Annual Report (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) Contents 4 8 13 14 89 90 96 97 98 99 100 101 230 236 237 237 238 239 240 335 336 338 340 342 345 345 Message from the Chairman and Chief Executive Officer Macroeconomic and financial environment in 2020 Management’s Analysis Management’s analysis of the 2020 results of the OTP Group Financial Statements Independent Auditors’ report (consolidated, in accordance with IFRS) Statement of Financial Position (consolidated, in accordance with IFRS) Statement of Profit or Loss (consolidated, in accordance with IFRS) Statement of Comprehensive Income (consolidated, in accordance with IFRS) Statement of Changes in Equity (consolidated, in accordance with IFRS) Statement of Cash-flows (consolidated, in accordance with IFRS) Notes to the Consolidated IFRS Financial Statements for the year ended 31 December 2020 Independent Auditors’ report (separate, in accordance with IFRS) Statement of Financial Position (separate, in accordance with IFRS) Statement of Profit or Loss (separate, in accordance with IFRS) Statement of Comprehensive Income (separate, in accordance with IFRS) Statement of Changes in Equity (separate, in accordance with IFRS) Statement of Cash-flows (separate, in accordance with IFRS) Notes to the separate IFRS financial statements for the year ended 31 December 2020 Corporate Governance Senior management and executive members of the Board of Directors of OTP Bank Non-executive members of the Board of Directors of OTP Bank Members of the Supervisory Board of OTP Bank Information for Shareholders Anti-money laundering measures Corporate social responsibility (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) Message from the Chairman & CEO D E A R S H A R E H O L D E R S , It would be no exaggeration to say that 2020 was an extraordinary year. In relation to the year just past it is not chiefly our financial results that I would like to highlight – although given the circumstances, we have every reason to be proud of these too – but first and foremost the fact that we have triumphed in the face of the considerable challenges posed by Covid-19. The Bank Group passed the test presented by the pandemic with flying colours: we did everything possible to ensure the safety of our employees and customers while ensuring our services remained uninterrupted throughout. In line with public expectations and our market-leading position, we mobilised our financial resources and capital strength to buttress the economy and ensure its speedy recovery, contributed fully to the implementation of the various government and central bank support programmes, and ensured that our lending operations remained strong and robust. At the same time, we mustered the energy to continue and in some cases accelerate our internal development drives, above all in terms of digital services. No further acquisitions were made in 2020; however, we successfully completed the post-merger integration processes in Bulgaria and Montenegro, continued the integration in Serbia, and completed the sale of our subsidiary bank in Slovakia. In accordance with our long-term strategy, OTP Bank intends to remain a key player in the consolidation of the regional banking sector. As expected, the significant economic down- the first wave of the pandemic was followed by turn and increased uncertainty caused by the a significant correction in the autumn of 2020, Covid-19 pandemic were mainly reflected in finishing the year at HUF 13,360, which equates a rise in the cost of risk: due to the fourfold to a market cap of more than EUR 10 billion. year-on-year increase in risk costs, the Bank Group’s adjusted after tax profit fell by 26%, though at the same time our 13% return on equity remains outstanding by international standards. The OTP Group’s operating profit Overview of performance in the financial year 2020 improved by 5%, and our operating expenses/ The Bank Group’s adjusted profit of HUF 310 balance sheet total ratio fell from 3.31% to billion in 2020 was primarily determined by 2.9%. In 2020, our consolidated FX-adjusted the surge in the cost of risk: deteriorating performing loan portfolio was 9% higher than economic performance caused by the in the previous year – also a commendable pandemic was met with prudent risk achievement. Although the capital strength management. Firstly, the share of loans in of the Bank Group is excellent and secure the Stage 2 category, denoting higher risk, – the CET1 rate of 15.4% at the end of 2020 increased significantly (from 5.3% to 13.9%) already includes the amount of net earnings and it was mainly in relation to this portfolio for the year less dividends – following the that higher risk costs were incurred (due to recommendation of the National Bank of additional provisioning). At the same time, Hungary, no dividend will be paid until the share of non-performing loans (Stage 3) 30 September 2021. improved from 5.9% to 5.7% year-on-year and The market/investor perception of the Bank’s the growth of loans overdue for more than performance and growth strategy remains 90 days also slowed. It is important to favourable: the fall in the share price following emphasise that the provisioning rate for the 4 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) performing portfolios (Stage 1+2) increased the group-level net loan-to-deposit ratio fell from 1.6% to 2.4% year-on-year, placing us well from 79% to 76% over the past year. above our competitors in terms of this ratio. The consolidated basic Tier 1 capital ratio (CET1) The change in portfolio quality was of the OTP Group according to IFRS was 15.4% significantly affected by the introduction of at the end of 2020 (+1 ppt year-on-year). loan repayment moratoriums for all group This already reflects the impact of net members except Ukraine; however, based on earnings for the year less proposed dividends OTP’s traditionally conservative and prudent (HUF 140.2 billion) The HUF 119 billion risk management and lending practices, deducted from the regulatory capital is we believe that portfolio quality will not equal to the overall dividends that the deteriorate significantly after the expiry of the management would have proposed to the moratoriums, and we even expect some Stage General Meeting, had the National Bank of 2 loans to return to the Stage 1 category. Hungary (MNB) not put all dividend payments The pandemic resulted in a significant decline on hold until 30 September 2021. The sum in business activity and in the development of dividends deducted partly includes the of the performing portfolios, mainly in the HUF 69.44 billion in dividends that were second quarter of 2020, but despite this, the not paid for 2019 but that the management volume of the consolidated performing loan had planned to pay. After 30 September, portfolios increased by 9% in 2020 as a whole the payment of an advance on dividends may (on an FX-adjusted basis), and loan volumes be considered by the Board of Directors. increased in all countries of operation except In addition, a secure capital position allows Russia. It is gratifying that over the period of management to continue to seek acquisition the pandemic, the volumes of mortgage loans opportunities in line with the strategic grew in virtually all countries of operation objectives. (+10% year-on-year), and the corporate As in previous years, the Bank Group’s key portfolios also increased significantly (+8% objectives for 2020 were largely met, and year-on-year). The 9% growth in consumer accordingly: loans marks a slowdown compared to the (cid:588) our profit rate was significantly higher previous year, and was the result of physical than the target ROE of more than 10%. closures related to Covid and to more cautious The actual figure was 13%; spending on the part of consumers. (cid:588) the cost-of-risk ratio turned out to be lower Despite net interest margins falling by 50 bps (115 bp) than we had previously forecast year-on-year, the substantial growth in (125 bp); performing loans meant that net interest (cid:588) performing loans increased organically by income actually increased by 12% while fee and HUF 1,129 billion, or 9%. It is pleasing that commission income was up 4%. the growth rate in Hungary (17%) exceeded In 2020, adjusted after tax profit decreased a row, but volume growth in Serbia and year-on-year at all operations, except at the Ukraine was also outstanding. the group average for the fourth year in Moldovan subsidiary. The contribution of the foreign subsidiaries to the overall profit figure fell from 46% in the previous year to 41% Acquisitions last year. The declining profit at virtually all operations can be explained by the temporary No new acquisitions were made in 2020, increase in the costs of risk. following the six bank acquisitions that were Consolidated, FX-adjusted deposit volumes at of consolidation: the Bank Group increased by 13% year-on-year, (cid:588) In Bulgaria, the integration process was i.e. by more than HUF 2,000 billion, and thus completed on 4 May 2020, and this during completed in 2019, 2020 was a year Message from the Chairman & CEO 5 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) a period of restrictive measures due to the The Banker’s rankings, OTP Bank was named first wave of the epidemic; Bank of the Year in 2020, and our Bulgarian (cid:588) In Montenegro, the merger of the two banks and Slovenian subsidiaries received the same was completed in early December 2020; recognition. OTP Bank was awarded the title (cid:588) In Serbia, the merger process is also of Safest Bank in Hungary by Global Finance. progressing according to plan, and is In addition, OTP Bank’s private banking division expected to be completed in the second holds the title of Best Private Banking Service quarter of 2021; Provider in Hungary at both The Banker and (cid:588) In Slovenia, Albania and Moldova, where the Global Finance. OTP Treasury won the title of Group was not previously present, the newly Best Foreign Exchange Provider and the Bank acquired banks were integrated into the won the title of Best Digital Bank for Consumer Group; Loans from Global Finance. In addition, Global (cid:588) The sale of the Slovak subsidiary announced Finance chose OTP LAB as one of the best in early 2020 was completed at the end of financial innovation workshops in the world November. in 2020 as well. At the same time, we achieved recognition not only for the high quality of our As we have indicated many times in the services but also for our continuously out- past in relation to our acquisition strategy, standing financial achievements: our innovative, our goal is to improve our existing market digital solutions, environmentally conscious positions through acquisitions and to business policy, efforts to develop domestic increase the profitability of specific banks by bond markets, and transparent information achieving optimal market size and exploiting practices were also recognised (MNB: Innovative cost synergies. I am pleased to report that Bank Award, BSE: Growth Bond Programme the realisation of these goals is well under Investment Service Provider Award, Transpar- way. We are currently looking into three ency Award, Social Responsibility Award). acquisition options, one of which is within the Today, OTP holds dominant market positions geographical scope of the existing Bank Group. in many countries and segments. This did not We hope to make a specific announcement come free: we have worked very hard for it in the second half of 2021 with regard to two over the past decades and now we are reaping transactions. Industry awards, innovation, corporate social responsibility the rewards in many respects. At the same time, we cannot sit back and relax: a leading position today is no guarantee of the same tomorrow, and so development and innovation must be a continuous process! In the future, IT will not only have to perform service tasks, but The results, safe operation and successful will also increasingly have to fulfil business strategy of the Bank Group are chiefly reflected functions. In order for IT to be brought to bear in the development of the share price. In in product development at an early stage, in addition, its excellent performance and 2019, ‘agile operations’ were introduced at innovative services have earned it countless OTP Bank – as a first in Hungary. By the end professional accolades: OTP Bank has for every of 2020, this had involved more than 1,000 year in almost a decade now been named best of our employees (+30% year-on-year) and domestic bank by Global Finance, and in 2020 allowed many high-priority developments to our subsidiary banks in Slovenia and Montenegro be implemented significantly more rapidly received the same title. OTP Bank won the (e.g. Apple Pay, the launch of a new mobile and Best Bank in Hungary award in Euromoney’s internet banking platform, loan repayment Awards for Excellence, and the Montenegrin moratorium, gradual introduction of new and Albanian subsidiary banks also received mortgage applications etc.). As a result, not Euromoney’s best bank award. According to only has the overall customer experience 6 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) and customer satisfaction improved, but our helping the disadvantaged and those in need, market position has remained stable or even as well as supporting culture and the arts and improved in several segments. on value creation and preservation. We have In addition to the challenges it has presented, made a significant contribution to alleviating the pandemic has also brought about huge the difficulties caused by the coronavirus changes, accelerating the transformation by supporting healthcare and educational of customers’ banking habits. The number institutions. We consider it our responsibility of OTP SmartBank mobile banking users to always act ethically and to reduce the reached 1.3 million by the end of 2020, a environmental impact of our company. whole order of magnitude ahead of our local The OTP Group is a stable company, one of the competitors. The number of transactions via largest employers in Hungary, which strives our digital channels increased significantly, to contribute to sustainable economic growth and the number of digitally active retail and a sustainable future in all areas.Our goal customers grew by 18% in the space of just is to provide responsible, equitable financial one year. Robotic process automation is services that can also adapt effectively to playing an increasingly important role, and customer needs. some of the back-office operations required for babaváró lending (subsidised loans for Dear Shareholders, expectant parents) and the management of I am confident that our Bank has all the core the loan repayment moratorium were already values, resources and commitment needed to being performed by robots programmed by enable us to achieve our long-term strategic us. Launched years ago, the Simple service goals. As a key regional bank and a financial has now grown into a veritable ecosystem of institution that holds leading positions in applications (Simple Business, SimplePay), many countries, we have a major responsibility and its range of services and customers is towards all players in the real economy in constantly expanding. terms of the financing of micro and small Aspects of corporate social responsibility, businesses, medium and large companies, environmentally responsible operations and municipalities and other stakeholders, as corporate governance (commonly known as well as retail customers, and for providing ESG) are increasingly important in terms of advanced financial services to them.In addition, how the Bank is perceived among the public, the past decades have proven that in difficult regulators and investors. In 2020, the Bank times, our management has been able to received several ESG ratings: we have a rating successfully address the latest challenges, of Average from Sustainalytics and “A” from assuring appropriate responses to them, and MSCI, which is broadly on a par with other in doing so we have been able to consistently banking groups active in the region. Investment rely on the commitment of our staff and the strategies focusing on sustainability are loyalty of our customers. becoming increasingly important; we cannot I trust that our stated goals and strategic ignore the long-term prospects of climate objectives will meet with your approval. I ask change and the associated risks, and the shift for your continued assistance and support for towards a zero-emission economy is also their implementation! reflected in our business model. OTP Bank is traditionally one of the largest donors in Hungary; our targeted donations are focused primarily on developing financial literacy, raising awareness of social and Dr. Sándor Csányi environmental issues, creating opportunities, Chairman & CEO (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) Message from the Chairman & CEO 7 Macroeconomic and financial environment in 2020 The Covid-19 pandemic turned the world better shape than in 2007, with a much better upside down in 2020, putting to the test not vulnerability profile. Economic policy reactions only health care, but causing interruptions were extremely aggressive throughout the in many areas of everyday life as well as the region. Until now, we have not detected large- economy. Initially, it was the possibility of scale capital flight from developing countries. supply chain disruptions that caused worries, The labour market and credit market reaction then the uncertainty resulting from the were not intense. Most countries showed a measures to stymie the spread of the virus decent recovery in 3Q. Contrary to the initial that alarmed markets. The first, spring wave expectations of a renewed recession due of the pandemic was like a cold shower for to second-wave lockdowns, almost all OTP Europe and the USA, where unprecedented countries posted positive q-o-q growth rates distancing measures limited free movement, for 4Q 2020. This stems from the facts that practically bringing life to a standstill for a (I) industry remained resilient (II) consumer while. The summer offered a short time to sentiment did not collapse (III) the service take a breather and prepare for the next wave, sector adapted somewhat to the pandemic. which peaked between October and December in the developed world. Meanwhile, fiscal Among the countries where OTP is active, and monetary policies made great efforts Serbia performed by far the best, with just 1% to get the economy back on its feet, offering recession, due to strong investment activity practically unlimited liquidity, low-interest and FDI inflows. GDP dropped between loans, wage and investment subsidies, and tax 3 and 5% in of the OTP universe countries; credit. As a result of hard work, the first covid Hungary (–5.0%), Slovenia (–5.5%), Bulgaria vaccines have been developed and authorized (–4.2%), Romania (–3.9%), Russia (–3.1%), Ukraine by December, to be followed by similar (–4.0%). In these countries the value added preparations very soon. of the manufacturing industry is relatively high, while that of tourism is less significant. This was not a ‘usual’ financial crisis; the Moldova (–7.0%) would also belong to this recession is very fast and huge, like never group if there had not been a major drought, before. In 1Q 2020, the CEE region fared which significantly worsened the performance better than Western Europe, as the pandemic of the really important agriculture sector. arrived somewhat later, and growth dynamic was in better shape in most parts of the CEE While almost all industries have been region than in the EZ. The second quarter negatively affected by the spread of Covid-19, brought big recession to all OTP countries. it has had a bigger impact on some of them. Countries where the share of the auto and Tourism is one of the sectors hardest hit by related industry is higher have suffered a the coronavirus crisis, with some parts of the sharper drop in industrial production. The sector and some regions affected more than CEE region’s countries were usually in a much others. Most tourist facilities were closed 8 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) during the peak of the crisis, with events were not as tight as in the spring. Hungary’s cancelled or postponed. This is also true budget deficit slightly exceeded 8.0% of GDP, for the most tourism-driven OTP countries. and public debt ballooned to 81% of GDP. Montenegro (–15.2%) and Croatia (–8.4%) The lockdowns hit the labour market hard, suffered the biggest losses in this field. but most of this effect proved to be transitory, except for some sectors. Year 2020 was dominated by the pandemic The recent years’ double-digit increase in also in Hungary, where the epidemy, and thus wages has significantly decelerated, but the lockdowns started later. Based on detailed household saving rate has markedly increased, data, the economy sank into 5.0% recession; because of a drop in consumption. Despite the smaller-than-feared contraction owes the economic downturn and the lockdowns/ a lot to the supportive fiscal policy and to the restrictions, dwelling construction hit a ten- fact that restrictions in the fourth quarter year high. Use side decomposition of the GDP growth (%) 8 4 0 –4 –8 –12 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 Consumption expenditure of households Gross fixed investment Inventories Government consumption GDP Net export 8 4 0 –4 –8 –12 Public debt and deficit (in % of GDP) 10 Budget balance Public debt 8 6 4 2 0 –2 –4 –6 –8 –10 100 90 80 70 60 50 40 30 3 0 0 2 / 1 Q 4 0 0 2 / 1 Q 5 0 0 2 / 1 Q 6 0 0 2 / 1 Q 7 0 0 2 / 1 Q 8 0 0 2 / 1 Q 9 0 0 2 / 1 Q 0 1 0 2 / 1 Q 1 1 0 2 / 1 Q 2 1 0 2 / 1 Q 3 1 0 2 / 1 Q 4 1 0 2 / 1 Q 5 1 0 2 / 1 Q 6 1 0 2 / 1 Q 7 1 0 2 / 1 Q 8 1 0 2 / 1 Q 9 1 0 2 / 1 Q 0 2 0 2 / 1 Q Source: KSH, OTP Research Source: KSH, OTP Research Despite the coronavirus, both retail (14%) and second quarter, due to the collapse in oil corporate loan (nearly 13%) volumes expanded prices, inflation slowed to 2.2% from ‘above–4% in 2020. Within retail loans, the subsidized ‘baby territory’ at the beginning of the year. After loan’ was the engine of growth, the volume of reopening, the inflation has started to pick up which has jumped by 130%. Despite the declin- again in the summer months. Due to the lock- ing new business figures stock of the personal down measures, there has been a significant loans surged also by 12% thanks mainly to rearrangement in the structure of demand; the moratorium which resulted in lower decreased services and increased demand instalments. Housing loans increased by 10%, for products. The latter, supplemented by the while home equity loans shrank by almost 5%. weakening forint exchange rate, contributed significantly to the rise in industrial goods In Hungary, inflation slowed to 3.3% from 3.4% inflation. in 2019. Constant tax core inflation, which is particularly monitored by the MNB, As a result of the changed external environ- accelerated to 3.7% from 3.4% in 2019. In the ment, Hungary’s monetary policy adjusted (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:2)(cid:21) Macroeconomic and financial environment in 2020 9 it’ monetary policy tools. Amid the stronger 2020, almost 10% higher than a year earlier. risk appetite at the time when the covid crisis Due to the rising budget deficit, it is becoming broke out, the forint weakened, trading at increasingly important for monetary policy 360 versus the euro, before the exchange to provide cheap financing to government and rate stabilized, though with marked volatility. the corporate sector through asset purchase The EUR/HUF stood at 365 at the end of the programs. Hungarian yield curve (%) 4.5 3M 3Y 5Y 10Y 15Y 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 –0.5 Exchange rate development in the CEE countries 35.0 EURHRK EURCZK EURHUF EURPLN USDUAH EURRON USDRUB (31.12.2019=0) 30.0 25.0 20.0 15.0 10.0 5.0 0.0 –5.0 9 1 0 2 1 0 . 9 1 0 2 3 0 . 9 1 0 2 5 0 . 9 1 0 2 7 0 . 9 1 0 2 9 0 . 9 1 0 2 1 1 . 0 2 0 2 1 0 . 0 2 0 2 3 0 . 0 2 0 2 5 0 . 0 2 0 2 7 0 . 0 2 0 2 9 0 . 0 2 0 2 1 1 . 1 2 0 2 1 0 . 1 2 0 2 3 0 . 9 1 0 2 2 1 . 0 2 0 2 1 0 . 0 2 0 2 2 0 . 0 2 0 2 3 0 . 0 2 0 2 4 0 . 0 2 0 2 5 0 . 0 2 0 2 6 0 . 0 2 0 2 7 0 . 0 2 0 2 8 0 . 0 2 0 2 9 0 . 0 2 0 2 0 1 . 0 2 0 2 1 1 . 0 2 0 2 2 1 . 1 2 0 2 1 0 . 1 2 0 2 2 0 . Source: MNB, AKK, OTP Research Source: Reuters, OTP Research 10 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Macroeconomic and financial environment in 2020 11 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s Analysis (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group C O N S O L I D AT E D F I N A N C I A L H I G H L I G H T S 1 A N D S H A R E D ATA Main components of the adjusted Statement of recognised income Consolidated after tax profit Adjustments (total) Consolidated adjusted after tax profit without the effect of adjustments Pre-tax profit Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total risk costs One-off items Corporate taxes Main components of the adjusted balance sheet closing balances Total assets Total customer loans (net, FX-adjusted) Total customer loans (gross, FX-adjusted) Allowances for possible loan losses (FX-adjusted) Total customer deposits (FX-adjusted) Issued securities Subordinated loans Total shareholders’ equity Indicators based on adjusted earnings ROE (from accounting net earnings) ROE (from adjusted net earnings) ROA (from adjusted net earnings) Operating profit margin Total income margin Net interest margin Cost-to-asset ratio Cost/income ratio Provision for impairment on loan and placement losses-to-average gross loans ratio Total risk cost-to-asset ratio Effective tax rate Net loan/(deposit+retail bond) ratio (FX-adjusted) Capital adequacy ratio* (consolidated, IFRS) – Basel3 Tier 1 ratio* – Basel3 Common Equity Tier1 (‘CET1’) ratio* – Basel3 Share Data EPS diluted (HUF) (from unadjusted net earnings) EPS diluted (HUF) (from adjusted net earnings) Closing price (HUF) Highest closing price (HUF) Lowest closing price (HUF) Market Capitalization (EUR billion) Book Value Per Share (HUF) Tangible Book Value Per Share (HUF) Price/Book Value Price/Tangible Book Value P/E (trailing, from accounting net earnings) P/E (trailing, from adjusted net earnings) Average daily turnover (EUR million) Average daily turnover (million share) 2019 HUF million 412,582 (6,470) 419,052 465,973 510,045 1,077,727 706,298 282,504 88,926 (567,682) (47,107) 3,034 (46,921) 2019 20,121,767 12,902,518 13,605,264 (702,746) 16,260,599 393,167 249,938 2,291,288 2019 20.3% 20.6% 2.4% 2.97% 6.28% 4.12% 3.31% 52.7% 0.28% 0.27% 10.1% 79% 16.8% 14.4% 14.4% 2019 1,575 1,602 15,430 15,600 11,270 13.1 8,183 7,362 1.9 2.1 10.5 10.3 16 0.4 2020 HUF million 259,636 (50,631) 310,268 351,802 537,437 1,169,920 788,079 293,112 88,729 (632,483) (187,995) 2,360 (41,534) 2020 23,335,841 13,528,586 14,363,281 (834,695) 17,890,863 464,213 274,704 2,537,112 2020 10.9% 13.0% 1.4% 2.47% 5.37% 3.61% 2.90% 54.1% 1.15% 0.86% 11.8% 76% 17.7% 15.4% 15.4% 2020 1,003 1,200 13,360 15,630 8,010 10.2 9,061 8,436 1.5 1.6 14.4 12.1 22 0.7 Change % (37) 683 (26) (25) 5 9 12 4 0 11 299 (22) (11) % 16 5 6 19 10 18 10 11 pps (9.4) (7.6) (1.0) (0.51) (0.92) (0.50) (0.41) 1.4 0.87 0.59 1.7 (3) 1.0 1.0 1.0 % (36) (25) (13) 0 (29) (22) 11 15 (21) (24) 37 17 38 75 1 Structural adjustments made on consolidated IFRS profit and loss statement as well as balance sheet, together with the calculation methodology of adjusted indicators are detailed in the Supplementary data section of this Report. * Concerning 4Q 2019 capital adequacy ratios, the figures presented in this report do not include deducted dividend. This is consistent with the decision made by the Board of Directors on the 30th of April 2020, acting on behalf of the AGM, about the retainment of profit generated in 2019. These capital adequacy ratios differ from those presented in the Summary of the Group’s 4Q 2019 results, and the 2019 Annual Report. General note: in the tables of the Business Report those changes aren’t presented that are deemed not to carry a meaningful economic substance (for example, if the absolute value of the change exceeds 1000%). 14 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) S&P GLOBAL RATINGS MOODY’S FITCH Actual credit ratings OTP Bank and OTP Mortgage Bank FX Long-term credit rating OTP Bank FX long-term deposits OTP Bank Subordinated Foreign Currency Debt OTP Mortgage Bank Covered mortgage bond OTP Bank Russia Long-term credit rating Actual ESG ratings BBB Baa1 Ba1 A2 BB+ (cid:40)(cid:54)(cid:42)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:40)(cid:54)(cid:42)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74) (cid:40)(cid:54)(cid:42)(cid:3)(cid:86)(cid:70)(cid:82)(cid:85)(cid:72) (cid:58)(cid:82)(cid:85)(cid:86)(cid:87)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79) (cid:37)(cid:72)(cid:86)(cid:87)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79) (cid:54)(cid:40)(cid:57)(cid:40)(cid:53)(cid:40) (cid:43)(cid:44)(cid:42)(cid:43) (cid:48)(cid:40)(cid:39)(cid:44)(cid:56)(cid:48) (cid:47)(cid:50)(cid:58) (cid:49)(cid:40)(cid:42)(cid:47)(cid:44)(cid:42)(cid:44)(cid:37)(cid:47)(cid:40) (cid:38)(cid:38)(cid:38) (cid:37) (cid:37)(cid:37) (cid:37)(cid:37)(cid:37) (cid:36) (cid:36)(cid:36) (cid:36)(cid:36)(cid:36) (cid:19)(cid:16)(cid:21)(cid:28) (cid:58)(cid:72)(cid:68)(cid:78) (cid:22)(cid:19)(cid:16)(cid:23)(cid:28) (cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71) (cid:24)(cid:19)(cid:16)(cid:24)(cid:28) (cid:53)(cid:82)(cid:69)(cid:88)(cid:86)(cid:87) (cid:25)(cid:19)(cid:16)(cid:20)(cid:19)(cid:19) (cid:36)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71) (cid:16) (cid:16) (cid:21)(cid:22)(cid:17)(cid:24) (cid:36) (cid:26)(cid:20) (cid:37)(cid:16) (cid:38)(cid:39)(cid:51)(cid:3)(cid:86)(cid:70)(cid:82)(cid:85)(cid:72) (cid:39)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72) (cid:36)(cid:90)(cid:68)(cid:85)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87) (cid:47)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83) (cid:39) (cid:38) (cid:37)(cid:16) (cid:36) (cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3) (cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72) Share price performance 19,000 OTP Bloomberg EMEA Banks Index (relative to OTP) CECE Banking Sector Index (relative to OTP) 17,000 15,000 13,000 11,000 9,000 7,000 5,000 31.12.2018 30.06.2019 31.12.2019 30.06.2020 31.12.2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 15 M A N A G E M E N T ’ S A N A LY S I S O F T H E F U L L - Y E A R 2 0 2 0 R E S U LT S O F O T P G R O U P According to the detailed GDP data published a positive impact on exposures, since there on 2 March 2021, in 4Q the Hungarian economy was no principal amortization. Within grew by 1.4% q-o-q, as a result, the annual GDP household volumes the key engine was the declined by 5.0% y-o-y. subsidized baby loans, the total outstanding The lower than expected erosion was mainly book grew by 130% y-o-y on sector level and due to the targeted and successful measures their volumes reached HUF 1,064.5 billion implemented by the Government and the by the end of 2020. Cash loans advanced National Bank of Hungary (NBH) in order to by 12%, housing loans by 10%, respectively; contain the economic contraction. Those steps on the other hand, home equity loans eroded were essential to moderate the increase of by 5% y-o-y. unemployment; by the end of 2020 employment Most of the local economies within OTP Group level practically matched the previous year’s suffered lower contraction than originally figure. The family supporting schemes and anticipated, especially in countries with a housing subsidies, as well as measures boosting relatively low weight of tourism or service local ventures created the preconditions for a sector, like Russia, Ukraine and Serbia. meaningful economic kick start in 2021. In order to efficiently cure the recession, Monetary policy conditions remained loose massive government measures were in 2020, and the NBH increased the available implemented, and in several countries, that amounts within the framework of both the was coupled with numerous and larger Funding for Growth Go! scheme and the Bond scale interest rate cuts by the central banks. Funding for Growth programme, and increased Moreover, with the exception of Ukraine, the weight of government bonds in its balance all other countries introduced payment sheet. With temporary easing of the capital moratoriums with different conditions and buffer requirements, NBH supported the duration. lending activity of banks. Out of the numerous measures made at the end of 2020, the extension of the payment moratorium by the Parliament on 20 December until 30 June 2021, leaving participation conditions unchanged, had a paramount importance. The average inflation for 2020 was 3.3%. Consolidated earnings: HUF 310 billion adjusted annual after tax profit, stable portfolio quality, 9% y-o-y performing FX-adjusted organic loan growth The policy rate came down by 30 bps to 60 bps, Despite the extraordinary challenges triggered while interbank rates shifted upward: the by the pandemic, in 2020 the overall operation reference rate (3M BUBOR) increased y-o-y of the Group remained uninterrupted. It was from 16 bps to 75 bps. The Hungarian Forint quite an achievement that out of the previous on average weakened against the euro by acquisitions, the Bulgarian integration was 8% y-o-y amid substantial volatility. completed in early May 2020, as well as According to the Central Bank’s report the Montenegrin one in December. The sale published on 3 February 2021, despite the of the Slovakian subsidiary was completed economic recession caused by the pandemic, by the end of November. in 2020 both household and corporate loan The total volume of adjustment items in volumes expanded dynamically: the former 2020 represented –HUF 50.6 billion (after tax) increased by 14%, while the latter by 13%, within the HUF 260 billion accounting profit, respectively. The payment moratorium had underpinning a sizeable increase y-o-y. 16 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The larger adjustment items occurring in and Montenegro; also, provisions made in 2020 were as follows: 4Q 2019 for the divestment of the subsidiary (cid:588) In 2020 as a whole the one-off impact were released with a positive impact of of the loan repayment moratoria was HUF 6 billion (after tax). –HUF 28.3 billion. In Hungary the first phase of the moratorium on loan payments was The full-year 2020 consolidated adjusted after effective from 19 March 2020 to 31 December tax profit exceeded HUF 310 billion (–26% y-o-y). 2020. The moratorium was extended in The adjusted ROE stood at 13%. unchanged form for the period between Since the after tax results were heavily 1 January 2021–30 June 2021. During the distorted by the volume of total risk costs term of the moratorium OTP Bank accrues (HUF 188 billion related mainly to the pandemic the unpaid interest in its statement of situation), general trends are better illustrated recognized income, amongst the revenues. and easier compared to base periods through At the same time, due to the fact that interest the development of operating income. cannot be charged on the unpaid interest, In 2020 OTP Group posted HUF 537.4 billion and the unpaid interest will be repaid later, consolidated operating income underpinning altogether HUF 28.3 billion (after tax) loss a 5% y-o-y increase (–4%, without acquisitions, emerged in Hungary and Serbia. Out of FX-adjusted2). Total income increased dynami- this amount the expected one-off negative cally (+9% y-o-y) with net interest income impact of the extended moratorium surging by 12% y-o-y, while net fees & commis- in Hungary (effective from 1 January to sions grew at a slower pace (+4%) and other 30 June 2021) represented –HUF 9.1 billion net non-interest income remained flat y-o-y. (after tax), calculated on the base of year-end The weaker increase in net fees & commissions participation rate: at the end of December on one hand was shaped by a drop in business 37% of the combined gross loan portfolio at activity in the first half of the year induced OTP Core and Merkantil Group was under the by the pandemic, and also by a lower success moratorium representing HUF 1,881 billion. fee income compared to a record high per- This amount was recognized in December formance in 2019 at OTP Fund Management 2020. Also, within that amount there was a (Hungary). –HUF 1.7 billion (after tax) negative impact in The consolidated NIM eroded substantially relation to the Serbian deferral scheme, as (2020: 3.61%, –50 bps y-o-y) due to several the original interest calculation method was reasons: on one hand the interest rate changed by the local regulator (originally environment declined substantially in a few the compound interest method was allowed countries (Russia, Ukraine, Romania, Serbia); by the law in Serbia, but charging interest furthermore, new subsidiaries consolidated on deferred interest was retrospectively into OTP Group usually operated with lower disallowed by the regulator). In case of other margins than the Group as a whole. Also, as a foreign subsidiaries the Bank didn’t assume side-effect of the pandemic, demand for the any meaningful negative NPV impact as a higher margin consumer loans dropped, while result of the moratoria; the competition intensified. That was only (cid:588) –HUF 17.4 billion negative impact of banking partially offset by the positive impact of FX rate tax paid at the Hungarian and Slovakian moves related to weaker HUF. The annual subsidiaries (after tax), the latter was paid net interest income adjusted for acquisitions only until 30 June 2020; effects grew by 2% y-o-y (FX-adjusted), as a (cid:588) –HUF 6.9 billion appeared on the effect of result of higher performing loan volumes. acquisitions line (after tax) which, among Consolidated annual operating costs nominally others, incorporated the integration costs in advanced by 11% y-o-y, however adjusted Bulgaria, Serbia, Slovenia, Albania, Moldova for the acquisitions (2Q 2019: the Albanian 2 On 11 December 2020, Podgorička banka AD Podgorica was merged into Crnogorska komercijalna banka a.d., thus separate financial statements for Podgorička were not available for December. Therefore, profit dynamics without acquisitions are based on estimated numbers. Management’s analysis of the 2020 results of the OTP Group 17 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) subsidiary, 2H 2019: the Montenegrin, Moldovan, As for the major credit categories in 2020 Serbian and from January 2020 the Slovenian the FX-adjusted Stage 1+2 micro and small subsidiaries) and for the sale of Slovakia, the enterprise book advanced organically the FX-adjusted expense growth was only 2.4% y-o-y. fastest y-o-y (+11%), followed by the mortgage The COVID-related measures, as well as the loan portfolio (+10%), the consumer exposures donations resulted in around HUF 7.5 billion (+9%) and the large corporate book (+8%). extra expenses on a Group level. The consoli- During the course of 2020 lending activity to dated cost-to-income ratio stood at 54.1% a great extent was shaped by easing/lifting (+1.4 pps y-o-y). lockdowns and limitations, but targeted Except the Moldovan operation, adjusted Government programmes helped, too. earnings declined everywhere across the Group The second wave of COVID-19 pandemic had a y-o-y. Out of the adjusted annual profit the more limited impact on business activity, also, contribution of the non-Hungarian operations seasonality affected lending. dropped from 46% to 41%. One of the side effects of the pandemic was Apart from Russian performing (Stage 1+2) that while household consumption and loan book where the y-o-y drop exceeded 10%, investment activity of corporates suffered and the marginal decline of the Slovenian setback, savings demonstrated steady portfolio, all other Group members demon- growth. The FX-adjusted deposit portfolio strated loan growth (FX-adjusted). Out of the grew by 10% y-o-y. Such yearly increase major Group members the Hungarian (+17%), translated into more than HUF 2,000 billion Serbian (+16%), Romanian (+13%) and Ukrainian deposit volume surge (already adjusted for (+11%) organic loan expansion rates were the the Slovakian deposit volumes). Out of the most remarkable. In Hungary the excellent major operations the Ukrainian, Romanian, volume dynamics were coupled with improving Hungarian, Slovenian and Serbian subsidiaries market share in most of the loan categories. captured double digit volume increase. 18 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The consolidated net loan-to-deposit ratio Bulgarian, Croatian, Romanian and Serbian declined to 76% q-o-q. operations. At the end of 2020 the gross operative In 4Q the Group further fine-tuned its Stage liquidity reserves of the Group comprised 2 classification methodology: in case of EUR 8.9 billion equivalent. The NBH acting corporate exposures it identified clients with as resolution authority on 16 October 2020 higher risk profile within the framework of its informed the Bank about the consolidated monitoring process on a case by case basis, minimum requirement for own funds and whereas for household loans it rather used its eligible liabilities (MREL requirement) of internal ratings. As a result, Stage 2 volumes OTP Group. NBH didn’t set intermediate target increased at certain operations. The extension to be met by end of 2020, but determined of the moratorium and the EBA guidance a mandatory intermediate target for the issued on 2 December 2020 on the treatment consolidated MREL requirement that of exposures within existing or extended OTP Group has to comply with by 1 January payment moratoria schemes (EBA/GL/2020/15) 2022. This level is 11.55% of the Group’s induced further tightening in the methodology total liabilities and own funds (TLOF) which compared to 3Q; particularly in the case of corresponds to 17.16% of the Group’s total risk OTP Core. exposure amount (TREA or RWA). In 2020 no The adjusted total risk costs represented international bond transaction was executed. –HUF 188 billion in 2020 as a whole. Within that The consolidated loan portfolio quality – partly credit risk costs increased to –HUF 158.4 billion due to the existing or extended payment and the annual credit risk cost rate was 1.15% moratoria – remained relatively stable in 2020: of the average gross loan volumes. the DPD90+ volume growth (adjusted for FX and the effect of sales and write-offs, as well as for the revaluation of Factoring claims in Hungary) amounted to HUF 85 billion, against HUF 66 billion in 2019. The consolidated DPD90+ Consolidated capital adequacy ratio (in accordance with BASEL III) ratio declined below 4% (3.8%, –0.4 pp y-o-y). At the end of December 2020 the consolidated The Stage 1+2 exposures (HUF 13,544 billion) Common Equity Tier1 ratio under IFRS was comprised 94.3% of total gross loans. Within 15.4% (+1 pp y-o-y). This ratio equals to the Tier 1 that Stage 1 loans represented 80.4% of total ratio. gross loans and the Stage 2 ratio was 13.9%. The amount of eligible profit included into The Stage 3 ratio under IFRS 9 was 5.7% at end regulatory capital equals to the annual profit of 2020 (–0.2 pp y-o-y). The own coverage of (HUF 259 billion) reduced by the deducted Stage 1, 2 and 3 exposures was 1.0%, 10.4% and dividend (HUF 119 billion). The deducted 62.3%, respectively. dividend amount for 2020 was determined in Within the consolidated loan portfolio in 1Q a accordance with the Commission Delegated significant volume of corporate exposures was Regulation (EU) No. 241/2014. Article 2. (7) shifted from Stage 1 into the riskier Stage 2 Paragraph. Accordingly, in the absence of category on a collective base, whereas in case a stated dividend policy, the amount of the of retail exposures the Bank implemented dividend to be deducted should be calculated higher provision coverage during the first as follows: out of the previous three years’ two quarters. In 3Q a practice similar to that average dividend payment ratio and that used in the case of corporate exposures was of the preceding year the higher ratio must followed in case of the household portfolio. be applied. The dividend amount must be Mainly those exposures were reclassified calculated from OTP Group’s consolidated where the Bank presumed higher potential risk, accounting profit, and this must be deducted though this had not materialized yet due to from the consolidated regulatory capital. the moratoria, in particular at the Hungarian, However, the deducted dividend also included Management’s analysis of the 2020 results of the OTP Group 19 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) HUF 69.44 billion, the original dividend pro- the outlook from stable into positive on posal by the management after the 2019 fiscal OTP Bank Plc.’s long-term FX deposit rating; year, which wasn’t paid out in accordance furthermore, on 10 December Moody’s with the National Bank of Hungary’s upgraded OTP Bank Plc.’s long-term FX deposit recommendation. rating from ‘Baa3’ to ‘Baa1’ with stable outlook. Credit rating, shareholder structure On 2 April 2020 Moody’s changed the outlook on OTP Mortgage Bank’s issuer rating (‘Baa2’) from stable into negative. OTP Mortgage Bank’s covered bond rating remained ‘Baa1’. OTP Bank Russia’s ‘BB+’ rating by Fitch is On 27 January 2020 S&P Global Ratings unchanged, on 23 April 2020, however, the upgraded OTP Bank Plc.’s and OTP Mortgage outlook was changed from stable to negative. Bank’s short- and long-term issuer credit Regarding the ownership structure of the Bank, ratings from ‘BBB–/A–3’ to ‘BBB/A–2’. At the on 31 December 2020 the following investors same time S&P affirmed its ‘BBB/A–2’ long- had more than 5% influence (voting rights) and short-term resolution counterparty in the Company: MOL (the Hungarian Oil and ratings on OTP and OTP Mortgage Bank. Gas Company, 8.71%), the Kafijat Group (7.20%), The outlook remained stable for both banks. OPUS Securities SA (5.26%) and Groupama On 29 September 2020 Moody’s changed Group (5.20%). P O S T - B A L A N C E S H E E T E V E N T S 3 Hungary contributions, overhead costs, general operating expenses and inventory financing. (cid:588) Effective from 13 January 2021 the National Client interest rate is 0%, the loan tenor can Bank of Hungary extended the available be up to 10 years, and the servicing of the amount for the Bond Funding for Growth loan will start after a 3 year grace period. scheme by HUF 750 billion to HUF 1,150 billion. The scope of eligible entities will be discussed At the same time it decided to increase the with the Hungarian Chamber of Commerce maximum maturity of corporate bonds that and Industry. can be purchased by the central bank from (cid:588) On 16 February 2021 the Hungarian 20 to 30 years. Also, the central bank’s Statistical Office revealed the preliminary exposure limit to a company group was 4Q 2020 GDP statistics. Accordingly, in the revised from HUF 50 billion to HUF 70 billion. fourth quarter the Hungarian economy (cid:588) On 4 February 2021 the Prime Minister grew by 1.1% q-o-q (seasonally and working announced an interest-free loan programme day adjusted), but contracted by 5.1% y-o-y for companies in trouble in the wake of in 2020 as a whole. the pandemic. According to Government Resolution 1038/2021. (II. 5.) the programme will be administered by the Hungarian Bulgaria Development Bank, and the available amount under the programme will be (cid:588) On 19 February 2021 Fitch Ratings reaffirm- HUF 100 billion. Companies can take out ing Bulgaria’s sovereign ‘BBB’ debt rating, maximum HUF 10 million each for the and changed the outlook from stable to purpose of covering wages and social positive. 3 Post-balance sheet events cover the period until 19 February 2021. 20 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Croatia Romania (cid:588) On 4 February 2021 the European Central (cid:588) On 15 January 2021 the National Bank Bank and the Croatian National Bank agreed of Romania decided to reduce the key to extend the euro liquidity line until the interest rate by 25 bps to 1.25%. end of March 2022. Serbia Russia (cid:588) On 20 January 2021 the Central Bank (cid:588)(cid:631) On 4 February 2021, the European Central of Russia published its 2021–2022 road Bank extended the maintenance of a repo map for regulating consumer lending, facility providing euro-based liquidity to the as a result loosening measures taken in National Bank of Serbia in order to help with 2020 to facilitate lending will be reversed possible liquidity needs in euros during through higher risk weights being post-epidemic market disruptions. introduced. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 21 CONSOLIDATED AF T ER TAX PROFIT BREAKDOWN BY SUBSIDIARIES (IFRS) 4 Consolidated after tax profit Adjustments (total) Consolidated adjusted after tax profit without the effect of adjustments Banks total1 OTP Core (Hungary)2 DSK Group (Bulgaria)3 OBH (Croatia)4 OTP Bank Serbia5 SKB Banka (Slovenia) OTP Bank Romania6 OTP Bank Ukraine7 OTP Bank Russia8 CKB Group (Montenegro)9 OTP Bank Albania Mobiasbanca (Moldova) OBS (Slovakia)10 Leasing Merkantil Group (Hungary)11 Asset Management OTP Asset Management (Hungary) Foreign Asset Management Companies (Ukraine, Romania, Bulgaria)12 Other Hungarian Subsidiaries Other Foreign Subsidiaries13 Corporate Centre14 Eliminations Total adjusted after tax profit of HUNGARIAN subsidiaries15 Total adjusted after tax profit of FOREIGN subsidiaries16 Share of foreign profit contribution 2019 HUF million 412,582 (6,470) 419,052 382,144 190,956 67,879 30,719 10,430 – 6,309 35,223 28,127 6,377 2,616 1,936 1,575 7,115 7,115 15,208 15,104 104 9,498 232 3,478 1,377 227,527 191,525 46% 2020 HUF million 259,636 (50,631) 310,268 285,103 159,303 40,957 14,830 7,298 9,665 1,558 26,104 16,317 4,307 1,959 3,973 (1,169) 7,661 7,661 9,824 9,747 77 8,241 108 (569) (101) 184,282 125,986 41% Change % (37) 683 (26) (25) (17) (40) (52) (30) (75) (26) (42) (32) (25) 105 (174) 8 8 (35) (35) (26) (13) (53) (116) (107) (19) (34) (5) 4 Belonging footnotes are in the Supplementary data section of the Report. 22 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) C O N S O L I D AT E D S TAT E M E N T O F P R O F I T O R L O S S Main components of the adjusted Statement of recognized income Consolidated after tax profit Adjustments (total) Dividends and net cash transfers (after tax) Goodwill/investment impairment charges (after tax) Special tax on financial institutions (after corporate income tax) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia (after corporate income tax) Impact of fines imposed by the Hungarian Competition Authority (after tax) Effect of acquisitions (after tax) One-off impact of regulatory changes related to FX consumer contracts in Serbia Consolidated adjusted after tax profit without the effect of adjustments Before tax profit Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Foreign exchange result, net Gain/loss on securities, net Net other non-interest result Operating expenses Personnel expenses Depreciation Other expenses Total risk costs Provision for impairment on loan and placement losses Other provision Total one-off items Gain on the repurchase of own Upper and Lower Tier2 Capital Result of the treasury share swap agreement at OTP Core Corporate taxes Indicators ROE (from accounting net earnings) ROE (from adjusted net earnings) ROA (from adjusted net earnings) Operating profit margin Total income margin Net interest margin Net fee and commission margin Net other non-interest income margin Cost-to-asset ratio Cost/income ratio Provision for impairment on loan and placement losses-to-average gross loans Total risk cost-to-asset ratio Effective tax rate Non-interest income/total income EPS base (HUF) (from unadjusted net earnings) EPS diluted (HUF) (from unadjusted net earnings) EPS base (HUF) (from adjusted net earnings) EPS diluted (HUF) (from adjusted net earnings) Comprehensive Income Statement Consolidated after tax profit Fair value changes of financial instruments measured at fair value through other comprehensive income Fair value adjustment of derivative financial instruments designated as cash-flow hedge Net investment hedge in foreign operations Foreign currency translation difference Change of actuarial costs (IAS 19) Net comprehensive income o/w Net comprehensive income attributable to equity holders Net comprehensive income attributable to non-controlling interest Average exchange rate* of the HUF HUF/EUR HUF/CHF HUF/USD 2019 HUF million 412,582 (6,470) 505 (8,427) (16,170) 2020 HUF million 259,636 (50,631) 213 886 (17,365) Change % (37) 683 (58) (111) 7 0 0 19,265 (1,644) 419,052 465,973 510,045 1,077,727 706,298 282,504 88,926 45,177 12,372 31,376 (567,682) (280,002) (56,383) (231,298) (47,107) (29,474) (17,633) 3,034 0 3,034 (46,921) 2019 20.3% 20.6% 2.4% 2.97% 6.28% 4.12% 1.65% 0.52% 3.31% 52.7% 0.28% 0.27% 10.1% 34% 1,576 1,575 1,602 1,602 2019 412,582 30,224 11 (2,526) 79,440 (161) 519,570 518,802 768 2019 HUF 325 292 291 (28,262) 749 (6,852) 0 310,268 351,802 537,437 1,169,920 788,079 293,112 88,729 44,927 14,193 29,610 (632,483) (312,495) (70,286) (249,702) (187,995) (158,421) (29,574) 2,360 0 2,360 (41,534) 2020 10.9% 13.0% 1.4% 2.47% 5.37% 3.61% 1.34% 0.41% 2.90% 54.1% 1.15% 0.86% 11.8% 33% 1,004 1,003 1,200 1,200 2020 259,636 (4,764) (2) (8,591) 68,593 144 315,016 315,239 (223) 2020 HUF 351 328 308 (136) (100) (26) (25) 5 9 12 4 0 (1) 15 (6) 11 12 25 8 299 437 68 (22) (22) (11) %/pps (9.4) (7.6) (1.0) (0.50) (0.91) (0.51) (0.31) (0.11) (0.41) 1.4 0.87 0.59 1.7 (1) (36) (36) (25) (25) % (37) (116) (118) 240 (14) (189) (39) (39) (129) Change % 7 11 6 * Exchange rates presented in the tables of this report should be interpreted as follows: the value of a unit of the other currency expressed in Hungarian forint terms, i.e. HUF/EUR represents the HUF equivalent of one EUR. Management’s analysis of the 2020 results of the OTP Group 23 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) A S S E T - L I A B I L I T Y M A N A G E M E N T Similar to previous periods OTP Group maintained a strong and safe liquidity position… 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 The primary objective of OTP Group in terms of has an interest-rate risk exposure resulting asset-liability management has not changed, from its business operations. The Bank that is to ensure that the Group’s liquidity is considers the reduction and closing of this maintained at a safe level. exposure as a strategic matter. Consequently, Refinancing sources of the European Central it has been reducing its interest-rate risk Bank are still available for OTP (ECB repo exposure through the purchase of fixed-rate eligible security portfolio on Group level is government securities in order to offset the close to EUR 1.3 billion). negative impact of declining yields on net Total liquidity reserves of OTP Bank remained interest income. steadily and substantially above the safety level. As of 31 December 2020 the gross liquidity buffer was around EUR 8.9 billion equivalent. In addition to this, significant part of the Bulgarian excess liquidity Market Risk Exposure of OTP Group (ca. EUR 1.2 billion) was placed locally due The consolidated capital requirement of the to the Bulgarian regulation at the end of trading book positions, the counterparty December. Level of these buffers is risk and the FX risk exposure represented significantly higher than the maturing debt HUF 28.9 billion in total. within one year and the reserves required to OTP Group is an active participant of the protect against possible liquidity shocks. international FX and derivative market. Open The volume of issued securities increased by FX positions of group members are restricted HUF 150 billion y-o-y, mainly because of the to individual and global net open position change of net volume of mortgage bonds limits (overnight and intraday), and to stop- issued by OTP Mortgage bank due to the loss limits. The open positions of the group issuance and cancellation of mortgage bonds members outside Hungary except for the in 2020. In 2020 HUF 22 billion retail and Bulgarian DSK Bank – the EUR/BGN exposure structured bond have been matured, now the of DSK under the current exchange rate regime volume is HUF 16 billion. does not represent real risk – were negligible The volume of subordinated debt increased measured against either the balance sheet by HUF 17 billion y-o-y, mainly due to the total or the regulatory capital. Therefore, HUF weakening against the EUR, since the group level FX exposure was concentrated subordinated bond issuance did not happen at OTP Bank. in 2020. …and kept its interest-rate risk exposures low The main part of the FX exposure booked at OTP Bank – in line with the previous years’ practice – was the strategic open FX position (EUR 310 million), kept to hedge the currency risk of the expected FX-denominated net earnings of the main foreign subsidiaries. Interest-rate risk exposure of OTP Group is The strategic open FX position was partially determined primarily by the positions of closed in 4Q 2020. 24 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N O F O T P G R O U P Main components of the adjusted balance sheet TOTAL ASSETS Cash, amounts due from Banks and balances with the National Banks Placements with other banks, net of allowance for placement losses Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Net customer loans Net customer loans (FX-adjusted*) Gross customer loans Gross customer loans (FX-adjusted*) o/w Retail loans Retail mortgage loans (incl. home equity) Retail consumer loans SME loans Corporate loans Loans to medium and large corporates Municipal loans Car financing loans Allowances for loan losses Allowances for loan losses (FX-adjusted*) Associates and other investments Securities at amortized costs Tangible and intangible assets, net o/w Goodwill, net Tangible and other intangible assets, net Other assets TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Amounts due to banks, the National Governments, deposits from the National Banks and other banks, and Financial liabilities designated at fair value through profit or loss Deposits from customers Deposits from customers (FX-adjusted*) o/w Retail deposits Household deposits SME deposits Corporate deposits Deposits to medium and large corporates Municipal deposits Accrued interest payable related to customer deposits Liabilities from issued securities o/w Retail bonds Liabilities from issued securities without retail bonds Other liabilities Subordinated bonds and loans** Total shareholders’ equity Indicators Loan/deposit ratio (FX-adjusted*) Net loan/(deposit + retail bond) ratio (FX-adjusted*) Stage 1 loan volume under IFRS 9 Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 90+ days past due loan volume 90+ days past due loans/gross customer loans 2019 HUF million 20,121,767 1,841,963 410,433 251,991 2,427,537 12,247,519 12,902,518 12,942,009 13,605,264 7,930,058 3,671,413 3,235,843 1,022,802 5,101,177 4,694,688 406,490 574,029 (694,490) (702,746) 20,822 1,995,627 605,673 105,298 500,375 320,201 20,121,767 2020 HUF million 23,335,841 2,432,314 1,148,987 235,194 2,140,118 13,528,586 13,528,586 14,363,281 14,363,281 8,309,033 3,818,847 3,484,172 1,006,014 5,409,732 4,935,682 474,049 644,516 (834,695) (834,695) 52,443 2,625,952 589,878 101,393 488,485 582,368 23,335,841 846,158 1,219,446 15,522,654 16,260,599 11,805,158 9,722,990 2,082,168 4,440,881 3,637,487 803,394 14,560 393,167 3,237 389,930 818,561 249,937 2,291,288 2019 84% 79% 11,489,554 88.8% 1.1% 685,885 5.3% 10.7% 766,570 5.9% 65.2% 541,467 4.2% 17,890,863 17,890,863 12,810,762 10,614,696 2,196,066 5,071,626 4,218,727 852,899 8,474 464,213 1,326 462,888 949,502 274,704 2,537,112 2020 80% 76% 11,544,766 80.4% 1.0% 1,998,867 13.9% 10.4% 819,647 5.7% 62.3% 543,713 3.8% Change % 16 32 180 (7) (12) 10 5 11 6 5 4 8 (2) 6 5 17 12 20 19 152 32 (3) (4) (2) 82 16 44 15 10 9 9 5 14 16 6 (42) 18 (59) 19 16 10 11 %/pps (4) (3) 0 (8.4) 0.0 191 8.6 (0.3) 7 (0.2) (2.9) 0 (0.4) * 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. ** The ICES bonds are considered as Tier2 debt, but accounting-wise they are treated as part of the shareholders’ equity. Management’s analysis of the 2020 results of the OTP Group 25 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Consolidated capital adequacy – Basel3 Capital adequacy ratio (consolidated, IFRS) Tier 1 ratio Common Equity Tier1 (CET1) capital ratio Regulatory capital (consolidated) o/w Tier 1 Capital o/w Common Equity Tier1 capital Tier2 Capital o/w Hybrid Tier2 Consolidated risk weighted assets (RWA) (Credit&Market&Operational risk) o/w RWA (Credit risk) RWA (Market & Operational risk) Closing exchange rate of the HUF HUF/EUR HUF/CHF HUF/USD 2019 16.8% 14.4% 14.4% 2,390,688 2,055,106 2,055,106 335,582 89,935 14,262,197 12,529,878 1,732,319 2019 HUF 331 304 295 2020 17.7% 15.4% 15.4% 2,669,806 2,316,118 2,316,118 353,688 89,935 15,046,888 13,389,536 1,657,352 2020 HUF 365 337 297 %/pps 1.0 1.0 1.0 12 13 13 5 0 6 7 (4) Change % 10 11 1 O T P B A N K ’ S H U N G A R I A N C O R E B U S I N E S S OTP Core Statement of recognized income: Main components of the Statement of recognised income After tax profit without the effect of adjustments Corporate income tax Pre-tax profit Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total risk costs Provision for impairment on loan and placement losses Other provisions Total one-off items Revaluation result of the treasury share swap agreement Indicators ROE ROA Operating profit margin Total income margin Net interest margin Net fee and commission margin Net other non-interest income margin Operating costs to total assets ratio Cost/income ratio Provision for impairment on loan and placement losses/average gross loans* Effective tax rate 2019 HUF million 190,956 (12,668) 203,624 173,995 432,013 261,754 126,911 43,349 (258,018) 26,594 30,332 (3,737) 3,034 3,034 2019 11.7% 2.1% 1.9% 4.82% 2.92% 1.42% 0.48% 2.9% 59.7% (0.88%) 6.2% 2020 HUF million 159,303 (16,558) 175,860 181,178 453,634 286,448 130,470 36,717 (272,457) (7,677) 2,374 (10,052) 2,360 2,360 2020 9.3% 1.5% 1.7% 4.34% 2.74% 1.25% 0.35% 2.6% 60.1% (0.06%) 9.4% Change % (17) 31 (14) 4 5 9 3 (15) 6 (129) (92) 169 (22) (22) pps (2.4) (0.6) (0.2) (0.48) (0.18) (0.17) (0.13) (0.3) 0.3 0.82 3.2 * Negative Provision for impairment on loan and placement losses/average gross loans ratio implies positive amount on the Provision for impairment on loan and placement losses line. 26 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Main components of OTP Core’s Statement of financial position: Main components of balance sheet closing balances Total Assets Net customer loans Net customer loans (FX-adjusted) Gross customer loans Gross customer loans (FX-adjusted) Retail loans Retail mortgage loans (incl. home equity) Retail consumer loans SME loans Corporate loans Loans to medium and large corporates Municipal loans Provisions Provisions (FX-adjusted) Deposits from customers + retail bonds Deposits from customers + retail bonds (FX-adjusted) Retail deposits + retail bonds Household deposits + retail bonds o/w Retail bonds SME deposits Corporate deposits Deposits to medium and large corporates Municipal deposits Liabilities to credit institutions Issued securities without retail bonds Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Market Share Loans Deposits Total Assets Performance Indicators Net loans to (deposits + retail bonds) (FX-adjusted) Leverage (closing Shareholder's Equity/Total Assets) Leverage (closing Total Assets/Shareholder's Equity) Capital adequacy ratio (OTP Bank, non-consolidated, Basel3, IFRS) Common Equity Tier1 ratio (OTP Bank, non-consolidated, Basel3, IFRS) 2019 HUF million 9,641,692 3,740,975 3,809,093 3,883,412 3,954,333 2,377,561 1,383,805 746,272 247,483 1,576,772 1,475,017 101,756 (142,437) (145,240) 6,770,161 6,861,433 4,562,600 3,609,460 3,237 953,140 2,298,834 1,658,191 640,643 445,301 436,340 1,720,872 2019 3,550,841 91.4% 0.8% 163,954 4.2% 12.4% 168,618 4.3% 55.4% 123,895 3.2% 2019 22.2% 27.7% 28.8% 2019 56% 17.8% 5.6x 27.6% 23.6% 2020 HUF million 11,492,949 4,415,778 4,415,778 4,631,974 4,631,974 2,955,288 1,534,013 1,043,634 377,642 1,676,685 1,577,900 98,785 (216,196) (216,196) 8,083,488 8,083,488 5,369,294 4,231,931 1,326 1,137,363 2,714,194 1,961,483 752,711 858,230 513,860 1,766,639 2020 3,606,490 77.9% 0.8% 833,163 18.0% 10.1% 192,321 4.2% 54.5% 144,816 3.1% 2020 23.0% 25.4% 25.7% 2020 55% 15.4% 6.5x 26.7% 22.5% Change % 19 18 16 19 17 24 11 40 53 6 7 (3) 52 49 19 18 18 17 (59) 19 18 18 17 93 18 3 %/pps 2 (13.5) 0.0 408 13.8 (2.3) 14 (0.1) (0.9) 17 (0.1) pps 0.8 (2.3) (3.1) pps (1) (2.5) 0.9x (0.8) (1.0) (cid:588) In 2020 as a whole, OTP Core's adjusted profit amounted to HUF 159.3 billion, marking a y-o-y decline of 17%, owing to higher risk costs (cid:588) All components of the total income margin declined in 2020 (–48 bps y-o-y) (cid:588) Whereas the underlying loan quality trends remained favourable, the rise in the ratio of Stage 2 loans stemmed from the Bank's more conservative customer assessment. The ratio of Stage 3 loans even decreased y-o-y (cid:588) Performing loans grew dynamically (+19% y-o-y FX-adjusted), mostly driven by the subsidized baby loans and FGS Go! loans. Deposits rose by 18% y-o-y (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 27 Starting from 1Q 2020, OTP eBIZ Ltd. became end of 2019, while its annual average rate rose part of OTP Core. It reported HUF 0.4 billion by 50 bps, to 69 bps. loss in full-year 2019. The annual net fees and commissions grew by Starting from 1Q 2020, the accounting method HUF 3.6 billion, or 3% y-o-y. The main reason of the termination of swap contracts has for the modest growth was the pandemic- changed. Upon the termination of swap deals, induced decline in economic activity and trans- until the end of 2019, the FVA booked within action volumes: reversing a 15% y-o-y growth other income was shifted to the net interest in 1Q, there was 7% decline in 2Q, 3% drop in income line. From 1Q 2020 this shift does not 3Q from the previous year, but the growth occur. In the case of OTP Core, the intra-group rate returned to positive territory in 4Q, even swaps, typically with DSK Bank, are being without a one-off item booked in 4Q 2020: the terminated. In 2019 the other income shifting of subsidized retail loans to loans at of OTP Core was boosted, whereas the net fair value had HUF 2.7 billion positive effect6 interest income was reduced by the above on net fees. Among the components of the accounting method. annual fee income, deposits, transactions- P&L developments and card-related fee revenues rose modestly, while commissions from securities dropped, particularly those relating to the distribution of investment funds and retail government In 2020, OTP Core's adjusted after tax profit bonds. The latter was partly explained by base amounted to HUF 159.3 billion, 17% less than a effect: thanks to the outstanding sales per- year earlier. The drop owed a lot to higher total formance, the volume of the MÁP Plus retail risk costs, while operating profit improved by 4%, government bonds expanded significantly largely benefiting from a continued dynamic after its launch in June 2019. Secondly, loan growth. revenues realized in 2020 declined in relation Within full-year total income, net interest to the distribution fee structure, largely as income grew at the strongest rate, 9%, thanks average retail government bond volumes to a dynamic organic growth in loans – this shrank q-o-q in the second quarter of 2020, was somewhat offset by the 18 bps y-o-y bringing down retail government bond erosion of net interest margin. The latter was distribution fee revenues in 2Q. reasoned mainly by lower lending interest rate Full-year other net non-interest income (without levels, owing to the strong competition. In the one-offs) dropped by 15% y-o-y, or HUF 6.6 bil- fourth quarter, net interest income benefited lion, dragged down by lower gain on securities a total HUF 0.5 billion from items that arose in 1Q 2020, and by the fact that recoveries in 4Q when, under the modification of its realized on claims bought by OTP Factoring accounting policy, the Bank re-classified retail from non-Group parties were presented under loans with subsidized interest rates from loans risk costs, rather than other income, starting at amortized cost to loans measures at fair from 2020. In 2020, nearly HUF 3.8 billion value through profit or loss5. revaluation result appeared within other Short-term interbank rates, which are the income in the wake of the revision of Visa Inc.‘s reference rates for variable rate loans, rose class C shares’ accounting classification. overall in 2020: the 3M BUBOR's closing value In 2020, operating expenses grew by 6%, rose to 75 bps by end-2020, from 16 bps at the or HUF 14.4 billion, chiefly because of higher 5 The modification of the accounting policy was applied retroactively: the P&L items that concerned the previous years were accounted against shareholders’ equity, while the reporting year's items were booked in the P&L, in one lump sum in 4Q 2020. 6 Because of the reclassification of loans, two major items appeared among net fees: first, the commissions due in 2020, which would have been amortized over the whole maturity according to the previous method, were recognized in the P&L in one lump sum in December (HUF 1.3 billion). Second, the fees received after the end-of-the-year volume of baby loans were recorded amongst the net fees and commissions (HUF 1.4 billion), while under the previous accounting policy, this amount would have been recognized in the outstanding baby loan volumes at amortized cost. 7 In 2Q 2020, because of technical reasons, lower fee income was booked from the sales of investment funds. At OTP Core, much of this type of income is related to the funds managed by the Group's Hungarian fund managers, and is presented at these asset management companies as commission expenditure, thus at Group level, this item did not affect the q-o-q dynamics of net fees and commissions. 28 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) depreciation, and to a lesser extent due to in 2Q, 3Q, and 4Q (FX-adjusted, without administrative expenses, including hardware sales/write-offs, adjusted for the revaluation and office equipment costs, as well as super- of OTP Factoring’s claims in 4Q). This led to visory fees (the latter jumped by HUF 3 billion a HUF 5 billion decrease in full-year 2020, y-o-y, to HUF 13.3 billion). In 2020 as a whole, the same as the 2019 figure. In the whole of the extra cost of protection against the 2020, HUF 10 billion non-performing loans pandemic and OTP Bank’s donations entailed were sold/written off (FX-adjusted). HUF 4 billion extra expenses. As a favourable Predominantly as a result of the abovemen- development, personnel expenses slightly tioned reclassifications, the ratio of Stage 2 dropped y-o-y, in part because of lower loans grew to 18% by the end of December, bonus payments and partly as employers’ up from 4.2% at the end of 2019, and from 11.7% contributions were reduced by a further two in the previous quarter. Even though those pps from July 2020. The average number of reclassifications into Stage 2 reduced the own employees grew by 5% y-o-y. coverage of both Stage 1 and Stage 2 loans in In 2020, total risk costs amounted to 2020, but the total Stage 1+2 portfolio's own –HUF 7.7 billion, as opposed to +HUF 26.6 billion provision coverage nearly doubled in 2020 in 2019. The main reason for the higher risk (2019: 1.3%, 2020: 2.5%). costs was that the pandemic-induced change in the macroeconomic environment was incorporated in the calculation of impairments. Balance sheet trends As a result, the IFRS 9 impairment model parameters were revised several times in the In 2020, the balance sheet total expanded course of 2020, entailing higher risk costs. by 19% (+HUF 1.851 billion). A larger part of Throughout 2020, the Bank steadily monitored that growth came from customer deposits changes to customers’ financial position and (+HUF 1.315 billion), and a smaller increase was behaviour even during the loan repayment caused by a y-o-y growth in liabilities to credit moratorium, and sought to identify debtors institutions (+HUF 413 billion). One reason with increased risk profile. As a result, certain for the latter was that the repo volumes, exposures – some of them under the debt previously presented on the medium and large repayment moratorium – were reclassified corporate deposits line, picked up from zero as Stage 2 during 2020, which also added at the end of 2019, and was moved to this line, to risk costs. These effects were mitigated by starting from 2020. the positive risk costs booked in relation to Gross loans and performing (Stage 1+2) loans the portfolio managed by OTP Factoring, the grew at similar rates, by 17% in 2020 (FX-adjusted), Hungarian work-out company, largely relating while performing loans surged 21% in 2019. to claims toward households. This included the OTP Core's performing loans rose by 5% q-o-q continued recoveries realized on these claims, in 1Q, by 2% in 2Q, by 5% in 3Q, and by 4% 4Q whereas in 4Q 2020 another positive item (all FX-adjusted) – that is, the pandemic and emerged as a result of the revision of the the related restrictions somewhat decelerated expected future recoveries from OTP Factoring's loan growth in 2Q, but it could climb back claims; the upward revaluation of such claims to average pre-pandemic quarterly levels also resulted in a growth in net loan volumes in the second half-year. This was mostly the classified as Stage 3 (while the stock of impair- result of the effective economy protection ments in the balance sheet did not change). measures, particularly of the government's Regarding loan quality trends, new defaults and the National Bank of Hungary’s subsidized did not seem to have jumped: while the volume lending programs: in full-year 2020, growth of more than 90 days past due (DPD90+) in subsidized loans (baby loans, FGS Go!, loans grew by HUF 4 billion in 1Q 2020, these CSOK Housing Subsidy for Families scheme) volumes contracted by HUF 3 billion each contributed 84% of the total FX-adjusted Management’s analysis of the 2020 results of the OTP Group 29 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) increase in performing loans. Meanwhile, was launched in July 2019, owing to the the dynamic lending activity helped OTP Bank features of the structure (1Q 2020: HUF 72 billion, preserve, or in some cases even improve, its 2Q: HUF 59 billion, 3Q: HUF 65 billion, market share in the main loan categories. 4Q: HUF 61 billion). In addition, starting from the second quarter Market-based cash loan disbursements fell by of 2020, existing loan volumes also benefited 46% overall in 2020. The declining disburse- from the fact that, in the case of loans that ments from 2Q 2020 can be attributed to participated in the debt repayment morato- the introduction of a cap on interest rates rium, the principal was not amortized, and on newly disbursed, non-mortgage-backed the deferred interest was presented as part consumer loans, effective from 19 March 2020 of the gross loan volume (however, the until end-2020, as well as to the related regulation bans charging interest on the tightening in lending standards. OTP Bank's unpaid interest). markets share calculated from cash loan Regarding the individual product categories, placements was 34.8% in full-year 2020, down the subsidized baby loan was the engine from 38.9% in 2019. The stock of performing of consumer loan growth: in 2020, the cash loans expanded by 15% y-o-y, partly contractual amount of baby loans at OTP Bank supported by the declining amortization due hit HUF 257 billion, thus the Bank's market to the repayment moratorium. share reached 41.7% in 2020. In line with As for mortgage loans, the steady growth expectations, the quarterly contractual in performing volumes continued, bringing amount of baby loans has been following the y-o-y dynamics to 11%. Within that, housing a slightly declining path since the product loans, which make up 85% of the overall 30 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) mortgage stock, expanded by 14% y-o-y, while acceleration from the 14% growth in 2019. home equity loans, which were less popular This owed a lot to the National Bank of in recent years, shrank further (–6% y-o-y). Hungary’s Funding for Growth Go! scheme, In full year 2020, applications for mortgage which has been available at OTP Bank loans subsided 7% y-o-y. However, the since the end of April 2020. By the end of disbursed amount grew by 15% y-o-y in December 2020, their contractual amount 2020, owing to the surge in subsidized loan reached HUF 362 billion, thus OTP Bank's placement. market share has surpassed 25% since the OTP Bank's market share in new mortgage programme started. loan contractual amounts hit 32.0% in 2020 The share of investments in subsidiaries, (up from 31.4% in 2019). The improvement held on OTP Core's asset side, within the owed mainly to the CSOK family housing balance sheet total rose by an average benefit scheme, which was expanded in July of 1 pp y-o-y in 2020, to 13.1%, fundamentally 2019, thus bolstering demand for subsidized driving the growing share of non-interest- loans: in the subsidized housing loan segment, bearing assets in the balance sheet. OTP's market share has been traditionally OTP Core's customer deposits increased by strong. 18% y-o-y (FX-adjusted). Household deposits Regarding corporate lending activity, remained on a dynamic growth path (+3% performing corporate loans reversed the q-o-q in 1Q 2020, +6% in 2Q, +2% in 3Q, and strong growth seen in recent years and in the +5% in 4Q). The net loan/(deposit + retail bond) first quarter of 2020 (+5% q-o-q): they declined ratio stood at 55% at the end of 2020, by 1% q-o-q in 2Q 2020, then picked up that which is consistent with 1 pp y-o-y decline. much in 3Q, and grew 3% q-o-q in 4Q. This OTP Bank's capital adequacy ratio (CAR) brought the annual growth rate to 7% in 2020. stood at 26.7% at the end of 2020, while the The outstanding expansion in loans to CET1 = Tier 1 ratio was at 22.5%. The Bank's micro and small enterprises continued: regulatory capital at the end of the reporting their performing loan volumes grew by 55% period did not include the eligible profit made y-o-y (FX-adjusted), marking an impressive in the reporting period. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 31 O T P F U N D M A N A G E M E N T ( H U N G A R Y ) Changes in assets under management and financial performance of OTP Fund Management: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Other provision Main components of balance sheet closing balances Total assets Total shareholders’ equity Asset under management Assets under management, total (w/o duplicates)* Volume of investment funds (closing, w/o duplicates) Volume of managed assets (closing) Volume of investment funds (closing, with duplicates)** absolute return fund bond security mixed commodity market guaranteed money market derivative other 2019 HUF million 15,104 (1,438) 16,542 16,542 20,433 0 19,800 633 (3,891) 0 2019 33,688 24,828 2019 HUF billion 1,119 793 326 1,073 434 315 188 73 30 28 6 0 0 2020 HUF million 9,747 (915) 10,662 10,662 14,453 0 14,154 299 (3,791) (1) 2020 33,210 16,425 2020 HUF billion 1,201 828 373 1,183 374 376 248 133 28 20 5 0 0 Change % (35) (36) (36) (36) (29) 0 (29) (53) (3) 0 % (1) (34) Change % 7 4 14 10 (14) 19 32 82 (7) (29) (17) 0 0 In 2020, OTP Fund Management generated lows hit in the first quarter, the situation HUF 9.7 billion profit, 35% less than in the consolidated, and the turbulent changes previous year. reshuffled investment funds’ structure as well. The y-o-y drop in full-year net fees and com- Following its extraordinary performance in missions was caused by a base effect: it largely 2019, Hungary's largest absolute return fund, reflected the effect of the income from an OTP Supra Derivative Fund made negative outstanding success fee at the end of 2019. yield in 2020, but it worked off some of Unlike in 2019, when the success fee was the losses after hitting its lowest in March. mostly related to the OTP Supra Derivative Absolute return funds, as well as technology Fund's performance, in 2020 it was the and climate change related funds were OTP Treasures of the Earth Derivative Fund, particularly popular in 2020. and a number of other derivative and absolute The positive capital flow and yields helped return funds’ performance that determined it. OTP Fund Management increase the total The OTP Treasures of the Earth Derivative Fund wealth managed in y-o-y terms (by +4%). absolute return fund's yield exceeded 49% in Of the funds managed, demand for bond funds 2020, and the success fee is 20% of the positive remained steady; their volume expanded by difference between the fund's yield and the nearly 20% y-o-y. Following the slump in stock ZMAX benchmark index. prices in March, demand for equity funds has The main reason for the y-o-y drop in the annual increased, thus their volumes grew by 32% y-o-y, other income was the negative fair value on account of capital inflow and favourable adjustment of own investment units, recorded yield developments. in 1Q 2020. The Company's market share rose by 1 pp y-o-y, Operating expenses dropped by 3% y-o-y in 2020. to 24.6% by the end of December 2020, thus In Hungary, the market environment for invest- preserving its top position in the domestic ment funds was rather hectic; following the securities funds market. * The cumulative net asset value of investment funds and managed assets of OTP Fund Management, eliminating the volume of own investment funds (duplications) being managed in other investment funds and managed assets of OTP Fund Management. ** The cumulative net asset value of investment funds with duplications managed by OTP Fund Management. 