON and CHF. These loans are
exposed to the change of foreign exchange of
RON and CHF and the risk of change in interest
rates of CHF. In order to hedge the foreign
currency risk and the interest rate risk OTP
entered into CCIRS transactions.
transactions. In the case of IRS transactions the
fi xed cash-fl ows were swapped to payments
linked to 3 month EURIBOR or BUBOR, resulting
a decrease in the interest rate and foreign
exchange exposure of issued securities.
Certain structured bonds are hedged by options
which give the owner the right to get amount
of the structure which is equal to the structure
of the hedged bond.
IFRS consolidated fi nancial statements
As at 31 December 2015:
As at 31 December 2014:
Types of hedged items Types of
hedging
instruments
Fair value
of the hedged
items
Fair value
of the hedging
instruments
Gains/Losses
on the hedged
items
on hedging
instruments
Securities available-for-sale IRS HUF 668,484 million HUF (11,266) million HUF 9,818 million HUF (8,696) million
Securities available-for-sale CCIRS HUF 317,230 million HUF (3,668) million HUF 2,064 million HUF (3,668) million
Loans to customers IRS HUF 5,561 million HUF (165) million HUF (252) million HUF 252 million
Loans to corporates CCIRS HUF 56,458 million HUF 65 million HUF 202 million HUF 65 million
Deposits from customers IRS – – HUF 107 million HUF (107) million
Liabilities from issued securities IRS HUF 71,786 million HUF 13,101 million HUF 348 million HUF (348) million
Liabilities from issued securities Index option – – HUF 9 million HUF (9) million
Types of hedged items Types of
hedging
instruments
Fair value
of the hedged
items
Fair value
of the hedging
instruments
Gains/Losses
on the hedged
items
on hedging
instruments
Securities available-for-sale IRS HUF 286,344 million HUF (2,570) million HUF 1,691 million HUF (1,691) million
Loans to customers IRS HUF 12,158 million HUF (417) million HUF (101) million HUF 101 million
Deposits from customers IRS HUF 1,627 million HUF 107 million HUF (6) million HUF 6 million
Liabilities from issued securities IRS HUF 88,309 million HUF 13,449 million HUF (5,070) million HUF 5,070 million
Liabilities from issued securities Index option HUF 651 million HUF 9 million HUF 3 million HUF (3) million
150 OTP Bank Annual Report 2015
e) Fair value classes
The following table shows an analysis of fi nancial instruments recorded at fair value
by level of the fair value hierarchy:
Methods and signifi cant assumptions used
to determine fair value of the di erent classes
of fi nancial instruments:
Level 1: quoted prices (unadjusted) in active
markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices
included within Level 1, that are
observable for the asset or liability
either directly or indirectly. Fair value
measurements – in relation with
instruments measured not at fair value –
are categorized in level 2;
Level 3: inputs for the asset or liability that are
not based on observable market data
(unobservable inputs).
Total Level 1 Level 2 Level 3
Financial assets at fair value through profit or loss 253,111 103,476 149,635 –
from this: securities held for trading 111,305 103,455 7,850 –
from this: positive fair value of derivative financial instruments classified
as held for trading
141,806 21 141,785 –
Securities available-for-sale 1,284,979 1,097,952 172,353 14,674*
Positive fair value of derivative financial instruments designated as fair value hedge 16,009 – 16,009 –
Financial assets measured at fair value total 1,554,099 1,201,428 337,997 14,674
Negative fair value of derivative financial instruments classified as held for trading 101,561 35 101,526 –
Negative fair value of derivative financial instruments designated as fair value hedge 13,723 – 13,723 –
Financial liabilities measured at fair value total 115,284 35 115,249 –
Total Level 1 Level 2 Level 3
Financial assets at fair value through profit or loss 288,650 90,053 198,597 –
from this: securities held for trading 94,015 89,496 4,519 –
from this: positive fair value of derivative financial instruments classified
as held for trading
194,635 557 194,078 –
Securities available-for-sale 823,458 721,957 97,154 4,347
Positive fair value of derivative financial instruments designated as fair value hedge 30,454 – 30,454 –
Financial assets measured at fair value total 1,142,562 812,010 326,205 4,347
Negative fair value of derivative financial instruments classified as held for trading 183,994 1,220 182,774 –
Negative fair value of derivative financial instruments designated as fair value hedge 85,679 – 85,679 –
Financial liabilities measured at fair value total 269,673 1,220 268,453 –
The following table shows a reconciliation of the opening and closing amount
of Level 3 securities available-for-sale which are recorded at fair value:
Movement on securities
available-for-sale in Level 3
Opening
balance
Increase/
(Decrease)
Closing
balance
OTP Bank Plc. – 5,667 5,667
DSK Bank EAD 967 2,064 3,031
OTP Factoring Ltd. 2,103 (16) 2,087
OTP banka Hrvatska d.d. – 1,136 1,136
OTP Bank Romania S.A. – 1,027 1,027
OTP Banka Slovensko a.s. – 907 907
OTP Factoring Ukarine LLC 1,175 (458) 717
OTP banka Srbija a.d. 102 (75) 27
LLC AMC OTP Capital – 74 74
Total 4,347 10,326 14,673
As at 31 December 2015:
As at 31 December 2014:
* From the whole portfolio HUF 10,789 million includes shares of Visa Europe (see Note 42). The purchase price includes three components (upfront component: cash and Visa
Inc. “C” preferential shares with limited marketability; and deferred earn-out payment). The book value of the shares is valuated up to the amount of the upfront component.
Sensitivity analysis is not applicable.
151
NOTE 41: SEGMENT REPORTING BY BUSINESS
AND GEOGRAPHICAL SEGMENTS (in HUF mn)
The Group distinguishes business and
geographical segments. The report on the base
of the business and geographical segments is
reported bellow.
The reportable segments of the Group on the
base of IFRS 8 are the following:
OTP Core Hungary, Russia, Ukraine, Bulgaria,
Romania, Serbia, Croatia, Slovakia, Montenegro,
Leasing subsidiaries, Asset Management
subsidiaries, Other subsidiaries and Corporate
Center.
OTP Core is an economic unit for measuring the
result of core business activity of the Group in
Hungary. Financials for OTP Core are calculated
from the consolidated fi nancial statements
of the companies engaged in the Group’s
underlying banking operation in Hungary.
These companies include OTP Bank Hungary
Plc., OTP Mortgage Bank Ltd., OTP Building
Society Ltd., OTP Factoring Ltd., OTP Financial
Point Ltd., and companies providing intragroup
fi nancing.
Corporate Centre: it is separated from OTP Core
consolidated fi nancial statements, this is a
virtual entity responsible for rendering debt
and capital market related to services to the
subsidiaries across the Group, mainly in the
form of capital and credit fi nancing.
The results of OTP Factoring Ukraine LLC,
OTP Factoring SRL, OTP Factoring Bulgaria LLC,
OTP Factoring Serbia d.o.o., OTP Factoring
Montenegro d.o.o. and OTP Factoring
Slovensko s.r.o. are included into the foreign
banks segment.
The activities of the other subsidiaries are out of
the leasing and fund management activity, like:
OTP Real Estate Ltd., OTP Life Annuity Ltd.,
OTP Funds Servicing and Consulting Ltd.,
Monicomp Ltd., OTP Building s.r.o., OTP Real
Slovensko s.r.o.
The reportable business and geographical seg-
ments of the Group are those components where:
ş VHSDUDWHGLQFRPHVDQGH[SHQVHVDVVHWV
and liabilities can be identifi ed and
assignable to the segments,
ş WUDQVDFWLRQVEHWZHHQWKHGLıHUHQWVHJPHQWV
were eliminated,
ş WKHPDLQGHFLVLYHERDUGRIWKH*URXS
regularly controls the operating results,
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Goodwill/investment impairment and their tax
saving e ect:
In the year ended 31 December 2015 no
goodwill impairment was recognized at all,
while at the end of 2014 HUF 22,225 million
was the e ect of goodwill impairment after tax
for OTP Bank JSC (Ukraine). In year 2015 due
to the impairment on investment in OTP Bank
JSC (Ukraine) HUF 6,683 million tax shield was
recognized.
The tax saving e ect was HUF (17,210) million
in relation with goodwill and investment
impairment of OTP Bank JSC (Ukraine) in the
year ended as at 31 December 2014.
IFRS consolidated fi nancial statements
152 OTP Bank Annual Report 2015
( ) used at: provisions, impairment and expenses.
* * One-off items consist of: revaluation result of FX-swap at OTP Core in the amount of HUF (679) million and the result of the treasury share swap agreement in the amount
of HUF 4,851 million.
Information regarding the Group’s reportable segments is presented below:
As at 31 December 2015:
Main components of the Consolidated
Statement of Recognized Income
in HUF million
OTP Group – consolidated –
in the Consolidated
Statement of Recognized
Income – structure
of accounting reports
$GMXVWHPHQWV
on the
accounting in
Recognized
Income
OTP Group – consolidated –
in the Consolidated
Statement of Recognized
Income – structure
of management reports
OTP CORE
(Hungary)
Foreign
banks
subtotal
(without
adjustments)
JSC
“OTP Bank”
(Russia)
OTP Bank
JSC
8NUDLQH
DSK Bank
EAD
(Bulgaria)
ab
1=a+b
1=2+3+12+16+17 2 3=4+...+11 4 5 6
Net profit for the year 63,171 63,171
Adjustments (total) (57,074) (57,074)
Dividends and net cash transfers
(after income tax)
144 144
Goodwill/investment impairment
(after income tax)
6,683 6,683
Bank tax on financial institutions
(after income tax)
(29,383) (29,383)
Fine imposed by the Hungarian
Competition Authority
(after income tax)
(662) (662)
Effect of Banco Popolare Croatia
d.d. and Banca Millennium S.A.
acquisition (after income tax)
1,550 1,550
Actual and one-off effect in result
due to changes in law related
to customer loan agreements in
Hungary (after income tax)
4,594 4,594
Expected and current impact
of regulatory changes related to
Fx consumer contracts in Croatia,
Romania and Serbia
(after income tax)
(32,034) (32,034)
Risk cost created toward Crimean
exposures from the second quarter
of 2014 until 31 December 2015
(after income tax)
(169) (169)
Risk cost created toward exposues
to Donetsk and Luhansk from the
third quarter of 2014 until the end
of year 2015 (after income tax)
(2,258) (2,258)
Revaluation of reverse mortgage
portfolio of OTP Life Annuity Ltd.
simultaneous with regulatory
changes (after income tax)
(5,539) (5,539)
Consolidated adjusted net profit
for the year
63,171 57,073 120,244 123,359 (1,820) (19,941) (40,312) 52,537
Profit before income tax 60,024 86,033 146,057 149,216 (3,193) (24,448) (42,230) 58,266
Adjusted operating profit 378,707 (16,112) 362,595 170,599 184,772 58,495 25,184 73,136
Adjusted total income 844,223 (89,311) 754,912 367,235 360,518 112,811 41,086 114,439
Adjusted net interest income 550,430 3,229 553,659 251,564 286,988 97,716 29,146 88,674
Adjusted net profit from fees
and commissions
213,872 (46,621) 167,251 97,480 62,533 14,394 7,915 23,013
Adjusted other net non-interest
income
79,921 (45,919) 34,002 18,191 10,997 701 4,025 2,752
Adjusted other administrative
expenses
(465,516) 73,199 (392,317) (196,636) (175,746) (54,316) (15,902) (41,303)
Total risk costs (318,683) 97,973 (220,710) (25,555) (187,965) (82,943) (67,414) (14,870)
Adjusted provision for impairment
on loan and placement losses
(without the effect of revaluation
of FX)
(318,683) 107,019 (211,664) (21,550) (184,344) (82,060) (65,891) (14,650)
Other provision (adjustment) 0 (9,046) (9,046) (4,005) (3,621) (883) (1,523) (220)
Total other adjustments
(one-off items)*
0 4,172 4,172 4,172 0 0 0 0
Income tax 3,147 (28,960) (25,813) (25,857) 1,373 4,507 1,918 (5,729)
Total Assets 10,718,848 0 10,718,848 6,774,200 4,651,454 514,491 292,882 1,778,326
Total Liabilities 9,485,189 0 9,485,189 5,563,251 4,142,684 423,514 327,685 1,524,857
153IFRS consolidated fi nancial statements
OTP Bank
Romania S.A.
(Romania)
OTP banka
6UELMDDG
(Serbia)
OTP banka
Hrvatska d.d.
(Croatia)
OTP Banka
Slovensko a.s.
(Slovakia)
Crnogorska
NRPHUFLMDOQD
banka a.d.
(Montenegro)
Non-banking
subsidiaries
subtotal
Leasing
subsidiaries
Asset
Management
subsidiaries
Other
subsidiaries
Corporate
Centre
Eliminations
and
adjustments
7 8 9 10 11 12=13+14+15 13 14 15 16 17
1,481 (384) 2,967 923 909 4,526 1,785 2,713 28 (4,286) (1,535)
1,581 (393) 1,711 1,412 908 6,189 1,685 3,620 884 (6,382) 227
6,074 1,293 10,844 6,600 3,146 14,327 6,810 6,109 1,408 (6,382) (721)
27,662 8,360 28,021 17,671 10,468 45,789 15,165 8,643 21,981 (5,761) (12,869)
22,904 6,407 20,345 14,568 7,228 24,850 19,924 63 4,863 (5,761) (3,982)
3,773 1,747 5,309 3,386 2,996 7,213 (2,133) 8,543 803 0 25
985 206 2,367 (283) 244 13,726 (2,626) 37 16,315 0 (8,912)
(21,588) (7,067) (17,177) (11,071) (7,322) (31,462) (8,355) (2,534) (20,573) (621) 12,148
(4,493) (1,686) (9,133) (5,188) (2,238) (8,138) (5,125) (2,489) (524) 0 948
(6,598) (922) (6,813) (5,144) (2,266) (5,329) (4,948) 0 (381) 0 (441)
2,105 (764) (2,320) (44) 28 (2,809) (177) (2,489) (143) 0 1,389
00000000000
(100) 9 1,256 (489) 1 (1,663) 100 (907) (856) 2,096 (1,762)
646,042 119,224 649,870 450,819 199,800 655,859 395,233 14,116 246,510 1,410,729 (2,773,394)
599,376 89,847 580,307 420,389 176,709 520,898 371,201 4,775 144,922 731,090 (1,472,734)
154 OTP Bank Annual Report 2015
As at 31 December 2014:
Main components of the Consolidated
Statement of Recognized Income
in HUF million
OTP Group – consolidated –
in the Consolidated
Statement of Recognized
Income – structure
of accounting reports
$GMXVWHPHQWV
on the
accounting in
Recognized
Income
OTP Group – consolidated –
in the Consolidated
Statement of Recognized
Income – structure
of management reports
OTP CORE
(Hungary)
Foreign
banks
subtotal
(without
adjustments)
JSC
“OTP Bank”
(Russia)
OTP Bank
JSC
8NUDLQH
DSK Bank
EAD
(Bulgaria)
ab
1=a+b
1=2+3+12+16+17 2 3=4+...+11 4 5 6
Net profit for the year (102,258) (102,258)
Adjustments (total) (220,273) (220,273)
Dividends and net cash transfers
(after income tax)
191 191
Goodwill/investment impairment
(after income tax)
(5,015) (5,015)
Bank tax on financial institutions
(after income tax)
(30,193) (30,193)
Effect of Banco Popolare acquisition
(after income tax)
4,131 4,131
Impact of the expected refund
obligation stemming from
the invalidity of using FX margin
in Hungary (after income tax)
(26,923) (26,923)
Potential refund obligation
stemming from the presumed
unfairness of unilateral
amendments to loan contracts in
Hungary (after income tax)
(128,985) (128,985)
Risk cost created toward Crimean
exposures in 2014 (after income tax)
(7,943) (7,943)
Risk cost created toward exposues
to Donetsk and Luhansk in 2014
(after income tax)
(25,536) (25,536)
Consolidated adjusted net profit
for the year
(102,258) 220,272 118,014 137,418 (17,196) (14,541) (43,166) 39,170
Profit before income tax (153,643) 295,983 142,340 161,097 (19,237) (17,678) (47,322) 43,587
Adjusted operating profit 293,187 121,346 414,533 181,952 219,065 101,028 27,269 62,392
Adjusted total income 801,879 24,180 826,059 375,668 419,716 179,392 52,078 102,238
Adjusted net interest income 636,097 73 636,170 266,329 349,904 158,972 45,327 79,116
Adjusted net profit from fees
and commissions
215,656 (46,076) 169,580 94,244 67,306 21,378 10,306 20,262
Adjusted other net non-interest
income
(49,874) 70,183 20,309 15,095 2,506 (958) (3,555) 2,860
Adjusted other administrative
expenses
(508,692) 97,166 (411,526) (193,716) (200,651) (78,364) (24,809) (39,846)
Total risk costs (446,830) 172,081 (274,749) (23,411) (238,302) (118,706) (74,591) (18,805)
Adjusted provision for impairment
on loan and placement losses
(without the effect of revaluation
of FX)
(446,830) 183,318 (263,512) (22,088) (231,272) (117,623) (71,947) (17,526)
Other provision (adjustment) 0 (11,237) (11,237) (1,323) (7,030) (1,083) (2,644) (1,279)
Total other adjustments
(one-off items)*
0 2,556 2,556 2,556 0 0 0 0
Income tax 51,385 (75,711) (24,326) (23,679) 2,041 3,137 4,156 (4,417)
Total Assets 10,971,052 0 10,971,052 7,251,833 4,678,642 750,747 423,363 1,603,812
Total Liabilities 9,706,886 0 9,706,886 5,932,448 4,122,494 638,968 417,903 1,355,819
( ) used at: provisions, impairment and expenses.
* * One-off items consist of: revaluation result of FX-swap at OTP Core in the amount of HUF (824) million; result of the treasury share swap agreement in the amount of
HUF 3,380 million.
155IFRS consolidated fi nancial statements
OTP Bank
Romania S.A.
(Romania)
OTP banka
6UELMDDG
(Serbia)
OTP banka
Hrvatska d.d.
(Croatia)
OTP Banka
Slovensko a.s.
(Slovakia)
Crnogorska
NRPHUFLMDOQD
banka a.d.
(Montenegro)
Non-banking
subsidiaries
subtotal
Leasing
subsidiaries
Asset
Management
subsidiaries
Other
subsidiaries
Corporate
Centre
Eliminations
and
adjustments
7 8 9 10 11 12=13+14+15 13 14 15 16 17
765 49 103 33 391 (1,172) (1,588) 5,529 (5,113) (1,210) 174
765 45 627 367 372 793 (1,508) 6,753 (4,452) (1,433) 1,120
9,807 1,358 7,527 5,895 3,789 13,404 5,970 6,704 730 (1,433) 1,545
23,410 8,555 25,426 17,099 11,518 43,483 14,073 9,041 20,369 (1,175) (11,633)
19,388 6,612 17,923 14,207 8,359 21,675 17,405 81 4,189 (1,175) (563)
2,429 1,851 5,203 3,000 2,877 7,934 (2,611) 9,895 650 0 96
1,593 92 2,300 (108) 282 13,874 (721) (935) 15,530 0 (11,166)
(13,603) (7,197) (17,899) (11,204) (7,729) (30,079) (8,103) (2,337) (19,639) (258) 13,178
(9,042) (1,313) (6,900) (5,528) (3,417) (12,611) (7,478) 49 (5,182) 0 (425)
(8,881) (1,202) (5,747) (5,277) (3,069) (9,682) (8,312) 1 (1,371) 0 (470)
(161) (111) (1,153) (251) (348) (2,929) 834 48 (3,811) 0 45
00000000000
0 4 (524) (334) 19 (1,965) (80) (1,224) (661) 223 (946)
476,352 109,509 654,793 464,296 195,770 370,127 362,858 513 6,756 1,668,257 (2,997,807)
441,371 79,312 583,637 432,554 172,930 345,423 339,162 69 6,192 830,085 (1,523,564)
156 OTP Bank Annual Report 2015
NOTE 42: SIGNIFICANT EVENTS DURING THE YEAR ENDED
31 DECEMBER 2015
NOTE 43: POST BALANCE SHEET EVENTS
1) Government measures related
to customer loan contracts
See details in Note 2.28.
2) Term Note Program
See details in Note 15.
3) Agreement between the Visa Inc.
and the Visa Europe
On 2 November 2015 Visa Inc. and Visa Europe
Limited reached an agreement on the purchase
of the shares of Visa Europe (owned by European
banks) by Visa Inc. According to the deal the
purchase price will be transferred by cash and
Visa Inc.”C-type” preferential shares with limited
marketability, after the settlement of the
transaction (after receiving all the necessary
approvals). In addition, the framework terms of
the transaction provide for a deferred earn-
out payment, which will be paid in cash after
sixteen quarters from the date of the trans-
action settlement (if the relevant criteria of the
earn-out component are reached). According to
the notifi cation of Visa sent in mid-December
2015, the expected amount of cash is about
EUR 34.2 million (around HUF 10.8 billion,
which was calculated with the closing o cial
exchange rate of NBH as at 31 December 2015).
Prior to the transaction the book value of OTP’s
share in Visa Europe was close to zero, but at
the end of 2015 it was revaluated, which has
been recognized on the of Fair value adjustment
of available for sale securities line in the
Consolidated Statement of Comprehensive
Income. The above said cash component
of the purchase price will be booked in the
Consolidated Statement of Recognized Income
at the settlement of the transaction, and shown
presumably in the second quarter of 2016.
For the time being the value of the earn-out
component cannot be reliably measured.
Agreement on purchasing unit
of AXA Bank Hungary
According to the announcement published on
3 February 2016, AXA Bank Europe SA and OTP
signed an agreement on purchasing the business
unit of AXA Bank Hungary. The purchase
agreement includes the take-over of the retail
credits and savings, as well as the corporate
portfolio and the employees of AXA Bank.
The retail-focused AXA Bank is present in
Hungary since 2009. AXA Bank has been
o ering innovative online customer services,
and the bank has strong positions in the local
mortgage market. After the completion of the
purchase the Bank’s mortgage portfolio will
increase with almost 25%. According to the
plans the integration process can be closed
at the end of 2016 after obtaining all the
necessary supervisory approvals.
157IFRS consolidated fi nancial statements
In 2015 the macroeconomic processes were
mostly shaped by the di erent monetary
policies expected from the Federal Reserve
System (Fed) and the European Central Bank
(ECB), and by the continued slump in commodity
prices, which started in 2014. In December
2015 the Fed embarked on interest rate hikes
(0.25–0.5%) because of the accelerating growth
and the favourable labour market processes
in the USA, while the ECB decided to extend its
asset purchase programme and cut the interest
rate on overnight deposits further (to –0.3%).
For the fi rst time since the onset of the crisis
the Eurozone posted meaningful growth (1.5%),
but with signifi cant discrepancies among the
regions of the EU. Preliminary GDP data for the
fourth quarter of 2015 suggest that Central and
South Eastern Europe remained the strongest
region. The several-month-long negotiations
with Greece which ultimately resulted in
a temporary solution to the country’s debt
crisis failed to cast a cloud on the supportive
sentiment of global markets.
Hungary’s economy grew by 2.9% in 2015,
down from 3.6% in 2014. After the election year,
the volume of investments fell, but net exports’
contribution returned to positive territory after
being in red in the previous year. Nonetheless,
the engine of growth was clearly the further
accelerating consumption of households.
The increase in the value added by market
services has largely contributed to the
economy’s expansion. Even though the
deceleration of Germany’s manufacturing
poses risks to the demand for Hungary’s
export products, it seems that these fears did
not get in the way of production. Moreover,
mostly owing to the improved terms of trade,
Hungary’s trade surplus also hit an all-time
high, at EUR 8.1 billion (or 8% of GDP) in 2015.
A weaker-than-2014 year pushed agriculture’s
contribution to GDP into negative territory.
Non-farm private sector GDP was as strong as
elsewhere in the CEE region; it may have grown
by more than 4%.
At the end of the third quarter of 2015
Hungary’s four-quarter rolling defi cit amounted
to 0.8% of GDP. This exceptionally low
fi gure can be put down to the higher rate of
EU-co-fi nancing and the larger-than-expected
revenues. The government’s defi cit target is
2.4% for 2015. Gross government debt stood at
76.9% at the end of the third quarter of 2015.
Consumer prices dropped by 0.1% on average in
2015, thanks to the steadily falling commodity
prices; demand-sensitive infl ation accelerated
until the end of summer, but somewhat slowed
towards the end of the year.
The lower-than-expected infl ation justifi ed
the continuation of the monetary easing
cycle; the last cut brought the base rate to
1.35% in July. The NBH’s Self-Financing
Programme introduced plan consisting
of 2 layers to boost lending for SMEs, then
the MNB decided to terminate the two-week
deposit in order to boost commercial banks’
appetite for government securities. At the end
of 2015 the NBH announced plans to introduce
unconventional monetary policy tools because
infl ation was likely to remain below its target
throughout the entire forecast horizon.
Russia sank into recession in 2015, with
its GDP contracting by 3.7%. Reversing the
improvement in the third quarter, cyclical
developments deteriorated in the fourth
quarter of 2015. The underlying reason is the
short-term oversupply on the oil market and
OPEC’s reluctance to reduce production at its
December meeting. By the end of 2015, the RUB
weakened to 73 against the USD, extending
its losses by another 26% after depreciating
by 74% in 2014. The weakening of the RUB,
which started at the end of 2014, accelerated
2015 infl ation to 15.6% on average, but since
then a steady deceleration pushed CPI back
to single-digit territory; consumer prices rose
by 9.8% in January 2016. The Central Bank
of Russia (“CBR”) continues to pursue tight
monetary policy; the base rate has been kept
at 11% since the end of July 2015. This can be
explained by the presumed backward-looking
NOTE 44: STATEMENT OF ECONOMIC SITUATION AND IMPLICATIONS
ON THE GROUP’S FINANCIALS
158 OTP Bank Annual Report 2015
attitude of the CBR and paying attention to
the fact infl ation fi gures instead of monitoring
the expected infl ation when pursuing the
monetary policy and deciding on the base rate.
The concerns about external balance and the
adequacy of reserves were not justifi ed: despite
the falling oil prices Russia’s current account
surplus amounted to 5.3% of GDP in 2015, the
capital outfl ow slowed, and its size was less
than the current account surplus.
Due to the confl ict in the East, the structural
problems of the country and the decline in
Ukraine’s GDP continued in the fi rst half
of 2015. In the second half of the year the
economy grew on a quarter-on-quarter basis
mainly due to a sharp fall in imports and
one-o factors. Therefore in 2015 Ukraine’s
economy fell by 10%, as industrial production
contracted by 13.5% and retail sales shrank by
20.7% compared to 2014. At the beginning of
2015 the FX reserves of the National Bank of
Ukraine declined to the danger zone, therefore
the hryvnia depreciated sharply, falling 114%
against the dollar between January and
February. Later the hryvnia stabilized between
21 and 24 due the IMF package and the planned
reforms. The depreciation of the hryvnia also
infl uenced the infl ation, which reached 48.7%
in 2015. Due to the depreciating hryvnia, the
increasing infl ation and accelerating deposit
outfl ow, the NBU increased the base rate from
14% to 30%, but from August the base rate
was decreased to 22%. The government debt
increased to 69% of GDP in the third quarter
of 2015 – it could have been higher if Ukraine
had not reached a deal with private creditors
about the restructuring of the public debt.
The deal contained 20% haircut in percentage
of the face value, an increase in maturities
and a coupon payment dependent on
macroeconomic performance. In November
2015 Ukrainian separatists cut the energy
supply of Crimea, which led to a series of
temporary trade embargoes between Ukraine
and Russia. On 23 December Ukraine missed its
repayment deadline concerning a USD 3 billion
worth bond owed to Russia, but the IMF decided
to change its rules on lending to countries in
payment arrears. Nonetheless, in the lack of
defi nitive actions against corruption and lack
of reforms, the IMF did not disburse the latest
USD 1.7 billion tranche from the USD 17.5
billion IMF package. At the end of the year,
Ukraine’s government passed the 2016 budget
law, which assumes 2% economic growth for
2016 and 3.7% budget defi cit.
In Hungary by 31 December 2015 the
contractual period of the second phase of the
Funding for Growth Scheme and the Growth
Scheme Plus expired. Under these two schemes
contracts with a total amount of around
HUF 1,425 billion were signed on the sector
level, of which OTP’s share represented 19%.
According to legislations passed in 2014 the
settlement of the existing and matured
(or prepaid) FX mortgage and consumer loan
contracts at the Bank and OTP Mortgage Bank
Ltd. was completed in March 2015. In the fi rst
quarter of 2015 the conversion of FX mortgage
loans into HUF has been completed (except for
OTP Real Estate Leasing Ltd.). In the second
quarter of 2015 the settlement with Merkantil
Bank Ltd., Merkantil Car Ltd. and OTP Real
Estate Leasing Ltd. clients has been executed,
clients’ obligations arising from FX lease
contracts were converted into HUF. In the third
quarter of 2015 the settlement of existing and
matured HUF consumer contracts at the Bank,
OTP Mortgage Bank Ltd., Merkantil Bank Ltd.,
Merkantil Car Ltd. and OTP Real Estate Leasing
Ltd. has been completed.
The Russian and Ukrainian operation’s
performance in HUF terms was to a great
extent infl uenced by the signifi cant weakening
of the Russian rouble and Ukrainian hryvnia
against the Hungarian forint: the annual
average exchange rate of the rouble and hryvnia
depreciated by 25% and 35% y/y, respectively.
The closing rate of the rouble and hryvnia
weakened by 13% and 27% year-over-year,
respectively.
In Russia the funding costs increased
immediately following the base rate hike by
the CBR in December 2014, this manifested
in narrowing net interest margin in the fi rst
quarter of 2015, which normalized in the
rest of the year. The Bank’s reaction to the
159IFRS consolidated fi nancial statements
deteriorating market environment was to limit
the disbursements of certain loan products,
these limits have been gradually lifted in the
course of 2015, nevertheless, newly disbursed
volumes showed a substantial setback
year-over-year. Performing (DPD0–90) loan
volumes dropped by 26% year-over-year on an
FX-adjusted basis. Amid unfavourable economic
environment the volume growth of DPD90+
loans (FX-adjusted, excluding the impact of loan
sales and write-o s) accelerated in the fi rst
half of the year, while it showed substantial
deceleration both in the third and fourth quarter.
In Ukraine the annual risk costs grew by
35% year-over-year in local currency terms.
The material increase in the fi rst quarter of
2015 risk costs was related to the drastic
depreciation of UAH against USD which
required higher provision coverage due to
the FX loans’ revaluation (LTV – loan to value
e ect). In the second quarter the case was
the opposite, whereas in the third quarter the
Ukrainian operation made additional provisions
mostly for the legacy corporate exposures
originated before the crisis, while in the fourth
quarter elevated risk costs were mainly related
to the USD-based mortgages at the local
Factoring unit. Portfolio quality deterioration
moderated substantially year-over-year.
Under the scope of the Bank’s own
restructuring programme the volume of FX
mortgage loans converted into UAH at market
FX rate got close to UAH 1.8 billion by the end of
2015. Under the scheme the Bank o ers either
certain debt forgiveness and/or an interest rate
concession at the beginning of the maturity.
160 OTP Bank Annual Report 2015
161IFRS separate fi nancial statements
162 OTP Bank Annual Report 2015
Statement of fi nancial position
(separate, based on IFRS, as at 31 December 2015, in HUF million)
Note 2015 2014
Cash, amounts due from banks and balances with
the National Bank of Hungary
4 1,326,197 1,897,778
Placements with other banks, net of allowance for placement losses 5 647,724 712,112
Financial assets at fair value through profit or loss 6 252,140 351,753
Securities available-for-sale 7 1,462,660 1,215,907
Loans, net of allowance for loan losses 8 1,679,184 1,908,631
Investments in subsidiaries, associates and other investments 9 657,531 604,209
Securities held-to-maturity 10 824,801 662,947
Property and equipment 11 63,440 68,114
Intangible assets 11 32,438 36,091
Other assets 12 150,261 97,930
TOTAL ASSETS 7,096,376 7,555,472
Amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary and other banks
13 829,122 1,142,491
Deposits from customers 14 4,323,239 4,235,256
Liabilities from issued securities 15 150,231 162,667
Financial liabilities at fair value through profit or loss 16 144,592 375,363
Other liabilities 17 300,027 253,952
Subordinated bonds and loans 18 266,063 294,612
TOTAL LIABILITIES 6,013,274 6,464,341
Share capital 19 28,000 28,000
Retained earnings and reserves 20 1,064,255 1,070,204
Treasury shares 21 (9,153) (7,073)
TOTAL SHAREHOLDERS’ EQUITY 1,083,102 1,091,131
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 7,096,376 7,555,472
Budapest, 18 March 2016
The accompanying notes to separate fi nancial statements on pages 166 to 235 form an integral part of these separate fi nancial
statements.
163IFRS separate fi nancial statements
Statement of comprehensive income
(separate, based on IFRS, for the year ended 31 December 2015, in HUF million)
Note 2015 2014
NET PROFIT/(LOSS) FOR THE YEAR 49,645 (74,469)
Items that may be reclassified subsequently to profit or loss:
Fair value adjustment of securities available-for-sale (9,970) 15,775
Deferred tax related to securities available-for-sale 25. 1,894 (2,998)
TOTAL (8,076) 12,777
NET COMPREHENSIVE INCOME 41,569 (61,692)
Statement of recognized income
(separate, based on IFRS, for the year ended 31 December 2015, in HUF million)
The accompanying notes to separate fi nancial statements on pages 166 to 235 form an integral part of these separate fi nancial
statements.
