OJSC "OTP Bank" Presentation for investors July, 2011
Table of Contents 1. Overview of OTP Group and OJSC "OTP Bank" 1 2. Key Business Segments 6 3. Financial Overview 7 4. Transaction Summary 14
1. Overview of OTP Group and OJSC OTP Bank
OTP Group Overview OTP Group OTP Group Members in Europe, 2011 OTP Group Total Assets, 2011 OTP Group is one of the largest financial groups in Central and Eastern Europe which provides high quality financial services in all major areas of finance, insurance, investment and banking OTP Group offers universal banking services to more than 12 million customers in 9 countries across the CEE Region OTP entered Russia in December 2006 and plans to build TOP-20 universal bank in Russia OTP Bank (Hungary) is a core banking business in Group and the majority shareholder of OTP Bank (Russia), ratings: Baa3 (Moody s), BBB- (S&P) OTP banka Hrvatska OTP Banka Slovensko CKB Montenegro OTP Bank Ukraine OTP Bank Russia OTP Bank Romania OTP banka Srbija Serbia DSK Bank Bulgaria OTP Group branch numbers, 2011 Serbia Slovakia Croatia Romania 4% 5% 1% 4% 2% Russia Ukraine 7% Bulgaria EUR 35 bln OTP Group headcount, 2011* Montenegro 57% Hungary OTP Bank (Hungary) is listed on: Budapest Stock Exchange Luxembourg Stock Exchange London Stock Exchange OTP Group s business strategy remains focused on the maximization of shareholder value through the development of the most efficient, retail-focused universal bank in CEE. The objective of the Group is to achieve an outstanding financial performance in European terms Serbia Montenegro Slovakia 55 76 Hungary Croatia 33 105 380 Romania 106 1,486 Russia 176 387 189 Bulgaria Ukraine Serbia Montenegro Slovakia Other Croatia Romania 2% 2% 4% 4% 4% 3% 32% 25,000 Russia 12% Ukraine Bulgaria Hungary * Excluding selling agents employed at OTP Russia 1
OJSC OTP Bank Overview OJSC OTP Bank, hereinafter OTP Bank, the Bank (Investsberbank before February 2008) was established in 1994. In December 2006 the bank became a member of OTP Group, an international financial group OTP Bank Plc. controls 95.9% of OJSC OTP Bank Key focus: To grow as a universal financial institution with main focus on retail business To be the key subsidiary of OTP Group and top-20 Russian bank Ratings: Ba1(Moody s) / BB (Fitch) Key Financials, 1Q11 RUB bln Total Assets 96.9 Total Shareholder s Equity 16.2 Customer Loans 73.6 Customer Deposits 54.4 Net Income 1.2 Provisions 8.7 NIM, % 17.6% ROA, % 4.8% ROE, % 30.8% Source: IFRS 1Q11 Kaliningrad Moscow St.Petersburg Tver Yaroslavl Lipetsk N. Novgorod Rostov Krasnodar Perm Samara Yekaterinburg Novorossiysk Chelyabinsk Tyumen Kurgan Omsk Tomsk Barnaul Novosibirsk Irkutsk Novokuznetsk Ulan-Ude Ulan-Ude Regional branches & POS POS only No presence Chita Wide geographical presence in Russia: Over 3,000,000 customers Over 3,300 cities More than 4,500 employees (excluding selling agents) More than 15,000 agents employed by the bank More than 17,500 points of sales 176 retail branches 225 АТМs Approved for trade facilitation programs and added to the Confirming banks list by both EBRD and IFC Source: OJSC "OTP Bank" information and 1Q11 IFRS financials, OTP Group 1Q11 management report 2
History of Development Moving Ahead With OTP Group 2011 OTP Bank bonds totaling RUB 2.5 bln. listed on MICEX on March 29, 2011 The bank made a decision to issue three-year bonds on sum of RUB 15 bln. 2010 2009 2007-2008 The Bank strengthens its positions in POS loans, Cash loans and Credit cards (more than 5 mln credit cards at the end of 2010) The 2 nd by profit in OTP Group after OTP Bank Hungarian Core Business Donskoi Narodny Bank was acquired and became Rostovsky branch of OTP Bank POS loan origination started in large retail stores, ranked 2 nd in this segment 2 national awards Financial Olympus and Brand of the year After rebranding ranked 8th in NAFI loyalty rating and 