OTP Mortgage Bank Ltd. Facts & Figures November 212
Macroeconomic and legal background, company profile Macro background Legal environment Company profile After the annual GDP growth rate of 1.6% in 211 the forecasted growth rates for 212 and 213 are -1.1% and.1% respectively (source: OTP Bank Research) Main target of the government to keep the budget deficit below 3% of GDP by implementing fiscal adjustments. In its latest economic forecast the European Commission suggested that deficit targets were achievable for 212 and 213 Announcements of fiscal adjustment packages with new measures maintaining the extraordinary bank tax at unchanged level in 213 and making it a permanent afterwards, introducing a financial transactions tax Market trends well performing HUF on FX markets, sharply declining CDS level due to improved market sentiment Amid a more positive tone of markets the Monetary Council of NBH cut the base rate three times since August by consecutive 25 bps to stimulate economic growth Act on mortgage banks and on issuance of mortgage bonds based on German legislation using the specialized credit institution principle External control annual on-sight audit by the Hungarian Financial Supervisory Authority (HFSA) plus a cover pool supervisor approved by the HFSA Public reporting requirements obligation to regularly publish key data on collateralization LTV cap on portfolio level 7%, LTV limit for calculating collateralization residential properties 7%, commercial and agricultural properties 6%, limits on cross-border and on domestic FX lending, Priority status of mortgage bond investors specific legal framework for bankruptcy of the issuer superseding general insolvency law assuring segregation of cover pool assets from general insolvency estate OTP MB - established in 22 and fully owned by OTP Bank Plc. Largest mortgage bank and the 8th largest bank in Hungary by total assets as of 31. 12. 211. Specialized credit institution offering mortgage credit only, no deposit collection, corporate lending, investment activity, etc. Portfolio of 1% Hungarian, first lien, residential mortgage loans, cover pool is separated from senior risk First Hungarian issuer to sell Jumbo size bond series in the Euro market (28), mortgage bond rating: Baa3 by Moody s, the EUR denominated securities issued under the EMS Programme of OTP MB are ECB eligible Auditor: Deloitte, Coverage Supervisor: KPMG 2
Business model Syndication Agreement between OTP Bank and OTP Mortgage Bank OTP Bank OTP Mortgage Bank Mortgage Syndication Agreement Acting as Agent of OTP Mortgage Bank Granting mortgage loans process is based on OTP MortgageBank s regulations primary distribution channels: branches of OTP Bank scoring, rating, income check, budget calculation origination (decision on risk taking) and administration of loans marketing, customer relations, loan account management Outsourcing arrangements In order to reduce duplications in respect of OTP Group administrative operations, accounting, controlling, IT and other administrative operations are outsourced to OTP Bank Irrevocable Payment Undertaking In April 21 irrevocable payment undertaking of OTP Bank in respect of all outstanding and future debt securities issued by OTP Mortgage Bank (liability side guarantee) replaced the asset side guarantee Providing alternative funding facilities mortgage bond purchase facility interbank credit facility Mortgage funding vehicle and property appraisal centre Regular issuance of mortgage bonds in the domestic and euro markets Appraisal of the value and marketability of the real estate property for the purposeof determiningthe LTV Constant monitoring and appraising the value of mortgaged real estate properties Registration and management of the Collateral Managing market risk For services used OTP Mortgage Bank pays regular fees and commissions to OTP Bank Independent services offered by OTP Mortgage Bank Real estate appraisal and lending value assessment services are offered to other financial institutions too as independent service Real Estate Map real estate evaluation system developed by the Bank in line with the regulation by the Hungarian Ministry of Finance 3