32 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) M E R K A N T I L G R O U P ( H U N G A R Y ) Performance of Merkantil Group: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customer (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio 2019 HUF million 7,115 (632) 7,747 7,372 14,369 14,013 (104) 461 (6,997) 375 143 232 2019 491,399 366,064 368,689 30,528 128,707 209,454 (10,072) (10,143) 10,414 10,414 8,051 2,364 420,076 44,441 2019 345,339 94.3% 0.4% 7,459 2.0% 4.7% 13,267 3.6% 63.4% (0.04%) 7,364 2.0% 2019 1.6% 17.4% 3.20% 3.12% 48.7% 2020 HUF million 7,661 (956) 8,617 10,280 21,283 17,688 40 3,555 (11,004) (1,663) (1,491) (171) 2020 667,120 416,987 416,987 57,018 119,725 240,244 (12,874) (12,874) 9,344 9,344 6,071 3,273 584,944 52,553 2020 343,668 82.4% 0.2% 58,592 14.1% 3.8% 14,727 3.5% 66.5% 0.38% 8,971 2.2% 2020 1.3% 15.7% 3.58% 2.97% 51.7% Change % 8 51 11 39 48 26 (138) 671 57 (543) (174) % 36 14 13 87 (7) 15 28 27 (10) (10) (25) 38 39 18 %/pps 0 (11.9) (0.1) 686 12.0 (0.8) 11 (0.1) 3.1 0.42 22 0.1 pps (0.3) (1.6) 0.37 (0.15) 3.0 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 33 The column for 2020 in the table display by 5%. Merkantil Group's total risk cost the partially consolidated performance of amounted to –HUF 1.7 billion in 2020. Merkantil Group, including Merkantil Bank Ltd., The stock of DPD90+ loans did not change over Merkantil Bérlet Ltd., NIMO 2002 Ltd., SPLC-P 2020 (FX-adjusted, without sales/write-offs). Ingatlanfejlesztő, Ingatlanhasznosító Ltd., The ratio of Stage 2 loans grew by 4.6 pps q-o-q. SPLC Vagyonkezelő Ltd., and OTP Ingatlan- The own provision coverage of Stage 2 loans lízing Ltd. In the 2019 base period, the stood at 3.8% (–0.7 pp q-o-q). Stage 3 loans standalone performance of Merkantil Bank Ltd. made up 3.5% of gross loan volumes (–0.7 pp was presented. q-o-q), and their own provision coverage was 66.5% (+10.4 pps q-o-q). In 2020 Merkantil Group generated Merkantil Group's FX-adjusted performing HUF 7.7 billion adjusted after tax profit, of (Stage 1+2) loans increased by 12% y-o-y. which HUF 6.7 billion was Merkantil Bank's Merkantil Bank's individual performing loan contribution, which therefore showed stock grew by 4% y-o-y. The full-year dynamics a decrease y-o-y. In 2020, the Group's ROE was positively affected by the National Bank of stood at 15.7%. Hungary’s FGS Go! programme, made available The main reason for the y-o-y rise in the in April 2020. By the end of December 2020, income and expense lines is that, starting from contractual amount reached HUF 41 billion 1Q 2020, the figures reflect the performance of at Merkantil Bank. Merkantil Bank retained the entire Hungarian leasing group. Merkantil its market leading position both in terms Bank's individual net interest income rose by of new disbursements and outstanding 4% y-o-y, and its operating expenses dropped leasing volumes. 34 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS reports of the main foreign subsidiaries of OTP Bank D S K G R O U P ( B U L G A R I A ) Performance of DSK Group: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/BGN (closing) HUF/BGN (average) 2019 HUF million 67,879 (7,199) 75,078 83,495 155,567 109,030 42,019 4,517 (72,071) (8,418) (5,216) (3,201) 2019 3,669,766 2,350,694 2,596,088 1,597,408 953,025 45,655 (135,640) (149,830) 3,015,805 3,315,475 2,780,781 534,694 59,867 528,759 2019 2,081,790 88.6% 1.1% 99,917 4.3% 8.5% 168,986 7.2% 62.0% 0.24% 108,600 4.6% 2019 1.9% 13.7% 4.28% 3.00% 46.3% 74% 2019 HUF 169.0 166.3 2020 HUF million 40,957 (3,707) 44,665 89,775 166,668 111,239 45,453 9,975 (76,893) (45,110) (44,875) (235) 2020 4,283,625 2,634,870 2,634,870 1,614,561 938,117 82,191 (185,829) (185,829) 3,587,364 3,587,364 3,012,074 575,290 17,010 620,379 2020 2,142,644 81.3% 1.0% 297,292 11.3% 12.6% 194,934 7.4% 65.6% 1.79% 126,242 4.8% 2020 1.0% 7.0% 4.13% 2.75% 46.1% 68% 2020 HUF 186.7 179.5 Change % (40) (49) (41) 8 7 2 8 121 7 436 760 (93) % 17 12 1 1 (2) 80 37 24 19 8 8 8 (72) 17 %/pps 3 (7.3) (0.1) 198 7.0 4.1 15 0.2 3.6 1.55 16 0.2 pps (0.9) (6.7) (0.15) (0.25) (0.2) (6) Change % 10 8 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 35 (cid:588) The Bulgarian banking group generated HUF 41.0 billion adjusted profit, 40% less than a year earlier, owing to the higher provisions (cid:588) The integration of Expressbank was successfully completed at the beginning of May 2020. The number of branches dropped by 24%, and the headcount fell by 9% y-o-y The P&L of the Bulgarian operation was The Stage 2 ratio has significantly increased adjusted for the one-off items directly related over the past 12 months (+7 pps y-o-y), to the Expressbank acquisition; these predominantly because the Bank reclassified corrections are presented at consolidated the loans most exposed to the pandemic, level, among adjustment items. The balance first corporate and then retail loans were sheet items were not adjusted for these effects. reclassified from Stage 1 (performing) category In 2020 DSK Group generated HUF 41.0 billion under IFRS 9 into Stage 2 (increased risk). after tax profit, 40% less than in 2019. The ratio of Stage 3 loans increased by 0.2 pp The integration of Expressbank was successfully over the previous year. The own provision completed at the beginning of May 2020. coverage of Stage 3 loans rose in y-o-y terms. Certain cost synergies had already been In 2020, HUF 45.1 billion total risk costs extracted during the integration process, weighed on profit. The reason for the y-o-y and this has continued since then. The number higher figure was the extra provisioning owing of branches in Bulgaria fell by 143 units (–30%) to the pandemic. The 12-month credit risk cost since the end of 1Q 2019, when Expressbank ratio was 1.79% of average gross loan volumes. became part of the Group. The number of Overall, loan quality indicators have improved: employees dropped by 566 (–9%) in 2020. the more than 90 days past due (DPD90+) Full-year operating expenses declined by 1% loans grew by HUF 22 billion (FX-adjusted, y-o-y in local currency. without sales/write-offs) in full year 2020 The Bulgarian operation's full-year operating (of which 4Q: +HUF 5 billion). During 2019 this profit grew by 8% in HUF (but dropped 1% in volume increased by HUF 11 billion without BGN terms). Within total income, cumulated the technical effect of the acquisition of net interest income declined by 6% in BGN Expressbank. In 2020 as a whole HUF 13 billion terms, as a result of the 24 bps erosion in net worth of problem loans were sold/written off. interest margin. The full-year net interest Regarding the lending activity, performing income was also negatively affected by a (Stage 1+2) loans rose by an FX-adjusted 1% regulatory change that banned charging in y-o-y terms. In 2020, car financing loans penalty interest on late payment during the grew by 80% y-o-y, partly because of the emergency, from 13 March to 14 May 2020. reclassification of some leasing exposures In 2020, net fees and commissions stagnated from corporate loans onto this line. y-o-y in BGN, predominantly in connection with The Bulgarian operation’s liquidity position the drop in economic and business activity remained stable. The FX-adjusted net from the second quarter. loan/deposit ratio stood at 68% at the end of In 2020, other net non-interest income surged December. At the end of December 2020, the by 121% y-o-y, chiefly because of higher swap capital adequacy ratio of DSK Bank, calculated result and foreign exchange gains. Another according to local rules, stood at 21.4%. reason was that, following the revision of Visa In the course of 2020, DSK Bank did not pay Inc.‘s class C shares’ accounting classification, dividend to OTP Bank from its 2019 profit, in the equivalent of HUF 0.7 billion positive accordance with the Bulgarian National Bank's amount boosted other income in 2Q 2020. recommendation. 36 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OT P B A N K C R OAT I A Performance of OTP Bank Croatia: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/HRK (closing) HUF/HRK (average) 2019 HUF million 30,719 (6,681) 37,400 42,925 85,069 56,812 17,032 11,225 (42,144) (5,525) (2,835) (2,691) 2019 2,098,951 1,370,057 1,503,015 812,239 617,623 73,152 (68,701) (75,254) 1,478,223 1,613,110 1,213,410 399,700 253,176 292,649 2019 1,140,495 83.2% 0.8% 143,843 10.5% 3.5% 85,719 6.3% 63.6% 0.22% 51,012 3.7% 2019 1.6% 10.9% 4.35% 2.91% 49.5% 89% 2019 HUF 44.4 43.9 2020 HUF million 14,830 (2,771) 17,600 40,329 84,907 58,199 16,093 10,615 (44,578) (22,728) (19,491) (3,238) 2020 2,325,669 1,642,170 1,642,170 853,245 722,320 66,606 (100,920) (100,920) 1,634,652 1,634,652 1,231,516 403,136 287,647 328,165 2020 1,257,492 76.6% 0.8% 241,962 14.7% 5.7% 142,716 8.7% 53.9% 1.27% 68,712 4.2% 2020 0.7% 4.7% 3.93% 2.69% 52.5% 94% 2020 HUF 48.4 46.6 Change % (52) (59) (53) (6) 0 2 (6) (5) 6 311 588 20 % 11 20 9 5 17 (9) 47 34 11 1 1 1 14 12 %/pps 10 (6.7) 0.0 68 4.2 2.2 66 2.4 (9.6) 1.05 35 0.5 pps (0.9) (6.2) (0.42) (0.21) 3.0 6 Change % 9 6 (cid:588) Full-year 2020 profit neared HUF 15 billion (–52% y-o-y), with 6% lower operating profit and a jump in risk costs (cid:588) Net interest income rose by 2% y-o-y; performing (Stage 1+2) loans increased in FX-adjusted terms and interest margin shrank 21 bps in 2020 (cid:588) As to loan quality, the Stage 3 ratio upped 2.4 pps, to 8.7% y-o-y (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 37 In 2020, the Croatian operation generated In 2020, operating expenses surged by 6% HUF 14.8 billion after tax profit, 52% less than y-o-y in HUF, and were stable in local currency. a year earlier, owing to a jump in risk costs The 3 pps rise in full-year cost/income ratio and a decline in operating profit. brought the y-o-y figure to 52.5%. Following a halt in lending activity in the In 2020, nearly HUF 23 billion risk cost weighed second quarter, disbursement dynamics have on profit, which was four times the figure been steadily improving. In 4Q 2020, mortgage posted in 2019. A smaller part of that was loan disbursements grew by 72% q-o-q; this recorded in 1Q, in view of the possible effects brought the full-year disbursement growth to of the pandemic, while loan loss provision 8% y-o-y. Even though cash loans rebounded in 3Q was even higher than in 1Q, owing to after the first wave of the coronavirus the revision of the IFRS 9 impairment model pandemic, the full-year disbursed volume parameters. In 4Q 2020 under the instruction was 25% short of its 2019 level. of the local regulator exposures with longer Performing (Stage 1+2) loans grew by an than 9 months moratorium participation in FX-adjusted 6% y-o-y. total shall be classified as Stage 3. Beside loan volume growth, and the Croatian The stock of more than 90 days past due loans bank's liquidity position remained stable. grew by HUF 15 billion (FX-adjusted, without Deposit volumes rose by an FX-adjusted 1% sales/write-offs) in 2020. This brought the y-o-y, thus the net loan/deposit ratio went up DPD90+ ratio to 4.2% by the end of December by 6 pps y-o-y, to 94%, in FX-adjusted terms. (+0.5 pp y-o-y). The Stage 3 ratio rose by more In 2020, operating profit was 6% (in local than 2 pps in y-o-y terms (4Q: 8.7%), as the currency terms 11%) less than a year earlier. Bank reclassified the exposures with longer Core banking income dropped in y-o-y terms, than 9 months moratorium participation as a combined effect of the 21 bps erosion to Stage 3 (forborne) category, in accordance in net interest margin (2.69%), and the with local regulation. pandemic's effect on business and economic In March and April 2020, the Croatian National activity. Net fees and commissions were Bank issued a set of recommendations, dragged down by the lost revenue from based on the EBA's guidance, on the basis tourism-related activities. Despite the of which commercial banks developed rules HUF 1.5 billion one-off revaluation result on for their own loan repayment moratorium. Visa Inc.‘s class C shares booked in 2Q 2020, On 1 October 2020, a new moratorium period other non-interest income was 5% short of was opened; the deadline for receiving the base period. applications is 31 March 2021. 38 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OT P B A N K S E R B I A Performance of OTP Bank Serbia: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Subordinated debt Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/RSD (closing) HUF/RSD (average) 2019 HUF million 10,430 459 9,970 13,143 43,276 30,809 9,506 2,962 (30,133) (3,173) (1,634) (1,539) 2019 1,659,483 1,199,580 1,325,734 633,684 642,532 49,518 (18,904) (20,907) 910,623 1,003,698 604,453 399,245 436,449 24,460 249,461 2019 1,151,763 96.0% 0.4% 21,447 1.8% 5.8% 26,370 2.2% 50.0% 0.25% 20,702 1.7% 2019 1.1% 7.6% 4.70% 3.35% 69.6% 130% 2019 HUF 2.8 2.8 2020 HUF million 7,298 (1,157) 8,455 35,898 79,001 59,514 14,766 4,721 (43,102) (27,443) (22,170) (5,273) 2020 2,052,332 1,539,738 1,539,738 747,715 737,969 54,054 (43,597) (43,597) 1,147,712 1,147,712 676,599 471,112 548,354 31,033 273,046 2020 1,367,313 88.8% 0.8% 132,427 8.6% 8.5% 39,998 2.6% 53.6% 1.62% 22,697 1.5% 2020 0.4% 2.7% 4.25% 3.20% 54.6% 130% 2020 HUF 3.1 3.0 Change % (30) (352) (15) 173 83 93 55 59 43 765 243 % 24 28 16 18 15 9 131 109 26 14 12 18 26 27 9 %/pps 19 (7.2) 0.4 517 6.8 2.7 52 0.4 3.6 1.37 10 (0.2) pps (0.7) (4.9) (0.45) (0.15) (15.1) 0 Change % 11 8 (cid:588) The annual after tax profit amounted to HUF 7.3 billion in 2020 (–30%); in 4Q, HUF 3.1 billion loss emerged and nearly HUF 13 billion provision was put aside (cid:588) The integration is progressing well, the full-year cost/income ratio sank to 54.6% (cid:588) Performing (Stage1+2) loansexpanded by 3% y-o-y (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 39 The financial closure of Société Générale the HUF's average exchange rate against the banka Srbija transaction was completed on Serbian dinar. 24 September 2019. Following the transaction, The underlying business development trends the name of the acquired bank was changed can be captured the best by analysing the to OTP banka Srbija. The Serbian financial 4Q 2020 y-o-y developments, as those are statements present the acquired bank's comparable with the base period and balance sheet starting from 3Q 2019, and undistorted by the acquisition effects. The 4Q its P&L account starting from 4Q 2019. operating profit improved by 16% y-o-y, as The Serbian P&L account was adjusted for income rose by 6% and operating expenses the one-off items directly related to the declined. In 4Q, the y-o-y dynamics of net acquisition; these corrections are shown at interest income was positively affected by consolidated level, among the adjustment the outstanding expansion of (Stage 1+2) loan items. The balance sheet items were not volumes (+16% y-o-y; FX-adjusted), even as net adjusted for these effects. interest margin eroded by 32 bps y-o-y, to 3.1%, In 2020, the Serbian banking group generated reflecting the effect of the lower interest rate HUF 7.3 billion adjusted after tax profit. environment. Net fees and commissions were Following the financial closure of the stable y-o-y in 4Q 2020. acquisition at the end of September 2019, In 4Q, operating expenses dropped by the Serbian operation's total markets share 1% y-o-y, while the bank's cost/income ratio by balance sheet total jumped to 13.5% on improved by 3.8 pps y-o-y, to 54.9% in the pro forma basis, based on the latest available fourth quarter. data from end-September 2020. In 2020, total risk cost amounted to The integration of the bank acquired in 2019 is –HUF 27.4 billion, of which –HUF 12.5 billion in progress. Since the end of September 2019, was booked in the fourth quarter. In 2020, the total number of branches in Serbia dropped the credit risk cost ratio was 1.62%. by 23 (–10%). The number of employees declined As regards loan quality, the volume of more by 140 workers y-o-y (–4%). than 90 days past due loans (FX-adjusted, Both deposits and performing loans (Stage 1+2) without sales/write-offs) rose by HUF 3.3 billion showed double-digit y-o-y growth rates in full year 2020. (FX-adjusted), thus the Serbian bank's net The ratio of Stage 3 loans rose by 0.4 pp y-o-y, loan/deposit ratio remained flat at 130% y-o-y. their own provision coverage ratio improved Both the retail and the corporate loan by 3.6 pps y-o-y, to 53.6% by the end of segments posted growth: consumer loans December. Stage 2 loans were affected by a expanded by 22% y-o-y (FX-adjusted), and number factors: in 1Q, the corporate portfolios mortgage loans increased by 13%, while most exposed to the pandemic were corporate loans, which make up nearly half reclassified to Stage 2 (increased risk), while of the performing (Stage 1+2) portfolio, rose in the second quarter those were mostly retail by 14% y-o-y. Recovering from the low hit in loans that were shifted. the second quarter, the volume of new loan In Serbia, there were three phases of the disbursements has been steadily rising. loan repayment moratorium. The application The y-o-y dynamics of P&L lines were predomi- deadline for the third one is the end of April nantly determined by the acquisition, and they 2021; the maximum term of the moratorium were also affected by the 8% weakening of can be up to six months. 40 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) S K B B A N K A ( S LOV E N I A ) Performance of SKB Banka (Slovenia): Main components of P&L account After tax profit w/o dividends and net cash transfer 2019 HUF million Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/EUR (closing) HUF/EUR (average) 2019 1,130,871 831,139 918,174 540,374 249,584 128,216 (4,051) (4,475) 880,839 971,653 853,172 118,481 94,909 132,667 2019 822,118 98.9% 0.4% 0 0.0% 0.0% 9,020 1.1% 8.7% 2,967 0.4% 2019 94% 2019 HUF 330.5 325.3 2020 HUF million 9,665 (2,439) 12,104 19,787 40,388 28,103 11,127 1,158 (20,601) (7,683) (6,244) (1,440) 2020 1,353,772 909,439 909,439 539,678 248,855 120,906 (14,876) (14,876) 1,136,666 1,136,666 973,276 163,390 29,524 166,124 2020 753,584 82.9% 0.5% 142,015 15.6% 4.3% 13,840 1.5% 36.3% 0.70% 3,620 0.4% 2020 0.8% 6.3% 3.18% 2.21% 51.0% 79% 2020 HUF 365.1 351.2 Change % % 20 9 (1) 0 0 (6) 267 232 29 17 14 38 (69) 25 %/pps (8) (16.0) 0.1 53 0.4 27.6 22 0.0 pps (15) Change % 10 8 OTP Group's financial statements include The balance sheet items were not adjusted for the Slovenian bank's balance sheet starting the acquisition effects. from end-2019, and its P&L from the first OTP Group's Slovenian subsidiary generated quarter of 2020. HUF 9.7 billion adjusted after tax profit The Slovenian P&L account was adjusted in full year 2020. The full-year ROE was 6.3% for the one-off items directly related to the in 2020, with 51% cost/income ratio, 2.21% acquisition; these corrections are shown at net interest margin, and 70 bps credit risk consolidated level, among adjustment items. cost ratio. Management’s analysis of the 2020 results of the OTP Group 41 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) At the end of 2020, the ratio of Stage 3 loans sales/write-offs) grew by HUF 0.6 billion. remained steady at 1.5%. The own provision The FX-adjusted volume of Stage 1+2 loans coverage ratio of Stage 3 loans stood at 36.3%. dropped by 1% y-o-y; within that, retail loans When the Slovenian bank was consolidated shrank by 9%, while corporate loan volumes into the Group, Stage 3 loans were netted expanded by 18%. with the related provisions. In full year 2020, The FX-adjusted deposit stock grew by 17% y-o-y. DPD90+ loan volumes (FX-adjusted, without The net loan/deposit ratio stood at 79%. OT P B A N K R O M A N I A Performance of OTP Bank Romania: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/RON (closing) HUF/RON (average) 42 OTP Bank Annual Report 2020 2019 HUF million 6,309 (598) 6,906 12,314 37,530 28,254 3,180 6,097 (25,216) (5,408) (3,018) (2,390) 2019 953,345 708,299 773,358 522,937 237,111 13,311 (39,327) (42,997) 546,350 590,707 442,397 148,310 257,404 116,432 2019 593,922 83.9% 1.3% 61,556 8.7% 5.7% 52,821 7.5% 53.7% 0.47% 35,416 5.0% 2019 0.7% 6.6% 4.37% 3.29% 67.2% 124% 2019 HUF 69.1 68.6 2020 HUF million 1,558 91 1,467 11,811 43,748 32,739 3,813 7,195 (31,937) (10,344) (7,840) (2,504) 2020 1,162,183 861,393 861,393 587,724 257,860 15,809 (48,174) (48,174) 710,047 710,047 506,773 203,274 284,173 127,238 2020 690,664 80.2% 1.0% 114,615 13.3% 9.0% 56,113 6.5% 54.6% 0.99% 38,713 4.5% 2020 0.1% 1.3% 4.18% 3.13% 73.0% 115% 2020 HUF 75.0 72.6 Change % (75) (115) (79) (4) 17 16 20 18 27 91 160 5 % 22 22 11 12 9 19 22 12 30 20 15 37 10 9 %/pps 16 (3.7) (0.3) 86 4.6 3.3 6 (1.0) 0.9 0.52 9 (0.5) pps (0.6) (5.3) (0.19) (0.16) 5.8 (9) Change % 9 6 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OTP Bank Romania generated HUF 1.6 billion supported by both the retail and corporate after tax profit in 2020, 75% less than in the segments. The net loan/deposit ratio stood at base period. In 2020, operating profit dropped 115% at the end of 2020 (–9 pps y-o-y). In 2020, by 4% in HUF (by 9% in local currency), as a OTP Bank Romania increased its market share result of a 17% y-o-y increase in total income, in all segments. In the stock of housing loans, and a 27% surge in operating expenses. the Romanian operation increased its market Net interest income grew by 16%, bolstered share from 3.7% to 4.2% y-o-y. by a dynamic expansion in performing loan Regarding loan quality, in 2020 the volume volumes, while the net interest margin of DPD90+ loans grew by HUF 7 billion dropped by 16 bps last year. (FX-adjusted, without sales and write-offs), In 2020, operating expenses grew by 27% y-o-y much of which was caused by corporate loans (by 20% in local currency), largely because that slipped into delinquency in 2Q 2020. of the growth strategy launched in 2019: IT The ratio of Stage 2 loans grew by 4.6 pps y-o-y, and digital developments boosted IT costs, largely affected by the reclassification of Stage while personnel expenses were 27% higher 1 loans (–3.7 pps y-o-y) owing to the pandemic. than a year earlier, owing to the general wage The own coverage of Stage 1+2 loans increased inflation, as well as the 15% rise in annual in y-o-y terms. average headcount. As a result of the rising The ratio of Stage 3 loans remained on a down- costs, the cost/income ratio increased by ward trend in 2020. At the end of the year, Stage 3 5.8 pps, to 73.0% in 2020. loans made up 6.5% of gross loan volume As a result of the growth strategy, both loan (–0.9 pp y-o-y). Reasons for the decline included and deposit volumes grew dynamically in the sale/write-off of bad loans, as well as the 2020. Due to the increased lending activity, rapid growth of loans. The own coverage of performing (Stage 1+2) mortgage loan Stage 3 loans grew over the fourth quarter, volumes increased by 15% y-o-y (FX-adjusted). bringing the ratio to 54.6% by the end of the year. Performing (Stage 1+2) loans to micro and In 2020, total provisions grew by 91% y-o-y. small enterprises grew by 15%, and corporate Within that, loan loss provisions increased exposures rose by 10% y-o-y. The FX-adjusted significantly (by HUF 4.8 billion) owing to the deposit volumes expanded by 20% y-o-y, Covid-19 pandemic effects. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 43 O T P B A N K U K R A I N E Performance of OTP Bank Ukraine: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/UAH (closing) HUF/UAH (average) 2019 HUF million 35,223 (6,937) 42,160 44,353 67,451 48,128 14,877 4,446 (23,098) (2,194) (1,433) (761) 2019 646,295 468,715 431,920 136,749 252,194 42,977 (69,785) (64,223) 431,944 394,459 176,949 217,509 79,331 109,128 2019 345,955 73.8% 0.9% 41,847 8.9% 8.3% 80,913 17.3% 77.9% 0.34% 51,913 11.1% 2019 7.0% 42.5% 13.38% 9.55% 34.2% 93% 2019 HUF 12.4 11.3 2020 HUF million 26,104 (5,485) 31,589 42,030 67,385 48,581 13,540 5,264 (25,355) (10,441) (6,286) (4,155) 2020 729,012 443,031 443,031 118,709 274,187 50,136 (46,200) (46,200) 493,884 493,884 222,112 271,772 91,059 117,071 2020 365,266 82.4% 1.9% 31,726 7.2% 15.9% 46,039 10.4% 74.3% 1.39% 28,401 6.4% 2020 3.8% 23.0% 9.78% 7.05% 37.6% 80% 2020 HUF 10.5 11.4 Change % (26) (21) (25) (5) 0 1 (9) 18 10 376 339 446 % 13 (5) 3 (13) 9 17 (34) (28) 14 25 26 25 15 7 %/pps 6 8.6 1.0 (24) (1.7) 7.6 (43) (6.9) (3.6) 1.05 (45) (4.7) pps (3.2) (19.5) (3.60) (2.50) 3.4 (13) Change % (15) 1 44 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OTP Bank Ukraine's financial data in HUF terms the base rate fell by a total of 750 bps, were affected by the HUF/UAH exchange rate to 6% in 2020. moves: by the end of 2020, the UAH's closing In 2020, operating expenses grew by 9% in rate against the HUF depreciated by 16% y-o-y. UAH, largely because of higher wage costs, The full-year average rate firmed 1%. As a and a 7% rise in administrative expenses. result, the balance sheet and P&L dynamics In 2020, total risk cost amounted to expressed in HUF terms differ from those in –HUF 10.4 billion. In 2020, risk cost ratio local currency. was at 1.39% (+105 bps y-o-y). OTP Bank Ukraine generated HUF 26.1 billion In Ukraine, there was no compulsory debt after tax profit in 2020. The 26% y-o-y repayment moratorium. As to loan quality, contraction stems from stronger provisioning, more than 90 days past due loan volumes and a 6% drop in operating profit, in UAH. increased in 2020 by HUF 1 billion (FX-adjusted, After the second quarter, which was an without sales/write-offs), compared to intra-year low in lending, disbursement HUF 4 billion in 2019. dynamics have steadily improved. Corporate In 2020 the Stage 3 loans’ share in the whole loan disbursement expanded by an impressive portfolio shrank by 6.9 pps y-o-y to 10.4%. By the 38% y-o-y in 2020. By the end of the year, end of 2020, the own provision coverage of performing (Stage 1+2) loans grew by 11% y-o-y Stage 3 loans dropped by 3.6 pps y-o-y, to 74.3%, (FX-adjusted). Net loan/deposit ratio stood at as loans with high coverage were the sold/written 80% at the end of 2020. off. The own provision coverage of Stage 2 loans Operating profit dropped by 6% y-o-y in local grew to 15.9%, and that of Stage 1 loans has currency in full-year 2020. In 2020, total nearly doubled y-o-y, to 1.9%. This is resulting income shrank by 1% y-o-y in local currency, from the following: as precautionary move in chiefly because net fees and commissions fell the first half of the year corporate loans were by 10%. Net interest income was stable y-o-y, reclassified from Stage 1 to Stage 2. Now, in 4Q, even if net interest margin shrank 2.5 pp, these were returned to Stage 1 category, but nearing 7%. This is predominantly due to the the previously created higher impairment for significantly lower interest rate environment: these loans was retained, as general provisions. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 45 O T P B A N K R U S S I A Performance of OTP Bank Russia: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/RUB (closing) HUF/RUB (average) 2019 HUF million 28,127 (8,272) 36,399 84,946 146,582 113,572 31,012 1,998 (61,636) (48,547) (46,123) (2,424) 2019 908,388 786,241 661,721 573,592 80,304 7,825 (152,741) (128,479) 471,735 403,021 301,897 101,124 155,306 202,761 2019 589,553 75.0% 5.3% 94,413 12.0% 27.4% 102,274 13.0% 93.4% 6.61% 96,484 12.3% 2019 3.4% 15.7% 17.53% 13.58% 42.0% 132% 2019 HUF 4.7 4.5 2020 HUF million 16,317 (5,092) 21,409 65,068 123,198 99,872 22,503 823 (58,130) (43,659) (41,160) (2,499) 2020 688,980 597,849 597,849 505,902 74,239 17,708 (127,598) (127,598) 350,608 350,608 288,058 62,550 90,852 183,402 2020 447,094 74.8% 4.6% 67,394 11.3% 43.1% 83,361 13.9% 93.4% 6.36% 77,929 13.0% 2020 2.1% 8.9% 16.03% 13.00% 47.2% 134% 2020 HUF 4.0 4.3 Change % (42) (38) (41) (23) (16) (12) (27) (59) (6) (10) (11) 3 % (24) (24) (10) (12) (8) 126 (16) (1) (26) (13) (5) (38) (42) (10) %/pps (24) (0.2) (0.7) (29) (0.7) 15.7 (18) 0.9 0.0 (0.25) (19) 0.7 pps (1.3) (6.8) (1.50) (0.58) 5.2 2 Change % (15) (4) 46 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OTP Bank Russia's financial figures in HUF increase from a relatively low base, terms were affected by the moves in the FX-adjusted. HUF/RUB pair: at the end of 2020, the RUB's Meanwhile, customer deposits declined by exchange rate against the HUF weakened an FX-adjusted 13% y-o-y. The FX-adjusted net 16% y-o-y. The average exchange rate loan/deposit ratio rose by 2 pps y-o-y, to 134%. depreciated by 5% in 2020. Therefore, the In 2020, total income declined by 12% y-o-y balance sheet and P&L dynamics in HUF in RUB terms, including an 8% drop in net terms differ from those in local currency. interest income, and a 24% fall in net fees OTP Bank Russia generated HUF 16.3 billion and commissions. Total income margin eroded profit in 2020, which is 39% less than in the by 1.5 pps y-o-y, while net interest margin base period (in local currency). The y-o-y drop came down 59 bps, to 13%. in after tax profit is a result of a 20% fall in Due to lower administrative expenses, operating profit and a 6% decline in risk cost, operating expenses declined by 1% y-o-y in full in local currency. year 2020 in RUB, thus the annual cost/income Ending three quarters of decline in the first ratio rose by 5.1pps, to 47.2%. three quarters of 2020, the performing (Stage In 2020, total risk cost dropped by 6% in RUB, 1+2) loan volume grew by an FX-adjusted 9% and the credit risk cost ratio declined 0.25 pp q-o-q in 4Q, resulting in a 11% y-o-y decline y-o-y, to 6.36%. for 2020 as a whole. Performing consumer The ratio of Stage 3 loans upped by 0.9 pp y-o-y, loan volumes shrank by 14% y-o-y; while the to 13.9%; while nearly HUF 38 billion non- mid- and large corporate segment fell by 6%. performing loans were sold or written off There was a steady growth in car financing in 2020 (FX-adjusted), which is 10% increase throughout the year, resulting in a 126% y-o-y compared to full year 2019. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 47 C K B G R O U P ( M O N T E N E G R O ) Performance of CKB Group: Main components of P&L account After tax profit w/o dividends and net cash transfer Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/EUR (closing) HUF/EUR (average) 2019 HUF million 6,377 (679) 7,056 5,692 16,120 11,464 4,215 441 (10,428) 1,364 1,293 71 2019 439,836 319,836 353,327 178,523 174,707 97 (19,518) (21,562) 318,216 350,637 228,438 122,199 36,733 66,188 2019 283,959 88.8% 1.1% 12,509 3.9% 4.8% 23,369 7.3% 68.2% (0.56%) 17,058 5.3% 2019 1.9% 11.9% 4.86% 3.45% 64.7% 95% 2019 HUF 330.5 325.3 2020 HUF million 4,307 (302) 4,609 8,353 22,095 17,188 4,446 461 (13,743) (3,743) (3,434) (309) 2020 477,676 362,067 362,067 173,693 188,299 75 (24,510) (24,510) 324,671 324,671 213,067 111,604 58,967 76,556 2020 294,548 81.4% 1.3% 41,390 11.4% 9.3% 26,129 7.2% 63.9% 0.99% 17,538 4.8% 2020 0.9% 6.0% 4.70% 3.65% 62.2% 104% 2020 HUF 365.1 351.2 Change % (32) (56) (35) 47 37 50 5 5 32 (374) (366) (535) % 9 13 2 (3) 8 (23) 26 14 2 (7) (7) (9) 61 16 %/pps 4 (7.4) 0.2 231 7.5 4.5 12 (0.1) (4.3) 1.55 3 (0.5) pps (1.0) (5.9) (0.16) 0.20 (2.5) 9 Change % 10 8 48 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) On 27 February 2019 Crnogorska komercijalna was consolidated from 3Q 2019. The operating banka a.d. signed an agreement to purchase profit surged by 47% (including the 50% the 90.56% stake from Société Générale banka jump in net interest income), and operating Montenegro a.d., the Montenegrin subsidiary expenses grew by 32%. Furthermore, total of the Société Générale Group. The financial provisions were released in the base period, closure of the transaction was completed on while the pandemic necessitated creating 16 July 2019. On 11 December 2020, Podgorička provisions in 2020. In 2020, ROE (6.0%) and the banka AD Podgorica was merged into cost/income ratio (62.2%) fell y-o-y, while net Crnogorska komercijalna banka a.d. interest margin (3.65%) increased. The Montenegrin operation's P&L account In full year 2020, DPD90+ loan volumes was adjusted for the one-off items directly (FX-adjusted, without sales and write-offs) related to the acquisition; these corrections increased by HUF 1.5 billion. The DPD90+ ratio are presented at consolidated level, among (4.8%) declined by 0.5 pp y-o-y; meanwhile the adjustment items. The balance sheet items HUF 2.8 billion non-performing loans were were not adjusted for these effects. sold/written off in 2020. At the end of 2020, the In full year 2020, the Montenegrin CKB Group ratio of Stage 3 loans stood at 7.2% (–0.1 pp y-o-y), generated HUF 4.3 billion adjusted profit, their own provision coverage was at 63.9%. which was 32% less than in the base period. Performing (Stage 1+2) loans expanded 3% y-o-y What affected the y-o-y comparability of P&L (FX-adjusted). lines was that the financial closure of the The FX-adjusted loan book contracted by acquisition was completed on 25 July 2019, 7% y-o-y. The net loan/deposit ratio stood at therefore the acquired bank’s contribution 104% at the end of year (+9 pps y-o-y). (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:19)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 49 OT P B A N K A L B A N I A ( A L B A N I A ) Performance of OTP Bank Albania: Main components of P&L account After tax profit w/o dividends and net cash transfer Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/ALL (closing) HUF/ALL (average) 2019 HUF million 2,616 (459) 3,075 3,702 7,953 6,697 1,007 248 (4,250) (627) (249) (379) 2019 247,997 147,777 161,373 72,937 86,138 2,299 (3,657) (4,001) 179,755 196,492 167,088 29,404 36,901 25,605 2019 138,579 93.8% 1.2% 4,593 3.1% 10.1% 4,604 3.1% 33.1% 0.23% 2,270 1.5% 2019 1.4% 14.1% 4.27% 3.59% 53.4% 80% 2019 HUF 2.7 2.6 2020 HUF million 1,959 (489) 2,448 5,904 11,597 9,824 1,278 495 (5,693) (3,455) (2,515) (940) 2020 286,606 180,815 180,815 83,948 94,275 2,592 (8,089) (8,089) 214,808 214,808 179,853 34,956 37,151 28,781 2020 143,701 79.5% 1.3% 31,620 17.5% 10.4% 5,494 3.0% 54.2% 1.55% 3,984 2.2% 2020 0.7% 7.3% 4.32% 3.66% 49.1% 80% 2020 HUF 2.9 2.8 Change % (25) 7 (20) 59 46 47 27 100 34 451 910 148 % 16 22 12 15 9 13 121 102 20 9 8 19 1 12 %/pps 4 (14.3) 0.1 588 14.4 0.3 19 (0.1) 21.1 1.32 76 0.7 pps (0.7) (6.8) 0.05 0.07 (4.3) 0 Change % 7 8 50 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OTP Group's financial statements included the At the end of 2020, the ratio of Stage 3 loans Albanian bank's P&L account since 2Q 2019. was 3.0%, reflecting a marginal y-o-y drop. The P&L statement of the Albanian operation The own provision coverage of Stage 3 loans was adjusted for the one-off items directly improved to 54.2%. When the Albanian bank related to the acquisition; these corrections was consolidated, Stage 3 loans were netted are presented at consolidated level, among with provisions. In full-year 2020, the volume adjustment items. The balance sheet items of DPD90+ loans (FX-adjusted, without sales were not adjusted for these effects. and write-offs) rose by HUF 1.5 billion. The y-o-y dynamics of balance sheet and P&L The FX-adjusted volume of Stage 1+2 loans lines were predominantly determined by the expanded by 12% y-o-y; within that, retail loans acquisition. surged 15%, while corporate and car financing OTP Bank Albania generated HUF 2.0 billion loans expanded by a combined 10%. after tax profit in full year 2020, which was 25% The FX-adjusted deposit ratio surged 9% y-o-y, less than in the base period, owing mostly fuelled by the strong growth in large to higher risk costs; operating profit grew corporate deposits. The net loan/deposit ratio by 59% on yearly basis. remained flat at 80% y-o-y. Full-year ROE (7.3%) declined, while cost/income ratio (49.1%) and net interest margin (3.66%) increased y-o-y. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 51 M O B I A S B A N C A ( M O L D O V A ) Performance of Mobiasbanca: Main components of P&L account After tax profit w/o dividends and net cash transfer Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/MDL (closing) HUF/MDL (average) 2019 HUF million 1,936 (174) 2,110 2,929 5,902 3,959 891 1,052 (2,974) (819) (737) (82) 2019 211,043 104,763 108,490 58,167 48,781 1,542 (1,790) (1,857) 161,071 167,509 115,397 52,111 12,342 34,518 2019 102,460 97.8% 1.0% 880 0.8% 23.6% 1,424 1.4% 39.7% 1.58% 383 0.4% 2019 2.1% 12.6% 6.31% 4.23% 50.4% 64% 2019 HUF 17.1 16.6 2020 HUF million 3,973 (540) 4,513 7,707 14,596 8,889 2,137 3,570 (6,889) (3,193) (2,695) (499) 2020 249,921 132,081 132,081 71,552 58,467 2,062 (4,578) (4,578) 203,176 203,176 133,395 69,781 5,906 37,287 2020 121,459 92.0% 1.1% 6,670 5.1% 19.5% 3,952 3.0% 48.0% 2.23% 2,109 1.6% 2020 1.7% 10.7% 6.24% 3.80% 47.2% 63% 2020 HUF 17.3 17.8 Change % 105 210 114 163 147 125 140 239 132 290 266 509 % 18 26 22 23 20 34 156 147 26 21 16 34 (52) 8 %/pps 19 (5.8) 0.1 658 4.3 (4.1) 178 1.6 8.3 0.65 451 1.2 pps (0.4) (1.9) (0.07) (0.43) (3.2) (1) Change % 1 7 52 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The Moldovan bank was consolidated in 3Q 2019. provisions were set aside in the wake of the The P&L statement of the Moldovan operation pandemic. At the end of 3Q 2020, the ratio was adjusted for the one-off items directly of Stage 3 loans was 3.0% (+1.6 pps y-o-y); related to the acquisition; these corrections their own provision coverage stood at 48.0%. are shown at consolidated level, among When the Moldovan bank was consolidated, adjustment items. The balance sheet items Stage 3 loans were netted with provisions. were not adjusted for these effects. In full-year 2020, the volume of DPD90+ loans The y-o-y dynamics of balance sheet and (FX-adjusted, without sales and write-offs) P&L lines were basically determined by the grew by HUF 1.7 billion. acquisition. In full-year 2020, Mobiasbanca At the end of 2020, the FX-adjusted volume of contributed to OTP Group's performance performing (Stage 1+2) loans grew by 20% y-o-y; with HUF 4.0 billion after tax profit. Full-year within that, both retail and corporate loans ROE (10.7%) and net interest margin (3.80%) surged 20%. declined, while cost/income ratio (47.2%) FX-adjusted deposit volumes grew by 21% y-o-y. increased y-o-y. The FX-adjusted 34% y-o-y growth in corporate In 2020, total provisions have nearly deposits owes a lot to the Banks’ new quadrupled y-o-y. This was affected by the fact customers. The net loan/deposit ratio stood that as the financial closure was completed on at 63%, below the Group's average. 25 July 2019, the acquired bank’s contribution At the end of December 2020, the market share was consolidated from 3Q 2019. Also, in of OTP Group's Moldovan operation by balance contrast to the provision release in 3Q 2019, sheet total, was 13.8%. This ranks it the fourth in 2020 as a whole significant amount pf largest bank in Moldova. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 53 OT P B A N K A S LOV E N S KO ( S LOVA K I A ) Performance of OTP Banka Slovensko: Main components of P&L account After tax profit without the effect of adjustments Income tax Profit before income tax Operating profit Total income Net interest income Net fees and commissions Other net non-interest income Operating expenses Total provisions Provision for impairment on loan and placement losses Other provision Main components of balance sheet closing balances Total assets Gross customer loans Gross customer loans (FX-adjusted) Retail loans Corporate loans Car financing loans Allowances for possible loan losses Allowances for possible loan losses (FX-adjusted) Deposits from customers Deposits from customers (FX-adjusted) Retail deposits Corporate deposits Liabilities to credit institutions Total shareholders’ equity Loan Quality Stage 1 loan volume under IFRS 9 (in HUF million) Stage 1 loans under IFRS 9/gross customer loans Own coverage of Stage 1 loans under IFRS 9 Stage 2 loan volume under IFRS 9 (in HUF million) Stage 2 loans under IFRS 9/gross customer loans Own coverage of Stage 2 loans under IFRS 9 Stage 3 loan volume under IFRS 9 (in HUF million) Stage 3 loans under IFRS 9/gross customer loans Own coverage of Stage 3 loans under IFRS 9 Provision for impairment on loan and placement losses/average gross loans 90+ days past due loan volume (in HUF million) 90+ days past due loans/gross customer loans Performance Indicators ROA ROE Total income margin Net interest margin Cost/income ratio Net loans to deposits (FX-adjusted) FX rates HUF/EUR (closing) HUF/EUR (average) 2019 HUF million 1,575 (240) 1,815 1,625 14,714 10,505 3,884 325 (13,089) 190 604 (414) 2019 473,660 392,793 433,900 371,538 62,355 7 (24,338) (26,886) 351,722 387,890 353,851 34,039 50,669 38,078 2019 336,650 85.7% 0.7% 29,307 7.5% 11.7% 26,836 6.8% 68.8% (0.15%) 21,890 5.6% 2019 0.3% 5.2% 3.20% 2.29% 89.0% 105% 2019 HUF 330.5 325.3 2020 HUF million (1,166) (304) (862) 1,677 12,419 8,523 3,208 688 (10,742) (2,539) (2,731) 192 2020 Change % (174) 27 (147) 3 (16) (19) (17) 112 (18) (552) (146) % 2020 %/pps 0.76% 0.91 2020 (0.3%) (3.4%) 2.98% 2.04% 86.5% 2020 HUF 365.1 351.2 pps (0.6) (8.6) (0.22) (0.25) (2.5) Change % 10 8 On 26 November 2020, the sale of balance sheet does not appear in the OTP Banka Slovensko a.s. to KBC Group N.V. Group's end of 2020 balance sheet. was concluded. Between January and October 2020, The Slovak bank was deconsolidated the Slovak entity realised an adjusted loss at the end of November, so its end of 2020 of HUF 1.2 billion. 54 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) S TA F F L E V E L A N D O T H E R I N F O R M AT I O N 31/12/2019 31/12/2020 Branches ATM 361 440 136 231 53 95 88 1,936 1,140 480 338 83 141 166 134 223 48 37 53 58 1,373 128 76 145 157 3,077 OTP Core DSK Group (Bulgaria) OBH (Croatia) OTP Bank Serbia SKB Banka (Slovenia) OTP Bank Romania OTP Bank Ukraine (w/o employed agents) OTP Bank Russia (w/o employed agents) CKB Group (Montenegro) OTP Bank Albania Mobiasbanca (Moldova) OTP Banka Slovensko (Slovakia) Foreign subsidiaries, total Other Hungarian and foreign subsidiaries OTP Group (w/o employed agents) OTP Bank Russia – employed agents OTP Bank Ukraine – employed agents POS Headcount (closing) 10,083 6,186 2,251 3,162 863 1,496 77,962 12,915 10,856 18,424 3,982 5,125 331 715 6,908 0 0 159 59,415 2,399 5,343 681 424 755 671 24,231 590 34,902 5,083 663 40,650 POS Headcount (closing) 10,189 5,619 2,228 3,022 889 1,693 125,800 14,329 11,037 16,657 4,167 6,256 Branches ATM 362 334 124 217 51 95 86 1,920 1,094 488 323 83 149 161 135 280 34 38 54 0 1,168 115 80 148 0 2,921 402 704 6,421 0 0 0 59,973 2,313 5,127 514 447 830 0 22,682 557 33,427 4,402 618 38,448 OTP Group (aggregated) 1,734 5,013 137,377 1,530 4,841 185,773 Definition of headcount number: closing, active FTE (full-time employee). The employee is considered as full-time employee in case his/her employment conditions regarding working hours are in line with a full time employment defined in the Labour Code in the reporting entity's country. Part-time employees are taken into account proportional to the full time working hours being effective in the reporting entity’s country. Definition of branch numbers: data reported from 2020 are not comparable with previous quarters at OTP Core due to a methodological change. The introduction of the new methodology increased the number of branches by 9 units (ceteris paribus). According to the NBH's definition, from 3Q 2020 the number of POS terminals includes all terminals where OTP is the acquirer, including terminals that are not exclusively authorized by OTP. S TAT E M E N T O N C O R P O R AT E G O V E R N A N C E P R A C T I C E Corporate governance practice Meeting, this declaration is published on the websites of both the Stock Exchange OTP Bank Plc., being registered in Hungary, (www.bet.hu) and the Bank (www.otpbank.hu). has a corporate governance policy that complies with the provisions on companies of the act applicable (Civil Code). As the company System of internal controls conducts banking operations, it also adheres to the statutory regulations pertaining to OTP Bank Plc., as a provider of financial credit institutions. and investment services, operates a closely Beyond fulfilling the statutory requirements, regulated and state-supervised system of as a listed company on the Budapest Stock internal controls. Exchange (BSE), the company also makes an OTP Bank Plc. has detailed risk management annual declaration on its compliance with regulations applicable to all types of risks the BSE’s Corporate Governance Recommen- (liquidity, market, country, counterparty, credit, dations. After being approved by the General operational, compliance), which are in compliance Management’s analysis of the 2020 results of the OTP Group 55 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) with the legal regulations on prudent banking In line with the regulations of the European operations. Its risk management system Union, the applicable Hungarian laws and extends to cover the identification of risks, supervisory recommendations, OTP Bank Plc. the assessment and analysis of their impact, established an independent organisational elaboration of the required action plans and unit with the task of identifying and managing the monitoring of their effectiveness and compliance risks. results. The business continuity framework is intended to provide for the continuity of services. Developed on the basis of interna- General meeting tional methodologies, the lifecycle model includes process evaluation, action plan The General Meeting is the supreme governing development for critical processes, the regular body of OTP Bank Plc. The regulations pertaining review and testing of these, as well as related to its operation are set forth in the Company’s DRP activities. Bylaws, and comply fully with both general To ensure effective auditing, the OTP Bank Plc.‘s and special statutory requirements. internal audit system is realised on several Information on the General Meeting is levels of control built on each other. The system available in the Corporate Governance Report. of internal checks and balances includes In accordance with the provisions of the a combination of process-integrated and Government Decree 102/2020 (IV. 10.), the management control, independent internal resolutions on the published agenda items audit organisation and executive information were made by the Company’s Board of Directors system. The independent internal audit acting in the competence of the General organisation as an element of internal lines of Meeting, which was originally announced defence promotes the statutory and efficient to be on 17 April 2020, but cancelled on management of assets and liabilities, the 26 March 2020 and then convened again defence of property, the safe course of business, to be held on 30 April 2020. the efficient, economical and productive operation of internal control systems, the minimisation of risks, moreover – beside compliance organisation – it reveals and reports deviations from statutory regulations and internal rules, makes proposal to abolish deficiencies and follows up the execution of actions. The independent internal audit organisation annually and quarterly prepares group-level reports on control actions for the executive boards. Once a year, the internal Regulations and information to be presented in the Business Report concerning securities conferring voting rights issued by the Company and senior officials, according to the effective Articles of Association, and ownership structure audit organisation draws up, for the Supervisory The Company’s registered capital is Board, objective and independent reports in HUF 28,000,001,000, that is twenty-eight respect of the operation of risk management, thousand million one thousand Hungarian internal control mechanisms and corporate forint, divided into 280,000,010 that is governance functions and, in line with the Two hundred and eighty million and ten provisions of the Credit Institutions Act, dematerialised ordinary shares with a nominal reports, once a year, to the Supervisory Board value of HUF 100 each, and a total nominal and the Board of Directors on the regularity of value of HUF 28,000,001,000, that is twenty internal audit tasks, professional requirements eight billion one thousand Hungarian forint. and the conduct of audits, and on the review The ordinary shares of the Company specified of compliance with IT and other technical all have the same nominal value and bestow conditions needed for the audits. the same rights in respect of the Company. 56 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) There are no restrictions in place concerning Shareholder group: the shareholder and the transfer of issued securities constituting another shareholder, in which the former the registered capital of the Company. has either a direct or indirect shareholding No securities with special control rights have or has an influence without a shareholding been issued by the Company. (collectively: a direct and/or indirect influence); The Company does not run control systems furthermore: the shareholder and another prescribed by an employee ownership program, shareholder who is exercising or is willing to where control rights are not exercised directly exercise its voting rights together with the by the employees. former shareholder, regardless of what type of Rules on the restrictions of the voting rights: agreement between the participants underlies The Company’s ordinary shares confer one vote such concerted exercising of rights. per share. For determining the existence and extent An individual shareholder or group of of the indirect holding, the rules of the Credit shareholders may not exercise voting rights Institutions Act relating to the calculation in respect of in an extent exceeding 25%, or of indirect ownership shall be applied. – if the voting rights of another shareholder or If the voting rights that may be exercised by group of shareholders exceed 10% – exceeding a shareholder group exceed the threshold 33% of the total voting rights represented stipulated in the first paragraph of this section, by the shares conferring voting rights at the the voting rights shall be reduced in such Company’s General Meeting. a way that the voting rights relating to the The shareholder is obliged to notify the shares most recently acquired by the group Company’s Board of Directors without delay if of shareholders shall not be exercisable. the shareholder directly or indirectly, or together If there are substantive grounds to presume with other shareholders in the same group of that the exercising of voting rights by any shareholders, holds more than 2% of the voting shareholder or shareholders might result in a rights represented by the shares conferring breach of the rules of the Capital Markets Act voting rights at the Company’s General Meeting. relating to the acquisition of a controlling Concurrently with this, the shareholder is interest, the Board of Directors’ authorised obliged to designate the shareholders through representative responsible for the registration which the indirect voting right exists, or the of shareholders at the venue of the General members of the group of shareholders. In the Meeting, or the Chairman of the General event of a failure to provide such notification, or Meeting, may exclude the affected share- if there are substantive grounds for assuming holders from attending the General Meeting that the shareholder has made a misleading or exercising voting rights. declaration regarding the composition of the The General Meeting has exclusive authority shareholder group, then the shareholder’s with respect to the decision regarding the voting right shall be suspended and may not delisting of the shares (qualified majority). be exercised until the shareholder has met the When making the decisions, shares embodying above obligations. The notification obligation multiple voting rights shall represent one stipulated in this paragraph and the related share. legal consequences are also incumbent The Company is not aware of any kind of upon individuals who are classified or may agreements among the owners that could give be classified as the Company’s shareholders rise to the restriction of the transfer of issued under Article 61 of the Capital Markets Act. securities and/or the voting rights. The Company must also be provided with Rules on the appointment and removal proof of the conditions for exemption from of executive officers, and rules on amendment the notification obligation in accordance with of the Articles of Association: Section 61 (7)–(8) and Section 61 (10)–(11)–(12), The Board of Directors has at least 5, and up to of the Capital Markets Act. 11 members. Management’s analysis of the 2020 results of the OTP Group 57 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) When making the decisions, shares embodying (cid:588) Except in the cases referred by these Articles multiple voting rights shall represent one of Association to the authority of the Board share. The members of the Board of Directors of Directors, the establishment and amend- are elected by the General Meeting based on ment of the Articles of Association; (qualified its decision uniformly either for an indefinite majority); the General Meeting decides on period or for five years; in the latter case proposals concerning the amendment the mandate ends with the General Meeting of the Articles of Association – based on concluding the fifth financial year following a resolution passed by shareholders with the election. The mandate of a member elected a simple majority – either individually or during this period expires together with the en masse. mandate of the Board of Directors. The Board of Directors elects a Chairman and, The Board of Directors is exclusively authorised may elect one or more Deputy Chairmen, to make decisions regarding any change in the from among its own members, whose period Company’s name, registered office, permanent of office shall be equal to the mandate of establishments and branches, and in the the Board of Directors. The Chairman of the Company’s activities – with the exception of its Board of Directors is also the Chief Executive core activity – and, in relation to this, to modify Officer (Chairman & CEO) of the Company, the Articles of Association should it become unless the Board of Directors decides within necessary to do so on the basis of the Civil its competence that the position of Chairman Code or the Articles of Association. of the Board of Directors and the Chief Executive Officer of the Company are held The Board of Directors is obliged to by separate persons. (cid:588) prepare the Company’s financial statements in accordance with the Accounting Act, and The membership of the Board of Directors make a proposal for the use of the profit ceases to exist by a) expiry of the mandate, b) resignation, c) recall, d) death, after taxation; (cid:588) prepare a report once a year for the General Meeting, and once every three months for the Supervisory Board, concerning management, the status of the Company’s e) the occurrence of grounds for assets and business policy; disqualification as regulated by law, (cid:588) provide for the proper keeping of the f) termination of the employment of internal Company's business books; (executive) Board members. (cid:588) perform the tasks referred to its authority under the Credit Institutions Act, in The General Meeting has exclusive authority particular: with respect to the following matters: (cid:588)(cid:631)(cid:631) (cid:156)(cid:202)(cid:228)(cid:241)(cid:224)(cid:177)(cid:202)(cid:168)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:177)(cid:202)(cid:236)(cid:156)(cid:168)(cid:224)(cid:177)(cid:236)(cid:259)(cid:631)(cid:209)(cid:167)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:133)(cid:146)(cid:146)(cid:209)(cid:241)(cid:202)(cid:236)(cid:177)(cid:202)(cid:168)(cid:631) (cid:588) the recall of members of the Board of and financial reporting system; Directors, the Supervisory Board and Audit (cid:588)(cid:631)(cid:631) (cid:156)(cid:195)(cid:133)(cid:145)(cid:209)(cid:224)(cid:133)(cid:236)(cid:177)(cid:202)(cid:168)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:133)(cid:221)(cid:221)(cid:224)(cid:209)(cid:221)(cid:224)(cid:177)(cid:133)(cid:236)(cid:156)(cid:631)(cid:228)(cid:236)(cid:224)(cid:133)(cid:236)(cid:156)(cid:168)(cid:259)(cid:631)(cid:133)(cid:202)(cid:152)(cid:631) Committee, and of the auditor; (qualified determining risk tolerance levels for each majority). business unit concerned; More than one third of the members of the (cid:588)(cid:631)(cid:631) (cid:228)(cid:156)(cid:236)(cid:236)(cid:177)(cid:202)(cid:168)(cid:631)(cid:224)(cid:177)(cid:228)(cid:192)(cid:631)(cid:133)(cid:228)(cid:228)(cid:241)(cid:201)(cid:221)(cid:236)(cid:177)(cid:209)(cid:202)(cid:631)(cid:195)(cid:177)(cid:201)(cid:177)(cid:236)(cid:228)(cid:581) Board of Directors and the non-executive (cid:588)(cid:631)(cid:631) (cid:221)(cid:224)(cid:209)(cid:252)(cid:177)(cid:152)(cid:177)(cid:202)(cid:168)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:202)(cid:156)(cid:146)(cid:156)(cid:228)(cid:228)(cid:133)(cid:224)(cid:259)(cid:631)(cid:224)(cid:156)(cid:228)(cid:209)(cid:241)(cid:224)(cid:146)(cid:156)(cid:228)(cid:631)(cid:167)(cid:209)(cid:224)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631) members of the Supervisory Board may management or risk, the valuation of assets, be recalled within a 12-month period only the use of external credit ratings and the if any shareholder holds more than 33% application of internal models. of the shares issued by the Company, which have been obtained by the shareholder by The following, in particular, come under the way of a public purchase offer. exclusive authority of the Board of Directors: 58 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:588) election of the Chairman & Chief Executive (cid:588) decision on steps to hinder a public takeover Officer of the Company, and exercising procedure; employer’s right in respect thereof; (cid:588) decision on the acceptance of a public (cid:588) election of one or more Deputy Chairmen purchase offer received in respect of of the Board of Directors; treasury shares; (cid:588) determination of the annual plan; (cid:588) decision on the commencement of trading (cid:588) the analysis and assessment of the imple- in the shares in a regulated market mentation of business-policy guidelines, (flotation); on the basis of the Company’s quarterly (cid:588) decision on the cessation of trading in balance sheet; the shares in a given regulated market, (cid:588) decisions on transactions referred to the provided that the shares are traded in authority of the Board of Directors by the another regulated market (hereinafter: Company's organisational and operational transfer). regulations; (cid:588) decision on launching, suspending, or The Board of Directors is exclusively terminating the performance of certain authorised to: banking activities within the scope of the (cid:588) decide, in the cases specified in the Civil licensed activities of the Company; Code, on acceptance of the Company’s (cid:588) designation of the employees entitled to interim balance sheet, subject to the prior sign on behalf of the Company; approval of the Supervisory Board; (cid:588) decision on the increasing of registered (cid:588) decide, instead of the General Meeting, capital at the terms set out in the relevant to pay an advance on dividends, subject to resolution of the General Meeting; the preliminary approval of the Supervisory (cid:588) decision to acquire treasury shares at Board; the terms set out in the relevant resolution (cid:588) make decisions regarding any change in of the General Meeting; the Company’s name, registered office, (cid:588) decision on approving internal loans in permanent establishments and branches, accordance with the Credit Institutions Act; and in the Company’s activities – with the (cid:588) decision on the approval of regulations exception of its core activity – and, that fundamentally determine banking in relation to this, to modify the Articles operations, or are referred to its authority of Association should it become necessary by the Credit Institutions Act. to do so on the basis of the Civil Code The following shall qualify as such or the Articles of Association; regulations: (cid:588) make decision on mergers (if, according (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:146)(cid:209)(cid:195)(cid:195)(cid:133)(cid:236)(cid:156)(cid:224)(cid:133)(cid:195)(cid:631)(cid:156)(cid:252)(cid:133)(cid:195)(cid:241)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:631)(cid:224)(cid:156)(cid:168)(cid:241)(cid:195)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:228)(cid:579) to the provisions of the law on the (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:224)(cid:177)(cid:228)(cid:192)(cid:606)(cid:133)(cid:228)(cid:228)(cid:241)(cid:201)(cid:221)(cid:236)(cid:177)(cid:209)(cid:202)(cid:631)(cid:224)(cid:156)(cid:168)(cid:241)(cid:195)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:228)(cid:579) transformation, merger and demerger of (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:146)(cid:241)(cid:228)(cid:236)(cid:209)(cid:201)(cid:156)(cid:224)(cid:631)(cid:224)(cid:133)(cid:236)(cid:177)(cid:202)(cid:168)(cid:631)(cid:224)(cid:156)(cid:168)(cid:241)(cid:195)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:228)(cid:579) legal entities, the approval of the General (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:146)(cid:209)(cid:241)(cid:202)(cid:236)(cid:156)(cid:224)(cid:221)(cid:133)(cid:224)(cid:236)(cid:259)(cid:631)(cid:224)(cid:133)(cid:236)(cid:177)(cid:202)(cid:168)(cid:631)(cid:224)(cid:156)(cid:168)(cid:241)(cid:195)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:228)(cid:579) Meeting is not required in order for the (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:177)(cid:202)(cid:252)(cid:156)(cid:228)(cid:236)(cid:201)(cid:156)(cid:202)(cid:236)(cid:631)(cid:224)(cid:156)(cid:168)(cid:241)(cid:195)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:228)(cid:579) merger to take place). (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:224)(cid:156)(cid:168)(cid:241)(cid:195)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:228)(cid:631)(cid:209)(cid:202)(cid:631)(cid:133)(cid:228)(cid:228)(cid:156)(cid:236)(cid:631)(cid:146)(cid:195)(cid:133)(cid:228)(cid:228)(cid:177)(cid:167)(cid:177)(cid:146)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:579)(cid:631) impairment and provisioning, The Board of Directors directly exercises (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:209)(cid:224)(cid:168)(cid:133)(cid:202)(cid:177)(cid:228)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:133)(cid:195)(cid:631)(cid:133)(cid:202)(cid:152)(cid:631)(cid:209)(cid:221)(cid:156)(cid:224)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:133)(cid:195)(cid:631) employer's rights in respect of the Chairman regulations, which contain the regulations & CEO. The person affected by a decision on the procedure for assessing requests may not participate in the decision making. related to large loans, Employer rights in respect of the executive (cid:588)(cid:631)(cid:631) (cid:236)(cid:174)(cid:156)(cid:631)(cid:224)(cid:156)(cid:168)(cid:241)(cid:195)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:228)(cid:631)(cid:209)(cid:202)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:236)(cid:224)(cid:133)(cid:202)(cid:228)(cid:167)(cid:156)(cid:224)(cid:631)(cid:209)(cid:167)(cid:631) directors of the Company are exercised by signatory rights; the Board of Directors through the Chairman (cid:588) the decision on approving the Rules & CEO, with the proviso that the Board of of Procedure of the Board of Directors; Directors must be notified in advance of the Management’s analysis of the 2020 results of the OTP Group 59 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:23)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) appointment and dismissal of the Deputy The Board of Directors may delegate, to CEOs. With regard to issues related to the individual members of the Board of Directors, exercising of employer's rights in respect to executive directors employed by the Company, of employees, the Company is represented and to the heads of the individual service by the Chief Executive Officer and by the departments, any task that does not come senior company employees defined in the under the exclusive authority of the Board Organisational and Operational Regulations of Directors in accordance with these Articles of the Company, in accordance with the of Association or a General Meeting resolution. delegation of authority approved by the Board The Company may acquire treasury shares of Directors. If the Chairman of the Board in accordance with the rules of the Civil Code. of Directors and the CEO are different persons, The prior authorisation of the General Meeting the employer rights in respect of the other is not required for the acquisition of treasury executive directors of the Company (CEO, deputy shares if the acquisition of the shares is CEOs) are exercised by the Board of Directors necessary in order to prevent a direct threat of through the Chairman of Board of Directors, severe damage to the Company (this provision with the proviso that the Board of Directors is not applicable in the event of a public pur- shall be notified in advance of the appointment chase offer aimed at buying up the Company’s and dismissal of the CEO and Deputy CEOs. shares), as well as if the Company acquires With regard to issues related to the exercising the treasury shares in the context of a judicial of employer's rights in respect of employees, procedure aimed at the settlement of a claim the Company is represented by the persons to which the Company is entitled, or in the defined in the Organisational and Operational course of a transformation. Regulations of the Company, in accordance The Company has not made agreements in the with the delegation of authority approved by meaning of points (j) and (k) in paragraph 95/A the Board of Directors. of Act No. C of 2000 on Accounting. Ownership structure of OTP Bank Plc.: Description of owner Total equity January 2020 31 December 2020 Quantity 1 Quantity 1 Domestic institution/company Foreign institution/company Domestic individual Foreign individual Employees, senior officers Treasury shares2 Government held owner International Development Institutions Other3 Total Ownership share 18.84% 77.01% 2.98% 0.13% 0.80% 0.12% 0.08% 0.04% 0.00% 100.00% Voting rights 18.86% 77.10% 2.98% 0.13% 0.80% 0.00% 0.08% 0.04% 0.00% 100.00% 52,750,611 215,635,699 8,344,202 356,377 2,240,465 323,520 219,372 122,218 7,546 280,000,010 Ownership share 20.93% 71.60% 4.79% 0.11% 0.85% 1.55% 0.08% 0.04% 0.04% 100.00% Voting rights 21.26% 72.73% 4.87% 0.12% 0.87% 0.00% 0.08% 0.04% 0.04% 100.00% 58,605,628 200,480,153 13,424,090 319,346 2,393,390 4,334,140 219,800 108,981 114,482 280,000,010 1 Voting rights in the General Meeting of the Issuer for participation in decision-making. 2 Treasury shares do not include the OTP shares held by ESOP (OTP Bank Employee Stock Ownership Plan Organization). Pursuant to Act V of 2013 on the Civil Code, OTP shares held by the ESOP are not classified as treasury shares, but the ESOP must be consolidated in accordance with IFRS 10 Consolidated Financial Statements standard. On 31 December 2020 ESOP owned 5,097,255 OTP shares. 3 Non-identified shareholders according to the shareholders’ registry. Number of treasury shares held in the year under review (2020): OTP Bank Subsidiaries Total 1 January 323,520 0 323,520 31 March 1,667,632 0 1,667,632 30 June 2,313,939 0 2,313,939 30 September 4,395,242 0 4,395,242 31 December 4,334,140 0 4,334,140 60 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Shareholders with over/around 5% stake as at 31 December 2020: Name MOL (Hungarian Oil and Gas Company Plc.) KAFIJAT Group OPUS Securities S.A. Groupama Group Number of shares 24,000,000 19,835,748 14,496,476 14,330,632 Ownership1 Voting rights1, 2 8.57% 7.08% 5.18% 5.12% 8.71% 7.20% 5.26% 5.20% 1 Rounded to two decimals. 2 Voting rights in the General Meeting of the Issuer for participation in decision-making. Committees8 Members of the Board of Directors Members of the Supervisory Board Members of the Audit Committee Dr. Sándor Csányi – Chairman Mr. Tibor Tolnay – Chairman Dr. József Gábor Horváth – Chairman Mr. Tamás György Erdei – Deputy Chairman Dr. József Gábor Horváth – Deputy Chairman Mr. Tibor Tolnay – Deputy Chairman Mr. Mihály Baumstark Dr. Tibor Bíró Dr. István Gresa Mr. Antal Kovács Dr. Antal Pongrácz Dr. László Utassy Dr. József Vörös Mr. László Wolf Mr. András Michnai Mrs. Klára Bella Dr. Márton Gellért Vági Mr. Olivier Péqueux Dr. Márton Gellért Vági Mr. Olivier Péqueux The résumés of the committee and board members are available in the Corporate Governance Report/Annual Report. . Personal and organizational changes Company until the Annual General Meeting of the Company closing the 2022 business year, but not later than 30 April 2023. Concerning the audit of OTP Bank Plc.’s separate On 30 April 2020 the Board of Directors acting and consolidated annual financial statements in the competency of the Annual General in accordance with International Financial Meeting, elects Mr. Olivier Péqueux as member Reporting Standards for the year 2020, the of the Supervisory Board of the Company until Board of Directors acting in the competency the Annual General Meeting of the Company of the Annual General Meeting is electing closing the 2022 business year, but not later Deloitte Auditing and Consulting Ltd. (000083, than 30 April 2023. H–1068 Budapest, Dózsa György út 84/C) On 30 April 2020 the Board of Directors acting as the Bank’s auditor from 1 May 2020 until in the competency of the Annual General 30 April 2021. Meeting, elects dr. Márton Gellért Vági as On 30 April 2020 the Board of Directors acting member of the Supervisory Board of the in the competency of the Annual General Company until the Annual General Meeting Meeting, elects Mr. Tibor Tolnay as member of the Company closing the 2022 business year, of the Supervisory Board of the Company until but not later than 30 April 2023. the Annual General Meeting of the Company On 30 April 2020 the Board of Directors acting closing the 2022 business year, but not later in the competency of the Annual General than 30 April 2023. Meeting, elects Mrs. Klára Bella as member On 30 April 2020 the Board of Directors acting of the Supervisory Board of the Company until in the competency of the Annual General the Annual General Meeting of the Company Meeting, elects dr. József Gábor Horváth closing the 2022 business year, but not later as member of the Supervisory Board of the than 30 April 2023. 8 Personal changes can be found in the “Personal and organizational changes” chapter. Management’s analysis of the 2020 results of the OTP Group 61 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) On 30 April 2020 the Board of Directors acting function, while the Supervisory Board is the in the competency of the Annual General management body in its supervisory function Meeting, elects Mr. András Michnai as member of the Company. It controls the supervision of of the Supervisory Board of the Company until the lawfulness of the Company’s operation, the Annual General Meeting of the Company its business practices and management, closing the 2022 business year, but not later performs oversight tasks and accepts the than 30 April 2023. provisions of the Bank Group’s Remuneration On 30 April 2020 the Board of Directors acting Policy. The effective operation of Supervisory in the competency of the Annual General Board is supported by the Audit Committee, as Meeting, elects Mr. Tibor Tolnay as member a committee, which also monitors the internal of the Audit Committee of the Company until audit, the risk management, the reporting the Annual General Meeting of the Company systems and the activities of the auditor. closing the 2022 business year, but not later In order to assist the performance of the than 30 April 2023. governance functions the Board of Directors On 30 April 2020 the Board of Directors acting founded and operates, as permanent or in the competency of the Annual General other committees, such as the Management Meeting, elects dr. József Gábor Horváth Committee, the Remuneration Committee, as member of the Audit Committee of the the Nomination Committee and the Risk Company until the Annual General Meeting Assumption and Risk Management Committee. of the Company closing the 2022 business To ensure effective operation OTP Bank Plc. year, but not later than 30 April 2023. also has a number of further permanent On 30 April 2020 the Board of Directors acting committees. in the competency of the Annual General OTP Bank Plc. gives an account of the activities Meeting, elects Mr. Olivier Péqueux as member of the executive boards and the committees of the Audit Committee of the Company until every year in its Corporate Governance Report. the Annual General Meeting of the Company The Board of Directors held 8, the Supervisory closing the 2022 business year, but not later Board held 6 meetings, while the Audit than 30 April 2023. Committee held 1 meeting in 2020. In addition, On 30 April 2020 the Board of Directors acting resolutions were passed by the Board in the competency of the Annual General of Directors on 155, by the Supervisory Board Meeting, elects dr. Márton Gellért Vági as on 108 and by the Audit Committee on 39 member of the Audit Committee of the occasions by written vote. Company until the Annual General Meeting of the Company closing the 2022 business year, but not later than 30 April 2023. On 20 July 2020 the labour contract of Policy of diversity Dr. Zsolt Barna, Deputy Chief Executive Officer OTP Bank Plc. determines and regulates the had been terminated by mutual agreement. criteria for the selection of senior executives Along with the termination of the labour in line with European Union as well as contract with OTP Bank Plc., Dr. Zsolt Barna domestic legal requirements and directives resigned from his positions held in different fundamentally determining the operation member companies of OTP Group. of credit institutions. When designating members of the manage- ment bodies (Board of Directors, Supervisory Operation of the executive boards Board) as well as appointing members of the Board of Directors and administrative members OTP Bank Plc. has a dual governance structure, (Management), OTP Bank Plc. considers the in which the Board of Directors is the Company’s existence of professional preparation, the executive management body in its managerial high-level human and leadership competence, 62 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) the versatile educational background, the members of the management bodies falls widespread business experience and business within the exclusive competence of the General reputation of the utmost importance, at the Meeting upon which – beyond its capacity same time, it is also highly committed to taking to designate enforcing the above aspects efficient measures in order to ensure diversity to maximum effect – OTP Bank Plc. has no with regard to corporate operation, including substantive influence. the gradual improvement in women’s partici- For the purposes of OTP Bank Plc.’s Articles pation rate. of Association, a Board of Directors comprising With this in mind, OTP Bank Plc.’s Nomination 5–11 members and a Supervisory Board Committee continuously keeps tracking the comprising 5–9 members are set up at the Bank. European Union and domestic legislation The Board of Directors in its current form relating to women’s quota on its agenda, in that operates with 10 members and has no female when unambiguously worded expectations are member, while the Supervisory Board comprises announced, it promptly takes the necessary 6 members and has one female member as of measures. 12 April, 2019. The management of OTP Bank Plc. It is important to note, however, that, as a currently comprises 7 members and has no public limited company, the selection of the female member. E N V I R O N M E N TA L P O L I C Y, E N V I R O N M E N TA L P R OJ E C T S Environmental protection principles The schemes overseen by it focus on the embedding of environmental and climate protection considerations into financial services OTP Group is committed to the protection and on the related disclosures; and as such, of the environment, the combating of climate among other things, the Committee launched change and its impacts, and the preservation an ESG lending project and created the Green and low-impact use of natural resources. Programme Directorate. OTP Bank’s environmental activities are regulated in its Environmental Regulation. The Regulation ensures legal compliance and the consideration and integration of environ- mental criteria into the Bank’s business operations in order to minimise the environ- Environmental protection in relation to the provision of banking services mental impacts of operating and maintaining By 2023, OTP Bank aims to become the Central the Bank’s organisation. It also sets out European bank best equipped to provide green the rules on implementing the principles of financing. The Green Programme Directorate sustainable procurement. OTP Group members was created to achieve this goal; its main operate in full compliance with environmental purpose is to take full advantage of the legislation and received no fines in 2020 either. opportunities inherent in green financing, In CDP’s Climate Change Questionnaire, helping OTP Group build as large a green OTP Group achieved a rating of B–, improving portfolio as possible and exploit the market on its performance in the year before. potential of green financing certification. OTP Bank set up an ESG Steering Committee in Pursuant to our internal regulations, our 2020 (see the Non-financial statement section banking group conducts its lending activities about the operations of the committee). expecting – and always verifying – compliance Management’s analysis of the 2020 results of the OTP Group 63 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) with the applicable environmental regulations. (improving energy efficiency and increasing At the time of the internal approval by the bank the reliance on renewables). In 2020, loans of the financing of a project and before first of a total of HUF 16.0 billion were disbursed; disbursement, the availability of the required of this, 98.6% was retail lending, since the permits and authorisations and compliance with corporate credit facility had been depleted. the provisions thereof is always verified by one In the period between 2017 and 2020, the total or more external consultants (legal and/or of disbursed loan contracts amounted to technical experts); the Bank subsequently ensures HUF 43.4 billion, representing 28.4% of all compliance by obtaining regular declarations loans granted via MFB Points. from the customer and conducting its own OTP Jelzálogbank was the first credit institution monitoring. The credit agreements stipulate in Hungary to join the Energy Efficient sanctions for any breaches of commitments Mortgages Initiative (EEMI) pilot. The aim made or requirements imposed. The long-term of the programme is to allow participants to sustainability of environmental impacts is jointly develop best practices in green lending taken into consideration as a subjective factor and to support the overhaul and energy in the credit ratings of large corporate clients. modernisation of the housing stock. With regards to project financing, our group In 2020, our subsidiaries in Croatia, Moldova, gives high priority to financing projects aimed Albania and Slovakia offered preferential at the utilisation of renewable energy sources. loans incentivising energy efficiency and the In 2020, our lending policy was to increase the use of renewables. support for lending to this sector even further; The objective of the OTP Climate Change we also reviewed our lending guidelines 130/30 Fund of OTP Fund Management is applicable to the solar energy sector. In 2020, to provide an opportunity to invest in the we lent HUF 9.2 billion to the renewables shares of developed and developing market sector, financing a total of 30 MW in solar companies that may be the beneficiaries of power capacities. In terms of project financing, the directives, the legislation and the changes we also give special attention and preference in economic policy aimed at reducing climate to office building projects with sustainability/ change impacts. As of the end of 2020, the Fund environmental certification. had HUF 31.3 billion net asset value, nearly As far as sectors with environmental benefits four times higher than in the year before. are concerned, our corporate lending policy Our efforts to reduce the direct environmental is expressly supportive of the financing impact of OTP Group’s operations are centred of agriculture and solar power. Starting from around improving its energy efficiency and 2020, we reclassified the paper, paper products reducing its paper usage. The environmental and packaging material industry as a category risks associated with our operations are requiring increased caution. The creation analysed and managed within our operational of a new agricultural limit framework based risk management process. Potential risks are on quantity indicators has the potential for identified in the course of the annual process- accelerating lending from 2021, especially in based self-assessment, and the assessment the case of smaller farms. of climate change risks is also included in the OTP Bank leads a consortium offering products scenario analysis of risks with low probability of the Hungarian Development Bank (MFB), but high impact. including both EU-refinanced and those of MFB’s own origination, at the MFB Points set up in our branches. Environmental protection has been assigned priority in our available loan products since 2017. Households and Energy consumption and business travel businesses can access preferential terms under OTP Group uses state-of-the-art technology in these products to implement energy projects new construction and renovation projects; we 64 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) also expand our use of LED lighting technology employees continued to work on site at all our on an ongoing basis. As part of the renovation organisations, albeit in smaller numbers. process, we are replacing air conditioning The number of business trips and the size of units, always ensuring that the new units use the vehicle fleet are determined by the needs environmentally-friendly coolants. In 2020, of the business. Our Group’s vehicle policy sets OTP Bank identified the branches with the carbon limits; also, there are environmentally- highest relative energy consumption; all friendly vehicles among the cars available to immediate remedial actions were completed choose from in all the vehicle categories. Our at these locations. The refurbishment of 16 Montenegrin subsidiary installed an electric branches at the parent bank also yielded car charging station in front of its head office energy savings. At the subsidiaries, branch building during the year. Group-level total refurbishment projects also included energy mileage decreased, mainly because of the efficiency measures; our Montenegrin sub- Covid-19 pandemic. The total distance covered sidiary continued installing LED lighting and by all OTP Bank vehicles fell by 5% even though motion detectors at its head office building. the fleets of two subsidiaries with high vehicle We are intensifying our reliance on renewable use rates (Monicomp, OTP Faktoring) were energy based on cost-efficiency criteria. transferred to the parent bank. Whenever a branch of the parent bank is Video conferencing helps cut down on the renovated, we always examine the possibility amount of business travel and is a solution of installing solar panels and heat pumps. that we are using ever more extensively year We installed solar panels at three branches after year. The number of video conferencing in 2020. Our systems generated a total of rooms rose again in 2020, and the rooms were 1,250 GJ energy from solar power. Our central increasingly busy. Our existing bicycle storage archives facility has been using geothermal facilities continued to be available to both energy for several years (the facility used customers and employees in 2020. In addition, to be owned by Monicomp Zrt., which merged 48 new storage spaces were created at into the parent bank during the year). OTP Bank’s head office buildings; our Serbian The solar panels of our subsidiaries in Croatia and Montenegrin subsidiaries provided new and in Serbia generated a total of 383 GJ storage at their head offices; our Bulgarian of solar power. subsidiary provided storage at three locations Energy use across the Banking Group was for employees and customers alike; and the greatly impacted by the pandemic. As regards Ukrainian subsidiary installed storage in three ventilation and fresh air in our buildings, air locations. recirculation was suspended and ventilation Energy consumption figures are presented in was intensified instead; this increased our respect of OTP Bank. The bank’s overall energy energy usage. Although the high rate of staff consumption decreased by 3% compared to the working from home reduced our electricity previous year. However, due to our workforce consumption, heating and cooling consumption expansion, this represents an 8% reduction in was only marginally lower because our per-capita energy consumption. Volume of energy consumption: OTP Bank Total energy consumption (GJ) Per-capita energy consumption (GJ) 2020 242,390 25,76 2019 250,610 28.14 Energy consumption data are derived from readings; the measured consumption volumes are converted to energy using local average calorific values. (Excluding Monicomp Zrt. Consumption data.) The projection basis for the per-capital figure is the average statistical headcount in 2019 and the average full-time employee count (FTE) in 2020. 