22nd in the rating of most recognized banks 1 st Russian bank accepted The Model Code developed by ACI 1 st Russian bank issued 1 million Visa credit cards Before Acquisition by OTP Group 2006 OTP Group bought controlling stake of Investsberbank Acquisition of Omskpromstroibank and Promfinservicebank which became Omsk and Novorossiysk branches of OTP Bank respectively 1994-2005 Investsberbank merged with Russkiy Generalniy Bank. The new Investsberbank became top-40 bank in Russia by assets Investsberbank was one of the first Russian banks developing retail business Germes Savings Bank was established and received a banking license from CBR in 1994. The bank was renamed to Investsberbank the same year Source: OJSC "OTP Bank" information, Frank Research Group, RBC 3
Key Selling Points Improving Performance and Assets Growth The Bank has the third strong lucrative quarter in a row. The ROA/ROE in the 1Q11, 4Q10 and 3Q10 were robust 4.8%/30.8%, 4.2%/29.8% and 5.0%/38.3% respectively. Total income margin and net interest margin hit 19.1% and 17.6% respectively as of 1Q11, up 5.3% and 4.9% YoY More than 100% retail loan portfolio growth since 1Q08 and 45% YoY growth as of 1Q11 142% YoY increase in cash loans portfolio in 1Q11 71% YoY growth of the credit cards portfolio in 1Q11 Liquidity Limits from MinFin and State Corp. GKH Fund for RUB 9.5 bln. Liquidity ratios (N2 85%, N3 171%, N4 49%, RAS) Debut bond issue RUB 2.5 bln. was placed for 3Y on 29-Mar-2011 with oversubscription in 6 times (200 b.p. over IRS) Parent Support Funding strategy is supported by the OTP Group and based on long-term relationships Parent will provide finance if necessary USD 200 mln money market line from Parent for 1 month Strong Retail Market Positions 2nd major player in POS loans market in the end of 2010 4rd by Loans without collateral in the end of 2010 4th by Credit cards portfolio in the end of 2010 Leader on MICEX by volume of FX operations (EUR/RUB and EUR/USD) 11st most profitable Russian bank as of 1Q11 33th Russian bank by equity as of 1Q11 39th Russian bank by net assets as of 1Q11 Geographical Presence 7 out of 8 federal districts 70 regions Over 3,000,000 customers Over 3,300 cities More than 15,000 agents More than 17,500 POS 176 retail branches 225 АТМs High Capital Adequacy N1 Regulatory CAR 19.5% as of 1Q11 (RAS) OTP Group sticks to high internal CAR requirements: 14.8% Tier 1 Ratio and 17.7% CAR as of 1Q11 OTP Bank Plc. is 3rd best capitalized bank in Europe in the EU-wide stress tests 2011 by capital adequacy. Tier 1 Ratio would change to 17.2% under the baseline scenario and to 13.6% under the adverse scenario in 2012 compared to 12.3% as of end of 2010. Source: OJSC "OTP Bank" information, Frank Research Group, MICEX, RBC 4
OTP Bank Position in the Russian Banking Sector Founded 1994 2002 1999 1993 1992 1992 1990 1995 Credit ratings Moody s/s&p/fitch Total assets RUB mln Net income RUB mln Ba1/ /BB Ba3/B+/ Ba3/B+/B+ Ba3/-/BB+ /BB /BB Ba3/ /BB Ba2/B+/BB / / 99,735 108,434 153,311 100,394 126,879 376,872 369,378 180,856 2,024 2,795 1,504 2,590 485 1,678 530 1,002 N1 Ratio (CAR) 19.5% 17.4% 17.1% 20.0% 21.9% 12.0% 14.5% 11,0% ROA 2.0% 2.6% 1.0% 2.6% 0.4% 0.4% 0.1% 0.6% ROE 11.2% 13.1% 5.7% 21.0% 2.0% 4.2% 0.9% 8.3% Credit Cards POS Loans No. Bank Market share No. Bank Market share 1 Russian Standard Bank 19.4% 2 Sberbank 11.2% 3 VTB 24 11.2% 4 OTP Bank 5.5% 5 Citibank 5.0% 1 Home Credit and Finance Bank 28.0% 2 OTP Bank 17.8% 3 Alfa Bank 17.7% 4 Rusfinance Bank 9.3% 5 Russian Standard Bank 8.2% Source: OJSC "OTP Bank" information, Frank Research Group, CBR, RAS as of 1 st April 2011 5
2. Key Business Segments