Balance Sheet & financial highlights IFRS data in HUF billion 29 21 211 1H 212 Cash, placements with other banks 319 15 82 221 Government securities 216 2 2 11 Loans, net of allowance for loan losses 1,443 1,562 1,482 1,335 from this: loan losses - -21-73 -48 Other assets 2 11 91 16 TOTAL ASSETS 1,981 1,68 1,659 1,583 Mortgage bonds 1,6 1,361 1,22 1 Related party and other bank financing 261 122 336 492 Subordinated loans 3 3 4 4 Other liabilities 25 116 21 2 TOTAL LIABILITIES 1,889 1,61 1,573 1517 Share capital 27 27 27 27 Retained earnings and reserves 65 52 59 39 TOTAL EQUITY 92 79 86 66 Total interest income 161 146 179 95 Total interest expense 15 1 11 68 Provision for possible loan losses - -26-11 19 Net interest income after provision 56 19-33 7 Income taxes 7 1-7 -1 Net income 3 11-3 -1 ROAE 38.% 12.7% -36.% -1.7% ROAA 1.7%.6% -1.8% -.1% Net interest margin* 2.8% 2.7% 4.% 1.7% Capital adequacy ratio* 9.9% 9.4% 9.7% 1.1% Tier 1 capital adequacy ratio* 9.5% 8.9% 9.1% 9.5% Asset side is dominated by mortgage loans, liability side is made up of mortgage bonds and interbank loans Apart from government bonds (in the cover pool as substitute collateral) no other securities, real estate or other investments Shrinking loan portfolio (mainly CHF and JPY) and increasing losses in 211 due to early repayments and the fixed instalment scheme Ratio of interbank financing has been increasing with mortgage bond volumes declining since 21 Net income in 211: refundable loss for OTP Mortgage Bank recognised by OTP Bank Plc. in connection with the guarantee booked as reserve of HUF 46.4 billion (EUR 149 million) Shrinking net interest income due to decreasing volume of loans receiving state subsidy, growing funding costs and provisioning Stable capital position: CAR 1.1% 4 * Hungarian accounting standards
Portfolio breakdown I. (as at 3 September 212) Development of the loan portfolio (in EUR billion) Denomination 6 5 4 EUR JPY CHF HUF 9% HUF EUR CHF JPY 3 2 1 35% 53% 22 23 24 25 26 27 28 29 21 211 212Q3 2% Maturity - Portfolio average 14.4 years Seasoning portfolio average 5.5 years (in HUF billion) 16% 4% 3% 2% 15% Under 5 years 5-1 years 1-15 years 35 3 25 15-2 years 2-25 years Over 25 years 2 15 1 3% 33% 5 212Q3 211 21 29 28 27 26 25 24 23 22 5
Portfolio breakdown II. (as at 3 September 212) Size - Portfolio average HUF 4.6 million (in HUF million) Geographical distribution 99.9% Hungarian residential properties 5% 7% 22% 14% 16% 34% 12% 37% under HUF 5 5-1 mn 1-15 mn 15-2 mn over 2 mn 19% % 33% Southeast Southwest Budapest and Central Romania Northwest Northeast Purpose LTV - Portfolio average 68.3% 1% 12% 28% 42% 11% 8% 5% Purchase Building Renovation, improvement 13% Under 3% 3-4% 41-5% 51-6% 13% Home equity loans Other 1% 11% 61-7% Over 7% 6
Asset quality analysis low level of NPLs compared to the Hungarian banking sector NPLs trends (in HUF billion) 9 8 7 6 5 4 3 19 2 1 21 Q2 EUR JPY CHF 37 Q3 HUF ratio of DPD9+ loans (rhs, %) 66 54 72 73 43 43 Q4 211 Q1 Q2 Q3 Q4 212 Q1 Provisions (in HUF billion) and Cost of provisioning (%) 5 Provisions (cumulated) Cost of provisioning with early repayments (rhs, %) 43 41 4 Cost of provisioning without early repayments (rhs, %) 31 3 24 21 21 21 2 11 1 87 Q2 48 88 Q3 48 8 7 6 5 4 3 2 1 8 7 6 5 4 3 2 1 OTP Mortgage Bank s market share in mortgage lending exceeds 3% in the Hungarian market The bank s mortgage loan portfolio outperforms the Hungarian banking sector average: ratio of DPD9+ loans is still low: 6.6% at the end of Q3212 compared to the banking sector average of around 16% OTP has started FX lending later than other banks, applied stricter limits and regulations for mortgage banks Additional insurances connected to mortgage loans (loans guaranteed by the State, PPI, MI) 85% of the NPLs are denominated in FX (mostly in CHF) OTP Mortgage Bank has booked HUF 48 billion (EUR 17 million) for provisioning until end-q3212 21 Q2 Q3 Q4 211 Q1 Q2 Q3 Q4 212 Q1 Q2 Q3 Risk rate was 2.9% in the end of Q3212 7
Wholesale funding profile strong market support by the owner Net issuance of covered bonds (in EUR billion) 1.2 1..8.6.4.2. -.2 -.4 -.6 -.8 HUF EUR OTP Mortgage Bank has a strategic function of acting as mortgage funding vehicle of OTP Bank. Since the credit crunch ratio of parent funding has substantially increased due to limited access to international capital markets Large proportion of the mortgage bonds issued by OTP Mortgage Bank is purchased by OTP Bank, followed by institutional investors and, to a less significant extent, retail investors Maturity profile of covered bonds (in EUR billion) 1.2 1..8.6 24 25 26 27 28 29 21 211 Q3212 HUF (non-otp) HUF (OTP) EUR (non-otp) EUR (OTP) 45% of outstanding mortgage bonds was denominated in EUR in the end of Q3212 OTP Mortgage Bank has a Euro Mortgage Securities (EMS) Programme since 24 and EUR denominated mortgage bonds issued under the Programme after 27 are ECB eligible.4.2. 213 214 215 216 Vast majority of covered bonds expiring in 213 is held by OTP Bank OTP Mortgage Bank hedges FX risk with CCIR swaps: EUR funding is swapped to CHF 8