Note 2015 2014
Interest Income
Loans 129,575 162,533
Placements with other banks, net of allowance for placement losses 151,938 128,444
Securities available-for-sale 50,655 72,056
Securities held-to-maturity 39,973 36,518
Amounts due from banks and balances with National Bank of Hungary 26,574 15,556
Rental income for operation of investment properties 60 –
Total Interest Income 398,775 415,107
Interest Expense
Amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary and other banks
152,613 127,809
Deposits from customers 29,744 52,544
Liabilities from issued securities 2,091 4,206
Subordinated bonds and loans 16,686 16,825
Expenses from operation of investment properties 35 –
Total Interest Expense 201,169 201,384
NET INTEREST INCOME 197,606 213,723
Provision for impairment on loan and placement losses 5, 8, 22 39,548 23,213
NET INTEREST INCOME AFTER PROVISION FOR IMPAIRMENT
ON LOAN AND PLACEMENT LOSSES
158,058 190,510
Income from fees and commissions 23 186,030 169,041
Expenses from fees and commissions 23 24,304 22,495
Net profi t from fees and commissions 161,726 146,546
Foreign exchange gains 15,158 20,581
Gains on securities, net 24,461 8,752
Dividend income 9 58,597 42,795
Other operating income 24 8,713 3,294
Net other operating expenses 24 (131,179) (285,883)
from this: provision for impairment on investments in subsidiaries 9 (47,470) (226,730)
from this: release of provision/(provision) on contingent liabilities
due to regulations related to customer loans
2.26, 24 42,529 (43,795)
Net operating expense (24,250) (210,461)
Personnel expenses 24 86,769 87,458
Depreciation and amortization 24 21,320 22,177
Other administrative expenses 24 141,091 134,793
Other administrative expenses 249,180 244,428
PROFIT/(LOSS) BEFORE INCOME TAX 46,354 (117,833)
Income tax benefi t 25 (3,291) (43,364)
NET PROFIT/(LOSS) FOR THE YEAR 49,645 (74,469)
Earnings per share (in HUF)
Basic 35 182 (268)
Diluted 35 181 (267)
164 OTP Bank Annual Report 2015
Statement of cash-fl ows
(separate, based on IFRS, for the year ended 31 December 2015, in HUF million)
OPERATING ACTIVITIES Note 2015 2014
Profit/(loss) before income tax 46,354 (117,833)
Depreciation and amortization 21,355 22,177
Provision for impairment on loan and placement losses 5, 8, 22 39,548 23,213
Provision for impairment on investments in subsidiaries 9 47,470 226,730
Provision for impairment on other assets 12 2,141 2,763
(Release of provision)/provision on off-balance sheet commitments
and contingent liabilities
17 (4,185) 42,683
Share-based payment 28 3,810 4,393
Unrealised losses on fair value adjustment of securities
available-for-sale and held for trading
(12,096) (2,903)
Unrealised (losses)/gains on fair value adjustment
of derivative financial instruments
(13,701) 5,401
1HWFKDQJHVLQDVVHWVDQGOLDELOLWLHVLQRSHUDWLQJDFWLYLWLHV
Changes in financial assets at fair value through profit or loss 4,452 219,463
Changes in financial liabilities at fair value through profit or loss (32,611) (1,990)
Net decrease in loans, net of allowance for loan losses 100,464 205,341
Increase in other assets, excluding advances for investments
and before provisions for losses
(43,682) (14,009)
Net increase in deposits from customers 88,089 557,789
Increase/(decrease) in other liabilities 56,111 (17,335)
Net decrease/(increase) in the compulsory reserve established
by the National Bank of Hungary
47,712 (57,365)
Dividend income (58,597) (42,795)
Income tax paid (3,823) (2,864)
Net cash provided by operating activities 288,811 1,052,859
Interest received 390,187 420,581
Interest paid (199,393) (204,448)
INVESTING ACTIVITIES
Net decrease/(increase) in placements with other banks
before allowance for placement losses
64,385 (79,217)
Purchase securities available-for-sale (652,482) (14,729,107)
Proceeds from sale of securities available-for-sale 404,592 15,525,643
Increase in investments in subsidiaries (100,792) (161,617)
Decrease in investments in subsidiaries ––
Dividend income 58,597 42,795
Increase in securities held-to-maturity (229,114) (154,743)
Decrease in securities held-to-maturity 70,395 20,663
Additions to property, equipment and intangible assets (37,510) (18,426)
Disposal to property, equipment and intangible assets 17,306 7,185
Net decrease/(increase) in advances for investments
included in other assets
3 (36)
Net cash (used in)/provided by investing activities (404,620) 453,140
FINANCING ACTIVITIES
Net (decrease)/increase in amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary and other banks
(313,369) 239,747
Cash received from issuance of securities 51,389 56,165
Cash used for redemption of issued securities (63,473) (69,387)
(Decrease)/increase in subordinated bonds and loans (28,549) 16,371
Payments to ICES holders 20 (4,133) (4,159)
Increase in Treasury shares 24,641 27,180
Decrease in Treasury shares (34,093) (31,430)
Dividend paid (40,473) (40,594)
Net cash (used in)/provided by fi nancing activities (408,060) 193,893
Net (decrease)/increase in cash and cash equivalents (523,869) 1,699,892
Cash and cash equivalents at the beginning of the year 1,762,727 62,835
Cash and cash equivalents at the end of the year 1,238,858 1,762,727
Analysis of cash and cash equivalents
Cash, amounts due from banks and balances
with the National Bank of Hungary
1,897,778 140,521
Compulsory reserve established by the National Bank of Hungary (135,051) (77,686)
Cash and cash equivalents at the beginning of the year 1,762,727 62,835
Cash, amounts due from banks and balances
with the National Bank of Hungary
4 1,326,197 1,897,778
Compulsory reserve established by the National Bank of Hungary 4 (87,339) (135,051)
Cash and cash equivalents at the end of the year 1,238,858 1,762,727
The accompanying notes to separate fi nancial statements on pages 166 to 235 form an integral part of these separate fi nancial
statements.
165IFRS separate fi nancial statements
Statement of changes in shareholders’ equity
(separate, based on IFRS, for the year ended 31 December 2015, in HUF million)
Note Share
Capital
Capital
reserve
Share-based
payment
reserve
Retained
earnings and
reserves
Option
reserve
Treasury
* Shares
Total
Balance as at 1 January 2014 28,000 52 16,504 1,214,503 (55,468) (6,731) 1,196,860
Net loss for the year – – – (74,469) – – (74,469)
Other comprehensive income – – – 12,777 – – 12,777
Share-based payment 28 – – 4,393 – – – 4,393
Payments to ICES holders 20 – – – (3,580) – – (3,580)
Sale of treasury shares 21 – – – – – 27,180 27,180
Loss on sale of treasury shares – – – (3,908) – – (3,908)
Acquisition of treasury shares 21 – – – – – (27,522) (27,522)
Dividend for the year 2013 – – – (40,600) – – (40,600)
Balance as at 31 December 2014 28,000 52 20,897 1,104,723 (55,468) (7,073) 1,091,131
Net profit for the year – – – 49,645 – – 49,645
Other comprehensive income – – – (8,076) – – (8,076)
Share-based payment 28 – – 3,810 – – – 3,810
Payments to ICES holders 20 – – – (3,356) – – (3,356)
Sale of treasury shares 21 – – – – – 24,641 24,641
Loss on sale of treasury shares – – – (7,372) – – (7,372)
Acquisition of treasury shares 21 – – – – – (26,721) (26,721)
Dividend for the year 2014 – – – (40,600) – – (40,600)
Balance as at 31 December 2015 28,000 52 24,707 1,094,964 (55,468) (9,153) 1,083,102
The accompanying notes to separate fi nancial statements on pages 166 to 235 form an integral part of these separate fi nancial
statements.
* See Note 17.
166 OTP Bank Annual Report 2015
NOTES TO SEPARATE FINANCIAL
STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2015
NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
1.1 General information
OTP Bank Plc. (the “Bank” or “OTP Bank”)
was established on 31 December 1990, when
the previously State-owned company was
transformed into a limited liability company.
The Bank’s registered o ce address is
16 Nádor Street, Budapest 1051.
The Bank provides a full range of commercial banking services through a nationwide network of 378
branches in Hungary.
1.2 Accounting
The Bank maintains its accounting records and
prepares its statutory accounts in accordance
with the commercial, banking and fi scal
regulations prevailing in Hungary.
The presentation currency of the Bank is the
Hungarian Forint (“HUF”).
Some of the accounting principles prescribed
for statutory purposes are di erent from those
generally recognized in international fi nancial
standards. Due to the fact that the Bank is listed
on international and national stock exchanges,
the Bank is obliged to present its fi nancial
position in accordance with the International
In 1995, the shares of the Bank were listed
on the Budapest and the Luxembourg Stock
Exchanges and were also listed on the SEAQ
board on the London Stock Exchange and
PORTAL in the USA.
These fi nancial statements were approved by
the board of directors and authorised for issue
on 18 March 2016.
Financial Reporting Standards (“IFRS”) as
adopted by the European Union (the “EU”).
Certain adjustments have been made to the
Bank’s Hungarian separate statutory accounts
(see Note 38), in order to present the separate
fi nancial position and results of operations of
the Bank in accordance with all standards and
interpretations approved by the International
Accounting Standards Board (“IASB”).
The separate fi nancial statements have been
prepared in accordance with IFRS as adopted
by the EU. IFRS as adopted by the EU do not
currently di er from IFRS as issued by the
IASB, except for portfolio hedge accounting
under IAS 39 Financial Instruments: Recognition
and Measurement (“IAS 39”) which has not
2015 2014
Number of the employees of the Bank:
Number of employees 7,911 8,016
Average number of employees 7,940 8,004
2015 2014
The structure of the Share capital by shareholders:
Domestic and foreign private
and institutional investors
97% 97%
Employees 2% 2%
Treasury shares 1% 1%
Total 100% 100%
167
been approved by the EU. As the Bank does not
apply portfolio hedge accounting under IAS 39,
there would be no impact on these separate
fi nancial statements, had it been approved by
the EU before the preparation of these fi nancial
statements.
1.2.1 The e ect of adopting new
and revised International Financial
Reporting Standards e ective from
1 January 2015
The following standards, amendments to the
existing standards and interpretations issued by
the IASB and adopted by the EU are e ective for
the current period:
ş $PHQGPHQWVWRYDULRXVVWDQGDUGV
“Improvements to IFRSs (cycle 2011–2013)”
resulting from the annual improvement
project of IFRS (IFRS 3, IFRS 13 and IAS
40) primarily with a view to removing
inconsistencies and clarifying wording
– adopted by the EU on 18 December 2014
(amendments are to be applied for annual
periods beginning on or after 1 January 2015),
ş ,)5,&ŕ/HYLHVŖDGRSWHGE\WKH(8RQ
13 June 2014 (e ective for annual periods
beginning on or after 17 June 2014).
The adoption of these amendments to the
existing standards has not led to any changes in
the Entity’s accounting policies.
1.2.2 New and revised Standards
and Interpretations issued by IASB
and adopted by the EU but not yet
e ective
At the date of authorisation of these fi nancial
statements the following standards,
amendments to the existing standards and
interpretations issued by IASB and adopted by
the EU were in issue but not yet e ective:
ş $PHQGPHQWVWR,)56ŕ-RLQW
Arrangements” – Accounting for Acquisitions
of Interests in Joint Operations – adopted
by the EU on 24 November 2015 (e ective
for annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,$6ŕ3UHVHQWDWLRQRI
Financial Statements” – Disclosure Initiative –
adopted by the EU on 18 December 2015
(e ective for annual periods beginning
on or after 1 January 2016),
ş $PHQGPHQWVWR,$6ŕ3URSHUW\3ODQWDQG
Equipment” and IAS 38 “Intangible Assets”
– Clarifi cation of Acceptable Methods of
Depreciation and Amortisation – adopted
by the EU on 2 December 2015 (e ective
for annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,$6ŕ3URSHUW\3ODQW
and Equipment” and IAS 41 “Agriculture” –
Agriculture: Bearer Plants – adopted
by the EU on 23 November 2015 (e ective
for annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,$6ŕ(PSOR\HH%HQHĬWVŖ
– Defi ned Benefi t Plans: Employee
Contributions – adopted by the EU on
17 December 2014 (e ective for annual
periods beginning on or after 1 February 2015),
ş $PHQGPHQWVWR,$6ŕ6HSDUDWH)LQDQFLDO
Statements” – Equity Method in Separate
Financial Statements–adopted by the EU
on 18 December 2015 (e ective for annual
periods beginning on or after 1 January 2016),
ş $PHQGPHQWVWRYDULRXVVWDQGDUGV
“Improvements to IFRSs (cycle 2010–2012)”
resulting from the annual improvement
project of IFRS (IFRS 2, IFRS 3, IFRS 8,
IFRS 13, IAS 16, IAS 24 and IAS 38) primarily
with a view to removing inconsistencies
and clarifying wording – adopted by the EU
on 17 December 2014 (amendments are
to be applied for annual periods beginning
on or after 1 February 2015),
ş $PHQGPHQWVWRYDULRXVVWDQGDUGV
“Improvements to IFRSs (cycle 2012–2014)”
resulting from the annual improvement
project of IFRS (IFRS 5, IFRS 7, IAS 19 and
IAS 34) primarily with a view to removing
inconsistencies and clarifying wording
– adopted by the EU on 15 December 2015
(amendments are to be applied for annual
periods beginning on or after 1 January 2016).
IFRS separate fi nancial statements
168 OTP Bank Annual Report 2015
Signifi cant accounting policies applied in the
preparation of the accompanying separate
fi nancial statements are summarized below:
2.1 Basis of presentation
These separate fi nancial statements have been
prepared under the historical cost convention
with the exception of certain fi nancial
instruments, which are recorded at fair value.
Revenues and expenses are recorded in the
period in which they are earned or incurred.
The presentation of separate fi nancial state-
ments in conformity with IFRS requires the
Management of the Bank to make estimates
and assumptions that a ect the reported
amounts of assets and liabilities and disclosure
of contingent assets and liabilities as at the date
of the fi nancial statements and their reported
amounts of revenues and expenses during the
reporting period. Actual results could di er from
those estimates.
Future changes in economic conditions,
business strategies, regulatory requirements,
accounting rules and other factors could result
1.2.3 Standards and Interpretations
issued by IASB but not yet adopted
by the EU
ş ,)56ŕ)LQDQFLDO,QVWUXPHQWVŖHıHFWLYH
for annual periods beginning on or after
1 January 2018),
ş ,)56ŕ5HJXODWRU\'HIHUUDO$FFRXQWVŖ
(e ective for annual periods beginning on
or after 1 January 2016) – the European
Commission has decided not to launch
the endorsement process of this interim
standard and to wait for the fi nal standard,
ş ,)56ŕ5HYHQXHIURP&RQWUDFWVZLWK
Customers” and further amendments
(e ective for annual periods beginning
on or after 1 January 2018),
ş ,)56ŕ/HDVHVŖHıHFWLYHIRUDQQXDOSHULRGV
beginning on or after 1 January 2019),
ş $PHQGPHQWVWR,)56ŕ&RQVROLGDWHG
Financial Statements”, IFRS 12 “Disclosure
of Interests in Other Entities” and IAS
28 “Investments in Associates and Joint
Ventures” – Investment Entities: Applying
the Consolidation Exception (e ective
for annual periods beginning on or after
1 January 2016),
ş $PHQGPHQWVWR,)56ŕ&RQVROLGDWHG
Financial Statements” and IAS 28
“Investments in Associates and Joint
Ventures” – Sale or Contribution of Assets
between an Investor and its Associate or
Joint Venture and further amendments
(e ective date was deferred indefi nitely until
the research project on the equity method
has been concluded),
ş $PHQGPHQWVWR,$6ŕ,QFRPH7D[HVŖ
– Recognition of Deferred Tax Assets for
Unrealised Losses (e ective for annual
periods beginning on or after 1 January
2017).
Hedge accounting regarding the portfolio of
fi nancial assets and liabilities, whose principles
have not been adopted by the EU, is still
unregulated.
According to the Entity’s estimates, application
of hedge accounting for the portfolio of
fi nancial assets or liabilities pursuant to IAS
39: “Financial Instruments: Recognition and
Measurement”, would not signifi cantly impact
the fi nancial statements, if applied as at the
balance sheet date.
The adoption of the above presented Amend-
ments and new Standards and Interpretations
would have no signifi cant impact on the
separate fi nancial statements except of the
application of IFRS 9 and IFRS 16 which might
have signifi cant impact on the Bank separate
fi nancial statements, the Bank is planning to
analyse the impact in 2016.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
169
in a change in estimates that could have a
material impact on future separate fi nancial
statements.
2.2 Foreign currency translation
Monetary assets and liabilities denominated
in foreign currencies are translated into HUF
that is the presentation currency, at exchange
rates quoted by the National Bank of Hungary
(“NBH”) as at the date of the separate fi nancial
statements. Income and expenses arising in
foreign currencies are converted at the rate of
exchange on the transaction date. Resulting
foreign exchange gains or losses are recorded
to the separate statement of recognized income.
2.3 Consolidated fi nancial
statements
These fi nancial statements present the
separate fi nancial position and results of
operations of the Bank. Consolidated fi nancial
statements are currently being prepared by the
Bank and consolidated net profi t for the year
and shareholders’ equity di ers signifi cantly
from that presented in these separate fi nancial
statements. See Note 2.4 for the description of
the method of accounting for investments in
subsidiaries and associated companies in these
separate fi nancial statements. The consolidated
fi nancial statements and the separate fi nancial
statements will be published on the same date.
As the ultimate parent, OTP Bank is preparing
consolidated fi nancial statement of OTP Group.
2.4 Investments in subsidiaries,
associated companies and joint
ventures
Investments in subsidiaries comprise those
investments where OTP Bank, through direct
and indirect ownership interest, controls the
investee. Control is achieved when the Bank
has power over the investee, is exposed or has
rights, to variable returns from its involvement
with the investee and has the ability to use its
power to a ect its returns.
Investments in subsidiaries are recorded
at the cost of acquisition, less impairment
for permanent diminution in value, when
appropriate. After initial measurement
investments in subsidiaries are measured
at cost, in the case of foreign currency
denominated investments for the measurement
the Bank uses the exchange rate at the date of
transaction.
Associated companies and joint ventures where
the Bank has the ability to exercise signifi cant
infl uence are accounted for using the equity
method.
Impairment is determined based on the future
economic benefi ts of the subsidiary and
macroeconomic factors.
OTP Bank calculates the fair value based on
discounted cash-fl ow model. The 5 year period
explicit cash-fl ow model serves as a basis
for the impairment test by which the Bank
defi nes the impairment need on investment in
subsidiaries based on the strategic factors and
fi nancial data of its cash-generating units.
OTP Bank in its strategic plan has taken into
consideration the cautious recovery of global
economic situation and outlook, the associated
risks and their possible e ect on the fi nancial
sector as well as the current and expected
availability of wholesale funding.
2.5 Securities held-to-maturity
Investments in securities, traded in active
market (with fi xed or determinable cash-fl ows)
are accounted for on a settlement date basis
and are initially measured at fair value.
At subsequent reporting dates, securities that
the Bank has the expressed intention and ability
to hold to maturity (securities held-to-maturity)
are measured at amortised cost, less any
impairment losses recognized to refl ect
irrecoverable amounts. The annual amortisation
of any discount or premium on the acquisition
of a held-to-maturity security is aggregated
with other investment income receivables over
the term of the investment so that the revenue
IFRS separate fi nancial statements
170 OTP Bank Annual Report 2015
recognized in each period represents a constant
yield on the investment.
Such securities comprise mainly securities
issued by the Hungarian Government, mortgage
bonds and Hungarian Government discounted
Treasury Bills.
2.6 Financial assets at fair value
through profi t or loss
2.6.1 Securities held for trading
Investments in securities are accounted for
on a settlement date basis and are initially
measured at fair value. Securities held for
trading are measured at subsequent reporting
dates at fair value. Unrealised gains and losses
on held for trading securities are recognized in
profi t or loss and are included in the separate
statement of recognized income for the period.
The Bank mainly holds these securities to
obtain short-term gains consequently realised
and unrealised gains and losses are recognized
in the net operating income. During 2015 the
Bank has switched over to FIFO* inventory
valuation method from the weighted average
method applied for securities held for trading,
which had no signifi cant impact on the separate
fi nancial statements. Such securities consist of
discounted and interest bearing Treasury bills,
Hungarian Government bonds, mortgage bonds,
shares in non-fi nancial commercial companies,
shares in investment funds, shares in venture
capital funds and shares in fi nancial institutions.
2.6.2 Derivative fi nancial
instruments
In the normal course of business, the Bank
is a party to contracts for derivative fi nancial
instruments, which represent a very low initial
investment compared to the notional value
of the contract and their value depends on
value of underlying asset and are settled in
the future. The derivative fi nancial instruments
used include interest rate forward or swap
agreements and currency forward or swap
agreements and options. These fi nancial
instruments are used by the Bank both for
trading purposes and to hedge interest rate
risk and currency exposures associated with its
transactions in the fi nancial markets.
Derivative fi nancial instruments are accounted
for on a trade date basis and are initially
measured at fair value and at subsequent
reporting dates also at fair value. Fair values
are obtained from quoted market prices,
discounted cash-fl ow models and option pricing
models as appropriate. OTP Bank adopts multi
curve valuation approach for calculating the net
present value of future cash-fl ows – based on
di erent curves used for determining forward
rates and used for discounting purposes.
It shows the best estimation of such derivative
deals that are collateralised as OTP Bank has
almost its entire open derivative transactions
collateralised. Changes in the fair value of
derivative fi nancial instruments that do not
qualify for hedge accounting are recognized in
profi t or loss and are included in the separate
statement of recognized income for the period.
Each derivative deal is determined as asset
when fair value is positive and as liability when
fair value is negative.
Certain derivative transactions, while providing
e ective economic hedges under risk
management positions of the Bank, do not
qualify for hedge accounting under the specifi c
rules of IAS 39 and are therefore treated as
derivatives held for trading with fair value gains
and losses charged directly to the separate
statement of recognized income.
Foreign currency contracts
Foreign currency contracts are agreements
to exchange specifi c amounts of currencies
at a specifi ed rate of exchange, at a spot date
(settlement occurs two days after the trade
date) or at a forward date (settlement occurs
more than two days after the trade date).
The notional amount of spot contracts does
not represent the actual market or credit
risk associated with these contracts. Foreign
currency contracts are used by the Bank for
* First In First Out
171
risk management and trading purposes.
The Bank’s risk management foreign currency
contracts were used to hedge the exchange rate
fl uctuations of loans and deposits denominated
in foreign currency.
Foreign exchange swaps and
interest rate swaps
The Bank enters into foreign-exchange swap
and interest rate swap (IRS) transactions. The
swap transaction is a complex agreement
concerning the swap of certain fi nancial
instruments, which usually consists of a prompt
and one or more forward contracts.
Interest rate swaps obligate two parties to
exchange one or more payments calculated
with reference to fi xed or periodically reset
rates of interest applied to a specifi c notional
principal amount (the base of the interest
calculation). Notional principal is the amount
upon which interest rates are applied to
determine the payment streams under interest
rate swaps.
Such notional principal amounts are often used
to express the volume of these transactions
but are not actually exchanged between the
counterparties. The Bank’s interest rate swap
contracts can be hedging or held for trading
contracts.
Cross-currency interest rate swaps
The Bank enters into cross-currency interest
rate swap (CCIRS) transactions which have
special attributes, i.e. the parties exchange the
notional amount at the beginning and also at
the maturity of the transaction. A special type
of these deals is the mark-to-market CCIRS
agreements. At this kind of deals the parties
– in accordance with the foreign exchange
prices – revalue the notional amount during
lifetime of the transaction.
Equity and commodity swaps
Equity swaps obligate two parties to exchange
more payments calculated with reference
periodically reset rates of interest and
performance of indices. A specifi c notional
principal amount is the base of the interest
calculation. The payment of index return is
calculated on the basis of current market price
compared to the previous market price. In case
of commodity swaps payments are calculated
on the basis of the strike price of a predefi ned
commodity compared to its average market
price in a period.
Forward rate agreements (FRA)
A forward rate agreement is an agreement
to settle amounts at a specifi ed future date
based on the di erence between an interest
rate index and an agreed upon fi xed rate.
Market risk arises from changes in the market
value of contractual positions caused by
movements in interest rates.
The Bank limits its exposure to market risk by
entering into generally matching or o setting
positions and by establishing and monitoring
limits on unmatched positions. Credit risk
is managed through approval procedures
that establish specifi c limits for individual
counter-parties. The Bank’s forward rate
agreements were transacted for management
of interest rate exposures.
Foreign exchange options
A foreign exchange option is a derivative
fi nancial instrument that gives the owner the
right to exchange money denominated in one
currency into another currency at a pre-agreed
exchange rate at a specifi ed future date.
The transaction, for a fee, guarantees a worst-
case exchange rate for the futures purchase of
one currency for another. These options protect
against unfavourable currency movements
while preserving the ability to participate in
favourable movements.
2.7 Derivative fi nancial instruments
designated as a fair value or
cash-fl ow hedge
Changes in the fair value of derivatives that are
designated and qualify as fair value hedges and
that prove to be highly e ective in relation to
the hedged risk, are recorded in the separate
statement of recognized income along with
the corresponding change in fair value of the
IFRS separate fi nancial statements
172 OTP Bank Annual Report 2015
hedged asset or liability that is attributable to
the specifi c hedged risk. The ine ective element
of the hedge is charged directly to the separate
statement of recognized income. The conditions
of hedge accounting applied by the Bank are the
following: formally designed as hedge, proper
hedge documentation is prepared, e ectiveness
test is performed and based on it the hedge is
qualifi ed as e ective.
Changes in fair value of derivatives that are
designated and qualify as cash-fl ow hedges and
that prove to be highly e ective in relation to
hedged risk are recognized as reserve in other
comprehensive income. Amounts deferred
in equity are transferred to the separate
statement of recognized income and classifi ed
as revenue or expense in the periods during
which the hedged assets and liabilities e ect
the separate statement of recognized and
comprehensive income for the period.
The ine ective element of the hedge is charged
directly to the separate statement of recognized
income.
The Bank terminates the hedge accounting
if the hedging instrument expires or is sold,
terminated or exercised, or the hedge no longer
meets the criteria for hedge accounting or the
Bank revokes the designation.
2.8 O setting
Financial assets and liabilities may be o set
and the net amount is reported in the statement
of fi nancial position when the Bank has a legally
enforceable right to set o the recognised
amounts and the transactions are intended
to be reported in the statement of fi nancial
position on a net basis. The Bank does not o set
any fi nancial assets and fi nancial liabilities.
2.9 Embedded derivatives
Sometimes, a derivative may be a component
of a combined fi nancial instrument that
includes a host contract and a derivative (the
embedded derivative) a ecting cash-fl ows or
otherwise modifying the characteristics of the
host instrument. An embedded derivative must
be separated from the host instrument and
accounted for as a separate derivative if, and
only if:
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embedded derivative are not closely related
to the economic characteristics and risks of
the host contract;
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same terms as the embedded derivative
would meet the defi nition of a derivative as a
stand-alone instrument; and
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or is measured at fair value but changes
in fair value are recognised in other
comprehensive income.
2.10 Securities available-for-sale
Investments in securities are accounted for on a
settlement date basis and are initially measured
at fair value. Available-for-sale securities
are measured at subsequent reporting dates
at fair value. Unrealised gains and losses on
available-for-sale fi nancial instruments are
recognized in other comprehensive income,
except for interest and foreign exchange
gains/losses on monetary items, unless such
available-for-sale security is part of an e ective
hedge. Such gains and losses will be reported
when realised in profi t or loss for the applicable
period. During 2015 the Bank has switched over
to FIFO* inventory valuation method from the
weighted average method applied for securities
held for trading, which had no signifi cant impact
on the separate fi nancial statements.
Securities available-for-sale consists of
Hungarian Government bonds, mortgage bonds
and other securities. Other securities include
shares in investment funds and venture capital
funds, corporate bonds and foreign securities.
The provision for impairment is calculated
based on discounted cash-fl ow methodology for
debt instruments and calculated based on fair
value on equity instruments, using the expected
future cash-fl ow and original e ective interest
* First In First Out
173
rate if there is objective evidence of impairment
based on signifi cant or prolonged decrease on
fair value.
Available-for-sale securities are remeasured
at fair value based on quoted prices or values
derived from cash-fl ow models. In circum-
stances where the quoted market prices are
not readily available, the fair value of debt
securities is estimated using the present value
of the future cash-fl ows and the fair value of
any unquoted equity instruments are calculated
using the EPS ratio.
Those available-for-sale fi nancial assets that
do not have a quoted market price and whose
fair value cannot be reliably measured by
other models mentioned above are measured
at cost, less provision for impairment when
appropriate. This exception is related only
to equity instruments. Impairment on equity
AFS securities is accounted only if there is a
signifi cant or prolonged decrease in the market
value. Impairment losses recognised in profi t
or loss for equity AFS securities is not reversed
through profi t or loss.
2.11 Loans, placements with
other banks and allowance for loan
and placement losses
Loans and placements with other banks are
accounted at amortised cost, stated at the
principal amounts outstanding including
accrued interest, net of allowance for loan or
placement losses, respectively. Transaction fees
and charges should adjust the carrying amount
at initial recognition and be included in e ective
interest calculation. Loans and placements
with other banks are derecognised when the
contractual rights to the cash-fl ows expire or
they are transferred. Interest and amortised
cost are accounted using e ective interest rate
method. When a borrower is unable to meet
payments as they fall due or, in the opinion
of the Management, there is an indication that
a borrower may be unable to meet payments
as they fall due, all unpaid interest becomes
impaired.
According to IAS 39, initially fi nancial assets
shall be recognized at fair value which is
usually equal to transaction value of loans
and receivables. Initial fair value of loans and
receivables lent at interest below market
conditions is lower than their transaction
price. As a consequence the Bank is deferring
the di erence between the fair value at initial
recognition and the transaction price relating
to loans and receivables because input data for
measuring the fair values is not available on
observable markets.
The amount of allowance is the di erence
between the carrying amount and the
recoverable amount, being the present value
of the expected cash-fl ows, including amounts
recoverable from guarantees and collaterals,
discounted at the original e ective interest rate.
Allowance for losses on loans and placements
with other banks represent management
assessment for potential losses in relation to
these activities.
The allowances for loan and placement losses
are maintained to cover losses that have been
specifi cally identifi ed. Collective impairment
losses of portfolios of loans, for which no
objective evidence of impairment has been
identifi ed on an individual basis, are maintained
to reduce the carrying amount of the portfolios
of fi nancial assets with similar credit risk
characteristics to their estimated recoverable
amounts at the balance sheet date.
The expected cash-fl ows for portfolios of
similar assets are estimated based on historical
loss experience. Historical loss experience is
the basis for calculating the expected loss,
which is adjusted by the loss confi rmation
period, which represents the average time
lag between occurrence of a loss event and
confi rmation of the loss. This concept enables
recognition of those losses that have occurred
in the portfolio at the balance sheet date.
If the reason for provisioning is no longer
deemed appropriate, the redundant
provisioning charge is released into income.
If, in a subsequent period, the amount of the
impairment loss decreases and the decrease
can be related objectively to an event occurring
after the impairment was recognised (such as
IFRS separate fi nancial statements
174 OTP Bank Annual Report 2015
an improvement in the debtor’s credit rating),
the previously recognised impairment loss shall
be reversed by adjusting an allowance account.
The reversal shall not result in a carrying
amount of the fi nancial asset that exceeds what
the amortised cost would have been had the
impairment not been recognised at the date the
impairment is reversed.
Write-o s are generally recorded after
all reasonable restructuring or collection
activities have taken place and the possibility
of further recovery is considered to be remote.
The loan is written o against the related
account “Provisions for impairment on loan
and placement losses” in the statement of
recognized income.
OTP Bank applies partial or full write-o for
loans based on the defi nitions and prescriptions
of fi nancial instruments in accordance with
IAS 39. If OTP Bank has no reasonable
expectations regarding a fi nancial asset (loan)
to be recovered, it will be written o partially
or fully at the time of emergence. A loan will be
written o if it has overdued or was terminated
by the Bank.
The gross amount and impairment loss of the
loans shall be written o in the same amount to
the estimated maximum recovery amount while
the net carrying value remains unchanged. In
these cases there is no reasonable expectation
from the clients to complete contractual
cash-fl ows therefore OTP Bank does not accrue
interest income in case of partial write-o .
Loan receivables legally demanded from clients
are equal to the former gross amount of the
loan before the partial write-o .
2.12 Sale and repurchase
agreements, security lending
Where debt or equity securities are sold
under a commitment to repurchase them at
a pre-determined price, they remain on
the statement of fi nancial position and the
consideration received is recorded in Other
liabilities or Amounts due to banks and the
Hungarian Government, deposits from the
National Bank of Hungary and other banks,
or Deposits from customers. Conversely,
debt or equity securities purchased under
a commitment to resell are not recognized
in the statement of fi nancial position and
the consideration paid is recorded either in
Placements with other banks or Deposits from
customers. Interest is accrued evenly over the
life of the repurchase agreement.
In the case of security lending transactions
the Bank does not recognize or derecognize
the securities because it is believed that the
transferor retains substantially all the risks
and rewards of the ownership of the securities.
Only a fi nancial liability or fi nancial receivable is
recognized for the consideration amount.
2.13 Property, equipment
and intangible assets
Property, equipment and intangible assets are
stated at cost, less accumulated depreciation
and amortization and impairment, if any.
The depreciable amount (book value less
residual value) of the non-current assets must
be allocated over their useful lives. Depreciation
and amortization are calculated using the
straight-line method over the estimated useful
lives of the assets based on the following
annual percentages:
Intangible assets
Software 15–33.3%
Property rights 16.7%
Property 1–2%
O ce equipment and vehicles 9–33.3%
Depreciation and amortization on properties,
equipment and intangible assets starts on the
day when such assets are placed into service.
At each balance sheet date, the Bank reviews
the carrying value of its tangible and intangible
assets to determine if there is any indication that
those assets have su ered an impairment loss.
If such indication exists, the recoverable
amount of the asset is estimated to determine
175
the extent (if any) of the impairment loss.
Where it is not possible to estimate the
recoverable amount of an individual asset,
the Bank estimates the recoverable amount
of the cash-generating unit to which the asset
belongs.
Where the carrying value of property,
equipment, other tangible fi xed assets and
intangible assets is greater than the estimated
recoverable amount, it is impaired immediately
to the estimated recoverable amount.
The Bank may conclude contracts for
purchasing property, equipment and intangible
assets, where the purchase price is settled
in foreign currency. By entering into such
agreements, fi rm commitment in foreign
currency due on a specifi ed future date arises
at the Bank.
Reducing the foreign currency risk caused
by fi rm commitment, forward foreign currency
contracts may be concluded to ensure the
amount payable in foreign currency on
a specifi ed future date on one hand and to
eliminate the foreign currency risk arising until
settlement date of the contract on the other
hand.
In the case of e ective hedge the realised
profi t or loss of hedging instrument is stated
as the part of the cost of the hedged asset as it
has arisen until recognising the asset and it is
tightly connecting to the purchasing.