Main Business Segments Strategy Network of Agents POS Loans Current positions: 2 nd in POS loans market as of 1Q11 Over 17,500 points of sales Goals: To strengthen market positions Further extension of client base Instruments: New motivation system for POS sales agents Control of POS service quality Implementation of Credit Bureau s and own score models to assess borrowers solvency Credit Cards Current positions: 4 th by credit card loans as of 1Q11 Credit cards portfolio of RUB 14.9 bln Goals: To strengthen leading positions in the market Instruments: Increase volumes of cards dispatch and level of cards activation Alternative distribution channels and active marketing campaigns More advanced internet banking system The Bank s Own Network Corporate Business Current positions: Loan portfolio of RUB 11.4 bln Portfolio structure: Commercial real estate & Construction 31%, Project Finance 23%, Food & non-food production 15%, Food & non-food retail, Oil & gas Goals: To expand loan portfolio with more scrutiny over client risks Instruments: Portfolio diversification per industry and per currency Focus on reliable corporate borrowers Intensification of business with existing corporate clients Classic Network Current positions: RUB 8.7 bln cash loans portfolio as of 1Q11 176 retail branches Goals: To increase sales through own branch network with focus on high margin/high quality portfolio Instruments: Proactive credit products sales with simple registration High level of automation to accelerate loan decision making Implementation of effective geographic expansion model aimed to offering banking services for existing POS clients in mini-branches Source: OJSC "OTP Bank" information, RBC, Frank Research Group 6
3. Financial Overview
Financial Overview Financial Overview 2008 2011 Increasing share capital and bond funding. Debut bond issue RUB 2.5 bln. was placed for 3Y on 29-Mar-2011 with oversubscription in 6 times (200 b.p. over IRS) Gross loans portfolio increased by 27% compared to 2009 thanks to: Strong disbursement of consumer loans in 2010 Slight decrease by 1% in 1Q11 as a result of seasonal effect Net Interest Income before Provisions grew by 36% YoY in 2010 and by 8% in 1Q11 QoQ Net Income up 6 times YoY in 2010 due to: Effective cost control Substantial increase in NII et Interest Income (+36%) thanks to increasing share of highmargin products along with decreasing share of corporate and mortgage loans Surge in Net Non-Interest Income, +47% YoY in 2010 1Q11 Net Income (+4% QoQ) is in line with the 2010 upward trend Condensed Balance Sheet (RUB mln) 1Q11 2010 2009 2008 Gross Customer Loans 73,584 74,398 57,865 57,485 Provision for Loans (8,742) (8,012) (6,059) (4,653) Due from Banks 12,549 9,190 15,492 459 Securities Portfolio 9,787 9,807 9,918 4,847 Other Assets 9,715 11,894 12,797 21,540 Total Assets / Liabilities 96,893 97,277 90,013 79,678 Deposits from Customers 54,374 58,599 46,294 32,610 Liabilities to Credit Institutions 15,604 17,200 26,220 33,165 Issued bonds and promissory notes 6,185 3,340 2,514 1,279 Other Liabilities 4,550 3,774 3,743 3,362 Total Shareholders Equity 16,180 14,365 11,242 9,262 Condensed P&L Statement (RUB mln) 1Q11 2010 2009 2008 Net Interest Income before Provisions 4,150 13,005 9,468 8,810 Loan Loss Provisions (744) (3,540) (3,369) (2,721) Net Non-Interest Income 429 1,695 1,177 1,846 Personnel Expense (1,317) (4,105) (3,542) (3,638) Other Expense (924) (3,087) (3,023) (2,697) Pre tax Profit 1,594 3,967 711 1,600 Net Income 1,211 3,032 487 1,202 Source: OJSC "OTP Bank" IFRS financials 2008-2011 7