Latest developments Regulatory framework The early repayment opportunity of FX based mortgage loans expired on 28 February 212 From 1 April 212 eligible borrowers can apply for participation in the fixed instalment scheme until the end of 212 that is provided for 6 months or until 3 June 217 at the latest Banks could convert the FX mortgage loans of eligible DPD9+ clients to HUF loans and cancel 25% of such debts by 3 August 212 From 1 January 213 a transaction duty will be imposed on the payment services sector Business activities and other developments In August 212 OTP started its lending activites under the new subsidized housing loan scheme of the government In H1 212 securities issued became due in total amount of HUF 114.5 billion and a new 3-year mortgage bond was issued in the amount of HUF 11 billion On 6 September 212 OTP Mortgage Bank Ltd. issued EUR 51,, floating rate mortgage notes under its EUR 5,,, Euro Mortgage Securities Programme, the notes are listed on the Luxembourg Stock Exchange and rated Baa3 by Moody s Personal changes in corporate bodies in 212: the Chairman of the Supervisory Board of OTP Mortgage Bank Ltd. has been replaced and two new members of the Board of Directors have been appointed by the Founder 9
Disclaimer This material has been prepared by OTP Mortgage Bank (the Company ) and has not been independently verified. This material has been prepared for the information of the parties to whom it is delivered and is being delivered to you solely in your capacity as a relevant person (as defined below). This document and its contents are confidential and may not be retransmitted, distributed, published, reproduced (in whole or in part) by any medium or in any form, or disclosed or made available by recipients to any other person. This material has been prepared solely for informational purposes and does not constitute or form part of, and should not be construed as, an offer to sell, or as an invitation or inducement to make, or a solicitation of, any offer to purchase or subscribe for any securities. No part of this material, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. Any offer of securities would only be made pursuant to a formal prospectus which contains, among other things, a description of certain risks relating to the relevant securities, certain disclosure relating to the Company and a description of the relevant securities. The information contained herein is preliminary, limited in nature and subject to verification, completion and amendment. No representation or warranty, either express or implied, is given or made by any person in relation to the fairness, accuracy, completeness or reliability of the information or any opinions contained herein and no reliance whatsoever should be placed on such information or opinions. This material should not be regarded by recipients as a substitute for the exercise of their own judgement and assessment. Any opinions expressed in this material are subject to change without notice and neither the Company nor any other person is under any obligation to update or keep current the information contained herein. This material is not intended to be a prospectus in connection with an offer of securities and any investment decision with respect to any securities should be made solely upon the basis of the information contained in the formal prospectus relating to such securities. Neither the Company, nor its advisors nor any of their respective affiliates, agents, directors, partners and employees shall have any responsibility or liability whatsoever (for negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. This presentation contains certain tables and other statistical information and analyses (the Statistical Information ) which have been prepared in reliance upon information furnished by OTP Bank, OTP Mortgage Bank, National Bank of Hungary, Central Statistical Office, RICS, FHB and Bloomberg. Numerous assumptions were used in preparing the Statistical Information, which may or may not be reflected herein. As such, no assurance can be given as to the Statistical Information s accuracy, appropriateness or completeness in any particular context; nor as to whether the Statistical Information and/or the assumptions upon which they are based reflect present market conditions or future market performance. The Statistical Information should not be construed as either projections or predictions or as legal, tax, financial or accounting advice. Any weighted average lives, yields and principal payment periods shown in the Statistical Information are based on, amongst other assumptions, the assumption that the relevant debt is not prepaid, and changes in any such assumptions may materially affect such weighted average lives, yields and principal payment periods. None of the Company, its advisors or any other person makes any representation or warranty as to the actual rate or timing of payments on the underlying asset or the payments or yields on the securities. These materials may contain statements about future events and expectations that are forward-looking statements. 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