2.14 Financial liabilities
The fi nancial liabilities are presented within
fi nancial liabilities at fair value through profi t
or loss or fi nancial liabilities measured at
amortized costs. In connection to the fi nancial
liabilities at fair value through profi t or loss,
the Bank presents the amount of change in
their fair value originated from the changes of
market conditions and business environment.
Financial liabilities at fair value through profi t
or loss are either fi nancial liabilities held for
trading or they are designated upon initial
recognition as at fair value through profi t or
loss. In the case of fi nancial liabilities measured
at amortized cost, fees and commissions
related to the origination of the fi nancial liability
are recognized through profi t or loss during the
maturity of the instrument. In certain cases the
Bank repurchases a part of fi nancial liabilities
(mainly issued securities or subordinated
bonds) and the di erence between the carrying
amount of the fi nancial liability and the amount
paid for it is recognized in the net profi t or loss
for the period and included in other operating
income.
2.15 Leases
Assets held under fi nance leases, which confer
rights and obligations similar to those attached
to owned assets, are capitalised at their fair
value and depreciated over the useful lives of
assets. The capital element of each future lease
obligation is recorded as a liability, while the
interest elements are charged to the separate
statement of recognized income over the
period of the leases to produce a constant rate
of charge on the balance of capital payments
outstanding.
Payments made under operating leases
are charged to the separate statement of
recognized income on a straight-line basis over
the life of the lease terms. When an operating
lease is terminated before the lease period has
expired, any payment required to be made to
the lessor by way of penalty is recognized as
an expense in the period in which termination
takes place.
2.16 Treasury shares
Treasury shares are shares which are
purchased on the stock exchange and the
over-the-counter market by the Bank and are
presented in the separate statement of fi nancial
position at acquisition cost as a deduction from
shareholders’ equity. Gains and losses on the
sale of treasury shares are credited or charged
directly to shareholder’s equity in the treasury
shares. Derecognition of treasury shares is
based on the FIFO method.
IFRS separate fi nancial statements
176 OTP Bank Annual Report 2015
2.17 Interest income and interest
expense
Interest income and expenses are recognised in
profi t or loss in the period to which they relate,
using the e ective interest rate method. Interest
from loans and deposits are accrued on a daily
basis. Interest income and expenses include
relevant transaction costs and the amortisation
of any discount or premium between the initial
carrying amount of an interest-bearing instru-
ment and its amount at maturity calculated on
an e ective interest rate basis. The Bank
recognizes interest income when it is assumed
that the interest associated with the transaction
will fl ow to the Bank and the amount of the
revenue can be reasonably measured. All
interest income and expense arising from loans,
placements with other banks, securities held for
trading, securities available-for-sale, securities
held to maturity and amounts due to banks,
deposits from customers, liabilities from issued
securities, subordinated bond and loans are pre-
sented under these lines of fi nancial statement.
2.18 Fees and Commissions
Fees and commissions are recognised using
e ective interest method referring to provisions
of IAS 39, when they relate and have to be
included in the amortised cost model. Certain
fees and commissions that are not involved in
the amortised cost model are recognised in the
separate statement of recognised income on an
accrual basis based on IAS 18.
2.19 Dividend income
The Bank recognizes dividend income in the
separate fi nancial statements when its right to
receive the payment is established.
2.20 Income tax
The annual taxation charge is based on the tax
payable under Hungarian fi scal law, adjusted
for deferred taxation. Deferred taxation is
accounted for using the balance sheet liability
method in respect of temporary di erences
between the tax bases of assets and liabilities
and their carrying value for fi nancial reporting
purposes, measured at the tax rates that are
expected to apply when the asset is realised
or the liability is settled. Deferred tax assets
are recognized by the Bank for the amounts
of income tax that are recoverable in future
periods in respect of deductible temporary
di erences as well as the carryforward of
unused tax losses and the carryforward of
unused tax credits.
2.21 O -balance sheet
commitments and contingent
liabilities
In the ordinary course of its business, the Bank
has entered into o -balance sheet commitments
such as guarantees, commitments to extend
credit, letters of credit and transactions
with fi nancial instruments. The provision on
o -balance sheet commitments and contingent
liabilities is maintained at a level adequate to
absorb probable future losses. Management
determines the adequacy of the provision based
upon reviews of individual items, recent loss
experience, current economic conditions, the
risk characteristics of the various categories of
transactions and other pertinent factors.
The Bank recognizes a provision when it has a
present obligation as a result of a past event;
it is probable that an outfl ow of resources
embodying economic benefi ts will be required
to settle the obligation; and a reliable estimate
can be made of the obligation.
2.22 Share-based payment
and employee benefi t
The Bank has applied the requirements of IFRS
2 Share-based Payment.
The Bank issues equity-settled share-based
payments to certain employees. Equity-settled
share-based payments are measured
177IFRS separate fi nancial statements
at fair value at the grant date. The fair value
determined at the grant date of the equity-
settled share-based payments is expensed
on a straight-line basis over the year, based
on the Bank’s estimate of shares that will
eventually vest. Fair value is measured by use
of a binomial model. The expected life used
in the model has been adjusted, based on
Management’s best estimate, for the e ects
of non-transferability, exercise restrictions,
and behavioural considerations. The Bank has
applied the requirement of IAS 19 Employee
Benefi ts. IAS 19 requires to recognise employee
benefi ts to be paid as a liability and as an
expense in fi nancial statements.
2.23 Separate statement
of cash-fl ows
For the purposes of reporting cash-fl ows,
cash and cash equivalents include cash,
due from banks and balances with the NBH.
Cash-fl ows from hedging activities are
classifi ed in the same category as the item
being hedged. The unrealised gains and losses
from the translation of monetary items to
the closing foreign exchange rates and the
unrealised gains and losses from derivative
fi nancial instruments are presented net in the
statement of cash-fl ows for the monetary items
which were being revaluated.
2.24 Segment reporting
IFRS 8 Operating Segments requires operating
segments to be identifi ed on the basis of
internal reports about components of the
Bank that are regularly reviewed by the chief
operating decision maker in order to allocate
resources to the segments and to assess their
performance.
At separate level, the Management does not
separate and makes decisions based on
di erent segments; the segments are identifi ed
by the Bank only at consolidated level in
line with IFRS 8 paragraph 4. At Group level
the segments identifi ed by the Bank are the
business and geographical segments.
The Group’s operating segments under IFRS
8 are therefore as follows: OTP Core Hungary,
Russia, Ukraine, Bulgaria, Romania, Serbia,
Croatia, Slovakia, Montenegro, Leasing
subsidiaries, Asset Management subsidiaries,
other subsidiaries, Corporate Centre.
2.25 Comparative fi gures
There were no changes in prior period data
due to either prior period error or change in
accounting policies. In some notes certain
amounts in the separate fi nancial statements
for the year ended 31 December 2015 have
been restructured within the particular note to
conform to the current year presentation but
these amounts are not signifi cant.
2.26 Government measures related
to customer loan contracts
Based on the Act XXXVIII of 2014 on “Settlement
of certain issues concerning the Uniformity
Decision of the Supreme Court related to
customer loan agreements provided by
fi nancial institutions” (“Curia Law”) and the
Act XL of 2014 on “Rules of the settlement and
certain other issues put in Act XXXVIII of 2014
on Settlement of certain issues concerning
the Uniformity Decision of the Supreme Court
related to customer loan agreements provided
by fi nancial institutions” (“Act on Settlement”)
OTP Bank has met its settlement obligations as
prescribed by law related to foreign currency
loans.
a) Act on Settlement
Based on these regulations expense in the
amount of HUF 40 billion was recognised
as amounts charged to clients related to
customer loans contracts were assumed unfair.
The provision related to the settlement was
released during the year of 2015. In relation
to the settled customer loans sold to debt
management company, further provision in the
amount of HUF 1,598 million was recognised
178 OTP Bank Annual Report 2015
on subsequent purchase price compensation
payable for the debt management company.
The purchase price compensation is expected
to be settled during the fi rst half of 2016.
b) Act on Conversion mortgage backed loans
into HUF
Based on the Act LXXVII of 2014 on “Settlement
of certain issues concerning the modifi cation
of the currency and interest conditions related
to customer loan agreements” OTP Bank
completed the conversion of foreign currency
customer mortgage loans and relating amounts
(accrued interests, provision for impairment)
into HUF.
c) Act on Conversion customer loans into HUF
On 2 October 2015 the Hungarian Government
accepted the Act CXLV of 2015 on “Resolving
issues concerning the HUF conversion of
receivables from certain customer loan
agreements”. Accordingly, the applicable
exchange rates were the spot market rates on
19 August 2015 (o cial exchange rates of the
NBH on 19 August 2015 were 287.20 HUF/CHF
and 309.20 HUF/EUR, respectively).
However, based on the law a subsidy was
given to clients in the amount of the di erence
between the FX rates used for the conversion
of FX mortgage loans (256.47 HUF/CHF,
308.97 HUF/EUR) and the 19 August 2015
FX rates was borne equally by the banks and
the State. The conversion was not mandatory
for the clients.
OTP Bank completed the conversion of foreign
currency customer loans, and the relating sub-
sidy was settled with the clients which has no
signifi cant e ect to the OTP Bank’s profi tability.
NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS
IN THE APPLICATION OF ACCOUNTING POLICIES
The presentation of separate fi nancial state-
ments in conformity with IFRS requires the
Management of the Group to make judgements
about estimates and assumptions that a ect
the reported amounts of assets and liabilities
and the disclosure of contingent assets and
liabilities as at the date of the fi nancial state-
ments and their reported amounts of revenues
and expenses during the reporting period. The
estimates and associated assumptions are
based on historical experience and other factors
that are considered to be relevant. The estimates
and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates
are recognized in the period. Actual results
could di er from those estimates. Signifi cant
areas of subjective judgements include:
3.1 Impairment on loans
and placements
The Bank regularly assesses its loan portfolio
for impairment. Management determines the
adequacy of the allowances based upon reviews
of individual loans and placements, recent
loss experience, current economic conditions,
the risk characteristics of the various
categories of loans and other pertinent factors.
Provisioning involves many uncertainties
about the outcome of those risks and requires
the Management of the Bank to make many
subjective judgements in estimating the loss
amounts. An impairment loss is incurred when
there is objective evidence of impairment due
to one or more events that occurred after the
initial recognition of the asset (‘a loss event’),
when the loss has a reliably measurable
impact on the expected future cash fl ows
from the fi nancial asset or group of fi nancial
assets. Future cash fl ows are assessed by
the Bank on the basis of estimates based
on historical parameters. The adopted
methodology used for estimating impairment
allowances is in line with the further
possibilities of accumulations of historic
impairment data from the existing information
systems and applications. As a consequence,
179IFRS separate fi nancial statements
acquiring new data by the Bank could a ect the
level of impairment allowances in the future.
3.2 Valuation of instruments
without direct quotations
Financial instruments without direct quotations
in an active market are valued using the
valuation model technique. The models are
regularly reviewed and each model is calibrated
for the most recent available market data.
While the models are built only on available
data, their use is subject to certain assumptions
and estimates (e.g. for correlations, volatilities
etc). Changes in the model assumptions may
a ect the reported fair value of the relevant
fi nancial instruments.
IFRS 13 Fair Value Measurement seeks to
increase consistency and comparability in fair
value measurements and related disclosures
through a ‘fair value hierarchy’. The hierarchy
categorises the inputs used in valuation
techniques into three levels. The hierarchy
gives the highest priority to (unadjusted)
quoted prices in active markets for identical
assets or liabilities and the lowest priority to
unobservable inputs. The objective of a fair
value measurement is to estimate the price
at which an orderly transaction to sell the
asset or to transfer the liability would take
place between market participants at the
measurement date under current market
conditions.
3.3 Provisions
Provision is recognized and measured based
on IAS 37 Provisions, Contingent Liabilities
and Contingent Assets. The Bank is involved
in a number of ongoing legal disputes.
Based upon historical experience and expert
reports, the Bank assesses the developments
in these cases, and the likelihood and the
amount of potential fi nancial losses which are
appropriately provided for (see Note 17).
A provision is recognized by the Bank when it
has a present obligation as a result of a past
event, it is probable that an outfl ow of resources
embodying economic benefi ts will be required
to settle the obligation, and a reliable estimate
can be made of the amount of the obligation.
Provision for o -balance sheet items includes
provision for litigation, provision for retirement
and expected liabilities, for commitments to
extend credit, provision for warranties arising
from banking activities and provision for
Confi rmed letter of credit.
NOTE 4: CASH, AMOUNTS DUE FROM BANKS AND BALANCES
WITH THE NATIONAL BANK OF HUNGARY (in HUF mn)
2015 2014
Cash on hand:
In HUF 76,320 65,059
In foreign currency 6,483 5,579
82,803 70,638
Amounts due from banks and balances with National Bank of Hungary:
Within one year:
In HUF 1,200,884 1,795,868
In foreign currency 40,818 30,640
1,241,702 1,826,508
Accrued interest 1,692 632
Total 1,326,197 1,897,778
Compulsory reserve 87,339 135,051
Rate of the compulsory reserve 2% 3%
180 OTP Bank Annual Report 2015
NOTE 5: PLACEMENTS WITH OTHER BANKS, NET OF ALLOWANCE
FOR PLACEMENT LOSSES (in HUF mn)
2015 2014
Within one year:
In HUF 426,484 294,712
In foreign currency 166,623 302,186
593,107 596,898
Over one year:
In HUF 40,592 5,000
In foreign currency 12,736 108,586
53,328 113,586
Total placements 646,435 710,484
Accrued interest 1,318 1,654
Provision for impairment on placement losses (29) (26)
Total 647,724 712,112
An analysis of the change in the provision for impairment on placement losses is as follows:
2015 2014
Balance as at 1 January 26 22
Provision for the year 3 4
Balance as at 31 December 29 26
Interest conditions of placements with other banks:
2015 2014
Placements with other banks in HUF 2.35%–5.85% 3%–6.6%
Placements with other banks in foreign currency 0.02%–10% 0.58%–13%
Average interest of placements with other banks 1.43% 2.19%
* CCIRS: Cross Currency Interest Rate Swap (see Note 2.6.2).
** Incl.: FX, equity, commodity and index futures; FX forward; commodity and equity swap; FRA; FX option (see Note 2.6.2).
NOTE 6: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT
OR LOSS (in HUF mn)
2015 2014
Shares 71,779 58,559
Government bonds 12,613 13,777
Hungarian government interest bearing Treasury Bills 7,768 4,175
Hungarian government discounted Treasury Bills 366 288
Mortgage bonds 94 71
Securities issued by credit institutions – 67
Other securities 510 216
Subtotal 93,130 77,153
Accrued interest 433 434
Total 93,563 77,587
Derivative fi nancial instruments:
2015 2014
CCIRS and mark-to-market CCIRS* 102,125 152,540
Interest rate swaps 33,869 43,538
Foreign currency swaps 14,352 60,833
Other derivative transactions** 8,231 17,255
Subtotal 158,577 274,166
Total 252,140 351,753
Securities held for trading:
181IFRS separate fi nancial statements
2015 2014
Securities held for trading denominated in HUF 99.49% 97.65%
Securities held for trading denominated in foreign currency 0.51% 2.35%
Securities held for trading total 100% 100%
Government bonds denominated in HUF 99.35% 90%
Government bonds denominated in foreign currency 0.65% 10%
Government securities total 100% 100%
Interest rates on securities held for trading 0.8%–10% 1.74%–10%
Average interest on securities held for trading 2.42% 2.48%
Interest conditions and the remaining maturities of securities held for trading are as follows:
2015 2014
Within fi ve years:
variable interest 2,194 1,125
fi xed interest 15,188 13,878
17,382 15,003
Over fi ve years:
variable interest 5 6
fi xed interest 3,614 3,566
3,619 3,572
Non-interest bearing securities 72,129 58,578
Total 93,130 77,153
2015 2014
Securities available-for-sale denominated in HUF 70% 67%
Securities available-for-sale denominated in foreign currency 30% 33%
Securities available-for-sale total 100% 100%
Interest rates on securities available-for-sale
denominated in HUF
2.5%–11% 3.5%–11%
Interest rates on securities available-for-sale
denominated in foreign currency
0.58%–6.25% 1.99%–5.88%
Average interest on securities available-for-sale 4.54% 4.67%
NOTE 7: SECURITIES AVAILABLE-FOR-SALE (in HUF mn)
2015 2014
Government bonds 755,627 375,040
Mortgage bonds 597,226 741,567
Other securities 81,238 64,593
listed securities 10,326 31,535
LQ+8) ––
in foreign currency 10,326 31,535
QRQOLVWHGVHFXULWLHV 70,912 33,058
LQ+8) 58,800 27,397
in foreign currency 12,112 5,661
Subtotal 1,434,091 1,181,200
Accrued interest 28,569 34,707
Securities available-for-sale total 1,462,660 1,215,907
182 OTP Bank Annual Report 2015
2015 2014
Within fi ve years:
variable interest 324,400 320,729
fi xed interest 838,523 571,816
1,162,923 892,545
Over fi ve years:
variable interest 40,624 4,587
fi xed interest 201,128 251,803
241,752 256,390
Non-interest bearing securities 29,416 32,265
Total 1,434,091 1,181,200
Interest conditions and the remaining maturities of available-for-sale securities
can be analysed as follows:
Certain fi xed-rate mortgage bonds and other securities are hedged against interest rate risk
(see Note 37).
2015 2014
Net gain reclassifi ed from equity to statement
of recognized income
9,818 2,995
Fair value of the hedged securities:
Mortgage bonds 317,230 –
Government bonds 665,228 261,608
Corporate bonds 3,256 24,736
Total 985,714 286,344
2015 2014
Short-term loans and promissory notes (within one year) 1,019,240 1,014,363
Long-term loans and promissory notes (over one year) 754,722 972,626
Loans gross total 1,773,962 1,986,989
Accrued interest 4,885 7,039
Provision for impairment on loan losses (99,663) (85,397)
Total 1,679,184 1,908,631
NOTE 8: LOANS, NET OF ALLOWANCE FOR LOAN LOSSES (in HUF mn)
An analysis of the loan portfolio by currency:
2015 2014
In HUF 51% 43%
In foreign currency 49% 57%
Total 100% 100%
Interest rates of the loan portfolio are as follows:
2015 2014
Loans denominated in HUF, with a maturity within one year 4.9%–35% 5.6%–28.8%
Loans denominated in HUF, with a maturity over one year 1.4%–18.5% 2.1%–18.5%
Loans denominated in foreign currency 1.2%–10.2% 1.8%–14%
Average interest on loans denominated in HUF 11.24% 11.72%
Average interest on loans denominated in foreign currency 2.64% 3.91%
Gross loan portfolio on which interest to customers
is not being accrued
12.7% 11.3%
183IFRS separate fi nancial statements
An analysis of the gross loan portfolio by type, before provision for impairment
on loan losses, is as follows:
2015 2014
Retail loans 476,664 27% 518,058 26%
Retail consumer loans 266,643 15% 291,497 15%
Retail mortgage backed loans* 77,960 4% 112,358 5%
Micro and small enterprises loans 132,061 8% 114,203 6%
Corporate loans 1,297,298 73% 1,468,931 74%
Loans to medium and large corporates 1,277,292 72% 1,420,631 71%
Municipality loans 20,006 1% 28,471 2%
Loans to the State – – 19,829 1%
Total 1,773,962 100% 1,986,989 100%
* Incl. housing loans.
** See Note 2.11.
An analysis of the change in the provision for impairment on loan losses is as follows:
2015 2014
Balance as at 1 January 85,397 150,513
Provision for the year 69,926 52,096
Release of provision (52,185) (54,793)
Partial write-o ** (3,475) (62,419)
Balance as at 31 December 99,663 85,397
Provision for impairment on loan and placement losses is summarized as below:
2015 2014
Provision for impairment on placement losses 3 4
Provision for impairment on loan losses 39,545 23,209
Total 39,548 23,213
The Bank sells non-performing loans
without recourse at estimated fair value to a
Other investments contain certain securities accounted at cost. These instruments do not have a
quoted market price in an active market and whose fair value cannot be reliably measured.
wholly owned subsidiary, OTP Factoring Ltd.
(see Note 29).
2015 2014
Investments in subsidiaries
Controlling interest 1,245,801 1,147,839
Other investments 3,511 681
Subtotal 1,249,312 1,148,520
Provision for impairment (591,781) (544,311)
Total 657,531 604,209
NOTE 9: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES,
JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn)
184 OTP Bank Annual Report 2015
2015 2014
% Held
(direct)
Gross book
value
% Held
(direct)
Gross book
value
OTP Bank JSC (Ukraine) 100% 311,390 100% 279,469
OTP Mortgage Bank Ltd. 100% 144,294 100% 126,839
OTP Bank Romania S.A. (Romania) 100% 94,085 100% 61,081
OTP banka Srbija a.d. (Serbia) 97.92% 91,159 97.90% 91,153
DSK Bank EAD (Bulgaria) 100% 86,832 100% 86,832
JSC “OTP Bank” (Russia) 97.87% 74,321 97.86% 74,318
OTP banka Hrvatska d.d. (Croatia) 100% 72,940 100% 72,940
Crnogorska komercijalna banka a.d. (Montenegro) 100% 58,484 100% 58,484
OTP Factoring Ltd. 100% 53,032 100% 60,192
LLC Alliance Reserve (Russia) 100% 50,074 100% 50,074
OTP Holding Malta Ltd. (Malta) 100% 32,359 100% 32,359
Balansz Real Estate Institute Fund 100% 29,150 100% 18,520
Merkantil Bank Ltd. 100% 23,241 100% 18,426
Inga Kettő Ltd. 100% 17,892 100% 17,892
OTP Banka Slovensko a.s. (Slovakia) 99.26% 17,125 99.26% 16,706
Bank Center No. 1. Ltd. 100% 16,063 100% 16,063
OTP Life Annuity Ltd. 100% 15,300 100% 15,300
OTP Real Estate Ltd. 100% 10,023 100% 9,520
Air-Invest Ltd. 100% 9,698 100% 9,698
Monicomp Ltd. 100% 9,234 100% 9,234
OTP Real Estate Leasing Ltd. 100% 7,368 100% 9,118
R.E. Four d.o.o. (Serbia) 85.13% 4,357 – –
OTP Venture Capital Fund 100% 3,000 – –
OTP Funds Servicing and Consulting Ltd. 100% 2,469 100% 2,469
Fordulat Venture Capital Fund 50% 2,025 50% 1,555
OTP Holding Ltd. (Cyprus) 100% 2,000 100% 2,000
OTP Building Society Ltd. 100% 1,950 100% 1,950
OTP Fund Management Ltd. 100% 1,653 100% 1,653
OTP Real Estate Investment Fund Management Ltd. 100% 1,352 100% 1,352
CIL Babér Ltd. 100% 1,225 100% 1,225
OTP Financing Netherlands B.V. (the Netherlands) 100% 481 100% 481
OTP Card Factory Ltd. 100% 450 100% 450
OTP Financing Cyprus Company Limited (Cyprus) 100% 301 – –
Portfolion Ltd. 100% 150 100% 150
OTP Financing Malta Company Ltd. (Malta) 100% 31 100% 31
HIF Ltd. (United Kingdom)* – – 100% 81
Other – 293 – 224
Total 1,245,801 1,147,839
An analysis of the change in the provision for impairment is as follows:
2015 2014
Balance as at 1 January 544,311 317,581
Provision for the year 47,470 226,730
Balance as at 31 December 591,781 544,311
The Bank decided that the recoverable amount
is determined based on fair value less cost
of disposal. The Bank prepared impairment
tests of the subsidiaries based on two di erent
net present value calculation methods that
show the same result; however they represent
di erent economical logics. On one hand is the
discount cash-fl ow method (DCF) that calcu-
lates the value of the subsidiaries by discounting
their expected cash-fl ow; on the other hand
the economic value added (EVA) method
estimates the value of the subsidiaries from
the initial invested capital and the present value
of the economic profi t that the companies are
Investments in companies in which the Bank
has a controlling interest (direct) are detailed
below. All companies are incorporated in
Hungary unless indicated otherwise:
Signifi cant subsidiaries
* Liquidation process was completed on 17 November 2015 and HIF Ltd. has been dissolved on 17 February 2016.
185IFRS separate fi nancial statements
expected to generate in the future. Applying the
EVA method was more practically than DCF
method because it gives a more realistic picture
about how the explicit period and the residual
value can contribute to the value of the company.
The Bank, in its strategic plan, has taken into
consideration the e ects of the present global
economic situation, the cautious recovery of
economic situation and outlook, the associated
risks and their possible e ect on the fi nancial
sector as well as the current and expected
availability of wholesale funding.
* In 2015 provision for impairment was recognised in the amount of HUF 17,693 million as a result of business valuation (see Note 41).
** Based on unaudited fi nancial statements.
The main fi gures of the Bank’s indirectly owned associates and joint ventures at cost**:
As at 31 December 2015:
Signifi cant associates
and joint ventures
D-ÉG
Thermoset Ltd.
Szallas.hu Ltd. Company for Cash
Services LLC
Suzuki Pénzügyi
Szolgáltató Ltd.
Total
Assets 5,356 722 2,296 584 8,958
Liabilities 4,090 296 110 2 4,498
Shareholders’ equity 1,266 426 2,186 582 4,460
Total income 6,736 1,891 1,192 17 9,836
An analysis of the provision for impairment by signifi cant subsidiaries is as follows:
2015 2014
OTP Bank JSC (Ukraine)* 270,104 252,411
OTP Mortgage Bank Ltd. 117,294 99,838
OTP banka Srbija a.d. (Serbia) 63,233 63,233
OTP Factoring Ltd. 51,621 58,781
Crnogorska komercijalna banka a.d. (Montenegro) 26,714 26,714
Merkantil Bank Ltd. 21,641 16,826
OTP banka Hrvatska d.d. (Croatia) 9,232 9,232
OTP Real Estate Leasing Ltd. 7,368 8,949
Total 567,207 535,984
Dividend income from signifi cant subsidiaries and shares held-for-trading is as follows:
2015 2014
DSK Bank EAD (Bulgaria) 43,822 25,054
OTP Holding Ltd. (Cyprus) 3,700 3,355
OTP Fund Management Ltd. 5,343 3,024
OTP Building Society Ltd. 900 2,100
OTP Mortgage Bank Ltd. – 5,097
Other 2,319 1,134
Subtotal 56,084 39,764
Dividend from shares held-for-trading 2,513 3,031
Total 58,597 42,795
186 OTP Bank Annual Report 2015
On 15 December 2015 OTP Bank
announces that as a result of a sale
executed by OTP Bank’s subsidiaries
as sellers, the indirect ownership of
On 3 February 2016 OTP Bank announces
that AXA Bank Europe SA and OTP Bank signed
an agreement on purchasing the business unit
of AXA Bank Hungary. The purchase agreement
includes the take-over of the retail credits
and savings, as well as the corporate portfolio
and the employees of AXA Bank.
The retail-focused AXA Bank is present
in Hungary since 2009. AXA Bank has been
OTP Bank held in KITE Mezőgazdasági
Szolgáltató és Kereskedelmi
(Agricultural Service and Trade) Ltd.
has been ceased to exist.
o ering innovative online customer services,
and the bank has strong positions in the
local mortgage market. After the completion
of the purchase OTP Bank’s mortgage
portfolio will increase with almost 25%.
According to the plans the integration
process can be closed at the end of 2016
after obtaining all the necessary supervisory
approvals.
As at 31 December 2014:
Capital transactions in subsidiaries are as follows:
KITE Mezőgazdasági
Szolgáltató és
Kereskedelmi Ltd.
D-ÉG
Thermoset Ltd.
Company for Cash
Services LLC
Suzuki Pénzügyi
Szolgáltató Ltd.
Total
Assets 56,717 5,758 2,292 587 65,354
Liabilities 23,637 4,465 106 3 28,211
Shareholders’ equity 33,080 1,293 2,186 584 37,143
Total income 245,370 7,268 1,144 21 253,803
Date of Registered capital Amount of
transaction before transaction after transaction transaction
OTP Bank Romania S.A. (Romania) 21/01/2015 RON 782,908,800 RON 958,252,800 RON 175,344,000
OTP Bank JSC (Ukraine) 15/05/2015 UAH 2,868,190,521 UAH 3,668,186,135 UAH 799,995,614
OTP Bank Romania S.A. (Romania) 7/01/2016 RON 958,252,800 RON 1,254,252,720 RON 295,999,920
OTP Bank JSC (Ukraine) 25/01/2016 UAH 3,668,186,135 UAH 6,186,023,111 UAH 2,517,836,976
2015 2014
Government bonds 803,802 641,645
Mortgage bonds 4,758 4,756
Hungarian government discounted Treasury bills – 346
Subtotal 808,560 646,747
Accrued interest 16,241 16,200
Total 824,801 662,947
NOTE 10: SECURITIES HELD-TO-MATURITY (in HUF mn)
2015 2014
Within fi ve years:
variable interest 3,339 6,677
fi xed interest 386,238 352,702
389,577 359,379
Over fi ve years:
fi xed interest 418,983 287,368
418,983 287,368
Total 808,560 646,747
Interest conditions and the remaining maturities of held-to-maturity investments
can be analysed as follows:
187IFRS separate fi nancial statements
The distribution of the held-to-maturity securities by currency:
2015 2014
Securities held-to-maturity denominated in HUF 100% 100%
Securities held-to-maturity total 100% 100%
Interest rates on securities held-to-maturity 2.75%–9.48% 2.5%–9.5%
Average interest on securities held-to-maturity denominated in HUF 7.54% 6.3%
In most cases, interest on variable rate
securities is based on the interest
rates of 90 day Hungarian government
Treasury bills, and it is adjusted semi-annually.
Interest on fi xed rate and variable rate
securities is, in most cases, paid semi-annually.
For the year ended 31 December 2015:
Intangible
assets
Property O ce
equipment and
vehicles
Construct on
in progress
Total
Cost
Balance as at 1 January
154,053 70,828 69,984 2,005 296,870
Additions
21,440 4,554 2,819 5,594 34,407
Disposals
(43,954) (6,363) (4,878) (4,582) (59,777)
Balance as at 31 December
131,539 69,019 67,925 3,017 271,500
Depreciation and Amortization
Balance as at 1 January
117,962 18,932 55,771 – 192,665
Charge for the year
13,978 1,825 5,517 – 21,320
Disposals
(32,839) (696) (4,828) – (38,363)
Balance as at 31 December
99,101 20,061 56,460 – 175,622
Net book value
Balance as at 1 January
36,091 51,896 14,213 2,005 104,205
Balance as at 31 December
32,438 48,958 11,465 3,017 95,878
For the year ended 31 December 2014:
Intangible
assets
Property O ce
equipment and
vehicles
Construct on
in progress
Total
Cost
Balance as at 1 January
137,349 69,829 73,012 16,815 297,005
Additions
25,133 1,562 4,681 5,541 36,917
Disposals
(8,429) (563) (7,709) (20,351) (37,052)
Balance as at 31 December
154,053 70,828 69,984 2,005 296,870
Depreciation and Amortization
Balance as at 1 January
105,795 17,246 56,963 – 180,004
Charge for the year
14,416 1,846 5,915 – 22,177
Disposals
(2,249) (160) (7,107) – (9,516)
Balance as at 31 December
117,962 18,932 55,771 – 192,665
Net book value
Balance as at 1 January
31,554 52,583 16,049 16,815 117,001
Balance as at 31 December
36,091 51,896 14,213 2,005 104,205
NOTE 11: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn)
188 OTP Bank Annual Report 2015
Positive fair value of derivative fi nancial instruments designated as fair value hedge:
2015 2014
CCIRS designated as fair value hedge 18,375 –
Interest rate swaps designated as fair value hedge 15,393 14,032
Other – 9
Total 33,768 14,041
NOTE 12: OTHER ASSETS* (in HUF mn)
2015 2014
Deferred tax assets** 41,905 33,557
Fair value of derivative fi nancial instruments
designated as fair value hedge
33,768 14,041
Prepayments and accrued income 19,319 17,974
Receivables from OTP Mortgage Bank Ltd.*** 13,734 773
Current income tax receivable 11,381 2,561
Receivables from investment services 8,769 5,923
Receivables from card operations 7,865 9,615
Trade receivables 3,778 4,162
Other advances 2,871 1,283
Investment properties**** 2,803 –
Stock exchange deals 2,048 3,970
Due from Hungarian Government from interest subsidies 1,197 837
Advances for securities and investments 631 634
Inventories 457 632
Other 6,794 6,407
Subtotal 157,320 102,369
Provision for impairment on other assets***** (7,059) (4,439)
Total 150,261 97,930
* Other assets – except income tax receivable and fair value of derivative fi nancial instruments designated as fair value hed-
ge – are expected to be recovered or settled no more than twelve months after the reporting period. Income tax receivable will
be enforced in the tax return for the year 2015. Unrealised gains/losses on derivative fi nancial instruments are recovering in
accordance with their maturity.
** See Note 25.
*** The Bank, under a syndication agreement administrated mortgage loans with recourse to OTP Mortgage Bank Ltd.
**** OTP Bank recognized rental income in the amount of HUF 60 million from OTP Facility Management Llc. for the operation of the
investment properties in 2015.
***** Provision for impairment on other assets mainly consists of provision for trade receivables and inventories.
An analysis of the movement in the provision for impairment on other assets is as follows:
2015 2014
Balance as at 1 January 4,439 1,676
Charge for the year 2,914 3,589
Release of provision (294) (826)
Balance as at 31 December 7,059 4,439
189IFRS separate fi nancial statements
NOTE 13: AMOUNTS DUE TO BANKS AND HUNGARIAN GOVERNMENT,
DEPOSITS FROM THE NATIONAL BANK OF HUNGARY
AND OTHER BANKS (in HUF mn)
2015 2014
Within one year:
In HUF 325,384 321,228
In foreign currency 165,024 685,318
490,408 1,006,546
Over one year:
In HUF 260,607 92,169
In foreign currency 73,648 42,961
334,255 135,130
Subtotal 824,663 1,141,676
Accrued interest 4,459 815
Total* 829,122 1,142,491
* It contains the loans lent among the frame of Funding for Growth Scheme, which are accounted as government grant regulated by
IAS 20 Standard. See details in Note 41.