Financial Overview Performance Indicators 2008 2011 Gross loans to deposits ratio slightly increased in 1Q11 due to shrink in corporate loans and the maturing high interest corporate deposits NIM improved to 17.6% in 1Q11 due to strong dynamics of consumer lending CIR reduced to 49.3% in FY10, -12.4% YoY, thanks to cost optimization measures N1 Regulatory CAR exceeds pre-crisis level due to sound profits Despite the Technosila default, share of NPL slightly decreased in 2010 thanks to improving portfolio quality. The Technosila loan was sold in 2Q2011 Indicators 1Q11 2010 2009 2008 Gross Loans/Deposits, % 135.3% 127.0% 125.0% 176.3% Cost/Income Ratio, % 49.9% 49.3% 61.7% 59.5% Net Interest Margin,% 17.6% 14.3% 10.9% 12.9% ROA, % 4.8% 3.3% 0.6% 1.9% ROE, % 30.8% 24.3% 4.7% 17.4% N1 Regulatory CAR, % (RAS) 19.5% 17.0% 13.3% 17.3% Provisions / Gross Loans, % 11.9% 10.8% 10.4% 7.9% Non performing loans 1Q11 2010 2009 2008 Share of NPL, % 14.1% 12.3% 12.4% 8.4% Provisions / NPL, % 84.1% 87.4% 83.6% 94.0% Source: OJSC "OTP Bank" IFRS financials 2008-2011, OTP Group management reports 2008-2011 8
Retail Loan Portfolio Portfolio Dynamics by Segment Loan Portfolio Growth RUB bln 70 60 50 40 30 20 10 0 33.2 39.4 39.8 37.9 36.1 36.9 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 40.9 42.5 45.1 4Q09 1Q10 2Q10 45% 53.7 3Q10 61.5 61.6 4Q10 1Q11 Retail portfolio volume almost doubled since 2Q08 and increased by 45% YoY in 1Q11 to RUB 61.6 bln. Dynamics of POS lending remained strong in 2010 with stable market share of 18% 142% YoY increase of cash loans portfolio in 1Q11 71% YoY growth of credit cards portfolio in 1Q11 Increase of mortgage portfolio in 3Q10 as a result of additional RUB 1 bln mortgage loans purchase POS loans Credit cards Cash loans Mortgage Car loans Other Maturity Breakdown Currency Breakdown 4.0% 10.0% 8.1% 2.8% < 6 months 14.0% 6-12 months RUB 58.0% 1-3 years 3-5 years USD Other 14.0% > 5 years 89.1% Source: OJSC "OTP Bank" IFRS financials 2008 2011, breakdowns on 1 st April 2011 9
Corporate Loan Portfolio RUB bln 20 15 10 5 0 Portfolio Breakdown by Segment 18.3 19.8 17.8 17.5 16.1 16.2 16.5 16.2 14.7 12.4 12.0 11.4 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Large Corporates Project Finance SME Loan Portfolio Attributes Large enterprise segment remains a priority due to higher predictability of risks in this segment with focus on reliable borrowers with clear financial statement The portfolio is spread by maturity to employ both short-term (liquidity management) and long-term (higher interest rates) benefits Share of Project finance is slowly decreasing thus reflecting current trend in banking sector not to finance long-term projects with essential risk level Maturity Breakdown Currency Breakdown 19.0% 21.0% 10.8% 25.0% 3.0% < 6 months 6-12 months 1-3 years 3-5 years > 5 years 9.7% 26.9% 52.6% RUB USD EUR CHF 32.0% Source: OJSC "OTP Bank" IFRS financials 2008 2011, breakdowns as of 1 st April 2011 10
Loan Quality and Capital Adequacy Improved Loan Portfolio Quality The default of Technosila in 2Q10 accounted for 2% of total portfolio and pushed up DPD90+ rate of the total portfolio, without the Technosila exposure DPD90+ would decreased by 2% on 3Q10 compared with 2Q10. Technosila loan was sold in 2Q11 Sharp decline of DPD90+ volume in 4Q10 as a result of both new loan origination, existing loans quality improvement and writing-offs Decrease in NPL coverage due to revaluation of FX provisions, which consequently led to provisions shrinkage, and base effect after Technosila provisioning in 1Q10. Nevertheless NPL coverage remains consistently high Current level of DPD90+ is level-headed with Provisions and Net interest margin of the Bank High Capital Adequacy High emphasis on compliance with OTP Group s regulatory CAR standards N1 Regulatory CAR is well above the CBR required minimum and stands at 19.5% as of the end of 1Q11 (RAS) The Parent bank will provide long term funding if necessary Decline in 2Q09-2Q10 as a result of loan portfolio growth without respective capital growth and, therefore, growth of risk-weighted assets N1 Regulatory CAR calculation has changed since 3Q10 (implementation of 110-I Instruction), thus leading to a sharp increase in the ratio DPD90+/Gross Loans, % 17% 15% 13% 11% 9% 7% 5% 16.7% 16.1% 13.9% 13.8% 12.4% 13.0% 14.1% 12.3% 11.1% 7.3% 8.1% 8.4% 110% 103% 96% 89% 82% 75% Provisions/DPD90+, % Equity, RUB bln 25 20 15 10 5 0 6.4 15.9 14.4 9.5 10.110.310.9 12.0 12.5 13.5 12.5 19.5 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% N1 Regulatory CAR, % 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 DPD90+/Gross Loans Provisions/DPD90+ Equity N1 Regulatory CAR Source: OTP Group management reports 2008-2011, OJSC "OTP Bank" IFRS and RAS financials 2008-2011 11