2019 figures were slightly revised. Management’s analysis of the 2020 results of the OTP Group 65 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Efforts to reduce paper use FSC-certified paper for its account statements and marketing publications, and we use OTP Group has been making a consistent only ECO Label personal hygiene products. effort to reduce paper use and printing. Due to the merger of Monicomp the paper OTP Bank reduced its office paper usage usage at OTP Bank increased significantly. by approximately 30%; the pandemic and Our Serbian subsidiary also uses FSC-certified increased rates of working from home paper, whereas our Slovenian subsidiary uses played a significant role in this development. paper with PEFC certification. Further factors Nevertheless, our percentage of recycled leading to lower paper usage included the paper relative to total office paper usage introduction of lower-weight office paper at increased to 20% and we plan to increase our Bulgarian subsidiary, and the transitioning that figure even further in the future. to electronic signatures at our Moldovan Since 2020, OTP Bank has been using subsidiary. Paper usage quantities: OTP Bank Total amount of paper used (t) (office, packaging, indirect) Per capita paper use* (kg) 2020 1,137 121 2019 764 86 Sustainable use and waste management Waste collection remained unchanged in most respects in 2020. All members of OTP Group collect and manage hazardous waste and We follow a principle of using all our equipment, paper containing business secrets selectively, devices and machines for the longest time in compliance with the relevant laws and reasonably possible. We explicitly aim to use regulations. The selective collection of non- furniture until the end of its lifecycle, reusing it confidential paper waste, PET bottles and multiple times and ensuring the compatibility – in a number of locations – glass is available of replacements. OTP Bank, DSK Bank, OTP Bank in the head office buildings of OTP Bank. Romania and OTP banka Srbija all follow Our Ukrainian subsidiary operates selective the practice of making charitable donations paper collection at its head office building. of any furniture no longer used but in good Our Serbian subsidiary collects paper waste condition, alongside functioning IT equipment selectively in its branches and head office (mostly computers and laptops) to institutions buildings. Our Albanian subsidiary collects and organisations in need. paper waste selectively. Our Romanian In order to cut the use of plastics in its subsidiary collects all paper, metal, glass and archiving practices, our parent bank replaced plastic selectively. Our Slovenian subsidiary ethylene bags and plastic wallets with paper also collects communal waste selectively products and introduced filtered water (including biodegradable food waste). Our fountains. In 2020, we expanded the use Croatian subsidiary has collected paper and of stamps made of recycled plastic. A number plastic waste selectively for years, whereas the of our subsidiaries drew up schemes to reduce Slovakian subsidiary does so at the locations the use of plastics; implementation is expected where this is facilitated by the municipality. in 2021. DSK Bank operates selective waste collection Our subsidiaries in Serbia, Montenegro and at its sites in Sofia and Varna and expanded Moldova use toner refills to reduce toner and the selective collection of paper waste ink cartridge waste. during the year. Our Montenegrin subsidiary * For 2019 the average statistical headcount was used in the numerator, whereas for 2020 it was the average full-time employee (FTE) count. 66 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) introduced selective paper waste collection our continued participation in the nation- at its head office and its archives facility. wide PET bottle cap collection scheme Attitude shaping (the caps are used for producing wheelchairs). (cid:588) Our Croatian subsidiary sponsored the Adriatic Sea clean-up programme of the scuba diving club in Split. Most members of our Banking Group have a (cid:588) Our Serbian subsidiary highlighted the tradition of raising awareness and taking joint importance of the responsible use of action to protect environmental and natural resources in the context of the pandemic. resources. The programmes implemented with Our employees also planted trees. the help of our employees are increasingly (cid:588) At our Russian subsidiary, environmental wide-ranging, covering almost all aspects awareness messages were displayed on of nature conservation and environmental computer screens and in the offices. protection: (cid:588) The employees of our Ukrainian subsidiary (cid:588) In 2020, OTP Bank continued to support planted trees at several locations in 2020. the Hungarian Hikers’ Association’s efforts (cid:588) Volunteers from our Romanian subsidiary to popularise hiking. participated in the “Let’s Do It, Romania!” (cid:588) DSK Bank introduced its “Green Week” cleanup day. campaign. Water was the central theme of (cid:588) Our Slovenian subsidiary keeps bees outside the first campaign week, when interesting its head office building as part of the Nature information and water conservation advice in the City scheme, contributing to the was shared, and our employees submitted preservation of a Slovenian species of bee. more than 30 recommendations on how the (cid:588) Our Montenegrin subsidiary used posters Bank could help reduce water consumption. and newsletters as regular environmental A photo competition was announced awareness reminders for its employees. and over 200 submissions were received. In 2020, the bank once again participated in The subject of the second campaign week nationwide afforestation and environmental was waste; this involved, among other things, protection campaigns. N O N - F I N A N C I A L S TAT E M E N T O T P B A N K P L C . ( S E P A R AT E ) The social, environmental and wider economic mainly in the chapter on Environmental Policy performance and impacts of OTP Group are and Environmental Protection Measures. also reported in its dedicated Sustainability OTP Bank set up an ESG Steering Committee Report. The Sustainability Report for 2020 in 2020. The Committee is the governing body is a group-level report that meets the GRI of ESG programmes and serves as a decision- (Global Reporting Initiative) Standard, and making forum. It determines the objectives is certified by an independent third party. for these programmes, prioritises projects It is available as a digital version on and allocates resources. The implementation OTP Bank’s website. The information in this of ESG programmes is supported by the chapter is provided in order to comply with Operational Committee, the Programme the Accounting Act, while also aiming to keep Management Team, the ESG team of experts the duplication of information to a minimum. and the Group Management Body. Information concerning environmental OTP Bank is committed to ethical business protection and climate change is provided conduct in all respects; our principles are set Management’s analysis of the 2020 results of the OTP Group 67 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) out in our Code of Ethics, which is binding for prohibited gambling, drug trade, or any all our employees and agents. Our financial other illegal activity); services and our operations have significant (cid:588) transactions that fail to meet environmental social and environmental impacts; our objective standards. is to manage risks responsibly while taking We ensure adherence to our principles, advantage of opportunities and delivering and maintain this balance through: positive outcomes. Providing responsible financial services and managing credit risk (cid:588) our strict Risk Management Policy, (cid:588) our annually revised Lending Policy, (cid:588) our continuously developed credit approval system. Our Lending Policy clearly defines the industries, business lines and activities where we pursue Transparent and prudent operations are the active business operations, as well as the areas cornerstone of all our activities, and maintain- where we do not wish to assume risks. ing the stability of the Banking Group remains We offer our customers banking options to a high priority. Our Compliance Policy formu- suit their individual needs, and provide our lates our principles and guidelines for the services with the highest standard of quality, fair treatment of customers, as well as our while continuing to improve and innovate. compliance with consumer protection While recommending and encouraging the requirements. We follow the principles of use of online channels, we also kept most ethical product design when designing our of our branches open during the pandemic, products, and our New Product Policy requires albeit with shorter hours. We took numerous – among other things – that we investigate any protective measures to improve safety. potential risks affecting consumers. Our objective is to provide equal access for We fulfil our role as financial intermediary persons living with disability, through services in a way that guarantees the security of our adapted to their special needs, in line with the customers’ savings throughout the entire Accessibility Strategy of OTP Bank. Accessibility process. Our rules ensure that we comply with is integrated into our website, which supports the responsible lending standards concerning one-handed use and provides accessibility the prevention of excessive debt, the provision options including text-to-speech software and of fair, clear, comprehensive and easily visible video content transcripts. Physical accessibility information, and the recommendation was provided in all our branches but one in of appropriate products. 2020 as well. Tactile guide strips are available We invest and lend the money deposited in 41% of our branches. Our customers can with us, ensuring that it will not serve illegal request special-needs services at the queue purposes, or those contrary to the values management machine, with physical push of society. OTP Bank will not finance buttons and tactile strips also assisting them (cid:588) customers whose financing is forbidden in using the device. KONTAKT Interpreter in international accords, EU acts or national Services are available at 166 branches; this is laws; a service allowing a sign language interpreter (cid:588) those whose activity is likely to violate public to assist with administration tasks through live morals or social value systems, or is video chat. Induction loop amplifier systems connected to crime; are also available (in 109 branches), while 25 of (cid:588) those who are connected, directly or our high-traffic branches have employees who indirectly, to criminal activities or to the can serve customers using sign language. We deliberate violation or evasion of legal have made text-to-speech software available regulations; on 765 of our ATMs. (cid:588) transactions classified as prohibited OTP Bank’s stated objective is to serve its business sectors (e.g. the illegal arms trade, customers without fault. In order to improve 68 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) the satisfaction of our customers, we are Directive; instant payments, once they had also improving our complaint management been introduced; and numerous customer practices on an ongoing basis. Our Complaint queries and complaints regarding the payment Management Policy, Complaint Management holiday granted in the coronavirus pandemic. Regulation and a Glossary are available The number of complaints regarding card to view in our branches as well as on our purchases was also high; some of those website. complaints were attributable to online fraud. Complaints in 2020 tended to concern the Where errors or gaps were identified by the major changes introduced last year, such as investigation into complaints, the responsible the statement of charges, sent to customers departments carried out the necessary early in the year as per the Payment Accounts improvements and developments. Customer complaint data: OTP Bank* Number of warranted complaints Ratio of warranted complaints Compensation paid (HUF million) 2020 202,040 67% 419 2019 125,242 66% 144 We use TRI*M methodology to measure the and the data protection officer (reporting satisfaction of our retail customers. OTP Bank’s directly to the top management of the data client retention power stood at 66 points in controller or the data processor and not 2020, falling short of the level in the preceding accepting instructions from anyone regarding six-month period. In order to understand this the discharging of duties) are responsible for result, consideration must be given to the data processing at the bank and the protection change in methodology (personal inquiry of customers’ personal data. being replaced by sampling online and by Our 24/7 Security Operations Center (SOC) telephone) and the impact of the pandemic, was put into operation in 2020 and provides which also reduced the average value of the continuous monitoring, detection and thus market as a whole. The average satisfaction prompt alerts of IT security events. In 2020, score of banks in Central Europe was 71. we received hundreds of reports of phishing. Security and data protection Whenever an actual phishing event occurred, we had the phishing website blocked; where the incident was of greater magnitude, we informed our customers and employees as Security is a top concern for us. The principles well. The Bank issued regular press releases and main guidelines concerning security at on this subject. We took action several times the bank are set forth in the Security Policy, against fraudulent websites and malware which is approved by the Board of Directors. (a virus or link sent by email). The Policy covers all aspects of security, We prioritise raising awareness among our including IT and cyber security, which employees and customers. A full review and have become increasingly important. revision of the security awareness training The processing and protection of personal materials for employees was completed data is covered by the Compliance Policy, in 2020. As a result of the pandemic, the which is also approved by the Board heightened security of working from home of Directors. Both Policies prescribe the was a priority during the year. We improved regular evaluation of risks, and the need our employees’ security awareness through for maintaining and enhancing awareness. in-house practices. Our awareness-raising The Deputy CEO responsible for the IT Division programmes linked to the European * Also includes OTP Lakástakarék and OTP Jelzálogbank data. Management’s analysis of the 2020 results of the OTP Group 69 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:18)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Cybersecurity Month focused on the institution, the Bank and its management are preparations for tackling phishing attempts. fully committed to ensuring observance of all In addition, we compiled training materials relevant legislation, including anti-corruption for customers on how to avoid phishing statutes”. and how to use smartphones safely. The Bank has set up an ethics reporting system No bank card information was leaked from (whistleblowing), which is for the reporting OTP Bank’s systems; data were only revealed and the handling of the reports on suspected by our customers in response to phishing. or actual violation of the values set forth in the The continued low rate of bank card fraud Code of Ethics, where anonymous reporting demonstrates the effective operation of of ethics issues is also possible. The Bank our systems. OTP Bank’s percentage of conducts inquiries for the purpose of detecting, fraud cases involving Bank-issued cards preventing anomalies in connection with relative to turnover was significantly lower reports made or anomalies it became aware (0.0058%) than the European average of otherwise. published by Mastercard (0.0378%). Through the Bank's ethics reporting system We prevented losses from fraud in the a total of 23 reports were received in 2020, amount of HUF 2.1 billion. 5 of them was reclassified as complaints and Suspected money laundering was reported 3 case’s investigation resulted in declaring 262 times during the year. Expected loss from ethics offense – though not due to corruption, financial fraud amounted to HUF 680 million, bribery or discrimination. while losses prevented to HUF 138 billion; The Bank has created and maintains its expected loss relating to branches, ATM Code of Ethics to keep reputational risk and equipment and facilities and equipment financial losses, which may incur in relation to HUF 6 million, with prevented losses to corruption, bribery and discrimination, amounting to HUF 65 million. on a minimum level. Both employees and Fight against corruption and against the practice of bribery newcomers receive education on the Code of Ethics, and in addition, the acceptance to be bound by it is a prerequisite for their employment. Any requests from third parties affecting The Code of Ethics and the Anti-Corruption human rights are treated by the Bank as a Policy of OTP Bank contains provisions on priority. the fight against corruption and against the We manage the risks regarding the fight practice of bribery, also on the acceptance against corruption and bribery within the of individual differences and the denial of framework of our operational risk management discrimination (https://www.otpbank.hu/ process. Our quarterly compliance reports portal/en/EthicalDeclaration, cover the changes in risks as well as the steps https://www.otpbank.hu/static/portal/ necessary steps to manage them. The reports sw/file/OTP_EtikaiKodex_EN.pdf, are presented to the Management Committee https://www.otpbank.hu/static/portal/sw/file/ and the Board of Directors; the annual report OTP_Korrupcioellenes_Politika_202007.pdf). is also submitted to the Supervisory Board. As it can be read in the foreword of the Code and the Anti-Corruption Policy as well, the Bank and its management have adopted the Citizenship principle of zero tolerance towards corruption and bribery, taking a definite stance against As one of the most generous charitable all forms of corruption and giving full support donors in Hungary, OTP Bank gave a total of to the fight against corruption. In addition, the HUF 3.7 billion in charitable donations. Playing Code states that “As an ethical and compliant an active role in managing the hardship 70 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) generated by the coronavirus pandemic was materials and a games app. The learning a priority for us in 2020. Our Bank gave materials produced during the year were HUF 1.7 billion in donations to healthcare used by 2,000 students by the end of the year, institutions, financing the acquisition of medical while the games app (Platypus: A Finlit Story) devices at several hospitals, including some had over 30 thousand downloads. The app operating in disadvantaged areas of the is available without any limitations and free country; we also handed out 20 ventilators as of charge even outside the school context. donations in kind. Four age-specific outdoor training programmes, We aim to provide genuine and effective help each two hours long, were developed to meet by supporting programmes and causes that the needs of schools. During the year, the Centre serve the interests of society. We cooperate also ran a regional educational programme with a number of local non-governmental as well as summer camps, and also developed organisations, concentrating our donated funds adult educational materials. In order to shape and monitoring their usage and the results social attitudes and raise awareness, three achieved. Besides our support to the short films were broadcast 800 times on healthcare sector, our efforts were focused national commercial channels; these films on the following areas: touched on the subjects of self-provision, (cid:588) developing financial literacy, attitude- digital banking solutions and consumer shaping; empowerment. The refurbishment of the (cid:588) sponsoring culture and the arts: creating OK Educational and Innovation Centre was and preserving values; completed, ensuring that the Foundation (cid:588) equal opportunities: helping the can deliver its educational programmes with disadvantaged and those in need; even greater capacities and relying on an even (cid:588) sports. more modern infrastructure. During the pandemic, only a limited set of our Our aim with the short film Keep it in the Family! voluntary programmes remained possible; in was also to improve financial literacy and 2020 1,400 employees spent 5,500 hours doing shape attitudes; in this film, two sets of parents voluntary work. and children spoke about money and their The Humanitas Social Foundation supports relationship with it. The video is available vulnerable communities and individuals online and has been viewed more than with a focus on healthcare and education; 400,000 times. We also joined the “Life without donation recipients are selected through Leftoversl!” campaign of the Hungarian Food an application process. Its most important Bank Association, which encourages reducing activity in 2020 involved priority support to food waste. hospitals. The OTP Fáy András Foundation provides financial and economic education services, Responsible employment a key element of which is operating the OK Educational and Innovation Centre. Our employees play a key role in OTP Bank’s The activities of the Foundation in 2020 were success. The pandemic has forced us to adopt determined mostly by the coronavirus pan- unprecedented measures to protect the safety demic and the refurbishment of the educational of our employees. We created the conditions centre in Budapest, which had been started for work from home for thousands of our in 2019. 2,212 persons attended classroom employees within a short timeframe, and training, instead of which emphasis shifted to introduced emergency measures relating to digital education programmes. The Fáy digital working on site in our offices. We also helped educational programme was created for our employees recharge their emotional, students in Years 5 to 12 and comprises live mental and physical batteries in these difficult presentations, online videos, e-learning working conditions. Management’s analysis of the 2020 results of the OTP Group 71 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OTP Bank’s employees: Employees, total (individuals) Distribution by gender Turnover rate* 31 december 2020 Total 9,826 100% 10.5% Men 3,402 34.6% 9.3% Women 6,424 65.4% 11.2% 31 december 2019 Total 9,318 100% 13.0% Men 2,975 31.9% 13.2% Women 6,343 68.1% 12.8% The central objective of our human resource We regularly measure employee satisfaction. strategy is to intensify employee experience In 2020, we surveyed head office employees and commitment. Development projects to find out their experience of the pandemic. furthering the achievement of the goals set The employees judged the Bank’s performance in accordance with predefined priorities were as very good, both in terms of how efficiently implemented in 2020, supporting, among we were dealing with the situation (96%) and others, a consistent and relevant management how we communicated (90%). As a pilot, we development process, talent and succession measured engagement within a certain subset planning with talent identification and selection of our staff. The 86% engagement score is high, and the measurement of competencies along even in comparison with the international consistent principles, and also the development benchmarks. of performance management, with clear targets and continuous feedback. The growth and development of our employees is a priority for us. All our employees attend Short description of the business model of the company professional training courses and competency development, based on their performance OTP Bank is the market-leading credit institution assessments. in Hungary. As for its business model, the Bank Ethical conduct and compliance with the law offers high-quality financial services to retail, remain core principles in our human resource private banking, micro and small business, management as well. OTP Bank analyses and medium and large corporate, as well as manages the risks pertaining to employment municipality clients through both its branch within its operational risk management network and its steadily developing digital process. The interests of our employees are channels. The Bank provides comprehensive represented by their trade union, with a retail and corporate banking services: its Collective Agreement setting out the rights activities include deposit collection from and obligations of every employee. customers and raising money from the money In our Code of Ethics, our Bank declares its and capital markets. On the asset side, commitment to providing a safe and healthy OTP Bank offers mortgage loans, consumer working environment and states its expectation credits, working capital and investment loans to of mutual respect between executive officers companies, as well as loans to municipalities, and employees, including the prohibition of whereas its liquidity reserves are invested discrimination and harassment. We consistently in money and capital market instruments. apply the principle of “equal pay for equal work”, Moreover, the Bank provides a wide range including providing equal pay to men and of state-of-the-art services, including the areas women for the same position and performance. of wealth management, investment services, Within the objective limitations of specific job payment services, treasury and other services. descriptions, we allow for flexible working In addition, OTP Bank's Hungarian subsidiaries hours and part-time employment options. deliver a wide range of further financial We encourage healthy lifestyle choices, offering services. The Bank owns foreign subsidiaries in a complex health insurance package, and many countries of Central and Eastern Europe subsidising recreation and sports activities. through capital investments. * Compared to the end-of-year headcount; includes termination of employment both by employee and by employer, as well as retirement. 72 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Non-financial performance indicators (cid:588) Bank security: expected damages arising from crimes detected: HUF 680 million, prevented damages: HUF 813 million; (cid:588) Internal audit: 181 closed investigations, reported criminal charges on suspicion 1,127 proposals, 1,126 accepted proposals; of money laundering: 471; the ratio (cid:588) Compliance with Budapest Stock Exchange of bank card abuses 0.0058% which is (BSE) Recommendations (yes/no ratio): better than the European average 72 yes, 0 no; (European average 0.0378%, world average (cid:588) Compliance: 19 closed consumer protection 0.0679%); related investigations, 4,838 reports due to (cid:588) Ethics issues: 23 ethics reports, establishing suspicion of money laundering; ethics offense in 3 cases. L I S T O F N O N - A U D I T S E R V I C E S B Y S E R V I C E C AT E G O R I E S U S E D B Y T H E B A N K The statutory audit of OTP Bank is carried (cid:588) Assurance engagements other than audits out by Deloitte Auditing and Consulting Ltd., or reviews of historical financial information in addition to which the following services (ISAE 3000); were contracted: (cid:588) Issue of Comfort letters; (cid:588) Engagements carried out according to standards on review engagements (cid:588) Engagements to perform agreed-upon (ISRE 2400, 2410). procedures regarding financial information (AUP according to ISRS 4400); (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 73 S U P P L E M E N TA R Y D ATA Footnotes to the table ‘consolidated net profit breakdown by subsidiaries (IFRS)’ Express Group) were included into the Bulgarian operation. From 1Q 2019 the statement of recognised income and balance sheet of DSK Leasing AD was General note: regarding OTP Core and other included. subsidiaries, profit after tax is calculated (4) From 1Q 2019 the statement of recognised without received dividends and net cash income and balance sheet of OTP Leasing transfers (and other adjustment items). d.d. and SB Leasing d.o.o. was included. Dividends and net cash transfers received In February 2020 the company name of from non-group member companies are OTP banka Hrvatska dioničko društvo was shown on a separate line in one sum in the changed to OTP banka dioničko društvo. table, regardless to the particular receiver (5) The financial performance of OTP Factoring or payer group member company. Serbia d.o.o is included. From 1Q 2019 (1) Aggregated adjusted after tax profit of the statement of recognised income OTP Core and foreign banks. and balance sheet of OTP Lizing d.o.o (2) OTP Core is an economic unit for measuring and OTP Services d.o.o. was included. the result of core business activity The balance sheet of the newly acquired of OTP Group in Hungary. Financials of OTP banka Srbija was included in 3Q 2019, OTP Core are calculated from the partially its P&L from 4Q 2019. consolidated IFRS financial statements of (6) The statement of recognised income and certain companies engaged in OTP Group’s balance sheet of OTP Faktoring SRL was operation in Hungary. These companies included. From 1Q 2019 the statement include OTP Bank Hungary Plc., of recognised income and balance sheet OTP Mortgage Bank Ltd., OTP Building of OTP Leasing Romania IFN S.A. was Society Ltd., OTP Factoring Ltd., included. OTP Financial Point Ltd., and companies (7) Figures are based on the aggregated providing intragroup financing; OTP Bank financial statements of OTP Bank JSC, Employee Stock Ownership Plan LLC OTP Leasing Ukraine, and OTP Factoring Organization was included from 4Q 2016; Ukraine LLC. OTP Card Factory Ltd., OTP Facility (8) The statement of recognised income and Management Llc., MONICOMP Ltd. and balance sheet of LLC MFO “OTP Finance” is OTP Real Estate Lease Ltd. were included included in the Russian performance. from 1Q 2017 (from 1Q 2019 OTP Real Estate (9) From 3Q 2019 the statement of recognised Lease Ltd. was eliminated from OTP Core); income and balance sheet of Podgorička OTP Mobile Service Llc. and OTP Ingatlan- banka was included. pont Llc. were included from 1Q 2019; (10) P&L data and related indicators are adjusted OTP eBIZ Ltd. was included from 1Q 2020. for the special banking tax and the Slovakian The consolidated accounting results Deposit Protection Fund contributions of these companies are segmented into being introduced again in 2014, as well as OTP Core and Corporate Centre. Latter is the contribution into the Resolution Fund. a virtual entity. Including the financial performance of (3) The result and balance sheet of OTP Faktoring Slovensko s.r.o. The sale OTP Factoring Bulgaria EAD is included. of the Slovakian subsidiary was concluded From 1Q 2019 Expressbank AD and its at the end of November 2020. subsidiaries, OTP Leasing EOOD and (11) Until the end of 2019 the after tax profit Express Factoring EOOD (altogether: of Merkantil Bank without dividends, net 74 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) cash transfer and other adjustment items, since 1Q 2020 the sub-consolidated after tax profit of Merkantil Group (Merkantil Bank Ltd., Merkantil Bérlet Ltd., OTP Real Estate Leasing Ltd., NIMO 2002 Ltd., SPLC-P Ltd., SPLC Ltd.) was presented. (12) LLC AMC OTP Capital, OTP Asset Management SAI S.A. (Romania), DSK Asset Management Calculation of the adjusted lines of IFRS profit and loss statements, as well as the adjusted balance sheet lines presented in the business report, and the methodology for calculating the FX-adjusted volume changes EAD (Bulgaria). In order to present Group level trends in (13) OTP Buildings s.r.o. (Slovakia), Velvin a comprehensive way in the Report, the Ventures Ltd. (Belize), R.E. Four d.o.o., Novi presented consolidated and separate profit and Sad (Serbia), SC Aloha Buzz SRL, SC Favo loss statements of this report were adjusted Consultanta SRL, SC Tezaur Cont SRL in the following way, and the adjusted P&Ls (Romania), Cresco d.o.o. (Croatia), are shown and analysed in the Report. OTP Osiguranje d.d. (Croatia), OTP Solution Consolidated accounting figures together Fund (Ukraine). with Separate accounting figures of OTP Bank (14) Within OTP Group, the Corporate Centre are still disclosed in the Supplementary acts as a virtual entity established by Data section. the equity investment of OTP Core for managing the wholesale financing activity Adjustments affecting the income statement: for all the subsidiaries within OTP Group (cid:588) The after tax effect of adjustment items but outside OTP Core. Therefore the balance (certain, typically non-recurring items from sheet of the Corporate Centre is funded by banking operations’ point of view) are shown the equity and intragroup lending received separately in the Statement of Recognised from OTP Core, the intragroup lending Income. The following adjustment items received from other subsidiaries, and the emerged in the period under review and the subordinated debt and senior notes issued previous year: received dividends, received by OTP Bank. From this funding pool, the and paid cash transfers, the effect of Corporate Centre is to provide intragroup goodwill/investment impairment charges, lending to, and hold equity stakes in special tax on financial institutions, the OTP subsidiaries outside OTP Core. expected one-off negative effect of the debt Main subsidiaries financed by Corporate repayment moratorium in Hungary and Centre are as follows: Hungarians: Serbia, the impact of fines imposed by the Merkantil Bank Ltd., Merkantil Leasing Ltd., Hungarian Competition Authority, the effect OTP Fund Management Ltd., OTP Real of acquisitions, and the one-off impact of Estate Fund Management Ltd., OTP Life regulatory changes related to FX consumer Annuity Ltd; foreigners: banks, leasing contracts in Serbia. companies, factoring companies. Beside the Slovakian banking levy, the total (15) Total Hungarian subsidiaries: sum of the amount of the special banking tax includes adjusted after tax results of Hungarian and the Slovakian Deposit Protection Fund group members, Corporate Centre and contributions being introduced again in 2014, related eliminations. and the contribution into the Resolution (16) Total Foreign subsidiaries: sum of the Fund in Slovakia, too. Within banking taxes, adjusted after tax profits of foreign the special tax booked by the Romanian subsidiaries. subsidiary was also included in 4Q 2019. (cid:588) Until 4Q 2017 other non-interest income elements stemming from provisioning release in connection with provisions on loans originated before the acquisitions of the Management’s analysis of the 2020 results of the OTP Group 75 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) subsidiaries have been reclassified to and to the previous method of recording the deducted from the volume of Provision for funds at book value (initial book value less impairment on loan and placement losses impairments), starting from 3Q 2019 the line in the income statement. Starting from funds are evaluated based on their net asset 1Q 2018 this income from the release of value. The change in the carrying value was pre-acquisition provisions was presented reclassified to the Net other non-interest amongst the Provision for impairment on result (adj.) without one-offs line in the loan and placement losses line both in the adjusted P&L structure. Furthermore, accounting and adjusted P&L structure. received cash transfers within the frame- (cid:588) In 4Q 2019 the following items have been work of the subsidy programme targeting moved from the Other operating expenses the expansion of POS network in Hungary line among the Net interest income after were reclassified from the After tax dividends loss allowance, impairment and provisions and net cash transfers line to the Net other line: Release of loss allowance on securities non-interest result (adj.) without one-offs line. at fair value through other comprehensive (cid:588) Other provisions are separated from other income and on securities at amortized cost, expenses and shown on a separate line in Provision for commitments and guarantees the adjusted profit or loss statement. given, Release of impairment of assets (cid:588) Other administrative expenses have been subject to operating lease and of investment adjusted in the following way in order to properties. In the adjusted P&L structure create a category comprising administrative these items are presented amongst the Other cost items exclusively. Other costs and provisions (adj.) line (through the Structural expenses and other non-interest expenses correction between Provision for loan losses were included into the adjusted Other non- and Other provisions adjustment line). interest expenses. At the same time, the (cid:588) Other non-interest income is shown following cost items were excluded from together with Gains and losses on real adjusted other non-interest expenses: paid estate transactions, Net insurance result, cash transfers (except for movie subsidies Gains and losses on derivative instruments, and cash transfers to public benefit and Gains and losses on non-trading organisations, whereas from 2019 certain securities mandatorily at fair value through part of cash transfers to public benefit profit or loss lines in 2019, but without the organizations was presented amongst above mentioned income from the release net fees and commissions), Other other of pre-acquisition provisions and without non-interest expenses stemming from received cash transfers. However other non-financial activities, and special tax on non-interest expenses stemming from non- financial institutions. financial activities are added to the adjusted (cid:588) Tax deductible transfers (offset against net other non-interest income line, therefore corporate taxes) paid by Hungarian group the latter incorporates the net amount members were reclassified from Other of other non-interest income from non- non-interest expenses to Corporate income financial activities. tax. As a result, the net P&L effect of these (cid:588) OTP Bank’s share in the change in the share- transfers (i.e. the paid transfer less the related holders’ equity of companies consolidated corporate tax allowances) is recognised in the with equity method is reclassified from the corporate income tax line of the adjusted After tax dividends and net cash transfers P&L. The amount of tax deductible transfers line to the Net other non-interest result (adj.) offset against the special tax on financial without one-offs line. In the addition to institutions is shown on a net base on the this, OTP Bank has changed the way how special tax on financial institutions line. private equity funds managed by PortfoLion (cid:588) The financial transaction tax paid from the are recorded. As a result of this, as opposed beginning of 2013 in Hungary is reclassified 76 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) from other (administrative) expenses to structure from the FX result to the net fees net fee and commission income, both on and commissions line, retroactively for the consolidated and OTP Core level. 2019 base period as well. In the adjusted (cid:588) OTP Group is hedging the revaluation result P&L structure this of the FX provisions on its FX loans and (cid:588) Performance indicators (such as cost/income interest claims by keeping hedging open ratio, net interest margin, risk cost to average FX positions. In the accounting statement of gross loans as well as ROA and ROE ratios recognized income, the revaluation of FX etc.) presented in this report are calculated provisions is part of the risk costs (within line on the basis of the adjusted profit and loss “Provision for loan losses”), other provisions statement excluding adjustment items and net interest income lines, whereas the (unless otherwise indicated). revaluation result of the hedging open FX (cid:588) Within the report, FX-adjusted statistics for positions is made through other non-interest business volume developments and their income (within line “Foreign exchange result, product breakdown, as well as the FX-adjusted net”). The two items have the same absolute stock of allowances for loan losses are amount but an opposite sign. As an adjust- disclosed, too. For FX adjustment, the closing ment to the accounting statement of income, cross currency rates for the current period these items are eliminated from the adjusted were used to calculate the HUF equivalent P&L. By modifying only the structure of the of loan and deposit volumes in the base income statement, this correction does not periods. Thus the FX-adjusted volumes will have any impact on the bottom line net profits. be different from those published earlier. (cid:588) The Compensation Fund (established in Regarding the FX-adjusted volume change Hungary in order to indemnify the victims of DPD90+ loans (adjusted for sales and of Quaestor and Hungarian Securities Ltd.) write-offs), instead of the previously applied contributions are recognized on the 3Q 2009 FX rates, from 4Q 2020 onwards Other administrative expenses line of the the actual end of period FX rates are used accounting income statement, and are for calculating the FX-adjusted figures. presented on the financial transaction tax and/or Special tax on financial institutions Adjustments affecting the balance sheet: line the in the adjusted P&L structure (cid:588) On 17 February 2020 OTP Bank announced (due to the tax deductibility). the signing of the sale agreement of its (cid:588) In case of OTP Banka Slovensko and OTP Bank Slovakian subsidiary. According to IFRS Romania the total revaluation result of 5 the Slovakian bank was presented as a intra-group swap deals – earlier booked discontinued operation in the consolidated partly within the net interest income, but income statement and balance sheet. With also on the Foreign exchange gains and Net regards to the consolidated accounting other non-interest result lines within total balance sheet, all assets and liabilities of Other non-interest income – is presented on the Slovakian bank was shown on one-one a net base on the net interest income line. line of the 2019 and 9M 2020 balance sheet (cid:588) Due to the introduction of IFRS 16 from 2019, (there was no change in the 2018 closing certain items previously presented on the balance sheet structure, whereas by the Other non-interest expenses line (rental end of 4Q 2020 the Slovakian entity was fees) were moved to the interest expenses deconsolidated). As for the consolidated and depreciation lines in the accounting accounting income statement, the Slovakian income statement. These items were shifted contribution for 2018, 2019 and 2020 back to the Other non-interest expenses line (in 2020 the January-October contribution in the adjusted P&L structure. was consolidated) was shown separately (cid:588)(cid:631) (cid:92)(cid:236)(cid:133)(cid:224)(cid:177)(cid:202)(cid:168)(cid:631)(cid:167)(cid:224)(cid:209)(cid:201)(cid:631)(cid:497)(cid:495)(cid:497)(cid:495)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:146)(cid:241)(cid:224)(cid:224)(cid:156)(cid:202)(cid:146)(cid:259)(cid:631)(cid:156)(cid:258)(cid:146)(cid:174)(cid:133)(cid:202)(cid:168)(cid:156)(cid:631) from the result of continued operation, on result was shifted in the accounting P&L the Loss from discontinued operation line, Management’s analysis of the 2020 results of the OTP Group 77 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) i.e. the particular P&L lines in the ‘continuing presented in the Stock Exchange Report operations’ section of the accounting P&L incorporated the company’s balance sheet don’t incorporate the contribution from the and P&L contribution in the relevant Slovakian subsidiary. As opposed to this, respective lines, in line with the structure the adjusted financial statements presented of the financial statements monitored in the Stock Exchange Report incorporated by the management. the Slovakian banks’ balance sheet and P&L (cid:588) Finance lease receivables – earlier presented contribution in the relevant respective lines, within customer loans – are shown on a in line with the structure of the financial separate line in the accounting balance statements monitored by the management. sheet from 2019. As for the adjusted balance (cid:588) At the end of 2020, OTP Osiguranje d.d. was sheet, net customer loans continue to include presented as asset classified as held for the stock of finance lease receivables. sale in the accounting financial statements. (cid:588) In the adjusted balance sheets presented Accordingly, its assets and liabilities in the analytical section of the report, the were shown on a separate line in the total amount of accrued interest receivables consolidated balance sheet. Regarding the related to Stage 3 loans under IFRS 9 2020 accounting statement of recognized were netted with the provisions created in income, the entity’s annual result was relation to the total exposure toward those presented on the Gains from held for trading particular clients, in case of the affected operations line, therefore the particular P&L Group members. Therefore, this adjustment lines in the ‘continuing operations’ section made on the accounting balance sheet of the accounting P&L don’t incorporate the has an impact on the consolidated gross contribution from this entity. As opposed customer loans and allowances for loan to this, the adjusted financial statements losses. 78 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:16)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 79 Adjustments on the Consolidated Statement of Profit or Loss (IFRS): Net interest income (–) Revaluation result of FX provisions (+) Presentation of the revaluation result of intra-group swaps on the net interest income line realized at the Romanian and Slovakian operations (–) Netting of interest revenues on DPD90+ loans with the related provision (booked on the Provision for loan losses line) at OTP Core and CKB (–) Effect of acquisitions (–) Initial NPV gain on the monetary policy interest rate swap (MIRS) deals (–) Reclassification due to the introduction of IFRS 16 (–) Netting of the interest subsidy repaid by OTP Mortgage Bank to the State by the already created other provision for that purpose (and other related items) in 3Q 2019 (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines (–) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia (–) Adjustment in 2019 due to the reclassification of amounts related to mandatorily measured at fair value through profit or loss Net interest income (adj.) Net fees and commissions (+) Financial Transaction Tax (–) Effect of acquisitions (+) Shifting of certain cash transfers to public benefit organisations to the Net fees and commissions line (–) Netting of the interest subsidy repaid by OTP Mortgage Bank to the State by the already created other provision for that purpose (and other related items) in 3Q 2019 (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines (–) Structural shift of income from currency exchange from net fees to the FX result Net fees and commissions (adj.) Foreign exchange result (–) Revaluation result of FX positions hedging the revaluation of FX provisions (–) Presentation of the revaluation result of intra-group swaps on the net interest income line realized at the Romanian and Slovakian operations (–) Effect of acquisitions (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines (+) Structural shift of income from currency exchange from net fees to the FX result Foreign exchange result (adj.) Gain/loss on securities, net (–) Shifting of Non-trading securities mandatorily at fair value through profit or loss line to Net other non-interest income from 1Q 2019 until 4Q 2019 (–) Effect of acquisitions (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines Gain/loss on securities, net (adj.) with one-offs (–) Revaluation result of the treasury share swap agreement (booked as Gain on securities, net [adj.] at OTP Core) Gain/loss on securities, net (adj.) without one-offs Result of discontinued operation and gains from disposal of subsidiaries classified as held for sale (–) Effect of acquisitions Result of discontinued operation and gains from disposal of subsidiaries classified as held for sale (adj.) Gains and losses on real estate transactions Result of discontinued operation and gains from disposal of subsidiaries classified as held for sale (adj.) (+) Other non-interest income (+) Gains and losses on derivative instruments (+) Net insurance result (+) Losses on loans measured mandatorily at fair value through other comprehensive income and on securities at amortized cost (–) Received cash transfers (+) Other other non-interest expenses (+) Change in shareholders’ equity of companies consolidated with equity method, and the change in the net asset value of the private equity funds managed by PortfoLion (–) Investment impairment in relation to the sale of Express Life Bulgaria (presented on the Goodwill/investment impairment charges adjustment line on consolidated level) (–) Effect of acquisitions (–) Presentation of the revaluation result of intra-group swaps on the net interest income line realized at the Romanian and Slovakian operations (–) One-off impact of the CHF mortgage loan conversion programme and regulatory changes related to mortgage loans in Romania (–) Impact of fines imposed by the Hungarian Competition Authority (–) Netting of refunds related to legal cases (accounted for on the Net other non-interest result line) with the release of provisions created earlier for these cases (accounted for on the Other provisions line) from 1Q 2017 at OTP Bank Romania 80 OTP Bank Annual Report 2020 2020 HUF million 782,671 (57) 2019 HUF million 699,041 30 337 5,951 (600) 0 (1,623) 0 8,755 15 788,079 397,633 (61,588) (145) 0 0 3,210 46,290 293,112 7,864 11,195 (1,964) 0 3 46,290 44,927 16,106 – (98) 349 16,553 2,360 14,193 5,590 7,496 (1,907) 3,631 (1,907) 29,109 11,339 721 (2,396) 65 (5,800) 128 0 7,264 2,301 (226) 823 (216) 76 3,135 1,583 0 (1,652) (1,535) 10,733 1,992 706,298 374,180 (61,920) (42) 0 (30) 3,906 33,736 282,504 5,734 (5,166) (477) 1 66 33,736 45,177 11,611 1,914 9,697 (2,675) 12,373 (4,668) (6,037) 1,369 8,231 1,369 102,015 1,048 849 (849) 174 (6,778) 1,862 (163) 79,538 553 (277) 0 (483) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Adjustments on the Consolidated Statement of Profit or Loss (IFRS) – continued 2020 HUF million 2019 HUF million (+) Shifting of Non-trading securities mandatorily at fair value through profit or loss line to Net other non-interest income from 1Q 2019 until 4Q 2019 (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines (–) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia (+) Adjustment in 2019 due to the reclassification of amounts related to mandatorily measured at fair value through profit or loss Net other non-interest result (adj.) with one-offs (–) 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) Net other non-interest result (adj.) without one-offs Provision for impairment on loan and placement losses (+) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss (+) Loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost (+) Provision for commitments and guarantees given (+) Impairment of assets subject to operating lease and of investment properties (+) Non-interest income from the release of pre-acquisition provisions (–) Revaluation result of FX provisions (–) One-off impact of the CHF mortgage loan conversion programme and regulatory changes related to mortgage loans in Romania (+) Netting of interest revenues on DPD90+ loans with the related provision (booked on the Provision for loan losses line) at OTP Core and CKB (–) Effect of acquisitions (–) One-off impact of regulatory changes related to FX consumer contracts in Serbia (–) Structural correction between Provision for loan losses and Other provisions (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines (–) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia (–) Adjustment in 2019 due to the reclassification of amounts related to mandatorily measured at fair value through profit or loss Provision for impairment on loan and placement losses (adj.) Dividend income (+) Received cash transfers (+) Paid cash transfers (–) Sponsorships, subsidies and cash transfers to public benefit organisations (–) Dividend income of swap counterparty shares kept under the treasury share swap agreement (–) Change in shareholders’ equity of companies consolidated with equity method, and the change in the net asset value of the private equity funds managed by PortfoLion (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines After tax dividends and net cash transfers Depreciation and goodwill impairment charges (–) Goodwill impairment charges (–) Effect of acquisitions (–) Reclassification due to the introduction of IFRS 16 (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines Depreciation (adj.) Personnel expenses (–) Effect of acquisitions (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines Personnel expenses (adj.) Income taxes (–) Corporate tax impact of goodwill/investment impairment charges (–) Corporate tax impact of the special tax on financial institutions (+) Tax deductible transfers (offset against corporate taxes) (–) Corporate tax impact of the effect of fines imposed by the Hungarian Competition Authority (–) Corporate tax impact of the effect of acquisitions (–) Corporate tax impact of the one-off impact of regulatory changes related to FX consumer contracts in Serbia (–) Netting of the interest subsidy repaid by OTP Mortgage Bank to the State by the already created other provision for that purpose (and other related items) in 3Q 2019 (corporate tax impact) (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines (–) Corporate tax impact of the expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia Corporate income tax (adj.) – 3,149 (1,646) 29,610 0 29,610 (200,315) (3,262) (7,309) (8,662) 877 – (10,997) 459 5,951 (2,149) 0 (15,094) (3,024) (29,543) – (158,421) 527 65 (12,768) (12,508) 0 128 8 213 (92,762) 0 (7,415) (16,447) (1,385) (70,286) (308,643) (2,785) (6,638) (312,495) (27,376) 886 1,773 (8,083) (74) 497 0 0 (80) 2,913 1,914 (1,072) 2,131 31,376 0 31,376 (44,605) (4,376) 9 (7,995) 280 – 5,176 263 3,135 (19,868) (2,127) (7,705) (46) 139 (29,474) 7,955 174 (13,195) (13,139) 5,710 1,862 3 505 (81,935) (4,887) (7,881) (14,280) (1,495) (56,383) (276,755) (3,777) (7,024) (280,002) (49,902) (3,378) 1,623 (3,802) 0 (5,713) 483 146 (56) (41,534) (46,921) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 81 Adjustments on the Consolidated Statement of Profit or Loss (IFRS) – continued Other operating expense (–) Other costs and expenses (–) Other non-interest expenses (–) Effect of acquisitions (–) Revaluation result of FX provisions (–) One-off impact of the CHF mortgage loan conversion programme and regulatory changes related to mortgage loans in Romania (–) Netting of refunds related to legal cases (accounted for on the Net other non-interest result line) with the release of provisions created earlier for these cases (accounted for on the Other provisions line) from 1Q 2017 at OTP Bank Romania (–) Netting of the interest subsidy repaid by OTP Mortgage Bank to the State by the already created other provision for that purpose (and other related items) in 3Q 2019 (+) Structural correction between Provision for loan losses and Other provisions (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines (–) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia Other provisions (adj.) Other general expenses (+) Other costs and expenses (+) Other non-interest expenses (–) Paid cash transfers (+) Film subsidies and cash transfers to public benefit organisations (–) Shifting of certain cash transfers to public benefit organisations to the Net fees and commissions line (–) Other other non-interest expenses (–) Special tax on financial institutions (recognised as other administrative expenses) (–) Tax deductible transfers (offset against corporate taxes) (–) Financial Transaction Tax (–) Effect of acquisitions (+) Reclassification due to the introduction of IFRS 16 (+) Presentation of the contribution from discontinued operation on the adjusted P&L lines Other non-interest expenses (adj.) 2020 HUF million (39,447) (7,506) (18,568) 1,022 (141) (233) 216 0 (15,094) (243) 0 (29,574) (306,263) (7,506) (18,568) (12,768) (12,508) 2019 HUF million (44,758) (9,172) (19,973) (7,575) (40) 14 483 1,420 (7,705) (12) (17,633) (282,528) (9,172) (19,973) (13,195) (13,139) 0 0 (5,800) (19,138) (8,083) (61,588) (9,940) (18,069) (4,105) (249,702) (6,778) (17,792) (3,802) (61,920) (10,963) (15,933) (5,003) (231,298) 82 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Adjustments of Consolidated IFRS Balance Sheet Lines: Cash, amounts due from Banks and balances with the National Banks (+) Allocation of Assets classified as held for sale among balance sheet lines Cash, amounts due from Banks and balances with the National Banks (adjusted) Placements with other banks, net of allowance for placement losses (including net repo receivables in 2019) (+) Allocation of Assets classified as held for sale among balance sheet lines Placements with other banks, net of allowance for placement losses (adjusted) Financial assets at fair value through profit or loss (+) Allocation of Assets classified as held for sale among balance sheet lines Financial assets at fair value through profit or loss (adjusted) Securities at fair value through other comprehensive income (+) Allocation of Assets classified as held for sale among balance sheet lines Securities at fair value through other comprehensive income (adjusted) Gross customer loans (incl. loans at amortized cost and loans mandatorily at fair value through profit or loss) (incl. accrued interest receivables related to loans) Gross finance lease receivables Gross customer loans (incl. finance lease receivables and accrued interest receivables related to loans) (–) Accrued interest receivables related to DPD90+/Stage 3 loans (+) Allocation of Assets classified as held for sale among balance sheet lines Gross customer loans (adjusted) Allowances for loan losses (incl. impairment of finance lease receivables) (–) Allocated provision on accrued interest receivables related to DPD90+/Stage 3 loans (+) Allocation of Assets classified as held for sale among balance sheet lines Allowances for loan losses (adjusted) Securities at amortized costs (+) Allocation of Assets classified as held for sale among balance sheet lines Securities at amortized costs (adjusted) Tangible and intangible assets, net (+) Allocation of Assets classified as held for sale among balance sheet lines Tangible and intangible assets, net (adjusted) Other assets (including net repo receivables in 2020) (+) Allocation of Assets classified as held for sale among balance sheet lines Other assets (adjusted) Amounts due to banks, the National Governments, deposits from the National Banks and other banks, and Financial liabilities designated at fair value through profit or loss (including repo liabilities in 2019) (+) Allocation of Liabilities directly associated with assets classified as held for sale among balance sheet lines Amounts due to banks, the National Governments, deposits from the National Banks and other banks, and Financial liabilities designated at fair value through profit or loss (adjusted) Deposits from customers (+) Allocation of Liabilities directly associated with assets classified as held for sale among balance sheet lines Deposits from customers (adjusted) Other liabilities (including repo liabilities in 2020) (+) Allocation of Liabilities directly associated with assets classified as held for sale among balance sheet lines Other liabilities (adjusted) Subordinated bonds and loans (+) Allocation of Liabilities directly associated with assets classified as held for sale among balance sheet lines Subordinated bonds and loans (adjusted) 2020 HUF million 2,432,312 3 2,432,314 2019 HUF million 1,784,378 57,586 1,841,963 1,148,744 244 1,148,987 234,006 1,188 235,194 2,136,709 3,410 2,140,118 410,078 354 410,433 251,991 251,991 2,426,779 759 2,427,537 13,326,189 11,603,116 1,075,742 982,853 14,401,930 12,585,969 38,650 0 14,363,281 (873,344) (38,650) 0 (834,695) 2,624,921 1,031 2,625,952 589,743 135 589,878 588,378 (6,010) 582,368 35,450 391,490 12,942,009 (706,907) (35,450) (23,033) (694,490) 1,968,072 27,555 1,995,627 595,128 10,545 605,673 785,456 (465,255) 320,201 1,219,446 844,261 0 1,898 1,219,446 846,158 17,890,863 15,171,308 0 351,346 17,890,863 15,522,654 949,502 1,171,805 0 (353,244) 949,502 274,704 0 818,561 249,938 274,704 249,938 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Management’s analysis of the 2020 results of the OTP Group 83 Statement of Profit or Loss of OTP Bank Plc., according to IFRS standards as adopted by the european union (separate)*: NET INTEREST INCOME Interest incomes and similar to interest incomes Interest expenses total Risk cost total Loss allowance on loan, placement and repo receivables losses Loss allowance/(Release of loss allowance) on securities at fair value through other comprehensive income and on securities at amortised cost Provision for loan commitments and financial guarantees given Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss NET INTEREST INCOME AFTER RISK COST MODIFICATION LOSS NET PROFIT FROM FEES AND COMMISSIONS Income from fees and commissions Expenses from fees and commissions NET OPERATING INCOME Foreign exchange (losses) and gains Gains on securities, net from this: gain from derecognition of securities at amortised cost Gains on financial instruments at fair value through profit or loss Gains on deivative instruments, net Dividend income Other operating income Other operating expenses OTHER ADMINISTRATIVE EXPENSES Personnel expenses Depreciation and amortization Other general expenses PROFIT BEFORE INCOME TAX Income tax NET PROFIT FOR THE YEAR 2020 HUF million 221,666 321,296 (99,630) (66,765) (61,310) (1,848) (3,202) (405) 154,901 (17,358) 219,031 259,781 (40,750) 60,632 (4,518) 17,955 360 (671) 7,057 60,973 7,900 (28,064) (323,960) (118,498) (38,948) (166,514) 93,246 (772) 92,474 2019 HUF million 204,512 323,896 (119,384) (39,881) (29,056) 401 (5,794) (5,432) 164,631 – 213,363 248,954 (35,591) 130,358 3,288 8,188 714 1,260 4,715 78,887 7,505 26,515 (305,158) (115,035) (29,925) (160,198) 203,194 (9,840) 193,354 Change % 8 (1) (17) 67 111 (561) (45) (93) (6) 3 4 14 (53) (237) 119 (50) (153) 50 (23) 5 (206) 6 3 30 4 (54) (92) (52) * The rows of the table are based on audited numbers, but the structure of the table can differ from the IFRS financial statements presented in the Annual Report (certain rows might be merged or represent different level of aggregation). 84 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Financial Position of OTP Bank Plc., according to IFRS standards as adopted by the European Union (separate)*: 2020 HUF million 2019 HUF million Change % Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Securities at amortised cost Loans at amortised cost and mandatorily measured at fair value through profit or loss Investments in subsidiaries Property and equipment Intangible assets Right of use assets Investments properties Current tax assets Derivative financial assets designated as hedge accounting relationships Other assets TOTAL ASSETS Amounts due to banks and deposits from the National Bank of Hungary and other banks Repo liabilities Deposits from customers Leasing liabilities Liabilities from issued securities Financial liabilities at fair value through profit or loss Derivative financial liabilities designated as held for trading Derivative financial liabilities designated as hedge accounting relationships Deferred tax liabilities Current tax liabilities Other liabilities Subordinated bonds and loans TOTAL LIABILITIES Share capital Retained earnings and reserves Treasury shares TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 579,120 1,535,884 183,364 160,483 911,950 2,007,692 3,898,697 1,548,972 77,974 57,639 13,479 1,936 593 6,817 169,794 11,154,394 766,977 109,612 7,895,735 14,106 28,435 25,902 99,987 3,104 3,062 - 224,897 304,243 9,476,060 28,000 1,697,133 (46,799) 1,678,334 11,154,394 289,686 1,560,142 45,539 172,229 1,485,977 1,447,224 3,315,069 1,542,538 77,754 53,282 13,607 2,381 – 16,677 116,699 10,138,804 738,054 462,621 6,573,550 13,660 43,284 28,861 83,088 10,023 5,875 2,896 243,780 279,394 8,485,086 28,000 1,628,354 (2,636) 1,653,718 10,138,804 100 (2) 303 (7) (39) 39 18 0 0 8 (1) (19) (59) 45 10 4 (76) 20 3 (34) (10) 20 (69) (48) (8) 9 12 0 4 1 10 * The rows of the table are based on audited numbers, but the structure of the table can differ from the IFRS financial statements presented in the Annual Report (certain rows might be merged or represent different level of aggregation). Management’s analysis of the 2020 results of the OTP Group 85 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Profit or Loss of OTP Bank Plc., according to IFRS standards as adopted by the European Union (consolidated)*: 2020 HUF million 2019 HUF million Change % CONTINUING OPERATIONS Interest income calculated using the effective interest method Income similar to interest income Interest incomes Interest expenses NET INTEREST INCOME Risk cost total Loss allowance/Release of loss allowance on loans, placements and repo receivables Loss allowance/Release of loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost Loss allowance/Release of loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost Provision for commitments and guarantees given Impairment/(Release of impairment) of assets subject to operating lease and of investment properties NET INTEREST INCOME AFTER LOSS ALLOWANCE, IMPAIRMENT AND PROVISIONS Income from fees and commissions Expense from fees and commissions Net profit from fees and commissions Foreign exchange gains/losses, net Foreign exchange result Gains and losses on derivative instruments Gains/Losses on securities, net Gains/Losses on financial assets/liabilities measured at fair value through profit or loss Dividend income and gain/loss from associated companies Other operating income Gains and losses on real estate transactions Other non-interest income Net insurance result Other operating expense Net operating income Personnel expenses Depreciation and amortization Goodwill impairment Other general expenses Other administrative expenses PROFIT BEFORE INCOME TAX Income tax expense NET PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS From this, attributable to: Non-controlling interest Owners of the company DISCONTINUED OPERATIONS Gains from disposal of subsidiaries classified as held for sale Loss from discontinued operation PROFIT FROM CONTINUING AND DISCOUNTINUED OPERATION 841,901 135,986 977,887 (195,216) 782,671 (218,670) (200,315) (3,262) (7,309) (8,662) 878 564,001 486,529 (88,896) 397,633 19,204 7,864 11,339 16,106 (2,396) 527 33,461 3,631 29,109 721 (39,447) 27,455 (308,642) (92,761) 0 (306,264) (707,667) 281,422 (27,376) 254,046 220 253,826 199 5,391 259,636 762,639 133,497 896,136 (197,095) 699,041 (56,687) (44,605) (4,376) 9 (7,995) 280 642,354 447,084 (72,903) 374,181 6,782 5,734 1,048 11,611 (849) 7,955 111,093 8,231 102,015 849 (44,758) 91,834 (276,754) (77,048) (4,887) (282,528) (641,217) 467,152 (49,902) 417,250 341 416,909 0 (4,668) 412,582 10 2 9 (1) 12 286 349 (25) 8 214 (12) 9 22 6 183 37 982 39 182 (93) (70) (56) (71) (15) (12) (70) 12 20 (100) 8 10 (40) (45) (39) (35) (39) (215) (37) * The rows of the table are based on audited numbers, but the structure of the table can differ from the IFRS financial statements presented in the Annual Report (certain rows might be merged or represent different level of aggregation). 86 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Financial Position of OTP Bank Plc., according to IFRS standards as adopted by the European Union (consolidated)*: Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements Repo receivables Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans at amortized cost and mandatorily at fair value through profit or loss Finance lease receivables Associates and other investments Securities at amortized cost Property and equipment Intangible assets and goodwill Right-of-use assets Investment properties Derivative financial assets designated as hedge accounting Deferred tax assets Current income tax receivable Other assets Assets classified as held for sale TOTAL ASSETS Amounts due to banks, the National Governments, deposits from the National Banks and other banks Repo liabilities Financial liabilities at fair value through profit or loss Deposits from customers Liabilities from issued securities Derivative financial liabilities held for trading Derivative financial liabilities designated as hedge accounting Leasing liabilities Deferred tax liabilities Current income tax payable Other liabilities Subordinated bonds and loans Liabilities directly associated with assets classified as held for sale TOTAL LIABILITIES Share capital Retained earnings and reserves Treasury shares Non-controlling interest TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2020 HUF million 2,432,312 1,148,743 190,849 234,007 2,136,709 12,477,447 1,051,140 52,443 2,624,920 322,766 239,004 46,283 38,601 6,820 22,317 38,936 266,474 6,070 23,335,841 1,185,315 117,991 34,131 17,890,863 464,213 104,823 11,341 48,451 25,990 27,684 607,737 274,704 5,486 20,798,729 28,000 2,629,076 (124,080) 4,116 2,537,112 23,335,841 2019 HUF million 1,784,378 342,922 67,157 251,990 2,426,779 10,909,799 969,263 20,822 1,968,072 320,430 242,219 52,950 41,560 7,463 26,543 12,769 214,580 462,071 20,121,767 812,911 488 30,862 15,171,308 393,167 86,743 10,709 54,194 29,195 35,928 592,540 249,938 362,496 17,830,479 28,000 2,319,263 (60,931) 4,956 2,291,288 20,121,767 Change % 36 235 184 (7) (12) 14 8 152 33 1 (1) (13) (7) (9) (16) 205 24 (99) 16 46 11 18 18 21 6 (11) (11) (23) 3 10 (98) 17 0 13 104 (17) 11 16 * The rows of the table are based on audited numbers, but the structure of the table can differ from the IFRS financial statements presented in the Annual Report (certain rows might be merged or represent different level of aggregation). Management’s analysis of the 2020 results of the OTP Group 87 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Financial Statements (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:24)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 90 90 OTP Bank Annual Report 2020 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 91 92 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 93 94 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 95 Statement of Financial Position (consolidated, in accordance with IFRS, as at 31 December 2020, in HUF mn) Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements Repo receivables Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Securities at amortized cost Loans at amortized cost and mandatorily at fair value through profit or loss Finance lease receivables Associates and other investments Property and equipment Intangible assets and goodwill Right-of-use assets Investment properties Derivative financial assets designated as hedge accounting Deferred tax assets Current income tax receivables Other assets Assets classified as held for sale/discontinued operations TOTAL ASSETS Amounts due to banks, the National Governments, deposits from the National Banks and other banks Repo liabilities Financial liabilities designated at fair value through profit or loss Deposits from customers Liabilities from issued securities Derivative financial liabilities held for trading Derivative financial liabilities designated as hedge accounting Leasing liabilities Deferred tax liabilities Current income tax payable Other liabilities Subordinated bonds and loans Liabilities directly associated with assets classified as held for sale/discontinued operations TOTAL LIABILITIES Share capital Retained earnings and reserves Treasury shares Non-controlling interest TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Budapest, 17 March 2021 Note 5 6 7 8 9 10 2020 2,432,312 1,148,743 190,849 234,007 2,136,709 2,624,920 2019 1,784,378 342,922 67,157 251,990 2,426,779 1,968,072 11 35 12 13 13 35 14 15 34 16 49 17 18 19 20 21 22 23 35 34 24 25 49 26 27 28 29 12,477,447 10,909,799 1,051,140 52,443 322,766 239,004 46,283 38,601 6,820 22,317 38,936 266,474 6,070 23,335,841 1,185,315 117,991 34,131 17,890,863 464,213 104,823 11,341 48,451 25,990 27,684 607,737 274,704 969,263 20,822 320,430 242,219 52,950 41,560 7,463 26,543 12,769 214,580 462,071 20,121,767 812,911 488 30,862 15,171,308 393,167 86,743 10,709 54,194 29,195 35,928 592,540 249,938 5,486 362,496 20,798,729 28,000 2,629,076 (124,080) 4,116 2,537,112 23,335,841 17,830,479 28,000 2,319,263 (60,931) 4,956 2,291,288 20,121,767 The accompanying notes to consolidated financial statements on pages 101 to 229 form an integral part of these Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by EU. 96 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Profit or Loss (consolidated, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) Note 2020 2019 CONTINUING OPERATIONS Interest income calculated using the effective interest method Income similar to interest income Interest income and income similar to interest income Interest expense NET INTEREST INCOME Loss allowance on loans, placements and on repo receivables from this: gain/(loss) from derecognition of impaired financial assets Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss (Loss allowance)/Release of loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost Provision for commitments and guarantees given Release of impairment of assets subject to operating lease and of investment properties Risk cost total NET INTEREST INCOME AFTER RISK COST Income from fees and commissions Expense from fees and commissions Net profit from fees and commissions Foreign exchange gains, net Gains on securities, net from this: gain from derecognition of securities at amortized cost Loss on financial assets/liabilities measured at fair value through profit or loss Dividend income Other operating income Other operating expense Net operating income Personnel expenses Depreciation and amortization Goodwill impairment Other general expenses Other administrative expenses PROFIT BEFORE INCOME TAX Income tax expense NET PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS From this, attributable to: Non-controlling interest Owners of the company DISCONTINUED OPERATIONS Gains from disposal of subsidiary classified as held for sale Gains/(Loss) from discontinued operations PROFIT FROM CONTINUING AND DISCOUNTINUED OPERATION Earnings per share (in HUF) From continuing operations Basic Diluted From continuing and discontinued operations Basic Diluted 30 30 31 31 31 31 32 32 33 33 33 13 13 33 34 49 49 45 45 45 45 841,901 135,986 977,887 (195,216) 782,671 (200,315) 1,978 (3,262) (7,309) (8,662) 878 (218,670) 564,001 486,529 (88,896) 397,633 19,204 16,106 1,402 (2,396) 527 33,461 (39,447) 27,455 (308,642) (92,761) – (306,264) (707,667) 281,422 (27,376) 254,046 220 253,826 199 5,391 259,636 982 982 1,004 1,003 762,639 133,497 896,136 (197,095) 699,041 (44,605) (15,137) (4,376) 9 (7,995) 280 (56,687) 642,354 447,084 (72,903) 374,181 6,782 11,611 714 (849) 7,955 111,093 (44,758) 91,834 (276,754) (77,048) (4,887) (282,528) (641,217) 467,152 (49,902) 417,250 341 416,909 – (4,668) 412,582 1,594 1,593 1,576 1,575 The accompanying notes to consolidated financial statements on pages 101 to 229 form an integral part of these Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by EU. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 97 Statement of Comprehensive Income (consolidated, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) NET PROFIT FOR THE YEAR Items that may be reclassified subsequently to profit or loss Fair value adjustment of securities at fair value through other comprehensive income Deferred tax related to fair value adjustment of securities at fair value through other comprehensive income Derivative financial instruments designated as cash-flow hedge Net investment hedge in foreign operations Deferred tax related to net investment hedge in foreign operations Foreign currency translation difference Items that will not be reclassified subsequently to profit or loss Fair value changes of equity instruments at fair value through other comprehensive income Deferred tax related to equity instruments at fair value through other comprehensive income Remeasurement of net defined benefit asset/(liability) Deferred tax related to remeasurement of net defined benefit asset/(liability) Subtotal NET COMPREHENSIVE INCOME From this, attributable to: Non-controlling interest Owners of the company Note 2020 259,636 2019 412,582 27 27 27 (3,175) 918 (2) (9,440) 849 68,593 (2,890) 383 143 1 55,380 315,016 (223) 315,239 26,164 (2,915) 11 (2,776) 250 79,440 7,619 (644) (173) 12 106,988 519,570 768 518,802 The accompanying notes to consolidated financial statements on pages 101 to 229 form an integral part of these Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by EU. 98 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Changes in Equity (consolidated, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) Balance as at 1 January 2019 Net profit for the year Other Comprehensive Income Total comprehensive income Increase due to business combinations Share-based payment Dividend for the year 2018 Correction due to MRP** Sale of Treasury shares Treasury shares – loss on sale Treasury shares – acquisition Payments to ICES holders Balance as at 31 December 2019 Balance as at 1 January 2020 Net profit for the year Other Comprehensive Income Total comprehensive income Purchasing of non-controlling interest Decrease due to discontinued operation Share-based payment Sale of Treasury shares Treasury shares – loss on sale Treasury shares – acquisition Payments to ICES holders Balance as at 31 December 2020 Note Share capital Capital reserve 28,000 – – – – – – – – – – – 28,000 28,000 – – – – – – – – – – 28,000 39 28 28 28 27 49 39 28 28 28 27 52 – – – – – – – – – – – 52 52 – – – – – – – – – – 52 Retained earnings and other reserves * 1,864,152 412,241 106,561 518,802 Treasury shares Total attributable to shareholders’ Non- controlling interest Total (67,999) – – – 1,824,205 412,241 106,561 518,802 2,452 341 427 768 1,826,657 412,582 106,988 519,570 – – – 1,736 1,736 3,547 (61,320) 376 – (5,012) – (1,334) 2,319,211 2,319,211 259,416 55,823 315,239 – – 3,394 – (3,967) – (4,853) 2,629,024 – – – 15,956 – (8,888) – (60,931) (60,931) – – – – – – 22,773 – (85,922) – (124,080) 3,547 (61,320) 376 15,956 (5,012) (8,888) (1,334) 2,286,332 2,286,332 259,416 55,823 315,239 – – 3,394 22,773 (3,967) (85,922) (4,853) 2,532,996 – – – – – – – 4,956 4,956 220 (443) (223) (382) (235) – – – – – 4,116 3,547 (61,320) 376 15,956 (5,012) (8,888) (1,334) 2,291,288 2,291,288 259,636 55,380 315,016 (382) (235) 3,394 22,773 (3,967) (85,922) (4,853) 2,537,112 The accompanying notes to consolidated financial statements on pages 101 to 229 form an integral part of these Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by EU. * See details in Note 27, where the Retained earnings and other reserves category contains the capital reserve, share-based payment reserve and option reserve. ** Based on MRP's Articles of Association, dividend on members’ shares paid back to the Founder i.e. OTP Bank. IFRS consolidated financial statements 99 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:21)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Cash-flows (consolidated, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) Note 2020 2019 OPERATING ACTIVITIES Net profit for the year (attributable to the owners of the company) Net accrued interest Dividend income Depreciation and amortization Goodwill impairment Loss allowance/(Release of loss allowance) on securities Loss allowance on loans and placements and on repo receivables (Release of loss allowance)/Loss allowance on investments Release of loss allowance on investment properties Impairment on tangible and intangible assets Loss allowance on other assets Provision on off-balance sheet commitments and contingent liabilities Share-based payment Unrealized losses on fair value change of securities held for trading Unrealized (gains)/losses on fair value change of derivative financial instruments (Gain)/Loss on discontinued operations Net changes in assets and liabilities in operating activities Net decrease/(increase) in financial assets at fair value through profit or loss Net decrease/(increase) in compulsory reserves at the National Banks Net increase in loans at amortized cost before loss allowance for loans and in loans at fair value Net (increase)/decrease in other assets before loss allowance Net increase in deposits from customers Cash payments for the interest portion of the lease liability Net increase in other liabilities Income tax paid Net Cash Provided by Operating Activities INVESTING ACTIVITIES (Increase)/Decrease in placement with other banks, before loss allowance for placements Purchase of securities at fair value through other comprehensive income Proceeds from sale of securities at fair value through other comprehensive income Net increase in investments Dividends received Purchase of securities at amortized cost Redemption of securities at amortized cost Purchase of property, equipment and intangible assets Proceeds from disposals of property, equipment and intangible assets Net increase in investment properties before loss allowance Net change in cash and cash equivalents from discontinued operation Net cash paid for acquisition Net Cash Used in Investing Activities FINANCING ACTIVITIES Net increase/(decrease) in amounts due to banks, the National Governments, deposits from the National Banks and other banks and repo liabilities Net increase/(decrease) in financial liabilities designated at fair value through profit or loss Cash received from issuance of securities Cash used for redemption of issued securities Cash payments for the principal portion of the lease liability Increase in subordinated bonds and loans Payments to ICES holders Sale of Treasury shares Purchase of Treasury shares Dividends paid Net Cash Provided by/(Used in) Financing Activities Cash and cash equivalents at the beginning of the year Foreign currency translation Net change in cash and cash equivalent Adjustment due to discontinued operation Cash and cash equivalents at the end of the year 13 13 9, 10 6, 11 12 14 13 16 24 3, 39 8 5 11 16 20 35 24 34 6 9 9 12 10 10 13 13 14 49 41 17 19 21 21 35 25 27 28 28 27 5 5 259,416 (9,040) (527) 98,385 – 7,309 251,440 (381) (741) 51 7,416 14,792 3,394 762 (25,068) (5,391) 24,406 17,839 412,241 (6,590) (7,958) 78,864 4,887 (10) 57,058 3,342 (123) 2,078 6,258 3,767 3,547 6,975 14,232 6,032 (30,651) (48,081) (1,534,658) (1,402,625) (88,225) 2,374,251 (1,592) 60,723 (37,729) 1,416,832 7,037 1,476,678 (1,604) 169,290 (30,170) 724,474 (929,815) 203,483 (1,864,934) 2,147,495 (31,112) 399 (6,655,496) 6,020,315 (136,130) 67,988 (1,924) 5,544 – (1,377,670) (2,392,184) 2,258,296 (3,908) 6,096 (4,749,976) 4,600,424 (267,652) 31,612 (3,022) – (38,410) (355,241) 488,795 (239,947) 4,647 149,105 (78,487) (16,856) 24,766 (4,853) 18,806 (85,922) (10) 499,991 1,049,737 69,036 539,153 16,851 1,674,777 (6,833) 9,732 (31,969) (12,440) 140,387 (1,334) 10,943 (8,888) (61,307) (201,656) 819,979 79,034 167,577 (16,853) 1,049,737 The accompanying notes to consolidated financial statements on pages 101 to 229 form an integral part of these Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by EU. 100 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 2 0 NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS 1.1 General information In 1995, the shares of the Bank were introduced on the Budapest and the Luxembourg Stock OTP Bank Plc. (the “Bank” or “OTP Bank”) was Exchanges and were also traded on the SEAQ established on 31 December 1990, when board on the London Stock Exchange and on the previously State-owned company was PORTAL in the USA. transformed into a public liability company. The Bank’s registered office address is were approved by the Board of Directors and 16 Nádor Street, Budapest H–1051. authorised for issue on 17 March 2021. These Consolidated Financial Statements The structure of the Share capital by shareholders: Domestic and foreign private and institutional investors Employees Treasury shares Total 2020 97% 1% 2% 100% 2019 99% 1% – 100% The Bank’s Registered Capital consists of range of commercial banking services through 280.000.010 pieces of ordinary shares with the a wide network of 1,530 branches in the nominal value of HUF 100 each, representing following countries Hungary, Bulgaria, Serbia, the same rights to the shareholders. Croatia, Russia, Romania, Ukraine, Albania, Montenegro, Moldova and Slovenia, as well as The Bank and its subsidiaries (“Entities of the provides other services in the Netherlands, Group“, together the “Group”) provide a full Cyprus and Malta. The number of the active employees without long-term breaks, and with part-time employees taken into account proportionately, at the Group: The number of employees at the Group The average number of employees at the Group 2020 38,626 39,943 2019 39,971 40,795 1.2 Basis of Accounting remain in business for the foreseeable future and that the Bank won’t be forced These Consolidated Financial Statements to halt operations and liquidate its assets were prepared based on the assumptions in the near term at what may be very low of the Management that the Bank will fire-sale prices. IFRS consolidated financial statements 101 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The Entities of the Group maintain their (cid:588) Amendments to IAS 1 “Presentation accounting records and prepare their statutory of Financial Statements” and IAS 8 accounts in accordance with the commercial, “Accounting Policies, Changes in Accounting banking and fiscal regulations prevailing Estimates and Errors” – Definition of Material in Hungary and in case of foreign subsidiaries – adopted by EU on 29 November 2019 in accordance with the commercial, banking (effective for annual periods beginning on and fiscal regulations of the country in which or after 1 January 2020), they are domiciled. (cid:588) Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: The Bank’s functional currency is the Hungarian Recognition and Measurement”, IFRS 7 Forint (“HUF”). It is also presentation currency “Financial Instruments: Disclosures” – for the Group. Interest rate Benchmark Reform – adopted The financial statements of the subsidiaries by EU on 15 January 2020 (effective for used during the preparation of Consolidated annual periods beginning on or after Financial Statements of the Group have 1 January 2020), the same reporting period – starting from (cid:588) Amendments to IFRS 16 “Leases” – 1 January ending as at 31 December – like the Covid-19-Related Rent Concessions adopted reporting period of the Group. by EU on 9 October 2020 (effective for annual Due to the fact that the Bank is listed on periods beginning on or after 1 June 2020), international and national stock exchanges, (cid:588) Amendments to IFRS 3 “Business the Bank is obliged to present its financial Combinations” – adopted by EU on 21 April statements in accordance with International 2020 (effective for annual periods beginning Financial Reporting Standards (“IFRS”) as on or after 1 January 2020). adopted by the European Union (the “EU”). Certain adjustments have been made to the The adoption of these amendments to the Entities’ statutory accounts in order to present existing standards has not led to any material the Consolidated Financial Statements of the changes in the Group’s consolidated financial Group in accordance with all standards and statements. 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. 1.2.1 The effect of adopting new and revised International Financial Reporting Standards effective from 1 January 2020 1.2.2 New and revised Standards and Interpretations issued by IASB and adopted by the EU but not yet effective At the date of authorization of these financial statements there are new standards, amendments to the existing standards nor interpretations which are issued by IASB and adopted by the EU which are not yet effective: The following amendments to the existing (cid:588) Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 standards and new interpretation issued by and IFRS 16 “Interest Rate Benchmark the International Accounting Standards Board Reform – Phase 2 adopted by EU on (IASB) and adopted by the EU are effective 13 January 2021 (effective for annual periods for the current reporting period: beginning on or after 1 January 2021), (cid:588) Amendments to References to the Conceptual (cid:588) Amendments to IFRS 4 “Insurance Framework in IFRS Standards – adopted by EU Contracts” deferral of IFRS 9 adopted by EU on 29 November 2019 (effective for annual on 15 December 2020 (effective for annual periods beginning on or after 1 January 2020), periods beginning on or after 1 January 2021). 102 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The Group does not adopt these new standards (cid:588) Amendments to IAS 1 “Presentation and amendments to existing standards before of Financial Statements” – Classification their effective date. The Group anticipates of Liabilities as Current or Non-Current that the adoption of these new standards, (effective for annual periods beginning amendments to the existing standards and on or after 1 January 2023), new interpretations will have no material (cid:588) Amendments to IAS 1 “Presentation impact on the consolidated financial of Financial Statements” and IFRS Practice statements of the Group in the period of initial Statement 2 – Disclosure of Accounting application. policies (effective for annual periods beginning on or after 1 January 2023), (cid:588) Amendments to IAS 8 “Accounting policies, 1.2.3 Standards and Interpretations issued by IASB, but not yet adopted by the EU Changes in Accounting Estimates and Errors” – Definition of Accounting Estimates (effective for annual periods beginning on or after 1 January 2023), At present, IFRS as adopted by the EU do not (cid:588) Amendments to IFRS 10 “Consolidated significantly differ from regulations adopted by Financial Statements” and IAS 28 the International Accounting Standards Board “Investments in Associates and Joint (IASB) except for the following new standards, Ventures” – Sale or Contribution of Assets amendments to the existing standards and between an Investor and its Associate or new interpretation, which were not endorsed Joint Venture and further amendments for use in EU as at the publication of these (effective date deferred indefinitely until the consolidated financial statements: research project on the equity method has (cid:588) IFRS 17 “Insurance Contracts” including been concluded). amendments to IFRS 17 (effective for annual periods beginning on or after 1 January 2023), The Group anticipates that the adoption (cid:588) Amendments to IFRS 3 “Business of these new standards, amendments Combinations”; IAS 16 “Property, Plant and to the existing Standards and new inter- Equipment”; IAS 37 “Provisions, Contingent pretations will have no significant impact Liabilities and Contingent Assets” – Annual on the Consolidated Financial Statements Improvements (effective for annual periods of the Group in the period of initial beginning on or after 1 January 2022), application. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 103 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies applied in the retranslated at the exchange rates quoted preparation of the accompanying Consolidated by the National Bank of Hungary (“NBH”), Financial Statements are summarized below: or if there is no official rate, at exchange rates 2.1 Basis of Presentation quoted by OTP Bank as at the date of the Consolidated Financial Statements. Non-monetary items carried at fair value that These Consolidated Financial Statements are denominated in foreign currencies are have been prepared under the historical retranslated at the rates prevailing at the cost convention with the exception of certain date when the fair value was determined. financial instruments, which are recorded Non-monetary items that are measured in at fair value. Revenues and expenses are terms of historical cost in a foreign currency recorded in the period in which they are are not retranslated. earned or incurred. The Group does not offset assets and liabilities or income and expenses Exchange differences on monetary items are unless it is required or permitted by an IFRS recognized in profit or loss in the period in standard. which they arise except for: (cid:588) exchange differences on foreign currency The presentation of Consolidated Financial borrowings relating to assets under Statements in conformity with IFRS as adopted construction for future productive use, by the EU requires the Management of the which are included in the cost of those Group to make estimates and assumptions assets when they are regarded as an that affect the reported amounts of assets and adjustment to interest costs on those liabilities and disclosure of contingent assets foreign currency borrowings; and liabilities as of the date of the financial (cid:588) exchange differences on transactions statements and their reported amounts of entered into in order to hedge certain revenues and expenses during the reporting foreign currency risks (see note 2.7 below period. Actual results could differ from those for hedging accounting policies); and estimates. (cid:588) exchange differences on monetary items Future changes in economic conditions, receivable from or payable to a foreign business strategies, regulatory requirements, operation for which settlement is neither accounting rules and other factors could planned nor likely to occur (therefore result in a change in estimates that could forming part of the net investment in the have a material impact on future financial foreign operation), which are recognized statements. initially in Other Comprehensive Income and reclassified from equity to profit or loss on repayment of the monetary items. 2.2 Foreign currency translation For the purposes of presenting Consolidated In preparing the financial statements of Financial Statements, the assets and each individual group entity, transactions in liabilities of the Group’s foreign operations currencies other than the entity’s functional are translated into HUF using exchange rates currencies are translated into functional prevailing at the end of each reporting period. currencies at the rates of exchange prevailing Income and expense items are translated at at the dates of the transactions. At the end the average exchange rates for the period, of each reporting period, monetary items unless exchange rates fluctuate significantly denominated in foreign currencies are during that period, in which case the exchange 104 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) rates at the dates of the transactions are used. All intra-group transactions are consolidated Exchange differences arising, if any, are fully on a line-by-line basis while under recognized in Other Comprehensive Income equity method other consolidation rules are and accumulated in equity (attributed to non- applied. Determination of the entities which controlling interests as appropriate). are involved into the consolidation procedures based on the determination of the Group’s On the disposal of a foreign operation Control over another entity. The control exists (i.e. a disposal of the Group’s entire interest when the Bank has power over the investee, in a foreign operation, or a disposal involving is able to use this power and is exposed or has loss of control over a subsidiary that includes right to variable returns. Consolidation of a a foreign operation, a disposal involving loss subsidiary should begin from the date when of joint control over a jointly controlled entity the Group obtains control and cease when the that includes a foreign operation, or a disposal Group loses control. Therefore, income and involving loss of significant influence over an expenses of a subsidiary should be included associate that includes a foreign operation), in the Consolidated Financial Statements all of the exchange differences accumulated in from the date the Group gains control of the equity in respect of that operation attributable subsidiary until the date when the Group to the owners of the Group are reclassified to ceases to have control of the subsidiary. profit or loss. The list of the major fully consolidated subsidiaries, the percentage of issued capital In addition, in relation to a partial disposal of owned by the Bank and the description of their a subsidiary that does not result in the Group activities is provided in Note 42. losing control over the subsidiary, the pro- portionate share of accumulated exchange differences are re-attributed to non-controlling 2.4 Accounting for acquisitions interests and are not recognized in profit or loss. Business combinations are accounted for using Goodwill and fair value adjustments on acquisition method. Any goodwill arising on identifiable assets and liabilities acquired acquisition is recognized in the Consolidated arising on the acquisition of a foreign operation Statement of Financial Position and accounted are treated as assets and liabilities of the for as indicated below. foreign operation and translated at the rate The acquisition date is the date on which the of exchange prevailing at the end of each acquirer effectively obtains control over the reporting period. Exchange differences arising acquiree. Before this date, it should be presented are recognized in Other Comprehensive Income as Advance for investments within Other assets. and accumulated in equity. Goodwill, which represents the residual cost of the acquisition after obtaining the control over the acquiree in the fair value of the identifiable 2.3 Principles of consolidation assets acquired and liabilities assumed is held as an intangible asset and recorded at cost As the ultimate parent, OTP Bank is preparing less any accumulated impairment losses in the Consolidated Financial Statements of the Consolidated Financial Statements. The Group Group. tests goodwill for impairment by comparing its recoverable amount with its carrying These Consolidated Financial Statements amount, and recognising any excess of the combine the assets, liabilities, equity, income, carrying amount over the recoverable amount expenses and cash-flows of the Bank and an impairment loss. The recoverable amount of those subsidiaries of the Bank in which of goodwill is the higher of its fair value less the Bank exercises control. costs of disposal and its value in use. IFRS consolidated financial statements 105 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) If the Group loses control of a subsidiary, these securities at fair value. Securities at derecognizes the assets (including any goodwill) amortized cost are subsequently measured and liabilities of the subsidiary at their carrying using the effective interest (EIR) method and amounts at the date when control is lost and are subject to impairment. The amortisation recognizes any difference as a gain or loss of any discount or premium on the acquisition on the sale attributable to the parent in of a security at amortized cost is part of the Statement of Profit or Loss on Net income amortized cost and is recognized as interest from discontinued operation. income so that the revenue recognized in each period represents a constant yield on Goodwill acquired in a business combination the investment. Securities at amortized cost is tested for impairment annually or more are accounted for on a trade date basis. frequently if events or changes in circumstances Such securities comprise mainly securities indicate. The goodwill is allocated to the cash- issued by the Hungarian and foreign Govern- generating units that are expected to benefit ments, corporate bonds and discounted from the synergies of the combinations. treasury bills. The Group calculates the fair value of identified assets and liabilities assumed on discounted cash-flow model. The 3 year period explicit cash-flow model serves as a basis for the impairment test by which the Group defines 2.6 Financial assets at fair value through profit or loss the impairment need on goodwill based on 2.6.1 Securities held for trading the strategic factors and financial data of its cash-generating units. Investments in securities are accounted for on a trade date basis and are initially measured The Group, in its strategic plan, has taken into at fair value. Securities held for trading are consideration the effects of the present global measured at subsequent reporting dates at economic situation, the present economic fair value, so unrealized gains and losses on growth and outlook, the associated risks and held for trading securities are recognized in their possible effect on the financial sector as profit or loss and included in the Consolidated well as the current and expected availability Statement of Profit or Loss for the period. The of wholesale funding. Group holds held for trading securities within the business model to obtain short-term gains, Negative goodwill (gain from bargain purchase), consequently realized and unrealized gains when the interest of the acquirer in the net fair and losses are recognized in the net operating value of the acquired identifiable net assets income, while interest income is recognized in exceeds the cost of the business combination, income similar to interest income. The Group is recognized immediately in the Consolidated applies the FIFO1 inventory valuation method Statement of Profit or Loss as other income. for securities held for trading. 2.5 Securities at amortized cost foreign government bonds, discounted treasury bills and other securities. Such securities consist of equity instruments, shares in investment funds, Hungarian and The Group measures at amortized cost those securities which are held for contractual cash collecting purposes, and contractual terms of these securities give rise to cash-flows that are solely payment of principal and 2.6.2 Financial assets designated as fair value through profit or loss interest on the principal amount out- The Group may – at initial recognition – standing. The Group initially recognizes irrevocable designate a financial asset as 1 First In First Out 106 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) measured at fair value through profit or loss collateralised as the Group has almost all of its that would otherwise be measured at fair open derivative transactions collateralised. value through other comprehensive income or Changes in the fair value of derivative financial at amortized cost. instruments that do not qualify for hedge The Group may use fair value designation only accounting are recognized in profit or loss and in the following cases: are included in the Consolidated Statement of (cid:588) if the classification eliminates or significantly Profit or Loss for the period. Each derivative reduces a measurement or recognition deal is determined as asset when fair value inconsistency that would otherwise arise is positive and as liability when fair value is from measuring assets or liabilities or negative. recognising the gains and losses on them on different bases (‘accounting mismatch’). Certain derivative transactions, while providing effective economic hedges under The use of the fair value designation is based the risk management policy of the Group, only on direct decision of management of the do not qualify for hedge accounting under Group. 2.6.3 Derivative financial instruments the specific rules of IFRS 9 and are therefore treated as derivatives held for trading with fair value gains and losses charged directly to the Consolidated Statement of Profit or Loss. In the normal course of business, the Group Foreign currency contracts Foreign currency contracts are agreements is a party to contracts for derivative financial to exchange specific amounts of currencies instruments, which represent a low initial at a specified rate of exchange, at a spot date investment compared to the notional value (settlement occurs two days after the trade of the contract and their value depends on date) or at a forward date (settlement occurs value of underlying asset and are settled in more than two days after the trade date). the future. The derivative financial instruments The notional amount of these forward contracts used include interest rate forward or swap does not represent the actual market or credit agreements and currency forward or swap risk associated with these contracts. agreements and options. These financial Foreign currency contracts are used by the instruments are used by the Group both for Group for risk management and trading trading purposes and to hedge interest rate purposes. The risk management foreign risk and currency exposures associated with currency contracts of the Group were used its transactions in the financial markets. to hedge the exchange rate fluctuations of loans and deposits to credit institutions Derivative financial instruments are accounted denominated in foreign currency. 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, Foreign exchange swaps and interest rate swaps The Group enters into foreign exchange swap discounted cash-flow models and option and interest rate swap (“IRS”) transactions. pricing models as appropriate. The Group The swap transaction is an agreement adopts multi curve valuation approach for concerning the swap of certain financial calculating the net present value of future instruments, which usually consists of spot cash-flows – based on different curves used and one or more forward contracts. for determining forward rates and used for IRS transactions oblige two parties to discounting purposes. It shows the best exchange one or more payments calculated estimation of such derivative deals that are with reference to fixed or periodically reset IFRS consolidated financial statements 107 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) rates of interest applied to a specific notional positions and by establishing and monitoring principal amount (the base of the interest limits on unmatched positions. Credit risk calculation). Notional principal is the amount is managed through approval procedures upon which interest rates are applied to that establish specific limits for individual determine the payment streams under IRS counterparties. The Group’s forward rate transactions. Such notional principal amounts agreements were transacted for management often are used to express the volume of these of interest rate exposures and have been transactions but are not actually exchanged accounted for at mark-to-market fair value. between the counterparties. IRS transactions are used by the Group for risk management and trading purposes. Foreign exchange options A foreign exchange option is a derivative Cross-currency interest rate swaps The Group enters into cross-currency interest financial instrument that gives the owner the right to exchange money denominated in one currency into another currency at a pre-agreed rate swap (CCIRS) transactions which have exchange rate at a specified future date. special attributes, i.e. the parties exchange the The transaction, for a fee, guarantees a worst- notional amount at the beginning and also at case exchange rate for the futures purchase the maturity of the transaction. A special type of one currency for another. These options of these deals is the mark-to-market CCIRS protect against unfavourable currency agreements. At this kind of deals the parties movements while preserving the ability to – in accordance with the foreign exchange participate in favourable movements. prices – revalue the notional amount during lifetime of the transaction. 2.7 Hedge accounting Equity and commodity swaps Equity swaps obligate two parties to exchange more payments calculated with reference periodically reset rates of interest and perform- Derivative financial instruments designated as a fair-value hedge Changes in the fair value of derivatives ance of indexes. A specific notional principal that are designated and qualify as hedging amount is the base of the interest calculation. instruments in fair value hedges and that The payment of index return is calculated on prove to be highly effective in relation to the the basis of current market price compared hedged risk, are recorded in the Consolidated to the previous market price. In case of Statement of Profit or Loss along with the commodity swaps payments are calculated corresponding change in fair value of the on the basis of the strike price of a predefined hedged asset or liability that is attributable commodity compared to its average market to the specific hedged risk. Changes in the price in a period. Forward rate agreements (FRA) A forward rate agreement is an agreement fair value of hedging instrument in fair value hedges is charged directly to the Consolidated Statement of Profit or Loss. to settle amounts at a specified future date The conditions of hedge accounting applied by based on the difference between an interest the Bank are the following: formally designated rate index and an agreed upon fixed rate. as hedge relationship, proper hedge documen- Market risk arises from changes in the market tation is prepared, effectiveness test is per- value of contractual positions caused by formed and based on it the hedge is qualified movements in interest rates. as effective. The Group limits its exposure to market risk by The Group implemented hedge accounting entering into generally matching or offsetting rules prescribed by IFRS 9 in 2018. 108 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Derivative financial instruments designated as cash-flow hedge Changes in fair value of derivatives that are 2.9 Embedded derivatives Sometimes, a derivative may be a component designated and qualify as hedging instrument of a combined or hybrid contracts that includes in cash-flow hedges and that prove to be a host contract and a derivative (the embedded highly effective in relation to the hedged risk derivative) affecting cash-flows or otherwise are recognized in their effective portion as modifying the characteristics of the host reserve in Other Comprehensive Income. instrument. An embedded derivative must be The ineffective element of the changes in separated from the host instrument and fair value of hedging instrument is charged accounted for as a separate derivative if, and directly to the Consolidated Statement of only if: Profit or Loss. (cid:588) The economic characteristics and risks of the embedded derivative are not closely The Group terminates the hedge relationship related to the economic characteristics and if the hedging instrument expires or is sold, risks of the host contract; terminated or exercised, or the hedge no (cid:588) A separate financial instrument with the longer meets the criteria for hedge accounting. same terms as the embedded derivative In case of cash-flow hedges – in line with the would meet the definition of a derivative as standard -hedge accounting is still applied by a stand-alone instrument; and the Group as long as the underlying asset is (cid:588) The host instrument is not measured at derecognized. Net investment hedge in foreign operations Hedges of a net investment in a foreign fair value or is measured at fair value but changes in fair value are recognized in Other Comprehensive Income. As long as a hybrid contract contains a host that operation, including a hedge of a monetary is a financial asset the general accounting item that is accounted for as part of the net rules for classification, recognition and meas- investment, shall be accounted for similarly urement of financial assets are applicable to cash-flow hedges. for the whole contract and no embedded derivative is separated. On disposal of the foreign operation, the Derivatives that are required to be separated cumulative value of any gains and losses are measured at fair value at initial recognition recognized in Other Comprehensive Income and subsequently.If the Group is unable to is transferred to the Consolidated Statement measure the embedded derivative separately of Profit or Loss. 2.8 Offsetting either at acquisition or at the end of a subse- quent financial reporting period, the Group shall designate the entire hybrid contract as at fair value through profit or loss. The Group shall assess whether an embedded derivative Financial assets and liabilities are offset is required to be separated from the host con- and the net amount is reported in the tract and accounted for as a derivative when Consolidated Statement of Financial Position the Bank first becomes a party to the contract. when the Group has a legally enforceable right to set off 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 2.10 Securities at fair value through other comprehensive income not offset any financial assets and financial Securities at fair value through other com- liabilities. prehensive income are held within a business IFRS consolidated financial statements 109 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:3)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) model whose objective is achieved by both collecting of contractual cash-flows and selling securities. Furthermore contractual terms of these securities give rise on specified dates Fair value through other comprehensive income option for equity instruments The Group has elected to present in the State- to cash-flows that are solely payment of ment of Other Comprehensive Income changes principal and interest on the principal amount of fair value of those equity instruments which outstanding. are neither held for trading nor recognized under IFRS 3. Debt instruments Investments in debt securities are accounted In some cases the Group made an irrevocable election at initial recognition for certain for on a trade date basis and are initially equity instruments to present subsequent measured at fair value. Securities at fair value changes in fair value of these securities in the through other comprehensive income are consolidated other comprehensive income measured at subsequent reporting dates instead of in profit or loss. at fair value. Unrealized gains and losses on The use of the fair value option is based only securities at fair value through other com- on direct decision of management of the prehensive income are recognized directly Group. in Other Comprehensive Income, except for interest and foreign exchange gains/losses on monetary items, unless such financial asset at fair value through other comprehensive income is part of an effective hedge. Such gains and losses are reported when realized in Consolidated Statement of Profit or Loss for 2.11 Loans, placements with other banks, repo receivables and loss allowance for loan and placements and repo receivable losses the applicable period. The Group applies the The Group measures at amortized cost those FIFO inventory valuation method for securities Loans and placements with other banks and at fair value through other comprehensive repo receivables, which are held to collect income. contractual cash-flows, and contractual terms of these assets give rise on specified dates For debt securities at fair value through other to cash-flows that are solely payments of comprehensive income the loss allowance principal and interest on the principal amount is calculated based on expected credit loss outstanding. The Group recognizes as loans model. The expected credit loss is accounted measured at fair value through profit or loss for against Other Comprehensive Income. those financial assets, which are held for Securities at fair value through other compre- trading or the contractual cash-flows that are hensive income are remeasured at fair value not solely payments of principal and interest based on quoted prices or amounts derived on the principal amount outstanding. from cash-flow models. In circumstances Those Loans and placements with other banks where the quoted market prices are not readily and repo receivables that are accounted at available, the fair value of debt securities is amortized cost, stated at the principal amounts estimated using the present value of future outstanding (including accrued interest), net cash-flows and the fair value of any unquoted of allowance for loan or placement losses, equity instruments are calculated using the respectively. EPS ratio. Transaction fees and charges adjust the Such securities consist of Hungarian and carrying amount at initial recognition and are foreign government bonds, corporate bonds, included in effective interest calculation. mortgage bonds, discounted Treasury bills Loans and placements with other banks and and other securities. repo receivables are derecognized when the 110 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) contractual rights to the cash-flows expire or wise (in case of significant credit risk increase) they are transferred. When a financial asset lifetime expected credit losses should be is derecognized the difference of the carrying calculated. The expected credit loss is the amount and the consideration received is present value of the difference between the recognized in the profit or loss. When the contractual cash-flows that are due to the contractual cash-flows of a financial asset are Group under the contract and the cash-flows modified and the modification does not result that the Group expects to receive. in the derecognition of the financial asset the Bank recalculate the gross carrying amount of Write-offs are generally recorded after the financial asset by discounting the expected all reasonable restructuring or collection future cash-flows with the original effective activities have taken place and the possibility interest rate of the asset. The difference of further recovery is considered to be remote. between the carrying amount and the present The loan is written off against the related value of the expected cash-flows is recognized account “Loss allowance on loans, placements as a modification gain or loss in the profit and on repo receivables/from this: gain/loss or loss. from derecognition” in the Consolidated Statement of Profit or Loss. Interest and amortized cost are accounted using effective interest rate method. The Group applies partial or full write-off for loans based on the definitions and prescrip- Initially financial assets shall be recognized at tions of financial instruments in accordance fair value which is usually equal to transaction with IFRS 9. If the Group has no reasonable value in case of loans and placements. expectations regarding a financial asset (loan) However, when the amounts are not equal, to be recovered, it will be written off partially the initial fair value difference should be or fully at the time of emergence. recognized. This difference is amortized with effective interest rate. The gross amount and impairment loss of Initial fair value of loans lent at interest below the loans shall be written off in the same market conditions is lower than their trans- amount to the estimated maximum recovery action price. As a consequence the Group is amount while the net carrying value remains deferring the difference between the fair value unchanged. In those cases when on the at initial recognition and the transaction price previously partially or fully written-off loans or relating to loans and receivables because placements, which perhaps were derecognized input data for measuring the fair values are from the books no having been reasonable not available on observable markets. expectations later nevertheless recoveries could be determined then it will be reversal of The Group recognizes a loss allowance for loss allowance in the Consolidated Statement expected credit losses on a financial asset at of Profit or Loss on “Income from recoveries of each reporting date. The loss allowance for a written-off, but legally existing loans”. financial asset equals to 12-month expected credit loss or equals to the lifetime expected credit losses. The maximum period over which 2.12 Modified assets expected credit losses shall be measured is the maximum contractual period over which the If the net present value of the contracted Group is exposed to credit risk. cash-flows changes due to the modification If the credit risk on a financial asset has not as derecognition, modification gain or loss increased significantly since initial recognition should be calculated and accounted for in the then 12-month expected credit losses, other- consolidated statement of profit or loss. of the contractual terms and it is not qualified IFRS consolidated financial statements 111 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Among the possible contract amendments, example, following a substantial modification the Group considers as a derecognition and a of a distressed financial asset that resulted new recognition when the discounted present in the derecogniton of the original financial value – discounted at the original effective asset. interest rate – of the cash-flows under the new terms is at least 10 per cent different from the In the case of POCI financial assets, interest discounted present value of the remaining income is always recognized by applying the cash-flows. In case of derecognition and credit-adjusted effective interest rate. new recognition the unamortized fees of the derecognized asset should be presented as For POCI financial assets, in subsequent Income similar to interest income. The newly reporting periods an entity is required to recognized financial asset is initially measured recognize: at fair value and is placed in stage 1 if the (cid:588) the cumulative changes in lifetime expected derecognized financial asset was in stage 1 credit losses since initial recognition as a or stage 2 portfolio. The newly recognized loss allowance, financial asset will be purchased or originated (cid:588) the impairment gain or loss which is the credit impaired financial asset (“POCI”) if the amount of any change in lifetime expected derecognized financial asset was in stage 3 credit losses. portfolio or it was POCI. An impairment gain is recognized (with the parallel increase of the net amortized cost of The modification gain or loss shall be calculated receivable) if due to the favourable changes at each contract amendments unless they after initial recognition the lifetime expected are handled as a derecognition and new credit loss estimation is becoming lower recognition. In case of modification the Group than the original estimated credit losses at recalculates the gross carrying amount of the initial recognition. financial asset. To do this, the new contractual cash-flows should be discounted using the The POCI qualification remains from initial financial asset’s original effective interest rate recognition to derecognition in the Group’s (or credit-adjusted effective interest rate for books. POCI financial asset). Any costs or fees incurred adjust the carrying amount of the modified financial asset are amortized over the remaining 2.14 Loss allowance term of the modified financial asset. Loss allowance for loans and placements with other banks and repo receivables is recognized 2.13 Purchased or originated credit impaired financial assets by the Group based on the expected credit loss model in accordance with IFRS 9. Based on the three stage model the recognized loss Purchased or originated financial assets allowance equals to 12-month expected credit are credit-impaired on initial recognition. loss from the initial recognition. On financial A financial asset is credit-impaired when one assets with significantly increased credit risk or more events that have a detrimental impact or credit impaired financial assets (based on the estimated future cash-flows of that on objective evidences) the recognized loss financial asset have occurred. allowance is the lifetime expected credit loss. A purchased credit-impaired asset is likely to In case of purchased or originated credit be acquired at a deep discount. In unusual impaired financial assets loss allowance is circumstances, it may be possible that an recognized in amount of lifetime expected entity originates a credit-impaired asset, for credit loss since initial recognition. Impairment 112 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) gain in the Consolidated Statement of Profit measured at amortized cost, at fair value or Loss is recognized if lifetime expected through other comprehensive income and credit loss for purchased or originated credit loan commitments and financial guarantees impaired financial assets at measurement date into the following stages: are less than the estimated credit loss at initial (cid:588) stage 1 – performing financial instruments recognition. without significant increase in credit risk since initial recognition Loss allowance for loans and placements with (cid:588) stage 2 – performing financial instruments other banks and repo receivables represent with significant increase in credit risk since Management assessment for potential losses initial recognition but not credit-impaired in relation to these activities. (cid:588) stage 3 – non-performing, credit-impaired financial instruments Impairment losses on credit and placement (cid:588) POCI – purchased or originated credit impaired losses are determined at a level that provides coverage for individually identified credit In the case of trade receivables and contract losses. For loans for which it is not possible assets the Group applies the simplified approach to determine the amount of the individually and calculates only lifetime expected credit identified credit loss in the absence of objective loss. Simplified approach is the following: evidence, a collective impairment loss is (cid:588) for the past 3 years the average annual recognized. With this, the Bank reduces the balance of receivables under simplified carrying amount of financial asset portfolios approach is calculated, with similar credit risk characteristics to (cid:588) the written-off receivables under simplified the amount expected to be recovered based approach are determined in the past 3 years, on historical experience. (cid:588) the loss allowance ratio will be the sum of the written-off amounts divided by the sum At subsequent measurement the Group of the average balances, recognizes impairment gain or loss through (cid:588) the loss allowance is multiplied by the end- “Impairement gain on POCI loans” in the of-year balance and it will be the actual loss Consolidated Statement of Profit or Loss as an allowance on these receivables, amount of expected credit losses or reversal (cid:588) loss allowance should be recalculated that is required to adjust the loss allowance annually. at the reporting date to the amount that is required to be recognized in accordance with Stage 1: financial instruments for which the IFRS 9. events and conditions specified in respect of Stage 2 and Stage 3 do not exist on the If a financial asset, for which previously there reporting date. were no indicators of significant increase in credit risk (i.e. classified in Stage 1) is A client or loan must be qualified as default subsequently classified in Stage 2 or Stage 3 if one or both the following two conditions then loss allowance is adjusted to lifetime occur: expected credit loss. If a financial asset, which (cid:588) The client delays more than 90 days. previously was classified in Stage 2 or Stage 3 This is considered a hard trigger. is subsequently classified in Stage 1 then loss (cid:588) There is reasonable probability that the allowance is adjusted to the level of 12 month client will not pay all of its obligation. expected credit loss. This condition is examined on the basis Classification into risk classes According to the requirements of the IFRS 9 The subject of default qualification is that standard Group classifies the financial assets exposure (on-balance and off-balance) which of probability criteria of default. IFRS consolidated financial statements 113 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) originates credit risk (so originated from loan (cid:588) the monitoring classification of corporate commitments, risk-taking contracts). and municipal clients above different thresholds defined on group level (including A financial instruments shows significant but not limited to): increase in credit risk, and is allocated to – breaching of contracts, stage 2, if in respect of which any of the – significant financial difficulties of the following triggers exist on the reporting debtor (like capital adequacy, liquidity, date, without fulfilling any of the conditions deterioration of the instrument quality), for the allocation to the non-performing stage – bankruptcy, liquidation, debt settlement (stage 3): processes against debtor, (cid:588) the payment delay exceeds 30 days, – forced strike-off started against debtor, (cid:588) it is classified as performing forborne, – termination of loan contract by the bank, (cid:588) based on individual decision, its currency – occurrence of fraud event, suffered a significant “shock” since the – termination of the active market of the disbursement of the loan, financial instrument. (cid:588) the transaction/client rating exceeds a predefined value or falls into a determined If the exposure is no longer considered as range, or compared to the historic value it credit impaired, the Group allocates this deteriorates to a predefined degree, exposure to Stage 2. (cid:588) in the case retail mortgage loans, the loan-to-value ratio exceeds a predefined rate, When loss allowance is calculated at (cid:588) default on another loan of the retail client, exposures categorized into stages the if no cross-default exists, following process is needed by stages: (cid:588) monitoring classification of corporate and (cid:588) stage 1 (performing): loss allowance at an municipal clients above different thresholds amount equal to 12-month expected credit defined on group level (without aiming to loss should be recognized, give an exhaustive list): (cid:588) stage 2 (significant increase in credit risk): – financial difficulties at the debtor (capital loss allowance at an amount equal to adequacy, liquidity, deterioration of the lifetime expected credit loss should be instrument quality), recognized, – significant decrease of the liquidity or (cid:588) stage 3 (non-performing): loss allowance the activity on the active market of the at an amount equal to lifetime expected financial instrument can be observed, credit loss should be recognized. – the rating of the client reflects high risk but it is better than the default one, For lifetime expected credit losses, an entity – significantly decrease in the value of the shall estimate the risk of a default occurring recovery from which the debtor would on the financial instrument during its expected disburse the loan, life. 12-month expected credit losses are a – clients under liquidation. portion of the lifetime expected credit losses and represent the lifetime cash shortfalls that A financial instrument is non-performing will result if a default occurs in the 12 months and it is allocated to Stage 3 when any of the after the reporting date (or a shorter period following events or conditions exists on the if the expected life of a financial instrument reporting date: is less than 12 months), weighted by the (cid:588) defaulted (based on the group level default probability of that default occurring. definition), (cid:588) classified as non-performing forborne An entity shall measure expected credit (based on the group level forborne losses of a financial instrument in a way that definition), reflects: 114 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:588) an unbiased and probability-weighted Under the equity method, the investment is amount that is determined by evaluating initially recognized at cost, and the carrying a range of possible outcomes amount is adjusted subsequently for: (cid:588) the time value of money and (cid:588) the Group’s share of the post-acquisition (cid:588) reasonable and supportable information profits or losses of the investee, which are that is available without undue cost or effort recognized in the Group’s profit or loss; and at the reporting date about past events, (cid:588) the distributions received from the investee, current conditions and forecasts of future which reduce the carrying amount of the economic conditions. investment. 2.15 Sale and repurchase agreements, security lending The Group’s share of the profits or losses of the investee, or other changes in the investee’s equity, is determined on the basis of its proportionate ownership interest. The Group Where debt or equity securities are sold recognizes its share of the investee’s income under a commitment to repurchase them at and losses based on the percentage of the a pre-determined price, they remain on the equity interest owned by the Group. Consolidated Statement of Financial Position and the consideration received is recorded Gains and losses on the sale of investments in Other liabilities or Amounts due to banks, are determined on the basis of the specific the National Governments, deposits from the identification of the cost of each investment. National Banks and other banks. Conversely, debt or equity securities purchased under a commitment to resell are not recognized in the Consolidated Statement of Financial Position and the consideration paid is recorded 2.17 Property and equipment, Intangible assets either in Placements with other banks or Property and equipment and Intangible assets Deposits from customers. Interest is accrued are stated at cost, less accumulated depre- based on the effective interest method evenly ciation and amortization and impairment, if over the life of the repurchase agreement. any. The depreciable amount (book value less In the case of security lending transactions the residual value) of the non-current assets must Group doesn’t recognize or derecognize the be allocated over the useful lives. securities because believes that the transferor retains substantially all the risks and rewards Depreciation and amortization are computed of the ownership of the securities. Only a using the straight-line method over the financial liability or financial receivable is estimated useful lives of the assets based on recognized for the consideration amount. the following annual percentages: 2.16 Associates and other investments Intangible assets Software Property rights Property 3.33–52.63% 1.25–50.0% 0.1–33.3% Companies where the Bank has the ability to Office equipment and vehicles 1–50% exercise significant influence are accounted Vehicle 5.63–48% for using the equity method. Subsidiaries and associated companies that were not accounted Depreciation and amortization on Property for using the equity method and other invest- and equipment and Intangible assets ments where the Bank does not hold a signifi- commence on the day such assets are ready cant interest are recorded according to IFRS 9. to use. IFRS consolidated financial statements 115 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) At each balance sheet date, the Group reviews incurred in bringing the inventories to their the carrying value of its Property and equip- present location and condition. ment and Intangible assets to determine The Group uses generally FIFO formulas to the if there is any indication that those assets measurement of inventories. have suffered an impairment loss. If any such Inventories shall be removed from books when indication exists, the recoverable amount of they are sold, unusable or destroyed. When the asset is estimated to determine the extent inventories are sold, the carrying amount (if any) of the impairment loss. of those inventories shall be recognized as Where it is not possible to estimate the revenue is recognized. recoverable amount of an individual asset, Repossessed assets are classified as inventories. an expense in the period in which the related the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 2.19 Financial liabilities Where the carrying value of Property and The financial liabilities are presented within equipment and Intangible assets is greater financial liabilities at fair value through profit than the estimated recoverable amount, it or loss or financial liabilities measured at is impaired immediately to the estimated amortized cost. recoverable amount. The Group at initial recognition measures financial liabilities at fair value plus or minus The Group may conclude contracts for pur- – in the case of a financial liability not at fair chasing property, equipment and intangible value through profit or loss – transaction costs assets, where the purchase price is settled that are directly attributable to the acquisition in foreign currency. By entering into such or issue of the financial liability. agreements, firm commitment in foreign currency due on a specified future date arises Financial liabilities at fair value through profit at the Group. or loss are either financial liabilities held for Reducing the foreign currency risk caused trading or they are designated upon initial rec- by firm commitment, forward foreign currency ognition as at fair value through profit or loss. contracts may be concluded to ensure the In connection to the derivative financial amount payable in foreign currency on a liabilities measured at fair value through profit specified future date on one hand and to or loss, the Group presents the amount of eliminate the foreign currency risk arising change in their fair value originated from the until settlement date of the contract on the changes of market conditions and business other hand. environment. In the case of an effective hedge the realized profit or loss of the hedging instrument is The Group designated some financial liabilities stated as the part of the cost of the hedged upon initial recognition to measure at fair asset as it has arisen until recognizing value through profit or loss. This classification the asset. 2.18 Inventories eliminates or significantly reduces a measure- ment or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (“accounting The inventories shall be measured at the lower mismatch”). of cost and net realisable value. The cost of inventories shall comprise all costs of pur- In the case of financial liabilities measured at chase, costs of conversion and other costs amortized cost fees and commissions related 116 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) to the origination of the financial liability are either a straight-line basis or another recognized through profit or loss during the systematic basis. maturity of the instrument using effective The depreciation policy for depreciable interest method. In certain cases the Group underlying assets subject to operating repurchases a part of financial liabilities (mainly leases is consistent with the Group’s normal issued securities or subordinated bonds) and depreciation policy for similar assets. the difference between the carrying amount The Group accounts for a modification to of the financial liability and the amount paid for an operating lease as a new lease from it is recognized in the net profit or loss for the the effective date of the modification, period and included in other operating income. considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease. 2.20 Leases The Group as a lessor Leases are classified as finance leases when- The Group as a lessee The Group recognizes a right-of-use asset and a lease liability at the commencement of the ever the terms of the lease transfer substan- lease term except for short-term leases and tially all the risks and rewards of ownership to leases, where the underlying asset is of low the lessee. All other leases are classified as value (less than USD 5,000). For these leases, operating leases. Lease classification is made the Group recognizes the lease payments as an at the inception date and is reassessed only expense on either a straight-line basis over the if there is a lease modification. lease term or another systematic basis if that basis is more representative of the pattern of Finance leases At the commencement date, a lessor derecog- the lessee’s benefit. nizes the assets held under a finance lease in Deferred tax implication if the Group is lessee: its statement of financial position and present At inception of the lease, there is no net lease them as a receivable at an amount equal to asset or liability, no tax base and, therefore, the net investment in the lease. The lessor no temporary difference. Subsequently, as shall use the interest rate implicit in the lease depreciation on the right-of-use asset initially to measure the net investment in the lease. exceeds the rate at which the debt reduces, Direct costs such as commissions are included a net liability arises resulting in a deductible in the initial measurement of the finance lease temporary difference on which a deferred tax receivables. asset should be recognized if recoverable. The Group as a lessor recognizes finance Assuming that the lease liability is not repaid income over the lease term, based on a pattern in advance, the total discounted cash outflows reflecting a constant periodic rate of return on should equal the total rental payments the Group’s net investment in the lease. The deductible for income tax purposes. Group applies the lease payments relating to the period against the gross investment in the lease to reduce both the principal and the Right-of-use asset The right-of-use assets are initially measured unearned finance income. at cost, subsequently the Group applies cost The Group applies the derecognition and model and these assets are depreciated on a impairment requirements in IFRS 9 to the net straight line basis from the commencement investment in the lease. date to the earlier of the end of the useful life Operating leases The Group as a lessor recognizes lease pay- term. If the lease transfers ownership of the underlying asset to the Group by the end of ments from operating leases as income on the lease term or if the cost of the right-of-use of the right-of-use asset or the end of the lease IFRS consolidated financial statements 117 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) asset reflects that the Group will exercise a 2.22 Share capital purchase option, the right-of-use asset are depreciated from the commencement date to Share capital is the capital determined in the the end of the useful life of the underlying Articles of Association and registered by the asset. Budapest-Capital Regional Court. Share capital is the capital the Bank raised by issuing Lease liability At the commencement date, the lease liability common stocks at the date the shares were issued. The amount of share capital has not is measured at the present value of the lease changed over the current period. payments that are not paid at that date discounted by using the rate implicit in the lease, or if this cannot be determined, by using 2.23 Treasury shares the incremental borrowing rate of the Group. Variable lease payments that do not depend Treasury shares are shares which are on an index or a rate but e.g. on revenues purchased on the stock exchange and the or usage are recognized as an expense. over-the-counter market by the Bank and The Group always separates the non-lease its subsidiaries and are presented in the components of the lease contracts and Consolidated Financial Position at cost as a accounts them as an expense. Lease payments deduction from Consolidated Shareholders’ must be included in the measurement of the Equity. lease liability without value added taxes. Non- Gains and losses on the sale of treasury shares deductible VAT is recognized as other expense. are credited or charged directly to shareholder’s equity. Derecognition of treasury shares is The lease liability is remeasured in case of based on the FIFO method. reassessment of the lease liability or lease modification 2.21 Investment properties 2.24 Non-current assets held for sale and discontinued operations Investment properties of the Group are land, The Group classifies a non-current asset buildings, part of buildings which held (as the (or disposal group) as held for sale if its carrying owner or as the lessee under a finance lease) amount will be recovered principally through to earn rentals or for capital appreciation or a sale transaction rather than through both, rather than for use in the production continuing use. The Group does not account for or supply of services or for administrative a non-current asset that has been temporarily purposes or sale in the ordinary course of taken out of use as if it had been abandoned. business. The Group measures the investment The Group measures a non-current asset (or properties at cost less accumulated deprecia- disposal group) classified as held for sale at tion and impairment, if any. the lower of its carrying amount and fair value The depreciable amount (book value less less costs to sell. When the sale is expected to residual value) of the investment properties occur beyond one year, the Group measures must be allocated over their useful lives. the costs to sell at their present value. Any The depreciation and amortization are increase in the present value of the costs to computed using the straight-line method sell that arises from the passage of time shall over the estimated useful lives of the assets. be presented in profit or loss. Immediately The Group discloses the fair value of the before the initial classification of the asset (or investment properties in Note 14 established disposal group) as held for sale, the carrying mainly by external experts. amounts of the asset (or all the assets and 118 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) liabilities in the group) shall be measured in are reported separately in the consolidated accordance with applicable IFRS. statement of profit or loss as result from discontinued operations. The Group does not depreciate (or amortize) a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall 2.25 Interest income and income similar to interest income and interest expense continue to be recognized. Interest income and expense are recognized in profit or loss in the period to which they If the Group has classified an asset (or disposal relate, using the effective interest rate group) as held for sale, but the criteria for method. The time-proportional income similar that are no longer met, the Group ceases to to interest income of derivative financial classify the asset (or disposal group) as held instruments is calculated without using the for sale. The Group measures a non-current effective interest method and the positive fair asset that ceases to be classified as held value adjustment of interest rate swaps are for sale (or ceases to be included in a disposal included in income similar to interest income. group classified as held for sale) at the lower of: Interest from loans and deposits are accrued (cid:588) its carrying amount before the asset on a daily basis. Interest income and expense (or disposal group) was classified as held include certain transaction costs and the for sale, adjusted for any depreciation, amortisation of any discount or premium amortisation or revaluations that would between the initial carrying amount of an have been recognized had the asset interest-bearing instrument and its amount (or disposal group) not been classified at maturity calculated on an effective interest as held for sale, and rate basis. (cid:588) its recoverable amount at the date of the subsequent decision not to sell. All interest income and expense recognized are arising from loans, placements with other The Group presents a non-current asset banks, repo receivables, securities at fair classified as held for sale and the assets of value through other comprehensive income, a disposal group classified as held for sale securities at amortized cost and amounts separately from other assets in the due to banks, repo liabilities, deposits from Consolidated Statement of Financial Position. customers, liabilities from issued securities, The liabilities of a disposal group classified subordinated bonds and loans are presented as held for sale is presented separately from under these lines of financial statements. other liabilities in the Statement of Financial Position. Those assets and liabilities shall not be offset and presented as a single amount. 2.26 Fees and Commissions The major classes of assets and liabilities classified as held for sale shall be separately Fees and commissions that are not involved disclosed in the Notes. in the amortized cost model are recognized in the Consolidated Statement of Profit or The Group presents separately any cumulative Loss on an accrual basis according to IFRS 15 income or expense recognized in other com- Revenue from contracts with customers prehensive income relating to a non-current (see more details in Note 32). These fees are asset (or disposal group) classified as held for related to deposits, cash withdrawals, security sale. Results from discontinued operations trading, bank card etc. IFRS consolidated financial statements 119 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:15)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 2.27 Dividend income that both of the following conditions are satisfied: Dividend income refers to any distribution of (cid:588) the Bank is able to control the timing of the an entity earnings to shareholders from stocks reversal of the temporary difference, and or mutual funds that is owned by the Group. (cid:588) it is probable that the temporary difference The Group recognizes dividend income in will not reverse in the foreseeable future. the Consolidated Financial Statements when its right to receive payment is established. 2.29 Banking tax 2.28 Income tax The Bank and some of its subsidiaries are obliged to pay banking tax based on Act LIX of The annual taxation charge is based on 2006. The calculation is based on the adjusted the tax payable under fiscal regulations total assets as reported in the Separate prevailing in the country where the company is Financial Statements of the Bank and its incorporated, adjusted for deferred taxation. entities for the second period preceding the Deferred taxation is accounted for using the Therefore, the banking tax is considered as an balance sheet liability method in respect of other administrative expense, not as income tax. current tax year (not on the taxable profit). temporary differences between the tax bases of assets and liabilities and their carrying value for financial 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. 2.30 Off-balance sheet commitments and contingent liabilities In the ordinary course of its business, the Group Deferred tax assets are recognized by the enters into off-balance sheet commitments Group for the amounts of income taxes that such as guarantees, letters of credit, commit- are recoverable in future periods in respect of ments to extend credit and transactions deductible temporary differences as well as with financial instruments. The provision on the carryforward of unused tax losses and the off-balance sheet commitments and contingent carryforward of unused tax credits. liabilities is maintained at a level adequate The Group recognizes a deferred tax asset probable and relate to present obligations. to absorb future cash outflows which are for all deductible temporary differences arising from investments in subsidiaries, In case of commitments and contingent branches and associates, and interests in joint liabilities, the management determines the arrangements, to the extent that, and only to adequacy of the loss allowance based upon the extent that, it is probable that: reviews of individual items, recent loss (cid:588) the temporary difference will reverse in the experience, current economic conditions, the foreseeable future; and risk characteristics of the various categories (cid:588)(cid:631) taxable profit will be available against which of transactions and other pertinent factors. the temporary difference can be utilised. The Group recognizes provision for off-balance sheet commitment and contingent liabilities The Group recognizes a deferred tax liability in accordance with IAS 37 when it has a for all taxable temporary differences present obligation as a result of a past event; associated with investments in subsidiaries, it is probable that an outflow of resources branches and associates, and interests embodying economic benefits will be required in joint arrangements, except to the extent to settle the obligation; and a reliable estimate 120 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) can be made of the obligation. For financial (cid:588) when the cash-flows reflect the activities guarantees and loan commitments given of the customer rather than those of the which are under IFRS 9 the expected credit Group, and loss model is applied when the provision is (cid:588) for items in which the turnover is quick, calculated (see more details in Note 2.14). the amounts are large, and the maturities are short. 2.31 Share-based payment For the purposes of reporting Consolidated Statement of Cash-flows, cash and cash The Bank has applied the requirements equivalents include cash, due from banks and of IFRS 2 Share-based Payment. balances with the National Banks, excluding the compulsory reserve established by the The Bank issues equity-settled share-based National Banks. Consolidated cash-flows payment to certain employees. Equity-settled from hedging activities are classified in the share-based payment is measured at fair value same category as the item being hedged. at the grant date. The fair value determined The unrealized gains and losses from the at the grant date of the equity-settled share- translation of monetary items to the closing based payment is expensed on a straight-line foreign exchange rates and unrealized gains basis over the year, based on the Bank’s and losses from derivative financial instru- estimate of shares that will eventually vest. ments are presented net in the statement of Share-based payment is recorded in cash-flows for the monetary items which have Consolidated Statement of Profit or Loss as been revaluated. Personnel expenses. Fair value is measured by use of a binomial 2.34 Segment reporting model. The expected life used in the model has been adjusted, based on Management’s best IFRS 8 Operating Segments requires operating estimate, for the effects of non-transferability, segments to be identified on the basis of exercise restrictions, and behavioural internal reports about components of the considerations. Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their 2.32 Employee benefits performance. Based on the above, the segments identified by The Group has applied the requirement of the Group are the business and geographical IAS 19 Employee Benefits. IAS 19 requires segments. to recognize employee benefits to be paid The Group’s operating segments under IFRS as a liability and as an expense in the 8 are therefore as follows: OTP Core Hungary, Consolidated Financial Statements. Russia, Ukraine, Bulgaria, Romania, Serbia, 2.33 Consolidated Statement of Cash-flows Croatia, Montenegro, Albania, Moldova, Slovenia, Merkantil Group, Asset Management subsidi- aries, Other subsidiaries, Corporate Center. Cash-flows arising from the operating, 2.35 Comparative figures investing or financing activities are reported in the Statement of Cash-Flows of the Group Change in the classification and valuation primarily on a gross basis. Net basis reporting policy of certain subsidized retail loans and FX are applied by the Group in the following cases: margins IFRS consolidated financial statements 121 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) In 2020, the Group changed its accounting As a result of the change in accounting policy, policy regarding the classification and the Group adjusted the data of the compara- valuation of a particular class of subsidized tive period in the statement of profit or loss retail loans. The interest payments on the retail in accordance with the profit or loss items loans are determined on the basis of the of the fair valuation categories. Due to the government bond reference yields and a unchanged carrying amounts in the balance multiplier. Previously, in accordance with the sheet, this amendment resulted in the Group’s accounting policy, these loans were following reclassification between profit measured at amortised cost. For the year or loss categories: ended 31 December 2020, the Group classified (cid:588)(cid:631)(cid:631) The Group recognizes interest income on this type of loan as measured at fair value loans measured at fair value through through profit or loss. The new accounting profit or loss for the period in the Income policy is in line with the practices of the similar to Interest Income line at the value majority of the players in the banking sector, corresponding to transactional interest. thus better facilitating comparability. Therefore, The comparative value of the line of interest in the Bank’s opinion, the change in accounting income calculated using the effective interest policy results in a more reliable, comparable rate method has been reduced accordingly and relevant presentation of the effects of by the interest income of the respective loans the loans in question on the Group’s financial determined using the previously applied position and financial performance in the effective interest rate method. financial statements. (cid:588)(cid:631)(cid:631) The Group presents the amount of com- mission income and commission expenses In parallel with the change in accounting policy, related to loans at fair value through the Group also changed the structure of its profit or loss in the Fee and commission balance sheet. In the statement of financial income and Fee and commission expense position, presenting loans in a uniform manner, lines. based on the nature of the instruments, on the (cid:588)(cid:631)(cid:631) The Group presents the change in the fair line Loans at amortized cost and mandatorily value of loans measured at fair value at fair value through profit or loss, with further through profit or loss, broken down into details of classification and valuation category two components: provided in Note 11 and any other notes as – The Group presents the portion of the appropriate. change in fair value arising from changes in credit risk within Risk cost as Change The new accounting policy is applied retro- in the fair value attributable to changes spectively by the Group as if it had always in the credit risk of loans mandatorily applied this accounting policy. The Group measured at fair value through profit of has made the following adjustments to the loss. This amount is determined using comparative figures. At the beginning of the expected credit loss models used for comparative period and at the end of the loans measured at amortized cost. The comparative period, the change in accounting comparative amount of Loss allowance on policy did not result in a material change in loans, placements and repo receivables the carrying amount of the loans involved or has been reduced accordingly with the equity. Therefore, the Group did not change loss allowance and reversal amounts for the related balance sheet values for the the respective loans. adjustment relating to periods before those – The Group presents the remaining presented, and the Consolidated Statement component of the change in fair value of Financial Position contains only the data under the (Losses)/Gains on financial at the end of the current period and at the instruments at fair value through profit end of the comparative period. or loss. 122 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The change in accounting policy did not Amendments to the information published impact the net profit for the comparative in the supplementary annexes concerned the period, nor the comparative earnings per following supplementary notes: ordinary share. (cid:588)(cid:631)(cid:631) Note 11 Loans at amortized cost and at fair value The other reclassification shown below relates (cid:588)(cid:631)(cid:631) Note 30 Interest income, income similar to realized foreign exchange results which to interest income and expenses were previously presented within Net operating (cid:588)(cid:631)(cid:631) Note 31 Loss allowances/impairment and income. The change in presentation means that provisions the result recognized on these transactions (cid:588)(cid:631)(cid:631) Note 36.1.1 Financial instruments by stages is now presented in Income from fees and (cid:588)(cid:631)(cid:631) Note 36.1.2 Movement table of loss commissions. allowance/provision on financial instruments (cid:588)(cid:631)(cid:631) Note 36.1.3 Loan portfolio by countries In accordance with the new accounting policy, (cid:588)(cid:631)(cid:631) Note 36.2 Maturity analysis of assets, the Bank has amended its respective disclosure liabilities and liquidity risk notes regarding the loans at amortized cost. (cid:588)(cid:631)(cid:631) Note 36.4 Interest rate risk management In the comparative figures, the Bank has (cid:588)(cid:631)(cid:631) Note 46 Net gain or loss realized on financial reduced the previously disclosed amortized instruments cost, gross carrying amount, impairment and (cid:588)(cid:631)(cid:631) Note 47. a) Fair value of financial assets and fair value data by the amounts related to the liabilities loans concerned. The Group has also amended (cid:588)(cid:631)(cid:631) Note 48 Segment reporting by business and its disclosures in the notes on assets at fair geographical segments value through profit or loss for comparative information. These amendments have been Except as described above, these consolidated marked “Revised” by the Bank. The Bank has financial statements are prepared in also revised the presentation of the detailed accordance with the same accounting policies notes to the amended profit or loss line items in all respects as the consolidated financial for comparative information in accordance statements prepared in accordance with IFRS with the new values in the statement of profit as adopted by the European Union for the year or loss. ended 31 December 2019. Line item 2020 2019 Revised presentation Reclassification of amounts related to mandatorily measured at fair value through profit or loss Reclassification of gains from foreign exchange margin 2019 As previously presented Interest income calculated using the effective interest method Income similar to interest income Interest income and income similar to interest income Interest expense Loss allowance on loans, placements and on repo receivables Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss Further risk cost items Risk cost total NET INTEREST INCOME AFTER RISK COST Income from fees and commissions Net profit from fees and commissions Foreign exchange gains, net (Losses)/Gains on financial instruments at fair value through profit or loss Net operating income 841,901 135,986 977,887 762,639 133,497 896,136 (195,216) (197,095) (200,315) (44,605) (3,262) (4,376) (15,093) (218,670) 564,001 486,529 397,633 19,204 (2,396) 27,455 (7,706) (56,687) 642,354 447,084 374,181 6,782 (849) 91,834 (14,863) 16,855 1,992 – 4,515 (4,376) – 139 2,131 – – – (2,131) (2,131) – – – – – – – – – 33,736 33,736 (33,736) – 777,502 116,642 894,144 (197,095) (49,120) – (7,706) (56,826) 640,223 413,348 340,445 40,518 1,282 (33,736) 127,701 IFRS consolidated financial statements 123 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES The presentation of financial statements in conformity with IFRS as adopted by EU requires the Management of the Group to 3.2 Valuation of instruments without direct quotations make judgement about estimates and Financial instruments without direct assumptions that affect the reported amounts quotations in an active market are valued of assets and liabilities and the disclosure using the valuation model technique. of contingent assets and liabilities as at the The models are regularly reviewed and date of the financial statements and their each model is calibrated for the most recent reported amounts of revenues and expenses available market data. While the models are during the reporting period. The estimates built only on available data, their use is subject and associated assumptions are based on to certain assumptions and estimates expected loss and other factors that are (e.g. correlations, volatilities etc.). Changes considered to be relevant. The estimates and in the model assumptions may affect the underlying assumptions are reviewed on reported fair value of the relevant financial an ongoing basis. Revisions to accounting instruments. estimates are recognized in the period. IFRS 13 Fair Value Measurement seeks to Actual results could differ from those increase consistency and comparability in estimates. Significant areas of subjective fair value measurements and related judgement include: disclosures through a ‘fair value hierarchy’. 3.1 Loss allowances on financial instruments exposed to credit risk 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 The Group regularly assesses its financial of a fair value measurement is to estimate instruments portfolio for loss allowance. the price at which an orderly transaction to Management determines the adequacy sell the asset or to transfer the liability would of the loss allowances based upon reviews take place between market participants at of individual loans and placements, recent the measurement date under current market loss experience, current economic conditions, conditions. the risk characteristics of the various categories of loans and other pertinent factors. 3.3 Provisions The use of the three stage model was Provision is recognized and measured for implemented for IFRS 9 purposes. commitments to extend credit and for The impairment methodology is used to warranties arising from banking activities classify financial instruments in order based on IFRS 9 Financial Instruments. to determine whether credit risk has signifi- Provision for these instruments is recognized cantly increased since initial recognition based on the credit conversion factor, which and to identify the credit-impaired assets. shows the proportion of the undrawn credit For instruments with credit-impairment line that will probably be drawn. or significant increase of credit risk lifetime Other provisions are recognized and measured expected losses will be recognized based on IAS 37 Provisions, Contingent (see more details in Note 36.1) Liabilities and Contingent Assets. The Group 124 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) is involved in a number of ongoing legal based on the strategic factors and financial disputes. Based upon historical experience data of its cash-generating units. In the and expert reports, the Group assesses the calculation of the goodwill impairment, also developments in these cases, and the the expectations about possible variations in likelihood and the amount of potential the amount or timing of those future cash-flows, financial losses which are appropriately the time value of money, represented by the provided for. (See Note 24.) current market risk-free rate of interest and Other provision includes provision for litiga- other factors are reflected. tion, provision for retirement and expected liabilities and provision for confirmed letter of credit. 3.5 Business model A provision is recognized by the Group when it has a present obligation as a result of a The financial assets held by the Group are past event, it is probable that an outflow of classified into three categories depending on resources embodying economic benefits will the business model within the financial assets be required to settle the obligation, and a are managed. reliable estimate can be made of the amount (cid:588) Business model whose objective is to hold of the obligation. financial assets in order to collect 3.4 Impairment on goodwill contractual cash-flows. Within this business model the Group manages mainly loans and advances and long-term securities and other financial assets. Goodwill acquired in a business combination (cid:588) Business model whose objective is achieved is tested for impairment annually or more by both collecting contractual cash-flows frequently when there is an indication that and selling financial assets. Within this the unit might be impaired, in accordance business model the Group only manages with IAS 36 “Impairment of assets”. securities. The Group calculates the fair value based on (cid:588) Business model whose objective is to discounted cash-flow model. The 3 year period achieve gains in a short-term period. explicit cash-flow model serves as a basis Within this business model the Group for the impairment test by which the Group manages securities and derivative financial defines the impairment need on goodwill instrument. NOTE 4: IMPACT OF CORONA VIRUS (COVID-19) Covid-19 has had substantial implications for 11 May 2020 only corporate loans exceeding the operations of the Group during 2020. Below HUF 1 billion can be used as collateral in the are some of the more important Covid-19 liquidity providing operations. related events that occurred by country of (cid:588)(cid:631) In addition to the 1, 3, 6 and 12-month tenders operation. Hungary announced every Monday in the same way, the NBH announced one-week FX-swap tenders providing forint liquidity on a daily basis from 17 March 2020 until further notice, in order to maintain the appropriate (cid:588)(cid:631) On 16 March 2020 the NBH decided to level of liquidity for the banking sector. expand the range of eligible collaterals with (cid:588)(cid:631) On 18 March 2020 the NBH took measures performing corporate loans. Effective from to support the operation of banks and IFRS consolidated financial statements 125 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) strengthen the banking system. Among tenor, together with the due instalments. others the NBH requested banks and their Following the moratorium, the tenor will owners to make sure that dividends are be prolonged in a way that the sum of the neither approved, nor paid until the end due instalment and the unpaid interest of September of 2020. during the moratorium (which is to be (cid:588)(cid:631) On 18 March 2020 the Prime Minister repaid in equal instalments) in total should of Hungary announced the first stage not exceed the instalment according to the of economic and job protection measures. original contract. Rules applicable to the The steps, among others, included: interest must also be applied to the fees. – a blanket debt repayment moratorium; The borrower’s participation was automatic, – the introduction of the annual percentage but the moratorium did not affect the rate “APR” caps on new consumer loans: debtors’ right to continue to pay according pursuant to the relevant Government to the original contractual terms. Decrees, APR is temporarily capped (cid:588)(cid:631) On its 24 March 2020 meeting the Monetary at central bank base rate + 5 pps in Council decided to introduce a new fixed- the case of loans to consumers that rate collateralized loan instrument with are not collateralized by a mortgage maturities of 3, 6 and 12 months and 3 and and are disbursed based on a contract 5 years. Lending will be provided by the concluded after 19 March 2020. NBH at a fixed interest rate (the NBH defines This provision must be applied until the interest rate of the instrument at each 31 December 2020, then following this tender, but the rate may not be lower than deadline the APR set out in the given the base rate). lender’s Terms & Conditions effective at (cid:588)(cid:631) On 1 April 2020 the NBH decided to the time of the signing of the contract announce one-week deposit tenders at will be applicable; a weekly frequency. The interest rate on – the extension of short-term business the instrument equals to the central bank loans until 30 June. base rate. (cid:588)(cid:631) Pursuant to Government Decree No. 47/2020. (cid:588)(cid:631) On 1 April 2020 the NBH announced that (III. 18.) and Government Decree No. 62/2020. effective from 1 July the capital buffer (III. 24.), a moratorium on payments was requirements for systemically important introduced in Hungary concerning both banks will be released. The banks must principal, interest and fee payment rebuild their capital buffer initially obligations arising from both credit, loan prescribed for 2020 gradually in three and finance lease amounts that have already years from 2022 onwards. At the time been disbursed until 18 March 2020. of the decision the O-SII buffer applicable The moratorium did not involve debt for OTP Bank was 2%. forgiveness element. The first moratorium (cid:588)(cid:631) On 4 April 2020 the Minister of Prime was effective until 31 December 2020. Minister's Office revealed that the The scope of the moratorium included, Government expects banks to contribute among others, both retail and corporate HUF 55 billion into the new epidemic debtors. Regarding details and technical fund. Pursuant to the Government Decree provisions, the non-paid interest during the 108/2020 published on 14 April, the new payment holiday cannot be capitalized to special tax levied on banks is to be paid in the outstanding principal (neither during the the 2020 tax year, in three equal instalments moratorium, nor afterwards). The amount (in June, September and December). of delayed interest accumulated during The base of the new special tax is that part the moratorium must be repaid after the of the adjusted total assets (as defined in moratorium in equal instalments, evenly the legislation on the “old” bank tax) that spread over the remaining years of the loan exceeds HUF 50 billion. The tax rate is 19 bps. 126 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:588)(cid:631) On 9 June 2020 the law allowing the Details of the programmes including the deductibility of the new special banking levy timing and strategic parameters were payable in 2020 was promulgated. The new revealed on 28 April: accordingly, the NBH once-off special banking tax will be returned launched its government securities and to the banking system over the next five mortgage bonds purchase programmes years through deductions from the nominal on 4 May 2020, and it will continue to amount of the “old” bank tax (in the form of purchase securities as long as economic tax withholding). and financial developments arising from (cid:588)(cid:631) The new special tax amounts to HUF 14.2 the coronavirus pandemic require it. billion in the case of the Hungarian Group The NBH did not set a total amount of members of OTP Group. Pursuant to IFRS purchases for either programme. standards, parallel with the accounting – The NBH launched the Funding for Growth of this new bank levy amongst the other Scheme Go! scheme on 20 April 2020. expenses, the Group recognized the net Including HUF 500 billion undrawn under present value of the related tax claims the FGS fix, the NBH made available up to amongst the other income. Therefore, the HUF 1,500 billion to the SME sector under new special tax did not materially affect the FGS Go!. the Group’s bottom line earnings neither in – Within the framework of the Bond Funding 2020, nor will it do so over the next 5 years. for Growth Scheme, the so far unutilized (cid:588)(cid:631) On 7 April 2020 the NBH adjusted its policy over HUF 200 billion was still available instruments and modified its operational for the NBH to purchase bonds issued by framework. The Monetary Council decided to non-financial corporations headquartered make the interest rate corridor symmetrical, in Hungary. and left the base rate and the overnight (cid:588)(cid:631) On 16 April 2020 the Minister of Finance deposit rate unchanged at 0.9% and –0.05%, revealed further tax concessions amounting respectively, and raised the overnight and to HUF 200 billion. Among others, the social one-week collateralized lending rates security contributions payable by employers to 1.85%. The one-week deposit rate, at the were cut to 15.5% from 17.5% effective from time of the announcement, was equal to July 2020. the 0.9% base rate; however, the Monetary (cid:588)(cid:631) On 2 July 2020, the NBH decided to expand Council decided to allow the interest rate the loan purposes available in the FGS Go! on the instrument to deviate from the structure. base rate upward or downward within the (cid:588)(cid:631) On 10 September 2020 the National Bank interest rate corridor. The NBH said that it of Hungary, in the wake of increased will set the interest rate on the instrument uncertainties amid the pandemic, called each week, at the time of the actual tender’s upon credit institutions to extend the announcement. previously applied restriction on dividend (cid:588)(cid:631) As part of the comprehensive set of payments and decisions, which was effective measures outlined by the NBH on 7 April until 30 September 2020, until 1 January 2021. 2020, it decided to (cid:588)(cid:631) On 22 September 2020 the NBH increased – launch a government security purchase the available amount under the Bond programme in the secondary market to Funding for Growth programme from restore the stable liquidity position of HUF 450 to 750 billion. the government securities market and (cid:588)(cid:631) As the utilisation of the Funding for Growth influence the longer part of the yield Go! scheme exceeded HUF 1,000 billion curve, and to relaunch its mortgage by mid-November, on 17 November 2020 bond purchase programme to improve the Monetary Council decided to raise the the long-term supply of funding to the total available amount by HUF 1,000 billion banking sector. (to HUF 2,500 billion). IFRS consolidated financial statements 127 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:588)(cid:631) As set out in Government Decree 518/2020. 2020 financial year, or from previous (XI. 25.), published in the Gazette on years’ profits, until 30 September 2021. 25 November 2020, starting from 1 January Furthermore, the central bank suggested 2021 the Hungarian Government provides a that credit institutions should refrain from non-refundable home renovation subsidy treasury share purchases for shareholder to families raising or expecting children by remuneration purposes until the same way of refunding certain part of their home date (share buybacks for management renovation costs. Eligible families can get remuneration purposes are an exemption). back 50% of their proven improvement The related guideline was set out in expenses following the completion of the a management circular published on renewal, but maximum HUF 3 million. 8 January 2021. The subsidy can be applied for within 60 days – The NBH decided to amend the relevant after completing the home renovation and detailed guidelines set out in its IFRS also paying the bills by the families, or until circular about the application of non- 31 December 2022 the latest. performing and forborne categories in (cid:588)(cid:631) On 19 December 2020 the Prime Minister connection with the payment moratorium, announced the following measures directly and based on this, its guidelines for affecting banking operations: creating provisions. The amended circular – Extension of the payment moratorium in was released on 22 January 2021. unchanged form: pursuant to Government (cid:588)(cid:631) Effective from 13 January 2021 the National Decree 637/2020. (XII. 22.) those borrowers Bank of Hungary extended the available are eligible for the moratorium effective amount for the Bond Funding for between 1 January 2021 –30 June 2021 Growth scheme by HUF 750 billion to that have principal, interest and fee HUF 1,150 billion. At the same time it payment obligations arising from a credit decided to increase the maximum maturity contract that have already been disbursed of corporate bonds that can be purchased until 18 March 2020 (also considering by the central bank from 20 to 30 years. Subsection [1] of Section 3 of Act CVII Also, the central bank’s exposure limit of 2020). With the above Decree the to a company group was revised from eligibility conditions stipulated in Act CVII HUF 50 billion to HUF 70 billion. of 2020 (published on 28 October 2020) (cid:588)(cid:631) On 4 February 2021 the Prime Minister for retail and corporate borrowers were announced an interest-free loan programme repealed. for companies in trouble in the wake of the – Subsidized home renovation loan: pandemic. According to Government in order to help eligible families to take Resolution 1038/2021. (II. 5.) the programme advantage of the non-refundable home will be administered by the Hungarian renovation subsidy (for details, see Development Bank, and the available Government Decree 518/2020. [XI. 25.]), amount under the programme will be a subsidized home renovation loan HUF 100 billion. Companies can take out (for details, see Government Decree maximum HUF 10 million each for the 641/2020 [XII. 22.]) was introduced purpose of covering wages and social by the Government. contributions, overhead costs, general (cid:588)(cid:631) On 28 December 2020 the National Bank operating expenses and inventory financing. of Hungary announced that the following Client interest rate is 0%, the loan tenor decisions were made: can be up to 10 years, and the servicing – The central bank recommended credit of the loan will start after a 3 year grace institutions not to pay dividends or not period. The scope of eligible entities will to make any irrevocable commitment be discussed with the Hungarian Chamber to pay dividends after the 2019 and of Commerce and Industry. 128 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Bulgaria (cid:588)(cid:631) On 11 December 2020, the National Bank of Bulgaria approved the extension of the debt (cid:588)(cid:631) On 19 March 2020 the Bulgarian National repayment moratorium. The deadline to Bank (BNB) announced its decisions with the apply for the moratorium is 23 March 2021. aim to strengthen the capital and liquidity Borrowers can take advantage of the position of the banking system: deferral until 31 December 2021, but for – to cancel the increase of the countercyclical maximum nine months altogether. Debtors capital buffer to 1% planned for 2020 and who are not more than 90 days past due to 1.5% planned for 2021; at the application date can benefit from – credit institutions shall not distribute the moratorium. In cases where the request dividends from the 2019 realized profit nor for deferral was submitted before distribute other elements of the capital 30 September 2020, further deferral is which are retained from the financial possible, provided that the total duration of results from previous years. the moratorium does not exceed nine months. (cid:588)(cid:631) On 24 March 2020 key tax and spending measures were implemented: it was dis- allowed to accrue penalty interest and to Croatia carry out any action that may have negative consequences for borrowers due to non- (cid:588)(cid:631) On 20 March 2020 the Croatian National payment. Legal enforcement and eviction Bank (HNB) imposed measures on credit procedures were also frozen during the institutions regarding the retention of net emergency period. income for 2019. (cid:588)(cid:631) On 10 April 2020 the BNB approved the draft (cid:588)(cid:631) On 20 March 2020 the HNB reduced the of the payment moratorium, which provides mandatory reserve requirement ratio from specific terms of the deferred payment. 12 to 9%, and started purchasing Republic Accordingly, banks could voluntarily offer of Croatia bonds with an aim of maintaining the moratorium to their clients. The eligible stability in the market of government clients are those private individuals or securities. companies who did not have more than (cid:588)(cid:631) A payment moratorium on loans has not been 90 days of delay as at 1 March 2020, and implemented in Croatia through legislation. have faced difficulties in meeting their Therefore, the application for moratorium obligations due to the Covid-19 pandemic. is voluntary and has to be requested by the Participation was not automatic, clients had client. to indicate their intention to participate. (cid:588)(cid:631) However, on 1 April 2020 the Croatian Banking (cid:588)(cid:631) On 10 July 2020 Bulgaria officially joined Association outlined a non-binding regime the ERM-II currency mechanism. which could serve as a basis for setting the (cid:588)(cid:631) On 14 July 2020 the Bulgarian National Bank conditions of banks’ own moratoria offered decided to extend the deadlines of the mor- to their clients. atorium on payments. Accordingly, the dead- (cid:588)(cid:631) Furthermore, all banks agreed not to initiate line for submitting a request by customers forced collection measures for the collection for postponing payments and their approval of debt from their debtors who, in the period by banks was extended until 30 September of three months starting from April 2020, 2020; the deadline for postponing payments failed to meet their payment obligations. was extended until 31 March 2021. The exten- The measure applied to both legal and sion of the deadlines applies to exposures for natural persons. which no request for moratorium participa- (cid:588)(cid:631) On 10 July 2020 Croatia officially joined the tion was submitted before 22 June 2020. ERM-II currency mechanism. (cid:588)(cid:631) DSK Bank is supervised by the ECB starting (cid:588)(cid:631) On 1 October 2020, the loan repayment from 1 October 2020. moratorium was extended (applications IFRS consolidated financial statements 129 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:2)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) will be accepted until 31 March 2021). moratorium. Payment moratorium could The extension of the moratorium is available be granted at the request of customers, to customers whose primary source of in the case of loans disbursed before the income is the tourism sector, those living in declaration of an emergency, for both earthquake-hit areas, and whose income has retail and corporate customers. Banks decreased by at least 30% compared to 2019. were obliged to provide a moratorium The duration of the moratorium can be up on loan repayments if the debtor proves to 9 months except for those living in the that it had payment difficulties due to the area affected by the earthquake, for those epidemiological situation. The suspension borrowers it is 12 months. of repayment may not exceed 12 months, Serbia the original term being extended by the duration of the suspension. (cid:588)(cid:631) On 10 April 2020 the Bank of Slovenia issued the Resolution on macroprudential measures (cid:588)(cid:631) On 18 March 2020 the National Bank for banks, in which it imposed restrictions on of Serbia adopted decisions imposing a dividend and bonus payments. moratorium on debt payments: (cid:588)(cid:631) At the end of 2020 the option to apply for a) the moratorium was available for all the moratorium has been extended to debtors (natural persons, farmers and 26 February 2021. Banks have to approve entrepreneurs, corporates); applications until 31 March 2021. After the b) it implied a suspension of debt payments approval by the bank, the deferral of for at least 90 days and/or for the duration payments for eligible borrowers can be of the emergency state; 9 months. c) lessors will not charge any default interest on past due outstanding receivables and will not initiate enforcement or enforced Romania collection procedures, or take other legal actions to collect receivables from their (cid:588)(cid:631) On 24 March 2020 the National Bank of clients. Romania (NBR) allowed banks to operate (cid:588)(cid:631) On 27 July 2020 National Bank of Serbia has with a capital level excluding the capital adopted a regulation that offers borrowers buffer requirements. one more suspension in the settlement of (cid:588)(cid:631) On 24 March 2020 the NBR decided to allow their liabilities to banks, maturing in the period banks to operate with a Liquidity Coverage between 1 August 2020 and 30 September Ratio (LCR) below its minimum threshold 2020, as well as a suspension in the payment (100%). of liabilities that matured in July 2020, and (cid:588)(cid:631) Starting from 30 March 2020 a moratorium which the borrower has not settled. on loan payments was introduced. Based on (cid:588)(cid:631) In December 2020 the Serbian central bank client request, payment obligations arising decided to introduce the third round of from loans (including capital, interest and payment moratorium with an effect between fees) could be suspended for maximum 1 January – 30 June 2021. The participation is 9 months, but until 31 December 2020 the opt-in. The deadline for submitting request latest. by borrowers is 30 April 2021. (cid:588)(cid:631) Conditions for the applicant include that Slovenia the income of the debtor was directly or indirectly affected by the pandemic. Legal entities had to prove that their activities were interrupted fully or partially; they (cid:588)(cid:631) On 20 March 2020 the Slovenian Parliament suffered a more than 25% income decrease passed an act regarding the debt payment in March compared to the average of 130 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) January and February 2020; and that they (cid:588)(cid:631) In June 2020 Ukraine made a USD 5 billion were not in insolvency at the date of the deal with the IMF, which was designed to request. help the Ukrainian economy overcome the (cid:588)(cid:631) In May 2020 the deadline for applying for shocks of the coronavirus crisis. the moratorium was extended by one month, (cid:588)(cid:631) In September the NBU pre-announced to 15 June. plans to increase risks weights on consumer (cid:588)(cid:631) On 2 April, based on the European Central lending from 100% up to 150% starting in Bank advice, the NBR recommended the second half of 2021. local commercial banks not to distribute dividends in 2020. (cid:588)(cid:631) On 30 December 2020 the government Russia decided to prolong the loan repayment moratorium, but borrowers can spend (cid:588)(cid:631) Through March and April, the Central Bank altogether up to 9 months in the moratoria. of Russia (CBR) engaged in repo auctions The application deadline is 15 March 2021 of more than 2,000 billion rubles to ensure and requests should be processed by sufficient liquidity in the banking sector. 31 March. Ukraine On 20 March the suspension of add-on risk weights was introduced by the CBR in case of restructured loans, mortgage loans, loans under equity construction contracts, and loans with low down payments. (cid:588)(cid:631) On 30 January 2020 the National Bank of (cid:588)(cid:631) To support lending, effective until 1 January Ukraine (NBU) decided to lower the base rate 2021, the CBR entitled credit institutions by 250 bps, from 13.5% to 11%. The referemce to recognize equity and debt securities, rate was further cut to 10% on 23 March, acquired before 1 March 2020, at fair value followed by another 200 bps cut to 8% on in the accounting records; and to recognize 23 April. Effective from 12 June the base rate debt securities, acquired from 1 March 2020 was further reduced by 200 bps to 6%. through 30 September 2020, at fair value as (cid:588)(cid:631) On 25 March 2020 the NBU delayed the of the acquisition date. schedule for banks to create the following (cid:588)(cid:631) On 27 March CBR announced that banks do capital buffers: not have to increase loan loss provisions – the capital conservation buffer, which was if the loan was restructured due to to be created from 1 January 2020 in the consequences of the pandemic. amount of 0.625% of regulatory capital and (cid:588) The period from 30 March until 30 April was would gradually rise to 2.5% by 1 January declared a nationwide paid holiday (banks 2023 according to the original schedule; were recognized as continuously working – the systemically important institutions organizations). This period was later buffer, which originally was to be created extended until 12 May. the banks from 1 January 2021. (cid:588) Starting from 3 April a debt repayment (cid:588)(cid:631) The NBU recommended banks to refrain holiday came into effect for private from paying out dividend until October 2020 individuals, sole proprietors and SMEs (later extended until the end of 2020). facing difficulties in connection with the (cid:588)(cid:631) On 30 March 2020 the Ukrainian Parliament coronavirus epidemic. Borrowers were able adopted a prohibition on lenders to increase to apply at the lender for a moratorium interest rates under loan agreements for on their mortgage and consumer loan the duration of the pandemic. The law payments (including interest and principal) forbids the banks from charging any penal- for up to six months if their respective ties and fines on consumer loans during income fell by at least 30% in the month this period. preceding the application compared with IFRS consolidated financial statements 131 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) the average monthly income in the previous (cid:588)(cid:631) On 20 January 2021 the Central Bank year. Applications could be registered until of Russia published its 2021–2022 road 30 September 2020. map for regulating consumer lending, (cid:588)(cid:631) During the second quarter of 2020 the CBR as a result loosening measures taken in cut the policy rate in three steps by 125 bps 2020 to facilitate lending will be reversed to 4.5%, and on 24 July a futher 25 bps cut through higher risk weights being was announced. introduced. (cid:588)(cid:631) On 10 August 2020 the CBR announced that it reduced risk weights for unsecured The following table below shows the consumer loans issued after 1 September volume of loans in moratorium as 2020, and cancelled additional capital at 31 December 2020 in OTP Group and requirements for consumer loans issued the ratio of these loans of the portfolio until 31 August 2019. by countries: Current volume in moratorium (million LCY) Current volume in moratorium (million HUF) Gross loans (million HUF) Current participation ratio OTP Core Merkantil Group DSK Bank EAD (Bulgaria) OTP banka d.d. (Croatia) JSC “OTP Bank” (Russia) SKB Banka d.d. Ljubljana (Slovenia) OTP Bank Romania S.A. (Romania) Crnogorska komercijalna banka a.d. (Montenegro) Total 1,760,231 120,379 60 3,372 734 150 545 13 1,760,231 120,379 11,190 163,052 2,907 4,631,974 416,987 2,634,870 1,642,170 597,849 54,835 909,439 40,853 861,393 4,589 362,067 2,158,036 12,056,749 38.00% 28.87% 0.42% 9.93% 0.49% 6.03% 4.74% 1.27% Financial assets modified during the period related to moratorium for the year ended 31 December 2020: Gross carrying amount before modification Loss allowance before modification Net amortised cost before modification Modification loss due to covid moratoria Net amortised cost after modification 2020 Hungary 1,119,943 (61,445) 1,058,498 (26,774) 1,031,724 Serbia 53,080 (9,881) 43,199 (239) 42,960 132 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANKS (in HUF mn) Cash on hand In HUF In foreign currency Amounts due from banks and balances with the National Banks Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total Compulsory reserve set by the National Banks Cash and cash equivalents 2020 2019 113,492 372,972 486,464 208,074 1,675,628 1,883,702 – 62,146 62,146 2,432,312 (757,535) 1,674,777 186,172 337,245 523,417 79,295 1,130,023 1,209,318 – 51,643 51,643 1,784,378 (734,641) 1,049,737 NOTE 6: PLACEMENTS WITH OTHER BANKS, NET OF LOSS ALLOWANCE FOR PLACEMENTS (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Loss allowance on placements Total An analysis of the change in the loss allowance on placements with other banks is as follows: Balance as at 1 January Loss allowance for the period Release of loss allowance for the period Foreign currency translation difference Closing balance Interest conditions of placements with other banks: 2020 2019 251,206 729,249 980,455 136,418 33,359 169,777 (1,489) 1,148,743 2020 478 16,476 (15,629) 164 1,489 35,804 194,985 230,789 102,048 10,563 112,611 (478) 342,922 2019 485 3,463 (3,602) 132 478 Interest rates on placements with other banks denominated in HUF Interest rates on placements with other banks denominated in foreign currency Average interest rates on placements with other banks (%) 2020 2019 0.0%–3.84% (1.5)%–3.84% (17.33)%–5.50% (2.39)%–15.5% 0.70% 2.06% * Foreign subsidiary banks within the Group have to comply with country specific regulation of local National Banks. Each country within the Group has its own regulation for compulsory reserve calculation and maintenance. Based on that banks are obliged to place compulsory reserve at their National Bank in a specified percentage of their liabilities considered in compulsory reserve calculation. IFRS consolidated financial statements 133 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 7: REPO RECEIVABLES (in HUF mn) Within one year: In HUF In foreign currency Loss allowance on repo receivables Total 2020 183,656 7,485 191,141 (292) 190,849 An analysis of the change in the loss allowance on repo receivables is as follows: Balance as at 1 January Loss allowance for the period Release of loss allowance for the period Foreign currency translation difference Closing balance 2020 62 362 (125) (7) 292 2019 45,545 21,674 67,219 (62) 67,157 2019 12 98 (48) – 62 Interest conditions of repo receivables: Interest rates on repo receivables denominated in HUF Interest rates on repo receivables denominated in foreign currency 2020 (0.1)%–0.9% 2019 (0.1)%–0.715 % (0.55)%–4.15% (0.25)%–16.0% NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) Securities held for trading: Government bonds Discounted Treasury bills Equity instruments and fund units Other interest bearing securities Other non-interest bearing securities Non-trading securities mandatorily at fair value through profit or loss Equity instruments, open-ended fund units Bonds Debt securities designated at fair value through profit or loss Total 2020 38,036 12,721 3,740 2,075 – 56,572 46,063 11,514 57,577 2,235 2019 71,194 50 1,076 20,212 7,516 100,048 34,915 4,402 39,317 2,001 116,384 141,366 134 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Positive fair value of derivative financial assets held for trading: Foreign exchange swaps held for trading Interest rate swaps held for trading Foreign exchange forward contracts held for trading CCIRS and mark-to-market CCIRS held for trading* Held for trading option contracts Held for trading forward security agreement Held for trading forward rate agreements Other derivative transactions held for trading** Total Total An analysis of securities held for trading portfolio by currency: Denominated in HUF Denominated in foreign currency Total An analysis of government bond portfolio by currency: Denominated in HUF Denominated in foreign currency Total Interest conditions of held for trading securities: 2020 42,646 36,922 8,730 7,359 4,268 22 – 17,676 117,623 234,007 2020 19.7% 80.3% 100.0% 2020 16.9% 83.1% 100.0% 2019 35,602 61,198 3,543 1,216 3,404 5 13 5,643 110,624 251,990 2019 27.8% 72.2% 100.0% 2019 25.7% 74.3% 100.0% Interest rates on securities held for trading denominated in HUF Interest rates on securities held for trading denominated in foreign currency 2020 0.5%–7.0% 2019 0.16% –7.50% 0.38%–6.38% 0.01%–8.25% Interest conditions and the remaining maturities of securities held for trading can be analysed as follows: Within one year: With variable interest With fixed interest Over one year: With variable interest With fixed interest Non-interest bearing securities Total 2020 78 17,147 17,225 1,370 34,237 35,607 3,740 56,572 2019 124 24,496 24,620 1,046 65,790 66,836 8,592 100,048 * CCIRS: Cross Currency Interest Rate Swaps (see Note 2.6.3). ** Other category includes: commodity and equity swaps, exchange traded futures and options. IFRS consolidated financial statements 135 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Interest conditions and the remaining maturities of non-trading securities mandatorily measured at fair value through profit or loss are as follows: Within one year: With variable interest With fixed interest Over one year: With variable interest With fixed interest Non-interest bearing securities Total Dividend income from shares measured at fair value through profit or loss 2020 – – – – 5,492 5,492 52,085 57,577 75 2019 – 866 866 25 3,511 3,536 34,915 39,317 5,728 An analysis of non-trading securities mandatorily measured at fair value through profit or loss portfolio by currency: Denominated in HUF Denominated in foreign currency Total Interest rates on non-trading securities mandatorily measured at fair value through profit or loss 2020 57.1% 42.9% 100.0% 2019 70.6% 29.4% 100.0% 0.0%–2.50% 0.0%–4.95% NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) Securities at fair value through other comprehensive income Government bonds Mortgage bonds Corporate bonds Listed securities: In HUF In foreign currency Non-listed securities: In HUF In foreign currency Discounted Treasury bills Total Non-trading equity instruments to be measured at fair value through other comprehensive income Listed securities: In HUF In foreign currency Non-listed securities: In HUF In foreign currency Total 2020 2019 1,855,134 88,272 81,620 2,968 52,633 55,601 16,782 9,237 26,019 76,358 2,101,384 – 4,931 4,931 539 29,855 30,394 35,325 2,136,709 1,772,612 97,268 73,062 2,999 46,486 49,485 18,516 5,061 23,577 443,690 2,386,632 – 5,443 5,443 539 34,165 34,704 40,147 2,426,779 136 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of securities at fair value through other comprehensive income by currency: Denominated in HUF Denominated in foreign currency Total 2020 36.6% 63.4% 100.0% 2019 47.8% 52.2% 100.0% Detailed information of the non-trading equity instruments to be measured at fair value through other comprehensive income: Strategic investments closely related to banking actitvity Fair value Dividend income from instruments held at the reporting date Strategic investments originated to offset outstanding Fair value Dividend income from instruments held at the reporting date Other strategic investments Fair value Dividend income from instruments held at the reporting date Derecognition Fair value of derecognized equity instrument, fund units Dividend income from derecognized instruments Cumulative gain/loss on disposal transferred to retained earnings Total Total fair values Dividend income from instruments held at the reporting date Fair value of derecognized equity instrument, fund units Dividend income from derecognized instruments Cumulative gain/loss on disposal transferred to retained earnings 2020 27,502 180 2,637 5 5,186 38 – – – 35,325 223 – – – 2019 27,621 200 2,091 – 10,435 36 3,002 7 1,613 40,147 236 3,002 7 1,613 An analysis of government bonds by currency: Denominated in HUF Denominated in foreign currency Total 2020 35.8% 64.2% 100.0% 2019 39.5% 60.5% 100.0% Interest conditions of securities at fair value through other comprehensive income: Interest rates on securities at fair value through other comprehensive income denominated in HUF Interest rates on securities at fair value through other comprehensive income denominated in foreign currency Average interest rates securities at fair value through other comprehensive income denominated in HUF (%) Average interest rates on securities at fair value through other comprehensive income denominated in foreign currency (%) 2020 2019 0.5%–7.5% 0.16%–7.5% 0.0%–18.0% 0.25%–17.25% 2.17% 2.34% 1.96% 2.24% (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 137 Interest conditions and the remaining maturities of securities at fair value through other comprehensive income can be analysed as follows: Within one year: With variable interest With fixed interest Over one year: With variable interest With fixed interest Non-interest bearing securities Total 2020 2019 4,780 346,928 351,708 62,068 1,687,608 1,749,676 35,325 2,136,709 7,799 878,644 886,443 60,974 1,439,215 1,500,189 40,147 2,426,779 Certain securities are hedged against interest rate risk. See Note 36.4. NOTE 10: SECURITIES AT AMORTIZED COST (in HUF mn) Government bonds Corporate bonds Discounted Treasury bills Mortgage bonds Loss allowance on securities at amortized cost Total 2020 2,545,476 74,632 10,469 – 2,630,577 (5,657) 2,624,920 2019 1,933,837 22,719 6,516 7,739 1,970,811 (2,739) 1,968,072 Interest conditions and the remaining maturities of securities at amortized cost can be analysed as follows: Within one year: With variable interest With fixed interest Over one year: With variable interest With fixed interest Total An analysis of securities at amortized cost by currency: Denominated in HUF Denominated in foreign currency Total 2020 2019 – 156,532 156,532 – 2,474,045 2,474,045 2,630,577 – 261,358 261,358 – 1,709,453 1,709,453 1,970,811 2020 86.9% 13.1% 100.0% 2019 86.5% 13.5% 100.0% 138 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Interest conditions of securities at amortized cost: Interest rates of securities at amortized cost with variable interest Interest rates of securities at amortized cost with fixed interest Average interest rates on securities at amortized cost (%) 2020 – 2019 – 0.5%–7.0% 0.5%–13.5% 2.83% 3.36% An analysis of the change in the loss allowance on securities at amortized cost is as follows: Balance as at 1 January Loss allowance for the period Release of loss allowance Use of loss allowance Foreign currency translation difference Closing balance 2020 2,739 6,863 (4,061) 12 104 5,657 2019 2,939 593 (755) (52) 14 2,739 NOTE 11: LOANS AT AMORTIZED COST AND AT FAIR VALUE (in HUF mn) Loans at amortized cost: Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Loss allowance on loans Total 2020 1,154,223 2,445,006 3,599,229 2,002,814 6,902,342 8,905,156 12,504,385 (829,543) 11,674,842 2019 Revised 2019 As previously presented 1,040,207 2,127,581 3,167,788 1,761,761 6,168,291 7,930,052 11,097,840 (684,319) 10,413,521 1,068,899 2,127,581 3,196,480 2,205,543 6,168,291 8,373,834 11,570,314 (693,317) 10,876,997 An analysis of the gross loan portfolio at amortized cost by currency: In HUF In foreign currency Total 2020 25.25% 74.75% 100.0% 2019 Revised 25.25% 74.75% 100.0% 2019 As previously presented 28.30% 71.70% 100.0% (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:22)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 139 Interest rates of the loan portfolio at amortized cost are as follows: Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Average interest rates on loans at amortized cost denominated in HUF (%) Average interest rates on loans at amortized cost denominated in foreign currency (%) 2020 2019 0.0%–47.7%* 0.0%–37.5%* (0.5)%–90.0%** (0.45)%–90.0%** 0.0%–37.45%* 0.0%–37.45%* (0.5)%–60.0%** (0.45)%–90.0%** 6.04% 5.56% 6.13% 5.76% An analysis of the change in the loss allowance on loans is as follows: Balance as at 1 January Reclassification Opening change due to finance lease Balance as at 1 January Loss allowance for the period Release of loss allowance Use of loss allowance Partial write-off*** Decrease due to IFRS 5 Foreign currency translation difference Closing balance 2020 684,319 – – 684,319 650,165 (382,800) (100,711) (12,503) – (8,927) 829,543 2019 Revised 685,364 (4,483) (9,005) 671,876 488,802 (290,134) (94,458) (112,198) (27,616) 48,047 684,319 2019 As previously presented 685,364 – (9,005) 676,359 480,962 (277,779) (94,458) (112,198) (27,616) 48,047 693,317 Movement in loss allowance on loans and placements is summarized as below: Loss allowance/(Release of loss allowance) on placements and gains from write-off and sale of placements Loss allowance on loans and gains from write-off and sale of loans Total**** 2020 2019 Revised 2019 As previously presented 789 (235) (235) 192,506 193,295 43,888 43,653 44,027 43,792 Loans mandatorily at fair value through profit or loss: Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total 2020 48,770 – 48,770 750,211 3,624 753,835 802,605 2019 Revised 27,166 – 27,166 466,042 3,070 469,112 496,278 2019 As previously presented 2,566 – 2,566 27,166 3,070 30,236 32,802 * The highest interest rate relates to HUF loans regarding purchasing products and services. ** The highest interest rate relates to loans in foreign currency regarding POS services in Russia. *** See details in Note 2.11. **** See details in Note 31. 140 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of the loan portfolio mandatorily at fair value through profit or loss by currency: In HUF In foreign currency Total 2020 99.55% 0.45% 100.00% 2019 Revised 99.38% 0.62% 100.00% 2019 As previously presented 90.64% 9.36% 100.00% Interest rates of the loan portfolio mandatorily at fair value through profit or loss are as follows: Interest rates on loans denominated in HUF Interest rates on loans denominated in foreign currency 2020 0.77%–12.83% 2.5%–7.89% 2019 1.19%–10.08% 2.5%–4.5% NOTE 12: ASSOCIATES AND OTHER INVESTMENTS (in HUF mn) Investments Investments in associates (non-listed) Other investments (non-listed) Impairment on investments Total 2020 14,149 44,158 58,307 (5,864) 52,443 2019 14,254 15,384 29,638 (8,816) 20,822 The investments in associates and other are not significant neither on their own as investments which are not consolidated separate entities nor in aggregate. An analysis of the change in the impairment on investments is as follows: Balance as at 1 January (Release of impairment )/Impairment for the period Reclassification to securities at fair value through other comprehensive income Foreign currency translation difference Closing balance 2020 8,816 (381) (2,654) 83 5,864 2019 5,592 3,342 (80) (38) 8,816 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 141 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) For the year ended 31 December 2020: Cost Intangible assets Goodwill Property Office equipment Vehicle Construction in progress Balance as at 1 January Additions Foreign currency translation differences Disposals Reclassified as held for sale Closing balance 320,749 92,313 111,687 1,413 279,538 7,342 192,369 27,533 23,079 2,208 7,769 (5,319) 12,987 4,094 215 22,717 36,835 538 (56,183) (6,388) (14,361) (11,737) (1,609) (36,687) (12,061) (139,026) (153) – – (154) – – – (307) 364,495 101,393 285,506 212,105 23,893 23,403 28,926 1,039,721 Tangible assets subject to operating lease 31,799 6,586 Total 981,938 174,230 2,602 22,886 Depreciation and amortization Intangible assets Property Office equipment Vehicle Balance as at 1 January Charge for the period Foreign currency translation differences Disposals Reclassified as held for sale Closing balance 183,026 44,115 3,875 (6,733) (103) 224,180 71,085 8,981 2,540 (4,853) – 77,753 139,813 22,195 2,681 (9,302) (95) 155,292 5,508 1,570 150 (987) – 6,241 Impairment Intangible assets Goodwill Property Office equipment Balance as at 1 January Charge for the period Foreign currency translation differences Disposals Closing balance 803 2,328 85 (512) 2,704 6,388 – – (6,388) – – 1,601 129 (608) 1,122 1,337 – 5 (1,300) 42 Carrying value Intangible assets Goodwill Property Office equipment Vehicle Construction in progress Tangible assets subject to operating lease 10,889 5,064 Total 410,321 81,925 1,113 10,359 (6,787) – 10,279 (28,662) (198) 473,745 Total 8,968 3,929 253 (8,944) 4,206 Total Tangible assets subject to operating lease 440 – 34 (136) 338 Tangible assets subject to operating lease Balance as at 1 January Closing balance 136,920 105,299 208,453 51,219 17,571 137,611 101,393 206,631 56,771 17,652 22,717 23,403 20,470 562,649 18,309 561,770 Carrying value of the investment and goodwill allocated to the appropriate cash generating units: Subsidiaries DSK Bank EAD* (Bulgaria) OTP banka d.d. (Croatia) JSC “OTP Bank” (Russia) POK-DSK Rodina a.d. (Bulgaria) n o i l l i m F U H n i y r a i d i s b u s e h t f o s t n u o m a g n i y r r a C 280,692 205,349 124,410 943 n o i l l i m F U H n i s e u l a v l l i w d o o G 42,984 21,196 37,202 11 611,394 101,393 y c n e r r u c n i s e u l a v l l i w d o o G l a n o i t c n u f n o i l l i m 28,541 58 9,395 11 y c n e r r u c l a n o i t c n u f f o e p y T HUF EUR RUB HUF * DSK Bank EAD after merge with the previous Expressbank. 142 OTP Bank Annual Report 2020 d e t a d i l o s n o C t s e r e t n i i p h s r e n w o i p h s r e n w o h t i W d e i l p p A m r e t - g n o l e t a r w o r g y n a p m o c d e t s u d a j n o i l l i m F U H n i e u l a v 99.91% 717,318 100% 97.91% 99.75% 336,403 173,315 941 3.00% 2.69% 1.89% 3.00% d e i l p p A m r e t - g n o l e t a r t n u o c s i d 8.13% 9.37% 13.26% 8.13% (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of the intangible assets for the year ended 31 December 2020 is as follows: Intangible assets Gross values Accumulated amortization Impairment Carrying value Self-developed 8,117 (3,675) – 4,442 Purchased 356,378 (220,505) (2,704) 133,169 Total 364,495 (224,180) (2,704) 137,611 The Bank decided that the recoverable amount tax profit of the companies. The calculation is of goodwill is determined based on fair value highly sensitive to the level of discount rate less cost of disposal. When the Bank prepares and growth rate used. For calculating the goodwill impairment tests of the subsidiaries, discount factor as risk free rates in case of the method which is used based on discounted OTP Bank JSC (Ukraine) the government bond cash-flow calculation. On one hand is the free yield in foreign currency with a period of three cash-flow method (FCF) that calculates the year was applied, while in case of the other value of the subsidiaries by discounting their subsidiaries the ten-year local government expected cash-flow; on the other hand the bonds in foreign currency or swap yields were economic value added (EVA) method estimates considered as presented in the actual macro the value of the subsidiaries from the initial forecasts. The Bank calculated risk premiums invested capital and the present value of on the basis of information from the country the economic profit that the companies are risk premiums that are published by Aswath expected to generate in the future. Damodaran – New York STERN University, which were modified with CDS spread in On the basis of the internal regulation of case of Crnogorska komercijalna banka a.d., the Bank as at 31 December 2020 impairment since according to the Bank’s assumption test was prepared where a three-year cash-flow the risk free interest rate includes the country- model was applied with an explicit period dependent risks in an implicit way. In case between 2021–2023. The basis for the the subsidiary owns subordinated debt, the estimation was the financial preliminary discount rate is calculated as a weighted estimations for December 2020, and based average of the expected return on equity on the prepared medium-term (2021–2023) presented previously and the subordinated forecasts. When the Bank prepared the debt’s interest rate. calculations for the period 2021–2023, it The growth rate in the explicit period is considered the actual worldwide economic the growth rate of the profit after tax situations, the expected economic growth adjusted by the interest rate of the cash and for the following years, their possible effects subordinated loans. The supposed growth on the financial sector, the plans for growing rates for the periods of residual values reflect which result from these, and the expected the long-term economic expectations in case changes of the mentioned factors. In case of every country. of OTP Bank Romania S.A. a five-year explicit The values of the subsidiaries in the FCF period (2021–2025) was used to be able method were then calculated as the sum of to include the expected effects of the local the discounted cash-flows of the explicit strategic growth program more in detail. period, the present value of the terminal This five year period presents the achievement values and the initial free capital assuming of a supposedly stable cost to income ratio, an effective capital structure. a stabilized risk cost ratio and a positive free cash-flow to equity (FCFE). Present value calculation with the FCF method The Bank calculated the expected cash-flow for Summary of the impairment test for the year ended 31 December 2020 Based on the valuations of the subsidiaries as at 31 December 2020 no goodwill impairment was needed to recorded by the given period based on the expected after the Group. IFRS consolidated financial statements 143 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) For the year ended 31 December 2019: Cost Intangible assets Goodwill Property Office equipment Vehicle Construction in progress 225,541 97,728 239,639 174,060 20,980 – 38,869 7,132 6,776 7,298 16,565 24,827 6,144 4,804 513 3,374 313 Balance as at 1 January Increase due to acquisition Additions Foreign currency translation differences Disposals Reclassified as held for sale Change in consolidation scope Closing balance 47,100 64,019 12,405 (16,407) (12,692) 783 (115) (12,517) (11,075) (2,101) (55,837) (16,422) (114,474) – – (9,188) (7,646) 26 267 – – (91) 4 – – (29,617) 1,080 320,749 111,687 279,538 192,369 23,079 22,717 31,799 981,938 Tangible assets subject to operating lease 37,845 Total 818,674 2,197 98,057 7,301 175,928 878 32,290 22,881 2,246 53,066 448 Depreciation and amortization Intangible assets Property Office equipment Balance as at 1 January Charge for the period Foreign currency translation differences Disposals Reclassified as held for sale Change in consolidation scope Closing balance Impairment Balance as at 1 January Charge for the period Foreign currency translation differences Disposals Closing balance 148,396 35,247 831 – (1,619) 171 183,026 Intangible assets 2,200 803 – (2,200) 803 68,223 7,830 2,932 (3,016) (4,885) 1 71,085 130,063 18,944 4,135 (7,473) (6,021) 165 139,813 Vehicle 5,439 1,508 140 (1,579) – – 5,508 Goodwill Property Office equipment 5,962 6,388 – (5,962) 6,388 28 – (28) – 34 1,294 9 – 1,337 Carrying value Intangible assets Goodwill Property Office equipment Vehicle Construction in progress Balance as at 1 January Closing balance 74,945 136,920 91,766 105,299 171,388 208,453 43,963 51,219 15,541 17,571 22,881 22,717 Tangible assets subject to operating lease 14,467 5,397 Total 366,588 68,926 110 8,148 (9,085) – – 10,889 Tangible assets subject to operating lease 585 1,991 12 (2,148) 440 Tangible assets subject to operating lease 22,793 20,470 (21,153) (12,525) 337 410,321 Total 8,809 10,476 21 (10,338) 8,968 Total 443,277 562,649 Carrying value of the investment and goodwill allocated to the appropriate cash generating units: Subsidiaries DSK Bank EAD* (Bulgaria) Expressbank AD (Bulgaria) OTP banka d.d. (Croatia) JSC “OTP Bank” (Russia) POK-DSK Rodina a.d. (Bulgaria) n o i l l i m F U H n i y r a i d i s b u s e h t f o s t n u o m a g n i y r r a C 280,692 177,638 205,349 124,409 n o i l l i m F U H n i s e u l a v l l i w d o o G 28,541 13,030 19,187 44,530 y c n e r r u c n i s e u l a v l l i w d o o G l a n o i t c n u f n o i l l i m 28,541 77 58 9,395 943 11 11 789,031 105,299 y c n e r r u c l a n o i t c n u f f o e p y T HUF BGN EUR RUB HUF * DSK Bank EAD after merge with the previous Expressbank. 144 OTP Bank Annual Report 2020 d e t a d i l o s n o C t s e r e t n i i p h s r e n w o i p h s r e n w o h t i W y n a p m o c d e t s u d a j n o i l l i m F U H n i e u l a v 100.00% 99.74% 100.00% 97.91% 99.75% 648,176 175,023 418,384 252,205 941 d e i l p p A m r e t - g n o l e t a r w o r g 3.40% 3.40% 2.69% 1.89% 3.40% d e i l p p A m r e t - g n o l e t a r t n u o c s i d 8.11% 8.11% 8.85% 14.42% 8.11% (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of the intangible assets for the year ended 31 December 2019 is as follows: Intangible assets Gross values Accumulated amortization Impairment Carrying value Self-developed 6,917 (3,083) – 3,834 Purchased 313,832 (179,943) (803) 133,086 Total 320,749 (183,026) (803) 136,920 Summary of the impairment test for the year ended 31 December 2019 Based on the valuations of the subsidiaries as at 31 December 2019 HUF 4,887 million goodwill impairment for OTP Bank Romania S.A. was needed to book by the Group. NOTE 14: INVESTMENT PROPERTIES (in HUF mn) An analysis of the change in gross values of investment properties is as follows: Gross values Balance as at 1 January Increase due to transfer from inventories or owner-occupied properties Increase from purchase Increase due to transfer from held for sale properties Increase from acquisition Other additions Transfer to held for sale properties Transfer to inventories or owner-occupied properties Disposal due to sale Other disposal Foreign currency translation difference Closing balance 2020 53,906 6,896 574 86 – – (118) (936) (8,725) – 2,471 54,154 2019 49,256 3,752 2,516 366 299 12 (999) (778) (1,278) (7) 767 53,906 The applied depreciation and amortization rates were the following: Depreciation and amortization rates 2020 1%–20% 2019 1%–22.2% An analysis of the movement in the depreciation and amortization on investment properties is as follows: Depreciation and amortization Balance as at 1 January Additions due to transfer from inventories or owner-occupied properties Charge for the period Additions due to transfer from held for sale properties Transfer to inventories or owner-occupied properties Disposal due to sale Foreign currency translation difference Closing balance 2020 8,352 1,657 908 – (10) (322) 798 11,383 2019 7,139 1,482 926 2 (710) (655) 168 8,352 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 145 An analysis of the movement in the impairment on investment properties is as follows: Depreciation and amortization Balance as at 1 January Impairment for the period Release of impairment for the period Use of impairment Additions due to transfer from inventories or owner-occupied properties Foreign currency translation difference Closing balance Carrying values Balance as at 1 January Closing balance Fair values 2020 3,994 178 (919) – 587 330 4,170 2020 41,560 38,601 37,842 2019 4,002 255 (378) (27) – 142 3,994 2019 38,115 41,560 45,768 The Group chose the cost model for measuring investment properties would have been investment properties but estimates and presented on level 3 in the fair value hierarchy reviews the fair value of the investment if the Group didn’t apply cost method for properties by external experts, these these recognition. Income and expenses Rental income Direct operating expense of investment properties – income generating Direct operating expense of investment properties – non income generating 2020 2,520 455 8 2019 2,061 687 8 NOTE 15: POSITIVE FAIR VALUE OF DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) Positive fair value of derivative financial assets designated as fair value hedge: CCIRS and mark-to-market CCIRS designated as fair value hedge Interest rate swaps designated as fair value hedge Total 2020 6,179 641 6,820 2019 3,705 3,758 7,463 146 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 16: OTHER ASSETS* (in HUF mn) Other financial assets Other advances Receivables from card operations Prepayments and accrued income on other financial assets Trade receivables Accrued day one gain of loans provided at below-market interest Receivables from investment services Stock exchange deals Receivables due from pension funds and investment funds Giro clearing accounts Advances for securities and investments Receivables from leasing activities Other financial assets Loss allowance on other financial assets Total Other non-financial assets Inventories Prepayments and accrued income on other non financial assets Settlement and suspense accounts Receivables, subsidies from the State, Government Receivable from the National Asset Management Other non-financial assets Impairment on other non-financial assets Total 2020 26,806 24,816 23,521 17,039 14,465 10,716 10,632 8,323 2,441 774 431 19,057 (18,459) 140,562 78,488 19,307 16,355 11,767 – 11,748 (11,753) 125,912 2019 18,294 28,749 25,498 17,861 10,227 3,896 6,058 15,668 2,817 746 1,768 6,088 (14,617) 123,053 58,420 6,946 6,282 17,910 62 13,778 (11,871) 91,527 An analysis of the movement in the loss allowance on other financial assets is as follows: Balance as at 1 January Loss allowance for the period Use of loss allowance Reclassified as held for sale Foreign currency translation difference Closing balance 2020 14,617 5,302 (1,607) – 147 18,459 2019 15,053 2,876 (3,455) (420) 563 14,617 An analysis of the movement in the impairment on other non-financial assets is as follows: Balance as at 1 January Impairment for the period Use of impairment Transfer to tangible assets subject to operating lease Foreign currency translation difference Closing balance 2020 11,871 1,537 (2,219) – 564 11,753 2019 12,550 2,401 (2,890) (585) 395 11,871 * Other assets – except income tax receivable and fair value of derivative financial assets designated as fair value hedge – are expected to be recovered or settled no more than twelve months after the reporting period. Unrealized gains/losses on derivative financial instruments are recovering in accordance with their maturity. IFRS consolidated financial statements 147 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 17: AMOUNTS DUE TO BANKS, THE NATIONAL GOVERNMENTS, DEPOSITS FROM THE NATIONAL BANKS AND OTHER BANKS (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total 2020 2019 132,182 117,672 249,854 741,772 193,689 935,461 1,185,315 274,871 166,813 441,684 151,415 219,812 371,227 812,911 Interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks are as follows: Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Average interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks denominated in HUF Average interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks denominated in foreign currency 2020 2019 0.0%–20.0% (0.56)%–5.0% (0.03)%–0.9% (0.89)%–21.5%* (2.4)%–2.73% (2.4)%–17.6% 0.0%–3.84% (0.45)%–17.6%* 1.00% 1.14% 2.32% 2.05% NOTE 18: REPO LIABILITIES (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total 2020 – 8,379 8,379 – 109,612 109,612 117,991 2019 488 – 488 – – – 488 Interest rates on repo liabilities are as follows: Interest rates on repo liabilities denominated in HUF (%) Interest rates on repo liabilities denominated in foreign currency (%) 2020 – 0.0%–3.85% 2019 (0.85)% – * The highest interest rate for within and over one year due to banks relate to loans taken from EBRD in Ukraine. 148 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 19: FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total 2020 2,010 – 2,010 29,886 2,235 32,121 34,131 2019 2,679 – 2,679 28,183 – 28,183 30,862 Interest conditions of financial liabilities designated at fair value through profit or loss can be analysed as follows: Interest rates on financial liabilities designated at fair value denominated in HUF within one year Interest rates on financial liabilities designated at fair value denominated in HUF over one year 2020 2019 0.51%–2.5% 0.01%–2.59% 0.0%–2.5% 0.01%–2.59% NOTE 20: DEPOSITS FROM CUSTOMERS (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total Interest rates on deposits from customers are as follows: Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Average interest rates on deposits from customers denominated in HUF Average interest rates on deposits from customers denominated in foreign currency An analysis of deposits from customers by type is as follows: 2020 2019 6,383,882 10,990,543 17,374,425 327,165 189,273 516,438 17,890,863 5,454,729 8,977,145 14,431,874 302,049 437,385 739,434 15,171,308 2020 2019 (4.58)%–7.96% (0.58)%–16.5% (3.13)%–7.96% (0.6)%–9.70% 0.01%–3.0% 0.0%–7.75% (5.09)%–7.96% 0.0%–15% 0.10% 0.47% 0.08% 0.69% 2020 2019 Retail deposits Corporate deposits Municipality deposits Total 10,695,792 6,298,143 896,928 17,890,863 59.8% 35.2% 5.0% 100.0% 9,195,778 5,171,579 803,951 15,171,308 60.6% 34.1% 5.3% 100.0% * The highest interest rate regarding foreign currency deposits relate to individually agreed deposits in Ukraine. IFRS consolidated financial statements 149 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) With original maturity Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total 2020 2019 130,676 1,366 132,042 332,125 46 332,171 464,213 26,139 3,816 29,955 363,159 53 363,212 393,167 Interest rates on liabilities from issued securities are as follows: Issued securities denominated in HUF Issued securities denominated in foreign currency Average interest rates on issued securities denominated in HUF Average interest rates on issued securities denominated in foreign currency 2020 0.0%–2.5% 0.01%–1.11% 1.82% 2019 0.0%–9.0% 0.74%–6.70% 1.80% 1.44% 0.06% Issued securities denominated in HUF as at 31 December 2020 (in HUF mn): Name Date of issue OTPX2021A OTPX2021B OTPX2021C OTPX2021D OTPX2022A OTPX2022B OTPX2022C OTPX2022D OTPX2023A OTPX2023B OTPX2024A OTPX2024B OTPX2024C OTPRF2021A OTPRF2021B OTPRF2021C OTPRF2021D OTPRF2021E OTPRF2022A OTPRF2022B OTPRF2022C OTPRF2022D OTPRF2022E OTPRF2022F OTPRF2023A OJB2021_I OJB2023_I OJB2024_A OJB2024_C OJB2024_II OJB2025_II OJB2027_I Other Total issued securities in HUF 01/04/2011 17/06/2011 19/09/2011 21/12/2011 22/03/2012 18/07/2012 29/10/2012 28/12/2012 22/03/2013 28/06/2013 18/06/2014 10/10/2014 15/12/2014 05/07/2011 20/10/2011 21/12/2011 21/12/2011 21/12/2011 22/03/2012 22/03/2012 28/06/2012 28/06/2012 29/10/2012 28/12/2012 22/03/2013 15/02/2017 05/04/2018 17/09/2018 24/02/2020 10/10/2018 03/02/2020 23/07/2020 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Maturity 01/04/2021 21/06/2021 24/09/2021 27/12/2021 23/03/2022 18/07/2022 28/10/2022 27/12/2022 24/03/2023 26/06/2023 21/06/2024 16/10/2024 20/12/2024 13/07/2021 25/10/2021 30/12/2021 30/12/2021 30/12/2021 23/03/2022 23/03/2022 28/06/2022 28/06/2022 31/10/2022 28/12/2022 24/03/2023 27/10/2021 24/11/2023 20/05/2024 24/10/2024 24/10/2024 26/11/2025 27/10/2027 Nominal value (in HUF mn) 183 245 231 259 201 172 201 248 324 198 241 295 242 2,607 2,894 527 372 76 2,065 831 190 260 761 623 787 114,000 44,120 46,771 64,379 96,800 17,650 65,800 213 464,766 Amortized cost (in HUF mn) 246 370 192 325 214 440 233 299 327 225 237 284 232 2,807 2,954 544 381 74 1,920 772 196 251 715 592 740 113,732 44,623 46,639 64,175 95,645 17,499 64,705 213 462,801 Interest conditions (actual interest rate in % p.a.) indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed 2 1.75 1.35 1.05 2.5 1.5 1.25 NaN NaN NaN NaN NaN 1.7 1.7 1.7 1.7 0.6 1.3 0.7 0.6 NaN NaN NaN NaN NaN 1.7 1.7 1.7 1.7 1.7 1.7 1.7 fixed fixed floating floating fix fix fix Hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged 150 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Issued securities denominated in HUF as at 31 December 2019 (in HUF mn): Name Date of issue OTPX2020A OTPX2020B OTPX2020C OTPX2020D OTPX2020E OTPX2020F OTPX2020G OTPX2021A OTPX2021B OTPX2021C OTPX2021D OTPX2022A OTPX2022B OTPX2022C OTPX2022D OTPX2023A OTPX2023B OTPX2024A OTPX2024B OTPX2024C OTPRF2020A OTPRF2020B OTPRF2020C OTPRF2021A OTPRF2021B OTPRF2021C OTPRF2021D OTPRF2021E OTPRF2022A OTPRF2022B OTPRF2022C OTPRF2022D OTPRF2022E OTPRF2022F OTPRF2023A OJB2020_I OJB2020_II OJB2021_I OJB2023_I OJB2024_A OJB2024_B OJB2024_II Other Total issued securities in HUF 25/03/2010 28/06/2010 11/11/2010 16/12/2010 18/06/2014 10/10/2014 15/12/2014 01/04/2011 17/06/2011 19/09/2011 21/12/2011 22/03/2012 18/07/2012 29/10/2012 28/12/2012 22/03/2013 28/06/2013 18/06/2014 10/10/2014 15/12/2014 12/07/2010 12/07/2010 11/11/2010 05/07/2011 20/10/2011 21/12/2011 21/12/2011 21/12/2011 22/03/2012 22/03/2012 28/06/2012 28/06/2012 29/10/2012 28/12/2012 22/03/2013 19/11/2004 31/05/2011 15/02/2017 05/04/2018 17/09/2018 18/09/2018 10/10/2018 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged Maturity 30/03/2020 09/07/2020 05/11/2020 18/12/2020 22/06/2020 16/10/2020 21/12/2020 01/04/2021 21/06/2021 24/09/2021 27/12/2021 23/03/2022 18/07/2022 28/10/2022 27/12/2022 24/03/2023 26/06/2023 21/06/2024 16/10/2024 20/12/2024 20/07/2020 20/07/2020 05/11/2020 13/07/2021 25/10/2021 30/12/2021 30/12/2021 30/12/2021 23/03/2022 23/03/2022 28/06/2022 28/06/2022 31/10/2022 28/12/2022 24/03/2023 12/11/2020 12/11/2020 27/10/2021 24/11/2023 20/05/2024 24/05/2024 24/10/2024 Nominal value (in HUF mn) 238 267 166 177 2,939 2,650 2,372 192 255 231 274 217 183 217 265 340 214 241 311 259 2,152 1,276 2,622 2,402 2,655 505 357 67 1,869 728 171 249 661 538 760 5,503 1,487 114,000 43,600 48,475 55,829 92,000 218 390,132 Amortized cost (in HUF mn) 326 285 221 193 2,903 2,551 2,273 253 424 198 305 235 318 278 379 370 268 253 302 249 2,252 1,429 2,662 2,804 2,858 558 385 68 1,797 698 205 278 645 532 746 5,599 1,502 112,979 44,137 48,130 55,461 90,771 218 389,298 Interest conditions (actual interest rate in % p.a.) indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed 9 9 2 1.75 0.72 0.72 2.5 NaN NaN NaN NaN 0.7 0.2 0.3 NaN NaN NaN NaN NaN 1.7 1.7 1.7 1.7 0.6 1.3 0.7 0.6 NaN NaN NaN NaN NaN NaN NaN NaN 1.7 1.7 1.7 1.7 1.7 1.7 1.7 fixed fixed fixed fixed floating floating fix Issued securities denominated in foreign currency as at 31 December 2020 (in HUF mn): Name 1 2 3 4 5 OTP_VK1_21/1 OTP_VK1_21/2 OTP_VK1_21/3 OTP_VK1_21/4 Other* Total issued securities in FX Total issued securities Date of issue Maturity 20/02/2020 02/04/2020 14/05/2020 18/06/2020 20/02/2021 02/04/2021 14/05/2021 18/06/2021 Type of FX USD USD USD USD Nominal value FX HUF mn mn 414 370 351 221 47 1,403 1.39 1.24 1.18 0.74 12 16.55 Amortized cost FX HUF mn mn 414 370 351 221 56 1,412 464,213 1.39 1.24 1.18 0.74 14 18.55 Interest conditions (actual interest rate in % p.a.) 1.1 0.1 0.01 1.1 floating floating floating floating * Other category includes promissory notes issued by JSC “OTP Bank” (Russia) in the amount of HUF 56 million as at 31 December 2020 and HUF 116 million as at 31 December 2019. IFRS consolidated financial statements 151 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Issued securities denominated in foreign currency as at 31 December 2019 (in HUF mn): Name Date of issue Maturity Type of FX 1 2 3 4 5 6 7 8 9 OTP_VK1_20/1 OTP_VK1_20/2 OTP_VK1_20/3 OTP_VK1_20/4 OTP_VK1_20/5 OTP_VK1_20/6 OTP_VK1_20/7 OTP_VK1_20/8 Other* Total issued securities in FX Total issued securities 21/02/2019 04/04/2019 16/05/2019 27/06/2019 15/08/2019 26/09/2019 07/11/2019 19/12/2019 21/02/2020 04/04/2020 16/05/2020 27/06/2020 15/08/2020 26/09/2020 07/11/2020 19/12/2020 USD USD USD USD USD USD USD USD Nominal value FX HUF mn mn 450 727 263 552 589 220 494 448 103 3,846 1.53 2.47 0.89 1.87 2 0.75 1.68 1.52 22 34.71 Amortized cost FX HUF mn mn 452 731 263 552 591 221 495 448 116 3,869 393,167 1.54 2.48 0.89 1.87 2.01 0.75 1.68 1.52 24 36.74 Interest conditions (actual interest rate in % p.a.) 1.48 1.42 1.32 1.32 1.2 1.2 1.1 1.1 floating floating floating floating floating floating floating floating Hedge accounting Certain issued structured securities are volatility of the quoted interest rates of EUR and HUF. The interest rate risk and foreign hedged by the Bank with interest rate swaps exchange risk related to these securities are (“IRS”) which exchange the fixed and floating hedged with EUR and HUF IRS transactions, interest rate with the interest rate of the where the fixed interests were swapped to securities between the parties at a notional payments linked to 3 month HUF BUBOR amount that equals the nominal amount of and EURIBOR, resulting in a decrease in the the hedged securities. These are considered interest rate and foreign exchange exposure as fair value hedge relationships as they cover of issued securities. the interest rate risk arising from the coupons of the hedged securities. OTP Bank does not intend to be exposed to the risk embedded in the structured bonds, consequently as part of interest rate swap transaction the structured Term Note Program in the value of HUF 200 billion for the year of 2020/2021 On 21 April 2020 the Bank initiated term interest payments are swapped to floating note program in the value of HUF 200 billion interest rate. with the intention of issuing registered dematerialized bonds in public. The NBH This hedging relationship meets all of the approved on 9 July 2020 the prospectus following hedge effectiveness requirements: of Term Note Program and the disclosure (cid:588) there is an economic relationship between as at 10 July 2020. The prospectus is valid for the hedged item and the hedging 12 months following the disclosure. instrument The Issuer can initiate to introduce the bonds (cid:588) the effect of credit risk does not dominate issued under the program to the Hungarian the value changes that result from that and to other stock exchanges without any economic relationship obligations. (cid:588) the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Bank actually hedges and the quantity of the hedging instrument that the Bank actually Term Note Program in the value of HUF 200 billion for the year of 2019/2020 On 23 April 2019 the Bank initiated term uses to hedge that quantity of hedged item note program in the value of HUF 200 billion The cash-flows of the fixed rate securities dematerialized bonds in public. The NBH issued by the Bank are exposed to the changes approved on 25 June 2019 the prospectus in the HUF/EUR foreign exchange rate and the of Term Note Program and the disclosure with the intention of issuing registered * Other category includes promissory notes issued by JSC “OTP Bank” (Russia) in the amount of HUF 56 million as at 31 December 2020 and HUF 116 million as at 31 December 2019. 