2015 2014
Within one year:
In HUF (1%)-3.6% 2.21%–5.24%
In foreign currency 0%–1.27% 4.18%–7%
Over one year:
In HUF 0%–3.24% 0.08%–3.08%
In foreign currency 0.1%–12.13% 0.1%–4.48%
Average interest on amounts due to banks in HUF 2.44% 1.7%
Average interest on amounts due to banks in foreign currency 0.59% 1.09%
Interest rates on amounts due to banks and Hungarian Government, deposits from the NBH
and other banks are as follows:
NOTE 14: DEPOSITS FROM CUSTOMERS (in HUF mn)
2015 2014
Within one year:
In HUF 3,504,480 3,600,806
In foreign currency 782,143 599,127
4,286,623 4,199,933
Over one year:
In HUF 34,373 31,419
34,373 31,419
Subtotal 4,320,996 4,231,352
Accrued interest 2,243 3,904
Total 4,323,239 4,235,256
2015 2014
Within one year in HUF 0.01%–4% 0.01%–10.3%
Over one year in HUF 0.01%–6.85% 0.01%–3.1%
In foreign currency 0.01%–10% 0.01%–6.6%
Average interest on deposits from customers in HUF 0.66% 1.23%
Average interest on deposits from customers in foreign currency 0.39% 0.9%
Interest rates on deposits from customers are as follows:
190 OTP Bank Annual Report 2015
An analysis of deposits from customers by type, not included accrued interest, is as follows:
2015 2014
Retail deposits 2,544,375 59% 2,242,240 53%
Household deposits 2,074,581 48% 1,860,109 44%
Deposits micro
and small enterprises
469,794 11% 382,131 9%
Corporate deposits 1,776,621 41% 1,989,112 47%
Deposits to medium
and large corporates
1,468,427 34% 1,659,484 39%
Municipality deposits 308,194 7% 329,628 8%
Total 4,320,996 100% 4,231,352 100%
Interest rates on liabilities from issued securities are as follows:
2015 2014
Issued securities denominated in HUF 0.01%–7% 0.1%–7%
Issued securities denominated in foreign currency 0.5%–3% 1.1%–3%
Average interest on issued securities denominated in HUF 1.32% 2.66%
Average interest on issued securities denominated
in foreign currency
1.42% 2.24%
NOTE 15: LIABILITIES FROM ISSUED SECURITIES (in HUF mn)
2015 2014
Within one year:
In HUF 11,865 24,280
In foreign currency 60,264 39,024
72,129 63,304
Over one year:
In HUF 75,185 86,781
In foreign currency 591 10,061
75,776 96,842
Subtotal 147,905 160,146
Accrued interest 2,326 2,521
Total 150,231 162,667
191IFRS separate fi nancial statements
Issued securities denominated in foreign currency as at 31 December 2015:
Name Date of issuance Maturity Currency Nominal value in
FX HUF
million million
Interest
conditions
(in % actual)
Hedged
1. OTP EUR 1 2016/XIII 30/12/2015 13/01/2017 EUR 26.09 8,169 0.5 fi xed
2. OTP EUR 1 2016/IX J003 25/09/2015 09/10/2016 EUR 21.34 6,681 0.6 fixed
3. OTP EUR 1 2016/X 30/10/2015 13/11/2016 EUR 14.90 4,667 0.6 fixed
4. OTP EUR 1 2016/III 20/03/2015 03/04/2016 EUR 12.94 4,052 0.9 fixed
5. OTP EUR 1 2016/VI 29/05/2015 12/06/2016 EUR 10.19 3,190 0.8 fixed
6. OTP EUR 1 2016/VII 30/06/2015 14/07/2016 EUR 10.06 3,150 0.8 fixed
7. OTP EUR 1 2016/I 30/01/2015 13/02/2016 EUR 9.93 3,109 1.1 fixed
8. OTP EUR 1 2015/XXV 19/12/2014 02/01/2016 EUR 9.14 2,860 1.1 fixed
9. OTP EUR 1 2016/XI 11/11/2015 25/11/2016 EUR 8.85 2,772 0.6 fixed
10. OTP EUR 1 2016/II 20/02/2015 06/03/2016 EUR 8.27 2,590 1.0 fixed
11. OTP EUR 1 2016/IV 10/04/2015 24/04/2016 EUR 7.14 2,237 0.9 fixed
12. OTP_VK_USD_1_2016/III
25/09/2015
30/12/2015
25/09/2016 USD 7.61 2,182 0.8 floating
13. OTP_VK_USD_2_2016/I 28/11/2014 28/11/2016 USD 6.76 1,937 1.4 floating
14. OTP EUR 1 2016/VIII J003 24/07/2015 07/08/2016 EUR 6.13 1,919 0.7 fixed
15. OTP EUR 1 2016/XII 27/11/2015 11/12/2016 EUR 6.03 1,887 0.5 fixed
16. OTP EUR 1 2015/XXVI 09/01/2015 23/01/2016 EUR 4.23 1,325 1.1 fixed
17. OTP EUR 1 2016/V 24/04/2015 08/05/2016 EUR 3.58 1,121 0.9 fixed
18. OTP_VK_USD_1_2016/I
24/04/2015
02/07/2015
24/04/2016 USD 3.27 937 1.0 floating
19. OTP EUR 2 2016/XIX 03/10/2014 03/10/2016 EUR 1.92 601 1.5 fixed
20. OTP EUR 2 2016/XV 30/07/2014 30/07/2016 EUR 1.55 484 1.5 fixed
21. OTP 2016/Cx 22/04/2011 22/04/2016 EUR 1.42 446 indexed hedged
22. OTP EUR 2 2016/XVII 29/08/2014 29/08/2016 EUR 1.31 412 1.5 fixed
23. OTP 2016/Dx 22/12/2011 29/12/2016 EUR 1.08 339 indexed hedged
24. OTP EUR 2 2016/XVIII 12/09/2014 12/09/2016 EUR 0.99 309 1.5 fixed
25. OTP EUR 2 2016/III 14/02/2014 14/02/2016 EUR 0.94 296 2.0 fixed
26. OTP EUR 2 2016/I 17/01/2014 17/01/2016 EUR 0.89 280 2.0 fixed
27. OTP EUR 2 2016/II 31/01/2014 31/01/2016 EUR 0.82 256 2.0 fixed
28. OTP_VK_USD_1_2016/II 24/07/2015 24/07/2016 USD 0.87 249 0.9 floating
29. OTP 2017/Fx 19/06/2012 16/06/2017 EUR 0.78 243 indexed hedged
30. OTP EUR 2 2016/V 14/03/2014 14/03/2016 EUR 0.72 227 1.8 fixed
31. OTP EUR 2 2016/VII 11/04/2014 11/04/2016 EUR 0.71 223 1.8 fixed
32. OTP EUR 2 2016/XI 06/06/2014 06/06/2016 EUR 0.64 200 1.8 fixed
33. OTP EUR 2 2016/IV 28/02/2014 28/02/2016 EUR 0.63 197 1.9 fixed
34. OTP 2018/Fx 19/12/2013 21/12/2018 EUR 0.62 194 indexed hedged
35. OTP EUR 2 2016/IX 09/05/2014 09/05/2016 EUR 0.61 190 1.8 fixed
36. OTP EUR 2 2016/X 23/05/2014 23/05/2016 EUR 0.60 187 1.8 fixed
37. OTP EUR 2 2016/XII 20/06/2014 20/06/2016 EUR 0.59 185 1.5 fixed
38. OTP EUR 2 2016/XIII 04/07/2014 04/07/2016 EUR 0.46 145 1.5 fixed
39. OTP EUR 2 2016/XVI 08/08/2014 08/08/2016 EUR 0.37 115 1.5 fixed
40. OTP EUR 2 2016/XIV 18/07/2014 18/07/2016 EUR 0.31 98 1.5 fixed
41. OTP_VK_USD_2_2017/I 10/04/2015 10/04/2017 USD 0.33 95 1.1 floating
42. OTP EUR 2 2016/VI 21/03/2014 21/03/2016 EUR 0.21 66 1.8 fixed
43. OTP EUR 2 2016/VIII 18/04/2014 18/04/2016 EUR 0.20 63 1.8 fixed
Subtotal issued securities in FX 60,885
Unamortized premium (92)
Fair value hedge adjustment 62
Total 60,855
192 OTP Bank Annual Report 2015
Term Note Program in the value
of HUF 500 billion for the year
of 2014/2015
On 8 July 2014 OTP Bank initiated term note
program in the value of HUF 500 billion with the
intention of issuing registered dematerialized
bonds in public. The NBH approved on
29 July 2014 the prospectus of Term Note
Program and the disclosure as at 25 July 2014.
The prospectus is valid for 12 months following
the disclosure.
The Issuer can initiate to introduce the bonds
issued under the program to the Budapest,
Slovakian, Romanian and Bulgarian Stock
Exchange without any obligation.
Term Note Program in the value
of HUF 200 billion for the year
of 2015/2016
On 30 June 2015 OTP Bank initiated term note
program in the value of HUF 200 billion with the
intention of issuing registered dematerialized
bonds in public. The NBH approved on
14 August 2015 the prospectus of Term Note
Program and the disclosure as at 12 August
2015. The prospectus is valid for 12 months
following the disclosure.
The Issuer can initiate to introduce
the bonds issued under the program to the
Budapest, Slovakian, Romanian and Bulgarian
Stock Exchange without any obligation.
Certain structured bonds are hedged by interest
rate swaps which may transfer to a transferee
a fi xed interest rate and enter into an interest
rate swap with the transferee to receive a fi xed
interest rate and pay a variable interest rate
and amount of the structure if any based on a
notional amount which is equal to the notional
amount of the hedged bond. In certain cases
amount of the structure is hedged by options
which give the owner the right to get amount of
the structure which is equal to the structure of
the hedged bond. The hedge is highly e ective if
changes in fair value or cash-fl ows attributable
to the hedged risk during the period for which
the hedge is designated are within a range of
80–125 per cent.
The cash-fl ows of the fi xed rate securities
issued by the Bank are exposed to the
change in the HUF/EUR foreign exchange
rate and the risk of change in the quoted
interest rates of EUR and HUF. The interest
rate risk and foreign exchange risk related
to these securities are hedged with EUR and
HUF interest rate swap (“IRS”) transactions,
where the fi xed interests were swapped to
payments linked to 3 month HUF BUBOR and
EURIBOR, resulted a decrease in the interest
rate and foreign exchange exposure of issued
securities.
193IFRS separate fi nancial statements
Issued securities denominated in HUF as at 31 December 2015:
Name Date of issuance Maturity Nominal
value in
HUF million
Interest conditions
(in % actual)
Hedged
1. OTP 2019/Dx 22/03/2013 21/03/2019 4,098 indexed hedged
2. OTP 2017/Ax 01/04/2011 31/03/2017 4,065 indexed hedged
3. OTP 2017/Bx 17/06/2011 20/06/2017 3,926 indexed hedged
4. OTP 2020/Ex 18/06/2014 22/06/2020 3,889 indexed hedged
5. OTP 2018/Bx 22/03/2012 22/03/2018 3,832 indexed hedged
6. OTP 2016/Ax 11/11/2010 03/11/2016 3,525 indexed hedged
7. OTP 2020/Fx 10/10/2014 16/10/2020 3,408 indexed hedged
8. OTP 2018/Cx 18/07/2012 18/07/2018 3,289 indexed hedged
9. OTP 2017/Ex 21/12/2011 28/12/2017 3,227 indexed hedged
10. OTP 2019/Ex 28/06/2013 24/06/2019 3,183 indexed hedged
11. OTP 2017/Cx 19/09/2011 25/09/2017 3,006 indexed hedged
12. OTP 2020/RF/C 11/11/2010 05/11/2020 2,937 indexed hedged
13. OTP 2020/Gx 15/12/2014 21/12/2020 2,898 indexed hedged
14. OTP 2018/Ex 28/12/2012 28/12/2018 2,814 indexed hedged
15. OTP 2018/Dx 29/10/2012 26/10/2018 2,767 indexed hedged
16. OTP 2020/RF/A 12/07/2010 20/07/2020 2,739 indexed hedged
17. OTP 2016/Bx 16/12/2010 19/12/2016 2,589 indexed hedged
18. OTP 2021/RF/B 20/10/2011 25/10/2021 2,487 indexed hedged
19. OTP 2021/RF/A 05/07/2011 13/07/2021 2,484 indexed hedged
20. OTP 2022/RF/A 22/03/2012 23/03/2022 1,414 indexed hedged
21. OTP 2020/RF/B 12/07/2010 20/07/2020 1,280 indexed hedged
22. OTP TBSZ2016/I 14/01/2011 05/08/2011 15/12/2016 1,166 5.5 fixed
23. OTP 2016/Fx 22/03/2013 24/03/2016 649 indexed hedged
24. OTP TBSZ2016/II 26/08/2011 29/12/2011 15/12/2016 626 5.5 fixed
25. OTP 2018/Ax 03/01/2012 09/01/2018 547 indexed hedged
26. OTP 2021/RF/C 21/12/2011 30/12/2021 492 indexed hedged
27. OTP 2022/RF/E 29/10/2012 31/10/2022 485 indexed hedged
28. OTP 2022/RF/B 22/03/2012 23/03/2022 458 indexed hedged
29. OTP 2017/Dx 20/10/2011 19/10/2017 431 indexed hedged
30.
OTP 2023/RF/A
22/03/2013 24/03/2023 415 indexed hedged
31. OTP 2023/Ax 22/03/2013 24/03/2023 395 indexed hedged
32. OTP 2024/Bx 10/10/2014 16/10/2024 385 indexed hedged
33. OTP 2022/RF/F 28/12/2012 28/12/2022 363 indexed hedged
34. OTP 2019/Bx 05/10/2009 05/02/2010 14/10/2019 355 indexed hedged
35. OTP 2021/Dx 21/12/2011 27/12/2021 351 indexed hedged
36. OTP 2020/Bx 28/06/2010 09/07/2020 332 indexed hedged
37. OTP 2021/RF/D 21/12/2011 30/12/2021 328 indexed hedged
38. OTP 2020/Ax 25/03/2010 30/03/2020 328 indexed hedged
39. OTP 2024/Cx 15/12/2014 20/12/2024 320 indexed hedged
40. OTP 2022/Dx 28/12/2012 27/12/2022 316 indexed hedged
41. OTP 2021/Bx 17/06/2011 21/06/2021 311 indexed hedged
42. OTP 2016/Ex 28/12/2012 27/12/2016 301 indexed hedged
43. OTP 2021/Ax 01/04/2011 01/04/2021 289 indexed hedged
44. OTP 2021/Cx 19/09/2011 24/09/2021 287 indexed hedged
45. OTP 2019/Cx 14/12/2009 20/12/2019 285 indexed hedged
46. OTP 2022/Cx 29/10/2012 28/10/2022 270 indexed hedged
47. OTP 2024/Ax 18/06/2014 21/06/2024 270 indexed hedged
48. OTP 2023/Bx 28/06/2013 26/06/2023 265 indexed hedged
49. OTP 2022/Ax 22/03/2012 23/03/2022 264 indexed hedged
50. OTP 2019/Ax 25/06/2009 01/07/2019 255 indexed hedged
51. OTP 2022/Bx 18/07/2012 18/07/2022 240 indexed hedged
52. OTP TBSZ6 2017/I 13/01/2012 22/06/2012 15/12/2017 231 6.5 fixed
53. OTP 2020/Dx 16/12/2010 18/12/2020 215 indexed hedged
54. OTP 2020/Cx 11/11/2010 05/11/2020 206 indexed hedged
55. OTP 2022/RF/D 28/06/2012 28/06/2022 188 indexed hedged
56. OTP TBSZ 4 2016/I
18/01/2013 15/02/2013 15/12/2016 156 5 fixed
57. OTP 2022/RF/C 28/06/2012 28/06/2022 146 indexed hedged
58. OTP 2021/RF/E 21/12/2011 30/12/2021 49 indexed hedged
59. OTP OJK 2016/I 26/08/2011 21/12/2011 26/08/2016 30 6.14 fixed
60. OTP OJK 2017/I 27/01/2012 13/07/2012 27/01/2017 14 7 fixed
61. Other 230
Subtotal issued securities in HUF 77,101
Unamortized premium (3,090)
Fair value hedge adjustment 13,039
Total issued securities in HUF 87,050
Accrued interest 2,326
Total issued securities 150,231
194 OTP Bank Annual Report 2015
NOTE 16: FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT
OR LOSS (in HUF mn)
2015 2014
CCIRS and mark-to-market CCIRS 97,719 236,743
IRS 30,453 63,670
Foreign currency swaps 9,265 60,110
Other derivative contracts* 7,155 14,840
Total 144,592 375,363
Negative fair value of fi nancial liabilities at fair value through profi t
or loss classifi ed as held for trading by deal types:
* Incl.: FX, equity, commodity and index futures; FX forward; commodity and equity swap; FRA; FX option.
** Other liabilities – except fi nancial liabilities from OTP–MOL share swap transaction, deferred tax liabilities and fair value of
derivative fi nancial instruments designated as fair value hedge – are expected to be recovered or settled no more than twelve
months after the reporting period. Unrealised gains/losses on OTP–MOL share swap transaction is settled in June of each year
until the maturity date. The fair value adjustment of swap transaction is HUF 3,236 million as at 31 December 2015. Unrealised
gains/losses on derivative fi nancial instruments is recovering in accordance with their maturity.
*** On 16 April 2009, OTP Bank Plc. and MOL Hungarian Oil and Gas Plc. entered into a 3 years share swap transaction. MOL obtained
24 million pieces of Bank’s ordinary shares (8.57% of the ordinary shares) and OTP obtained approximately 5 million pieces of
MOL shares. Both parties were granted by an American style call and put option to initiate the gross physical settlement of shares
back to the issuer until 11 July 2012. On 11 July 2012 the parties amended the fi nal maturity of the share swap agreement for
11 July 2017 until which any party can initiate cash or physical settlement of the transaction. There is no compulsory settlement
of shares at the maturity of the swap agreement. The agreement contains additional settlement provisions in case of certain
movement of relative share prices of the parties subject to net cash or net share settlement. Due to the loss of control over
the Treasury shares, the Treasury shares were derecognized and MOL shares were recognized as held for trading securities.
The written put option over OTP ordinary shares were accounted as a deduction from equity with the amount of HUF 55.5 billion
and a recognition of a corresponding liability. As at 31 December 2015 and 2014 HUF 66,787 and HUF 56,445 million liability
was presented in other liabilities. The measurement is based on the fair value of MOL shares to be delivered at the potential
exercise of the call and put options adjusted with the expected present value of the net cash or net share settlement due to certain
movement of relative share prices.
**** See Note 2.26.
NOTE 17: OTHER LIABILITIES** (in HUF mn)
2015 2014
Financial liabilities from OTP–MOL share swap transaction*** 66,787 56,445
Provision on other liabilities, o -balance sheet commitments,
contingent liabilities
51,411 55,596
Liabilities from investment services 39,399 41,853
Fair value of derivative fi nancial instruments designated
as fair value hedge
35,701 3,463
Accrued expenses 25,664 32,353
Accounts payable 20,038 11,479
Salaries and social security payable 16,817 17,266
Suspended liabilities 7,589 1,852
Short-term liabilities due to repurchase agreement transactions 7,452 6,980
Giro clearing and other clearing accounts 6,143 5,678
Current income tax payable 6,044 7,789
HUF denominated liabilities from purchase of customers
with cards
5,804 4,992
Liabilities related to housing loans 1,475 216
Expected liabilities ordered by law related to customer loans**** 995 –
Liabilities connected to loans for collection 875 909
Other 7,833 7,081
Total 300,027 253,952
195IFRS separate fi nancial statements
* See Note 2.26.
The provision on other liabilities, o -balance sheet commitments and contingent liabilities
are detailed as follows:
Fair value of derivative fi nancial instruments designated as fair value hedge is
detailed as follows:
Movements in the provision for losses on commitments and contingent liabilities
can be summarized as follows:
2015 2014
Provision on expected liability in relation to OTP Holding Ltd. (Cyprus) 43,080 –
Provision on contingent liabilities due to regulations related
to customer loans*
1,598 44,127
Provision for losses on other o -balance sheet commitments
and contingent liabilities
3,103 3,365
Provision for litigation 1,112 998
Provision for retirement pension and severance pay 1,000 426
Provision on promissory obligation – 3,525
Provision for taxation – 1,000
Provision on other liabilities 1,518 2,155
Total 51,411 55,596
2015 2014
CCIRS 21,978 –
IRS 13,723 3,463
Total 35,701 3,463
2015 2014
Balance as at 1 January 55,596 12,913
Provision for the year 80,329 50,923
Release of provision (84,514) (7,724)
Provision for impairment on promissory obligation – (516)
Balance as at 31 December 51,411 55,596
NOTE 18: SUBORDINATED BONDS AND LOANS (in HUF mn)
2015 2014
Within one year:
In foreign currency 156,481 29,375
156,481 29,375
Over one year:
In foreign currency 108,200 263,843
108,200 263,843
Subtotal 264,681 293,218
Accrued interest 1,382 1,394
Total 266,063 294,612
2015 2014
Subordinated bonds and loans denominated in foreign currency 5.3%–5.9% 0.6%–5.9%
Average interest on subordinated bonds and loans denominated
in foreign currency
5.57% 5.41%
Interest rates on subordinated bonds and loans are as follows:
196 OTP Bank Annual Report 2015
NOTE 19: SHARE CAPITAL (in HUF mn)
2015 2014
Authorized, issued and fully paid:
Ordinary shares 28,000 28,000
Subordinated loans and bonds are detailed as follows:
Type Nominal value Date of
issuance
Date of
maturity
Issue price Interest
conditions
Interest rate
as of
31 December 2015
Subordinated bond EUR 353.1 million 07/11/2006 Perpetual bond 99.375%
Fixed 5.875% annual in
the first 10 years (payable
annually), three-month
EURIBOR + 3%, variable after
year 10 (payable quarterly)
5.875%
Subordinated bond
(under EMTN*
program)
EUR 300 million 19/09/2006 19/09/2016 100% Fixed 5.27% annual 5.27%
Subordinated bond
(under EMTN*
program)
EUR 200 million 26/02/2007 19/09/2016 100% Fixed 5.27% annual 5.27%
* European Medium Term Note Program.
** The reserves under IFRS are detailed in statement of changes in shareholders’ equity.
NOTE 20: RETAINED EARNINGS AND RESERVES (in HUF mn)
2015 2014
Capital reserve 52 52
General reserve 14,123 112,217
Retained earnings 856,990 814,399
Tied-up reserve 9,785 8,558
Total 880,950 935,226
The legal reserves (general reserve and tied-up
reserve) are not available for distribution.
Dividend was calculated on the bases of the
separate annual net profi t according to HAS.
Capital reserve is the amount that the entity
receives from the owners without obligation to
repay it. According to HAS general reserve can
be established of profi t after tax and in case of
loss after tax general reserve shall be used up
to amount of loss or general reserve. Retained
earnings are total sum of net profi t or loss from
previous years. Tied-up reserve contains cost of
treasury shares and book value of experimental
development reclassifi ed from retained
earnings in accordance with regulations of HAS.
These Financial Statements subject to approval
by the Board of Directors in the Annual General
Meeting in April 2016. In 2015 the Bank
paid dividend of HUF 40,600 million from
the profi t of the year 2014, which means
HUF 147 dividend/share payment. In 2016
dividend of HUF 46,200 million are expected
to be proposed by the Management from the
profi t of the year 2015, which means HUF 165
payable dividends by share to the shareholders.
On 19 October 2006 the Bank sold 14.5 million
Treasury shares owned by OTP Group through
an issue of Income Certifi cates Exchangeable
for Shares (“ICES”). Within the transaction
10 million shares owned by OTP Bank and
4.5 million OTP shares owned by OTP Fund
Management Ltd. were sold during the
underwriting period of ICES on the weighted
average market price (HUF 7,080) of the
The reserves of the Bank under Hungarian Accounting Standards (“HAS”)**:
197IFRS separate fi nancial statements
Budapest Stock Exchange. The shares have
been purchased by Opus Securities S.A.
(“OPUS”), which issued an exchangeable bond
with a total face value of EUR 514,274,000
backed by those shares. The exchangeable
bonds have been sold at a 32% premium
over the selling price of the shares.
The EUR denominated exchangeable bonds
are perpetual and the investors can exercise
the conversion right between year 6 and 10.
The bonds carry a fi xed coupon of 3.95% during
the fi rst 10 years thereafter the Issuer has
the right to redeem the bonds at face value.
Following the year 10, the bonds carry a coupon
of 3 month EURIBOR +3%. OTP Bank has
discretional right to cancel the payments.
The interest payable is non-cumulative.
Due to the conditions described above, ICES
was accounted as an equity instrument and
therefore any payment was accounted as equity
distribution paid to ICES holders.
NOTE 21: TREASURY SHARES (in HUF mn)
2015 2014
Nominal value (ordinary shares) 157 161
Carrying value at acquisition cost 9,153 7,073
The changes in the carrying value of treasury
shares are due to repurchase and sale
transactions on market authorised
by the General Assembly.
2015 2014
Number of shares as at 1 January 1,605,311 1,402,369
Additions 5,284,354 6,474,942
Disposals (5,316,728) (6,272,000)
Number of shares as at 31 December 1,572,937 1,605,311
Change in number of shares:
Change in carrying value:
2015 2014
Balance as at 1 January 7,073 6,731
Additions 26,721 27,522
Disposals (24,641) (27,180)
Balance as at 31 December 9,153 7,073
198 OTP Bank Annual Report 2015
NOTE 22: PROVISION FOR IMPAIRMENT ON LOAN
AND PLACEMENT LOSSES (in HUF mn)
2015 2014
Provision for impairment on loan losses
Provision for the year 69,926 52,096
Release of provision (58,016) (54,793)
Provision on loan losses 27,635 25,906
39,545 23,209
Provision for impairment on placement losses
Provision for the year
3 4
3 4
Provision for impairment on loan and placement losses 39,548 23,213
Income from fees and commissions:
NOTE 23: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn)
2015 2014
Deposit and account maintenance fees and commissions 76,222 74,584
Fees and commissions related to the issued bank cards 28,885 26,795
Fees and commissions related to security trading 24,919 23,046
Fees related to the cash withdrawal 21,522 22,171
Fees and commissions received from OTP Mortgage Bank Ltd. 19,112 6,204
Fees and commissions related to lending 6,766 6,462
Net fee income related to card insurance services and loan
agreements
2,805 1,962
Other 5,799 7,817
Total 186,030 169,041
2015 2014
Fees and commissions related to issued bank cards 9,749 9,331
Fees and commissions related to lending 3,813 3,150
Interchange fee 3,770 3,439
Cash withdrawal transaction fees 1,114 1,186
Money market transaction fees and commissions 1,047 425
Fees and commissions related to security trading 1,011 713
Fees and commissions relating to deposits 869 855
Postal fees 241 297
Insurance fees 216 491
Other 2,474 2,608
Total 24,304 22,495
Net profi t from fees and commissions 161,726 146,546
Expenses from fees and commissions:
Other operating income 2015 2014
Refund by the State of cancelled receivables
from consumer loans converted into HUF*
6,631 –
Gains on transactions related to property activities 130 87
Income from non-fi nancing services 13 1,922
Other 1,939 1,285
Total 8,713 3,294
NOTE 24: OTHER OPERATING INCOME AND EXPENSES
AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn)
* The amount is concerned for the OTP Group. In 2016 the amount of the refund is deductible from special tax of fi nancial institutions
and fi nancial transaction duty.
199IFRS separate fi nancial statements
Net other operating expenses 2015 2014
Provision for impairment on investments in subsidiaries 47,470 226,730
(Release of provision)/provision on contingent liabilities
due to regulations related to customer loans*
(42,529) 43,795
Expenses from regulations related to customer loans* 40,234 –
Provision/(release of provision) for o -balance sheet commitments
and contingent liabilities
38,344 (1,112)
Expenses from promissory obligation to OTP Financing Solutions B.V. 26,690 948
Financial support for sport association and organization of public utility 13,918 10,929
Non-repayable assets contributed 3,183 115
Provision for impairment on other assets 2,236 2,811
Fine imposed by Competition Authority 18 38
Other 1,615 1,629
Total 131,179 285,883
Other administrative expenses
2015 2014
Personnel expenses
Wages 59,303 59,510
Taxes related to personnel expenses 18,969 19,238
Other personnel expenses 8,497 8,710
Subtotal 86,769 87,458
Depreciation and amortization 21,320 22,177
Other administrative expenses
2015 2014
Taxes, other than income tax** 84,750 84,637
Services 21,658 18,325
Administration expenses, including rental fees 21,553 21,524
Professional fees 7,639 4,741
Advertising 5,491 5,566
Subtotal 141,091 134,793
Total 249,180 244,428
* See Note 2.26.
** Special tax of fi nancial institutions was paid by OTP Bank in the amount of HUF 24 billion for the year 2015 and 2014, recognized
as an expense thus decreased the corporate tax base. In the year ended 31 December 2015 fi nancial transaction duty was paid by
the Bank in the amount of HUF 45 billion.
2015 2014
Current tax expense 2,386 2,284
Deferred tax income (5,677) (45,548)
Total (3,291) (43,364)
A breakdown of the income tax expense is:
NOTE 25: INCOME TAX (in HUF mn)
The Bank is presently liable for income tax at a rate of 19% of taxable income.
2015 2014
Balance as at 1 January 33,557 (9,672)
Deferred tax income 5,677 45,648
Tax e ect of fair value adjustment of available-for-sale securities
recognized in other comprehensive income and ICES
2,671 (2,419)
Balance as at 31 December 41,905 33,557
A reconciliation of the deferred tax liability/asset is as follows:
200 OTP Bank Annual Report 2015
2015 2014
Tax accrual caused by negative taxable income 26,417 1,517
Unused tax allowance 17,821 6,794
Provision for impairment on investments 8,030 10,705
Refundable tax in accordance with Acts on Customer Loans* 6,341 30,596
Repurchase agreements and security lending
4,102 4,176
Amounts unenforceable by tax law 414 182
Di erence in accounting for fi nance leases 147 166
Fair value correction related to customer loans 80 –
Deferred tax assets 63,352 54,136
Fair value adjustment of held for trading
and available-for-sale securities
(12,432) (11,048)
Fair value adjustment of derivative fi nancial instruments (2,793) (1,902)
E ect of redemption of issued securities (2,009) (2,681)
Di erence in depreciation and amortization (1,962) (1,957)
E ect of using e ective interest rate method (1,695) (1,658)
Valuation of equity instrument (ICES) (556) (1,333)
Deferred tax liabilities (21,447) (20,579)
Net deferred tax asset 41,905 33,557
A breakdown of the deferred tax asset/liability is as follows:
* See Note 2.26.
2015 2014
Profi t/(loss) before income tax 46,354 (117,833)
Income tax at statutory tax rate (19%) 8,807 (22,388)
2015 2014
Tax refund in accordance with Acts on Customer Loans 22,755 (22,189)
Provision on expected liability 8,230 –
Share-based payment 724 835
Accounting of equity instrument (ICES) (9) (211)
Amounts unenforceable by tax law (232) 584
OTP–MOL share swap transaction (615) (80)
Treasury share transaction (1,729) (917)
Revaluation of investments denominated in foreign currency
to historical cost
(4,601) (185)
Deferred use of tax allowance (11,028) (6,335)
Dividend income (11,133) (8,115)
Di erences in carrying value of subsidiaries (16,039) 14,982
Use of tax allowance in the current year – (2,479)
Other 1,579 3,134
Income tax (3,291) (43,364)
Effective tax rate
(7.1%)
36.8%
Income tax adjustments due to permanent di erences are as follows:
E ective tax rate was negative because income tax and income tax adjustments are altogether
negative in 2015.
201IFRS separate fi nancial statements
NOTE 26: FINANCIAL RISK MANAGEMENT (in HUF mn)
A fi nancial instrument is any contract that
gives rise to a fi nancial asset of one entity
and a fi nancial liability or equity instrument
of another entity.
Financial instruments may result in certain
risks to the Bank. The most signifi cant risks
the Bank faces include:
26.1 Credit risk
The Bank takes on exposure to credit risk which
is the risk that a counter-party will be unable
to pay amounts in full when due. The Bank
structures the levels of credit risk it undertakes
by placing limits on the amount of risk accepted
in relation to one borrower, or banks of
borrowers, and to geographical areas and loan
types. Such risks are monitored on a periodical
basis and subject to an annual or more frequent
review. The exposure to any borrower including
banks and brokers is further restricted by
sublimit covering on- and o -balance sheet
exposures and daily delivery risk limits in
relation to trading items such as forward
foreign exchange contracts. Actual exposures
against limits are monitored daily.
Exposure to credit risk is managed through
regular analysis of the ability of borrowers and
potential borrowers to meet interest and capital
repayment obligations and by changing these
lending limits when appropriate. Exposure
to credit risk is partly managed obtaining
collateral, corporate and personal guarantees.
26.1.1 Analysis by loan types
Classifi cation into risk classes
Exposures with small amounts (retail and
micro and small enterprises sector) are subject
to collective valuation method, which is a
simplifi ed assessment. The exposures subject
to collective valuation method are classifi ed
into fi ve valuation groups which have been
formed based on past due days from
which three classes were presented
A: 0–90 days past due – DPD, B: 91–360 DPD,
C: over 360 days past due).
The Bank intends – where a great number of
items and su cient long-term historical data
is available – to apply models on statistical
basis. The impairment is calculated according
to the possibility of listing the loan into default
categories examined on the base of objective
valuation criteria (delay of payment, change of
exchange) and the expected recovery from the
collecting. If the loss of the exposure can’t be
modelled reliably, the impairment is determined
by expert keys.
When applying the individual evaluation
method, the incurred loss of each item is
determined based on the consideration of all of
the following criteria:
ş WKHFUHGLWUDWLQJRIWKHFXVWRPHURUWKH
partner: the fi nancial position, stability and
income-generating capacity a ected by the
fi nancial or investment service and issuer of
the security, and any changes thereto;
ş FRPSOLDQFHZLWKWKHUXOHVRIUHSD\PHQW
(delay): delays in the repayment of the loan
principal and its interests;
ş WKHFRXQWU\ULVNUHODWLQJWRWKHFXVWRPHU
(both political and transfer risks) and any
changes thereto;
ş WKHYDOXHRIFROODWHUDOVWKHLUOLTXLGLW\DQG
accessibility, and any changes therein;
ş WKHWUDQVIHUDELOLW\DQGOLTXLGLW\RIWKH
exposures (the market conditions of supply
and demand, the available market prices and
participation in the shareholders’ equity of
the issuer in proportion to the investment);
ş WKHIXWXUHSD\PHQWREOLJDWLRQUHFRJQL]HGDVD
loss arising from the exposure.