Profitability and Efficiency Outstanding Efficiency of the Business Consistently high profitability Cost-to-income ratio has been slightly increasing (+4.7% since 3Q10) due to business expansion Cost control remains fairly steady (+28% YoY in RUB terms), though accelerating compared to FY10 results (+10.7% YoY) as a result of inflation (9.5% YoY) and the pace of operations growth Branch network optimization in 2010: headcount decreased by 9.0% YoY, number of branches decreased by 4.3% NIM surged to 17.6% in 1Q11 (+4.9% YoY) due to the outstanding profitability of POS loans and credit card loans Net Income in 3Q10-1Q11 substantially exceeded the precrisis levels as a result of: Increased credit cards and POS loans fee income throughout the period, especially in 4Q10 (+174% YoY) and in 1Q11 (+169% YoY) The Bank s success in overcoming the seasonal effect in 1Q11 (consumer loan portfolio grew by 2% q-o-q, net profit grew by 10% q-o-q) Combined effect of increasing consumer loan portfolio (60% growth y-o-y) and soaring interest margin (+5% y-o-y) CIR, % 70% 65% 60% 55% 50% 45% 40% 59.3% 62.4% 58.4% 63.4% 63.3% 58.4% 61.8% 18% 17% 16% 15% 55.5% 14% 50.1% 49.9% 13% 48.0% 45.2% 12% 11% 10% NIM, % Net Income, RUB bln 1400 1200 1000 800 600 400 200 0 228 233 504 34 186 289 185 488 1 242 1 117 1 211 40% 35% 30% 25% 20% 15% 10% 5% 0% 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 ROA, ROE, % 1Q10 2Q10 3Q10 4Q10 1Q11 CIR NIM Net Income ROA ROE Source: OTP Group management reports 2008-2011, OJSC "OTP Bank" IFRS financials 2008-2011 12
Main Risk Business Management Segments System Strategy 22 Scoring Models Various scoring models are applied for POS loans depending on the region Hunter System More scrutiny over the process out of borrowers personal data verification 3D-Scoring System Internal scoring in combination with scoring models of 2 credit bureaus 6 debt collection agencies External collection agencies are involved to optimize work of internal collection unit Fraud verification depending on implied credit loss The most risky loan applications are subject to additional manual verification Tallyman System Tallyman technology to reinforce efficiency of internal collection unit Source: OJSC "OTP Bank" information 13
4. Transaction Summary
Transaction Summary Issue Purposes Active portfolio growth Diversification of funding sources Issuer Issuer Credit Ratings Identification number Series OJSC OTP Bank Ba1 (Moody s) / BB (Fitch) 4020102766В БО-01 Additional RUB liquidity base and decrease of FX risks Key Selling Points Parent support of OTP Group High liquidity of OJSC "OTP Bank" (RAS N2 85%, Nominal Issue Volume RUB 5,000,000,000 Nominal Value RUB 1,000 Maturity 3 years Coupon Period 6 months Indicative Coupon Guidance 8.00-8.25% Indicative Yield 8.16-8.42% N3 171%, N4 49%; 56% of liabilities are customer deposits; USD 200 mln money market line for 1 month from Parent; RUB 9.5 bln limits from MinFin and GKH) High capital adequacy of OJSC "OTP Bank" (19.5%, RAS) and parent OTP Bank Plc. (17.7%) Placement Type Arrangers Quotation List Lombard List Book Closing Date Book building Placement via Quotation List V Issue meets requirements to be included in the Bank of Russia Lombard List July 27, 2011 at 4 p.m. Leading positions in the retail market Placement Date August 02, 2011 Source: OJSC "OTP Bank" information 14