152 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) as at 28 June 2019. The prospectus is valid issued under the program to the Hungarian, for 12 months following the disclosure. Slovakian, Romanian, Bulgarian and Croatian The Issuer can initiate to introduce the bonds Stock Exchange without any obligations. NOTE 22: DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING (in HUF mn) Negative fair value of derivative financial liabilities held for trading by type of contracts: Foreign exchange swaps held for trading Interest rate swaps held for trading Foreign exchange forward contracts held for trading CCIRS and mark-to-market CCIRS held for trading Held for trading option contracts Held for trading forward security agreement Held for trading forward rate agreements Other derivative transactions held for trading* Total 2020 39,103 32,960 10,750 7,419 3,843 116 – 10,632 104,823 2019 28,453 46,717 5,561 1,037 3,128 8 32 1,807 86,743 NOTE 23: NEGATIVE FAIR VALUE OF DERIVATIVE FINANCIAL LIABILITIES DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) The negative fair value of derivative financial liabilities designated as hedge accounting by type of contracts: CCIRS and mark-to-market CCIRS designated as fair value hedge Interest rate swaps designated as fair value hedge Total 2020 6,007 5,334 11,341 2019 1,870 8,839 10,709 * Other category includes: commodity and equity swaps, exchange traded futures and options. IFRS consolidated financial statements 153 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 24: OTHER LIABILITIES* (in HUF mn) Other financial liabilities Liabilities connected to Cafeteria benefits Liabilities from investment services Accrued expense on other financial liabilities Accounts payable Liabilities from card transactions Giro clearing accounts Accrued day one gain of loan liabilities at below-market interest Advances received from customers Liabilities due to short positions Loans from government Dividend payable Liabilities due to refunding assets Other financial liabilities Subtotal Other non-financial liabilities Provision on off-balance sheet commitments and contingent liabilities Clearing and giro settlement accounts Salaries and social security payable Liabilities related to housing loans Accrued expense on other non-financial liabilities Insurance technical reserve Provision due to CHF loans conversion at foreign subsidiaries Other non-financial liabilities Subtotal Total The provisions are detailed as follows: Commitments and guarantees given Total provision according to IFRS 9 Pending legal issues and tax litigation Pensions and other retirement benefit obligations Other long-term employee benefits Provision due to CHF loans conversion at foreign subsidiaries Restructuring Other provision Total provision according to IAS 37 Total 2020 2019 121,711 62,667 42,212 41,460 20,402 14,589 14,391 11,259 9,131 3,435 119 – 48,526 389,902 80,003 101,417 6,638 50,974 20,563 3,935 10,177 15,555 7,040 1,291 108 9,133 31,186 338,020 114,518 102,449 38,912 25,207 8,868 6,997 4,545 1,949 16,839 217,835 607,737 2020 54,810 54,810 34,894 10,975 2,396 1,949 1,531 9,912 61,657 116,467 35,393 24,937 6,055 41,610 10,396 1,985 31,695 254,520 592,540 2019 48,662 48,662 28,650 11,253 2,343 1,985 2,626 8,915 55,772 104,434 2019 28,144 50,919 (42,924) (1) 5,693 (451) 5,259 2,023 48,662 The movements of provisions according to IFRS 9 can be summarized as follows: Balance as at 1 January Provision for the period Release of provision for the period Use of provision Change due to acquisition Reclassified as held for sale Transfer Foreign currency translation differences Closing balance 2020 48,662 98,703 (90,041) (2,276) – – – (238) 54,810 * Other liabilities – except deferred tax and corporate tax liabilities and fair value of derivative financial liabilities designated as fair value hedge – are expected to be recovered or settled no more than twelve months after the reporting period. Unrealized gains/losses on derivative financial 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 are the following: accrued contractual liabilities, compulsory pension reserve, loans from government and liabilities from preferential dividend shares. 154 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The movements of provisions according to IAS 37 can be summarized as follows: Balance as at 1 January Provision for the period Release of provision for the period Use of provision Change due to actuarial gains or losses related to employee benefits Change due to acquisition Reclassified as held for sale Transfer Foreign currency translation differences Closing balance 2020 55,772 23,381 (17,251) (4,501) (143) – – – 4,399 61,657 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total Types of subordinated bonds and loans: Debt securities issued Deposits Total 2019 57,285 11,196 (7,538) (4,438) 173 4,005 (904) (5,259) 1,252 55,772 2019 – 2,700 2,700 2020 – 2,843 2,843 271,861 271,861 274,704 247,238 247,238 249,938 2020 269,566 5,138 274,704 2019 244,924 5,014 249,938 Interest rates on subordinated bonds and loans are as follows: Denominated in HUF Denominated in foreign currency Average interest rates on subordinated bonds and loans 2020 – 2.5%–5.0% 2.83% 2019 – 2.6%–5.0% 2.82% 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 2020 Subordinated bond Subordinated bond Subordinated loan EUR 231.34 million 07/11/2006 Perpetual 99.875% EUR 499.8 million 15/07/2019 15/07/2029 99.738% USD 17.0 million 05/06/2018 30/06/2025 100.00% Three-month EURIBOR + 3%, variable after year 10 (payable quarterly) Fixed 2.875% annual in the first 5 years and callable after 5 years, variable after year 5 (payable annually) calculated as a sum of the initial margin (320 bp) and the 5 year mid-swap rate prevailing at the end of the 5 year Bullet repayment, once at the end of the loan agreement 2.48% 2.88% 5.00% IFRS consolidated financial statements 155 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 26: SHARE CAPITAL (in HUF mn) Authorized, issued and fully paid: Ordinary shares 2020 2019 28,000 28,000 The nominal value of the shares is HUF 100 shareholders. Furthermore there are no per shares. All of the shares are ordinary restrictions on the distribution of dividends shares representing the same rights to the and the repayment of capital. NOTE 27: RETAINED EARNINGS AND RESERVES* (in HUF mn) NBH warns the financial institutions in an at the subsidiaries and due to consolidation executive circular dated 8 January 2021 as well as translation of foreign exchange not to pay or enter into an irrevocable differences. obligation of dividend payment based on the performance for the financial years ended In the Consolidated Financial Statements the 2019 and 2020, or any reserves cumulated Group recognizes the non-monetary items from previous years until 30 September at historical cost. The difference between the 2021. Furthermore NBH warns to stop treasury historical cost of the non-monetary items share purchases (except share purchase in forint amount and the translated foreign related to share based payment programs) currencies into the presentation currency until 30 September 2021 too. using the exchange rate at the balance sheet date, is presented in the shareholders’ equity The intention of the Management is paying as a translation difference. The accumulated HUF 119,248 million dividend (for the year amounts of exchange differences were ended 2019 HUF 69,440 million and for HUF (3,369) million and HUF (72,404) million the year ended 2020 HUF 49,808 million) as at 31 December 2020 and 31 December 2019 regarding which – in accordance with the respectively. NBH circular – the Bank doesn’t enter into an irrevocable obligation. Accordingly it remains as part of the shareholders’ equity until the Share capital Share capital is the portion of the Bank’s obligation hasn’t been settled. equity that has been obtained by the issue of shares in the corporation to a shareholder, The retained earnings and reserves according usually for cash. to IFRS contains the retained earnings (HUF 744,802 million and HUF 632,436 million) and reserves (HUF 1,884,274 million and Retained earnings Profit of previous years generated by the HUF 1,686,827 million) as at 31 December 2020 Group that are not distributed to shareholders and 31 December 2019 respectively. The reserves as dividends. include mainly the option reserve, other reserves, the fair value adjustment of financial instruments at fair value through other Other reserves The other reserves contain separated reserves comprehensive income, share-based payment due to statutory provisions. reserve, fair value of hedge transactions, additional reserves of Income Certificates Exchangeable for Shares (“ICES”), changes Put option reserve OTP Bank Plc. and MOL Plc. entered into in equity accumulated in the previous years a share swap agreement in 16 April 2009, * See more details about the Consolidated Statement of Comprehensive Income and about the Consolidated statement of Changes in equity on page 98 and 99. 156 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) whereby OTP has changed 24,000,000 OTP ordinary shares for 5,010,501 “A series” MOL shares. The final maturity of the share swap Net investment hedge in foreign operations Reserve presented as net investment hedge agreement is 11 July 2022, until which any in foreign operations in the sharholders’ equity party can initiate cash or physical settlement is related to DSK Bank EAD, OTP banka d.d. of the transaction. and Crnogorska komercijalna banka a.d. Put option reserve represents the written put option over OTP ordinary shares were accounted as a deduction from equity at the Extra reserves The result of ICES bond issuance is presented date of OTP-MOL share swap transaction. as extra reserve in the consolidation books Share-based payment reserve Share-based payment reserve represents the due to the detailed conditions below (see the details below in this note) and therefore any payment to the owner of the ICES will be increase in the equity due to the goods or booked as decreasing item in the reserves. services were received by the Bank in an equity-settled share-based payment trans- action, valued at the fair value of the goods or services received (see details in Note 39). Changes in equity accumulated in the previous year at the subsidiaries and due to consolidation The accumulated changes at the subsidiaries Other comprehensive income Other comprehensive income comprises contain the accumulated gains and losses of the subsidiaries from the first day when they items of income and expense (including reclas- were included in the consolidation process. sification adjustments) that are not recognised The changes due to consolidation contain the in profit or loss as required or permitted by effect on the result of the eliminations in the other IFRSs. consolidation process of the previous years. Retained earnings Capital reserve Option reserve Other reserves Fair value of financial instruments measured at fair value through other comprehensive income Share-based payment reserve Fair value of derivative financial instruments designated as cash-flow hedge Net investment hedge in foreign operations Extra reserves Net profit for the year Changes in equity accumulated in the previous year at the subsidiaries and due to consolidation Foreign currency translation differences Retained earnings and other reserves Fair value adjustment of securities at fair value through other comprehensive income Balance as at 1 January Change of fair value correction Deferred tax related to change of fair value correction Transfer to profit or loss due to reclassification to FVTPL securities Transfer to profit or loss due to derecognition Deferred tax related to accumulated transfer to profit or loss Foreign currency translation difference Closing balance 2020 744,802 52 (55,468) 93,056 61,396 42,573 – (27,405) 89,935 259,416 2019 632,436 52 (55,468) 87,035 68,314 39,179 2 (18,814) 89,935 412,241 1,424,088 1,136,755 (3,369) 2,629,076 (72,404) 2,319,263 2020 2019 50,272 (10,897) 1,403 (144) 3,329 (472) 467 43,958 29,311 16,258 (1,904) (15) 7,382 (760) – 50,272 IFRS consolidated financial statements 157 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Expected credit loss on securities at fair value through other comprehensive income Balance as at 1 January Increase of loss allowance Release of loss allowance Decrease due to sale, derecognition Foreign currency translation difference Closing balance Fair value changes of equity instruments as at fair value through other comprehensive income Balance as at 1 January Change of fair value correction Deferred tax related to change of fair value correction Transfer to retained earnings due to derecognition Foreign currency translation difference Closing balance Net investment hedge in foreign operations Balance as at 1 January Change of fair value correction on hedging item Deferred tax related to change of fair value correction Closing balance 2020 2019 2,927 6,303 (1,441) (724) (81) 6,984 3,360 1,368 (1,652) (149) – 2,927 2020 2019 15,115 (3,336) 363 (1,746) 58 10,454 10,092 4,026 (616) 1,613 – 15,115 2020 2019 (18,814) (9,440) 849 (27,405) (16,288) (2,776) 250 (18,814) On 19 October 2006, the Bank sold 14.5 million shares. The EUR denominated exchangeable Treasury shares owned by the Group through bonds are perpetual and the investors can an issue of ICES. Within the transaction exercise the conversion right between years 10 million shares owned by OTP Bank, and a 6 and 10. The bonds carry a fixed coupon of further 4.5 million shares owned by the Group 3.95% during the first 10 years, and thereafter were sold during the underwriting period the Issuer has the right to redeem the bonds at of ICES on the weighted average market price face value. Following year 10, the bonds carry a (HUF 7,080) of the Budapest Stock Exchange. coupon of 3 month EURIBOR +3%. OTP Bank has The shares have been purchased by Opus a discretional right to cancel the interest pay- Securities S.A. (“OPUS”), which issued an ments. The interest payable is non-cumulative. exchangeable bond with a total face value Due to the conditions described above, ICES of EUR 514,274,000 backed by those shares. was accounted as an equity instrument and The exchangeable bonds have been sold at therefore any payment was accounted a 32% premium over the selling price of the as equity distribution paid to ICES holders. 158 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 28: TREASURY SHARES (in HUF mn) Nominal value (Ordinary shares) Carrying value at acquisition cost 2020 2,392 124,080 2019 1,778 60,931 The changes in the carrying value of treasury transactions on market authorised by the shares are due to repurchase and sale General Assembly. Change in number of shares Number of shares as at 1 January Additions Disposals Closing number of shares Change in carrying value Balance as at 1 January Additions Disposals Closing balance 2020 17,779,845 8,296,388 (2,151,333) 23,924,900 2020 60,931 85,922 (22,773) 124,080 2019 18,475,833 906,194 (1,602,182) 17,779,845 2019 67,999 8,887 (15,955) 60,931 NOTE 29: NON-CONTROLLING INTEREST (in HUF mn) Balance as at 1 January Increase due to business combination Non-controlling interest included in net profit for the year Changes due to ownership structure Purchase of non-controlling interest Decrease due to discontinued operation Foreign currency translation difference Closing balance 2020 4,956 – 221 – (382) (235) (444) 4,116 2019 2,452 1,736 341 (10) – – 437 4,956 The non-controlling interest is not significant in respect of the whole OTP Group. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:23)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 159 NOTE 30: INTEREST INCOME, INCOME SIMILAR TO INTEREST INCOME AND EXPENSE (in HUF mn) 2020 2019 Interest income calculated using the effective interest method from/on Loans Securities at amortized cost Finance lease receivables Securities at fair value through other comprehensive income Placements with other banks Banks and balances with the National Banks Liabilities (negative interest expense) Repo receivables Subtotal Income similar to interest income from Swap deals related to placements with other banks Loans mandatorily at fair value through profit or loss Swap deals related to credit institutions Rental income Non-trading securities mandatorily at fair value through profit or loss Subtotal Total interest income and income similar to interest income Interest expense due to/from/on Swaps related to banks, National Governments and to deposits from the National Banks Deposits from customers Swaps related to deposits from customers Banks, National Governments and on deposits from the National Banks Issued securities Subordinated and supplementary bonds and loans Depreciation of assets subject to operating lease and investment properties On financial assets (negative interest income) Leases Repo liabilities Other Total interest expense 658,579 69,905 54,046 44,782 7,572 5,103 1,628 286 841,901 78,577 28,251 20,322 8,363 473 135,986 977,887 82,301 53,196 17,226 13,785 7,750 7,718 5,624 5,014 1,623 653 326 195,216 599,390 62,468 40,914 46,521 8,989 2,037 1,532 788 762,639 78,113 16,653 28,710 9,819 202 133,497 896,136 81,261 59,242 24,789 10,173 6,749 4,743 6,147 2,036 1,652 148 155 197,095 160 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 31: LOSS ALLOWANCES/IMPAIRMENT AND PROVISIONS (in HUF mn) 2020 2019 Loss allowance on loans Loss allowance for the period Release of loss allowance Income from loan recoveries Modification loss on loans measured at amortized cost Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss Loss allowance on finance lease Loss on financial lease Loss allowance/(Release of loss allowance) on placements and on repo receivables Allowance for the period Release of allowance Gains on placements due to write-off and sale Loss allowance/(Release of loss allowance) on securities at fair value through other comprehensive income and on securities at amortized cost Allowance for the period Release of allowance Release of impairment of intangible, tangible assets subject to operating lease and of investment properties Impairment for the period Release of impairment Provision for commitments and guarantees given Provision for the period Release of provision Loss allowances/Impairment and provisions 647,873 (390,102) (98,300) 29,773 3,262 9,972 310 202,788 16,476 (15,691) 4 789 11,370 (4,061) 7,309 178 (1,056) (878) 98,703 (90,041) 8,662 218,670 NOTE 32: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) Income from fees and commissions: Fees and commissions related to lending* Deposit and account maintenance fees and commissions Fees and commissions related to the issued bank cards Currency exchange gains and losses Fees related to cash withdrawal Fees and commissions related to fund management Fees and commissions related to security trading Insurance fee income Other Fees and commissions from contracts with customers Total 2020 33,233 173,578 83,474 46,290 39,120 28,800 25,830 13,603 42,601 453,296 486,529 398,022 (297,925) (60,735) 150 4,376 4,440 888 49,216 3,561 (3,650) (146) (235) 746 (755) (9) 2,246 (2,526) (280) 49,832 (41,837) 7,995 56,687 2019 25,687 166,483 76,247 33,736 40,206 35,354 24,293 14,670 30,408 421,397 447,084 * Such kinds of fees and commissions related to lending which aren’t included in the effective interest rate calculation due to their nature. IFRS consolidated financial statements 161 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Fee type Deposit and account maintenance fees and commissions and fees related to cash withdrawal Fees and commission related to the issued bank cards Fees and commissions related to security account management services Nature and timing of obligation settlement, and the significant payment terms The Group provides a number of account management services for both retail and corporate customers in which they charge a fee. Fees related to these services can be typically account transaction fees (money transfer fees, direct debit fees, money standing order fees etc.), internet banking fees (e.g. OTP Direct fee), account control fees (e.g. SMS fee), or other fees for occasional services (account statement fees, other administration fees etc.). Fees for ongoing account management services are charged to the customer’s account on a monthly basis. The fees are commonly fix amounts that can be vary per account package and customer category. In the case of the transaction based fees where the services include money transfer the fee is charged when the transaction takes place. The rate of the fee is typically determined in a certain % of the transaction amount. In case of other transaction-based fees (e.g. SMS fee), the fee is settled monthly. In case of occasional services the Group basically charges the fees when the services are used by the customer. The fees can be fixed fees or they can be set in %. The rates are reviewed by the Group regularly. The Group provides a variety of bank cards to its customers, for which different fees are charged. The fees are basically charged in connection with the issuance of cards and the related card transactions. The annual fees of the cards are charged in advance in a fixed amount. The amount of the annual card fee depends on the type of card. In case of transaction-based fees (e.g. cash withdrawal/payment fee, merchant fee, interchange fee etc.), the settlement of the fees will take place immediately after the transaction or on a monthly basis. The fee is typically determined in % of the transaction with a fixed minimum amount. For all other cases where the Group provides a continuous service to the customers (e.g. card closing fee), the fees are charged monthly. The fee is calculated in a fix amount. The rates are reviewed by the Group regularly. The Group provides its clients security account management services. Fees will be charged for account management and transactions on accounts. Account management fees are typically charged quarterly or annually. The amount is determined in %, based on the stocks of securities managed by the clients on the account in a given period. Fees for transactions on the securities account are charged immediately after the transaction. They are determined in %, based on the transaction amount. Fees for complex services provided to clients (e.g. portfolio management or custody) are typically charged monthly or annually. The fees are fixed monthly amounts and in some cases a bonus fee are charged. Fees and commissions related to fund management Fees from fund management services provided to investment funds and from portfolio management provided to insurance companies, funds. The fee income are calculated on the basis of net asset value of the portfolio and by the fee rates determined in the contracts about portfolio management. Revenue recognition under IFRS 15 Fees for ongoing account management services are charged on a monthly basis during the period when they are provided. Transaction-based fees are charged when the transaction takes place or charged monthly at the end of the month. Fees for ongoing services are charged on a monthly basis during the period when they are provided. Transaction-based fees are charged when the transaction takes place or charged monthly at the end of the month. Fees for ongoing services are charged quarterly or annually during the period when they are provided. The fees are accrued monthly. Transaction-based fees are charged when the transaction takes place. Fees for ongoing services are charged usually on monthly (mutual funds) or semi-annually (venture capital funds) during the period when they are provided but accrued monthly. Fees for ongoing services are charged on a monthly basis during the period when they are provided. Net insurance fee income Other Due to the fact that the Group rarely provides insurance services to its clients, only acts as an agent, the fee income charged to the customers and fees payable to the insurance company are presented net in the fee income. In addition, agency fee charged for the sale of insurance contracts is also recorded in this line. The fee is charged on a monthly basis and determined in %. Fees that are not significant in the Group total income are included in Other fees category. Such fees are safe lease, special procedure fee, account rent fee, fee of a copy of document etc. Other fees may include charges for continuous services or for ad hoc administration services. Continuous fees are charged monthly (e.g., safe lease fees) at the beginning of the period, typically at a fixed rate. Fees for ad hoc services are charged immediately after the service obligation were met, usually in a fixed amount. Fees for ongoing services are charged on a monthly basis during the period when they are provided. Fees for ad hoc services are charged when the transaction takes place. 162 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Expense from fees and commissions: Fees and commissions paid on loans Fees and commissions related to issued bank cards Interchange fees Fees and commissions related to deposits Fees and commissions related to security trading Cash withdrawal transaction fees Fees and commissions related to collection of loans Insurance fees Postal fees Money market transaction fees and commissions Other Total Net profit from fees and commissions 2020 6,974 32,487 18,958 7,000 3,776 3,696 1,447 1,036 714 113 12,695 88,896 397,633 NOTE 33: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn) Other operating income Negative goodwill due to acquisition Gains on transactions related to property activities Rental income Income from computer programming Income from real estate management Gains on transactions related to insurance activity Non-repayable assets received Other income from non-financial activities Total Other operating expenses Financial support for sport association and organization of public utility Provision for off-balance sheet commitments and contingent liabilities Loss allowance on other financial assets Impairment on other non-financial assets Non-repayable assets contributed Expense from losses due to foreign currency loan conversion at foreign subsidiaries Impairment on tangible and intangible assets Fine imposed by Competition Authority Release of provision due to foreign currency loan conversion at foreign subsidiaries (Release of impairment)/Impairment on investments Other Other expense from non-financial activities Other costs Total Other administrative expenses Personnel expenses Wages Taxes related to personnel expenses Other personnel expenses Subtotal Depreciation, amortization of tangible, intangible assets, right-of-use assets and goodwill impairment* Other administrative expenses Taxes, other than income tax** Services Professional fees Administration expenses Advertising Rental fees Subtotal Total 2020 7,504 3,631 1,835 1,529 1,092 721 65 17,084 33,461 12,080 6,336 6,036 1,537 688 224 51 25 (206) (381) 13,057 5,551 7,506 39,447 242,970 42,576 23,096 308,642 92,761 103,343 100,031 44,542 35,552 17,913 4,883 306,264 707,667 2019 3,146 29,528 15,405 5,422 3,132 3,642 948 1,122 975 73 9,510 72,903 374,181 2019 80,667 8,230 1,308 1,080 446 848 174 18,340 111,093 9,568 3,827 3,774 2,481 3,627 274 2,358 143 (169) 3,342 15,533 6,361 9,172 44,758 214,409 40,902 21,443 276,754 81,935 96,932 88,579 38,362 32,041 18,794 7,820 282,528 641,217 * See details in Note 13. ** Special tax of financial institutions was paid by the Group in the amount of HUF 17,665 million for the year 2020 and HUF 12,043 million for the year 2019, recognized as an expense thus decreased the corporate tax base. For the year ended 31 December 2020 financial transaction levy was paid by the Bank in the amount of HUF 60 billion while for the year ended 31 December 2019 the same dutiy was HUF 61 billion. IFRS consolidated financial statements 163 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The table below contains the detailing of the fees for non-audit services: Deloitte Auditing and Consulting Ltd. OTP – annual audit – separate financial statements OTP – annual audit – consolidated financial statements Other audit services based on statutory provisions to OTP Group members Other services providing assurance Other non-audit services Total Deloitte Network Audit based on statutory provisions Other services providing assurance Tax consulting services Other non-audit services Total 2020 95 14 861 4 76 1,050 2020 885 157 67 508 1,617 2019 53 14 970 4 92 1,133 2019 779 27 46 710 1,562 NOTE 34: INCOME TAXES (in HUF mn) The Group is presently liable for income tax at 10% in Bulgaria, 12% in Moldova, 12.5% in Cyprus, rates between 9% and 35% of taxable income. 15% in Serbia and Albania, 16% in Romania, Deferred tax is calculated at the income tax 20% in Russia, 25.5% in the Netherlands and rate of 9% in Hungary and Montenegro, 35% in Malta. 18% in Ukraine and Croatia, 19% in Slovenia, The breakdown of the income tax expense is: Current tax expense Deferred tax expense Total A reconciliation of the net deferred tax asset/liability is as follows: Balance as at 1 January Deferred tax expense in profit or loss Deferred tax receivable/(liability) related to items recognized directly in equity and in Comprehensive Income Due to merge of subsidiary Due to sale of subsidiary Foreign currency translation difference Closing balance 2020 25,543 1,833 27,376 2020 (2,652) (1,833) 3,555 (919) – (1,824) (3,673) 2019 42,591 7,311 49,902 2019 13,904 (7,311) (877) – (9,068) 700 (2,652) 164 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) A breakdown of the deferred tax assets are as follows: Provision for off-balance sheet commitments and contingent liabilities, derivative financial instruments Premium and discount amortization on bonds Loss allowance on granted loans Loss allowance/impairment on other financial, non-financial assets Unused tax allowance Fair value adjustment of derivative financial instruments Difference in depreciation and amortization Difference due to IFRS 9 Difference in accounting for leases Amounts unenforceable by tax law Tax accrual caused by negative taxable income Adjustment from effective interest rate method Temporary differences arising on consolidation Fair value adjustment of securities at fair value through profit or loss and through other comprehensive income Other Deferred tax asset A breakdown of the deferred tax liabilities are as follows: Fair value adjustment of securities at fair value through profit or loss and through other comprehensive income Difference in depreciation and amortization Deferred tax due to acquisition Provision for off-balance sheet commitments and contingent liabilities, derivative financial instruments Loss allowance on granted loans Fair value adjustment of derivative financial instruments Amounts unenforceable by tax law Loss allowance/impairment on other financial, non-financial assets Difference due to IFRS 9 Temporary differences arising on consolidation Premium and discount amortization on bonds Other Deferred tax liabilities Net deferred tax asset/(liability) (the amounts presented in the statement of financial positions) Deferred tax assets Deferred tax liabilities A reconciliation of the income tax income/expense is as follows: Profit before income tax Income tax expense at statutory tax rates Income tax adjustments due to permanent differences are as follows Share-based payment Correction on tax basis due to change of accounting policy Amounts unenforceable by tax law Permanent differences from unused tax losses Deferred use of tax allowance Use of tax allowance in the current year Other Income tax expense Effective tax rate 2020 4,650 4,198 4,083 3,440 1,552 1,351 1,061 356 298 247 238 127 120 93 2,895 24,709 2019 3,948 4,975 12,187 3,238 398 553 1,074 483 156 210 902 254 827 2,766 6,825 38,796 2020 2019 (11,836) (13,798) (7,858) (1,425) (534) (489) (105) (102) (83) (52) – – (5,898) (28,382) (3,673) 22,317 (25,990) 2020 281,422 36,847 305 230 (38) (167) (1,039) (2,023) (6,739) 27,376 9.73% (9,200) (9,720) (408) (23) – (104) (75) (70) (598) (2,588) (4,864) (41,448) (2,652) 26,543 (29,195) 2019 467,152 55,812 319 – (58) – 5,046 (6,975) (4,242) 49,902 10.68% (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 165 NOTE 35: LEASE (in HUF mn) The Group as a lessee Right-of-use assets by class of underlying assets as at 31 December 2020: 2020 Depreciation expense of right-of-use assets Additions to right-of-use assets Carrying amount of right-of-use assets at the end of the reporting period Property 15,933 17,999 45,642 Office equipment and vehicles 514 250 641 Right-of-use assets by class of underlying assets as at 31 December 2019: 2019 Depreciation expense of right-of-use assets Additions to right-of-use assets Carrying amount of right-of-use assets at the end of the reporting period Property 13,272 21,081 52,038 Office equipment and vehicles 1,008 842 912 Total 16,447 18,249 46,283 Total 14,280 21,923 52,950 The total cash outflow for leases was The Group mainly leases real estate, a HUF 23,028 million and HUF 20,603 million significant part of its right-of-use assets are in year 2020 and 2019, respectively. related to branch offices, a smaller part to office buildings and office space. Leasing liabilities by maturities: Within one year Over one year Total Lease liabilities by payments: Arising from fixed lease payments Arising from variable lease payments Total 2020 10,937 37,514 48,451 2020 35,018 13,433 48,451 2019 9,789 44,405 54,194 2019 42,751 11,443 54,194 On 31 December 2020, HUF 126 million is the leases not yet commenced to which the Group lease payment to be paid in the future due to is committed. Amounts recognized in profit or loss: Interest expense on lease liabilities Expense relating to short-term leases Expense relating to leases of low value assets Expense relating to variable lease payments not included in the measurement of lease liabilities Income from subleasing right-of-use assets 2020 1,623 3,857 721 2 405 2019 1,652 5,923 382 4 6 166 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The Group as a lessor The Group’s leasing activities are most commercial vehicles, vessels and construction machinery. significant in Hungary, Bulgaria, Slovenia, The Group manages the risk associated Ukraine and Croatia. The main activity with the rights held in the underlying assets of the leasing companies is finance leasing. by, inter alia, buy-back agreements, About half of the underlying assets are determining the residual values on level lower passenger cars, besides this the Group than future market values and registering leases mainly agricultural machinery, pledge on the underlying asset. The Group as a lessor, finance lease Amounts receivable under finance leases: In less than 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years More than 5 years Total receivables from undiscounted lease payments Unguaranteed residual values Gross investment in the lease Less: unearned finance income Present value of minimum lease payments receivable Loss allowance Net investment in the lease 2020 410,639 298,354 211,257 127,052 71,428 44,473 1,163,203 796 1,163,999 (88,257) 1,075,742 (24,602) 1,051,140 An analysis of the change in the gross values on finance receivables is as follows: Balance as at 1 January Increase due to acquisition Additions due to new contracts Additions due to interest income and amortized fees Increase in residual value guarantees Decrease in residual value guarantees Decrease due to regular lease payment Decrease due to sale Decrease due to write-off Decrease due to early repayment Decrease due to repossession of the asset Foreign currency translation difference Closing balance 2020 982,853 – 372,664 54,110 – – (328,357) (3,924) (349) (52,703) (4,422) 55,870 1,075,742 An analysis of the change in the loss allowance on finance receivables is as follows: Balance as at 1 January Loss allowance for the period Release of loss allowance Use of loss allowance Partial write-off Foreign currency translation difference Closing balance 2020 13,590 23,807 (13,240) (21) (50) 516 24,602 2019 317,799 238,249 196,142 139,292 93,361 49,639 1,034,482 401 1,034,883 (52,030) 982,853 (13,590) 969,263 2019 519,004 344,286 432,625 52,380 4,430 (2,657) (346,289) (3,629) (848) (20,906) (3,961) 8,418 982,853 2019 9,005 13,415 (8,535) (809) – 514 13,590 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 167 Result from finance leases: Selling profit or loss Finance income on the net investment in the lease Income relating to variable lease payments not included in the measurement of the net investment in the lease 2020 249 54,046 – 2019 (78) 40,914 – The Group as a lessor, operating lease Amounts receivable under operating leases: In less than 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years More than 5 years Total receivables from undiscounted lease payments 2020 11,285 8,634 4,856 2,692 1,653 20 29,140 2019 11,990 6,928 5,033 3,955 1,781 491 30,178 Result from operating leases: Lease income Therein lease income relating to variable lease payments that do not depend on an index or a rate 2020 9,861 – 2019 11,127 – NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) A financial instrument is any contract that further restricted by sub-limits covering on and gives rise to a financial asset of one entity and off-balance sheet exposures and daily delivery a financial liability or equity instrument of risk limits in relation to trading items such as another entity. forward foreign exchange contracts. Actual Financial instruments may result in certain exposures against limits are monitored daily. risks to the Group. The most significant risks the Group faces include: Exposure to credit risk is managed through 36.1 Credit risk 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. The Group takes on exposure to credit risk Exposure to credit risk is managed by obtaining which is the risk that a counter-party will be collateral, corporate and personal guarantees. 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 Defining the expected credit loss on individual and collective basis areas and loan types. Such risks are monitored On individual basis: on a periodical basis and subject to an annual Individually assessed are the non-retail or or more frequent review. The exposure to non, micro and small enterprise exposure of any borrower including banks and brokers is significant amount on a stand-alone basis: 168 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:588) exposure in stage 3, (cid:588) exposure which are not in stage 3, (cid:588) exposure in workout management significant on a stand-alone basis, (cid:588) purchased or originated credit-impaired (cid:588) purchased or originated credit-impaired instruments which are in accordance with instruments which are in accordance the conditions mentioned above with the conditions mentioned above. The calculation of impairment must be In the collective impairment methodology prepared and approved by the risk manage- credit risk and the change of credit risk can ment functional areas. The calculation, all be correctly captured by understanding the relevant factors (amortized cost, original and risk characteristics of the portfolio. In order current EIR, contracted and expected cash-flows to achieve this the main risk drivers shall be (from business and/or collateral) for the identified and used to form homogeneous individual periods of the entire lifecycle, other segments having similar risk characteristics. essential information enforced during the The segmentation is expected to stay stable valuation) and the criteria thereof (including from month to month however a regular the factors underlying the classification as (at least yearly) revision of the segmentation stage 3) must be documented individually. process should be set up to capture the change of risk characteristics. The segmentation must The expected credit loss of the exposure equals be performed separately for each parameter, the difference of the items’ AC (gross book since in each case different factors may have value) on the valuation date and the present relevance. value of the receivable's expected cash-flows The Bank's Headquarter Group Reserve discounted to the valuation date by the Committee stipulates the guidelines related exposure's original effective interest rate (EIR) to the collective impairment methodology (calculated at the initial recognition, or in the at group level. In addition, it has right of case of variable rate, recalculated due to the agreement in respect of the risk parameters last interest rate change). The estimation of the (PD – probability of default, LGD – loss given expected future cash-flows should be forward default, EAD – exposure at default) and looking, it must also contain the effects of the segmentation criteria proposed by the group possible change of macroeconomic outlook. members. At least two scenarios must be used for the The review of the parameters must be estimation of the expected cash-flow. It should performed at least annually and the results be at least one scenario in which the entity should be approved by the Group Reserve anticipates that realized cash-flows will be Committee. Local Risk Managements are significantly different from the contractual responsible for parameter estimations/updates, cash-flows. Probability weights must be macroeconomic scenarios are calculated by allocated to the individual scenarios. OTP Bank Headquarter for each subsidiary The estimation must reflect the probability and each parameter. Based on the consensus of the occurrence and non-occurrence of the proposal of Local Risk Management and credit loss, even if the most probable result OTP Bank Headquarter, the Group Reserve is the non-occurrence of the loss. Committee decides on the modification of parameters (all parameters for impairment On collective basis: calculation). The following exposures are subject to At least on a yearly basis the impairment collective assessment: parameters should be backtested as well. (cid:588) retail exposure irrespective of the amount, The expected loss calculation should be (cid:588) micro and small enterprise exposures forward looking, including forecasts of future irrespective of the amount, economic conditions. This may be achieved (cid:588) all other exposure which are insignificant by applying 3–5 different macroeconomic on a stand-alone basis and not part of the scenarios, which may be integrated in the PD, workout management, LGD and EAD parameters. IFRS consolidated financial statements 169 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:18)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 36.1.1 Financial instruments by stages Gross carrying amount and accumulated loss allowance of financial assets at amortized cost and of interest bearing securities at fair value through other comprehensive income and financial commitments and provision on them by stages: As at 31 December 2020: Placements with other banks Repo receivables Mortgage loans Loans to medium and large corporates Consumer loans Loans to micro and small enterprises Car-finance loans Municipal loans Loans at amortized cost Finance lease receivable Interest bearing securities at fair value through other comprehensive income* Securities at amortized cost Financial assets total Loan commitments given Financial guarantees given Other commitments given Financial liabilities total As at 31 December 2019: Placements with other banks Repo receivables Mortgage loans Loans to medium and large corporates Consumer loans Loans to micro and small enterprises Car-finance loans Municipal loans Loans at amortized cost Finance lease receivable Interest bearing securities at fair value through other comprehensive income* Securities at amortized cost Financial assets total Loan commitments given Financial guarantees given Other commitments given Financial liabilities total Carrying amount/ Exposure 1,148,743 190,849 3,311,651 4,342,003 2,689,621 521,578 362,425 447,564 11,674,842 1,051,140 2,101,384 2,624,920 18,791,878 3,151,051 796,961 954,544 4,902,556 Carrying amount/ Exposure 342,922 67,157 2,882,136 3,842,864 2,629,730 408,813 306,228 343,750 10,413,521 969,263 2,386,632 1,968,072 16,147,567 2,955,152 641,925 601,412 4,198,489 Stage 1 1,150,113 191,141 2,729,387 3,758,377 2,317,004 391,810 292,973 445,039 9,934,590 857,452 2,099,713 2,629,778 16,862,787 3,034,782 777,513 931,515 4,743,810 Stage 1 343,224 67,219 2,675,104 3,672,225 2,458,980 371,093 272,230 343,370 9,793,002 867,905 2,386,632 1,970,083 15,428,065 2,937,741 635,410 600,052 4,173,203 Gross carrying amount/ Stage 2 1 – 522,312 604,480 397,170 141,197 71,576 5,501 1,742,236 183,719 1,671 – 1,927,627 141,527 28,646 28,214 198,387 Gross carrying amount/ Stage 2 147 – 134,459 136,145 209,035 35,128 34,352 3,257 552,376 86,222 – – 638,745 37,380 11,864 4,478 53,722 * Interest bearing securities at fair value through other comprehensive income are recognized in the Consolidated statement of financial position as at fair value (see in Note 8). Loss allowances for securities at fair value through other comprehensive income that are in Stage 1 and/or in Stage 2 is recognized in the Other comprehensive income. It is included in the accumulated loss allowance of this table showed above. 170 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Notinal value Stage 3 118 - 174,137 167,402 318,448 34,721 8,370 616 703,694 33,606 - 799 738,217 5,827 5,065 4,277 15,169 Notinal value Stage 3 29 - 203,089 168,671 274,696 38,668 6,189 403 691,716 26,967 - 728 719,440 4,447 5,740 8,110 18,297 POCI - - 70,809 31,744 13,988 4,105 3,219 - 123,865 965 - - 124,830 - - - - POCI - - 19,760 25,399 7,109 4,116 4,362 - 60,746 1,759 - - 62,505 - - - - Total 1,150,232 191,141 3,496,645 4,562,003 3,046,610 571,833 376,138 451,156 12,504,385 1,075,742 2,101,384 2,630,577 19,653,461 3,182,136 811,224 964,006 4,957,366 Total 343,400 67,219 3,032,412 4,002,440 2,949,820 449,005 317,133 347,030 11,097,840 982,853 2,386,632 1,970,811 16,848,755 2,979,568 653,014 612,640 4,245,222 Stage 1 1,377 292 10,486 43,544 42,050 5,671 1,732 2,668 106,151 4,141 6,856 4,858 123,675 19,914 10,044 7,339 37,297 Stage 1 451 62 6,877 39,412 53,266 5,656 1,922 2,788 109,921 3,805 2,927 2,014 119,180 21,254 6,927 8,316 36,497 Accumulated loss allowance/Provision Stage 3 111 - 101,972 98,800 232,138 24,654 5,735 271 463,570 12,188 - 799 476,668 2,539 2,769 1,150 6,458 Stage 2 1 - 29,970 67,479 75,111 17,982 3,746 653 194,941 8,103 128 - 203,173 8,632 1,450 973 11,055 POCI - - 42,566 10,177 7,690 1,948 2,500 - 64,881 170 - - 65,051 - - - - Accumulated loss allowance/Provision Stage 3 22 - 99,533 100,178 222,937 28,469 4,904 225 456,246 7,320 - 725 464,313 1,665 3,188 2,655 7,508 Stage 2 5 - 4,926 15,169 39,808 4,934 1,286 267 66,390 2,383 - - 68,778 1,497 974 257 2,728 POCI - - 38,940 4,817 4,079 1,133 2,793 - 51,762 82 - - 51,844 - - - - Total 1,489 292 184,994 220,000 356,989 50,255 13,713 3,592 829,543 24,602 6,984 5,657 868,567 31,085 14,263 9,462 54,810 Total 478 62 150,276 159,576 320,090 40,192 10,905 3,280 684,319 13,590 2,927 2,739 704,115 24,416 11,089 11,228 46,733 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 171 36.1.2 Movement table of loss allowance/provision on financial instruments Movement of loss allowance on financial assets at amortized cost and on interest bearing securities at fair value through other comprehensive income and of provision of financial commitments: As at 31 December 2020: Stage 1 Placements with other banks Repo receivables Loans at amortized cost Finance lease receivables Interest bearing securities at fair value through other comprehensive income and securities at amortized cost Stage 2 Placements with other banks Repo receivables Loans at amortized cost Finance lease receivables Interest bearing securities at fair value through other comprehensive income and securities at amortized cost Stage 3 Placements with other banks Repo receivables Loans at amortized cost Finance lease receivables Interest bearing securities at fair value through other comprehensive income and securities at amortized cost Loss allowance on financial assets subtotal POCI Loans at amortized cost Finance lease receivables Loss allowance on financial assets total Loan commitments and financial guarantees given – stage 1 Loan commitments and financial guarantees given – stage 2 Loan commitments and financial guarantees given – stage 3 Provision on financial liabilities total Opening balance 119,180 451 62 109,921 3,805 4,941 68,778 5 – 66,390 2,383 – 464,313 22 – 456,246 7,320 725 652,271 51,844 51,762 82 704,115 36,497 2,728 7,508 46,733 Increases due to origination and acquisition Decreases due to derecognition 141,735 10,430 306 125,137 1,884 3,978 57,383 – – 53,445 3,938 – 119,894 – – 117,198 2,696 – 319,012 16,933 16,933 – 335,945 20,712 3,984 1,071 25,767 (42,569) (263) – (40,604) (739) (963) (15,678) – – (15,537) (141) – (99,345) – – (98,810) (535) – (157,592) (11,752) (11,752) – (169,344) (2,118) (458) (570) (3,146) 172 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Transfers between stages (net) (185,201) – – (183,599) (1,602) – 83,013 – – 81,777 1,236 – 99,117 – – 98,813 304 – (3,071) 3,071 3,009 62 – (900) 351 549 – Changes due to change in credit risk (net) Changes due to modifications without derecognition (net) Decrease in loss allowance account due to write-offs Other adjustments Closing balance 84,111 (12,805) (76) 92,372 1,034 3,586 3,297 – – 2,802 367 128 (15,385) 45 – (15,913) 483 – 72,023 1,527 1,501 26 73,550 (15,344) 4,474 (3,545) (14,415) (4,294) – – (4,132) (162) – 6,130 – – 6,208 (78) – 364 – – 373 (9) – 2,200 489 489 – 2,689 (453) 237 257 41 (56) – – (55) (1) – (98) – – (98) – – (92,476) – – (92,226) (250) – (92,630) (735) (735) – (93,365) (1,785) – – (1,785) 10,769 3,564 – 7,111 (78) 172 348 (4) – (46) 398 – 186 44 – (2,111) 2,179 74 11,303 3,674 3,674 – 14,977 688 (261) 1,188 1,615 123,675 1,377 292 106,151 4,141 11,714 203,173 1 – 194,941 8,103 128 476,668 111 – 463,570 12,188 799 803,516 65,051 64,881 170 868,567 37,297 11,055 6,458 54,810 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 173 As at 31 December 2019: Opening balance Increases due to origination and acquisition Decreases due to derecognition Stage 1 Placements with other banks Loans at amortized cost Interest bearing securities at fair value through other comprehensive income and securities at amortized cost Stage 2 Placements with other banks Loans at amortized cost Interest bearing securities at fair value through other comprehensive income and securities at amortized cost Stage 3 and POCI Placements with other banks Loans at amortized cost Interest bearing securities at fair value through other comprehensive income and securities at amortized cost Loss allowance on financial assets subtotal Loan commitments and financial guarantees given – stage 1 Loan commitments and financial guarantees given – stage 2 Loan commitments and financial guarantees given – stage 3 Provision on financial liabilities total 96,264 463 90,469 5,332 58,460 12 58,448 – 532,691 22 531,964 705 687,415 21,457 2,821 3,775 28,053 103,075 3,975 97,486 1,614 19,435 2 19,433 – 28,342 – 27,617 725 150,852 16,460 1,188 3,283 20,931 (26,715) (144) (25,619) (952) (14,881) – (14,881) – (75,635) – (74,853) (782) (117,231) (4,010) (92) (2,138) (6,240) 174 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Transfers between stages (net) Changes due to change in credit risk (net) Changes due to modifications without derecognition (net) Decrease in loss allowance account due to write-offs Other adjustments Closing balance (70,826) (1) (70,820) (5) (2,818) 1 (2,824) 5 73,644 – 73,644 – – 192 (265) 73 – 16,342 (1,165) 19,575 (2,068) 12,219 3 12,221 (5) (16,854) – (16,820) (34) 11,707 (2,120) (1,226) 2,479 (867) (5,070) 9 (5,079) – 406 – 406 – 4,647 – 4,647 – (17) (903) 55 (163) (1,011) (960) – (960) – (388) – (388) – (79,597) – (79,597) – (80,945) (1) (1) (100) (102) 7,070 (2,624) 8,674 1,020 (3,655) (13) (3,642) – 48,919 – 48,808 111 52,334 5,422 248 299 5,969 119,180 513 113,726 4,941 68,778 5 68,773 – 516,157 22 515,410 725 704,115 36,497 2,728 7,508 46,733 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 175 36.1.3 Loan portfolio by countries An analysis of the non-qualified and qualified gross loan portfolio by country is as follows: Country 2020 2019 Gross amount of loan, finance lease receivable at amortized cost, placement with other banks and repo receivable portfolio Loss allowance Gross amount of loan, finance lease receivable at amortized cost, placement with other banks and repo receivable portfolio Loss allowance Hungary Bulgaria Croatia Serbia Romania Slovenia Russia Ukraine Montenegro France Albania Germany Moldova Slovakia United States of America Switzerland Austria Belgium The Netherlands Italy Luxembourg United Kingdom Canada Cyprus Ireland Norway Denmark Australia Poland Turkey Spain Greece Czech Republic Bosnia and Herzegovina Sweden Israel United Arab Emirates Kazakhstan Egypt Iceland Latvia Other* Total 4,513,208 2,722,998 1,663,534 1,557,129 915,030 905,881 626,269 449,503 376,351 231,122 185,711 151,101 132,163 74,614 70,901 61,804 54,009 49,401 31,144 25,614 25,062 21,692 17,026 16,890 14,053 7,525 5,817 3,649 2,006 1,567 996 989 902 795 536 455 388 193 78 56 34 3,304 14,921,500 209,216 202,018 101,640 48,429 52,016 14,022 133,293 50,393 23,440 645 8,243 485 4,586 225 67 615 58 119 497 164 46 1,282 5 3,102 211 39 15 1 119 93 55 141 9 248 54 5 31 8 6 56 20 209 855,926 Loans at fair value: Country Hungary Bosnia-Herzegovina Croatia Total 3,650,513 2,419,203 1,380,175 1,215,038 747,026 823,611 812,703 484,678 333,697 92,791 152,279 46,553 104,796 69,158 11,471 34,232 2,129 24,042 6,491 5,811 347 47,618 222 16,221 401 568 427 214 525 433 893 2,147 454 382 437 384 34 73 14 51 29 3,041 12,491,312 2020 798,981 2,535 1,089 802,605 125,245 148,053 68,906 23,021 41,319 4,025 159,045 74,650 20,198 63 3,688 189 1,797 24,769 56 635 16 98 167 125 13 1,171 1 431 118 36 10 1 21 46 23 132 24 44 45 2 24 21 1 49 15 156 698,449 2019 493,208 2,581 489 496,278 * Other category as at 31 December 2020 includes e.g.: Japan, China, Malta, Singapore, Macedonia, Algeria, Portugal, Finland, Saudi Arabia, Lithuania , Qatar, Belorussia, Republic of South-Africa, Tunisia, Armenia, Brazil, India, Syria, Hong Kong, South-Korea, Jordan, Estonia, Iran, Georgia, Kosovo, Morocco, Nigeria, Vietnam, Republic of Pakistan, Kyrgyzstan, Saint Vincent, Seychelles. 176 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 36.1.4 Collateral The values of collateral held by the Group The collateral covers loans as well as by type are as follows (total collateral). off-balance sheet exposures. Types of collateral Mortgages Guarantees of state or organizations owned by state Assignments (revenue or other receivables) Guarantees and warranties Cash deposits Securities Other Total 2020 12,346,773 731,529 486,670 178,139 163,489 156,857 2,159,894 16,223,351 2019 11,113,017 486,112 447,820 423,035 130,913 186,154 2,216,505 15,003,556 The values of collateral held by the Group by type The collaterals cover loans as well as are as follows (to the extent of the exposures). off-balance sheet exposures. Types of collateral Mortgages Guarantees and warranties Assignments (revenue or other receivables) Guarantees of state or organizations owned by state Securities Cash deposits Other Total 2020 5,902,854 984,532 344,716 190,700 115,269 67,158 1,244,771 8,850,000 2019 5,184,997 303,711 306,863 439,148 137,613 70,910 1,331,823 7,775,065 The coverage level of the loan portfolio coverage level to the extent of the exposures (total collateral) decreased by 3.76% but the increased by 0.58% as at 31 December 2020. 36.1.5 Restructured loans Loans to medium and large corporations Retail consumer loans Retail mortgage loans Loans to micro and small enterprises Municipal Other loans Total 2020 Gross portfolio Loss allowance 2019 Gross portfolio Loss allowance 58,271 31,108 15,159 11,782 41 4,412 120,773 (12,260) (14,714) (2,754) (1,237) (16) (791) (31,772) 22,418 16,344 16,564 9,344 9 305 64,984 3,948 3,748 1,218 1,728 3 32 10,677 The forborne definition used by the Group is based on EBA (EU) 2015/227 regulation. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 177 36.1.6 Financial instruments by rating categories* Securities at fair value through other comprehensive income as at 31 December 2020: Government bonds Discounted Treasury bills Equity instruments and fund units Other interest bearing securities Total Aaa – – 535 – 535 A2 – – 36 – 36 A3 – – 33 495 528 Baa1 Baa2 Baa3 Ba1 9,138 – 45 – 9,183 2,155 – 7 – 2,162 5,734 1,233 36 998 8,001 7,247 – – – 7,247 Non-trading securities mandatorily at fair value through profit or loss as at 31 December 2020: Non-trading debt instruments mandatorily at fair value through profit or loss Non-trading equity instruments mandatorily at fair value through profit or loss Debt securities designated at fair value through profit or loss Total Aa3 2,794 – – 2,794 A1 – – 2,235 2,235 Baa3 Not rated Total 1,457 7,263 11,514 – – 46,063 46,063 – 2,235 1,457 53,326 59,812 Securities at fair value through other comprehensive income as at 31 December 2020: Aaa Aa2 Aa3 A2 A3 Baa1 Baa2 Government bonds Mortgage bonds Corporate bonds Discounted Treasury bills Non-trading equity instruments Total 20,639 – – – – 20,639 8,215 – – – – 8,215 – – – – 3,875 3,875 37,195 63,577 – – – 100,772 120,112 – 4,815 – – 124,927 192,994 – – – 47 193,041 – – 2,336 – – 2,336 Securities at amortized cost as at 31 December 2020: Aa2 A1 A3 Baa1 Baa3 Ba1 Ba3 Government bonds Corporate bonds Discounted Treasury bills Total 45,975 – – 45,975 10,953 – – 10,953 38,987 – – 38,987 38,627 – – 38,627 2,310,965 14,619 – 2,325,584 10,874 10,527 – 21,401 4,147 – – 4,147 * Moody’s ratings. 178 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Ba2 Ba3 – – 7 7 13,762 11,428 – – 25,190 B1 – – 5 – 5 Not rated – 60 3,036 582 3,678 Total 38,036 12,721 3,740 2,075 56,572 Baa3 Ba1 959,133 – 39,179 9,957 898 1,009,167 182,685 – 4,997 66,401 – 254,083 Ba2 – – 979 – – 979 Ba3 B1 B3 Caa1 200,478 – 12,532 – – 213,010 18,166 – – – – 18,166 69,248 – – – – 69,248 46,269 – – – – 46,269 Not rated – 24,695 16,782 – 30,505 71,982 Total 1,855,134 88,272 81,620 76,358 35,325 2,136,709 B1 B3 10,174 – – 10,174 74,774 – 10,469 85,243 Not rated – 49,486 – 49,486 Total 2,545,476 74,632 10,469 2,630,577 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:16)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 179 Securities held for trading as at fair value through profit or loss as at 31 December 2019: Government bonds Equity instruments and fund units Discounted Treasury bills Other interest bearing securities Other non-interest bearing securities Total Aaa – – – 123 – 123 Aa3 – 27 – – – 27 A1 – 41 – – – 41 A2 – 52 – – – 52 A3 – 18 – 602 – 620 Baa1 Baa2 – 30 – – – 30 30,070 6 – 8,807 – 38,883 Non-trading securities mandatorily at fair value through profit or loss as at 31 December 2019: Baa1 Baa2 Baa3 Ba2 Non-trading debt instruments mandatorily at fair value through profit or loss Non-trading equity instruments mandatorily at fair value through profit or loss Debt securities designated at fair value through profit or loss Total – 8,204 – 8,204 – 461 – 461 866 – – 866 Not rated Total 3,536 4,402 26,250 34,915 – – 2,001 2,001 – 2,001 29,786 41,318 Securities at fair value through other comprehensive income as at 31 December 2019: Aaa Aa2 Aa3 A2 A3 Baa1 Baa2 Government bonds Discounted Treasury bills Mortgage bonds Corporate bonds Non-trading equity instruments Total 12,213 – – – – 12,213 7,103 – – – – 7,103 – – – – 6,370 6,370 38,730 – – – – 38,730 6,536 – – 4,700 – 11,236 114,296 – 65,086 – – 179,382 180,974 – – 3,529 – 184,503 Securities at amortized cost as at 31 December 2019: Government bonds Corporate bonds Mortgage bonds Discounted Treasury bills Total Aa2 Baa1 Baa3 Ba2 41,010 – – – 41,010 42,454 – – – 42,454 1,722,028 – 7,739 – 1,729,767 1,444 9,975 – – 11,419 Ba3 5,520 – – – 5,520 B1 B3 26,442 – – – 26,442 5,218 – – 6,516 11,734 180 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Baa3 23,715 18 12 5,377 – 29,122 Ba1 – – – 1,404 – 1,404 Ba2 11,211 – – 3,078 – 14,289 Ba3 6,198 7 38 – – 6,243 Not rated – 877 – 821 7,516 9,214 Total 71,194 1,076 50 20,212 7,516 100,048 Baa3 1,013,472 339,398 7,841 34,900 1,139 1,396,750 Ba1 – – – 4,950 – 4,950 Ba2 Ba3 B1 Caa1 137,353 104,292 – 892 – 242,537 156,000 – – – – 156,000 60,930 – – – – 60,930 45,005 – – – – 45,005 Not rated – – 24,341 24,091 32,638 81,070 Total 1,772,612 443,690 97,268 73,062 40,147 2,426,779 Caa1 89,721 – – – 89,721 Not rated – 12,744 – – 12,744 Total 1,933,837 22,719 7,739 6,516 1,970,811 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 181 36.2 Maturity analysis of assets, liabilities and liquidity risk management methodology is an annual process. The monitoring of liquidity reserves for both centralized and decentralized liquid Liquidity risk is a measure of the extent to asset portfolio has been built into the daily which the Group may be required to raise reporting process. funds to meet its commitments associated with financial instruments. The Group Due to the balance sheet adjustment process maintains its liquidity profiles in accordance (deleveraging) experienced in the last few with regulations prescribed by the NBH. years, the liquidity reserves of the Group increased significantly while the liquidity The essential aspect of the liquidity risk risk exposure has decreased considerably. management strategy is to identify all relevant Currently the (over)coverage of potential systemic and idiosyncratic sources of liquidity liquidity risk exposure by high quality liquid risk and to measure the probability and assets is high. There were no material changes severity of such events. During liquidity risk in the liquidity risk management process for management the Group considers the effect of the year ended 31 December 2020. liquidity risk events caused by reasons arising in the bank business line (deposit withdrawal), The contractual amounts disclosed in the the national economy (exchange rate shock maturity analyses are the contractual yield curve shock) and the global financial undiscounted cash-flows like gross finance system (capital market shock). lease obligations (before deducting finance charges); prices specified in forward In line with the Group’s risk management agreements to purchase financial assets for policy liquidity risks are measured and cash; net amounts for pay-floating/receive- managed on multiply hierarchy levels and fixed interest rate swaps for which net applying integrated unified VaR based cash-flows are exchanged; contractual methodology. The basic requirement is that amounts to be exchanged in a derivative the Group must keep high quality liquidity financial instrument for which gross cash-flows reserves which means it can fulfill all are exchanged; gross loan commitments. liabilities when they fall due without material additional costs. Such undiscounted cash-flows differ from the amount included in the statement of financial The liquidity reserves can be divided in two position because the amount in that statement parts. There are separate decentralized liquid is based on discounted cash-flows. When asset portfolios at subsidiary level and a the amount payable is not fixed, the amount centralized flexible liquidity pool at a Group disclosed is determined by reference to the level. The reserves at subsidiary levels are held conditions existing at the end of the reporting to cover the relevant shocks of the subsidiaries period. For example, when the amount which may arise in local currencies (deposit payable varies with changes in an index, the withdrawal, local capital market shock, amount disclosed may be based on the level unexpected business expansion), while the of the index at the end of the period. centralized liquidity pool is held to cover the Bank’s separate shocks (deposit-, yield curve- The following tables provide an analysis of and exchange rate shocks) and all group assets and liabilities about the non-discounted member’s potential shocks that may arise in cash-flow into relevant maturity groupings foreign currencies (deposit withdrawal, capital based on the remaining period from the market shock). balance sheet date to the contractual maturity date. It is presented under the most prudent The recalculation of shocks is made at least consideration of maturity dates where options quarterly while the recalibration of shock or repayment schedules allow for early measurement models and review of the risk repayment possibilities. 182 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 2020 Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements Repo receivables Trading securities at fair value through profit or loss Non–trading instruments mandatorily at fair value through profit or loss Debt securities designated at fair value through profit or loss Securities at fair value through other comprehensive income Securities at amortized cost Loans at amortized cost Finance lease receivable Loans measured at fair value through profit or loss Associates and other investments Other financial assets* TOTAL ASSETS Amounts due to banks, the National Governments, deposits from the National Banks and other banks Repo liabilities Financial liabilities designated at fair value through profit or loss Deposits from customers Liabilities from issued securities Leasing liabilities Other financial liabilities* Subordinated bonds and loans TOTAL LIABILITIES NET POSITION Receivables from derivative financial instruments held for trading Liabilities from derivative financial instruments held for trading Net position of financial instruments held for trading Receivables from derivative financial instruments designated as hedge accounting Liabilities from derivative financial instruments designated as hedge accounting Net position of financial instruments designated as hedge accounting Net position of derivative financial instruments total Commitments to extend credit Bank guarantees Confirmed letters of credit Factoring loan commitment Off–balance sheet commitments Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total 2,370,130 36 41,471 20,675 – 2,432,312 902,977 191,143 77,646 134,780 34,502 635 1,150,540 – – – 14,546 16,163 15,093 8,032 – 777 191,143 54,611 28 2,235 – – – – 9,590 42,879 52,497 – – 2,235 136,746 278,017 984,596 644,612 31,688 2,075,659 121,993 1,720,314 127,856 47,251 2,130,394 274,143 1,577,822 5,190,401 659,682 819,600 4,219,165 42,439 24,352 25,193 159,934 607,274 – – – – – 134,672 5,746,992 – 3,520 2,852,363 – 4,551 8,768,330 – 1,902 6,407,791 58,307 14,376 148,662 165,619 86,991 695,707 254,897 8,379 3,159 – 109,612 – 1,421 8,350 21,201 – – – 2,300,365 15,065,456 130,445 1,971 8,163 2,859 19,447 374,525 – 2,843 15,624,811 2,546,832 (9,877,819) ** 305,531 305,074 269,133 27,776 3,239 6,838 1,425,729 7,342,601 221,028 65,841 11,169 89 267,083 841,308 5,566,483 – – – 10,496 – 10,496 138,166 2,566,666 13,260,274 1,104,120 816,753 58,307 159,021 23,924,138 1,203,214 117,991 34,131 17,891,923 467,390 49,967 407,796 276,764 20,449,176 3,474,962 594,663 3,080,660 532,012 246,922 – 4,454,257 (473,510) (3,302,801) (441,330) (200,525) (31) (4,418,197) 121,153 (222,141) 90,682 46,397 (31) 36,060 186 8,082 169,339 173,109 (41,382) (118,914) (468,378) (88,720) (41,196) (110,832) (299,039) 84,389 – – – 350,716 (717,394) (366,678) 79,957 (332,973) (208,357) 130,786 (31) (330,618) 2,375,279 225,440 13,670 305,269 2,919,658 609,431 280,625 8,916 – 898,972 350,195 416,293 1,476 – 767,964 85,813 137,739 11,377 – 234,929 – 99,602 276 – 99,878 3,420,718 1,159,699 35,715 305,269 4,921,401 * Without derivative financial instruments ** Analysis for net position of assets and liabilities are calculated in accordance with IFRS 7, therefore certain financial instruments are presented in the earliest period in which the Group could be required to pay. On-demand deposits are presented in the earliest (within 3 month) period category, however based on the Management’s discretion the Group has appropriate liquidity reserves as maintenance and management of liquidity risk. IFRS consolidated financial statements 183 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 2020 Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements Repo receivables Trading securities at fair value through profit or loss Non-trading instruments mandatorily at fair value through profit or loss Debt securities designated at fair value through profit or loss Securities at fair value through other comprehensive income Securities at amortized cost Loans at amortized cost Finance lease receivable Loans measured at fair value through profit or loss Associates and other investments Other financial assets TOTAL ASSETS Amounts due to banks, the National Governments, deposits from the National Banks and other banks Repo liabilities Financial liabilities designated at fair value through profit or loss Deposits from customers Liabilities from issued securities Leasing liabilities Other financial liabilities* Subordinated bonds and loans TOTAL LIABILITIES NET POSITION Receivables from derivative financial instruments held for trading Liabilities from derivative financial instruments held for trading Net position of financial instruments held for trading Receivables from derivative financial instruments designated as hedge accounting Liabilities from derivative financial instruments designated as hedge accounting Net position of financial instruments designated as hedge accounting Net position of derivative financial instruments total Commitments to extend credit Bank guarantees Confirmed letters of credit Factoring loan commitment Off-balance sheet commitments Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total 1,671,732 19,884 92,762 – – 1,784,378 151,893 65,792 110,150 16,206 1,257 345,298 63,728 10,398 227 – 3,491 13,875 – – – – – 53,442 13,277 3,203 67,219 94,195 3,309 10,935 19,920 34,391 2,001 – – 2,001 327,488 572,117 952,654 486,814 40,186 2,379,259 143,579 1,707,326 99,876 124,320 2,297,158 246,072 1,097,138 4,176,950 624,206 530,139 3,583,573 37,250 – 29,721 – 1,895,176 11,794,728 1,007,404 6,602 20,160 113,724 358,665 – 499,151 – 109,999 4,292,848 – 3,826 3,366,695 – 3,233 7,229,569 – 405 5,037,264 29,638 18,748 142,673 29,638 136,211 20,069,049 285,246 61,745 334,553 143,979 488 677 – – – 1,928 11,606 16,651 – – – 1,301,904 12,372,360 24,902 1,850 7,647 2,210 13,998 310,060 – 2,695 12,975,586 1,412,124 (8,682,738) ** 1,954,571 1,150,368 368,266 30,540 4,246 – 1,899,579 5,329,990 356,471 104 14,087 23 249,532 780,847 4,256,417 – – 5 9,693 – 9,698 132,975 825,523 488 30,862 15,181,103 395,122 54,489 338,020 252,227 17,077,834 2,991,215 2,010,040 1,583,020 698,897 441,348 – 4,733,305 (2,177,179) (1,255,660) (776,359) (352,566) (234) (4,561,998) (167,139) 327,360 (77,462) 88,782 (234) 171,307 2,253 94,227 151,825 156,010 (8,737) (250,345) (231,794) (76,210) (6,484) (156,118) (79,969) 79,800 – – – 404,315 (567,086) (162,771) (173,623) 171,242 (157,431) 168,582 (234) 8,536 2,240,364 164,575 12,587 228,145 2,645,671 337,644 281,387 5,887 – 624,918 351,136 259,246 2,147 – 612,529 92,511 145,286 7,433 – 245,230 5,457 116,155 5,242 – 126,854 3,027,112 966,649 33,296 228,145 4,255,202 * Without derivative financial instruments ** Analysis for net position of assets and liabilities are calculated in accordance with IFRS 7, therefore certain financial instruments are presented in the earliest period in which the Group could be required to pay. On-demand deposits are presented in the earliest (within 3 month) period category, however based on the Management’s discretion the Group has appropriate liquidity reserves as maintenance and management of liquidity risk. 184 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 36.3 Net foreign currency position and foreign currency risk As at 31 December 2020: Assets Liabilities Derivative financial instruments Net position As at 31 December 2019: Assets Liabilities Derivative financial instruments Net position USD 717,819 (878,916) 259,993 98,896 EUR 7,003,090 (5,926,666) (921,666) 154,758 CHF 73,344 (87,551) 32,905 18,698 Other 6,435,309 (5,195,693) (147,436) 1,092,180 Total 14,229,562 (12,088,826) (776,204) 1,364,532 USD 599,946 (708,409) 182,049 73,586 EUR 5,532,766 (4,808,619) (735,690) (11,543) CHF 72,366 (75,407) (755) (3,796) Other 5,701,836 (4,639,952) (116,723) 945,161 Total 11,906,914 (10,232,387) (671,119) 1,003,408 The table above provides an analysis of the of time for which the rate of interest is fixed on main foreign currency exposures of the Group a financial instrument, therefore, indicates to that arise in the non-functional currency of the what extent it is exposed to interest rate risk. entities constituting the Group. The remaining foreign currencies are shown within ‘Others’. The majority of the interest bearing assets ‘Others’ category contains mainly foreign and liabilities of the Group are structured to currencies in RON, RSD, HRK, UAH, RUB, BGN, match either short-term assets and short-term ALL and MDL. The Group monitors its foreign liabilities, or long-term assets and liabilities exchange position for compliance with with repricing opportunities within one the regulatory requirements of the National year, or long-term assets and corresponding Banks and its own limit system established liabilities where repricing is performed in respect of limits on open positions. simultaneously. The measurement of the open foreign currency position of the Group involves monitoring In addition, the significant spread existing the “VaR” limit on the foreign exchange between the different types of interest bearing exposure of the Group. The derivative financial assets and liabilities enables the Group to instruments detailed in the table above are benefit from a high level of flexibility in presented at fair value. adjusting for its interest rate matching and 36.4 Interest rate risk management interest rate risk exposure. The following table presents the interest repricing dates of the Group. Variable yield assets and liabilities have been reported in Interest rate risk is the risk that the value of accordance with their next repricing date. a financial instrument will fluctuate due to Fixed income assets and liabilities have been changes in market interest rates. The length reported in accordance with their maturity. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 185 As at 31 December 2020: ASSETS Within 1 month Trading instruments at fair value through profit or loss 1,261 9,247 Cash, amounts due from banks and balances with the National Banks fixed rate variable rate non-interest-bearing Placements with other banks, net of allowance for placements losses fixed rate variable rate non-interest-bearing Repo receivables fixed rate variable rate non-interest-bearing fixed rate variable rate non-interest-bearing Non-trading instruments mandatorily at fair value through profit or loss fixed rate variable rate non-interest-bearing Financial assets designated at fair value through profit or loss fixed rate variable rate non-interest-bearing Securities at fair value through other comprehensive income fixed rate variable rate non-interest-bearing Securities at amortized cost fixed rate variable rate non-interest-bearing Loans at amortized cost, net of allowance for loan losses Loans mandatorily at fair value through profit or loss fixed rate variable rate non-interest-bearing Fair value adjustment of derivative financial instruments fixed rate variable rate non-interest-bearing Other financial assets fixed rate variable rate non-interest-bearing Over 1 month and Within 3 months Currency HUF Over 3 months and Within 12 months Currency HUF Over 1 year and Within 2 years Currency HUF Over 2 years Non-interest- bearing Total Total HUF Currency HUF Currency HUF Currency 1 – 1 – 4,647 2,008 14,793 4,647 2,008 14,793 – – – – – – – – – – 240,397 339,537 104 103,038 665 194,919 2,003 220,155 197,680 104 102,080 665 194,919 2,003 958 – – – – – – – – – – – – – – – – – – – – – – – 9,277 9,277 – – 5 5 – – – – – – – – – – 21,056 168,850 1,283,869 321,566 2,110,746 2,432,312 21,056 – – – – – – 151709 729,407 881,116 1,007 97,470 98,477 168,850 1,283,869 168,850 1,283,869 1,452,719 124,478 7,633 19,253 116,711 386,900 761,843 1,148,743 – 124,478 5,750 1,883 – – – – 222,927 500,434 723,361 144,720 144,698 289,418 – – – – – – – – – – 19,253 116,711 19,253 116,711 135,964 – – – – – – – – 183,364 183,364 7,485 7,485 190,849 190,849 – – – – – – 9,013 614 14,644 1,280 2,753 5,270 8,463 2,473 1,267 11,185 45,387 56,572 9,013 614 14,644 1,280 2,753 5,254 8,463 – – 1,006 1,006 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 16 – – – – – – – – – – – – – – – 2,235 – 2,235 – – – – – 2,473 1,267 7,790 922 2,473 43,594 51,384 526 1,267 1,448 3,740 30,674 21,410 30,674 26,903 57,577 – – – – – – 5,465 5,465 – – 30,674 21,410 30,674 21,410 52,084 – – – – – – – – – – – – 2,235 2,235 – – 2,235 2,235 – – HUF Currency 150,707 777,104 149,701 679,634 1,006 97,470 – – 20,242 141,857 – 183,364 183,364 – – – 7,485 7,485 – – 355 906 – – – – – – – – – 8,721 526 – 4,487 4,459 28 – – – – – – – – – – – 287 287 – – – – – – – – – – 47,073 11,706 673 95,897 118,558 183,940 49,095 200,651 567,675 826,116 536 34,789 783,610 1,353,099 2,136,709 600 11,706 673 83,363 117,558 183,940 49,095 200,631 567,675 819,295 46,473 – – – – – – – 79,401 79,401 – – – – – – – – 12,534 1,000 – – 21,055 21,055 37,771 37,771 – – – – 20 – – – 6,821 4,574 398,158 40,066 1,844,129 199,766 4,574 398,158 40,066 1,837,731 199,766 – – – – – – – – – – 6,398 – – – – – – – 735,601 1,298,935 2,034,536 47,473 536 19,375 34,789 66,848 35,325 – 536 34,789 – – – – – 2,280,058 344,862 2,624,920 – 2,273,660 344,862 2,618,522 – – 6,398 – – – 6,398 – 656,665 4,758,061 340,558 1,115,958 52,487 998,326 49,217 349,978 1,723,813 1,442,688 125,865 61,226 2,948,605 8,726,237 11,674,842 fixed rate variable rate 68,714 854,962 2,048 264,431 13,026 488,106 36,198 288,272 772,219 806,553 587,951 3,903,099 338,510 851,527 39,461 510,220 13,019 61,706 951,594 636,135 – – – 892,205 2,702,324 3,594,529 – 1,930,535 5,962,687 7,893,222 non-interest-bearing – – – – Finance lease receivables 285,219 281,683 34,926 134,848 fixed rate variable rate 167,083 113,778 8,141 6,117 118,136 167,905 26,785 128,731 – 107,412 non-interest-bearing – – – 18 18 – 134,266 26,854 24,871 1,159 – 24,871 – 70 1,089 – – 68 – 68 – – 141 141 – – – 498 – 498 – – 634 634 – – – – – – – 710 – 710 – – – – 125,865 61,226 125,865 61,226 187,091 69,096 25,036 44,060 5,685 103,954 – 41,005 5,685 62,949 – – – 218 772,833 1,473 218 – – – 1,473 772,833 – – – – – – – – – – – 1,445 325,848 725,292 1,051,140 – – 175,242 212,790 388,032 150,606 511,057 661,663 1,445 – 1,445 1,445 – – – – 798,980 3,625 802,605 – 798,980 – 2,536 1,089 – 2,536 800,069 – 945,704 699,341 880,168 378,971 557,280 416,304 26,776 5,084 40,243 97,805 742,345 245,973 3,192,516 1,843,478 5,035,994 929,702 561,503 658,754 183,337 559,388 387,848 26,799 5,084 40,490 97,487 16,002 137,838 221,414 195,634 (2,108) 28,456 (23) – – 10,221 10,221 – – 16,335 10,982 5,353 – – 155 – 155 – – 16 14 2 – – – – – – – 270 19 251 – – – – – – – – – – – – (247) 318 – – – 2,215,133 1,235,259 3,450,392 – 235,038 362,246 597,284 – – – – – – 742,345 245,973 742,345 245,973 988,318 47 – 47 – 50,991 62,527 – – – – 61,367 10,221 155 79,195 11,015 5,653 140,562 21,236 5,808 50,991 62,527 50,991 62,527 113,518 186 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) LIABILITIES Within 1 month HUF Currency Over 1 month and Within 3 months Currency HUF Over 3 months and Within 12 months Currency HUF Over 1 year and Within 2 years Currency HUF Over 2 years Non-interest- bearing Total Total HUF Currency HUF Currency HUF Currency Amounts due to banks, the Hungarian Government, deposits rom the National Bank of Hungary and other banks fixed rate variable rate non-interest-bearing Repo liabilities fixed rate variable rate non-interest-bearing Financial liabilities designated at fair value through profit or loss fixed rate variable rate non-interest-bearing 75,420 72,092 12,005 109,125 3,741 78,752 39,270 13,770 742,198 27,016 114 11,812 872,748 312,567 1,185,315 6,185 69,235 – – – – – 25,902 79 25,823 0 41,403 30,689 – 2,019 2,019 – – – – – – 12,005 – – – – – – – – – – 78,467 30,658 – 6,360 6,360 – – – – – – 3,422 319 – – – 17,551 61,201 – 109,612 – – 109,612 – 5,994 5,994 – – – – – – – 39,270 13,770 735,267 24,708 – – – – – – – – – – – – – – – – – – – – 6,931 2,308 – – – – – – – – – – – – – – 2,235 – 2,235 – – – – – 796,149 175,899 972,048 76,485 124,856 201,341 114 11,812 114 11,812 11,926 – – – – – – – – – – – – – – – – – – – – 117,991 117,991 8,379 8,379 109,612 109,612 – – 31,896 2,235 34,131 6,073 25,823 – 6,073 2,235 28,058 – – – Deposits from customers 6,143,610 8,390,678 101,521 633,365 142,203 880,099 68,741 171,992 239,805 502,668 15,169 601,012 6,711,049 11,179,814 17,890,863 fixed rate variable rate non-interest-bearing 413,308 2,873,541 101,521 633,233 142,203 879,857 68,741 171,989 239,805 502,658 5,730,302 5,517,137 – – – – 132 – – – 242 – – – Liabilities from issued securities fixed rate variable rate 3,090 213 2,877 221 11,691 414 223,762 721 46,451 – – – 111,565 – 46,451 221 11,691 414 112,197 non-interest-bearing – – – – – 721 – – – 3 – – – – – – – 177,807 177,807 – – 10 – 46 46 – – – – – 965,578 5,061,278 6,026,856 – 5,730,302 5,517,524 11,247,826 15,169 601,012 15,169 601,012 616,181 – – – – 10 462,801 1,412 464,213 – – 10 336,036 126,765 46 336,082 1,356 128,121 – 10 10 Fair value adjustment of derivative financial instruments fixed rate variable rate non-interest-bearing Leasing liabilities fixed rate variable rate non-interest-bearing Other financial liabilities fixed rate variable rate non-interest-bearing Subordinated bonds and loans fixed rate variable rate non-interest-bearing 1,264,893 385,359 1,035,006 208,880 479,592 492,998 9,260 24,904 48,555 90,112 732,937 255,219 3,570,243 1,457,472 5,027,715 1,111,465 376,893 648,487 189,185 481,603 469,867 9,321 24,904 48,802 89,931 153,428 8,466 386,519 19,695 (2,011) 23,131 – 1,131 1,085 46 – 4,091 4,072 19 – – – – – – 6,748 6,572 176 – 30,795 30,762 33 – – – – – – 465 401 64 – 512 – 512 – – – – – – 739 322 417 – 234 228 6 – 84,833 – – 536 536 – – – – – – – – – 6,823 4,911 1,912 – 333 148 185 – 184,090 – 84,833 – 184,090 – – – (61) – 467 467 – – – – – – – – – – – – 5,388 4,219 1,169 – 417 417 – – – – – – (247) – 1,213 433 780 – – – – – – – – – 181 – – – 2,299,678 1,150,780 3,450,458 – 537,628 51,473 589,101 – 732,937 255,219 732,937 255,219 988,156 19,644 18,310 1,334 – 255 87 168 – – – – 5,297 – – 5,297 3,812 2,922 890 – 44,639 34,334 5,008 5,297 48,451 37,256 5,898 5,297 261,223 92,042 265,826 124,076 389,902 – – – – 4,072 531 31,642 35,714 392 923 – 261,223 92,042 261,223 92,042 353,265 5,781 5,684 97 – – – – – – – – – – – – – 274,704 274,704 5,684 5,684 269,020 269,020 – – Net position (4,972,655) (1,902,366) 95,740 820,640 (85,929) 209,242 363,050 460,657 3,874,548 2,063,479 131,544 863,825 (593,702) 2,515,477 1,921,775 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 187 As at 31 December 2019: ASSETS Within 1 month HUF Currency Over 1 month and Within 3 months Currency HUF Over 3 months and Within 12 months Currency HUF Over 1 year and Within 2 years Currency HUF Over 2 years Non-interest- bearing Total Total HUF Currency HUF Currency HUF Currency Cash, amounts due from banks and balances with the National Banks fixed rate variable rate non-interest-bearing Placements with other banks, net of allowance for placements losses 41,319 576,425 2,106 7,513 40,555 534,313 2,102 7,513 764 42,112 – – 4 – – – – – – – 18,818 18,818 – – – – – – 4,385 89,457 14,823 34,598 1,988 30,258 98,889 14,823 34,597 903 22,722 98,889 8,690 8,690 – – – – – – – – – – – – – – – – – – 19,457 19,457 – – 15,205 222,042 892,260 265,467 1,518,911 1,784,378 15,205 – – – – – – 42,657 584,539 627,196 768 42,112 42,880 222,042 892,260 222,042 892,260 1,114,302 7,076 17,603 43,845 137,688 205,234 342,922 6,254 822 – – – – – – – – – 17,603 43,845 528 803 – – – – 528 803 119,000 121,998 240,998 1,085 17,603 45,483 44,955 – 528 39,391 43,845 21,674 20,871 – 803 40,476 61,448 67,157 65,826 – 1,331 1 – – – – – 1,085 7,536 – – – – – – 3,444 3,444 – – – – – – – – 5,929 4,497 12,483 4,400 21,646 10,571 27,214 7,542 1,050 27,784 72,264 100,048 5,529 400 – 25 – 25 – – – – – 4,497 12,483 4,400 21,646 10,571 27,214 – – – – – – – – – – – – 866 866 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,542 1,050 19,487 70,799 90,286 755 7,542 415 1,050 1,170 8,592 – – 3,511 27,810 7,105 27,810 11,507 39,317 3,511 – – – – – – – – – – – – 4,377 25 4,377 25 27,810 7,105 27,810 7,105 34,915 – – – – 2,001 – – 2,001 – – – – 2,001 2,001 – – – – 2,001 2,001 fixed rate variable rate non-interest-bearing Repo receivables fixed rate variable rate non-interest-bearing Trading instruments at fair value through profit or loss fixed rate variable rate non-interest-bearing Non-trading instruments mandatorily at fair value through profit or loss fixed rate variable rate non-interest-bearing Financial assets designated at fair value through profit or loss fixed rate variable rate non-interest-bearing Securities at fair value through other comprehensive income fixed rate variable rate non-interest-bearing Securities at amortized cost fixed rate variable rate non-interest-bearing Loans at amortized cost, net of allowance for loan losses 4,385 – – – – – – 650 18 632 58,425 31,032 – 17,427 17,427 – – 3,942 3,927 15 – – – – – – – – – – – – – – – – – – 55,863 33,312 – – – – 101,371 – 101,371 – – – – – – 25,498 25,498 – – 124 1 123 – – – – – – – – – – – – – – 89,175 51,659 138,245 68,746 428,028 171,582 94,464 213,344 401,659 713,667 867 55,343 1,152,438 1,274,341 2,426,779 51,659 123,562 68,197 413,278 171,034 93,464 212,521 401,659 713,667 – 1,087,826 1,217,078 2,304,904 14,683 549 14,750 548 1,000 – – – – 823 – – – – – – 63,745 867 55,343 867 1,920 55,343 65,665 56,210 – – 19,739 111,029 19,739 111,029 12,506 12,506 38,195 38,195 43,189 1,553,408 43,189 1,553,408 88,635 88,635 – – – – – – – – – – – – – – – – – – – 1,702,632 265,440 1,968,072 – 1,702,632 265,440 1,968,072 – – – – – – – – 534,956 3,767,934 596,440 1,190,169 440,588 1,277,264 90,627 345,604 838,117 1,136,245 144,221 51,356 2,644,949 7,768,572 10,413,521 fixed rate variable rate 6,228 755,305 2,307 320,082 14,141 524,853 28,983 299,680 1,066,868 789,762 528,728 3,012,629 594,133 870,087 426,447 752,411 61,644 45,924 (228,751) 346,483 – – – 1,118,527 2,689,682 3,808,209 – 1,382,201 5,027,534 6,409,735 non-interest-bearing – – – – – – – – – – 144,221 51,356 144,221 51,356 195,577 Finance lease receivables 135,777 232,181 29,361 134,811 3,663 132,638 fixed rate variable rate non-interest-bearing Loans mandatorily at fair value through profit or loss fixed rate variable rate non-interest-bearing Fair value adjustment of derivative financial instruments fixed rate variable rate non-interest-bearing Other financial assets fixed rate variable rate non-interest-bearing 2,767 92,561 1,018 5,886 3,663 23,387 133,010 139,620 28,343 128,925 – 109,251 – 30,021 – 30,021 – – 543 54 489 – – 221 – 221 – – – – 108 108 – – 1,508 – 1,508 – 487 487 – – 13,177 13,177 – – 924 – 924 – 74,996 30,419 44,577 111,789 109,188 2,601 99,504 45,316 54,188 – – – 316 460,534 1,616 316 – – – 1,616 460,534 – – – 1 – – 1 – – – – 1,365 293,768 675,495 969,263 – – 129,813 197,569 327,382 163,954 476,561 640,515 1,365 1 1,365 1,366 – – – – 493,208 3,070 496,278 0 2,581 2,581 493,208 489 493,697 – – – 966,352 432,710 847,077 359,143 765,880 459,987 15,461 273,274 20,584 85,850 167,569 362,920 2,782,923 1,973,884 4,756,807 930,477 423,788 697,547 335,985 766,569 425,038 15,461 273,274 20,584 85,850 35,875 8,922 149,530 23,158 (689) 34,949 – 16,988 16,859 129 – – 2,343 2,343 – – – 94 – 94 – – 367 331 36 – – – – – – – 5 1 4 – – – – – – – – – 3 3 – – – – – – – – – – 1 1 – – – – – 2,430,638 1,543,935 3,974,573 – 184,716 67,029 251,745 167,569 362,920 167,569 362,920 530,489 48,574 54,678 – – – – 65,656 16,859 223 57,397 123,053 2,679 19,538 40 263 48,574 54,678 48,574 54,678 103,252 188 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) LIABILITIES Within 1 month HUF Currency Over 1 month and Within 3 months Currency HUF Over 3 months and Within 12 months Currency HUF Over 1 year and Within 2 years Currency HUF Over 2 years Non-interest- bearing Total Total HUF Currency HUF Currency HUF Currency Amounts due to banks, the Hungarian Government, deposits from the National Bank of Hungary and other banks fixed rate variable rate non-interest-bearing Repo liabilities fixed rate variable rate non-interest-bearing Financial liabilities designated at fair value through profit or loss fixed rate variable rate non-interest-bearing 265,224 84,798 2,633 130,754 5,086 112,533 1,834 78,312 103,826 18,079 19 9,813 378,622 434,289 812,911 212,975 78,022 2,633 52,249 6,776 – 488 – 488 – 28,862 102 28,760 – – – – – – – – – – – – – – – – – – – – 63,143 67,611 – – – – – – – – – 5,085 1 – – – – – – – – – 27,300 85,233 – – – – – – – – – 1,834 76,875 103,826 17,715 – – – – – – – – – – 1,437 – – – – – – – – – – – – – – – – – – – 364 – – – – – – – – – – – 19 – – – – – – – – – – 9,813 – – – – 326,353 263,055 589,408 52,250 161,421 213,671 19 488 – 488 – 9,813 – – – – 9,832 488 – 488 – 2,000 28,862 2,000 30,862 – – 102 28,760 – – 2,000 – 2,000 102 28,760 2,000 Deposits from customers 5,124,112 6,546,522 183,647 570,419 127,494 830,168 45,174 325,413 239,092 426,589 37,258 715,420 5,756,777 9,414,531 15,171,308 fixed rate variable rate non-interest-bearing Liabilities from issued securities fixed rate variable rate non-interest-bearing Fair value adjustment of derivative financial instruments fixed rate variable rate non-interest-bearing Leasing liabilities fixed rate variable rate non-interest-bearing Other financial liabilities fixed rate variable rate non-interest-bearing Subordinated bonds and loans fixed rate variable rate non-interest-bearing 434,026 2,729,694 183,647 570,286 127,494 828,984 45,174 325,411 239,092 426,583 4,690,086 3,816,828 – 16,708 218 16,490 – – 592 40 552 – – – 133 – – – 1,184 – – – 144,381 1,273 – 8 144,381 1,265 8,347 6,901 1,446 – – – 1,936 112,697 – 112,697 1,936 – – – 2 – – – – – – – 106,267 106,267 – – 6 – 53 53 – – – – – 1,029,433 4,880,958 5,910,391 – 4,690,086 3,818,153 8,508,239 37,258 715,420 37,258 715,420 752,678 898 15 389,298 3,869 393,167 – – 898 – – 15 226,083 162,317 898 101 226,184 3,753 166,070 15 913 1,275,341 129,626 828,476 357,746 623,403 588,552 281,358 8,789 37,297 72,359 370,245 167,431 3,416,120 1,324,503 4,740,623 1,224,793 123,378 687,545 341,726 623,287 567,367 281,358 8,789 37,297 72,148 50,548 6,248 140,931 16,020 116 21,185 – 1,252 1,252 – – 4,920 4,177 743 – – – – – – 4,951 4,878 73 – 171 136 35 – – – – – – 126 126 – – 575 – 575 – – – – – – 1,113 902 211 – 1,816 1,816 – – 77,934 – – 1,120 1,120 – – – – – – – – – 7,393 6,551 842 – 2,039 2,039 – – 166,602 – 77,934 – 166,602 – – – – – 924 924 – – – – – – – – – – – – 6,082 5,026 1,056 0 255 239 16 – – – – – – – 5 5 – – – – – – – – – – 211 – – – 2,854,280 1,113,408 3,967,688 – 191,595 43,664 235,259 – 370,245 167,431 370,245 167,431 537,676 24,800 21,374 3,426 – 503 503 – – 5,397 5,397 – – 99 – – 99 6,329 – – 6,329 3,526 3,427 – 99 50,668 38,731 5,608 6,329 54,194 42,158 5,608 6,428 230,989 96,752 236,484 101,536 338,020 – – – – 4,177 1,318 4,733 51 8,910 1,369 230,989 96,752 230,989 96,752 327,741 – – – – 5 – – 5 – – – – 249,938 249,938 5,397 5,397 244,536 244,536 5 5 Net position (4,897,284) (1,490,668) 494,151 680,093 991,731 411,115 (85,850) 562,211 2,929,632 1,630,744 (2,751) 474,961 (570,371) 2,268,456 1,698,085 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:24)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 189 36.5 Market risk The VaR methodology is a statistically defined, probability-based approach that The Group takes on exposure to market risks. takes into account market volatilities as Market risks arise from open positions in interest well as risk diversification by recognizing rate, currency and equity products, all of which offsetting positions and correlations between are exposed to general and specific market products and markets. Risks can be measured movements. The Group applies a ‘Value-at-Risk’ consistently across all markets and products, (VaR) methodology to estimate the market risk and risk measures can be aggregated to of positions held and the maximum losses arrive at a single risk number. The one-day expected, based upon a number of assumptions 99% VaR number used by the Group reflects for various changes in market conditions. The the 99% probability that the daily loss will Management Board sets limits on the value of not exceed the reported VaR. risk that may be accepted, which is monitored on a daily basis. (Analysis of liquidity risk, foreign VaR methodologies are employed to currency risk and interest rate risk is detailed calculate daily risk numbers include in Notes 36.2, 36.3 and 36.4, respectively.) the historical and variance-covariance 36.5.1 Market Risk sensitivity analysis approach. The diversification effect has not been validated among the various market risk types when capital calculation happens. In addition to these two methodologies, The VaR risk measure estimates the potential Monte Carlo simulations are applied to loss in pre-tax profit over a given holding the various portfolios on a monthly basis period for a specified confidence level. to determine potential future exposure. The VaR of the trading portfolio can be summarized as follows (in HUF million): Historical VaR (99%, one-day) by risk type Foreign exchange Interest rate Equity instruments Diversification Total VaR exposure Average 2020 1,530 146 141 – 1,817 2019 479 172 21 – 672 The table above shows the VaR figures by sensitivity analysis complements VaR and asset classes. Since processes driving the value helps the Group to assess its market risk of the major asset classes are not independent exposures. Details of sensitivity analysis for (for example the depreciation of HUF against foreign currency risk are set out in Note 36.5.2, the EUR mostly coincide with the increase of for interest rate risk in Note 36.5.3 and for the yields of Hungarian Government Bonds), equity price sensitivity analysis in Note 36.5.4. a diversification impact emerges, so the overall VaR is less than the sum of the VaR of each individual asset class. 36.5.2 Foreign currency sensitivity analysis While VaR captures the Group’s daily exposure to currency and interest rate risk, sensitivity The following table details the Group’s sensi- analysis evaluates the impact of a reasonably tivity to the rise and fall in the HUF exchange possible change in interest or foreign currency rate against EUR and USD, over a 3 months rates over a year. The longer time frame of period. Monte Carlo simulation is used when 190 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) reporting foreign currency risk internally to closing the former EUR –310 million strategic key management personnel and represents open position. As a result of the partial close, Management’s assessment of the reasonably an open position of EUR –132 million remained possible change in foreign exchange rates. in the Bank's book evaluated against profit or The sensitivity analysis includes only the loss as at 31 December 2020. residual foreign currency denominated monetary items as partially closed strategic A positive number below indicates an increase open positions related to foreign activities. in profit where the HUF strengthens against In accordance with the Bank’s decision, the the EUR. For a weakening of the HUF against subsidiaries’ profit or loss measured in EUR is the EUR, there would be an equal and opposite going to have a higher weight than measured impact on the profit, and the balances below in HUF. Thus, a decision was made about would be negative. Probability 1% 5% 25% 50% 25% 5% 1% Note: Effects to the Consolidated Statement of Profit or Loss in 3 months period in HUF million 2020 (5,900) (4,100) (1,700) (200) 1,200 3,200 4,600 2019 (12,200) (8,400) (3,500) (400) 2,600 6,800 9,700 repriced with two-weeks delay, assuming Monte Carlo simulation is based on the no change in the margin compared to the empirical distribution of the historical exchange last repricing date. rate movements between 2002 and 2020. (cid:588)(cid:631) (cid:1)(cid:228)(cid:228)(cid:156)(cid:236)(cid:228)(cid:631)(cid:133)(cid:202)(cid:152)(cid:631)(cid:195)(cid:177)(cid:133)(cid:145)(cid:177)(cid:195)(cid:177)(cid:236)(cid:177)(cid:156)(cid:228)(cid:631)(cid:253)(cid:177)(cid:236)(cid:174)(cid:631)(cid:133)(cid:202)(cid:631)(cid:177)(cid:202)(cid:236)(cid:156)(cid:224)(cid:156)(cid:228)(cid:236)(cid:631)(cid:224)(cid:133)(cid:236)(cid:156)(cid:631) 36.5.3 Interest rate sensitivity analysis lower than 0.3% were assumed to be unchanged for the whole period. The sensitivity of interest income to changes in BUBOR was analysed by assuming two interest The sensitivity analyses below have been rate path scenarios: determined based on the exposure to interest 1) HUF base rate and BUBOR decreases rates for both derivatives and non-derivative gradually by 15 bps over the next year instruments at the balance sheet date. (probable scenario) The analysis is prepared assuming the amount 2) HUF base rate and BUBOR decreases of assets and liabilities outstanding at the gradually by 60 bps over the next year balance sheet date was outstanding for the (alternative scenario) whole year. The analysis was prepared by assuming only adverse interest rate changes. The net interest income in a one year period The main assumptions were as follows: after 1 January 2021 would be decreased (cid:588) Floating rate assets and liabilities were by HUF 1,301 million (probable scenario) repriced to the modelled benchmark yields at and HUF 5,732 million (alternative scenario) the repricing dates assuming the unchanged as a result of these simulation. A similar margin compared to the last repricing. simulation indicated HUF 1,205 million (cid:588) Fixed rate assets and liabilities were repriced (probable scenario) and HUF 3,060 million at the contractual maturity date. (alternative scenario) decrease in the (cid:588) As for liabilities with discretionary repricing Net interest income in a one year period feature by the Bank were assumed to be after 1 January 2020. IFRS consolidated financial statements 191 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) This effect is counterbalanced by capital Furthermore, the effects of an instant 10bps gains HUF 584 million (or probable scenario), parallel shift of the HUF, EUR and USD HUF 2,329 million (for alternative scenario) yield-curves on net interest income over as at 31 December 2020 and (HUF 223 million a one-year period and on the market value for probable scenario, HUF 2,670 million for of the hedge government bond portfolio alternative scenario as at 31 December 2019) booked against capital was analysed. on the government bond portfolio held for The results can be summarized as follows hedging (economic). (in HUF million): Description 2020 2019 HUF (0.1%) parallel shift EUR (0.1%) parallel shift USD (0.1%) parallel shift Total Effects to the net interest income (one-year period) (1,809) (2,179) (497) (4,485) Effects to capital (Price change of government bonds at fair value through other comprehensive income) 389 – – 389 Effects to the net interest income (one-year period) (1,742) (1,261) (253) (3,256) Effects to capital (Price change of government bonds at fair value through other comprehensive income) 558 – – 558 36.5.4 Equity price sensitivity analysis by recognizing offsetting positions and correlations between products and markets. The daily loss will not exceed the reported VaR The following table shows the effect of the number with 99% of probability. equity price sensitivity. The Group uses VaR The stress test assumes the largest price calculation with 1 day holding period and movement of the last year and calculates with a 99% confidence level. The VaR methodology it as the adverse direction. These scenarios is a statistically defined, probability-based show the loss of the portfolio when all prices approach that takes into account market change with the maximum amount of the volatilities as well as risk diversification last year. Description VaR (99%, one day, HUF million) Stress test (HUF million) 2020 141 (233) 2019 21 (52) 36.6 Capital management continuous monitoring of their capital position, in the long run the strategic Capital management The primary objective of the capital manage- and the business planning, which includes the monitoring and forecast of the capital ment of the Group is to ensure the prudent position. operation, the entire compliance with the The Group members maintain the capital prescriptions of the regulator for a persistent adequacy required by the regulatory bodies business operation and maximising the and the planned risk taking mainly by means shareholder value, accompanied by an optimal of ensuring and developing their profitability. financing structure. In case the planned risk level of a Group The capital management of the Group members member exceeded its Core and the previously includes the management and evaluation of the raised Supplementary capital, it ensures shareholders’ equity available for hedging risks, the prudent operation by occasional other types of funds to be recorded in the equity measures. A further tool in the capital and all material risks to be covered by the capital. management of the Bank is the dividend The basis of the capital management of the policy, and the transactions performed with Group members in the short run is the the treasury shares. 192 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Capital adequacy The Capital Requirements Directive package The Group uses the standard method for deter- mining the regulatory capital requirements (CRDIV/CRR) transposes the new global of the credit risk and market risk, and parallel standards on banking regulation (known as to that, the base indicator method and the the Basel III agreement) into the EU legal advanced method (AMA) in case of the opera- framework. The new rules are applied from tional risk. 1 January 2014. They set stronger prudential For international comparison purposes, requirements for institutions, requiring them the Group calculated the Regulatory capital to keep sufficient capital reserves and liquidity. based on IFRS data as adopted by the EU, and This new framework makes institutions in the the consolidated Capital adequacy ratio based EU more solid and strengthens their capacity on this in accordance with the regulations of to adequately manage the risks linked to Basel III. The Capital adequacy ratio of the Group their activities, and absorb any losses they may (IFRS) was 17.7%, the Regulatory capital was incur in doing business. HUF 2,669,806 million and the Total regulatory The capital adequacy of the Group is supervised capital requirement was HUF 1,203,751 million based on the financial statements data as at 31 December 2020. The same ratios prepared in accordance with IFRS applying the calculated as at 31 December 2019 were the current directives, rulings and indicators from following: 16.8%, HUF 2,390,688 million and 1 January 2014. HUF 1,140,976 million. The Group has entirely complied with the regulatory capital requirements in year 2020 as well as in year 2019. Calculation on IFRS basis (in HUF million) Core capital (Tier 1) = Common Equity Tier1 (CET1) Issued capital Reserves Fair value corrections Other capital components Non-controlling interests Treasury shares Goodwill and other intangible assets Other adjustments Additional Tier 1 (AT1) Supplementary capital (Tier2) Subordinated bonds and loans Other issued capital components Components recognized in T2 capital issued by subsidiaries Regulatory capital* Credit risk capital requirement Market risk capital requirement Operational risk capital requirement Total requirement regulatory capital Surplus capital CET1 ratio Tier 1 ratio Capital adequacy ratio 2020 2,316,118 28,000 2,342,166 33,991 39,204 1,795 (145,939) (174,997) 191,898 353,688 263,439 89,935 314 2,669,806 1,071,163 19,170 113,418 1,203,751 1,466,055 15.40% 15.40% 17.70% 2019 2,055,106 28,000 2,208,519 49,501 (33,225) 2,571 (60,931) (230,017) 90,688 – 335,582 244,536 89,935 1,111 2,390,688 1,002,390 15,905 122,681 1,140,976 1,249,712 14.40% 14.40% 16.80% * Due to the Covid-19 pandemic, in order to strengthen the banking system, National Bank of Hungary recommended banks that dividends are neither approved, nor paid until 30 September 2021. But the potential amount of dividend is deducted from the regulatory capital due to prudential reasons (in accordance with regulation 241/2014 EU). The final amount of dividend payment depends on the decision of the Annual General Meeting and may change the capital adequacy ratios. IFRS consolidated financial statements 193 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Basel III The components of the Common Equity Tier1 foreign operations), Non-controlling interest, Treasury shares, Goodwill and other Intangible capital (CET1) are the following: Issued capital, assets, other adjustments (due to prudential Reserves (Profit reserves, Other reserves, filters, due to deferred tax receivables, due to Changes in the equity of subsidiaries, Net Profit temporary regulations). for the year, Changes due to consolidation) Fair Supplementary capital (Tier2): Subordinated value adjustments, Other capital components, loan capital, Supplementary loan capital, (Revaluation reserves, Share based payments, Other issued capital components, Components Cash-flow hedges, Net investment hedge in recognized in T2 capital issued by subsidiaries. NOTE 37: RECLASSIFICATION AND TRANSFER OF FINANCIAL INSTRUMENTS (in HUF mn) Reclassification from securities held for trading to securities at fair value through other comprehensive income as at 31 December 2020: Date of reclassification Reason for reclassification Type of securities Nominal value at reclassification Fair value at the date of reclassification EIR at the date of reclassification Interest income 1 September 2018 Change in business model Retail Hungarian government bonds 1,069 1,087 2%–3% 28 During the year 2018, securities issued by the collecting the future contractual cash-flows Hungarian Government with the nominal and/or selling them. value of HUF 66,506 million were transferred In 2018, the terms and conditions of sale of from the trading portfolio to the securities retail government bonds and the pricing at fair value through other comprehensive environment have changed significantly, income of which HUF 1,087 million remaining as a result of which the Bank is no longer amount was presented as at 31 December 2020. able to maintain its sole trading intent with The Bank has previously held retail government these securities that the Bank applied earlier. bonds in the portfolio at fair value through Furthermore there is an option-agreement other comprehensive income. During 2018 between the Bank and the Government Debt the Bank changed the business model of the Management Agency (“GDMA”) that GDMA will retail government bonds to manage all on buy back this portfolio therefore it has been the basis of a single business model aimed at reclassified. Financial assets transferred but not derecognized: 2020 2019 Transferred assets Carrying amount Associated liabilities Transferred assets Associated liabilities Carrying amount 48,176 48,176 136,316 1,171 137,487 185,663 44,287 44,287 119,789 – 119,789 164,076 40,912 40,912 – 5,263 5,263 46,175 40,253 40,253 – 2,555 2,555 42,808 Financial assets at fair value through other comprehensive income Debt securities Total Financial assets at amortized cost Debt securities Loans and advances Total Total 194 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) As at 31 December 2020 and 2019, the Group of the Group in the appropriate securities had obligation from repurchase agreements category. The related liability is measured (repo liability) of HUF 109,612 million and at amortized cost in the Consolidated HUF 111 million respectively. Securities sold Statement of Financial Position as “Amounts temporarily under repurchase agreements due to the National Governments, to the will continue to be recognized in the National Banks and other banks and repo Consolidated Statement of Financial Position liabilities”. NOTE 38: OFF-BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL INSTRUMENTS (in HUF mn) In the normal course of business, the Group and are referred to as off-balance sheet becomes a party to various financial financial instruments. The following represent transactions that are not reflected on the notional amounts of these off-balance sheet Consolidated Statement of Financial Position financial instruments, unless stated otherwise. Contingent liabilities: Commitments to extend credit Guarantees arising from banking activities Factoring loan commitment Confirmed letters of credit Other Contingent liabilities and commitments total in accordance with IFRS 9 Legal disputes (disputed value) Other Contingent liabilities and commitments total in accordance with IAS 37 Total 2020 3,420,718 1,159,699 305,269 35,715 35,965 4,957,366 53,486 22,164 75,650 5,033,016 2019 3,027,112 966,649 228,145 33,296 – 4,255,202 30,844 57,151 87,995 4,343,197 Legal disputes At the balance sheet date the Group was Commitments to extend credit, guarantees and letters of credit involved in various claims and legal The primary purpose of these instruments proceedings of a nature considered normal to is to ensure that funds are available to a its business. The level of these claims and legal customer as required. Guarantees and standby proceedings corresponds to the level of claims letters of credit, which represent irrevocable and legal proceedings in previous years. assurances that the Group will make payments The Group believes that the various asserted obligations to third parties, carry the same in the event that a customer cannot meet its claims and litigations in which it is involved credit risk as loans. will not materially affect its financial position, future operating results or cash-flows, Documentary and commercial letters of credit, although no assurance can be given with which are written undertakings by the Group respect to the ultimate outcome of any such on behalf of a customer authorising a third claim or litigation. Provisions due to legal party to draw drafts on the Group up to a disputes were HUF 34,894 million as at stipulated amount under specific terms and 31 December 2020 and HUF 28,650 million as at conditions, are collateralised by the underlying 31 December 2019, respectively. (See Note 24.) shipments of goods to which they relate IFRS consolidated financial statements 195 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) and therefore carry less risk than a direct the primary obligor or principal to perform borrowing. its obligations under a contract is in question, or when there is some public or private Commitments to extend credit represent interest which requires protection from the unused portions of authorisations to extend consequences of the principal's default or credit in the form of loans, guarantees or delinquency. letters of credit. With respect to credit risk on commitments to extend credit, the Group A contract of guarantee is subject to the is potentially exposed to loss in an amount statute of frauds (or its equivalent local laws) equal to the total unused commitments. and is only enforceable if recorded in writing However, the likely amount of loss is less than and signed by the surety and the principal. the total unused commitments since most If the surety is required to pay or perform commitments to extend credit are contingent due to the principal's failure to do so, the upon customers maintaining specific credit law will usually give the surety a right of standards. subrogation, allowing the surety to use the surety's contractual rights to recover the cost Guarantees, irrevocable letters of credit and of making payment or performing on the undrawn loan commitments are subject principal's behalf, even in the absence of an to similar credit risk monitoring and credit express agreement to that effect between policies as utilised in the extension of loans. the surety and the principal. The Management of the Group believes the market risk associated with guarantees, irrevocable letters of credit and undrawn loan Derivatives commitments are minimal. Guarantees, payment undertakings arising from banking activities The Group maintains strict control limits on net open derivative positions, i.e. the difference between purchase and sale contracts, by both amount and term. At any time the amount subject to credit risk is limited to the current Payment undertaking is a promise fair value of instruments that are favourable by the Group to assume responsibility for to the Group (i.e. assets), which in relation the debt obligation of a borrower if that to derivatives is only a small fraction of the borrower defaults until a determined contract or notional values used to express the amount, until a determined date, in case of volume of instruments outstanding. This credit fulfilling conditions, without checking the risk exposure is managed as part of the overall underlying transactions. The guarantee’s lending limits with customers, together with liability is joint and primary with the principal, potential exposures from market movements. in case of payment undertaking, while the Collateral or other security is not usually Group assumes the obligation derived from obtained for credit risk exposures on these guarantee independently by the conditions instruments, except for trading with clients, established by the Group. A guarantee is where the Group in most of the cases requires most typically required when the ability of margin deposits. 196 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 39: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) Previously approved option program required HUF 2,000 discount at the assessment date, a modification thanks to the introduction of and earnings for the shares at the payment the Bank Group Policy on Payments accepted date is maximum HUF 4,000. Employee in resolution of Annual General Meeting benefits are all forms of consideration given regarding to the amendment of CRD III. by an entity in exchange for service rendered Directives and Act on Credit Institutions and by employees or for the termination of Financial Enterprises. employment. IAS 19 Employee Benefits shall Key management personnel affected by the be applied in accounting for all employee Bank Group Policy receive compensation benefits, except those to which IFRS 2 Share- based on performance assessment generally based Payment applies. in the form of cash bonus and equity shares in a ratio of 50–50%. Assignment is based on Short-term employee benefits are employee OTP shares, furthermore performance based benefits (other than termination benefits) payments are deferred in accordance with that are expected to be settled wholly before the rules of Credit Institutions Act. twelve months after the end of the annual The Bank ensures the share-based payment reporting period in which the employees part for the management personnel of the render the related service. Post-employment Group members. benefits are employee benefits (other than During implementation of the Remuneration termination and short-term employee benefits) Policy of the Group appeared that in case of that are payable after the completion of certain foreign subsidiaries it is not possible employment. Post-employment benefit plans to ensure the originally determined share- are formal or informal arrangements under based payment because of legal reasons which an entity provides post-employment – incompatible with relevant EU-directives –, benefits for one or more employees. Post- therefore a decision was made to cancel the employment benefit plans are classified as share-based payment in affected countries, and either defined contribution plans or defined virtual share based payment – cash payment benefit plans, depending on the economic fixed to share price – was made from 2017. substance of the plan as derived from its The quantity of usable shares for individuals principal terms and conditions. calculated for settlement of share-based payment shall be determined as the ratio of Termination benefits are employee benefits the amount of share-based payment and share provided in exchange for the termination price determined by Supervisory Board2. of an employee’s employment as a result of The value of the share-based payment at either: an entity’s decision to terminate an the performance assessment is determined employee’s employment before the normal within 10 days by Supervisory Board based on retirement date or an employee’s decision to the average of the three previous trade day’s accept an offer of benefits in exchange for the middle rate of OTP Bank’s equity shares fixed termination of employment. Other long-term on the Budapest Stock Exchange. employee benefits are all employee benefits At the same time the conditions of discounted other than short-term employee benefits, share-based payment are determined, and postemployment benefits and termination share-based payment shall contain maximum benefits. 2 Until the end of 2014 Board of Directors. IFRS consolidated financial statements 197 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The parameters for the share-based payment relating to years from 2015 by the Supervisory Board for periods of each year as follows: Year Share purchasing at a discounted price Price of remuneration exchanged to share Share purchasing at a discounted price Price of remuneration exchanged to share Share purchasing at a discounted price Price of remuneration exchanged to share Exercise price Maximum earnings Exercise price Maximum earnings Exercise price Maximum earnings 2016 2017 2018 2019 2020 2021 2022 for the year 2015 2,500 3,000 3,000 3,000 – – – 4,892 4,892 4,892 4,892 – – – 6,892 6,892 6,892 6,892 – – – HUF per share for the year 2016 – 7,200 7,200 7,200 7,200 – – – 2,500 3,000 3,500 4,000 – – – 9,200 9,200 9,200 9,200 – – for the year 2017 – – 8,064 8,064 8,064 8,064 8,064 – – 3,000 3,500 4,000 4,000 4,000 – – 10,064 10,064 10,064 10,064 10,064 Year 2019 2020 2021 2022 2023 2024 2025 2026 Share purchasing at a discounted price Price of remuneration exchanged to share Share purchasing at a discounted price Price of remuneration exchanged to share Exercise price Maximum earnings Exercise price Maximum earnings for the year 2018 for the year 2019 HUF per share 10,413 10,413 10,413 10,913 10,913 10,913 10,913 – 4,000 4,000 4,000 4,000 4,000 4,000 4,000 – 12,413 12,413 12,413 12,413 12,413 12,413 12,413 – – 9,553 9,553 9,553 9,553 9,553 9,553 9,553 – 4,000 4,000 4,000 4,000 4,000 4,000 4,000 – 11,553 11,553 11,553 11,553 11,553 11,553 11,553 Based on parameters accepted by Supervisory Board relating to the year 2016 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2017 Remuneration exchanged to share provided in 2017 Share-purchasing period started in 2018 Remuneration exchanged to share provided in 2018 Share-purchasing period started in 2019 Remuneration exchanged to share provided in 2019 Share-purchasing period started in 2020 Remuneration exchanged to share provided in 2020 Approved pieces of shares Exercised until 31 December 2020 147,984 4,288 321,528 8,241 147,984 4,288 321,528 8,241 161,446 161,446 4,033 4,033 166,231 164,039 4,303 4,303 Weighted average share price at the date of exercise (in HUF) 9,544 9,194 10,387 10,098 12,415 11,813 13,585 11,897 Expired pieces Exercisable as at 31 December 2020 – – – – – – – – – – – – – – 2,192 – 198 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Based on parameters accepted by Supervisory Board relating to the year 2017 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2018 Remuneration exchanged to share provided in 2018 Share-purchasing period started in 2019 Remuneration exchanged to share provided in 2019 Share-purchasing period started in 2020 Remuneration exchanged to share provided in 2020 Share-purchasing period starting in 2021 Remuneration exchanged to share applying in 2021 Share-purchasing period starting in 2022 Remuneration exchanged to share applying in 2022 Approved pieces of shares Exercised until 31 December 2020 108,243 11,926 212,282 26,538 101,571 11,584 – – – – 108,243 11,926 212,282 26,538 94,830 11,584 – – – – Weighted average share price at the date of exercise (in HUF) 11,005 10,098 12,096 11,813 11,878 11,897 – – – – Expired pieces Exercisable as at 31 December 2020 – – – – – – – – – – – – – – 6,741 – 120,981 12,838 42,820 3,003 Based on parameters accepted by Supervisory Board relating to the year 2018 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2019 Remuneration exchanged to share provided in 2019 Share-purchasing period started in 2020 Remuneration exchanged to share provided in 2020 Share-purchasing period starting in 2021 Remuneration exchanged to share applying in 2021 Share-purchasing period starting in 2022 Remuneration exchanged to share applying in 2022 Share-purchasing period starting in 2023 Remuneration exchanged to share applying in 2023 Remuneration exchanged to share applying in 2024 Remuneration exchanged to share applying in 2025 Approved pieces of shares Exercised until 31 December 2020 82,854 17,017 150,230 33,024 82,854 17,017 3,448 33,024 Weighted average share price at the date of exercise (in HUF) 13,843 11,829 12,471 11,897 – – – – – – – – – – – – – – – – – – – – – – – – Expired pieces Exercisable as at 31 December 2020 – – – – – – – – – – – – – – 146,782 – 74,529 16,167 99,341 17,042 45,155 4,114 864 432 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:15)(cid:21)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 199 Based on parameters accepted by Supervisory Board relating to the year 2019 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2020 Remuneration exchanged to share provided in 2020 Share-purchasing period starting in 2021 Remuneration exchanged to share applying in 2021 Share-purchasing period starting in 2022 Remuneration exchanged to share applying in 2022 Share-purchasing period starting in 2023 Remuneration exchanged to share applying in 2023 Share-purchasing period starting in 2024 Remuneration exchanged to share applying in 2024 Remuneration exchanged to share applying in 2025 Remuneration exchanged to share applying in 2026 Approved pieces of shares Exercised until 31 December 2020 91,403 22,806 91,403 22,806 Weighted average share price at the date of exercise (in HUF) 12,218 11,897 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Expired pieces Exercisable as at 31 December 2020 – – – – – – – – – – – – – – 202,386 32,238 109,567 15,554 125,771 18,025 44,421 6,279 1,000 500 Effective pieces relating to the periods Defined benefit plan starting in 2021–2026 settled during valuation of performance of year 2017–2019, can be Defined benefit plan is post-employment modified based on risk assessment and benefit plans other than defined contribution personal changes. plan. The Group's net obligation is calculated by estimating the amount of employee's future In connection with the share-based compen- benefit based on their servicies for the current sation for Board of Directors and connecting and prior periods. The future value of benefit is compensation, shares given as a part of pay- being discounted to present value. ments detailed above and based on performance The Group has small number of plans and assessment accounted as equity-settled share mainly in Bulgaria, Serbia, Montenegro and based transactions, HUF 3,394 million and Slovenia. These plans are providing retirement HUF 3,548 million was recognized as expense benefits upon pension age as lump-sum for the year ended 31 December 2020 and 2019 payment based either on fixed amounts or respectively. certain months of salary. These plans are unfunded consequently there are no significant plan assets associated with these plans. Balance as at 1 January Increase due to acquisition Current service cost Interest cost Actuarial gains from changes in demographic assumptions Actuarial (gains)/losses from changes in financial assumptions Benefits paid Past service cost Other increases Closing balance 2020 4,809 – 402 66 (14) (203) (261) (274) 497 5,022 2019 1,966 2,359 290 75 (137) 130 (128) (5) 259 4,809 200 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Amounts recognized in profit or loss: Current service cost Net interest expense Actuarial losses Past service cost Total Actuarial assumptions: 2020 402 66 14 (274) 208 2019 290 75 29 (5) 389 The following are the main actuarial assumptions Discount rate Future salary increases 2020 0.46%–3% 0.4%–5% 2019 0.46%–3.5% 0.0%–5% OTP Group expects to make insignificant amount of contribution to the defined benefit plans during the year 2021. NOTE 40: RELATED PARTY TRANSACTIONS (in HUF mn) The compensation of key management subsidiaries involved in the decision-making personnel, such as the members of the Board of process in accordance with the compensation Directors, members of the Supervisory Board, categories defined in IAS 24 Related Party key employees of the Bank and its major Disclosures, is summarised below: Compensations Short-term employee benefits Share-based payment Other long-term employee benefits Termination benefits Post-employment benefits Total Loans provided to companies owned by the Management (normal course of business) Commitments to extend credit and guarantees Credit lines of the members of Board of Directors and the Supervisory Board and their close family members (at normal market conditions) 2020 10,093 2,619 870 508 – 14,090 87,791 36,758 361 2019 8,453 2,732 636 40 35 11,896 55,517 27,708 666 Types of transactions 2020 2019 Loans provided Client deposits Net interest income on loan provided Net fee income Non-consolidated subsidiaries 16,395 6,541 150 26 Associated companies 523 80 10 1 Non-consolidated subsidiaries 2,656 5,335 32 30 Associated companies 513 – – – (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 201 An analysis of overdraft loan credit line is as follows: Members of Board of Directors and their close family members Members of Supervisory Board and their close family members Executives and their close family members Total 2020 130 21 159 310 2019 153 4 – 157 An analysis of credit limit related to Mastercard Gold/Mastercard Bonus Gold is as follows: Members of Board of Directors and their close family members Members of Supervisory Board and their close family members Executives and their close family members Total 2020 23 11 73 107 2019 39 – 1 40 An analysis of credit limit related to Mastercard Classic/Mastercard Bonus is as follows: Members of Board of Directors and their close family members Members of Supervisory Board and their close family members Total An analysis of credit limit related to Visa Card is as follows: Members of Board of Directors and their close family members Members of Supervisory Board and their close family members Total 2020 2 1 3 2020 48 5 53 An analysis of credit limit related to AMEX Gold credit card loan is as follows: Members of Board of Directors and their close family members Executives and their close family members Total 2020 3 – 3 2019 – – – 2019 39 2 41 2019 7 33 40 An analysis of credit limit related to Visa Infinite/AMEX Platinum credit card loan is as follows: Members of Board of Directors and their close family members Members of Supervisory Board and their close family members Executives and their close family members Total An analysis of Lombard loans, Personal loans is as follows: Members of Board of Directors and their close family members Members of Supervisory Board and their close family members Executives and their close family members Total Lombard loans Members of Board of Directors and their close family members Members of Supervisory Board and their close family members Executives and their close family members Total Personal loans 202 OTP Bank Annual Report 2020 2020 27 5 110 142 2020 54,050 – 1,442 55,492 105 4 14 123 2019 20 5 69 94 2019 53,661 10 1,419 55,090 214 – 7 221 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of “Baby expecting loan” and AXA real estate loans at the Bank is as follows: Members of Board of Directors and their close family members Executives and their close family members Total “Baby expecting loan” Executives and their close family members Total Axa real estate loans An analysis of payment to executives of the Group related to their activity in Board of Directors and Supervisory Board is as follows: Members of Board of Directors Members of Supervisory Board Total 2020 9 66 75 34 34 2020 2,502 204 2,706 2019 – – – – – 2019 3,060 227 3,287 In the normal course of business, the Bank statements taken as a whole. Related enters into other transactions with its party transactions were made on terms unconsolidated subsidiaries of the Group, equivalent to those that prevail in arm’s the amounts and volumes of which are not length transactions and such terms significant to these consolidated financial can be substantiated. NOTE 41: ACQUISITION (in HUF mn) Purchase and consolidation of subsidiaries A comprehensive due diligence was performed before every acquisition decision, where in accordance with the main statements of The Société Générale Group made a strategic the due diligence, the market environment, decision about the disposal of its bank the historical performance of the target subsidiaries in the Central and Eastern and the expected profit-making capacity of European countries and the Balkan Region, the target for the period after the closing in order to be able to strengthen its position according to the business plan, the realistic in other regions. The strategic goal of range of the purchase price was defined. OTP Group is to strengthen its presence in Having taken into consideration some other the Central and Eastern European region aspects, management laid down the proposed and to enter other markets of strategic purchase price. Purchasing an entity with importance. By completing these transactions positive or negative goodwill is reasoned by the parties achieved part of their strategic altogether the expected cost synergies arising goals. Based on market standards, OTP Group from the market situation and the survey of made the due diligence of the subsidiaries joint profit-making capacity, the size of the using data provided by the Vendor, then marge typical for the markets, and other in line with the process defined by the Vendor, strategic considerations (gain of new market after several biddings, the decision was shares or increasing them). made about the selected subsidiaries. Individually the purchase prices were not Following the agreement in principles the made public – as it was agreed with the parties finalized the details of the purchase Vendor – however, the aggregated purchase agreements which were fixed in contracts. price was HUF 460,077 million. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 203 On 13 December 2019 the financial closure of subsidiary of Société Générale Group and the Slovenian transaction has been completed other local subsidiaries held by SGS, so it was (after the acquisition agreement was signed on consolidated from September 2019. 2 May 2019). As a result, OTP Bank has become 99.73% owner of SKB Banka, the Slovenian In line with the purchase agreement signed subsidiary of Société Générale Group and other on 1 August 2018 by OTP Bank and the Société local subsidiaries held by SKB Banka, so it was Générale Group, on 29 March 2019 the financial consolidated from December 2019. closure of the Albanian transaction has been completed and it was consolidated. As a result, On 25 July 2019 the financial closure of the OTP Bank has become the 100% owner of Moldovan transaction has been completed Banka Société Générale Albania SH.A. (after the acquisition agreement was signed (“SGAL”), the Albanian subsidiary of Société on 5 February, 2019). As a result, OTP Bank Générale Group, so it was consolidated from has become 96.69% owner of Mobiasbanca March 2019. – Groupe Société Générale S.A. (“MBSG”), the Moldovan subsidiary of Société Générale The financial closure of the transaction, based Group, so it was consolidated from July 2019. on the acquisition agreement on purchasing 99.74% shareholding of Société Générale The financial closure of the transaction, Expressbank (“SGEB”), the Bulgarian subsidiary based on the acquisition agreement on of Société Générale Group (“SG”), and other purchasing 90.56% shareholding of Société local subsidiaries held by SGEB, between Générale banka Montenegro a.d. (“SGM”), Société Générale Group and DSK Bank EAD the Montenegrin subsidiary of Société (“DSK Bank”), the Bulgarian subsidiary of Générale Group between Crnogorska OTP Bank, has been completed on 15 January komercijalna banka a.d., the Montenegrin 2019, so it was consolidated from January subsidiary of OTP Bank and Société Générale 2019. The acquisition agreement between SG Group, has been completed on 16 July 2019. and DSK Bank was signed on 1 August 2018. The acquisition agreement between SG and CKB was signed on 27 February 2019 and the The Bulgarian Expressbank AD merged with Montenegrin subsidiary was consolidated its parent DSK Bank AD, which was entered in from July 2019. the company register on the 30th of April 2020. The integration of whole bank systems On 24 September 2019 the financial closure and information was completed on the of the Serbian transaction has been completed 4th of May 2020. Podgorička banka AD Podgorica (after the acquisition agreement was signed in Montenegro merged with its parent bank on on 19 December 2018). As a result, OTP Bank the 11th of December 2020, named Crnogorska has become 100% owner of Société Générale komercijalna banka a.d. Podgorica after the banka Srbija a.d. Beograd (“SGS”), the Serbian merger. 204 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The fair value of the assets and liabilities acquired is as follows: Cash amounts and due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements and net of repo receivables Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans at amortized cost Loans mandatorily at fair value through profit or loss Associates and other investments Securities at amortized cost Property and equipment Intangible assets Right-of-use assets Investment properties Derivative financial assets designated as hedge accounting Other assets Total assets Amounts due to the banks, the National Governments, deposits from the National Banks and other banks and repo liabilities Financial liabilities designated at fair value through profit or loss Deposits from customers Liabilities from issued securities Derivative financial liabilities held for trading Derivative financial liabilities designated as hedge accounting Leasing liabilities Other liabilities Subordinated bonds and loans Total liabilities Net assets SKB Banka d.d. Ljubljana Group Mobiasbanca – OTP Group S.A. Podgorička banka AD Podgorica OTP banka Srbija a.d. Beograd Group Banka OTP Albania SH.A. Expressbank Group (86,661) (8,171) (48,951) (123,247) (35,048) (119,589) (177) (74,906) (733) (13) (3,951) (113,360) (5,148) (93,807) (56) (673) (3,706) – (20,110) – (10,272) (106,992) (50,424) (116,786) (997,417) (96,837) (127,867) (694,521) (125,400) (793,134) (2,586) – (83,625) (11,896) (14,874) (1,905) (300) – – – (17,050) (3,424) (879) (1,733) – – – – – (3,095) (1,224) (263) – – – – (5,402) (10,052) (11,457) (2,430) – – – – – (626) (1,746) (1,256) – – – (803) – (19,178) (15,793) (4,838) – – (10,289) (1,308,685) (1,013) (204,069) (751) (193,829) (5,062) (962,882) (1,373) (219,824) (5,487) (1,209,078) 260,395 15,870 30,518 229,216 18,762 139,753 2,005 886,419 – – 3,016 1,909 16,976 – 1,170,720 (137,965) Net assets total Non-controlling interest Negative goodwill Net cash – – – – – 152,145 – 127,663 – 541,005 – 175,534 – – – – 3,305 – 171,320 (32,749) – – 246 11,739 – 170,166 (23,663) – – 2,422 16,425 24,244 813,312 (149,570) – – 1,257 1,838 – 197,391 (22,433) 874,910 – 3,497 – 4,838 16,886 3,878 1,043,762 (165,316) 2019 (531,696) 4,103* 67,516 (460,077) * Non-controlling interest was measured at its proportionate share of net assets of the acquiree. IFRS consolidated financial statements 205 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Breakdown of the acquired entity’s income, profit/loss from the date of the acquisition: SKB Banka d.d. Ljubljana Group Mobiasbanca – OTP Group S.A. Podgorička banka AD Podgorica OTP banka Srbija a.d. Beograd Group Banka OTP Albania SH.A. Expressbank Group Total Interest income – 5,309 3,991 9,820 7,418 34,204 60,742 Net result – 1,508 691 2,720 1,173 16,682 22,774 One-off expense* 4,972 778 978 2,610 1,606 5,752 16,696 Breakdown of the acquired entity’s income, profit/loss if the Group would have acquired from the beginning of year 2019: SKB Banka d.d. Ljubljana Group Mobiasbanca – OTP Group S.A. Podgorička banka AD Podgorica OTP banka Srbija a.d. Beograd Group Banka OTP Albania SH.A. Expressbank Group Total Interest income 30,254 11,553 8,574 39,195 9,944 34,204 133,724 Net result 21,350 4,255 2,755 18,519 2,075 16,682 65,636 One-off expense* 4,972 778 978 2,610 1,606 5,752 16,696 With the acquisitions the following shares were purchased: SKB Banka d.d. Ljubljana SKB Leasing d.o.o. SKB Leasing Select d.o.o. Mobiasbanca-OTP Group S.A. Podgorička banka AD Podgorica OTP banka Srbija a.d. Beograd OTP Leasing Srbija d.o.o. Beograd OTP Osiguranje ADO Beograd Banka OTP Albania SH.A. Expressbank AD OTP Leasing EOOD Express Factoring EOOD Express Life insurance Joint-Stock Company Number of shares 12,614,965 – – 9,669,155 87,602 5,331,016 – 305,408 67,409 33,584,555 – – Type ordinary share – – ordinary share ordinary share ordinary share – ordinary share ordinary share ordinary share – – Voting rights 99.72% 100.00% 100.00% 96.69% 90.56% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 29,918 ordinary share 100.00% * The net result was decreased by the loss allowance on loans in accordance with IFRS 9 after the first day of the acquisition (Day 1). 206 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 42: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) The control is established when the Group If the control can’t be obviously determined has the right and exposure over the variable then it should be supposed that the control positive yield of the investee but the same does not exist. time put up with the consequences of the negative returns and the Group by its decisions Significant influence is presumed by the Group is able to influence the extent of the yields. to exist – unless the contrary case is proven – The Group primarily considering the following when the Group holds 20% or more of the factors in the process of determining the voting power of an investee but does not have existing of the control: a control. (cid:588)(cid:631) (cid:177)(cid:202)(cid:252)(cid:156)(cid:228)(cid:236)(cid:177)(cid:168)(cid:133)(cid:236)(cid:177)(cid:209)(cid:202)(cid:631)(cid:209)(cid:167)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:152)(cid:156)(cid:146)(cid:177)(cid:228)(cid:177)(cid:209)(cid:202)(cid:631)(cid:201)(cid:133)(cid:192)(cid:177)(cid:202)(cid:168)(cid:631) mechanism of the entity, Investments in companies in which the Bank (cid:588)(cid:631) (cid:133)(cid:241)(cid:236)(cid:174)(cid:209)(cid:224)(cid:177)(cid:236)(cid:259)(cid:631)(cid:209)(cid:167)(cid:631)(cid:236)(cid:174)(cid:156)(cid:631)(cid:13)(cid:209)(cid:133)(cid:224)(cid:152)(cid:631)(cid:209)(cid:167)(cid:631)(cid:20)(cid:177)(cid:224)(cid:156)(cid:146)(cid:236)(cid:209)(cid:224)(cid:228)(cid:579)(cid:631) has a controlling interest are detailed below. Supervisory Board and General meeting They are fully consolidated companies and based on the deed of association, incorporated in Hungary unless otherwise (cid:588)(cid:631) (cid:156)(cid:258)(cid:177)(cid:228)(cid:236)(cid:156)(cid:202)(cid:146)(cid:156)(cid:631)(cid:209)(cid:167)(cid:631)(cid:177)(cid:202)(cid:252)(cid:156)(cid:228)(cid:236)(cid:201)(cid:156)(cid:202)(cid:236)(cid:228)(cid:631)(cid:253)(cid:177)(cid:236)(cid:174)(cid:631)(cid:221)(cid:224)(cid:156)(cid:167)(cid:156)(cid:224)(cid:156)(cid:202)(cid:236)(cid:177)(cid:133)(cid:195)(cid:631) stated. The Bank considers the subsidiaries as voting rights. cash generating units. Significant subsidiaries Name DSK Bank EAD (Bulgaria) OTP Bank JSC (Ukraine) JSC “OTP Bank” (Russia) OTP banka d.d. (Croatia) OTP Bank Romania S.A. (Romania) Vojvodjanska banka a.d. Novi Sad (Serbia) OTP banka Srbija a.d. Beograd (Serbia) Crnogorska komercijalna banka a.d. (Montenegro) Banka OTP Albania SH.A. (Albania) Mobiasbanca – OTP Group S.A. (Moldova) SKB Banka d.d. Ljubljana (Slovenia) OTP Financing Malta Company Ltd. (Malta) OTP Financing Netherlands B.V. (the Netherlands) OTP Holding Ltd. (Cyprus) OTP Financing Cyprus Ltd. (Cyprus) OTP Factoring Ltd. OTP Mortgage Bank Ltd. OTP Real Estate Ltd. Merkantil Bank Ltd. OTP Building Society Ltd. OTP Fund Management Ltd. Bank Center No. 1. Ltd. Inga Kettő Ltd. OTP Funds Servicing and Consulting Ltd. OTP Real Estate Leasing Ltd. Ownership (Direct and Indirect) 2019 100.00% 100.00% 97.91% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 98.26% 99.66% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 2020 99.91% 100.00% 97.91% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 98.26% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Activity commercial banking services commercial banking services commercial banking services commercial banking services commercial banking services commercial banking services commercial banking services commercial banking services commercial banking services commercial banking services commercial banking services refinancing activities refinancing activities refinancing activities refinancing activities work-out mortgage lending real estate management and development finance lease housing savings and loan fund management real estate lease property management fund services real estate leasing (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 207 Significant associates and joint ventures* Summarized financial and non-financial information of associates and joint ventures which are not significant on Group level and are accounted according to IAS 28 (Szallas.hu and D-ÉG Thermoset Ltd.) or accounted on cost (Company for Cash Services Ltd.) is as follows: 2020 Total assets Total liabilities Shareholders’ equity Total revenues Ownership Country/Headquarter Activity 2019 Total assets Total liabilities Shareholders’ equity Total revenues Ownership Country/Headquarter Szallas.hu Ltd. 5,855 1,358 4,497 3,833 47.4% Hungary, Miskolc Web portal services Szallas.hu Ltd. 4,939 1,429 3,510 3,405 50.0% Hungary, Miskolc D-ÉG Thermoset Ltd. ** Company for Cash Services Ltd. 2,856 147 2,709 1,531 25.0% Bulgaria, Sofia Other financial services, except insurance and pension funding 3,883 4,629 (746) 2,386 24.6% Hungary, Budapest Wholesale of hardware, plumbing and heating equipment and supplies D-ÉG Thermoset Ltd. ** Company for Cash Services Ltd. 2,736 186 2,550 1,315 25.0% Bulgaria, Sofia 3,883 4,629 (746) 2,386 24.6% Hungary, Budapest Total 12,594 6,134 6,460 7,750 Total 11,558 6,244 5,314 7,106 NOTE 43: TRUST ACTIVITIES (in HUF mn) The Bank acts as a trustee for certain loans As these loans and related funds are not granted by companies or employers to their considered to be assets or liabilities of the employees, mainly for housing purposes. Group, they have been excluded from The ultimate risk for these loans rests with the accompanying Consolidated Statement the party advancing the funds. of Financial Position. The amount of loans managed by the Group as a trustee 2020 36,811 2019 37,320 * Based on unaudited financial statements. ** Main figures of D-ÉG Thermoset Ltd. based on the latest unaudited financial statements as at 31 October 2017. 208 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 44: CONCENTRATION OF ASSETS AND LIABILITIES In the percentage of the total assets Receivables from, or securities issued by the Hungarian Government or the NBH 2020 14.45% 2019 15.63% There were no other significant concentrations which related to exposures of clients. The Bank of the assets or liabilities of the Group either as makes a difference between clients or clients at 31 December 2020 or 2019 respectively. who are economically connected with each other, partners, partners operating in the The Group continuously provides the NBH same geographical region or in the same with reports on the extent of dependency economic sector, exposures from customers. on large depositors as well as the exposure Limit-management regulation includes a of the biggest 50 depositors towards the specific range provision system used by the Group. Bank to control risk exposures. This regulation Further to this obligatory reporting to the has to be used by the Bank for its business NBH, the Group pays particular attention on (lending) risk-taking activity both in retail and the exposure of its largest partners and cares corporate sector. for maintaining a closer relationship with these partners in order to secure the stability To specify credit risk limits Group strives their of the level of deposits. clients get an acceptable margin of risk based on their financial situation. In the Group The organisational unit of the Bank in charge limit system has to be provided a lower level of partner-risk management analyses the decision-making delegation. biggest partners on a constant basis and sets If a Group member takes risk against a limits on the Bank’s and the Group’s exposure client or group of clients (either inside the separately partner-by-partner. If necessary, local economy or outside), the client will be it modifies partner-limits in due course qualified as a group level risk and these limits thereby reducing the room for manoeuvring will be specified at group level. of the Treasury and other business areas The validity period of this policy is 12 months. The limit shall be reviewed prior to the expiry The Bank’ internal regulation (Limit-manage- date but at least once a year – based on the rele- ment regulation) controls risk management vant information required to limit calculations. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:3)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 209 NOTE 45: EARNINGS PER SHARE (in HUF mn) Consolidated Earnings per share attributable preference dividends, by the weighted average to the ordinary shares of the Group are number of ordinary shares outstanding during determined by dividing consolidated Net the year. Dilutive potential ordinary shares are profit for the year attributable to ordinary deemed to have been converted into ordinary shareholders, after the deduction of declared shares. Earnings per share from continuing and discontinued operations Consolidated net profit for the year attributable to ordinary shareholders (in HUF mn) Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) Basic Earnings per share (in HUF) Consolidated net profit for the year attributable to ordinary shareholders (in HUF mn) Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) Diluted Earnings per share (in HUF) 2020 2019 259,416 412,241 258,461,554 261,593,299 1,004 259,416 1,576 412,241 258,543,088 261,660,993 1,003 1,575 Earnings per share from continuing operations Consolidated net profit for the year attributable to ordinary shareholders (in HUF mn) Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) Basic Earnings per share (in HUF) Consolidated net profit for the year attributable to ordinary shareholders (in HUF mn) Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) Diluted Earnings per share (in HUF) 2020 2019 253,826 416,909 258,461,554 261,593,299 982 253,826 1,594 416,909 258,543,088 261,660,993 982 1,593 Earnings per share from discontinued operations Consolidated net profit for the year attributable to ordinary shareholders (in HUF mn) Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) Basic Earnings per share (in HUF) Consolidated net profit for the year attributable to ordinary shareholders (in HUF mn) Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) Diluted Earnings per share (in HUF) 2020 5,590 2019 (4,668) 258,461,554 261,593,299 22 5,590 (18) (4,668) 258,543,088 261,660,993 22 (18) Weighted average number of ordinary shares Average number of Treasury shares Weighted average number of ordinary shares outstanding during the year for calculating basic EPS Dilutive effects of options issued in accordance with the remuneration policy and convertible into ordinary shares* The modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS 2020 280,000,010 21,538,456 2019 280,000,010 18,406,711 258,461,554 261,593,299 81,534 67,694 258,543,088 261,660,993 210 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 46: 2020 NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS (in HUF mn) Net interest/ similar to interest gain and loss Net non-interest gain and loss Loss allowance Other Comprehensive Income Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements Repo receivables Trading securities at fair value through profit or loss Non–trading instruments mandatorily at fair value through profit or loss Securities at fair value through other comprehensive income Securities at amortized cost Loans at amortized cost Finance lease receivables Loans mandatorily at fair value through profit or loss Other financial assets Derivative financial instruments Total result on financial assets Amounts due to banks, the National Governments, deposits from the National Banks and other banks Repo liabilities Financial liabilities designated at fair value through profit or loss Deposits from customers Liabilities from issued securities Leasing liabilities Subordinated bonds and loans Total result on financial liabilities Total result on financial instruments 5,103 9,200 286 – 473 44,782 69,905 658,579 54,046 28,251 1,402 26,254 – 2,125 2,739 *** – (628)*** 13,734 55,824 872,736 (18,492) (653) (307) (53,522) (7,750) (1,623) (7,718) (90,065) 782,671 – – 1,270 234,030 – – – 235,300 291,124 – – – 2,745 7,239 – (851) 62 – – – – – – – 2,325 ** (4,507) (6,931) (2,802) (189,554) (9,972) (3,262) 878 – (210,008) – – – – – – – – (210,008) – – – – – – (6,931) – – – – – – – – (6,931) * Both in the year 2020 and 2019 the dilutive effect is in connection with the Remuneration Policy and the Management Option Program. ** For the year 2020 HUF 2,325 million net non-interest gain on securities at fair value through other comprehensive income was transferred from other comprehensive income to profit or loss. *** Gains from other financial assets and derivative financial instruments recognised in net interest income as Income similar to interest income. IFRS consolidated financial statements 211 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 2019 Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements Repo receivables Trading securities at fair value through profit or loss Non-trading instruments mandatorily at fair value through profit or loss Securities at fair value through other comprehensive income Securities at amortized cost Loans at amortized cost Finance lease receivables Loans mandatorily at fair value through profit or loss Other financial assets Derivative financial instruments Total result on financial assets Amounts due to banks, the National Governments, deposits from the National Banks and other banks Repo liabilities Financial liabilities designated at fair value through profit or loss Deposits from customers Liabilities from issued securities Leasing liabilities Subordinated bonds and loans Total result on financial liabilities Total result on financial instruments Net interest/ similar to interest gain and loss Net non-interest gain and loss Loss allowance Other Comprehensive Income 2,037 10,521 788 – 202 46,521 62,468 598,534 40,914 17,509 714 22,541 – (2,131) 3,672 ** – 773** (996) 33,069 783,939 (11,842) (148) (367) (59,397) (6,749) (1,652) (4,743) (84,898) 699,041 – – (21) 228,939 – – – 228,918 261,987 – – – 2,542 1,914 – 235 – – – – – – – – 8,485 * (153) 30,224 162 (40,271) (4,440) (2,953) 280 – (47,140) – – – – – – – – (47,140) – – – – – – 30,224 – – – – – – – – 30,224 NOTE 47: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) In determining the fair value of a financial value of issued securities and subordinated asset or liability the Group in the case of bonds is based on quoted prices (e.g. Reuters). instruments that are quoted on an active market Cash and amounts due from banks and uses the market price. In most cases market balances with the National Banks represent price is not publicly available so the Group amounts available immediately thus the fair has to make assumptions or use valuation value equals to the cost. techniques to determine the fair value of a financial instrument. See Note 47. d) for more The assumptions used when calculating information about fair value classes applied the fair value of financial assets and liabilities for financial assets and liabilities measured when using valuation technique are the at fair value in these financial statements. following: (cid:588) the discount rates are the risk free rates To provide a reliable estimate of the fair related to the denomination currency value of those financial instrument that are adjusted by the appropriate risk premium originally measured at amortized cost, the as of the end of the reporting period, Group used the discounted cash-flow analyses (cid:588) the contractual cash-flows are considered (loans, placements with other banks, repo for the performing loans and for the non- receivables, amounts due to banks, repo performing loans, the amortized cost less liabilities, deposits from customers). The fair impairment is considered as fair value, * For the year ended 31 December 2019 HUF 8,485 million net non-interest gain on securities at fair value through other comprehensive income was transferred from other comprehensive income to profit or loss. ** Gains from other financial assets and derivative financial instruments recognised in net interest income as Income similar to interest income. 212 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:588) the future cash-flows for floating interest classes of assets and liabilities not measured rate instruments are estimated from the at fair value measured based on Reuters yield curves as of the end of the reporting market rates, and fair value of other classes period, not measured at fair value of the statement (cid:588) the fair value of the deposit which can be of financial position is measured at discounted due in demand cannot be lower than the cash-flow method. Fair value of loans, net of amount payable on demand. loss allowance for loans measured at discount rate adjustment technique, the discount rate Classes of assets and liabilities not measured is derived from observed rates of return for at fair value in the statement of financial comparable assets or liabilities that are traded position, the income approach was used to in the market. convert future cash-flows to a single current Fair value measurements – in relation to amount. Fair value of current assets is equal instruments measured not at fair value – are to carrying amount, fair value of liabilities mainly categorized in level 2 of the fair value from issued securities and other bond-type hierarchy. a) Fair value of financial assets and liabilities Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements Repo receivables Financial assets at fair value through profit or loss Trading securities at fair value through profit or loss Fair value of derivative financial assets held for trading Non-trading instruments mandatorily at fair value through profit or loss Financial assets designated at fair value through profit or loss Securities at fair value through other comprehensive income Securities at amortized cost Loans at amortized cost* Finance lease receivables Loans measured at fair value through profit or loss Derivative financial assets designated as hedge accounting Other financial assets Financial assets total Amounts due to the National Governments, to the National Banks and other banks Repo liabilities Financial liabilities designated at fair value through profit or loss Deposits from customers Liabilities from issued securities Held for trading derivative financial liabilities Derivative financial liabilities designated as hedge accounting Leasing liabilities Other financial liabilities Subordinated bonds and loans Financial liabilities total 2020 2019 Carrying amount Fair value Carrying amount Fair value 2,432,312 2,432,312 1,784,378 1,784,378 1,148,743 1,150,081 342,922 316,298 190,849 234,007 191,149 234,007 67,157 67,157 251,990 251,990 56,572 56,572 100,048 100,048 117,623 117,623 110,624 110,624 57,577 57,577 39,317 39,317 2,235 2,235 2,001 2,001 2,136,709 2,136,709 2,426,779 2,426,779 2,624,920 11,674,842 1,051,140 2,384,933 12,802,818 1,070,528 1,968,072 10,413,521 969,263 2,087,633 11,113,687 969,263 802,605 802,605 496,278 496,278 6,820 6,820 7,463 7,463 140,562 22,443,509 140,562 23,352,524 123,053 18,850,876 123,053 19,643,979 1,185,315 1,172,036 812,911 1,070,948 117,991 34,131 17,890,863 464,213 104,823 119,927 34,131 17,905,676 529,723 104,823 488 30,862 488 30,862 15,171,308 393,167 86,743 15,240,968 494,196 86,743 11,341 11,341 10,709 10,709 48,451 389,902 274,704 20,521,734 48,451 389,902 265,679 20,581,689 54,194 338,020 249,938 17,148,340 54,194 338,020 237,381 17,564,509 * Higher discount rate due to the lower yield environment resulted in higher fair value comparing to the carrying values. IFRS consolidated financial statements 213 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) b) Fair value of derivative instruments Economic relationship is justified if the change The Group regularly enters into hedging of the fair value of the hedged item and transactions in order to decrease its financial the hedging instrument are in the opposite risks. However some economically hedging direction and the absolute changes are similar transaction do not meet the criteria to amounts. The hedge ratio is determined as account for hedge accounting, therefore these the ratio of the notional of the hedged item transactions were accounted as derivatives and the notional of the hedging instrument. held for trading. The sources of hedge ineffectiveness are the The assessment of the hedge effectiveness not hedged risk components (e.g. change of (both for fair value hedges and cash-flow cross currency basis spreads in case of interest hedges) to determine the economic relation- rate risk hedges), slight differences in maturity ship between the hedged item and the hedging dates and interest payment dates in case instrument is accomplished with prospective of fair value hedges, and differences between scenario analysis via different rate shift the carrying amount of the hedged item and scenarios of the relevant risk factor(s) of the the carrying amount of the hedging instru- hedged risk component(s). The fair value change ment in case of FX hedges (e.g. caused by of the hedged item and the hedging instru- interest rate risk components in the fair value ment is compared in the different scenarios. of the hedging instrument). The summary of the derivatives held for trading and derivatives designated as hedge accounting of the Group are as follows: 2020 Assets Liabilities Assets Liabilities 2019 Held for trading derivative financial instruments Interest rate derivatives Interest rate swaps Cross currency interest rate swaps OTC options Forward rate agreement Total interest rate derivatives (OTC derivatives) Foreign exchange derivatives Foreign exchange swaps Foreign exchange forward contracts OTC options Foreign exchange spot conversion Total foreign exchange derivatives (OTC derivatives) Equity stock and index derivatives Commodity Swaps Equity swaps OTC derivatives total Exchange traded futures and options Total equity stock and index derivatives Derivatives held for risk management not designated in hedge Interest rate swaps Foreign exchange swaps Forward contracts Cross currency interest rate swaps Total derivatives held for risk management not designated in hedge Total held for trading derivative financial instruments Derivative financial instruments designated as hedge accounting Derivatives designated in fair value hedges Interest rate swaps Cross currency interest rate swaps Total derivatives designated in fair value hedges Total derivatives held for risk management (OTC derivatives) 214 OTP Bank Annual Report 2020 24,979 7,315 359 – 32,653 41,838 8,689 3,909 553 54,989 9,695 7,071 16,766 379 17,145 11,943 808 41 44 12,836 (24,752) (7,419) (8) – (32,179) (35,537) (10,750) (3,835) (657) (50,779) (8,269) (560) (8,829) (1,262) (10,091) (8,208) (3,566) – – (11,774) 117,623 (104,823) 641 6,179 6,820 6,820 (5,334) (6,007) (11,341) (11,341) 33,203 1,141 306 13 34,663 32,845 3,522 3,098 16 39,481 1,097 4,530 5,627 5 5,632 27,995 2,757 21 75 30,848 110,624 3,758 3,705 7,463 7,463 (31,471) (1,037) (14) (32) (32,554) (26,244) (5,504) (3,114) (55) (34,917) (954) (558) (1,512) (248) (1,760) (15,246) (2,209) (57) – (17,512) (86,743) (8,839) (1,870) (10,709) (10,709) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) c) Types of hedge accounting “OTP Bank’s Group-Level Regulations on the Interest rate risk management is centralized at Management of Liquidity Risk and Interest the Group. Interest rate risk exposures in major Rate Risk of Banking Book”. The interest rate currencies are managed at OTP Headquarter risk management activity aims to stabilize NII on consolidated level. Although risk exposures within the approved risk limits in local currencies are managed at subsidiary The risk management objective of these hedge level, the respective decisions are subject relationships is to mitigate the risk of clean fair to Headquarter ALCO approval. Interest rate value (i.e. excluding accrued interest) change risk is measured by simulating NII and EVE of MIRS loans due to the change of interest under different stress and plan scenarios, rate reference indexes (BUBOR, EURIBOR, the established risk limits are described in LIBOR etc.) of the respective currency. Amount, timing of future cash-flows and types of risk – hedging instruments: As at 31 December 2020: Type of hedge Type of risk Type of instrument Within one month Within three months and over one month Within one year and over three months Within five years and over one year More than five years Total Fair Value Hedge Interest rate risk Interest rate swap HUF Notional Average Interest Rate (%) EUR – – Notional Average Interest Rate (%) 15 (0.11)% – – – – – Fair Value Hedge Foreign exchange & Interest rate risk Fair Value Hedge Foreign exchange risk USD Notional Average Interest Rate (%) RUB Notional Average Interest Rate (%) Cross currency interest rate swap EUR/HUF Notional Average Interest Rate (%) Average FX Rate Cross currency interest rate swap EUR/HUF Notional Average FX Rate RON/HUF Notional Average FX Rate RUB/HUF Notional Average FX Rate Other Interest rate swap HUF Notional – – – – – – – – – 60,000 (89,622) 173,810 144,188 1.31% 1.06% 1.35% 5 102 10 132 0.09% 0.24% 0.22% 21 2.00% 171 29 221 2.38% 2.35% – – 2 2,100 7.38% 2,100 – – 12 14 28 (1.55)% (1.59)% (1.60)% (1.63)% (1.67)% 311.08 310.95 310.82 310.14 308.15 1 92 123 613 360.19 354.92 360.47 356.03 – – – – – – – – – – – – – 1,550 72.6 4,100 4.46 (183) 6,940 8,342 – – – – – – – 829 1,550 4,100 15,099 IFRS consolidated financial statements 215 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) As at 31 December 2019: Type of hedge Type of risk Type of instrument Within one month Within three months and over one month Within one year and over three months Within five years and over one year More than five years Total Fair Value Hedge Interest rate risk Fair Value Hedge Foreign exchange & Interest rate risk Interest rate swap HUF Notional Average Interest Rate (%) EUR Notional Average Interest Rate (%) USD Notional Average Interest Rate (%) RUB Notional Average Interest Rate (%) Cross currency interest rate swap EUR/HUF Notional Average Interest Rate (%) Average FX Rate Fair Value Hedge Foreign exchange risk Cross currency interest rate swap RON/HUF Notional Average FX Rate RUB/HUF Notional Average FX Rate Fair Value Hedge Other Interest rate swap HUF Notional – – – – – – – – – – – – – – – – – – 20 3.88% – – – – – – – – – – – 229,600 65,268 145,510 440,378 1.84% 1.29% 1.26% – – 8 177 27 224 0.14% 0.61% 437 29 474 2.64% 1.92% 2.35% – – 2 2,100 7.38% 2,100 – – 15 14 31 (1.60)% (1.63)% (1.66)% 310.37 309.79 308.69 150 67.5 2,000 4.2 1,050 68.83 9,100 4.33 1,200 11,100 – – – – (310) 13,644 15,763 – 29,097 216 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) As at 31 December 2020: Type of hedge Type of instrument Type of risk Fair value hedge Nominal amount of the hedging instrument Carrying amount of the hedging instrument as at 31 December 2020 Assets Liabilities Line item in the statement of financial position where the hedging instrument is located Changes in fair value used for calculating hedge ineffectiveness for the year ended as at 31 December 2020 Interest rate swap Interest rate risk 468,574 111 (5,267) Cross-currency swap Cross-currency swap Interest rate swap FX & IR risk 8,874 – (1,618) FX risk 438,401 6,179 (4,456) Other 16,224 530 – Derivative financial instruments designated as hedge accounting Derivative financial instruments designated as hedge accounting Derivative financial instruments designated as hedge accounting Derivative financial instruments designated as hedge accounting Fair value hedges total 932,073 6,820 (11,341) (370) (36) (809) 2 (1,213) As at 31 December 2019: Type of hedge Type of instrument Type of risk Nominal amount of the hedging instrument Carrying amount of the hedging instrument as at 31 December 2019 Assets Liabilities Line item in the statement of financial position where the hedging instrument is located Changes in fair value used for calculating hedge ineffectiveness for the year ended as at 31 December 2019 Fair value hedge Interest rate swap Interest rate risk 687,820 2,251 (8,839) Cross-currency swap Cross-currency swap Interest rate swap FX & IR risk 11,681 – (488) FX risk 137,390 3,705 (1,382) Other 30,983 1,507 – Derivative financial instruments designated as hedge accounting Derivative financial instruments designated as hedge accounting Derivative financial instruments designated as hedge accounting Derivative financial instruments designated as hedge accounting Fair value hedges total 867,874 7,463 (10,709) 341 (103) (271) 7 (26) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 217 As at 31 December 2020: Type of hedge Type of risk Fair value hedges Loans Government bonds Government bonds Interest rate risk Interest rate risk Interest rate risk Government bonds Interest rate risk Other securities Loans Loans Other securities Interest rate risk Foreign exchange & Interest rate risk Foreign exchange risk Carrying amount of the hedged item as at 31 December 2020 Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item for the year ended 31 December 2020 Line item in the statement of financial position in which the hedged item is included Assets Liabilities Assets Liabilities 35,256 (100,299) 177,888 91,950 – 47,560 96,972 303,572 – – – – – – 507 884 1,154 – 793 10,855 (151) Loans – – – – – (3,144) (4,929) Securities at amortized cost Securities at fair value through other comprehensive income Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans Loans Liabilities from issued securities 9 (1,634) Other risk – (15,032) – Fair value hedges total 753,198 (115,331) 14,202 As at 31 December 2019: Type of hedge Type of risk Carrying amount of the hedged item as at 31 December 2019 Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item for the year ended 31 December 2019 Line item in the statement of financial position in which the hedged item is included Assets Liabilities Assets Liabilities Fair value hedges Loans Government bonds Interest rate risk Interest rate risk Government bonds Interest rate risk Government bonds Interest rate risk 36,709 578,026 144,234 – Other securities Loans Loans Other securities Interest rate risk 85,231 Foreign exchange & Interest rate risk Foreign exchange risk Other risk 12,242 136,088 – 992,530 Fair value hedges total 218 OTP Bank Annual Report 2020 – – – – – – – (29,018) (29,018) 521 109 1,074 – 166 2 1,465 – 3,337 – – – – – – – (5,765) (5,765) Loans Securities at amortized cost Securities at fair value through other comprehensive income Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans Loans Liabilities from issued securities (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) As at 31 December 2019: Type of instrument Type of risk Interest rate swap Interest rate risk Change in the value of the hedging instrument recognized in cash-flow hedge reserve Hedge ineffectiveness recognized in profit or loss 2,086 (98) Line item in profit or loss that includes hedge ineffectiveness Interest income from placements with other banks On Group level there weren’t any cash-flow the former EUR 310 million strategic open hedges for the year ended 31 December 2020. position which was presented at the end of According to the strategic direction designated so at the end of 2020 regarding net investment by the Management Committee, a decision was hedges for foreign subsidiaries there aren’t made about closing in accounting meaning any disclosure requirements to be presented. 