The expected future losses of the individually
assessed item are determined by taking
into consideration the above listed objective
valuation aspects. The expected loss, the
volume of the necessary reserve, is defi ned by
202 OTP Bank Annual Report 2015
taking into account the value of the collaterals
compared to the value of the collaterals relating
to the exposure. The expected recovery is
calculated by applying the e ective interest
rate method and the discounted cash-fl ow
method. The impairment accounted for
the item before should be completed
to this level by increasing the amount of
the impairment or by releasing the provision
accounted before.
An analysis of the gross loan portfolio by loan types and DPD categories is as follows:
As at 31 December 2015:
As at 31 December 2014:
Loan type DPD 0–90 DPD 91–360 DPD 360+ Total carrying
amount/allowance
Placements with other banks 646,406 – 29 646,435
Total placements with other banks 646,406 – 29 646,435
Allowance on placements with other banks – – (29) (29)
Consumer loans 259,558 4,119 2,966 266,643
Mortgage and housing loans 63,882 3,725 10,353 77,960
Micro and small enterprises loans 130,542 1,451 68 132,061
Loans to medium and large corporates 1,222,070 8,833 46,389 1,277,292
Municipal loans 19,891 74 41 20,006
Gross loan portfolio total 1,695,943 18,202 59,817 1,773,962
Allowance on loans (47,041) (10,090) (42,532) (99,663)
Net portfolio total 2,295,308 8,112 17,285 2,320,705
Accrued interest
Placements with other banks 1,318
Loans 4,885
Total accrued interest 6,203
Total placements with other banks 647,724
Total loans 1,679,184
Total 2,326,908
Loan type DPD 0–90 DPD 91–360 DPD 360+ Total carrying
amount/allowance
Placements with other banks 710,484 – – 710,484
Total placements with other banks 710,484 – – 710,484
Allowance on placements with other banks (26) – – (26)
Consumer loans 281,923 7,888 1,686 291,497
Mortgage and housing loans 90,467 6,749 15,142 112,358
Micro and small enterprises loans 112,970 928 305 114,203
Loans to medium and large corporates 1,363,904 12,918 43,809 1,420,631
Municipal loans 48,220 28 52 48,300
Gross loan portfolio total 1,897,484 28,511 60,994 1,986,989
Allowance on loans (37,088) (15,613) (32,696) (85,397)
Net portfolio total 2,570,854 12,898 28,298 2,612,050
Accrued interest
Placements with other banks 1,654
Loans 7,039
Total accrued interest 8,693
Total placements with other banks 712,112
Total loans 1,908,631
Total 2,620,743
The Bank’s gross loan portfolio decreased by
10.3% in the year ended 31 December 2015.
Analysing the contribution of loan types to the
loan portfolio, the share of several business
lines hardly changed. The ratio of the DPD90–
loans compared to the gross loan portfolio
increased slightly from 96.68% to 96.78% as at
31 December 2015, while the ratio of DPD90+
loans in gross loan portfolio decreased from
3.32% to 3.22%.
The Bank has a prudent provisioning policy, the
coverage of loans by provision for impairment
on DPD90+ loans decreased from 53.97% to
67.45% in the year ended 31 December 2015.
203IFRS separate fi nancial statements
As at 31 December 2015:
As at 31 December 2014:
An analysis of the credit classifi cation of the gross value of the loans that are not impaired,
not past due and past due is as follows:
Not impaired loan portfolio
Loan type Not past due DPD 0–90 DPD 91–360 DPD 360+ Total
Placements with other banks 646,406 – – – 646,406
Consumer loans 212,132 47,140 70 5 259,347
Mortgage and housing loans 53,675 10,147 174 987 64,983
Micro and small enterprises loans 128,465 1,694 – – 130,159
Loans to medium and large
corporates
1,111,436 3,324 300 4 1,115,064
Municipal loans 20,057 964 74 – 21,095
Total 2,172,171 63,269 618 996 2,237,054
Loan type Not past due DPD 0–90 DPD 91–360 DPD 360+ Total
Placements with other banks 710,458 – – – 710,458
Consumer loans 221,734 38,324 109 37 260,204
Mortgage and housing loans 55,858 7,592 2,089 5,423 70,962
Micro and small enterprises loans 109,552 706 22 – 110,280
Loans to medium and large
corporates
1,151,217 272 47 5 1,151,541
Municipal loans 48,455 263 19 34 48,771
Total 2,297,274 47,157 2,286 5,499 2,352,216
The ratio of the gross value of the loans neither
past due nor impaired compared to the whole
portfolio increased from 85.16% to 89.74% as at
31 December 2015 compared to 31 December
2014. The loans that are neither past due nor
impaired are concentrated in the corporate
business line. The ratio of the gross value of the
loans past due not impaired compared to the
whole portfolio increased from 2.04% to 2.68%.
The loans that are past due but not impaired
are concentrated in the retail business line.
During collective valuation method the Bank
recognizes provision for impairment on loans
over a 30 day delay. Those loans which are
guaranteed by state and are past due
30 days not impaired due to the state
guarantee. The level of corporate loans past
due but not impaired is possible because
of endorsing collaterals considering during
the individual evaluation. In the other loan
types the low level of loans past due but not
impaired is a consequence of the prudent
provisioning policy of the Bank. Among the
past due loans, the share of certain loan types
changed insignifi cantly as at 31 December 2015
compared to 31 December 2014.
Loans individually assessed
for provision
The individually rated exposures contain
both the loans and the o -balance sheet
commitments. The rating has been performed
based on the factors used at determining the
provision for impairment for them.
204 OTP Bank Annual Report 2015
As at 31 December 2015:
As at 31 December 2014:
Considered factors Carrying
value
Allowance for
impairment
Collateral
value
O -balance sheet
commitments
Provision for losses
on o balance sheet
contingent liabilities
Delay of repayment 31,026 24,000 9,132 – –
Regularity of payment 134 44 105 – –
Legal proceedings 81,103 77,281 10,421 110 58
Decrease of client classification 14,811 5,045 8,106 2,206 296
Loan characteristics 54,682 9,780 35,618 – –
Business lines risks 36,081 5,529 6,234 5,588 276
Refinancing of subsidiaries portfolio – – – – –
Cross default 31,366 18,729 5,365 95 47
Other 5,595 780 4,544 2,890 385
Corporate total 254,798 141,188 79,525 10,889 1,062
Delay of repayment – – – – –
Regularity of payment – – – – –
Legal proceedings 41 41 – – –
Decrease of client classification – – – – –
Cross default – – – – –
Other – – – – –
Municipal total 41 41 – – –
Placements with other banks – – – – –
Total 254,839 141,229 79,525 10,889 1,062
Considered factors Carrying
value
Allowance for
impairment
Collateral
value
O -balance sheet
commitments
Provision for losses
on o balance sheet
contingent liabilities
Delay of repayment 73,344 61,928 17,941 – –
Regularity of payment 429 162 394 – –
Legal proceedings 45,467 37,774 14,099 84 47
Decrease of client classification 88,896 15,971 53,294 12,300 592
Loan characteristics 39,370 1,975 27,341 – –
Business lines risks 44,219 5,052 8,454 16,004 508
Refinancing of subsidiaries portfolio – – – 120,664 3,525
Cross default 13,250 3,781 5,708 441 51
Other 10,066 2,082 5,228 4,925 183
Corporate total 315,041 128,725 132,459 154,418 4,906
Delay of repayment – – – – –
Regularity of payment – – – – –
Legal proceedings 4 4 – – –
Decrease of client classification – – – 3 –
Cross default – – – – –
Other 96 1 – 381 4
Municipal total 100 5 – 384 4
Placements with other banks – – – – –
Total 315,141 128,730 132,459 154,802 4,910
Regarding corporate business line in the
individually rated portfolio the ratio of the
carrying value of loans classifi ed due to
Decrease of client classifi cation, Regularity of
payment and Delay of repayment decreased
signifi cantly as at 31 December 2015 compared
to 31 December 2014, while the carrying value
of loans classifi ed due to Legal proceedings
increased by 78.4% as at 31 December 2015.
Transactions with high level of risk
Loans to customers are classifi ed by using
this category name if the clients are performing
according to the contracts but the risks
of the transactions are higher than usual
(balloon payment, using loan to fi nance
the monetary expenditures in the phase of
investment).
Business lines risks
Transactions are classifi ed by using this
category name, if the client works in the branch
which had been accused by the fi nancial
crisis (vehicle industry, building industry, real
estate services, metal processing and fi nancial
services).
205IFRS separate fi nancial statements
Loan portfolio by countries
An analysis of carrying amount of the non-qualifi ed and qualifi ed gross loan portfolio
in a country breakdown is as follows:
2015 2014
Country Gross loan and
placement with
other banks
portfolio
Allowance Gross loan and
placement with
other banks
portfolio
Allowance
Hungary 1,672,842 50,229 1,837,626 38,764
Belgium 23,790 – 1 1
Bulgaria 69,848 674 66,575 750
Croatia 32,371 201 33,339 639
Cyprus 42,062 18,308 47,276 10,443
France 7,909 – 5,237 –
Germany 15,413 1 10,109 4
Luxembourg 42 – – –
Montenegro 41,843 15,411 51,932 20,561
Norway 5,438 – 4,405 –
Poland 3,250 – 1,426 –
Romania 216,571 5,226 195,004 6,364
Russia 68,778 3,326 100,562 2,611
Serbia 13,432 – 9,777 2
Seychelles 4,818 4,818 4,877 4,855
Slovakia 22,261 131 32,768 148
Switzerland 8,367 88 3,065 149
Ukraine 103,382 1,250 165,150 42
United Kingdom 54,952 – 118,514 26
United States of America 994 29 2,376 44
Other 12,034* – 7,454 * 20
Total 2,420,397 99,692 2,697,473 85,423
* Austria, Czech Republic, Denmark, Italy, the Netherlands, Turkey and others.
Types of collateral 2015 2014
Mortgages 699,275 716,079
Guarantees and warranties 216,552 217,022
Deposit 57,353 59,587
from this: Cash 38,115 41,966
Securities 16,366 16,492
Other 2,872 1,129
Assignment 570 1,886
Other 613 861
Total 974,363 995,435
26.1.2 Collaterals
The collateral value held by the Bank by
collateral types is as follows (total collateral
value). The collaterals cover loans as well as
o -balance sheet exposures.
The collateral value held by the Bank by
collateral types is as follows (to the extent of
the exposures). The collaterals cover loans as
well as o -balance sheet exposures.
Types of collateral 2015 2014
Mortgage 279,700 326,062
Guarantees and warranties 125,345 132,803
Deposit 24,486 26,179
from this: Cash 15,401 18,927
Securities 6,604 6,529
Other 2,481 723
Assignment 351 527
Other 312 793
Total 430,194 486,364
The coverage level of loan portfolio to the extent of the exposures decreased from 18.03% to 17.77% as
at 31 December 2015, while the coverage to the total collateral value improved from 36.90% to 40.26%.
206 OTP Bank Annual Report 2015
26.1.3 Restructured loans
2015 2014
Gross
portfolio
Allowance Gross
portfolio
Allowance
Retail loans 11,545 4,962 13,027 1,286
Loans to medium and large
corporates* 62,630 23,252 88,715 20,761
Micro and small enterprises
loans 1,824 24 2,005 32
Municipality loans – – 21 –
Total 75,999 28,238 103,768 22,079
Restructured portfolio defi nition
Restructured portfolio for retail business
line contains every loan which is relevant
restructured and less than 91 days delinquent.
Loan is considered as relevant restructured if:
ş LWZDVUHVWUXFWXUHGLQWKHODVWPRQWKVRU
ş LWZDVUHVWUXFWXUHGPRUHWKDQPRQWKV
ago, but the connected preferential period is
not expired or expired in the last 12 months.
Hungarian FX mortgage loans in the fi xed
exchange rate scheme are not included.
In case of loans that have been restructured
more than once the last restructuring is
considered.
Restructured portfolio for corporate/micro
and small enterprises/municipal business
line contains every loan which is relevant
restructured and less than 91 days delinquent.
Loan is considered as relevant restructured if:
ş LQGHSHQGHQWO\IURPWKHGDWHRIWKH
restructuring the following restructuring tool
was applied:
– cancellation of principal outstanding
(cancelled or partially cancelled principal
receivables);
ş LWZDVUHVWUXFWXUHGLQWKHODVWPRQWKV
or the loan was restructured more
than 12 months ago, but the connected
preferential period is not expired or
expired in the last 12 months, and any
of the following restructuring tools were
applied:
– cancellation of interest rate (fi nal or
temporary reduction of the interest margin,
cancellation of due interest), or
– restructuring of interest payments
(postponement of the interest payment,
capitalisation of the interest), or
– restructuring of principal repayment
(partial or full postponement of repayment
of a given instalment, rescheduling one
or more instalments within the original
term or with extension of the term
simultaneously).
Other modifi cations of contract not mentioned
above are not considered as restructuring (i.e.
modifying the collateral structure, modifi cation
of the credit purpose).
In case of loans that have been restructured
more than once the last restructuring is
considered.
* Incl.: project and syndicated loans.
207IFRS separate fi nancial statements
* Moody’s ratings
** Corporate shares listed on Budapest Stock Exchange
*** The whole portfolio was issued by OTP Mortgage Bank Ltd.
A1 A2 A3 Aa3 Aaa Ba1 Ba2 Baa1 Baa2 Baa3 Not
rated
Total
Shares 24
66 53 19 11 26 6 59 – 26 71,489 ** 71,779
Government bonds – – – – – 12,613 – – – – – 12,613
Mortgage bonds – – – – – 18 – – 76 – – 94
Hungarian government
discounted Treasury
Bills
–––––366–––– – 366
Hungarian government
interest bearing
Treasury Bills
– – – – – 7,768 – – – – – 7,768
Other securities – – – – – – – – – – 510 510
Total 24
66 53 19 11 20,791 6 59 76 26 71,999 93,130
Accrued interest 433
Total 93,563
Financial instruments by rating categories*
Held-for-trading securities as at 31 December 2015:
Available-for-sale securities as at 31 December 2015:
Held-to-maturity securities as at 31 December 2015:
An analysis of securities (held for trading, available-for-sale and held-to-maturity)
in a country breakdown is as follows:
Ba1 Baa2 Not
rated
Total
Mortgage bonds – 590,055 *** 7,171 597,226
Government bonds 755,627 – – 755,627
Other securities – – 81,238 81,238
Total 755,627 590,055 88,409 1,434,091
Accrued interest 28,569
Total 1,462,660
Ba1 Baa2 Total
Government bonds 803,802 – 803,802
Mortgage bonds – 4,758 4,758
Subtotal 803,802 4,758 808,560
Accrued interest 16,241
Total 824,801
Country 2015 2014
Hungary 2,308,787 1,883,103
Slovakia 7,171 7,908
Austria 7,357 7,055
Luxembourg 6,444 5,660
United States of America 5,679 1,235
Germany 343 139
Total 2,335,781 1,905,100
208 OTP Bank Annual Report 2015
a given holding period for a specifi ed
confi dence level. The VaR methodology
is a statistically defi ned, probability-based
approach that takes into account market
volatilities as well as risk diversifi cation by
recognizing o setting positions and correlations
between products and markets. Risks can be
measured consistently across all markets
and products, and risk measures can be
aggregated to arrive at a single risk number.
The one-day 99% VaR number used by
the Bank refl ects the 99% probability
that the daily loss will not exceed the
reported VaR.
VaR methodologies are applied to calculate
daily risk numbers include the historical and
variance-covariance approaches. In addition
to these two methodologies, Monte Carlo
simulations are applied to the various
portfolios on a monthly basis to determine
potential future exposure.
26.2 Market risk
The Bank takes on exposure to market risks.
Market risks arise from open positions in interest
rate, currency and equity products, all of which
are exposed to general and specifi c market
movements. The Bank applies a Value-at-Risk
(“VaR”) methodology to estimate the market
risk of positions held and the maximum losses
expected, based upon a number of assumptions
for various changes in market conditions. The
Management Board sets limits on the value of
risk that may be accepted, which is monitored
on a daily basis. (Analysis of liquidity risk, foreign
currency risk and interest rate risk is detailed in
Note 32, 33 and 34, respectively.)
26.2.1 Market risk sensitivity analysis
The VaR risk measure estimates the
potential loss in pre-taxation profi t over
While VaR captures the Bank’s daily exposure
to currency and interest rate risk, sensitivity
analysis evaluates the impact of a reasonably
possible change in interest or foreign currency
rates over a year. The longer time frame of
sensitivity analysis complements VaR and helps
the Bank to assess its market risk exposures.
Details of sensitivity analysis for foreign
currency risk are set out in Note 26.2.2 below
and, for interest rate risk, in Note 26.2.3 below.
26.2.2 Foreign currency sensitivity
analysis
The following table details the Bank’s sensitivity
to an increase and decrease in the HUF
exchange rate against EUR and USD, over a
3 months period. Monte Carlo simulation is used
when reporting foreign currency risk internally
to key management personnel and represents
Management’s assessment of the reasonably
possible change in foreign exchange rates.
The sensitivity analysis includes only
outstanding foreign currency denominated
monetary items as strategic open positions
related to foreign activities. The strategic open
position related to the foreign operations was
short, amounted to EUR 310 million (kept
to hedge the currency risk of the expected
FX-denominated net earnings of the main
foreign subsidiaries). High portion of strategic
positions is considered as e ective hedge of the
net investment in foreign subsidiaries – net
investment hedge is applied at Group level –,
and so FX risk a ects the Group’s other
The VaR of the trading portfolio can be summarized as follows (in HUF mn):
Historical VaR (99%, one-day) by risk type
Average
in HUF million
2015 2014
Foreign exchange 184 184
Interest rate 143 75
Equity instruments 3 12
Diversifi cation (107) (62)
Total VaR exposure 223 209
209IFRS separate fi nancial statements
comprehensive income and not its income.
A positive number below indicates an
increase in profi t where the HUF strengthens
against the EUR and the USD. For a weakening
of the HUF against the EUR and USD,
there would be an equal and opposite impact
on the profi t, and the balances below would
be negative.
Probability
E ects to the P&L in 3 months period
in HUF billion
2015 2014
1% (14.6) (15.0)
5% (10.0) (10.5)
25% (4.4) (4.5)
50% (0.5) (0.6)
25% 3.1 3.2
5% 7.8 8.2
1% 10.9 11.8
Notes:
(1) The short-term loss on the strategic open
position is compensated by the long-term
exchange rate gain on the foreign
operations.
(2) Monte Carlo simulation is based on the
empirical distribution of the historical
exchange rate movements between
2002 and 2015.
26.2.3 Interest rate sensitivity
analysis
The sensitivity analyses below have been
determined based on the exposure to interest
rates for both derivatives and non-derivative
instruments at the balance sheet date.
The analysis is prepared assuming the amount
of assets and liabilities outstanding at the
balance sheet date were outstanding for
the whole year. The analysis was prepared
by assuming only the adverting interest rate
changes. The main assumptions were as
follows:
ş )ORDWLQJUDWHDVVHWVDQGOLDELOLWLHV
were repriced to the modelled benchmark
yields at the repricing dates assuming the
unchanged margin compared to the last
repricing.
ş )L[HGUDWHDVVHWVDQGOLDELOLWLHVZHUHUHSULFHG
at the contractual maturity date.
ş $VIRUOLDELOLWLHVZLWKGLVFUHWLRQDU\UHSULFLQJ
feature by the Bank were assumed to be
repriced with two-weeks delay, assuming no
change in the margin compared to the last
repricing date.
ş 7KHDVVHWVDQGOLDELOLWLHVZLWKLQWHUHVWUDWH
lower than 0.3% assumed to be unchanged
during the whole period.
ş 7KHVHQVLWLYLW\RILQWHUHVWLQFRPHWRFKDQJHVLQ
BUBOR, EURIBOR and USD LIBOR is analysed.
The simulation was prepared by assuming two
scenarios:
1. HUF base rate decreases gradually to 0.85%
(probable scenario)
2. HUF base rate decreases gradually to 0.35%
(alternative scenario)
The net interest income in a one year period
beginning with 1 January 2016 would be
decreased by HUF 1,221 million (probable
scenario) and HUF 3,058 million (alternative
scenario) as a result of these simulations.
This e ect is counterbalanced by capital gains
(HUF 291 million for probable scenario,
HUF 1,109 million for alternative scenario) on
the government bond portfolio held for hedging
(economic).
210 OTP Bank Annual Report 2015
2015 2014
Description E ects to the
net interest income
(one-year period)
E ects to OCI
(Price change of AFS
government bonds)
E ects to the
net interest income
(one-year period)
E ects to OCI
(Price change of AFS
government bonds)
HUF (0.1%) parallel shift (571) 195 (138) 374
EUR (0.1%) parallel shift (214) – (134) –
USD 0.1% parallel shift (134) – (73) –
Total (919) 195 (345) 374
26.2.4 Equity price sensitivity
analysis
The following table shows the e ect of the
equity price sensitivity. The Bank uses VaR
calculation with 1 day holding period and 99%
confi dence level. The VaR methodology is a
statistically defi ned, probability-based approach
that takes into account market volatilities
as well as risk diversifi cation by recognizing
26.2.5 Capital management
Capital management
The primary objective of the capital
management of the Bank is to ensure the
prudent operation, the entire compliance
with the prescriptions of the regulator for a
persistent business operation and maximising
the shareholder value, accompanied by an
optimal fi nancing structure.
The capital management of the Bank includes
the management and evaluation of the
shareholders’ equity available for hedging
risks, other types of funds to be recorded in the
equity and all material risks to be covered by
the capital.
The basis of the capital management of
the Bank in the short run is the continuous
monitoring of its capital position, in the long run
the strategic and the business planning, which
o setting positions and correlations between
products and markets. The daily loss will not
exceed the reported VaR number with 99% of
probability.
The stress test assumes the largest price
movement of the last year and calculates
with it as the adverse direction. This scenario
shows the loss of the portfolio when all prices
change with the maximum amount of the
last year.
includes the monitoring and forecast of the
capital position of the Bank.
The Bank maintains the capital adequacy
required by the regulatory bodies and the
planned risk taking mainly by means of
ensuring and developing its profi tability.
In case the planned risk level of the Bank
exceeded its Core and Supplementary capital,
the Bank ensures the prudent operation by
occasional measures. A further tool in the
capital management of the Bank is the dividend
policy, and the transactions performed with the
treasury shares.
Capital adequacy
The Capital Requirements Directive package
(CRDIV/CRR) transposes the new global
standards on banking regulation (commonly
known as the Basel III agreement) into the EU
The e ects of the parallel shifts of the yield-curves to the net interest income on a one-year
period and to the market value of the hedge government bond portfolio booked against capital
can be summarized as follows (HUF million):
Description 2015 2014
VaR (99%, one day, million HUF) (3) (13)
Stress test (million HUF) (53) (43)
211IFRS separate fi nancial statements
legal framework. The new rules are applied
from 1 January 2014. They set stronger
prudential requirements for institutions,
requiring them to keep su cient capital
reserves and liquidity. This new framework
makes institutions in the EU more solid and
strengthens their capacity to adequately
manage the risks linked to their activities, and
absorb any losses they may incur in doing
business. The capital adequacy of the Bank is
supervised based on the fi nancial statements
data prepared in accordance with HAS applying
the current directives, rulings and indicators
from 1 January 2014.
The Bank has entirely complied with the
regulatory capital requirements in 2015
as well as in 2014.
The capital adequacy calculations of the
Bank in accordance with HAS are prepared
based on the Basel II for the year ended
31 December 2013 and based on Basel III as
at 31 December 2014 due to modifi cation of
the regulation. The Bank uses the standard
method for determining the regulatory capital
requirements of the credit risk and market
risk while in case of the operational risk the
Advanced Measurement Approach (AMA) is
applied since 31 December 2012.
Basel III
Common equity Tier1 capital (CET1):
Issued capital, Capital reserve, useable
part of Tied-up reserve, General reserve, Profi t
reserve, Profi t for the year, Treasury shares,
Intangible assets, deductions due
to investments, adjustments due to
temporary disposals.
Tier2 capital: Subsidiary loan capital,
Subordinated loan capital, deductions due
to repurchased loan capital and Subordinated
loan capital issued by the OTP Bank,
adjustments due to temporary disposals.
The calculation of the Capital Adequacy ratio as at 31 December 2015 and 2014 is as follows:
2015
Basel III
2014
Tier1 capital 831,469 525,849
Common equity Tier1 capital (CET1) 831,469 525,849
Additional Tier1 capital (AT1) – –
Tier2 capital 143,721 146,471
Regulatory capital 975,190 672,320
Credit risk capital requirement 232,651 217,891
Market risk capital requirement 40,619 43,188
Operational risk capital requirement 20,550 22,650
Total requirement regulatory capital 293,820 283,729
Surplus capital 681,370 388,591
CET1 ratio 22.64% 14.83%
Capital adequacy ratio 26.55% 18.96%
212 OTP Bank Annual Report 2015
* See Note 2.26.
NOTE 27: OFF-BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL
INSTRUMENTS (in HUF mn)
In the normal course of business, the
Bank becomes a party to various fi nancial
transactions that are not refl ected on the
statement of fi nancial position and are referred
to as o -balance sheet fi nancial instruments.
The following represents notional amounts of
these o -balance sheet fi nancial instruments,
unless stated otherwise.
Legal disputes
At the balance sheet date the Bank was involved
in various claims and legal proceedings
of a nature considered normal to its business.
The level of these claims and legal proceedings
corresponds to the level of claims and legal
proceedings in previous years.
The Bank believes that the various asserted
claims and litigations in which it is involved
will not materially a ect its fi nancial position,
future operating results or cash-fl ows, although
no assurance can be given with respect to the
ultimate outcome of any such claim or litigation.
Provision due to legal disputes was
HUF 1,112 million and HUF 998 million as at
31 December 2015 and 2014, respectively
(see Note 17).
Commitments to extend credit,
guarantees and letter of credit
The primary purpose of these instruments is
to ensure that funds are available to a customer
as required. Guarantees and standby letters of
credit, which represent irrevocable assurances
that the Bank will make payments in the event
that a customer cannot meet its obligations
to third parties, carry the same credit risk as
loans.
Documentary and commercial letters of
credit, which are written undertakings by the
Bank on behalf of a customer authorising a
third party to draw drafts on the Bank up to a
stipulated amount under specifi c terms and
conditions, are collateralised by the underlying
shipments of goods to which they relate
and therefore carry less risk than a direct
borrowing.
Commitments to extend credit represent
unused portions of authorisations to extend
credit in the form of loans, guarantees or
letters of credit. With respect to credit risk
on commitments to extend credit, the Bank is
potentially exposed to loss in an amount
equal to the total unused commitments.
However, the likely amount of loss is less than
the total unused commitments since most
commitments to extend credit are contingent
upon customers maintaining specifi c credit
standards.
Guarantees, irrevocable letters of credit and
undrawn loan commitments are subject
to similar credit risk monitoring and credit
policies as utilised in the extension of loans.
The Management of the Bank believes the
market risk associated with guarantees,
irrevocable letters of credit and undrawn loan
commitments are minimal.
Contingent liabilities and commitments 2015 2014
Commitments to extend credit 948,917 753,152
Guarantees arising from banking activities 419,210 366,756
from this: Payment undertaking liabilities (related to issue
of mortgage bonds) of OTP Mortgage Bank
123,938 102,133
Promissory obligation to OTP Financing Solutions B.V. – 120,664
Legal disputes (disputed value) 35,382 53,729
Contingent liabilities ordered by law related to customer loans* 1,598 44,127
Confirmed letters of credit 171 108
Other 92,558 33,428
Total 1,497,836 1,371,964
213IFRS separate fi nancial statements
Guarantees, payment
undertakings arising from
banking activities
Payment undertaking is a promise by the
Bank to assume responsibility for the debt
obligation of a borrower if that borrower
defaults until a determined amount and until
a determined date, in case of fulfi lling
conditions, without checking the undermined
transactions. The guarantee’s liability is joint
and primary with the principal, in case of
payment undertaking, while the Bank
assumes the obligation derived from
guarantee independently by the conditions
established by the Bank. A guarantee is most
typically required when the ability of the
primary obligor or principal to perform its
obligations under a contract is in question,
or when there is some public or private
interest which requires protection from the
consequences of the principal’s default or
delinquency. A contract of guarantee is subject
to the statute of frauds (or its equivalent local
laws) and is only enforceable if recorded
in writing and signed by the surety and the
principal.
If the surety is required to pay or perform due
to the principal’s failure to do so, the law will
usually give the surety a right of subrogation,
allowing the surety to use the surety’s
contractual rights to recover the cost of making
payment or performing on the principal’s
behalf, even in the absence of an express
agreement to that e ect between the surety
and the principal.
Contingent liabilities related
to OTP Mortgage Bank Ltd.
Under a syndication agreement with its wholly
owned subsidiary, OTP Mortgage Bank Ltd.,
the Bank had guaranteed, in return for an
annual fee, to purchase all mortgage loans
held by OTP Mortgage Bank Ltd. that become
non-performing. The repurchase guarantee
contract of non-performing loans between
OTP Mortgage Bank Ltd. and OTP Bank Plc.
was modifi ed in 2010. According to the new
arrangement the repurchase guarantee was
cancelled and OTP Bank Plc. gives bail to the
loans originated or purchased by the Bank.
Derivatives
The Bank maintains strict control limits on net
open derivative positions, i.e. the di erence
between purchase and sale contracts, by both
amount and term. At any time the amount subject
to credit risk is limited to the current fair value
of instruments that are favourable to the Bank
(i.e. assets), which in relation to derivatives is
only a small fraction of the contract or notional
values used to express the volume of instruments
outstanding. This credit risk exposure is
managed as part of the overall lending limits
with customers, together with potential
exposures from market movements. Collateral
or other security is not usually obtained for
credit risk exposures on these instruments,
except for trading with clients, where the Bank
in most of the cases requires margin deposits.
214 OTP Bank Annual Report 2015
NOTE 28: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn)
Previously approved option program required
a modifi cation thanks to the introduction of the
Bank Group Policy on Payments accepted in
resolution of Annual General Meeting regarding
to the amendment of CRD III. Directives and Act
on Credit Institutions and Financial Enterprises.
Key management personnel a ected by the
Bank Group Policy receive compensation based
on performance assessment generally in the
form of cash bonus and equity shares in a ratio
of 50–50%. Assignment is based on OTP shares,
furthermore performance based payments are
deferred in accordance with the rules of Credit
Institutions Act.
OTP Bank ensures the share-based payment
part for the management personnel of
OTP Group members.
The value of the discounted share-based
payment at the performance assessment is
determined by Supervisory Board* based on
the average of the three previous trade day’s
middle rate of OTP Bank’s equity shares fi xed
on the Budapest Stock Exchange.
Discounted share-based payment shall
contain maximum HUF 2,000 discount at
the assessment date, and earnings for the
shares at the payment date is determined by
Supervisory Board, maximum HUF 4,000.
During implementation of the Remuneration
Policy of the Group appeared that in case
of certain foreign subsidiaries it is not
possible to ensure the originally determined
share-based payment because of legal reasons
– incompatible with concerning EU-directives –,
therefore a decision was made to cancel the
share-based payment in referred countries.
Employee benefi ts are all forms of
consideration given by an entity in exchange
for service rendered by employees or for the
termination of employment. IAS 19 Employee
Benefi ts shall be applied in accounting for
all employee benefi ts, except those to which
IFRS 2 Share-based Payment applies. In case
of the jubilee benefi ts both standards contain
regulations.
Short-term employee benefi ts are employee
benefi ts (other than termination benefi ts) that
are expected to be settled wholly before twelve
months after the end of the annual reporting
period in which the employees render the
related service. Post-employment benefi ts
are employee benefi ts (other than termination
and short-term employee benefi ts) that are
payable after the completion of employment.
Post-employment benefi t plans are formal
or informal arrangements under which an
entity provides post-employment benefi ts for
one or more employees. Post-employment
benefi t plans are classifi ed as either defi ned
contribution plans or defi ned benefi t plans,
depending on the economic substance of the
plan as derived from its principal terms and
conditions.
Termination benefi ts are employee benefi ts
provided in exchange for the termination of an
employee’s employment as a result of either:
an entity’s decision to terminate an employee’s
employment before the normal retirement date
or an employee’s decision to accept an o er
of benefi ts in exchange for the termination
of employment. Other long-term employee
benefi ts are all employee benefi ts other than
short-term employee benefi ts, postemployment
benefi ts and termination benefi ts.
* Until the end of 2014 Board of Directors.
215IFRS separate fi nancial statements
The parameters for the share-based payment relating to the year 2010–2014 were determined
by Board of Directors and relating to years from 2015 by Supervisory Board for periods
of each year as follows:
Year Exercise
price
per share
Maximum
earnings
per share
Exercise
price
per share
Maximum
earnings
per share
Exercise
price per
share
Maximum
earnings
per share
Exercise
price per
share
Maximum
earnings
per share
Exercise
price per
share
Maximum
earnings
per share
for the year 2010 for the year 2011 for the year 2012 for the year 2013 for the year 2014
2011 3,946 2,500 – – – – – – – –
2012 3,946 3,000 1,370 3,000 – – – – – –
2013 4,446 3,500 1,870 3,000 2,886 3,000 – – – –
2014 4,946 3,500 1,870 4,000 2,886 3,000 2,522 2,500 – –
2015 – – 1,870 4,000 2,886 3,000 2,522 3,000 3,930 2,500
2016 – – – – 2,886 3,500 2,522 3,500 3,930 3,000
2017 – – – – – – 2,522 3,500 3,930 3,000
2018 – – – – – – – – 3,930 3,000
Based on parameters accepted by Board of Directors, relating to the year 2010 e ective pieces
are follows as at 31 December 2015:
E ective pieces are follows in exercise periods of each year relating
to the year 2011 as at 31 December 2015:
E ective pieces are follows in exercise periods of each year relating
to the year 2012 as at 31 December 2015:
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2011 – 340,950 11,622 5,731 329,328
Share purchasing period started in 2012 – 735,722 714,791 4,593 20,931
Share purchasing period started in 2013 – 419,479 31,789 4,808 387,690
Share purchasing period started in 2014 – 497,451 495,720 5,838 1,731
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2012 – 471,240 464,753 3,758 6,487
Share purchasing period started in 2013 – 1,267,173 1,256,529 4,886 10,644
Share purchasing period started in 2014 – 609,137 609,137 4,799 –
Share purchasing period started in 2015 670 608,118 607,448 5,618 –
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2013 – 450,861 445,671 4,413 5,190
Share purchasing period started in 2014 – 1,156,631 1,151,890 4,982 4,741
Share purchasing period started in 2015 1,971 555,845 553,874 5,654 –
Share purchasing period starting in 2016 688,990 – – – –
E ective pieces are follows in exercise periods of each year relating
to the year 2013 as at 31 December 2015:
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2014 – 406,044 404,263 4,369 1,781
Share purchasing period started in 2015 1,494 804,469 802,975 4,912 –
Share purchasing period starting in 2016 495,340 – – – –
Share purchasing period starting in 2017 549,909 – – – –
216 OTP Bank Annual Report 2015
E ective pieces relating to the periods
starting in 2016–2018 settled during valuation
of performance of year 2012–2014, can be
modifi ed based on risk assessment and
personal changes.