Important Notice To provide the investors with the detailed quarterly dynamics of OJSC "OTP Bank" performance, this presentation uses quarterly BS and P&L statements sent to OTP Group for consolidation into public Group s results. This quarterly data has some discrepancies with the annual IFRS reports of OTP Bank, however, we suppose that the advantages of detailed analysis outweigh the discrepancies. All reports are based on IFRS and are audited by Deloitte&Touche either in the Russian Federation and in Hungary Core Deposit is an intangible asset, which is reflected in the consolidated accounts of OTP Group: if the loyal customer maintains a floor balance on his on-demand account during a certain period, then the Bank has cheap funding during this period. As the asset makes up a substantial part of the BS (RUB 1,526 mln) and amortizes within 5 years, P&L Statement for consolidation significantly differs from the Bank s unconsolidated accounts. The effect is RUB 305 mln a year Disclaimer The information contained in this Presentation has been supplied by or on behalf of OJSC "OTP Bank" (the Issuer ). Neither ZAO Citibank or CJSC VTB Capital or any of their affiliates (collectively, Arrangers ) has independently verified such information and the same is being provided by Arrangers for informational purposes only. Arrangers do not make any representation or warranty as to the accuracy or completeness of such information and does not assume any undertaking to supplement such information as further information becomes available or in light of changing circumstances. Arrangers shall not have any liability for any representations or warranties (express or implied) contained in, or any omissions from, the Presentation or any other written or oral communication transmitted to the recipient in the course of its evaluation of the proposed financing or otherwise. The information contained herein has been prepared to assist interested parties in making their own evaluation of their participation in the proposed issuance of the bonds by the Issuer. The information does not purport to be all-inclusive or to contain all information that a prospective investor may desire. It is understood that each recipient of this Presentation will perform its own independent investigation and analysis of the proposed bond issuance and the creditworthiness of the Issuer, based on such information, as it deems relevant and without reliance on Arrangers. The information contained herein is not a substitute for the recipient s independent investigation and analysis. Recipients of this Presentation must check and observe all applicable legal requirements and, for the avoidance of doubt, receipt of this Presentation and the information contained herein may not be taken as discharging the regulatory or statutory responsibilities under applicable legislation (including but not limited to anti-money laundering legislation) of any such recipient. Arrangers expressly disclaim any and all liability, which is based on the information and statements or any part thereof contained in (or omitted from) the Presentation. The information contained in the Presentation has certain statements, assessment and forecasts made by the Issuer in respect of its future business operations. Such statements, assessment and forecasts reflect various assumptions of the Issuer on expected results, and the assumptions may be either correct or incorrect. Actual results may differ significantly and negatively from the projected results contained in the present document. Please be advised that ZAO Citibank has various relationships with the Issuer and its affiliates, including FX and derivatives counterparty relationship, brokerage relationship, cash clearing client relationship. In such capacities, ZAO Citibank may have obtained certain confidential information involving the Issuer and its affiliates that is not contained herein nor that is otherwise being disclosed by the Issuer to prospective lenders. 15