In connection with shares as a part of the
Bank Group Policy on Payments modifi ed
by 8/2014 resolution of Annual General
Meeting and the share-based compensation
for Board of Directors detailed in 8/2013
resolution of Annual General Meeting and
connecting compensation based on
performance assessment accounted as
equity-settled share based transactions,
HUF 3,810 million was recognized as expense
as at 31 December 2015.
NOTE 29: RELATED PARTY TRANSACTIONS (in HUF mn)
2015 2014
OTP Financing Malta Company Ltd. (Malta) 344,003 –
OTP Mortgage Bank Ltd. 262,444 300,562
Merkantil Bank Ltd. 170,919 159,847
OTP Factoring Ltd. 134,220 174,422
OTP Real Estate Leasing Ltd. 23,967 27,518
OTP Bank Romania S.A. (Romania) 21,125 –
Merkantil Lease Ltd. 18,763 21,356
JSC “OTP Bank” (Russia) 11,085 68,625
OTP Financing Netherlands B.V. (the Netherlands) 7,567 82,453
OTP Leasing Ukraine 5,358 17,744
OTP Holding Malta Ltd. (Malta) 5,010 –
OTP banka Srbija a.d. (Serbia) 2,731 –
D-ÉG Thermoset Ltd. 2,531 2,886
Merkantil Real Estate Leasing Ltd. 2,285 3,180
Merkantil Car Ltd. 150 1,040
OTP Holding Ltd./OTP Financing Cyprus Co. Ltd. (Cyprus) – 149,086
OTP Financing Solutions B.V. (the Netherlands) – 120,664
DSK Leasing AD (Bulgaria) – 17,319
OTP Leasing d.d. (Croatia) – 26,591
OTP Factoring Slovensko a.s. (Slovakia) – 10,506
Inga Kettő Ltd. – 10,281
OTP Bank JSC (Ukraine) – 7,750
Bank Center Ltd. – 6,000
Other 6,481 4,564
Total 1,018,639 1,212,394
a) Loans provided to related parties
Transactions with related parties (subsidiaries), other than increases in share capital
or dividend received, are summarized below:
The Bank provides loans to related parties, and collects deposits.
* Associate company.
E ective pieces are follows in exercise periods of each year relating
to the year 2014 as at 31 December 2015:
Effective
pieces
Approved
pieces
of shares
Exercised until
31 December
2015
Weighted average
share price at the date
of exercise (in HUF)
Expired
pieces
Share purchasing period started in 2015 – 176,459 176,459 5,828 –
Share purchasing period starting in 2016 366,669 – – – –
Share purchasing period starting in 2017 214,392 – – – –
Share purchasing period starting in 2018 237,013 – – – –
217
2015 2014
DSK Bank EAD (Bulgaria) 250,655 330,829
OTP Mortgage Bank Ltd. 70,597 148,124
OTP Banka Slovensko a.s. (Slovakia) 39,873 63,001
OTP Funds Servicing and Consulting Ltd. 32,091 26,369
OTP Bank Romania S.A. (Romania) 31,507 24,114
OTP Building Society Ltd. 28,122 33,312
JSC “OTP Bank” (Russia) 25,852 19,126
OTP banka Hrvatska d.d. (Croatia) 17,240 19,225
Crnogorska komercijalna banka a.d (Montenegro) 15,680 15,876
Inga Kettő Ltd. 15,368 1,518
Balansz Real Estate Institute Fund 8,858 2,436
Merkantil Bank Ltd. 7,233 13,018
Bank Center Ltd. 6,428 2,506
OTP Life Annuity Ltd. 3,090 3,195
OTP Factoring Ltd. 1,843 13,438
OTP Real Estate Leasing Ltd. 1,725 5,700
OTP Holding Ltd./OTP Financing Cyprus Co. Ltd. (Cyprus) 1,509 2,591
OTP Financing Malta Company Ltd. (Malta) 1,253 1,679
OTP banka Srbija a.d. (Serbia) 1,079 3,922
OTP Financing Netherlands B. V. (the Netherlands) 1,078 1,384
Monicomp Ltd. 804 1,292
Other 4,083 665
Total 565,968 733,320
2015 2014
OTP Mortgage Bank Ltd. 5,096 5,711
OTP Financing Malta Company Ltd. (Malta) 4,281 –
OTP Financing Solutions B.V. (the Netherlands) 4,033 5,627
Merkantil Bank Ltd. 2,884 4,912
OTP Factoring Ltd. 2,346 3,557
OTP Leasing Ukraine 1,101 936
Merkantil Lease Ltd. 614 766
OTP Real Estate Leasing Ltd. 524 426
OTP Holding Ltd./OTP Financing Cyprus Co. Ltd. (Cyprus) 443 8,716
JSC “OTP Bank” (Russia) 362 1,697
OTP Financing Netherlands B.V. (the Netherlands) 347 2,141
Inga Kettő Ltd. 323 91
Bank Center Ltd. 189 273
D-ÉG Thermoset Ltd.** 122 152
OTP Leasing d.d. (Croatia) 86 542
DSK Leasing AD (Bulgaria) 53 356
OTP Factoring Slovensko a.s. (Slovakia) 27 264
OTP Banka Slovensko a.s. (Slovakia) – 260
Merkantil Car Ltd. – 96
Other 609 736
Total 23,440 37,259
b) Deposits from related parties
c) Interests received by the Bank*
IFRS separate fi nancial statements
* Derivatives and interest on securities are not included.
** Associate company.
218 OTP Bank Annual Report 2015
2015 2014
DSK Bank EAD (Bulgaria) 5,711 2,811
OTP Mortgage Bank Ltd. 2,419 1,799
OTP Banka Slovensko a.s. (Slovakia) 1,045 664
Merkantil Lease Ltd. 984 1,278
OTP Building Society Ltd. 560 559
OTP Funds Servicing and Consulting Ltd. 542 715
OTP Bank Romania S.A. (Romania) 480 244
JSC “OTP Bank” (Russia) 456 460
OTP banka Hrvatska d.d. (Croatia) 264 279
Crnogorska komercijalna banka a.d (Montenegro) 133 284
OTP Factoring Ltd. 58 139
OTP Life Annuity Ltd. 53 91
Bank Center Ltd. 38 80
Merkantil Bank Ltd. 22 111
OTP banka Srbija a.d. (Serbia) 11 45
Balansz Real Estate Institute Fund – 32
OTP Real Estate Leasing Ltd. – 14
Other 32 20
Total 12,808 9,625
2015 2014
From OTP Fund Management Ltd. in relation to trading activity 9,931 10,476
From OTP Bank JSC (Ukraine) in relation to lending activity 1,202 1,666
From OTP Building Society Ltd. (agency fee in relation
to fi nalised customer contracts)
1,200 2,973
From OTP Real Estate Investment Fund Management Ltd.
in relation to trading activity
948 592
From Merkantil Bank Ltd. in relation to account management
and activity as agent
757 785
From OTP Funds Servicing and Consulting Ltd. in relation to banking 421 419
From OTP Fund Management Ltd. in relation to custody activity 171 67
Total 14,630 16,978
2015 2014
OTP Bank Romania S.A. (Romania) related
to loan portfolio handling
177 244
Crnogorska komercijalna banka a.d. (Montenegro) related
to loan portfolio handling
– 124
Total 177 368
2015 2014
Fees and commissions received from OTP Mortgage Bank Ltd.
relating to the loans
19,112 5,967
Loans sold to OTP Mortgage Bank Ltd. with recourse
(including interest)
1,453 1,440
The gross book value of the loans sold 1,453 1,440
d) Interests paid by the Bank*
e) Commissions received by the Bank
f) Commissions paid by the Bank
g) Transactions related to OTP Mortgage Bank Ltd.
* Derivatives and interest on securities are not included.
219IFRS separate fi nancial statements
2015 2014
Securities issued by OTP Banka Slovensko a.s. (Slovakia)
held by OTP Bank (nominal value in HUF million)
7,202 7,872
2015 2014
The gross book value of the loans sold 589 5,913
The selling price of the loans sold – 2,775
2015 2014
The gross book value of the loans sold 7,199 –
The selling price of the loans sold 5,512 –
2015 2014
The gross book value of the loans sold (including interest) 315,031 31,293
The selling price of the loans sold (including interest
and premium/discount)
314,737 31,506
2015 2014
The gross book value of the loans sold 17,565 24,605
Provision for loan losses on the loans sold 7,453 12,667
Loans sold to OTP Factoring Ltd. without recourse (including interest) 4,992 7,261
Loss on these transaction (recorded in the separate
financial statements as loan and placement loss)
5,120 4,677
i) Transactions related to OTP Banka Slovensko a.s. (Slovakia)
j) Transactions related to OTP Factoring Montenegro d.o.o. (Montenegro)
l) Transactions related to OTP Bank Romania S.A. (Romania)
k) Transactions related to OTP Financing Malta Company Ltd. (Malta)
m) Related party transactions with key management
h) Transactions related to OTP Factoring Ltd.
The underlying mortgage rights were also transferred to OTP Factoring Ltd.
The compensation of key management,
such as the members of the Board of Directors,
the members of the Supervisory Board
and the employees involved in the
The members of the Board of Directors,
members of the Supervisory Board,
chief executives and their close family
members owned credit line “A” in the
amount of HUF 139.3 and 139.7 million as
at 31 December 2015 and 2014.
decision-making process in accordance
with the compensation categories defi ned
in IAS 24 Related Party Disclosures, is
summarised below:
Compensations 2015 2014
Short-term employee benefi ts 1,851 3,453
Share-based payment 2,276 2,937
Long-term employee benefi ts (on the basis of IAS 19) 290 443
Total 4,417 6,833
2015 2014
Loans provided to companies owned by the Management
(in the normal course of business)
24,233 11,854
Commitments to extend credit and bank guarantees 33,817 15,545
Credit lines of the members of Board of Directors and the
Supervisory Board and their close family members (at market conditions)
134 136
220 OTP Bank Annual Report 2015
The Bank acts as a trustee for certain
loans granted by companies or employers
to their employees, mainly for housing
purposes. The ultimate risk for these loans
rests with the party advancing the funds.
In the normal course of business,
OTP Bank enters into other transactions
with its subsidiaries, the amounts and
There were no other signifi cant concentrations
of the assets or liabilities of the Bank as at
31 December 2015 or 2014.
OTP Bank continuously provides the Authority
with reports on the extent of dependency
on large depositors as well as the exposure
of the biggest 50 depositors towards OTP Bank.
As these loans and related funds are not
considered to be assets or liabilities
of the Bank, they have been excluded from
the accompanying separate statement
of fi nancial position.
volumes of which are not signifi cant
to these fi nancial statements taken
as a whole.
Further to this obligatory reporting to the
Authority, OTP Bank pays particular attention
on the exposure of its largest partners and
cares for maintaining a closer relationship with
these partners in order to secure the stability
of the level of deposits.
The organisational unit of OTP Bank in charge
of partner-risk management analyses the
NOTE 30: TRUST ACTIVITIES (in HUF mn)
NOTE 31: CONCENTRATION OF ASSETS AND LIABILITIES
2015 2014
Loans managed by the Bank as a trustee 37,518 39,618
In the percentage of the total assets 2015 2014
Receivables from, or securities issued by
the Hungarian Government or the NBH
43% 44%
Securities issued by the OTP Mortgage Bank Ltd. 8.38% 9.77%
An analysis of payment to chief executives related to their activity in Board of Directors
and Supervisory Board is as follows :
2015 2014
Members of Board of Directors 629 539
Members of Supervisory Board 72 73
Total 701 612
2015 2014
Members of Board of Directors and their close family members 18 18
Members of Supervisory Board 2 4
Chief executive 2 2
An analysis of credit limit related to MasterCard Gold is as follows:
The family member of a member of the
Board of Directors owned AMEX Blue credit
card loan in the amount of HUF 0.6 million
as at 31 December 2015.
Chief executives owned AMEX Gold
loading card loan in the amount of
HUF 3.5 million as at 31 December 2015.
Member of Board of Directors, members of
Supervisory Board and chief executives with
their close family members owned AMEX
Platinum credit card loan in the amount of
HUF 48.8 million as at 31 December 2015.
221
Liquidity risk is a measure of the extent to
which the Bank may be required to raise funds
to meet its commitments associated with
fi nancial instruments. The Bank maintains its
liquidity profi les in accordance with regulations
laid down by the NBH.
The essential of the liquidity risk management
strategy it to identify all relevant systemic and
idiosyncratic sources of liquidity risk and to
measure the probability and severity of such
events. During liquidity risk management the
Bank considers the e ect of liquidity risk events
caused by reasons arising in the bank business
line (deposit withdrawal), the national economy
(exchange rate shock, yield curve shock) and the
global fi nancial system (capital market shock).
In line with the Bank’s risk management policy
liquidity risks are measured and managed
on multiply hierarchy levels and applying
integrated unifi ed VaR based methodology.
The basic requirement is that the Bank must
keep high quality liquidity reserves by means it
can fulfi l all liabilities when they fall due without
material additional costs.
The liquidity reserves can be divided to two
parts. There are separate decentralized liquid
asset portfolios at subsidiary level and a
centralized fl exible liquidity pool at Group’s
level. The reserves at subsidiary levels are held
to cover the relevant shocks of the subsidiaries
which may arise in local currencies (deposit
withdrawal, local capital market shock,
unexpected business expansion), while the
centralized liquidity pool is held to cover the
OTP Bank’s separate shocks (deposit-, yield
curve- and exchange rate shocks) and all group
member’s potential shocks that may arise in
foreign currencies (deposit withdrawal, capital
market shock).
biggest partners on a constant basis and sets
limits on OTP Bank’s and the Group’s exposure
separately partner-by-partner. If necessary, it
The recalculation of shocks is made at least
quarterly while the recalibration of shock
measurement models and review of the risk
management methodology is an annual
process. The monitoring of liquidity reserves
for both centralized and decentralized liquid
asset portfolio has been built in the daily
reporting process.
Due to the balance sheet adjustment process
(deleveraging) experienced in the last few years,
the liquidity reserves of the Bank increased
signifi cantly while the liquidity risk exposure
has decreased considerably. Currently the (over)
coverage of risk liquidity risk exposure by high
quality liquid assets is in all-time record highs.
In 2015 there were no material changes in
liquidity risk management process.
The following tables provide an analysis of
liabilities about the non-discounted cash-fl ow
into relevant maturity groupings based on the
remaining period from the balance sheet date
to the contractual maturity date. It is presented
under the most prudent consideration of
maturity dates where options or repayment
schedules allow for early repayment
possibilities.
The contractual amounts disclosed in the
maturity analyses are the contractual
undiscounted cash-fl ows like gross
fi nance lease obligations (before deducting
fi nance charges); prices specifi ed in
forward agreements to purchase fi nancial
assets for cash; net amounts for
pay-fl oating/receive-fi xed interest rate swaps
for which net cash-fl ows are exchanged;
contractual amounts to be exchanged in
a derivative fi nancial instrument for which
gross cash-fl ows are exchanged; gross
loan commitments.
modifi es partner-limits in due course thereby
reducing the room for manoeuvring of the
Treasury and other business areas.
NOTE 32: MATURITY ANALYSIS OF LIABILITIES AND LIQUIDITY RISK
(in HUF mn)
IFRS separate fi nancial statements
222 OTP Bank Annual Report 2015
Within
3 months
Within
one year and
over 3 months
Within
5 years and
over one year
Over
5 years
Without
maturity
Total
Amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary
and other banks
449,413 45,377 308,137 38,473 – 841,400
Deposits from customers 4,017,478 269,279 21,987 14,558 – 4,323,302
Liabilities from issued securities 31,140 50,160 33,839 34,339 – 149,478
Other liabilities* 152,750 134,665 – – – 287,415
Subordinated bonds and loans 1,382 156,560 – – 110,566 ** 68,508
TOTAL LIABILITIES 4,652,163 656,041 363,963 87,370 110,566 5,870,103
Receivables from derivative financial instruments
classified as held for trading
841,408 435,640 235,379 2,640 – 1,515,067
Liabilities from derivative financial instruments
classified as held for trading
(869,256) (480,115) (295,415) (17,375) – (1,662,161)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWVFODVVLILHG
as held for trading
(27,848) (44,475) (60,036) (14,735) – (147,094)
Receivables from derivative financial instruments
designated as fair value hedge
– 155,065 176,098 154 – 331,317
Liabilities from derivative financial instruments
designated as fair value hedge
– (174,364) (195,969) (67) – (370,400)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWVGHVLJQDWHGDV
fair value hedge
– (19,299) (19,871) 87 – (39,083)
Net position of derivative financial instruments total (27,848) (63,774) (79,907) (14,648) – (186,177)
Commitments to extend credit 96,504 649,095 203,318 – - 948,917
Bank guarantees 46,749 40,679 103,825 227,957 – 419,210
Off-balance sheet commitments 143,253 689,774 307,143 227,957 – 1,368,127
Within
3 months
Within
one year and
over 3 months
Within
5 years and
over one year
Over
5 years
Without
maturity
Total
Amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary and
other banks
950,833 56,734 85,328 61,561 – 1,154,456
Deposits from customers 3,952,755 251,993 17,039 13,208 – 4,234,995
Liabilities from issued securities 22,705 41,355 57,667 29,174 – 150,901
Other liabilities* 215,057 102,572 – – – 317,629
Subordinated bonds and loans 30,820 – 168,481 – 111,191 ** 310,492
TOTAL LIABILITIES 5,172,170 452,654 328,515 103,943 111,191 6,168,473
Receivables from derivative financial instruments
classified as held for trading
2,202,779 968,403 566,209 5,578 – 3,742,969
Liabilities from derivative financial instruments
classified as held for trading
(2,334,158) (1,086,572) (668,861) (19,340) – (4,108,931)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWVFODVVLILHGDV
held for trading
(131,379) (118,169) (102,652) (13,762) – (365,962)
Receivables from derivative financial instruments
designated as fair value hedge
– 202 16,050 3,273 – 19,525
Liabilities from derivative financial instruments
designated as fair value hedge
(1) (710) (19,518) (3,898) – (24,127)
1HWSRVLWLRQRIILQDQFLDOLQVWUXPHQWVGHVLJQDWHGDV
fair value hedge
(1) (508) (3,468) (625) – (4,602)
Net position of derivative financial instruments total (131,380) (118,677) (106,120) (14,387) – (370,564)
Commitments to extend credit 220,283 434,835 66,152 31,882 – 753,152
Bank guarantees 44,380 76,055 42,793 203,528 – 366,756
Off-balance sheet commitments 264,663 510,890 108,945 235,410 – 1,119,908
** Derivative financial instruments designated as fair value hedge are not included.
** See Note 18.
As at 31 December 2015:
As at 31 December 2014:
Such undiscounted cash-fl ows di er from
the amount included in the statement of
fi nancial position because the amount in that
statement is based on discounted cash-fl ows.
When the amount payable is not fi xed,
the amount disclosed is determined by
reference to the conditions existing at the
end of the reporting period. For example,
when the amount payable varies with changes
in an index, the amount disclosed may be
based on the level of the index at the end
of the period.
223
NOTE 33: NET FOREIGN CURRENCY POSITION AND FOREIGN
CURRENCY RISK (in HUF mn)
The table above provides an analysis of the Bank’s
main foreign currency exposures. The remaining
foreign currencies are shown within ‘Others’.
Whilst the Bank monitors its foreign exchange
position for compliance with the regulatory
requirements of the NBH and own limit system
established in respect of limits on open positions.
The measurement of the Bank’s open foreign
currency position involves monitoring the VaR
limit on the foreign exchange exposure of the Bank.
USD EUR CHF Others Total
Assets* 252,582 998,181 90,558 88,994 1,430,315
Liabilities (371,921) (949,870) (25,685) (36,639) (1,384,115)
Off-balance sheet assets and liabilities, net 122,948 (197,317) (63,111) (48,910) (186,390)
Net position 3,609 (149,006) 1,762 3,445 (140,190)
USD EUR CHF Others Total
Assets* 279,394 1,105,039 476,074 99,485 1,959,992
from this: loans concerned in conversion
LQWR+8)
– 820 46,338 49 47,207
Liabilities (191,873) (1,186,305) (92,377) (69,823) (1,540,378)
from this: provision for loans concerned
LQFRQYHUVLRQLQWR+8)
– (118) (6,833) (401) (7,352)
Off-balance sheet assets and liabilities, net (40,738) (56,494) (277,512) (13,483) (388,227)
Net position 46,783 (137,760) 106,185 16,179 31,387
NOTE 34: INTEREST RATE RISK MANAGEMENT (in HUF mn)
Interest rate risk is the risk that the value of
a fi nancial instrument will fl uctuate due to
changes in market interest rates. The length of
time for which the rate of interest is fi xed on
a fi nancial instrument, therefore, indicates to
what extent it is exposed to interest rate risk.
The majority of the Bank’s interest bearing
assets and liabilities are structured to match
either short-term assets and short-term
liabilities, or long-term assets and liabilities
with repricing opportunities within one year, or
long-term assets and corresponding liabilities
where repricing is performed simultaneously.
In addition, the signifi cant spread existing
between the di erent types of interest bearing
assets and liabilities enables the Bank to benefi t
from a high level of fl exibility in adjusting for
its interest rate matching and interest rate risk
exposure.
The following table presents the interest
repricing dates of the Bank. Variable yield
assets and liabilities have been reported
in accordance with their next repricing
date. Fixed income assets and liabilities
have been reported in accordance with their
maturity.
* The assets category contains foreign currency investments in subsidiaries that are measured at cost, and are deducted from the
net position calculation.
** Loans were converted into HUF at foreign exchange rates applied in conversion due to Acts on Customer loans so these do not bear
further foreign currency risk or exposure. Loans denominated in JPY are included by others. See Note 2.26.
IFRS separate fi nancial statements
As at 31 December 2015:
As at 31 December 2014:
224 OTP Bank Annual Report 2015
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
ASSETS
Cash, amounts due from banks
and balances with the National Bank
of Hungary
1,202,576 40,818 ––––––––76,320 6,483 1,278,896 47,301 1,326,197
fixed interest
1,202,576 40,818 ––––––––––1,202,576 40,818 1,243,394
non-interest-bearing
– – ––––––––76,320 6,483 76,320 6,483 82,803
Placements with other banks, net of
allowance for placement losses
125,409 103,476 317,181 66,155 220 5,351 308 696 25,247 3,681 – – 468,365 179,359 647,724
fixed interest
52,836 60,993 120,240 24,595 220 424 308 696 25,247 3,681 – – 198,851 90,389 289,240
variable interest
72,573 42,483 196,941 41,560 – 4,927 ––––––269,514 88,970 358,484
Securities held for trading
356 – 2,125 23 7,914 43 141 1 10,345 52 72,206 357 93,087 476 93,563
fixed interest
356 – 1,857 23 6,001 25 141 1 10,345 52 – – 18,700 101 18,801
variable interest
– – 268 – 1,913 18 ––––––2,181 18 2,199
non-interest-bearing
– – ––––––––72,206 357 72,206 357 72,563
Securities available-for-sale
21,671 317,230 114,804 7,171 3,256 9,753 – 29,529 847,783 53,479 43,319 14,665 1,030,833 431,827 1,462,660
fixed interest
– – 95,851 – 3,256 4,780 – 29,529 847,783 53,479 – – 946,890 87,788 1,034,678
variable interest
21,671 317,230 18,953 7,171 – 4,973––––––40,624 329,374 369,998
non-interest-bearing
– – ––––––––43,319 14,665 43,319 14,665 57,984
Loans, net of allowance
for loan losses
314,234 192,553 172,493 607,190 166,257 14,872 62,829 8,694 128,139 11,923 – – 843,952 835,232 1,679,184
fixed interest
2,390 700 6,530 1,502 32,250 8,643 35,934 8,694 72,613 11,923 – – 149,717 31,462 181,179
variable interest
311,844 191,853 165,963 605,688 134,007 6,229 26,895 – 55,526 – – – 694,235 803,770 1,498,005
non-interest-bearing
– – –––––––––– – – –
Securities held-to-maturity
– – 16,087 – 23,576 – 85,778 – 683,119 – 16,241 – 824,801 – 824,801
fixed interest
– – 12,748 – 23,576 – 85,778 – 683,119 – – – 805,221 – 805,221
variable interest
– – 3,339–––––––––3,339 – 3,339
non-interest-bearing
– – ––––––––16,241 – 16,241 – 16,241
Derivative financial instruments
673,749 668,467 1,351,732 384,815 217,206 109,734 46,773 149,426 39,414 29,997 446,726 110,203 2,775,600 1,452,642 4,228,242
fixed interest
500,878 227,942 428,021 135,754 216,291 66,795 46,773 149,426 39,414 29,997 – – 1,231,377 609,914 1,841,291
variable interest
172,871 440,525 923,711 249,061 915 42,939 ––––––1,097,497 732,525 1,830,022
non-interest-bearing
– – ––––––––446,726 110,203 446,726 110,203 556,929
As at 31 December 2015:
As at 31 December 2015:
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
LIABILITIES
Amounts due to banks
and Hungarian Government,
deposits from the National Bank
of Hungary and other banks
272,075 155,355 14,020 65,193 63,473 6,772 168,853 5,779 72,029 5,573 – – 590,450 238,672 829,122
fixed interest
271,877 103,120 12,930 741 32,373 4,588 168,853 5,779 72,029 5,573 – – 558,062 119,801 677,863
variable interest
198 52,235 1,090 64,452 31,100 2,184 ––––––32,388 118,871 151,259
Deposits from customers
1,331,844 222,143 504,203 162,932 135,491 101,120 2,224 – 1,567,333 295,949 – – 3,541,095 782,144 4,323,239
fixed interest
725,778 214,876 504,189 162,430 135,491 101,120 2,224 – 8,778 – – – 1,376,460 478,426 1,854,886
variable interest
606,066 7,267 14 502 ––––1,558,555 295,949 – – 2,164,635 303,718 2,468,353
Liabilities from issued securities
6 5,097 13 8,730 5,381 38,543 12,908 8,295 71,067 191 – – 89,375 60,856 150,231
fixed interest
6 4,848 13 6,578 5,381 35,587 12,908 8,295 71,067 191 – – 89,375 55,499 144,874
variable interest
– 249 – 2,152 – 2,956 –––––– –5,357 5,357
Derivative financial instruments
1,248,271 98,126 1,083,679 640,110 158,671 134,008 190,632 6,931 40,977 72,001 227,762 315,022 2,949,992 1,266,198 4,216,190
fixed interest
635,192 88,963 418,185 143,566 157,950 125,122 190,632 6,931 40,977 72,001 – – 1,442,936 436,583 1,879,519
variable interest
613,079 9,163 665,494 496,544 721 8,886––––––1,279,294 514,593 1,793,887
non-interest-bearing
– – ––––––––227,762 315,022 227,762 315,022 542,784
Subordinated bonds and loans
– – – – – 266,063 –––––– –266,063 266,063
fixed interest
– – – – – 266,063 –––––– –266,063 266,063
NET POSITION
(514,201) 841,823 372,507 188,389 55,413 (406,753) (178,788) 167,341 (17,359) (274,582) 427,050
(183,314)
144,622 332,904 477,526
225IFRS separate fi nancial statements
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
ASSETS
Cash, amounts due from banks
and balances with the
National Bank of Hungary
1,795,868 30,640 ––––––––65,691 5,579 1,861,559 36,219 1,897,778
fixed interest 1,795,868 30,640 ––––––––– –1,795,868 30,640 1,826,508
non-interest-bearing – – ––––––––65,691 5,579 65,691 5,579 71,270
Placements with other banks 244,689 155,569 5,023 241,423 50,000 13,754––––1,293 361 301,005 411,107 712,112
fixed interest 9,504 41,481 23 89,459 50,000 798 – – – – – – 59,527 131,738 191,265
variable interest 235,185 114,088 5,000 151,964 – 12,956 ––––– –240,185 279,008 519,193
non-interest-bearing – – ––––––––1,293 361 1,293 361 1,654
Securities held for trading 251 – 1,362 66 3,894 124 94 64 11,488 1,232 58,671 341 75,760 1,827 77,587
fixed interest 165 – 1,241 66 3,080 16 94 64 11,488 1,232 – – 16,068 1,378 17,446
variable interest 86 – 121 – 814 108––––– –1,021 108 1,129
non-interest-bearing – – ––––––––58,671 341 58,671 341 59,012
Securities available-for-sale – 153,169 – 171,458 64,475 21,475 162,483 9,493 539,770 26,612 56,956 10,016 823,684 392,223 1,215,907
fixed interest – – – 3,897 64,475 21,475 162,483 9,493 539,770 26,612 – – 766,728 61,477 828,205
variable interest – 153,169 – 167,561 ––––––– – –320,730 320,730
non-interest-bearing – – ––––––––56,956 10,016 56,956 10,016 66,972
Loans, net of allowance
for loan losses
562,470 389,547 157,059 617,098 28,882 40,575 23,298 5,650 63,678 13,335 4,085 2,954 839,472 1,069,159 1,908,631
fixed interest 1,752 396 4,287 1,408 25,805 32,701 23,298 5,650 63,678 13,335 – – 118,820 53,490 172,310
variable interest 560,718 389,151 152,772 615,690 3,077 7,874 ––––– –716,567 1,012,715 1,729,282
non-interest-bearing – – ––––––––4,085 2,954 4,085 2,954 7,039
Securities held-to-maturity – – 63,374 – 346 – 36,271 – 546,756 – 16,200 – 662,947 – 662,947
fixed interest – – 56,697 – 346 – 36,271 – 546,756 – – – 640,070 – 640,070
variable interest – – 6,677 –––––––– –6,677 – 6,677
non-interest-bearing – – ––––––––16,200 – 16,200 – 16,200
Derivative financial instruments 892,417
1,380,421 899,135 2,425,913 136,282 812,239 8,578 19,996 31,973 41,671 – 1,300 1,968,385 4,681,540 6,649,925
fixed interest 514,405 1,148,879 147,078 1,009,941 85,034 809,065 8,578 19,996 31,973 41,671 – – 787,068 3,029,552 3,816,620
variable interest 378,012 231,542 752,057 1,415,972 51,248 3,174 ––––– –1,181,317 1,650,688 2,832,005
non-interest-bearing – – –––––––––1,300 – 1,300 1,300
As at 31 December 2014:
As at 31 December 2014:
Within 1 month Over 1 month and
within 3 months
Over 3 moths and
within 12 months
Over 1 year and
within 2 years
Over 2 years Non-interest-
bearing
Total
Total
HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency
LIABILITIES
Amounts due to banks and
Hungarian Government, deposits
from the National Bank of Hungary
and other banks
488,536 465,214 26,437 15,430 37,198 5,875 5,109 3,646 88,368 5,863 429 386 646,077 496,414 1,142,491
fixed interest 488,536 301,144 24,964 12,386 9,371 5,834 5,109 3,646 88,368 5,863 – – 616,348 328,873 945,221
variable interest – 164,070 1,473 3,044 27,827 41––––– –29,300 167,155 196,455
non-interest-bearing – – ––––––––429386429386815
Deposits from customers 2,026,492 216,669 318,340 122,814 146,518 98,188 4,056 – 1,136,819 161,456 3,473 431 3,635,698 599,558 4,235,256
fixed interest 1,564,995 210,633 307,855 122,220 146,518 98,188 4,056 – 5,607 – – – 2,029,031 431,041 2,460,072
variable interest 461,497 6,036 10,485 594 – – – – 1,131,212 161,456 – – 1,603,194 168,086 1,771,280
non-interest-bearing – – ––––––––3,473 431 3,473 431 3,904
Liabilities from issued securities 6,082 3,827 5,544 5,230 11,397 31,069 13,862 8,520 74,176 439 174 2,347 111,235 51,432 162,667
fixed interest 6,082 3,827 5,544 5,230 11,397 30,707 13,862 8,520 74,176 439 – – 111,061 48,723 159,784
variable interest – – – – – 362––––– – –362362
non-interest-bearing – – ––––––––1742,347 174 2,347 2,521
Derivative financial instruments 618,118 1,696,937 675,674 2,636,782 286,480 732,283 6,698 19,847 23,515 41,313 26 2,871 1,610,511 5,130,033 6,740,544
fixed interest 617,938 1,043,376 152,869 1,023,806 283,456 701,466 6,698 19,847 23,515 41,313 – – 1,084,476 2,829,808 3,914,284
variable interest 180 653,561 522,805 1,612,976 3,024 30,817 ––––– –526,009 2,297,354 2,823,363
non-interest-bearing – – ––––––––262,871 26 2,871 2,897
Subordinated bonds and loans – – – 29,375–––––263,843 – 1,394 – 294,612 294,612
fixed interest – – –––––––263,843 – – – 263,843 263,843
variable interest – – – 29,375 ––––––– – –29,375 29,375
non-interest-bearing – – –––––––––1,394 – 1,394 1,394
NET POSITION 356,467 (273,301) 99,958 646,327 (197,714) 20,752 200,999 3,190 (129,213) (390,064) 198,794 13,122 529,291 20,026 549,317
226 OTP Bank Annual Report 2015
Earnings per share attributable to the
Bank’s ordinary shares are determined
by dividing Net profi t for the year attributable
to ordinary shareholders, after the deduction
of declared preference dividends, by
The ICES bonds could potentially dilute basic
EPS in the future, but were not included in the
the weighted average number of ordinary
shares outstanding during the year.
Dilutive potential ordinary shares are
deemed to have been converted into ordinary
shares.
calculation of diluted EPS because they are
antidilutive for the period presented.
NOTE 35: EARNINGS PER SHARE
2015 2014
Net (loss)/profit for the year attributable to ordinary shareholders
(in HUF mn)
49,645 (74,469)
Weighted average number of ordinary shares outstanding during
the year for calculating basic EPS (number of share)
273,524,198 278,355,195
Basic Earnings per share (in HUF) 182 (268)
Separate net profit/(loss) for the year attributable to ordinary
shareholders (in HUF mn)
49,645 (74,469)
Modified weighted average number of ordinary shares outstanding
during the year for calculating diluted EPS (number of share)
273,739,580 278,643,335
Diluted Earnings per share (in HUF) 181 (267)
2015 2014
Weighted average number of ordinary shares 280,000,010 280,000,010
Average number of Treasury shares (6,475,812) (1,644,815)
Weighted average number of ordinary shares outstanding
during the year for calculating basic EPS
273,524,198 278,355,195
Dilutive effect of options issued in accordance
with the Remuneration Policy/Management Option Program
and convertible into ordinary shares*
215,382 288,140
The modified weighted average number of ordinary shares
outstanding during the year for calculating diluted EPS
273,739,580 278,643,335
NOTE 36: NET GAIN OR LOSS REALISED ON FINANCIAL INSTRUMENTS
(in HUF mn)
Net interest
income and expense
Net non-interest
gain and loss
Provision for
impairment
Other
comprehensive
income
Cash, amounts due from banks and balances
with the National Bank of Hungary
26,574 – – –
Placements with other banks, net of allowance
for placement losses
9,712 – (3) –
Securities held for trading 281 1,072 – –
Securities available-for-sale 50,655 20,333 – 46,324
Loans, net of allowance for loan losses 125,229 22,065 (11,890) –
Securities held-to-maturity 39,973 – – –
Derivative financial instruments 8,348 (316) – –
Amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary
and other banks
(17,678) – – –
Deposits from customers (26,455) 111,126 – –
Liabilities from issued securities (2,091) – – –
Subordinated bonds and loans (16,686) – – –
Other 25
–––
Total 197,887 154,280 (11,893) 46,324
As at 31 December 2015:
* In 2015 and 2014 dilutive e ect is in connection with the Remuneration Policy.
227
Net interest
income and expense
Net non-interest
gain and loss
Provision for
impairment
Other
comprehensive
income
Cash, amounts due from banks and balances
with the National Bank of Hungary
15,556 – – –
Placements with other banks, net of allowance
for placement losses
14,689 – (4) –
Securities held for trading – 4,283 – –
Securities available-for-sale 72,056 4,947 – 51,404
Loans, net of allowance for loan losses 153,501 9,280 2,696 –
Securities held-to-maturity 36,518 – – –
Derivative financial instruments 3,636 (67) – –
Amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary
and other banks
(14,779) – – –
Deposits from customers (46,423) 108,737 – –
Liabilities from issued securities (4,206) – – –
Subordinated bonds and loans (16,825) – – –
Total 213,723 127,180 2,692 51,404
As at 31 December 2014:
NOTE 37: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn)
In determining the fair value of a fi nancial
asset or liability the Bank in the case of
instruments that are quoted on an active
market uses the market price. In most cases
market price is not publicly available so the
Bank has to make assumptions or use valuation
techniques to determine the fair value of a
fi nancial instrument. See Note 37. e) for more
information about fair value classes applied for
fi nancial assets and liabilities measured at fair
value in these fi nancial statements.
To provide a reliable estimate of the fair value
of those fi nancial instrument that are originally
measured at amortised cost, the Bank used
the discounted cash-fl ow analysis (loans,
placements with other banks, amounts due to
banks, deposits from customers). The fair value
of issued securities and subordinated bonds is
based on quoted prices (e.g. Reuters). Cash and
amounts due from banks and balances with the
National Bank of Hungary represent amounts
available immediately thus the fair value equals
to the cost.
The assumptions used when calculating
the fair value of fi nancial assets and liabilities
when using valuation technique are the
following:
ş WKHGLVFRXQWUDWHVDUHWKHULVNIUHHUDWHV
related to the denomination currency
adjusted by the appropriate risk premium as
of the end of the reporting period,
ş WKHFRQWUDFWXDOFDVKĭRZVDUHFRQVLGHUHG
for the performing loans and for the
non-performing loans, the amortised cost
less impairment is considered as fair value,
ş WKHIXWXUHFDVKĭRZVIRUĭRDWLQJLQWHUHVWUDWH
instruments are estimated from the yield
curves as of the end of the reporting period,
ş WKHIDLUYDOXHRIWKHGHSRVLWZKLFKFDQEHGXH
in demand cannot be lower than the amount
payable on demand.
Classes of assets and liabilities not measured at
fair value in the statement of fi nancial position,
income approach was used to convert future
cash-fl ows to a single current amount. Fair
value of current assets is equal to carrying
amount, fair value of liabilities from issued
securities and other bond-type classes of
assets and liabilities not measured at fair value
measured based on Reuters market rates, fair
value of other classes not measured at fair
value of the statement of fi nancial position
measured at discounted cash-fl ow method.
Fair value of loans, net of allowance for loan
losses measured at discount rate adjustment
technique, the discount rate is derived from
observed rates of return for comparable assets
or liabilities that are traded in the market.
Fair value measurements – in relation with
instruments measured not at fair value – are
categorized in level 2 of the fair value hierarchy.
IFRS separate fi nancial statements
228 OTP Bank Annual Report 2015
2015 2014
Carrying
amount
Fair value Carrying
amount
Fair value
Cash, amounts due from banks and balances
with the National Bank of Hungary
1,326,197 1,327,460 1,897,778 1,897,778
Placements with other banks, net of allowance for
placement losses
647,724 666,128 712,112 746,469
Financial assets at fair value through profit or loss 252,140 252,140 351,753 351,753
Held for trading securities 93,563 93,563 77,587 77,587
Derivative financial instruments classified
as held for trading
158,577 158,577 274,166 274,166
Securities available-for-sale 1,462,660 1,462,660 1,215,907 1,215,907
Loans, net of allowance for loan losses* 1,679,184 1,974,713 1,908,631 2,277,701
Securities held-to-maturity 824,801 883,697 662,947 721,436
Derivative financial instruments designated
as hedging instruments
33,768 33,768 14,041 14,041
FINANCIAL ASSETS TOTAL 6,226,474 6,600,566 6,763,169 7,225,085
Amounts due to banks and Hungarian Government,
deposits from the National Bank of Hungary
and other banks
829,122 829,150 1,142,491 1,128,655
Deposits from customers 4,323,239 4,307,291 4,235,256 4,242,841
Liabilities from issued securities 150,231 168,338 162,667 171,909
Derivative financial instruments designated
as hedging instruments
35,701 35,701 3,463 3,463
Financial liabilities at fair value through profit or loss 144,592 144,592 375,363 375,363
Financial liabilities from OTP–MOL transaction 66,787 66,787 56,445 56,445
Subordinated bonds and loans 266,063 271,884 294,612 292,746
FINANCIAL LIABILITIES TOTAL 5,815,735 5,823,743 6,270,297 6,271,422
a) Fair value of fi nancial assets and liabilities
b) Fair value of derivative instruments
Fair value Notional value, net
2015 2014 2015 2014
Interest rate swaps classified as held for trading
Positive fair value of interest rate swaps classified as held for trading 33,869 43,538 40,702 46,128
Negative fair value of interest rate swaps classified as held for trading (30,453) (63,670) (37,158) (66,510)
Foreign exchange swaps classified as held for trading
Positive fair value of foreign exchange swaps classified as held for trading 14,352 60,833 14,994 57,280
Negative fair value of foreign exchange swaps classified as held for trading (9,265) (60,110) (7,615) (55,697)
Interest rate swaps designated as fair value hedge
Positive fair value of interest rate swaps designated in fair value hedge 15,393 14,032 7,932 8,539
Negative fair value of interest rate swaps designated in fair value hedge (13,723) (3,463) (17,211) (4,602)
CCIRS classified as held for trading
Positive fair value of CCIRS classified as held for trading 102,125 152,540 103,253 144,886
Negative fair value of CCIRS classified as held for trading (95,349) (227,167) (96,285) (222,373)
Mark-to-market CCIRS classified as held for trading
Positive fair value of mark-to-market CCIRS classified as held for trading – – – –
Negative fair value of mark-to-market CCIRS classified as held for trading (2,370) (9,576) (2,143) (9,856)
CCIRS designated as fair value hedge
Positive fair value of CCIRS designated in fair value hedge 18,375 – 18,263 –
Negative fair value of CCIRS designated in fair value hedge (21,978) – (21,872)
–
Other derivative contracts classified as held for trading
Positive fair value of other derivative contracts classified as held for trading 8,231 17,255 5,342 14,088
Negative fair value of other derivative contracts classified as held for trading (7,155) (14,840) (3,900) (11,526)
Other derivative contracts designated as fair value hedge
Positive fair value of other derivative contracts designated in fair value hedge – 9 – 4
Negative fair value of other derivative contracts designated in fair value hedge – – – –
Derivative financial assets total 192,345 288,207 190,486 270,925
Derivative financial liabilities total (180,293) (378,826) (186,184) (370,564)
Derivative financial instruments total 12,052 (90,619) 4,302 (99,639)
* Fair value of loans increased in the year ended 31 December 2015 and 2014 due to decrease of short-term and long-term interests.
229
The summary of the hedging transactions of the Bank are as follows:
c) Hedge accounting
As at 31 December 2015:
As at 31 December 2014:
OTP Bank regularly enters into hedging trans-
actions in order to decrease its fi nancial risks.
However some economically hedging trans-
action do not meet the criteria to account for
hedge accounting, therefore these transactions
were accounted as derivatives held for trading.
Net investment hedge in foreign operations is
not applicable in separate fi nancial statements.
Types of the hedges Description of the
hedging instrument
Fair value of the
hedging instrument
The nature of the
risk being hedged
Cash-flow hedges – – –
Fair value hedges IRS HUF 1,670 million Interest rate
Fair value hedges
CCIRS HUF (3,603) million
Interest rate/Foreign
currency
Types of the hedges Description of the
hedging instrument
Fair value of the
hedging instrument
The nature of the
risk being hedged
Cash-flow hedges – – –
Fair value hedges IRS/Index option HUF 10,578 million Interest rate
d) Fair value hedges
1. Deposits from customers
The interest payment cash-fl ows of some
structured deposits of OTP Bank denominated
in HUF and EUR are exposed to the change
of equity prices, equity indices or the change
of HUF/EUR exchange rate. In order to hedge
2. Securities available-for-sale
OTP Bank holds fi xed interest rate securities
denominated in HUF and fi xed interest rate
government bonds denominated in HUF and EUR
within the available-for-sale portfolio. These fi xed
interest rate securities and bonds are exposed
to the fair value risk driven by the changes in
the risk-free interest rates. In order to hedge the
interest rate risk of the cash-fl ows OTP Bank
entered into pay fi xed-receive fl oater interest
rate swap transactions, where the risk from
the cash-fl ows of the securities are swapped to
the interest rate risk of the interest payments
OTP Bank entered into interest rate swap
transactions, where the risk of the cash-fl ow’s
from the structured deposits were swapped
to payments linked to 3 month BUBOR or
EURIBOR, resulting in a decrease in the fair
value exposure of the deposits from customers.
payments linked to 3 or 12 month EURIBOR and
the risk from the cash-fl ows of the bonds are
swapped to payments linked to 6 month BUBOR,
resulting in a decrease in the fair value exposure
of the securities available-for-sale.
OTP Bank holds fl oating interest rate bonds
denominated in EUR within the available-for-sale
portfolio. The cash-fl ows of the securities
are exposed to the change in the EUR foreign
exchange rate and the risk of change in interest
rates of EUR. The interest rate risk and foreign
exchange risk related to these securities are
hedged with CCIRS transactions.
2015 2014
Fair value of the hedging instruments – 107
2015 2014
Fair value of the IRS hedging instruments (11,266) (2,570)
Fair value of the CCIRS hedging instruments (3,668) –
IFRS separate fi nancial statements
230 OTP Bank Annual Report 2015
2015 2014
Fair value of the hedging IRS instruments (165) (417)
Fair value of the hedging CCIRS instruments
65 –
3. Loans to customers/corporates
OTP Bank has fi xed interest rate loans deno-
minated in various currencies. These fi xed
interest rate loans are exposed to fair value
risk of changes of risk-free interest rates.
In order to hedge the interest rate risk of the
cash-fl ows OTP Bank entered into pay-fi xed,
receive-fl oater interest rate swap transactions,
where the risk of the payments from the loans
are swapped to payments linked to 3 month
EURIBOR or BUBOR resulting in a decrease
in the interest-rate fair value exposure of the
loans to customers.
OTP Bank has further fl oating interest rate
loans denominated in RON and CHF. These
loans are exposed to the change of foreign
exchange of RON and CHF and the risk
of change in interest rates of CHF. In order
to hedge the foreign currency risk and the
interest rate risk OTP Bank entered into
CCIRS transactions.
2015 2014
Fair value of the hedging IRS instruments 13,101 13,449
Fair value of the hedging index option instruments – 9
4. Issued securities
The cash-fl ows of the fi xed rate securities
issued by OTP Bank are exposed to the change
in the HUF/EUR foreign exchange rate and the
risk of change in the risk-free interest rates of
EUR and HUF. The interest rate risk and foreign
exchange risk related to these securities are
hedged with EUR and HUF IRS and index option
transactions. In the case of IRS transactions the
fi xed cash-fl ows were swapped to payments
linked to 3 month EURIBOR or BUBOR, resulted
a decrease in the interest rate and foreign
exchange exposure of issued securities.
Certain structured bonds are hedged by options
which give the owner the right to get amount of
the structure which is equal to the structure of
the hedged bond.
As at 31 December 2015:
As at 31 December 2014:
Types of hedged items Types of
hedging
instruments
Fair value
of the hedged
items
Fair value
of the hedging
instruments
Gains/losses attributable
to the hedged risk
on the hedged
items
on the hedging
instruments
Securities available-for-sale IRS HUF 668,484 million HUF (11,266) million HUF 9,818 million HUF (8,696) million
Securities available-for-sale CCIRS HUF 317,230 million HUF (3,668) million HUF 2,064 million HUF (3,668) million
Loans to customers IRS HUF 5,561 million HUF (165) million HUF (252) million HUF 252 million
Loans to corporates CCIRS HUF 56,458 million HUF 65 million HUF 202 million HUF 65 million
Deposits from customers IRS – – HUF 107 million HUF (107) million
Liabilities from issued securities IRS HUF 71,786 million HUF 13,101 million HUF 348 million HUF (348) million
Liabilities from issued securities Index option – – HUF 9 million HUF (9) million
Types of hedged items Types of
hedging
instruments
Fair value
of the hedged
items
Fair value
of the hedging
instruments
Gains/losses attributable
to the hedged risk
on the hedged
items
on the hedging
instruments
Securities available-for-sale IRS HUF 286,344 million HUF (2,570) million HUF 1,691 million HUF (1,691) million
Loans to customers IRS HUF 12,158 million HUF (417) million HUF (101) million HUF 101 million
Deposits from customers IRS HUF 1,627 million HUF 107 million HUF (6) million HUF 6 million
Liabilities from issued securities IRS HUF 88,309 million HUF 13,449 million HUF (5,070) million HUF 5,070 million
Liabilities from issued securities Index option HUF 651 million HUF 9 million HUF 3 million HUF (3) million
231
d) Fair value classes
Methods and signifi cant assumptions used to
determine fair value of the di erent classes of
fi nancial instruments:
Level 1: quoted prices (unadjusted) in active
markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices
included within Level 1 that are
observable for the asset or liability
either directly or indirectly. Fair value
measurements – in relation with
instruments measured not at fair
value – are categorized in level 2;
Level 3: inputs for the asset or liability that are
not based on observable market data
(unobservable inputs).
The following table shows an analysis of fi nancial instruments recorded at fair value
by level of the fair value hierarchy:
IFRS separate fi nancial statements
As at 31 December 2015:
As at 31 December 2014:
Total Level 1 Level 2 Level 3
Financial assets at fair value through
profit or loss
251,707 85,301 166,406 –
from this: securities held for trading 93,130 85,280 7,850 –
from this: positive fair value of derivative
financial instruments classified
as held for trading
158,577 21 158,556 –
Securities available-for-sale 1,434,091 670,809 757,615 5,667*
Positive fair value of derivative financial
instruments designated as fair value hedge
33,768 – 33,768 –
Financial assets measured at fair value total 1,719,566 756,110 963,456 5,667
Negative fair value of derivative financial
instruments classified as held for trading
144,592 34 144,558 –
Negative fair value of derivative financial
instruments designated as fair value hedge
35,701 – 35,701 –
Financial liabilities measured
at fair value total
180,293 34 180,259 –
Total Level 1 Level 2 Level 3
Financial assets at fair value through
profit or loss
351,319 73,090 278,229 –
from this: securities held for trading 77,153 72,634 4,519 –
from this: positive fair value of derivative
financial instruments classified
as held for trading
274,166 456 273,710 –
Securities available-for-sale 1,181,200 342,629 838,571 –
Positive fair value of derivative financial
instruments designated as fair value hedge
14,041 – 14,041 –
Financial assets measured at fair value total 1,546,560 415,719 1,130,841 –
Negative fair value of derivative financial
instruments classified as held for trading
375,363 478 374,885 –
Negative fair value of derivative financial
instruments designated as fair value hedge
3,463 – 3,463 –
Financial liabilities measured
at fair value total
378,826 478 378,348 –
* Whole portfolio includes shares of Visa Europe (see Note 39). The purchase price includes three components (upfront component:
cash and Visa Inc. “C” preferential shares with limited marketability; and deferred earn-out payment). The book value of the shares
is valuated up to the amount of the upfront component. Sensitivity analysis is not applicable.
232 OTP Bank Annual Report 2015
NOTE 38: RECONCILIATION OF FINANCIAL STATEMENTS PREPARED
UNDER HAS AND FINANCIAL STATEMENTS PREPARED
UNDER IFRS (in HUF mn)
NOTE 39: SIGNIFICANT EVENTS DURING
THE YEAR ENDED 31 DECEMBER 2015
1) Government measures related
to customer loan contracts
See details in Note 2.26.
2) Cessation of the indirect
ownership in KITE Ltd.
See details in Note 9.
3) Capital increase at OTP Bank
Romania
See details in Note 9.
4) Capital increase at OTP Bank JSC
(Ukraine)
See details in Note 9.
5) Term Note Program
See details in Note 15.
6) Agreement between the Visa Inc.
and the Visa Europe
On 2 November 2015 Visa Inc. and Visa Europe
Limited reached an agreement on the purchase
Retained Earnings
and Reserves
1 January 2015
Net profit for the year
ended
31 December 2015
Dividend Direct
Movements
on Reserves
Retained Earnings
and Reserves as at
31 December 2015
Financial Statements in accordance with HAS 940,826 (98,094) (46,200) 84,418 880,950
Premium and discount amortization of financial
instruments measured at amortised cost
2,797 362 – (683) 2,476
Effect of redemption of issued securities 14,111 (3,535) – – 10,576
Differences in carrying value of subsidiaries 34,115 84,418 – (84,418) 34,115
Difference in accounting for finance leases (873) 99 – – (774)
Effects of using effective interest rate method 5,934 511 – – 6,445
Fair value adjustment of held for trading
and available-for-sale financial assets
58,141 16,578 – (7,203) 67,516
Fair value adjustment of derivative
financial instruments
10,011 4,689 – (2,084) 12,616
Reversal of statutory goodwill 40,596 – – – 40,596
Revaluation of investments denominated
in foreign currency to historical cost
(32,671) 24,217 – – (8,454)
Difference in accounting of security lending (21,981) 392 – – (21,589)
Treasury share transaction – 7,372 – (7,372) –
Share–based payment – (3,810) – 3,810 –
Payments to ICES holders 7,014 46 – (4,133) 2,927
OTP–MOL share swap transaction (54,067) 3,236 – – (50,831)
Provision for exchange of customer
loans to HUF
(7,906) 7,487 – (419)
Deferred taxation 33,557 5,677 – 2,671 41,905
Dividend paid for 2014 40,600 – (40,600) – –
Dividend payable in 2015 – – 46,200 – 46,200
Financial Statements in accordance with IFRS 1,070,204 49,645 (40,600) (14,994) 1,064,255
233IFRS separate fi nancial statements
1) Capital increase at OTP Bank Romania
See details in Note 9.
2) Capital increase at OTP Bank JSC (Ukraine)
See details in Note 9.
3) Agreement on purchasing unit of AXA Bank Hungary
See details in Note 9.
of the shares of Visa Europe (owned by
European banks) by Visa Inc. According to the
deal the purchase price will be transferred
by cash and Visa Inc.”C-type” preferential
shares with limited marketability after the
settlement of the transaction (after receiving
all the necessary approvals). In addition, the
framework terms of the transaction provide for
a deferred earn-out payment, which will be paid
in cash after sixteen quarters from the date
of the transaction settlement (if the relevant
criteria of the earn-out component are reached).
According to the notifi cation of Visa sent in
mid-December 2015, the expected amount
of cash is about EUR 18 million (around
HUF 5.667 billion). Prior to the transaction
the book value of OTP’s share in Visa Europe
was close to zero, but at the end of 2015 it
was revaluated, which has been recognized
on the of Fair value adjustment securities
available-for-sale line in the Statement of
Comprehensive Income. The above said cash
component of the purchase price will be booked
in the Statement of Recognised Income at
the settlement of the transaction, and shown
presumably in second quarter of 2016. For the
time being the value of the earn-out component
cannot be reliably measured.
NOTE 40: POST BALANCE SHEET EVENTS
234 OTP Bank Annual Report 2015
NOTE 41: STATEMENT OF ECONOMIC SITUATION AND IMPLICATIONS
ON THE BANK’S FINANCIALS
In 2015 the macroeconomic processes were
mostly shaped by the di erent monetary
policies expected from the Federal Reserve
System (“Fed”) and the European Central
Bank (“ECB”), and by the continued slump
in commodity prices, which started in 2014.
In December 2015 the Fed embarked on
interest rate hikes (0.25–0.5%) because of
the accelerating growth and the favourable
labour market processes in the USA, while
the ECB decided to extend its asset purchase
programme and cut the interest rate on
overnight deposits further (to –0.3%).
For the fi rst time since the onset of the crisis
the Eurozone posted meaningful growth (1.5%),
but with signifi cant discrepancies among the
regions of the EU. Preliminary GDP data for the
fourth quarter of 2015 suggest that Central and
South Eastern Europe remained the strongest
region. The several-month-long negotiations
with Greece which ultimately resulted in
a temporary solution to the country’s debt
crisis failed to cast a cloud on the supportive
sentiment of global markets.
Hungary’s economy grew by 2.9% in 2015,
down from 3.6% in 2014. After the election year,
the volume of investments fell, but net exports’
contribution returned to positive territory after
being in red in the previous year. Nonetheless,
the engine of growth was clearly the further
accelerating consumption of households.
The increase in the value added by market
services has largely contributed to the
economy’s expansion. Even though the
deceleration of Germany’s manufacturing
poses risks to the demand for Hungary’s
export products, it seems that these fears
did not get in the way of production. Moreover,
mostly owing to the improved terms of trade,
Hungary’s trade surplus also hit an all-time
high, at EUR 8.1 billion (or 8% of GDP) in 2015.
A weaker-than-2014 year pushed agriculture’s
contribution to GDP into negative territory.
Non-farm private sector GDP was as strong as
elsewhere in the CEE region; it may have grown
by more than 4%.
At the end of third quarter of 2015 Hungary’s
four-quarter rolling defi cit amounted to 0.8%
of GDP. This exceptionally low fi gure can be
put down to the higher rate of EU-co-fi nancing
and the larger-than-expected revenues.
The government’s defi cit target is 2.4% for
2015. Gross government debt stood at 76.9% at
the end of third quarter of 2015.
Consumer prices dropped by 0.1% on average in
2015, thanks to the steadily falling commodity
prices; demand-sensitive infl ation accelerated
until the end of summer, but somewhat slowed
towards the end of the year.
The lower-than-expected infl ation justifi ed
the continuation of the monetary easing
cycle; the last cut brought the base rate to
1.35% in July. The NBH’s Self-Financing
Programme introduced plan consisting of
2 layers to boost lending for SMEs, then the
NBH decided to terminate the two-week
deposit in order to boost commercial banks’
appetite for government securities. At the end
of 2015 the NBH announced plans to introduce
unconventional monetary policy tools because
infl ation was likely to remain below its target
throughout the entire forecast horizon.
In Hungary by 31 December 2015 the
contractual period of the second phase of
the Funding for Growth Scheme and the
Growth Scheme Plus expired. Under these
two schemes contracts with a total amount
of around HUF 1,425 billion were signed on
the sector level, of which OTP Bank’s share
represented 19%.
According to legislations passed in 2014 the
settlement of the existing and matured
(or prepaid) FX mortgage and consumer loan
contracts at OTP Bank and OTP Mortgage Bank
235IFRS separate fi nancial statements
Ltd. was completed in March 2015. In the fi rst
quarter of 2015 the conversion of FX mortgage
loans into HUF has been completed (except for
OTP Real Estate Leasing Ltd.). In the second
quarter of 2015 the settlement with Merkantil
Bank Ltd., Merkantil Car Ltd. and OTP Real
Estate Leasing Ltd. clients has been executed,
clients’ obligations arising from FX lease
contracts were converted into HUF.
In the third quarter of 2015 the settlement of
existing and matured HUF consumer contracts
at OTP Bank, OTP Mortgage Bank Ltd., Merkantil
Bank Ltd., Merkantil Car Ltd. and OTP Real
Estate Leasing Ltd. has been completed.
236
Corporate Governance
OTP Bank Annual Report
2015
237
238 OTP Bank Annual Report 2015
Senior management of OTP Bank
and executive members
of the
Board of Directors
Dr. Antal Pongrácz
Deputy Chairman, Deputy CEO
Sta Division
Dr. Sándor Csányi
Chairman & CEO
Dr. Sándor Csányi graduated from the
College of Finance and Accountancy
in 1974 with a bachelor’s degree in
business administration and in 1980
from the Budapest University of Eco-
nomic Sciences with a degree in
economics. He is an economist with
a specialisation in fi nance and a char-
tered auditor. After graduation he
worked at the Revenue Directorate and
then at the Secretariat of the Ministry
of Finance, after which, between 1983
and 1986, he was a departmental head
at the Ministry of Agriculture and Food
Industry. From 1986 to 1989 he worked
as a head of department at Magyar Hitel
Bank. He was deputy CEO of K&H Bank
from 1989 to 1992. Since 1992 he has
been Chairman & CEO of OTP Bank Plc.
He is a member of the Europe Advisory
Board for MasterCard, one of the world’s
leading payment card companies, and
Vice Chairman of the Board of Directors
of MOL Plc., Co-Chairman of the Natio-
nal Association of Entrepreneurs and
Employers (VOSZ) and Co-Chairman of
the Chinese–Hungarian Business
Council. He has been the President of
the Hungarian Football Association
(MLSZ) since July 2010 and a member
of the Executive Committee of UEFA
since March 2015.
As of 31 December 2015 he held
280,912 ordinary OTP shares (while
the total number of OTP shares held
by him directly and indirectly was
500,000).
Dr. István Gresa
Deputy CEO
Credit Approval and Risk
Management Division
László Bencsik
Chief Finance and Strategic O cer
Strategy and Finance Division
Dr. István Gresa graduated from
the College of Finance and
Accountancy in 1974 and received a
degree in economics from the Buda-
pest University of Economic Sciences
in 1980. He earned a PhD from the
same establishment in 1983. He has
worked in the banking sector since
1989. Between 1989 and 1993 he was
branch manager of Budapest Bank’s
Zalaegerszeg branch. From 1993 he
was director of OTP Bank’s Zala
County Directorate, and from 1998
he served as the managing director
of the bank’s West Transdanubian
Region. Since 1 March 2006 he has
been deputy CEO of OTP Bank, as well
as the head of the Credit Approval
and Risk Management Division and
Chairman of the Board of Directors
at OTP Factoring Ltd. He has been
a member of OTP Bank’s Board
of Directors since 27 April 2012.
As of 31 December 2015 he held
49,454 ordinary OTP shares.
Mr. László Bencsik has been deputy
CEO of OTP Bank Plc. and head of
the Strategy and Finance Division
since August 2009. He has been the
Chairman of the Supervisory Board
of DSK Bank since 13 March 2012.
He joined OTP Bank in September
2003, when he became managing
director of the Bank Operations
Management Directorate, and the
manager with overall responsibility
for controlling and planning.
From 2000 to 2003 he was a project
manager at consulting fi rm
McKinsey & Company.
Between 1996 and 2000 he worked
as a consultant at Andersen
Consulting (Accenture). In 1996
he graduated from the Faculty of
Business Administration at the
Budapest University of Economic
Sciences, and in 1999 he obtained a
Masters in Business Administration
(MBA) from INSEAD Business School
in France.
As of 31 December 2015 he held
23,709 ordinary OTP shares.
Dr. Antal Pongrácz graduated from
the Budapest University of Economic
Sciences and earned a PhD in 1971.
From 1969 he worked as an analyst
at the Petrochemical Investment
Company, then as a group manager
at the Revenue Directorate until 1975.
From 1976 he held various executive
positions at the Ministry of Finance.
After that, in 1986–87 he was the fi rst
deputy Chairman of the State O ce
for Youth and Sports. Between 1988
and 1990 he was the fi rst deputy CEO
of OTP Bank. Between 1991 and 1994
he was CEO, and then Chairman & CEO,
of the European Commercial Bank Rt.
Between 1994 and 1998 he was
Chairman & CEO of Szerencsejáték Rt,
then in 1998–99 he served as CEO of
Hungarian fl agship carrier, Malév.
Since 2001 he has been managing
director of OTP Bank’s Sta Division
and more recently, deputy CEO. He has
been a member of OTP Bank Plc.’s
Board of Directors since 2002, and its
deputy Chairman since 9 June 2009.
Since 12 April 2012 he has been
Chairman of the Supervisory Board
of OTP banka Hrvatska d.d.
As of 31 December 2015 he held
48,267 ordinary OTP shares.
239
0LURVODY6WDQLPLURY9LFKHY
Deputy CEO
IT and Operations Division
Mr. Miroslav Vichev graduated from
the Technical University of Sofi a in
1988. During his professional carrier
he held various executive positions
in the fi nancial sector, at technology
companies as well as at consulting
fi rms.
From 2003 he was employed as the
Head of IT and Bank Operations
Division of DSK Bank and he was there
deputy CEO between 2007 and 2014.
Since 1 July 2014 he has been deputy
CEO of OTP Bank and the head of
IT and Operations Division.
As of 9 November 2015 he held
3,356 ordinary OTP shares.
Corporate governance
László Wolf
Deputy CEO
Commercial Banking Division
Mr. László Wolf graduated from
the Budapest University of Economic
Sciences in 1983. After graduation,
he worked at the Bank Relations
Department of the National Bank
of Hungary for 8 years, and then
served as head of Treasury at
BNP-KH-Dresdner Bank between
1991 and 1993. From April 1993 he
was managing director of OTP Bank’s
Treasury Directorate, and since 1994
he has been deputy CEO of the
Commercial Banking Division, and a
member of the Supervisory Board of
DSK Bank.He has been Chairman of
the Board of Directors at OTP banka
Srbija since 10 December 2010. He is
the Chairman of the Supervisory
Board of OTP Real Estate Ltd.
As of 31 December 2015 he held
571,609 ordinary OTP shares.
Antal Kovács
Member of the Supervisory Board
Deputy CEO
Retail Division
Mr. Antal Kovács graduated from the
Budapest University of Economics
with a degree in economics. He began
his professional career in 1990 at the
Nagyatád branch of K&H Bank, where
he worked as a branch manager
between 1993 and 1995. He has been
working at OTP Bank Plc. since 1995,
fi rst as a county director and from
1998 as the managing director of
OTP Bank’s South Transdanubian
Region. Since 1 July 2007 he has
served as OTP Bank’s deputy CEO.
He has received additional training
at the International Training Centre
for Bankers and on various courses
held by the World Trade Institute.
He has been a member of OTP Bank’s
Supervisory Board since 2004.
He has been Chairman of the
Supervisory Board of OTP Bank
Romania SA since 12 December 2012.
Since 24 April 2014 he has been
Chairman of the Board of Directors
at OTP Mortgage Bank Ltd. and OTP
Close Building Society Ltd. He is the
Chairman of the Supervisory Board
of OTP Fund Management Ltd. and
OTP Mobile Service Limited Liablilty
Company.
As of 31 December 2015 he held
42,788 ordinary OTP shares.
* From the date of 9 November 2015 Mr. Miroslav Stanimirov Vichev is recalled from the deputy CEO of OTP Bank and the Head of the IT and Operations Division
positions.
240 OTP Bank Annual Report 2015
Non-executive members
of the
Board of Directors
of
OTP Bank
Mihály Baumstark
Agricultural engineer, economist
Mr. Mihály Baumstark graduated at
Agronomic University of Gödöllő
(1973) as agricultural engineer and at
Karoly Marx University of Economics
(1981) as economist. He was
employed by the Ministry of
Agriculture and Food Industry
between 1978 and 1989. When he left,
he was deputy head of the Investment
Policy Department of the Ministry.
After this he was managing director of
Hubertus Ltd., and from 1999 to 2012
he was deputy CEO and then Chairman
& CEO of Csányi Winery Ltd. He is
currently retired. He was a member of
OTP Bank’s Supervisory Board from
1992 to 1999, and has been a non-
executive member of OTP Bank’s
Board of Directors since 1999. He has
been the Chairman of the OTP Bank’s
Ethics Committee since 2010, since
2011 a member of the Remuneration
Committee and since 2014 a member
of the Nomination Committee
As of 31 December 2015 he held
35,200 ordinary OTP shares.
Dr. Tibor Bíró
College Associate Professor
Budapest Business School
Dr. Tibor Bíró graduated from the
College of Finance and Accountancy
in 1974 and from the Budapest
University of Economic Sciences in
1978 with a degree in economics.
Since 1986 he has been a certifi ed
auditor and chartered accountant.
He was head of the Finance
Department of Tatabánya City
Council’s Executive Committee
between 1978 and 1982, then from
1982 a professor at the College of
Finance and Accountancy, and
between 1990 and 2013 head of
department at the Budapest Business
School, since his retirement in 2015
he has been a guest lecturer and
working as an auditor-consultant for
his own company.
From 2000 to 2010 he was a member
of the Presidium of the Budapest
branch of the Chamber of Hungarian
Auditors, and he worked as a member
of the Chamber’s Education
Committee for 5 years. He has been a
non-executive member of OTP Bank’s
Board of Directors since 1992. He has
been a member of the OTP Bank’s
Remuneration Committee since 2009
and Chairman of the Nomination
Committee since 2014.
As of 31 December 2015 he held
32,456 ordinary OTP shares.
Péter Braun
Electrical Engineer
Former Deputy CEO
Tamás Erdei
Economist
Mr. Péter Braun earned a degree
in electrical engineering from the
Technical University of Budapest.
Between 1954 and 1989 he worked
for the Research Institute for Electrical
Energy, with his last position there
being head of department. After that,
he was the managing director of K&H
Bank Rt., working in its Computer and
Information Centre. He was deputy
CEO of OTP Bank Plc. from 1993 until
his retirement in 2001. Since the
second half of 2009 he has been the
chairman of the Chief Information
O cers’ Association (VISZ). He has
been a member of OTP Bank’s Board
of Directors since 1997.
As of 31 December 2015 he held
308,105 ordinary OTP shares.
Mr. Tamás Erdei graduated in 1978
with a degree from the College of
Finance and Accountancy. He began
his professional career at OTP, in a
variety of administrative roles (his last
position was branch manager), before
going on to work at the Ministry of
Finance for two years in the area of
bank supervision.
Since 1983 he has been employed by
the Hungarian Foreign Trade Bank
(today MKB), where he gradually
worked his way up through the ranks.
In 1985 he became managing director,
in 1990 he was appointed deputy CEO,
then in 1994 he was made CEO, and
from 1997 until the end of March 2012
he was Chairman and CEO.
Between 1997 and 2008 and between
2009–2011 he was the elected
president of the Hungarian Banking
Association.
He is the chairman of the Supervisory
Board of the International Children’s
Safety Service.
He has been a member of OTP Bank’s
Board of Directors since 27 April 2012.
He has been Chairman of the OTP Bank’s
Risk Assumption and Risk Management
Committee and a member of the
Nomination Committee since 2014.
As of 31 December 2015 he held
25,639 ordinary OTP shares.
241
Dr. István Kocsis
Managing Director
Merkantil Bank Ltd.
Dr. József Vörös
Professor, Academician
8QLYHUVLW\RI3ØFV
Dr. István Kocsis obtained his degree
in mechanical engineering from the
Mechanical Engineering Faculty of the
Technical University of Budapest in
1976, and earned his PhD in 1985.
Career highlights: 2002–2005 Paks
Nuclear Power Plant, CEO; 2005–2008
Hungarian Power Companies Ltd.
(MVM Zrt.), CEO; 2008–2011, CEO of
Budapest Transport Corporation
(BKV Zrt.); since 2011 managing
director of Merkantil Bank Zrt. O ces
held: Chairman of the Ányos Jedlik
Society; chairman of the Scientifi c
Society For Measurement, Automation
and Informatics; member of the Social
Senate of the University of Pecs;
member of the national Presidium of
the Hungarian Chamber of Commerce
and Industry; chairman of the
endowment advisory board of the
Duna-Mecsek Regional Development
Foundation.
Non-executive member of OTP Bank’s
Board of Directors since 1997. He’s
membership suspended since
3 October 2012.
As of 31 December 2015 he held
3,635 ordinary OTP shares.
Dr. József Vörös earned a degree
in economics from the Budapest
University of Economic Science
in 1974. In 1984 he earned a PhD
in economics from the Hungarian
Academy of Sciences, and a Doctor
of Science degree in 1993. He has
been a member of the Hungarian
Academy of Sciences since 2013.
Between 1990 and 1993 he was
the dean of the Faculty of Business
and Economics, Janus Pannonius
University (JPTE) in Pécs. In 1993
he attended a course in management
for senior executives at Harvard
University. From 1994 he was a
professor at JPTE, and was the senior
Vice Rector of the University from
2004–2007, between 2007 and 2011
he was Chairman of the Board of
Trustees. Non-executive member of
OTP Bank’s Board of Directors since
1992. He has been Chairman of the
OTP Bank’s Remuneration Committee
since 2009 and a member of the
OTP Bank’s Risk Assumption and Risk
Management Committee since 2014.
As of 31 December 2015 he held
148,514 ordinary OTP shares.
'U/ÆV]Oÿ8WDVV\
Chairman & CEO
Merkantil Bank Ltd.
Dr. László Utassy graduated from
the Faculty of Law of ELTE University
in Budapest in 1978.
He held various positions at the State
Insurance Company between 1978
and 1995 and then went on to work at
ÁB-Aegon Rt. He was Chairman & CEO
of OTP Garancia Insurance from 1996
to 2008. He was managing director of
OTP Bank Plc. between 2009 and
2010. Since 1 January 2011 he has
been Chairman & CEO of Merkantil
Bank Ltd. He has been a member of
OTP Bank’s Board of Directors since
2001.
As of 31 December 2015 he held
307,343 ordinary OTP shares.
Zsolt Hernádi
Chairman & CEO
MOL Plc.
Mr. Zsolt Hernádi graduated in 1986
from the department of industrial
planning at the Karl Marx University of
Economic Science. Between 1989 and
1994 he held a number of positions at
Kereskedelmi és Hitelbank Rt., where
from 1992 to 1994 he was deputy CEO
of the fi nancial institution. Between
1994 and 2001 he was CEO and a
member of the Board of Directors at
Magyar Takarékszövetkezeti Bank Rt.
He has been a member of MOL’s Board
of Directors since 1994, and its
Chairman since 2000, while since
11 June 2001 he has been the
company’s Chairman and CEO. He is
also a member of the Corporate
Governance and Remuneration
Committee of MOL’s Board of
Directors. He has been a member of
OTP Bank’s Board of Directors since
29 April 2011. Membership suspended
since 3 April 2014.
As of 31 December 2015 he held
28,074 ordinary OTP shares.
Corporate governance
242 OTP Bank Annual Report 2015
András Michnai
Managing Director
Mr. András Michnai, who represents
the employees of OTP Bank, graduated
from the College of Finance and
Accountancy with a degree in business
economics.
He has been an employee of the Bank
since 1974, and until 1981 held a
variety of posts in the branch network.
From 1981 he held a management
position in the central network
coordination department and then in
the network. From 1994, as deputy
managing director, he participated in
the central coordination of the branch
network. Since 2005 he has headed
the Bank’s Compliance Department
(since 2011 a Directorate) as
managing director until 30 April 2014.
He further expanded his professional
skills, earning a masters degree at the
College of Finance and Accounting,
and is a registered tax advisor. He
has been a member of OTP Bank’s
Supervisory Board since 2008. He has
been the secretary of the OTP Bank’s
Trade Union since December 2011.
As of 31 December 2015 he held
10,962 ordinary OTP shares.
Members of the Supervisory Board*
of
OTP Bank
Dr. Gábor Horváth
Deputy Chairman of
the Supervisory Board
Lawyer
Tibor Tolnay
Chairman of the
Supervisory Board
Mr. Tibor Tolnay graduated from
the Budapest University of Technology
with a degree in civil engineering
and then in economic engineering,
and subsequently received a degree
in economics from the Budapest
University of Economics.
Between 1994 and 2015 he was the
Chairman & CEO of Magyar Építő Rt.
Since 1994 he has been the Managing
Director of ÉRTÉK Ltd. Since 1992
he has been a member and since
1999 the Chairman of OTP Bank’s
Supervisory Board. He was a member
of the Audit Committee between 2007
and 2011 and he has been its member
since 2014.
As of 31 December 2015 he held
54 ordinary OTP shares.
Dr. Gábor Horváth earned a degree
in law from ELTE University in
Budapest. From 1983 he worked for
the Hungarian State Development
Bank. He has been a lawyer since
1986, and since 1990 has run his
own law fi rm, which specialises in
corporate fi nance and corporate
governance. He has been a member
of the Supervisory Board of
OTP Bank Plc. since 1995. He was
a member of MOL Plc.’s Board of
Directors between 1999 and 2014.
He has been the deputy Chairman of
OTP Bank’s Supervisory Board since
2007. He was the Chairman of the
Audit Committee between 2007 and
2011 and he has been its Chairman
since 2014.
He has been a member of the
Management Board of INA Industija
Nafte d.d. since 2014.
As of 31 December 2015 he held no
ordinary OTP shares.
* Mr. Antal Kovács has been a member of OTP Bank’s Supervisory Board since 2004 (see page 239).
243Corporate governance
Dr. Márton Gellért Vági
General Secretary
Hungarian Football Association
Dr. Márton Gellért Vági graduated
in 1987 from the department of
foreign economics at the Karl Marx
University of Economic Science (today
the Corvinus University of Budapest),
where he also earned his doctorate
in 1994. Between 1987 and 2000
he was university lecturer, since 1994
he has been senior university lecturer.
Between 2000 and 2006 he worked
at the State Holding and Privatisation
Co. (ÁPV Zrt.), as managing director,
deputy CEO and then CEO. Between
2006 and 2010 he was Chairman of
the National Development Agency.
From July 2002 until 1 January 2011
he was a member of the Board of
Directors of FHB Nyrt., during which
period he also spent four years as
Chairman of the Board. Since 2010
he has been general secretary of the
Hungarian Football Association. He
has authored or co-authored more
than 80 research papers, essays and
books. He has been a member of
OTP’s Supervisory Board since 2011.
He has been a member of the OTP
Bank’s Audit Committee since 2014.
As of 31 December 2015 he held no
ordinary OTP shares.
'RPLQLTXH8]HO
Director
Groupama International SA
Mr. Dominique Uzel graduated as an
agricultural development engineer,
then obtained a Masters degree
in agricultural and food industry
management at the ESSEC Business
School. He joined Gan in 1991 as head
of the agricultural division. Five years
later he left France to join Gan España,
where he headed the subsidiary’s
department responsible for planning
and auditing, then became technical
director of the newly established
Groupama Seguros. In 2008 he was
appointed managing director of the
insurance business, in which capacity
he was instrumental in the launch
and roll-out of Click Seguros, a
direct marketing tool on the Spanish
insurance market. In July 2010 he
joined the international board of
Groupama S.A. as Managing Director
for direct insurance, but he also
continued to be responsible for the
management of the direct insurance
division in Spain and Poland. Since 1
October 2012, he is in charge of the
international activities of Groupama.
He has been a member of OTP’s
Supervisory Board since 2013. From
2014 he has been a member of the
OTP Bank’s Audit Committee.
As of 31 December 2015 he held no
ordinary OTP shares.
244 OTP Bank Annual Report 2015
Information
for
Shareholders
General company data
Date of foundation:
31 December 1990, registered by the
Metropolitan Court of Budapest as Court
of Registration on 28 October 1991 under
company registration number 01-10-041585.
The latest Bylaws may be requested from the
company or may be downloaded from the
Bank’s website.
Legal predecessor:
Országos Takarékpénztár, founded 1 March 1949
Registered head oce of OTP Bank Plc.:
Nádor Street 16, H-1051 Budapest
Telephone: (+36-1) 473-5000
Fax: (+36-1) 473-5955
Share capital:
OTP Bank’s share capital as at 31 December
2015 was HUF 28,000,001,000, consisting of
280,000,010 ordinary shares of nominal value
HUF 100 each.
Stock exchange listing
The ordinary shares of OTP Bank Plc. are
listed on the Budapest Stock Exchange under
category “Premium Equity”, and the global
depository receipts (GDRs) representing
the ordinary shares that are traded abroad
are listed on the Luxemburg Stock Exchange.
(2 GDR represents 1 ordinary shares.)
Regulation S GDRs are traded on the London
SEAQ International, and Rule 144A GDRs are
traded in the PORTAL system. The custodian
bank for OTP GDRs is the Bank of New York,
and the safekeeping bank is OTP Bank Plc.
(Stock exchange symbol for OTP Bank shares:
OTP, Reuters: OTP.BU)
*****
Voting rights.
*****
Beneficial ownership.
*****
E.g.: State Privatization Holding Co. Ltd., Social Security, Municipality, 100% state-owned companies, Pension Reform and Debt
Reduction Fund etc.
*****
E.g.: EBRD, EIB, IBRD etc.
*****
Non-identified shareholders according to the shareholders’ registry.
Ownership structure as at 31 December 2015:
Total equity
Description of owner %* %** Qty
Domestic institution/company 20.31% 20.58% 56,865,293
Foreign institution/company 63.77%
64.62% 178,546,741
Domestic individual 5.95%
6.03% 16,656,480
Foreign individual 0.43%
0.44% 1,215,093
Employees, senior ocers 1.37%
1.38% 3,825,466
Treasury shares 1.31%
0.00% 3,677,506
Government held owner*** 0.09% 0.09% 238,312
International Development Institutions**** 0.01% 0.01% 38,242
Other***** 6.76% 6.85% 18,936,877
Total 100.00% 100.00% 280,000,010
245Corporate governance
Participation and voting rights
at the General Meeting
The Annual General Meeting will be conducted
with the personal presence of those entitled to
participate. Shareholders may participate in the
Annual General Meeting in person or through
a proxy. OTP Bank Plc. is entitled to check the
personal identity of the shareholders and their
proxies on the basis of documents, prior to their
admission to the Annual General Meeting.
The authorisations relating to representation
as a proxy at the Annual General Meeting
must comply with the relevant provisions of
Hungarian law. The authorisation must
include, clearly and expressly, a statement
of authorisation with respect to the proxy, a
specification of the authoriser and of the proxy,
and any limitations that may apply to the
authorisation. The authorisation must be issued
in the form of a notarised deed or a private
document of full probative force.
One representative may represent several
shareholders; however, he/she must possess
authorisations from every shareholder
represented by him/her, either in the form of
a notarised deed or a private document of full
probative force. If several proxies are indicated
in one authorisation, then it must be specified
that, under the authorisation, each proxy may
exercise his/her right of representation inde-
pendently. If one shareholder is represented
by several proxies, they may not vote or make
statements dierently from each other.
The letter of proxy may be issued as valid for
one general meeting, or for a specified period,
but for a maximum of twelve months. The letter
of proxy – in the absence of a provision to the
contrary – shall extend to a general meeting
convened to continue a suspended general
meeting, or a general meeting that has been
reconvened due to lack of quorum.
If a shareholder is represented at the Annual
General Meeting by its lawful representative
(e.g. chief executive, managing director, mayor
etc.), the court or company court document
evidencing the right of representation – in its
original form, or in the form of a copy certified
as authentic by a notary public, issued not
more than 30 days previously – or a certificate
regarding the election of the mayor, as the
case may be, must be presented at the venue
of the Annual General Meeting. When providing
evidence of the existence of companies
(and other organisations) registered abroad,
and of the right to represent the entity issuing
the authorisation, it is essential that the foreign
document be issued by a certified public
records body or that these facts be attested
by a notary public.
If the authorisation or any document submitted
as evidence of the representation right was not
issued in Hungary, the form of the document
must satisfy the legal regulations pertaining to
the certification and/or legalisation of documents
issued abroad. According to these regulations,
in the absence of a bilateral international agree-
ment to the contrary, (I) the diplomatic certificat-
ion and/or legalisation of the document is
needed, or (II) – if the given country is a party to
the relevant international convention – the
furnishing of the document with an apostille is
required. Detailed information on the applicable
rules are provided by the Hungarian foreign
representation oces. If the document is
written in a language other than English or
Hungarian, then a certified Hungarian trans-
lation of the document must be presented.
The authorisation and the related documents
must be handed over by 16:00 p.m. on 12 April
2016 (Tuesday) at the very latest, at any of the
designated OTP branches listed under section
X below, or − if the proxy, based on a foreign
document, is representing more than one
shareholder – at the Corporate Secretariat of
OTP Bank Plc. (1051 Budapest, Nádor utca 16.).
Preconditions for participation in the
Annual General Meeting and for the
exercising of voting rights are that:
a) the result of the shareholder identification
procedure confirms the shareholding as at
the date of the shareholder identification
procedure;
246 OTP Bank Annual Report 2015
b) the shareholder be registered in the
Company’s Share Register by the closure of
the register as specified in section III of this
announcement;
c) the shareholding and/or the voting rights
of the shareholder do not violate the
legal regulations or the provisions of the
Company’s Articles of Association, and the
Company shall check this circumstance.
Dividend
On 15 April 2016 OTP Bank Plc.’s General Meeting
decided to pay dividend after fiscal year 2015.
Dividends will be HUF165 per share, repre-
senting 165% of the face value of each share.
The exact amount of dividend payable to the
shareholders will be calculated and paid in
pursuance of the Articles of Association of the
Bank, the Company will distribute the amount
of dividend calculated on treasury shares to
shareholders entitled to receive dividend.
Dividend payment will start on 6 June 2016
in pursuance of the procedure defined in the
Company’s Articles of Association.
Announcements
OTP Bank Plc. fulfils its disclosure obligations
related to corporate events and prescribed in
Act CXX of 2001 on the website of the OTP Bank
Plc. (www.otpbank.hu), on the website of the
Budapest Stock Exchange (www.bet.hu), and
on the website operated by the National Bank
of Hungary (www.kozzetetelek.hu).
Investor relations
Institutional shareholders of OTP Bank Plc.
should contact the following address if they
require further information:
OTP Bank Plc. Investor Relations & DCM
Nádor Street 16, H-1051 Budapest
Phone: (+36-1) 473-5460, Fax: (+36-1) 473-5951
e-mail: investor[email protected]
247
Statement on Corporate
Governance Practice
OTP Bank Plc.’s operation fully complies with
the provisions of the relevant statutory
regulations, the decrees of the supervisory
authorities and the regulations of the Budapest
Stock Exchange (BSE). The structure and
operating conditions of the Company are
contained in the Bylaws, which are approved
by the General Meeting.
Management bodies
The Company’s executive body is the Board
of Directors. The scope of its authority of the
Board of Directors is defined in the eective
statutory provisions, the Company’s Articles
of Association, General Meeting resolutions, and
the Organisational and Operational Regulations.
The procedural rules set out the legal status,
composition, rules of operation, rules of
decision-making of the Board of Directors.
The members of the Board of Directors are
elected by the General Meeting for a term of five
years.
All the obligations and prohibitions specified for
executive ocers under Act CCXXXVII of 2013
on Credit Institutions and Financial Enterprises
(Credit Institutions Act) apply to the members of
the Board of Directors.
The oversight of the Company’s management
and business activity is performed by the
Supervisory Board. The Supervisory Board
establishes and accepts its own procedural
rules.
Supervisory Board members are elected by
the General Meeting for a term of three years.
The ratio of independent (non-executive)
Supervisory Board members (4 persons) to the
total number of Supervisory Board members
(6 persons) is 67%.
In order to avoid conflicts of interest, the
General Meeting may not appoint the members
of the Board of Directors and their close
relatives to the Supervisory Board. The rules
pertaining to the election and recall of the
employee-representative member of the Board
of Directors are determined by the Workers’
Council operating at the Company, and this
members are not considered to be independent
by the Company.
The Company’s internal audit organisation
is governed by the Supervisory Board, in
keeping with the provisions specified in
the Credit Institutions Act. The Supervisory
Board exercises the right of prior approval in
respect of the establishment, termination and
remuneration of the managers and employees
of the internal audit organisation.
In 2015 both the Board of Directors and
the Supervisory Board met on a total of 8
occasions. In addition, resolutions were passed
by means of correspondence voting, by the
Board of Directors on 105 occasions and by the
Supervisory Board on 9 occasions.
Meetings of the Board of Directors are convened
by the Chairman & CEO by means of a written
invitation, in accordance with the prevailing
work schedule.
The Chairman & CEO must convene a meeting
of the Board of Directors if
ş a resolution has been passed by the Board
of Directors to hold an extraordinary meeting
of the Board;
Corporate governance
248 OTP Bank Annual Report 2015
ş at least three Board members initiates a
meeting in writing by designating the reason
and the purpose, and the items of the agenda,
and by submitting a written proposal in
respect of the decision to be made;
ş the Supervisory Board or the auditor initiates
such a meeting in writing;
ş the National Bank of Hungary/Authority
requires it;
ş under the law, a decision must be made
about whether to convene an extraordinary
General Meeting.
Meetings of the Supervisory Board are
convened by the chairperson, and the meeting
must also be convened if a member of the
Supervisory Board or at least two members of
the Board of Directors, or the auditor, requests
it in writing, indicating the objectives of, and
reasons for the meeting.
Minutes are taken of the meetings of the
Board of Directors and the Supervisory Board,
and their resolutions are documented.
In case of passing resolutions without
convening the meeting a summary of
resolutions is necessary to be prepared instead
of the minutes, which is to be appended to the
minutes of the next meeting that follows the
written voting.
The employer’s rights towards the executive
ocers of the Company are exercised by the
Board of Directors through the Chairman & CEO,
with the proviso that the Board of Directors
must be notified in advance for the appointment
or withdrawal of appointment of deputy CEOs.
Determining the remuneration of the Board of
Directors and the Supervisory Committee is
in the competence of the Company’s supreme
body, the General Meeting. The principles and
frameworks of the long-term remuneration
and incentives system for employees in senior
positions are also determined by the General
Meeting. Accordingly – on the basis of the
provisions relating to remuneration policies
set forth in the Credit Institutions Act, which
complies with the relevant EU directives –
the Bank’s Annual General Meeting of 2011,
in its resolution no. 9/2011, approved for
the first time the principles and rules of the
remuneration policy of OTP Bank Plc. and
the Bank Group, and the Board of Directors
issued the internal regulations and procedures
necessary for their implementation, which
documents have been amended several times
in the past years by the Bank’s General Meeting,
Board of Directors and as a result of regulatory
amendments in 2014, by the Supervisory Board
of the Bank. From 2014 onwards the provisions
of the Remuneration Policy of the Banking
Group are approved, implemented and revised
by the Supervisory Board, whereas the Board of
Directors is responsible for the supervision.
At the Annual General Meetings the Supervisory
Board gives a briefing on the annual and
medium-term objectives providing the basis for
performance-based remuneration, and on their
fulfilment.
The following management bodies have been
established at the Company to assist the
Board of Directors and Supervisory Board in
their work: Audit Committee, Management
Committee, Management Coordination
Committee. The following additional permanent
and special committees also operate within
the Company for the performance of specific
tasks: Asset-Liability Committee, Credit-Limit
Committee; Product Development, Sales and
Pricing Committee; International Product
Development, Sales and Pricing Committee;
Workout Committee; Group-wide Investment
Committee, Group Operational Risk
Management Committee, Ethics Committee,
Remuneration Committee, Nomination
Committee, Risk Assumption and Risk
Management Committee.
Audit
The main function of the internal audit system
is to protect customers, the company’s assets
and shareholder’s interests, as well as to
facilitate and monitor operation in compliance
with the statutory provisions.
249
The internal audit system extends to all of the
company’s organisational units, business lines
and activities, including outsourced activities.
To ensure eective auditing, the internal
audit system is realised on several levels
of control built on each other, and segmented
by department as well. The elements
of the internal audit system are comprised
of in-process and management controls,
and an independent internal audit organisation
and management information system.
The Bank has developed and operates a bank
group level, unified internal audit system, which
is proportional to the size of the Bank Group
and the Company’s market share, includes
shareholder audits conducted at the foreign
and domestic group members as well as the
professional oversight of the internal audit
organisations of the subsidiaries defined in
the Credit Institutions Act as included in the
scope of consolidated supervision. Uniform
internal audit processes and methodologies
are created, continuously developed and
implemented in respect of the operation and
activities of the bank group members’ internal
audit organisations. Internal audit also liaises
regularly, and cooperates, with external
auditing bodies.
The independent internal audit organisation
assists in the legally compliant and eective
management of assets and liabilities and
the protection of property; it supports secure
business operation, the eectiveness,
cost-eciency and success of internal
control systems, the minimisation of risks,
and moreover – alongside the compliance
organisation – it detects and reports departures
from the provisions of the statutory regulations
and internal policies, makes recommendations
for the elimination of deficiencies, and monitors
the implementation of the measures.
It performs its activities independently,
Corporate governance
250 OTP Bank Annual Report 2015
objectively and professionally. Its independence
is ensured by the fact that it is professionally
overseen by the Supervisory Board, within the
framework set by the Credit Institutions Act.
The independent internal audit organisation
has an annual audit plan which is approved
by the Supervisory Board. The annual plan is
prepared using a risk-based methodology and,
in addition to focusing on the areas that entail
regulatory, business and operational risk,
and the other main risk exposures, it also
takes into account the company’s prevailing
strategic priorities.
The internal audit organisation makes
independent reports on its auditing activities
for the management bodies at quarterly and
annual intervals. In its quarterly reports it
gives a group-level, summary account of the
audits conducted in the given quarter, the risks
identified in the course of its own audits and
audits conducted by the authorities, and the
success of any action taken to eliminate them.
In exceptional cases that require immediate
intervention, it provides the management with
extraordinary briefings. It reports annually on
the performance of the tasks stipulated in the
group-level annual audit schedule, the audits
conducted and other activities, and on the
circumstances of the organisation’s operation,
as well as on any changes to the internal audit
system.
The internal audit organisation annually
prepares, for the Supervisory Board, objective
and independent reports in respect of the
operation of risk management, internal control
mechanisms and corporate governance
functions.
The General Meeting has the authority to
elect the company performing the audit, and
to approve the nomination of the member
responsible for the audit.
251Corporate governance
Compliance
In accordance with EU regulations and with the
Hungarian statutory provisions an independent
organisational unit (the Compliance and
Security Directorate) operates at the Company,
with the task of exploring and managing
compliance risks. This function is supported
by the appropriate regulatory documents:
the compliance policy, strategy and work
plan. The purpose of the compliance policy
is to establish the framework of compliance
activities in respect of the entire OTP Bank
Group, to determine the definition, purpose
of compliance and the tasks and scope of the
function. Another important document of the
compliance policy is the OTP Bank Group’s
compliance strategy. The compliance policy is
approved by the Board of Directors of OTP Bank
Plc. The Compliance and Security Directorate
prepares a comprehensive report each year
about the Bank Group’s compliance activities
and position, which is approved by the Bank’s
Board of Directors. The OTP Bank Group’s senior
management is responsible for the imple-
mentation in practice of the compliance policy.
Disclosure of information
Providing regular, authentic information is
essential if the shareholders and the other
participants in the capital market are to make
sound decisions, and the way in which the
Company discloses information also has an
impact on its reputation.
The Company discloses information in strict
compliance with the provisions of the Civil Code,
the Capital Market Act, the Credit Institutions
Act and the Investment Services Act, the
Accounting Act and Ministry of Finance Decree
24/2008 (VIII. 15), as well as the relevant
regulations of the Budapest Stock Exchange.
In addition, the Company has eective internal
regulations that ensure compliance with the
obligation to disclose information.
The aforementioned regulations ensure that
all material information pertaining to the
Company and having a bearing on the price of
the Company’s shares is published accurately,
in full, and in good time.
The Board of Directors describes its business
and strategic goals of the given year at every
ordinary General Meeting. The proposal to the
General Meeting is published by the Company
on the website of the Budapest Stock Exchange
in accordance with its rules of disclosure and the
provisions of the relevant regulations of the BSE.
The Company, in accordance with the statutory
regulations, publishes on the Company’s
website and in its Annual Report the
professional careers of the members of the
Board of Directors, the Supervisory Board and
the management.
The proposal pertaining to the remuneration
of the chairman and members of the Board of
Directors and the chairman and members of
the Supervisory Board constitute a part of the
proposals of the General Meeting.
The Company has detailed risk management
regulations that include every type of risk
(liquidity, market, credit risk, operational,
compliance) which are consistent with the
statutory regulations pertaining to prudential
banking operation. The Annual Report
provides information about the Company’s risk
management practices, the relevant limits and
compliance with the limits.
The Company has detailed internal regulations
pertaining to insiders and potential insiders
that fully comply with the restrictions and
prohibitions regulated in detail by the Capital
Market Act. In addition, the guidelines
pertaining to securities trading by insiders are
also available on the website. All transactions
involving the Company’s shares performed
by the members of the Board of Directors
and the Supervisory Board are published by
the Company in accordance with the rules
on disclosure, and the shareholdings in the
Company of the ocers of the Company
(number of shares) are published in the
Company’s Annual Report.
The Board of Directors has assessed
the eectiveness of information disclosure
processes in 2015, and found them to be
satisfactory.
252 OTP Bank Annual Report 2015
Anti-money laundering measures
Money laundering is where criminals or their
accomplices attempt to conceal the origins
of money acquired from criminal acts by,
for example, using the services of financial
institutions.
In order to prevent the use of our bank for
money-laundering purposes, we will do our
best to ascertain the true identities of those who
use our services, and OTP Bank will refuse to
execute orders made by clients who fail to give
evidence of their true identities in accordance
with the relevant legal stipulations.
In keeping with the provisions of Act CXXXVI of
2007 on the prevention and impeding of money
laundering and the financing of terrorism
(hereinafter: Act on Money Laundering), OTP
Bank has introduced, and applies, the following
measures and rules:
ş It operates an internal control and
information system designed to prevent
banking or financial operations that might
enable, or in themselves constitute, money
laundering.
ş It has internal regulations, in accordance with
Ministry of Finance Decree 35/2007. (XII.29.)
and the recommendations of the Hungarian
Financial Supervisory Authority that all
employees of the bank must observe.
ş The employees of the bank must fulfil their
customer due diligence and reporting
obligations.
ş Compliance with the reporting obligations is
not construed as a breach of bank, securities,
insurance or trade secrets.
ş Failure to fulfil the reporting obligation may
result in prosecution under criminal law.
ş OTP Bank cooperates with the criminal investi-
gation authorities in the investigation of all
circumstances suggestive of money laundering.
OTP Bank discloses the customer identification
procedure applied by the bank in an
Announcement posted in all rooms open for
serving customers.
253Corporate governance
With trust and responsibility
for each other
Centre, due to the huge success and the
large number of people interested in the
project, has significantly widened its curriculum
and target audience with career training based
on self-knowledge elements, and their Sulibank
projects targets primary school students.
Furthermore, their services have become
geographically more accessible via the opening
of additional OK Educational Centres.
The Centre is managed by the OTP Fáy András
Foundation to ensure its independence and
steady professional support. The foundation
was established by OTP Bank in 1992 and
has since become one of the most significant
players in Hungarian financial education.
The professional activities of the foundation
focus on expanding students’ financial, econo-
mic and financial management knowledge as
well as conscious career planning.
In only 3 years, the institution has oered
30,000 niche-filling and free trainings to
students in and outside Hungary. In addition to
educating groups of pupils arriving from various
parts of the country, the OK Centre is also
running a specially equipped mobile teachers’
network that travels between secondary
schools nationwide.
Another priority of the OTP Fáy András
Foundation is to improve financial, economic
and financial management awareness and
knowledge among the youth in Hungary and
the Hungarian populations of the neighbouring
countries. After Budapest, the model was
implemented in Nyíregyháza and Bucharest in
2014 and then in Slovakia in 2015.
It is an outstanding achievement of OTP Bank’s
financial education programmes that, to our
As one of the largest sponsors of Hungary,
OTP Bank donates HUF 1 billion to community
development. This support is value-driven and
provided with stakeholders and professional
partners involved. Committed to long-term
cooperation projects, our Bank continued its
support programs in 2015.
The focus is still on financial literacy
OTP Bank is committed to improving financial
literacy, which, therefore, is in the focus of its
social responsibility schemes. As a market
leading financial service provider, OTP believes
that it must take responsibility for the education
of young people and adults capable of making
responsible decisions. Accordingly, the purpose
of the Bank is to widen financial literacy.
OK Educational Centre plays a crucial role in
furthering this objective.
OK Project
Qualitative research carried out in 2014 found
that the financial education oered by the
OK Centre, OTP Bank’s financial educational
programme, represents an initiative that fills
a niche in terms of both form and substance,
and as such, it is suitable to act as a catalyst
of public thinking about the importance of
financial education. Our research confirms that
students who have participated in the training
sessions are more aware in thinking about
matters of finance, economy and financial
management.
Originally targeting secondary school students
with a specific curriculum, OK Educational
OTP Bank’s social participation in 2015
254 OTP Bank Annual Report 2015
best knowledge, these programmes reach the
largest number of young people in Hungary.
Due to the continuously expanding programs
and the results achieved, OTP Bank was
recognised three years in a row as the “Most
Active Bank Contributing to Developing
Financial Literacy” in MasterCard’s competition.
Expanded Model School Programme
The Model School Programme oers a chance
for close professional cooperation in Hungary
between OTP Bank and the OTP Fáy András
Foundation.
The Model School is a priority project of
the foundation and grants premium funding
to the selected school whose students can
participate in all professional programmes
of the OK Educational Centre. In addition to
financial, economic and management trainings,
the institution can also join the bank’s corporate
social responsibility programmes. These include
various donation programmes, attendance at
events, student camps and other educational
and leisure programmes as well as increased
emphasis on volunteering and environmental
awareness. The Secondary School of Buda was
the first to join the programme and has been
our partner for five academic years. Last years
close to 1,200 students from 45 classes of the
school attended a full-day financial, business
and management training in the OK Educational
Centre. In addition, a number of classes
attended thematic trainings and joined various
charity initiatives.
In 2015, after the Ferenc Deák Secondary
Grammar, Economics and IT Vocational School
of Jászárokszállás joined the programme, a total
of over 1,500 students receive direct assistance
in becoming financially literate adults.
Creating opportunities
In addition to improving public financial literacy,
creating opportunities is also a focal point in
OTP Bank’s CSR endeavours.
Humanity Foundation
Established by OTP Bank and working for
25 years, Humanity Social Foundation is a
public benefit organisation. The purpose of the
foundation is to oer eective assistance to
individuals and communities in need to enable
them to resolve their problematic life situation
alone and improve the quality of their lives on
their own.
The achievements of the Foundation are
represented by financial assistance provided
to 750 disadvantaged families and individuals
over the past 25 years. In addition, college
scholarships have so far been awarded to
60 talented, disadvantaged students, many of
whom would have been unable to continue their
studies without the funding provided by the
Foundation.
The scope of activities of the Foundation has
significantly been expanded with social tenders.
Partial funding for procurement of medicines,
medical aids and medical treatment was made
available twice to financially disadvantaged
persons. As a result, 18 families received
financial help.
Health-conscious thinking, prevention
and the importance of health screening
are key elements of the message the
Foundation would like use to reach out to
the general public. OTP Bank’s foundation
also provided funding to replace the
20+ year-old medical devices of Péterfy
Sándor Hospital. Established and funded by
OTP Bank, the Humanity Social Foundation
donated state-of-the-art ultrasound diagnostics
equipment to the Urological Surgery Unit
of the Péterfy Sándor Hospital and Trauma
Centre.
For more information about OTP Bank’s CSR
principles, objectives and current events please
visit www.otpbank.hu/csr.
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