2019 in the consolidated financial statements, Net investment hedge for foreign subsidiaries as at 31 December 2019 is as follows: Type of hedge Type of risk Carrying amount of the hedged item as at 31 December 2019 Type of hedging instrument EUR million Changes in fair value used for calculating hedge ineffectiveness for the year ended 31 December 2019 HUF million Net investment hedge in foreign operations Fx assets in foreign subsidiaries Foreign exchange risk 310 * OTP HB Perpetual bonds 2,776.3 d) Fair value levels observable for the asset or liability Methods and significant assumptions used either directly or indirectly. to determine fair value of the different levels Fair value measurements – in relation of financial instruments: with instruments measured not Level 1: quoted prices (unadjusted) in active at fair value – are categorized in markets for identical assets or level 2; liabilities; Level 3: inputs for the asset or liability that are Level 2: inputs other than quoted prices not based on observable market data included within Level 1, that are (unobservable inputs). * Companies included: DSK Bank EAD, OTP banka Hrvatska d.d., OTP Banka Slovensko, a.s., Crnogorska komercijalna banka a.d. IFRS consolidated financial statements 219 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:15)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: 2020 Financial assets at fair value through profit or loss Trading securities at fair value through profit or loss Positive fair value of derivative financial assets held for trading Non-trading instruments mandatorily at fair value through profit or loss Financial assets designated at fair value through profit or loss Securities at fair value through other comprehensive income Loans mandatorily measured at fair value through profit or loss Positive fair value of derivative financial assets designated as fair value hedge Financial assets measured at fair value total Financial liabilities designated at fair value through profit or loss Negative fair value of held for trading derivative financial liabilities Negative fair value of derivative financial liabilities designated as fair value hedge Financial liabilities measured at fair value total 2019 Financial assets at fair value through profit or loss Trading securities at fair value through profit or loss Positive fair value of derivative financial assets held for trading Non-trading instruments mandatorily at fair value through profit or loss Financial assets designated at fair value through profit or loss Securities at fair value through other comprehensive income Loans mandatorily measured at fair value through profit or loss Positive fair value of derivative financial assets designated as fair value hedge Financial assets measured at fair value total Financial liabilities designated at fair value through profit or loss Negative fair value of held for trading derivative financial liabilities Negative fair value of derivative financial liabilities designated as fair value hedge Financial liabilities measured at fair value total Total 234,007 56,572 117,623 Level 1 67,820 30,333 388 Level 2 156,090 26,227 117,235 Level 3 10,097 12 – 57,577 37,099 10,393 10,085* 2,235 – 2,235 – 2,136,709 1,137,821 941,982 56,906** 802,605 1,089 2,535 798,981 6,820 – 6,820 – 3,180,141 1,206,730 1,107,427 865,984 34,131 – 2,235 31,896 104,823 1,386 103,437 – 11,341 150,295 Total 251,990 100,048 110,624 – 1,386 Level 1 105,246 75,963 6 39,317 29,277 2,001 – 11,341 117,013 Level 2 143,233 24,085 110,618 6,529 2,001 – 31,896 Level 3 3,511 – – 3,511 – 2,426,779 1,591,882 775,202 59,695*** 496,278 7,463 490 – 2,581 493,207 7,463 – 3,182,510 1,697,618 928,479 556,413 30,862 86,743 10,709 128,314 – 249 – 249 2,001 28,861 86,494 10,709 99,204 – – 28,861 * The portfolio includes mainly Visa C shares. ** The portfolio includes mainly HUF 46,124 million albanian government bonds. *** The portfolio includes mainly Visa Inc. “C” convertible preferred stock and common shares and HUF 44,098 million albanian government bonds. 220 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Movements in Level 3 financial instruments measured at fair value The following table shows a reconciliation of the opening and closing amount of Level 3 financial assets and liabilities which are recorded at fair value: 2020 Trading securities at fair value through profit or loss Securities at fair value through other comprehensive income Loans mandatorily measured at fair value through profit or loss Financial assets measured at fair value total Financial liabilities designated at fair value through profit or loss Financial liabilities designated at fair value total 2019 Trading securities at fair value through profit or loss Securities at fair value through other comprehensive income Loans mandatorily measured at fair value through profit or loss Financial assets measured at fair value total Financial liabilities designated at fair value through profit or loss Financial liabilities designated at fair value total ) – ( e s o l C / t n e m e l t t e S ) – ( e l a S ) – / + ( A V F ) – / + ( r e f s n a r T n o i t a u l a v e R r e h t O g n i s o l C e c n a l a b i g n n e p O e c n a l a b 3,511 ) + ( e s a h c r u P – 59,695 11,076 / e c n a u s s I ) + ( t n e m e s r u b s i D – – (5,043) – (362) 9,973 2,018 (9,398) (162) 1,637 (10,812) 4,870 – – – 10,097 56,906 798,981 493,207 – 333,908 (21,397) – (6,737) – – 556,413 11,076 333,908 (35,838) (162) (5,462) (839) 6,888 – 865,984 28,861 28,861 i g n n e p O e c n a l a b – – ) + ( e s a h c r u P – – (1,689) (1,689) ) – ( e s o l C / t n e m e l t t e S / e c n a u s s I ) + ( t n e m e s r u b s i D – – ) – ( e l a S – – 3,511 – – 10,690 47,213 949 (217) (1,295) (1,270) (1,270) ) – / + ( A V F – – 263,534 – 266,091 (30,513) – (5,905) 274,224 47,213 270,551 (30,730) (1,295) (5,905) 32,231 32,231 – – – – (3,349) (3,349) – – – – – – ) – / + ( r e f s n a r T – – – – – – – – n o i t a u l a v e R – 2,355 – 2,355 (21) (21) 5,994 31,896 5,994 31,896 r e h t O g n i s o l C e c n a l a b – – – – – – 3,511 59,695 493,207 556,413 28,861 28,861 There were no movements among the levels of fair value hierarchy either in the year ended 31 December 2020 or 31 December 2019 respectively. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 221 NOTE 48: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) The Group distinguishes business and Within the Group, the Corporate Centre geographical segments. The report on the acts as a virtual entity established by the base of the business and geographical equity investment of OTP Core for managing segments is reported below. the wholesale financing activity for all the subsidiaries within the Group but outside The operations in the Slovakian segment OTP Core. Therefore the balance sheet of the were discontinued. The segment information Corporate Centre is funded by the equity and reported on the next pages does not intragroup lending received from OTP Core, include any amounts for these discontinued the intragroup lending received from other operations neither in the current year nor in subsidiaries, and the subordinated debt the previous one, which are described in more and senior notes arranged by OTP under its details in Note 49. running EMTN program. The reportable segments of the Group on the From this funding pool, the Corporate Centre base of IFRS 8 are the following: is to provide intragroup lending to, and hold OTP Core Hungary, Russia, Ukraine, Bulgaria, equity stakes in OTP subsidiaries outside Romania, Serbia, Croatia, Montenegro, Albania, OTP Core. Main subsidiaries financed by Moldova, Slovenia, Merkantil Group, Asset Corporate Centre are as follows: Hungarians: Management subsidiaries, Other subsidiaries Merkantil Bank Ltd., Merkantil Leasing Ltd., and Corporate Center. OTP Fund Management Ltd., OTP Real Estate Fund Management Ltd., OTP Life Annuity Ltd.; OTP Core is an economic unit for measuring foreigners: banks, leasing companies, the result of core business activity of the factoring companies. Group in Hungary. Financials for OTP Core are calculated from the partially consolidated The results of OTP Factoring Ukraine LLC, financial statements of the companies OTP Factoring SRL, OTP Factoring Bulgaria LLC, engaged in the Group’s underlying banking OTP Factoring Serbia d.o.o. and OTP Factoring operation in Hungary. These companies Montenegro d.o.o. are included into the include OTP Bank Hungary Plc., foreign banks segment. OTP Mortgage Bank Ltd., OTP Building Society Ltd., OTP Factoring Ltd., From the first quarter of 2019 Expressbank AD OTP Financial Point Ltd., and companies and its subsidiaries, OTP Leasing EOOD and providing intragroup financing. Express Factoring EOOD (altogether: Express The Bank Employee Stock Ownership Plan Group) were included into the Bulgarian Organization was included from the fourth operation, so from the first quarter of 2019 the quarter of 2016; OTP Card Factory Ltd., statement of recognized income and balance OTP Facility Management Llc., Monicomp Ltd. sheet of DSK Leasing AD was included into this and OTP Real Estate Lease Ltd. were included segment too. from the first quarter of 2017 (from the first The Bulgarian Expressbank AD merged with quarter of 2019 OTP Real Estate Lease Ltd. its parent DSK Bank AD in April 2020. was eliminated from OTP Core); OTP Mobile The Serbian segment, OTP banka Srbija a.d. Service Llc., OTP Ingatlanpont Llc. were Beograd and Vojvodjanska Banka a.d. Novi included from the first quarter of 2019 and Sad includes from the first quarter of 2019 OTP eBIZ Ltd. was included from the first the statements of profit or loss and financial quarter of 2020. The consolidated accounting positions of OTP Lizing d.o.o, OTP Services results of these companies are segmented d.o.o. and from the third quarter of 2019 the into OTP Core and Corporate Centre. Latter financial position of the newly acquired is a virtual entity. OTP banka Srbija a.d. Beograd and from the 222 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) fourth quarter of 2019 its statement of profit in OTP Bank Romania S.A. on which or loss too. HUF 886 million positive tax effect was The Montenegrin segment, Crnogorska recognized. As at 31 December 2019 komercijalna banka a.d. and Podgorička HUF 8,427 million was recognized on banka AD includes from the third quarter goodwill/investment impairment from of 2019 the statement of profit or loss which HUF 4,887 million was recognized and financial position of the newly acquired on OTP Bank Romania S.A as goodwill Podgorička banka AD In December 2020 impairment and HUF 3,540 million negative Podgorička banka AD merged into Crnogorska tax effect was recognized due to the komercijalna banka a.d. impairment and release of impairment In the first quarter of 2019 the Albanian, and on investments, which is mainly related to from the second half of year 2019 the Moldovan the release of the previously recognized and Slovenian segments were included as new impairment on OTP Bank JSC (Ukraine). segments in the consolidated segment report. Special tax on financial institutions The activities of the other subsidiaries are out (after income tax): of the leasing and fund management and Special tax on financial institutions factoring activity, such as: OTP Real Estate Ltd., includes the special tax paid by the Hungarian OTP Life Annuity Ltd, OTP Funds Servicing and financial institutions, the net present value Consulting Ltd., OTP Building s.r.o., OTP Real effect of the once-off additional banking tax Slovensko s.r.o. payable into the pandemic fund in 2020 (the The reportable business and geographical payments are deductible from future banking segments of the Group are those components taxes), the Slovakian banking levy and as well where: as in the fourth quarter of 2019 the banking (cid:588) separated income and expenses, assets and tax paid by the Romanian bank, subsidiary liabilities can be identified and assignable of OTP Group. Besides, it also contains the to the segments, Slovakian Deposit Protection Fund contribu- (cid:588) transactions between the different tions being introduced again in 2014, and segments were eliminated, the contribution into the Resolution Fund in (cid:588) the main decisive board of the Group Slovakia, too. regularly controls the operating results, (cid:588) separated financial information is available. Effect of acquisitions (after income tax): Adjustments The following main items appear on this line: the negative goodwill related to acquisitions which improves the accounting result, integration costs of the newly acquired banks Goodwill/investment impairment and their and other direct effects due to the acquisitions tax saving effect: (such as customer base value amortisation) As at 31 December 2020 HUF 9,841 million and effects related to the sale of the Slovakian impairment was booked on the investment bank. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 223 Information regarding the Group’s reportable segments is presented below: As at 31 December 2020: Main components of the Consolidated Statement of Profit or Loss in HUF million Net profit for the year from continued and discontinued operations Net profit for the year from discontinued operations Net profit for the year from continued opearations Adjustments (total) Dividends and net cash transfers (after income tax) Goodwill/investment impairment (after income tax) Bank tax on financial institutions (after income tax) Effect of acquisition (after income tax) Impact of fines imposed by the Hungarian Competition Authority (after income tax) Expected one-off negative effect of the debt repayment moratorium in Hungary (after income tax) Consolidated adjusted net profit for the year Profit before income tax Adjusted operating profit Adjusted total income Adjusted net interest income Adjusted net profit from fees and commissions Adjusted other net non-interest income Adjusted other administrative expenses Total risk costs Adjusted provision for impairment on loan and placement losses (without the effect of revaluation of FX) Other provision (adjustment) Total other adjustments (one-off items)* Income tax ) y r a g n u H ( E R O C P T O l a t o t b u s s k n a b n g i e r o F ) s t n e m t s u d a t u o h t i j w ( ) a i r a g l u B ( D A k n a b s s e r p x E i g n d u l c n i p u o r G K S D . . d d a k s t a v r H a k n a b P T O ) a i t a o r C ( ) i a b r e z S ( d a r g o e B . . d a a j i b r S a k n a b P T O + . . d a a k n a b a k s n a d o v j o V j 2 3=4+...+13 4 5 6 p u o r G P T O d e t a d i l o s n o c – d e t a d i l o s n o C e h t n i – t i f o r P f o t n e m e t a t S f o e r u t c u r t s – s s o L r o s t r o p e r g n i t n u o c c a a 259,636 5,590 254,047 n o s t n e m t s u d A j n i g n i t n u o c c a e h t e m o c n I d e z i n g o c e R p u o r G P T O d e t a d i l o s n o c – t i f o r P f o t n e m e t a t S d e t a d i l o s n o C e h t n i – f o e r u t c u r t s – s s o L r o s t r o p e r t n e m e g a n a m 1=a+b 1= 2+3+14+18+19 b 259,636 5,590 254,047 (56,220) 213 886 (17,365) (12,441) 749 (56,220) 213 886 (17,365) (12,441) 749 (28,262) (28,262) 254,046 56,222 310,268 159,302 126,967 281,422 500,092 1,207,759 782,671 70,380 37,345 (37,839) 5,408 351,802 537,437 1,169,920 788,079 175,860 181,178 453,635 286,448 148,858 326,660 653,581 474,148 40,957 44,664 89,774 166,667 111,239 14,829 17,600 40,329 84,907 58,199 7,299 8,456 35,899 79,001 59,514 397,633 (104,521) 293,112 130,470 135,156 45,453 16,093 14,766 27,455 61,274 88,729 36,717 44,277 9,975 10,615 4,721 (707,667) 75,184 (632,483) (272,457) (326,921) (76,893) (44,578) (43,102) (218,670) 30,675 (187,995) (7,678) (177,802) (45,110) (22,729) (27,443) (218,670) 60,249 (158,421) 2,374 (156,710) (44,875) (19,491) (22,170) 0 0 (29,574) 2,360 (29,574) (10,052) (21,092) (235) (3,238) (5,273) 2,360 2,360 0 0 0 0 (27,376) (14,158) (41,534) (16,558) (21,891) (3,707) (2,771) (1,157) Total Assets** Total Liabilities*** 23,329,771 20,793,243 0 0 23,329,771 11,492,949 13,609,776 4,283,625 2,325,669 2,052,332 20,793,243 9,726,310 11,651,728 3,663,247 1,997,504 1,779,286 ( ) used at: provisions, impairment and expenses. * One-off item in the total amount consists the result of the treasury share swap agreement at OTP Core. ** Relating to the discontinued operations the assets were HUF 6,070 million. *** Relating to the discontinued operations the liabilities were HUF 5,486 million. 224 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) ) i a n e v o l S ( . . d d a k n a B B K S . . i A S a n a m o R k n a B P T O ) i a n a m o R ( ) i e n a r k U ( C S J k n a B P T O k n a B h c u o T d n a ) a i s s u R ( ” k n a B P T O “ C S J a k s r o g o n r C ) o r g e n e t n o M ( . . d a a k n a b a n l a j i c r e m o k D A a k n a b a k č i r o g d o P + . . i A H S a n a b l A P T O a k n a B ) i a n a b l A ( ) a v o d l o M ( a c n a b s a b o M i . . A S p u o r G P T O – l a t o t b u s s e i r a i d i s b u s g n i k n a b - n o N ) y r a g n u H ( p u o r G l i t n a k r e M s e i r a i d i s b u s t n e m e g a n a M t e s s A r e h t O s e i r a i d i s b u s e r t n e C e t a r o p r o C s t n e m t s u d a j d n a s n o i t a n m i i l E 7 8 9 10 11 12 13 14=15+16+17 15 16 17 18 19 9,664 1,557 26,104 16,317 12,103 19,787 40,388 28,103 1,466 11,810 43,747 32,739 31,589 42,030 67,385 48,581 21,409 65,068 123,198 99,872 4,307 4,609 8,352 22,095 17,188 1,960 2,449 5,904 11,597 9,824 3,973 4,513 7,707 14,596 8,889 11,127 3,813 13,540 22,503 4,446 1,278 2,137 25,830 7,661 9,824 8,617 10,279 21,283 17,688 10,749 10,765 15,248 5 28,483 28,889 59,158 19,020 25,212 8,345 9,117 7,845 22,627 1,327 40 14,883 10,289 1,158 7,195 5,264 823 461 495 3,570 14,926 3,555 360 11,011 (20,601) (31,937) (25,355) (58,130) (13,743) (5,693) (6,889) (30,269) (11,004) (4,483) (14,782) (945) (1,891) (7,684) (10,344) (10,441) (43,659) (3,743) (3,455) (3,194) (406) (1,662) (16) 1,272 (6,244) (7,840) (6,286) (41,160) (3,434) (2,515) (2,695) (1,487) (1,491) (1,440) (2,504) (4,155) (2,499) (309) (940) (499) 1,081 (171) 0 (2,439) 0 91 0 0 0 0 0 0 0 (5,485) (5,092) (302) (489) (540) (2,653) (956) 1,353,772 1,162,183 1,187,648 1,034,945 729,012 611,941 688,980 505,578 477,676 401,119 286,606 257,826 249,921 212,634 1,118,927 842,473 667,120 614,566 0 (16) 0 (925) 35,584 17,052 4 1,268 0 (772) 416,223 2,865,511 (5,757,392) 210,855 1,504,289 (2,931,557) (569) (526) (526) 419 419 0 0 (1,262) (873) 1,236 3,127 8,044 2,274 (7,191) 0 0 0 0 (2,109) (2,598) 489 0 (43) (389) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 225 As at 31 December 2019: Main components of the Consolidated Statement of Profit or Loss in HUF million Net profit for the year from continued and discontinued operations Net profit for the year from discontinued operations Net profit for the year from continued opearations Adjustments (total) Dividends and net cash transfers (after income tax) Goodwill/investment impairment (after income tax) Bank tax on financial institutions (after income tax) Effect of acquisition (after income tax) One-off impact of regulatory changes related to FX consumer contracts in Serbia (after income tax) Consolidated adjusted net profit for the year Profit before income tax Adjusted operating profit Adjusted total income Adjusted net interest income Adjusted net profit from fees and commissions Adjusted other net non-interest income Adjusted other administrative expenses Total risk costs Adjusted provision for impairment on loan and placement losses (without the effect of revaluation of FX) Other provision (adjustment) Total other adjustments (one-off items)* Income tax Total Assets** Total Liabilities*** ) y r a g n u H ( E R O C P T O l a t o t b u s s k n a b n g i e r o F ) s t n e m t s u d a t u o h t i j w ( ) a i r a g l u B ( D A k n a b s s e r p x E i g n d u l c n i p u o r G K S D . . d d a k s t a v r H a k n a b P T O ) a i t a o r C ( ) i a b r e z S ( d a r g o e B . . d a a j i b r S a k n a b P T O + . . d a a k n a b a k s n a d o v j o V j 2 3=4+...+13 4 5 6 p u o r G P T O d e t a d i l o s n o c – d e t a d i l o s n o C e h t n i – t i f o r P f o t n e m e t a t S f o e r u t c u r t s – s s o L r o s t r o p e r g n i t n u o c c a a 412,582 4,668 417,250 n o s t n e m t s u d A j n i g n i t n u o c c a e h t e m o c n I d e z i n g o c e R p u o r G P T O d e t a d i l o s n o c – t i f o r P f o t n e m e t a t S d e t a d i l o s n o C e h t n i – f o e r u t c u r t s – s s o L r o s t r o p e r t n e m e g a n a m 1=a+b 1= 2+3+14+18+19 b 412,582 4,668 417,250 (1,803) 505 (8,427) (16,170) 23,933 (1,803) 505 (8,427) (16,170) 23,933 (1,644) (1,644) 417,250 467,152 523,839 1,165,056 699,041 1,802 (1,179) (13,793) (87,328) 7,257 419,052 193,991 189,612 465,973 510,046 1,077,728 706,298 206,659 177,030 435,048 261,754 220,152 293,500 565,450 408,725 67,879 75,078 83,495 155,566 109,030 30,718 10,430 37,399 42,925 85,069 56,812 9,971 13,144 43,277 30,809 374,181 (91,677) 282,504 126,911 123,739 42,019 17,032 9,506 91,834 (2,908) 88,926 46,383 32,986 4,517 11,225 2,962 (641,217) 73,535 (567,682) (258,018) (271,950) (72,071) (42,144) (30,133) (56,687) 9,580 (47,107) 26,595 (73,348) (8,417) (5,526) (3,173) (56,687) 27,213 (29,474) 30,332 (59,952) (5,216) (2,835) (1,634) 0 0 (49,902) 19,659,696 17,467,983 (17,633) (17,633) (3,737) (13,396) (3,201) (2,691) (1,539) 3,034 2,981 0 0 3,034 3,034 0 0 0 (46,921) (12,668) (30,540) (7,199) (6,681) 0 459 19,659,696 9,641,692 11,965,975 3,669,766 2,098,951 1,659,483 17,467,983 7,920,820 10,207,807 3,141,007 1,806,302 1,410,022 ( ) used at: provisions, impairment and expenses. * One-off item in the total amount consists the result of the treasury share swap agreement at OTP Core. ** Relating to the discontinued operations the assets were HUF 462,071 million. *** Relating to the discontinued operations the liabilities were HUF 362,496 million. 226 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) ) i a n e v o l S ( . . d d a k n a B B K S ) i e n a r k U ( ) i a n a m o R ( C S J k n a B P T O . . i A S a n a m o R k n a B P T O k n a B h c u o T d n a ) a i s s u R ( ” k n a B P T O “ C S J a k s r o g o n r C ) o r g e n e t n o M ( . . d a a k n a b a n l a j i c r e m o k D A a k n a b a k č i r o g d o P + . . i A H S a n a b l A P T O a k n a B ) i a n a b l A ( ) a v o d l o M ( a c n a b s a b o M i . . A S p u o r G P T O – l a t o t b u s s e i r a i d i s b u s g n i k n a b - n o N ) y r a g n u H ( p u o r G l i t n a k r e M s e i r a i d i s b u s t n e m e g a n a M t e s s A r e h t O s e i r a i d i s b u s e r t n e C e t a r o p r o C s t n e m t s u d a j d n a s n o i t a n m i i l E 7 8 9 10 11 12 13 14=15+16+17 15 16 17 18 19 0 0 0 0 0 0 0 0 0 0 0 0 0 6,309 35,222 28,127 6,907 12,315 37,531 28,254 42,159 44,353 67,451 48,128 36,399 84,946 146,582 113,572 6,377 7,056 5,692 16,120 11,464 2,615 3,074 3,702 7,952 6,697 1,935 2,109 2,928 5,902 3,959 32,182 7,116 15,335 9,731 34,829 34,754 68,079 18,807 7,748 7,373 14,370 14,013 16,782 16,642 21,186 3 10,299 10,739 32,523 4,791 3,180 14,877 31,012 4,215 1,007 891 29,118 (104) 20,475 8,747 6,097 4,446 1,998 441 248 1,052 20,154 461 708 18,985 3,478 3,906 3,906 4,490 4,490 0 0 (211) 427 856 4,661 12,522 2,736 (10,597) (25,216) (23,098) (61,636) (10,428) (4,250) (2,974) (33,325) (6,997) (4,544) (21,784) (584) (3,805) (5,408) (2,194) (48,547) 1,364 (628) (819) (3,018) (1,433) (46,123) 1,293 (2,390) (761) (2,424) 0 0 0 71 0 (249) (379) 0 (737) (82) 0 (598) (6,937) (8,272) (679) (459) (174) 1,130,871 998,204 953,345 836,912 646,295 537,167 908,388 705,628 439,836 373,648 247,997 222,393 211,043 176,524 75 52 23 0 375 143 232 0 140 (440) 0 140 0 (91) (349) 0 0 0 0 0 (429) 94 (523) 0 (2,647) 909,128 653,521 (632) 491,399 446,958 (1,447) 35,846 (568) (428) (638) 381,883 2,946,936 (5,804,035) 9,123 197,440 1,599,877 (2,914,042) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 227 NOTE 49: DISCONTINUED OPERATIONS (in HUF mn) On 31 December 2020, the Group classified sold within 12 months, have been classified the operations of its Croatian subsidiary, as a discontinued operation, so the assets, OTP Osiguranje d.d. as discontinued liabilities of these discontinued operations operations. The classification was needed and their losses are presented separately because there is intention for the sale. in both the statement of financial position These operations, which are expected to be and statement of profit or loss. The major classes of assets and liabilities comprising the operations classified as held for sale are as follows: Cash, amounts due from banks and balances with the National Banks Placements with other banks, net of loss allowance for placements, net of repo receivables Non-trading instruments mandatorily at fair value through profit or loss Securities at fair value through other comprehensive income Securities at amortized cost Tangible assets on net value Right-of-use assets on net value Other assets on net value Non-current assets and disposal group classified as held for sale Leasing liabilities Other liabilities Disposal group liabilities classified as held for sale Income Expense Profit before income tax Income tax expense of OTP Osiguranje d.d. Gain from non-current assets and disposal groups classified as held-fo-sale not qualifying as discontinued operations 2020 2 244 1,188 3,410 1,031 92 42 61 6,070 44 5,442 5,486 2020 1,548 (1,334) 214 (15) 199 2019 – 221 1,143 4,122 719 88 62 79 6,434 63 5,098 5,161 2019 2,029 (1,733) 296 (25) 271 The Croatian insurance company cash-flow eliminations during the consolidation contributed to the Group’s operating activity by HUF 988 million as at 31 December 2020. with HUF 431 million, to the Group’s investing The financial transaction regarding the sale activity with HUF 327 million, and in respect of the Slovakian subsidiary was closed, of the Group’s financing activity with presented in these consolidated financial HUF 232 million which were modified by the statements as discontinued operations. The results of the discontinued operations, which have been included in the profit for the year, were as follows: Income Expense Profit before income tax Income tax expense of OTP Banka Slovensko a.s. Expected gain/(loss) of the sale of OTP Banka Slovensko a.s. Income tax effect of the discontinued operation Gain/(Loss) from sale of the Slovakian subsidiary 2020 15,503 (17,216) (1,713) (142) 7,887 (641) 5,391 2019 16,942 (15,522) 1,420 (56) (6,032) – (4,668) The Slovakian subsidiary bank cash-flow Group’s financing activity with HUF 86,281 contributed to the Group’s operating activity and (1,086) million which were modified with HUF (8,231) and (48,377) million, to the by the eliminations during the consolidation Group’s investing activity with HUF (9,653) by HUF (67,767) and 23,788 million as at and (1,197) million, and in respect of the 31 December 2020 and 2019, respectively. 228 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 50: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2020 1) Term Note Program See details in Note 21. 2) Sale of OTP Osiguranje d.d. The Croatian subsidiary of the Bank, 3) Sale of OTP Banka Slovensko a.s. The transaction, based on the share purchase agreement signed with KBC Bank NV on 17 February 2020, has been financially closed, as a result OTP banka d.d., has signed a share of which the 99.44% shareholding in its purchase agreement to sell its 100% stake Slovakian subsidiary, OTP Banka Slovensko in the Croatian insurance company OTP was acquired by KBC Bank NV. Osiguranje d.d. to Groupama Biztosító Zrt. The financial closure of the transaction is expected to take place in first half of 2021, subject to obtaining the necessary supervisory approvals. NOTE 51: POST BALANCE SHEET EVENTS 1) Determination of expected credit loss Compliance with the executive circular the judgments of the Supreme Court of the Republic of Croatia and the High Commercial Court of the Republic of issued in January 2021 by the National Bank Croatia in a collective dispute initiated by of Hungary on the “use of macroeconomic the Consumer Association due to unfair information in applying IFRS 9 and factors contractual provisions related to the indicating a significant increase in credit Swiss franc. risk” does not significantly impact the In the Group's view, in this regard, since the determination of expected credit losses decisions of the Supreme Court as well as as at 31 December 2020. the decisions of lower courts are final and 2) Supreme Court ruling in Croatia In September 2019, the Supreme Court the courts are already acting on them, there has been no increase in consumer rights (CHF loan clients) or an increase in liabilities of the Republic of Croatia made a ruling, on the part of banks. Accordingly, the Group which to a large extent confirms the earlier does not expect an increase in the number ruling of the High Commercial Court of the of lawsuits that would result in additional Republic of Croatia dated June 2018 in the provisions above the amounts reserved case of protection of collective interest and and provided for as of 31 December 2020. rights of the consumers who had taken Possible liabilities of the Group arising loans with principals indexed to Swiss from decisions of the courts related to franc (Ruling No. Rev–2221/2018- 11 of the such individual consumer lawsuits are Supreme Court of the Republic of Croatia, considered unforeseeable liabilities. hereinafter referred to as “the Ruling”). As permitted by IAS 37.92, in order not to In February 2021, the Constitutional Court prejudice the outcomes of the proceedings of the Republic of Croatia rejected and and the interests of the Group, no further dismissed the constitutional complaints disclosures are made about the contingent of seven Croatian banks filed against liabilities in connection with the Ruling. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:2)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS consolidated financial statements 229 230 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS separate financial statements 231 232 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS separate financial statements 233 234 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS separate financial statements 235 Statement of Financial Position (separate, in accordance with IFRS, as at 31 December 2020, in HUF mn) Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Securities at amortised cost Loans at amortised cost and mandatorily measured at fair value through profit or loss Investments in subsidiaries Property and equipment Intangible assets Right of use assets Investments properties Current tax assets Derivative financial assets designated as hedge accounting relationships Other assets TOTAL ASSETS Amounts due to banks and deposits from the National Bank of Hungary and other banks Repo liabilities Deposits from customers Leasing liabilities Liabilities from issued securities Financial liabilities at fair value through profit or loss Derivative financial liabilities designated as held for trading Derivative financial liabilities designated as hedge accounting relationships Deferred tax liabilities Current tax liabilities Other liabilities Subordinated bonds and loans TOTAL LIABILITIES Share capital Retained earnings and reserves Treasury shares TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Budapest, 17 March 2021 Note 5 6 7 8 9 12 10 11 13 13 34 14 15 16 17 18 19 20 21 22. 23 33 24 24 25 26 27 28 2020 579,120 1,535,884 183,364 160,483 911,950 2,007,692 3,898,697 1,548,972 77,974 57,639 13,479 1,936 593 6,817 169,794 11,154,394 766,977 109,612 7,895,735 14,106 28,435 25,902 99,987 3,104 3,062 – 224,897 304,243 9,476,060 28,000 1,697,133 (46,799) 1,678,334 11,154,394 2019 289,686 1,560,142 45,539 172,229 1,485,977 1,447,224 3,315,069 1,542,538 77,754 53,282 13,607 2,381 – 16,677 116,699 10,138,804 738,054 462,621 6,573,550 13,660 43,284 28,861 83,088 10,023 5,875 2,896 243,780 279,394 8,485,086 28,000 1,628,354 (2,636) 1,653,718 10,138,804 The accompanying notes to separate financial statements on pages 240 to 333 form an integral part of these separate financial statements. 236 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Profit or Loss (separate, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) Interest Income: Interest income calculated using the effective interest method Income similar to interest income Interest income and similar to interest income Interest Expense: Interest expense NET INTEREST INCOME Loss allowance on loan, placement and repo receivables losses from this: loss from derecognition of loans at amortised cost Loss allowance/(Release of loss allowance) on securities at fair value through other comprehensive income and on securities at amortised cost Provision for loan commitments and financial guarantees given Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss Risk cost total NET INTEREST INCOME AFTER RISK COST MODIFICATION LOSS Income from fees and commissions Expenses from fees and commissions NET PROFIT FROM FEES AND COMMISSIONS Foreign exchange (losses) and gains Gains on securities, net from this: gain from derecognition of securities at amortised cost (Losses)/Gains on financial instruments at fair value through profit or loss Gains on derivative instruments, net Dividend income Other operating income Other operating expenses NET OPERATING INCOME Personnel expenses Depreciation and amortization Other general expenses OTHER ADMINISTRATIVE EXPENSES PROFIT BEFORE INCOME TAX Income tax NET PROFIT FOR THE YEAR Earnings per share (in HUF) Basic Diluted Note 29 29 29 6, 7, 10, 30 9, 12, 30 24, 30 4 31 31 11 32 32 32 32 32 33 42 42 Statement of Comprehensive Income (separate, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) NET PROFIT FOR THE YEAR Items that may be reclassified subsequently to profit or loss: Fair value adjustment of debt instruments at fair value through other comprehensive income Deferred tax (9%) related to debt instruments at fair value through other comprehensive income (Losses)/Gains on separated currency spread of financial instruments designated as hedging instrument Deferred tax (9%) related to separated currency spread of financial instruments designated as hedging instrument (Losses)/Gains on derivative financial instruments designated as cash-flow hedge Deferred tax (9%) related to derivative financial instruments designated as cash-flow hedge Items that will not be reclassified to profit or loss: Fair value adjustment of equity instruments at fair value through other comprehensive income Deferred tax (9%) related to equity instruments at fair value through other comprehensive income Other comprehensive income total NET COMPREHENSIVE INCOME Note 33 33 33 33 2020 239,633 81,663 321,296 (99,630) 221,666 (61,310) (3,638) (1,848) (3,202) (405) (66,765) 154,901 (17,358) 259,781 (40,750) 219,031 (4,518) 17,955 360 (671) 7,057 60,973 7,900 (28,064) 60,632 (118,498) (38,948) (166,514) (323,960) 93,246 (772) 92,474 333 333 2020 92,474 (14,459) 1,262 (1,526) 137 (296) 27 (3,275) 310 (17,820) 74,654 2019 235,679 88,217 323,896 (119,384) 204,512 (29,056) (19,831) 401 (5,794) (5,432) (39,881) 164,631 – 248,954 (35,591) 213,363 3,288 8,188 714 1,260 4,715 78,887 7,505 26,515 130,358 (115,035) (29,925) (160,198) (305,158) 203,194 (9,840) 193,354 691 691 2019 193,354 16,732 (1,332) 367 (33) 2,086 (188) 3,867 (348) 21,151 214,505 The accompanying notes to separate financial statements on pages 240 to 333 form an integral part of these separate financial statements. IFRS separate financial statements 237 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Changes in Equity (separate, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) Balance as at 1 January 2019 Net profit for the period Other comprehensive income Total comprehensive income Share-based payment Payments to ICES holders Sale of treasury shares Acquisition of treasury shares Loss on sale of treasury shares Dividend for the year 2018 Other transaction with owners Balance as at 1 January 2020 Net profit for the period Other comprehensive income Total comprehensive income Share-based payment Payments to ICES holders Sale of treasury shares Acquisition of treasury shares Loss on sale of treasury shares Dividend for the year 2019 Other transaction with owners Balance as at 31 December 2020 Note Share Capital Capital reserve 38 28 28 28 38 28 28 28 28,000 – – – – – – – – – – 28,000 – – – – – – – – – – 28,000 52 – – – – – – – – – – 52 – – – – – – – – – – 52 Retained earnings and other reserves 1,484,854 193,354 21,151 214,505 3,547 (1,334) – – (11,950) (61,320) (71,057) 1,628,302 92,474 (17,820) 74,654 3,394 (4,853) – – (4,416) – (5,875) 1,697,081 Treasury Shares Total (1,964) – – – – – 33,513 (34,185) – – (672) (2,636) – – – – – 41,759 (85,922) – – (44,163) (46,799) 1,510,942 193,354 21,151 214,505 3,547 (1,334) 33,513 (34,185) (11,950) (61,320) (71,729) 1,653,718 92,474 (17,820) 74,654 3,394 (4,853) 41,759 (85,922) (4,416) – (50,038) 1,678,334 The accompanying notes to separate financial statements on pages 240 to 333 form an integral part of these separate financial statements. 238 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Statement of Cash-flows (separate, in accordance with IFRS, for the year ended 31 December 2020, in HUF mn) OPERATING ACTIVITIES Profit before income tax Net accrued interest Depreciation and amortization Loss allowance on loans and placements Loss allowance/(Release of loss allowance) on securities at fair value through other comprehensive income Impairment loss/(Reversal of impairment loss) on investments in subsidiaries Loss allowance/(Release of loss allowance) on securities at amortised cost Loss allowance/(Release of loss allowance) on other assets Provision on off-balance sheet commitments and contingent liabilities Share-based payment Unrealised losses/(gains) on fair value adjustment of financial instruments at fair value through profit or loss Unrealised losses on fair value adjustment of derivative financial instruments Interest expense from leasing liabilities Net changing in assets and liabilities in operating activities Changes in held for trading securities Change in financial instruments mandatorily measured at fair value through profit or loss Changes in derivative financial instruments at fair value through profit or loss Net increase in loans Increase in other assets, excluding advances for investments and before provisions for losses Net increase in deposits from customers (Decrease)/Increase in other liabilities Net increase in the compulsory reserve established by the National Bank of Hungary Dividend income Income tax paid Net cash provided by operating activities INVESTING ACTIVITIES Net increase in placements with other banks and repo receivables before allowance for placement losses Purchase securities at fair value through other comprehensive income Proceeds from sale of securities at fair value through other comprehensive income Change in derivative financial instruments designated as hedge accounting Increase in investments in subsidiaries Decrease in investments in subsidiaries Dividend income Increase in securities at amortised cost Redemption of securities at amortised cost Additions to property, equipment and intangible assets Disposal of property, equipment and intangible assets Net decrease/(increase) in investment properties Net increase in advances for investments included in other assets Net cash used in investing activities FINANCING ACTIVITIES Net (decrease)/increase in amounts due to banks and deposits from the National Bank of Hungary and other banks and repo liabilities Financial liabilities designated as fair value through profit or loss Leasing payments Cash received from issuance of securities Cash used for redemption of issued securities Increase in subordinated bonds and loans Decrease in subordinated bonds and loans Payments to ICES holders Increase of Treasury shares Decrease of Treasury shares Dividends paid Net cash (used in)/provided by financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Note 2020 2019 13 30 9 11 12 16 24 38 8 8 8 10 16 19 24 5 11 93,246 (34,365) 38,997 61,310 3 10,042 1,845 3,521 3,110 3,394 3,549 4,011 (257) 34,091 (9,015) 2,895 (604,138) (56,532) 1,322,243 (25,145) (10,978) (60,913) (1,449) 779,465 203,194 6,760 29,925 33,728 (176) (38,807) (225) (186) 5,411 3,547 (1,379) 6,777 (244) (23,247) (984) 483 (743,665) (7,312) 832,785 495 (7,558) (72,972) (628) 225,722 6, 7 (115,862) (518,327) 9 9 11 11 12 12 13 13 14 16 17, 18 21 20 20 25 25 27 28 28 27 5 (1,079,151) 1,623,498 (190) (32,961) 16,485 60,913 (680,089) 119,642 (68,885) 29,433 396 – (126,771) (322,365) (4,219) (3,919) 7,119 (21,984) 29,945 (5,373) (4,853) (85,923) 37,344 (10) (374,238) 278,456 224,631 503,087 (1,078,031) 1,068,081 – (326,158) – 72,972 (146,771) 127,671 (48,381) 1,969 (48) – (847,023) 461,774 (3,331) (3,927) 10,201 (13,584) 166,704 – (1,334) (34,185) 21,563 (61,307) 542,574 (78,727) 303,358 224,631 The accompanying notes to separate financial statements on pages 240 to 333 form an integral part of these separate financial statements. IFRS separate financial statements 239 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:22)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) N O T E S T O S E PA R AT E F I N A N C I A L S TAT E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 2 0 NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS 1.1 General information OTP Bank Plc. (“Bank” or “OTP Bank”) was Deloitte Auditing and Consulting Ltd. (000083), established on 31 December 1990, when 84/C Dózsa György Street, Budapest H–1068. the previously State-owned company was Registered under 01-09-071057 by Budapest- transformed into a limited liability company. Capital Regional Court, as registry court. Statutory registered auditor: Tamás Horváth, The Bank’s registered office address is registration number: 003449. 16 Nádor Street, Budapest H–1051. Internet homepage: www.otpbank.hu Audit service fee agreed by the Annual General Meeting of the Bank for the year ended 2020 is Signatory of the separate financial statements an amount of HUF 70 million + VAT. is the Chief Executive Officer, dr. Sándor Csányi (Budapest). All other fees charged by the Auditor for Responsible person for the control and non-audit services during the financial year management of accounting services: are disclosed in the consolidated financial Zoltán Tuboly (Budapest), Managing Director statements of the Bank. of Accounting and Financial Directorate, Registration Number: 177289, IFRS qualified In 1995, the shares of the Bank were introduced chartered accountant. on the Budapest and the Luxembourg Stock Due to Hungarian legislation audit services Exchanges and were also traded on the SEAQ are statutory for OTP Bank. Disclosure board on the London Stock Exchange and information about the auditor: PORTAL in the USA. The structure of the Share capital by shareholders: Domestic and foreign private and institutional investors Employees Treasury shares Total 2020 97% 1% 2% 100% 2019 99% 1% 0% 100% The Bank’s Registered Capital consists of The Bank provides a full range of 280.000.010 pieces of ordinary shares with the commercial banking services through nominal value of HUF 100 each, representing a nationwide network of 364 branches in the same rights to the shareholders. Hungary. Number of branches: 2020 364 2019 370 240 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Number of the employees of the Bank: Number of employees Average number of employees 2020 9,829 9,654 2019 9,318 8,981 1.2 Basis of accounting (cid:588) Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: These Separate Financial Statements were Recognition and Measurement”, IFRS 7 prepared based on the assumption of the “Financial Instruments: Disclosures” Management that the Bank will remain in – Interest rate Benchmark Reform business for the foreseeable future. The Bank – adopted by EU on 15 January 2020 will not be forced to halt operations and (effective for annual periods beginning liquidate its assets in the near term at what on or after 1 January 2020), may be very low fire-sale prices. (cid:588) Amendments to IFRS 16 “Leases” – Covid-19- Related Rent Concessions adopted by EU The Bank maintains its accounting records on 9 October 2020 (effective for annual and prepares their statutory accounts in periods beginning on or after 1 June 2020), accordance with the commercial, banking (cid:588) Amendments to IFRS 3 “Business and fiscal regulations prevailing in Hungary. Combinations” – adopted by EU on 21 April The presentation and functional currency 2020 (effective for annual periods beginning of the Bank is the Hungarian Forint (“HUF”). on or after 1 January 2020). The separate financial statements have been prepared in accordance with International The adoption of these amendments to the Financial Reporting Standards (“IFRS”) existing standards has not led to any material as adopted by the European Union (“EU”). changes in these Separate Financial Statements. 1.2.1 The effect of adopting new and revised IFRS standards effective from 1 January 2020 1.2.2 New and revised Standards and Interpretations issued by IASB and adopted by the EU but not yet effective The following amendments to the existing (cid:588) Amendments to IFRS 9, IAS 39, IFRS 7, standards and new interpretation issued by IFRS 4 and IFRS 16 “Interest Rate the International Accounting Standards Board Benchmark Reform – Phase 2 adopted by (IASB) and adopted by the EU are effective EU on 13 January 2021 (effective for annual for the current reporting period: periods beginning on or after 1 January 2021) (cid:588) Amendments to References to the (cid:588) Amendments to IFRS 4 “Insurance Conceptual Framework in IFRS Standards Contracts” deferral of IFRS 9 adopted by EU – adopted by EU on 29 November 2019 on 15 December 2020 (effective for annual (effective for annual periods beginning periods beginning on or after 1 January 2021) on or after 1 January 2020), (cid:588) Amendments to IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” – Definition of Material – adopted by EU on 1.2.3 Standards and Interpretations issued by IASB but not yet adopted by the EU 29 November 2019 (effective for annual At present, IFRS as adopted by the EU do not periods beginning on or after 1 January 2020), significantly differ from regulations adopted IFRS separate financial statements 241 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) by the IASB except for the following new policies (effective for annual periods standards, amendments to the existing beginning on or after 1 January 2023), standards and new interpretation, which (cid:588) Amendments to IAS 8 “Accounting policies, were not endorsed for use in EU as at date Changes in Accounting Estimates and of publication of these financial statements: Errors” – Definition of Accounting Estimates (cid:588) IFRS 17 “Insurance Contracts” (effective (effective for annual periods beginning for annual periods beginning on or after on or after 1 January 2023), 1 January 2021), (cid:588) Amendments to IFRS 10 “Consolidated (cid:588) Amendments to IFRS 3 “Business Financial Statements” and IAS 28 “Invest- Combinations”; IAS 16 “Property, Plant and ments in Associates and Joint Ventures” Equipment”; IAS 37 “Provisions, Contingent – Sale or Contribution of Assets between Liabilities and Contingent Assets” – Annual an Investor and its Associate or Joint Improvements (effective fog annual periods Venture and further amendments (effective beginning on or after 1 January 2022), date deferred indefinitely until the research (cid:588) Amendments to IAS 1 “Presentation project on the equity method has been of Financial Statements” – Classification concluded). of Liabilities as Current or Non-Current (effective for annual periods beginning The Bank anticipates that the adoption of these on or after 1 January 2023), new standards, amendments to the existing (cid:588) Amendments to IAS 1 “Presentation standards and new interpretations will have of Financial Statements” and IFRS Practice no material impact on the financial statements Statement 2 – Disclosure of Accounting of the Bank in the period of initial application. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies applied as at the date of the financial statements in the preparation of the accompanying and their reported amounts of revenues and separate financial statements are expenses during the reporting period. Actual summarized below: results could differ from those estimates. 2.1 Basis of presentation Future changes in economic conditions, business strategies, regulatory requirements, accounting rules and other factors could result These separate financial statements have been in a change in estimates that could have a prepared under the historical cost convention material impact on future separate financial with the exception of certain financial statements. instruments, which are recorded at fair value. Revenues and expenses are recorded in the period in which they are earned or incurred. 2.2 Foreign currency translation The Bank does not offset assets and liabilities or income and expenses unless it is required Monetary assets and liabilities denominated or permitted by an IFRS standard. in foreign currencies are translated into HUF that is the presentation currency, at exchange The presentation of separate financial state- rates quoted by the National Bank of Hungary ments in conformity with IFRS requires the (“NBH”) as at the date of the separate financial Management of the Bank to make estimates statements. Income and expenses arising and assumptions that affect the reported in foreign currencies are converted at the amounts of assets and liabilities and rate of exchange on the transaction date. disclosure of contingent assets and liabilities Resulting foreign exchange gains or losses 242 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) are recorded to the separate statement explicit cash-flow model serves as a basis of profit or loss. 2.3 Consolidated financial statements for the impairment test by which the Bank defines the impairment need on investment in subsidiaries based on the strategic factors and financial data of its cash-generating units. OTP Bank in its strategic plan has taken into These financial statements present the consideration the cautious recovery of global separate financial position and results of economic situation and outlook, the associated operations of the Bank. Consolidated financial risks and their possible effect on the financial statements are prepared by the Bank and sector as well as the current and expected consolidated net profit for the year and share- availability of wholesale funding. holders’ equity differs significantly from that presented in these separate financial state- ments. See Note 2.4 for the description of the 2.5 Securities at amortised cost method of accounting for investments in sub- sidiaries and associated companies in these The Bank measures at amortized cost those separate financial statements. The consolidated securities which are held for contractual cash financial statements and the separate financial collecting purposes, and contractual terms statements will be published on the same date. of these securities give rise to cash-flows that 2.4 Investments in subsidiaries, associated companies and other investments are solely payment of principal and interest on the principal amount outstanding. The Bank initially recognizes these securities at fair value. Securities at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to Investments in subsidiaries comprise those impairment. The amortisation of any discount investments where OTP Bank, through direct or premium on the acquisition of a security and indirect ownership interest, controls the at amortized cost is part of the amortized investee. Control is achieved when the Bank cost and is recognized as interest income has power over the investee, is exposed or has (Eir based) so that the revenue recognized rights, to variable returns from its involvement in each period represents a constant yield with the investee and has the ability to use its on the investment. Securities at amortized power to affect its returns. cost are accounted for on a trade date basis. Investments in subsidiaries are recorded issued by the Hungarian Government bonds at the cost of acquisition, less impairment and corporate bonds. Such securities comprise mainly securities for permanent diminution in value, when appropriate. After initial measurement invest- ments in subsidiaries are measured at cost, in the case of foreign currency denominated 2.6 Financial assets at fair value through profit or loss investments for the measurement the Bank uses the exchange rate at the date 2.6.1 Securities held for trading of transaction. Investments in securities are accounted for on Impairment is determined based on the future a trade date basis and are initially measured economic benefits of the subsidiary and macro- at fair value. Securities held for trading are economic factors. measured at subsequent reporting dates at fair value. Unrealised gains and losses on OTP Bank calculates the fair value based on held for trading securities are recognized in discounted cash-flow model. The 3 year period profit or loss and are included in the separate IFRS separate financial statements 243 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) statement of profit or loss for the period. collateralised. Changes in the fair value of The Bank holds held for trading securities derivative financial instruments that do not within the business model to obtain short-term qualify for hedge accounting are recognized gains. Consequently realised and unrealised in profit or loss and are included in the gains and losses are recognized in the net separate statement of profit or loss for the operating income. The Bank applies FIFO1 period. Each derivative deal is determined as inventory valuation method for securities asset when fair value is positive and as liability held for trading. Such securities consist of when fair value is negative. discounted and interest bearing Treasury bills, Hungarian Government bonds, mortgage Certain derivative transactions, while bonds, shares in non-financial commercial providing effective economic hedges under companies, shares in investment funds, shares risk management positions of the Bank, do in venture capital funds and shares in financial not qualify for hedge accounting under the institutions. 2.6.2 Derivative financial instruments specific rules of IFRS 9 and are therefore treated as derivatives held for trading with fair value gains and losses charged directly to the separate statement of profit or loss. In the normal course of business, the Bank Foreign currency contracts Foreign currency contracts are agreements is a party to contracts for derivative financial to exchange specific amounts of currencies instruments, which represent a low initial at a specified rate of exchange, at a spot date investment compared to the notional value (settlement occurs two days after the trade of the contract and their value depends on date) or at a forward date (settlement occurs value of underlying asset and are settled in more than two days after the trade date). the future. The derivative financial instruments The notional amount of forward contracts used include interest rate forward or swap does not represent the actual market or credit agreements and currency forward or swap risk associated with these contracts. Foreign agreements and options. These financial currency contracts are used by the Bank for instruments are used by the Bank both for risk management and trading purposes. trading purposes and to hedge interest rate The Bank’s risk management foreign currency risk and currency exposures associated with its contracts were used to hedge the exchange transactions in the financial markets. rate fluctuations of loans and deposits denominated in foreign currency. Derivative financial 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 Foreign exchange swaps and interest rate swaps The Bank enters into foreign-exchange swap are obtained from quoted market prices, and interest rate swap (“IRS”) transactions. discounted cash-flow models and option The swap transaction is a complex agreement pricing models as appropriate. OTP Bank concerning the swap of certain financial adopts multi curve valuation approach for instruments, which usually consists of a spot calculating the net present value of future and one or more forward contracts. cash-flows – based on different curves used for determining forward rates and used for Interest rate swaps obligate two parties to discounting purposes. It shows the best exchange one or more payments calculated estimation of such derivative deals that are with reference to fixed or periodically reset collateralised as OTP Bank has almost its rates of interest applied to a specific notional entire open derivative transactions principal amount (the base of the interest 1 First In First Out 244 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) calculation). Notional principal is the amount limits on unmatched positions. Credit risk is upon which interest rates are applied to managed through approval procedures that determine the payment streams under interest establish specific limits for individual counter- rate swaps. parties. The Bank’s forward rate agreements Such notional principal amounts are often were transacted for management of interest used to express the volume of these trans- rate exposures. actions but are not actually exchanged between the counterparties. The Bank’s interest rate swap contracts can be hedging Foreign exchange options A foreign exchange option is a derivative or held for trading contracts. financial instrument that gives the owner the Cross-currency interest rate swaps The Bank enters into cross-currency interest right to exchange money denominated in one currency into another currency at a pre-agreed exchange rate at a specified future date. rate swap (“CCIRS”) transactions which have The transaction, for a fee, guarantees a worst- special attributes, i.e. the parties exchange the case exchange rate for the futures purchase notional amount at the beginning and also of one currency for another. These options at the maturity of the transaction. A special protect against unfavourable currency type of these deals is the mark-to-market movements while preserving the ability to CCIRS agreements. At this kind of deals the participate in favourable movements. 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 2.7 Derivative financial instruments designated as a fair value or cash-flow hedge more payments calculated with reference Changes in the fair value of derivatives periodically reset rates of interest and that are designated and qualify as hedging performance of indices. A specific notional instruments fair value hedges and that prove principal amount is the base of the interest to be highly effective in relation to the hedged calculation. The payment of index return is risk, are recorded in the separate statement calculated on the basis of current market price of profit or loss along with the corresponding compared to the previous market price. In case change in fair value of the hedged asset or of commodity swaps payments are calculated liability that is attributable to the specific on the basis of the strike price of a predefined hedged risk. Changes in the fair value of the commodity compared to its average market hedging instrument in fair value hedges are price in a period. Forward rate agreements (“FRA”) A forward rate agreement is an agreement charged directly to the separate statement of profit or loss. The conditions of hedge accounting applied by the Bank are the following: formally designated as hedging to settle amounts at a specified future date relationship, proper hedge documentation is based on the difference between an interest prepared, effectiveness test is performed and rate index and an agreed upon fixed rate. based on it the hedge is qualified as effective. Market risk arises from changes in the market value of contractual positions caused by Changes in fair value of derivatives that movements in interest rates. are designated and qualify as hedging The Bank limits its exposure to market risk by prove to be highly effective in relation to entering into generally matching or offsetting hedged risk are recognized as reserve in other positions and by establishing and monitoring comprehensive income. Amounts deferred in instrument in cash-flow hedges and that IFRS separate financial statements 245 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) other comprehensive income are transferred (cid:588) A separate financial instrument with the to the separate statement of profit or loss same terms as the embedded derivative and classified as revenue or expense in the would meet the definition of a derivative as periods during which the hedged assets and a stand-alone instrument; and liabilities effect the separate statement of (cid:588) The host instrument is not measured at fair recognized and comprehensive income for the or is measured at fair value but changes period. The ineffective element of the hedge is in fair value are recognised in other charged directly to the separate statement of comprehensive income. profit or loss. The Bank terminates the hedge accounting if the hedging instrument expires As long as a hybrid contract contains a or is sold, terminated or exercised, or the host that is a financial asset the general hedge no longer meets the criteria for hedge accounting rules for classification, recognition accounting. In case of cash-flow hedges and measurement of financial assets are – in line with the standard – hedge accounting applicable for the whole contract and no is still applied as long as the underlying asset embedded derivative is separated. is derecognised. 2.8 Offsetting 2.10 Securities at fair value through other comprehensive income (“FVOCI securities”) Financial assets and liabilities may be offset and the net amount is reported in the FVOCI securities are held within a business statement of financial position when the Bank model whose objective is achieved by both has a legally enforceable right to set off the collecting of contractual cash-flows and selling recognised amounts and the transactions are securities. Furthermore contractual terms of intended to be reported in the statement FVOCI securities give rise on specified dates of financial position on a net basis. In the case to cash-flows that are solely payment of of the derivative financial instruments the principal and interest on the principal amount Bank applies offsetting and net presentation outstanding. in the Statement of Financial Position when the Bank has the right and the ability to settle the assets and liabilities on a net basis. 2.9 Embedded derivatives Debt instruments Investments in debt securities are accounted for on a trade date basis and are initially measured at fair value. Securities at fair value through other comprehensive income are measured at subsequent reporting dates Sometimes, a derivative may be a component at fair value. Unrealised gains and losses on of a combined or hybrid contract that includes FVOCI financial instruments are recognized a host contract and a derivative (the embedded in other comprehensive income, except for derivative) affecting cash-flows or otherwise interest and foreign exchange gains/losses on modifying the characteristics of the host monetary items, unless such FVOCI security instrument. An embedded derivative must is part of an effective hedge. Such gains and be separated from the host instrument and losses will be reported when realised in profit accounted for as a separate derivative if, or loss for the applicable period. The Bank and only if: applies FIFO inventory valuation method for (cid:588) The economic characteristics and risks of FVOCI securities. the embedded derivative are not closely related to the economic characteristics and For debt securities at fair value through other risks of the host contract; comprehensive income the loss allowance 246 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) is calculated based on expected credit loss including accrued interest, net of allowance model. The expected credit loss is accounted for loan or placement losses, respectively. for against Other Comprehensive Income. Transaction fees and charges should adjust the carrying amount at initial recognition and FVOCI securities are remeasured at fair value be included in effective interest calculation. based on quoted prices or values derived from Loans, placements with other banks and cash-flow models. In circumstances where the repo receivables are derecognised when the quoted market prices are not readily available, contractual rights to the cash-flows expire or the fair value of debt securities is estimated they are transferred. When a financial asset using the present value of the future cash-flows is derecognised the difference of the carrying and the fair value of any unquoted equity amount and the consideration received is instruments are calculated using the EPS ratio. recognised in the profit or loss. When the Fair value through other comprehensive income option for equity instruments In some cases the Bank made an irrevocable contractual cash-flows of a financial asset are modified and the modification does not result in the derecognition of the financial asset the Bank recalculate the gross carrying amount of the financial asset by discounting the expected election at initial recognition for certain non- future cash-flows with the original effective trading investments in an equity instrument interest rate of the asset. The difference to present subsequent changes in fair value between the carrying amount and the present of these securities in other comprehensive value of the expected cash-flows is recognised income instead of in profit or loss. as a modification gain or loss in the profit The use of the fair value option is based only accounted for using the effective interest rate on direct decision of management of the Bank. method. or loss. Interest and amortised cost are 2.11 Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses Initially, financial assets shall be recognized at fair value which is usually equal to the 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 measures Loans, placements with the Bank is deferring the difference between other banks and repo receivables at amortised the fair value at initial recognition and the cost, which are held to collect contractual transaction price relating to loans and cash-flows, and contractual terms of these receivables because input data for measuring assets give rise on specified dates to cash-flows the fair values is not available on observable that are solely payments of principal and markets. interest on the principal amount outstanding. The Bank recognises financial assets, which are Allowance for losses on loans, placements not held for trading and do not give rise con- with other banks and repo receivables tractual cash-flows that are solely payments of represent management assessment for principal and interest on the principal amount potential losses in relation to these activities. outstanding as loans measured at fair value through profit or loss. Write-offs are generally recorded after all reasonable restructuring or collection Loans, placements with other banks and repo activities have taken place and the possibility receivables are accounted at amortised cost, of further recovery is considered to be remote. stated at the principal amounts outstanding The loan is written off against the related IFRS separate financial statements 247 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) account “Loss allowance on loan, placement The changes of net present value should and repo receivables losses” in the Statement be calculated on Bank level in case of retail of Profit or loss. portfolio. Each retail contract is restructured based on restructuring frameworks. OTP Bank applies partial or full write-off The Bank has to evaluate these frameworks for loans based on the definitions and (and not individual contracts). The changes prescriptions of financial instruments in of net present value should be calculated accordance with IFRS 9. If OTP Bank has no individually on contract level in case of reasonable expectations regarding a financial corporate portfolio. asset (loan) to be recovered, it will be written off partially or fully at the time of emergence. 2.12 Loss allowance The gross carrying amount and loss allowance of the loans shall be written off in the same Allowance for losses on loans and place- amount to the estimated maximum recovery ments with other banks are recognised by amount while the net carrying value remains the Bank based on the expected credit loss unchanged. model in accordance with IFRS 9. Based on the three stage model loss allowance is If there are reasonable expectations of recovery recognised in amount of 12 month expected for a financial asset that is written-off fully or credit loss from the initial recognition. partially, OTP Bank shall re-estimate cash-flows Financial assets with significantly increased of a financial asset and write-off reversal is credit risk or credit impaired financial assets applied in the financial statements. (based on objective evidences) loss allowance Modification of contractual cash-flows If contractual cash-flows of a financial asset is recognised in amount of lifetime expected credit loss. In case of purchased or originated credit change and it is not qualified as derecognition, impaired financial assets loss allowance is modification gain or loss should be calculated recognised in amount of lifetime expected in the separate statement of profit or loss in credit loss since initial recognition. Impairment those cases like restructuring – as defined in gain is recognised if lifetime expected credit internal policies of the Bank – prolongation, loss for purchased or originated credit renewal with unchanged terms, renewal impaired financial assets at measurement date with shorter terms and prescribing capital are less than the estimated credit loss at initial repayment rate, if it doesn’t exist or has not recognition. been earlier. The allowances for loan and placement When the contractual cash-flows of a financial losses are determined to cover losses that asset are renegotiated or otherwise modified have been specifically identified. Collective and the renegotiation or modification does impairment losses of portfolios of loans, for not result in the derecognition of that financial which no objective evidence of loss allowance asset in accordance with IFRS 9, the Bank has been identified on an individual basis, recalculates the gross carrying amount are determined to reduce the carrying amount of the financial asset and shall recognizes of the portfolios of financial assets with similar a modification gain or loss in profit or loss. credit risk characteristics to their estimated The modification indicates an insignificant recoverable amounts at the balance sheet change (the significance is assessed at date. The expected cash-flows for portfolios the financial statement level of the Bank of similar assets are estimated based on (and not at contract level). historical loss experience. 248 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) At subsequent measurement the Bank (cid:588) the loss allowance is multiplied by the recognises through “Loss allowance on loan, end-of-year balance and it will be the actual placement and repo receivables losses” in the loss allowance on these receivables, Statement of Profit or Loss impairment gain (cid:588) loss allowance should be recalculated or loss as an amount of expected credit losses annually. or reversal that is required to adjust the loss allowance at the reporting date to the amount Credit risk of financial assets increases that is required to be recognised in accordance significantly at the following conditions: with IFRS 9. (cid:588) the payment delay exceeds 30 days, (cid:588) it is classified as performing forborne, If a financial asset, which previously classified (cid:588) based on individual decision, its currency in the first stage, classified subsequently in suffered a significant “shock” since the the second or third stage than loss allowance disbursement of the loan, is adjusted to lifetime expected credit loss. (cid:588) the transaction/client rating exceeds a If a financial asset, which previously classified predefined value or falls into a determined in the second or third stages, classified range, or compared to the historic value subsequently in the first stage than loss it deteriorates to a predefined degree, allowance is adjusted to level of 12 month (cid:588) in the case household mortgage loans, expected credit loss. the loan-to-value ratio (“LTV”) exceeds a predefined rate, Classification into risk classes According to the requirements of the IFRS 9 (cid:588) default on another loan of the retail client, if no cross-default exists, standard, the Bank classifies financial assets (cid:588) in case of corporate and municipal clients: measured at amortised cost and fair value – financial difficulty (capital requirements, through other comprehensive income, and liquidity, impairment of asset quality), loan commitments and financial guarantees – significant decrease of activity and into the following categories in accordance liquidity in the market of the asset, with IFRS 9: Stage 1 Performing – client’s rating reflects higher risk, but better than default, Stage 2 Performing, but compared to the – collateral value drops significantly, initial recognition it shows significant from which the client pays the loan, increase in credit risk – more than 50% decrease in owner’s Stage 3 Non-performing equity due to net losses, POCI Purchased or originated credit – client under dissolution, impaired – negative information from Central Credit Information System: the payment delay In the case of trade receivables, contract exceeds 30 days. assets and lease receivables the Group applies the simplified approach and calculates only Financial assets classifies as non-performing, lifetime expected credit loss. Simplified if the following conditions are met: approach is the following: (cid:588) default, (cid:588) for the past 3 years the average annual (cid:588) non-performing forborne exposures, balance of receivables under simplified (cid:588) in case of corporate and municipal clients: approach is calculated, – breach of contract terms and conditions (cid:588) the written-off receivables under simplified – critical financial difficulty of the approach are determined in the past 3 years, client (capital requirements, liquidity, (cid:588) the loss allowance ratio will be the sum of impairment of asset quality), the written-off amounts divided by the sum – liquidation, dissolution or debt clearing of the average balances, procedures against client, IFRS separate financial statements 249 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:19)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) – forced deregistration procedures from would otherwise arise from measuring company registry, assets or liabilities or recognising the gains – terminated loans by the Bank, and losses on them on different bases – in case of fraud, (cid:588) if the group of financial liabilities or assets is – negative information from Central Credit managed and its performance is evaluated Information System: the payment delay on a fair value basis, in accordance with exceeds 90 days, a documented risk management or invest- – cessation of active markets of the ment strategy, and information about the financial asset, group is provided internally on that basis – default of ISDA based contracts. to the Bank’s key management personnel. For lifetime expected credit losses, the Bank The use of the fair value option is limited only shall estimate the risk of a default occurring to special situations, and it can be based only on the financial instrument during its expected on direct decision of management of the Bank. life. 12-month expected credit losses are a portion of the lifetime expected credit losses and represent cash-flow shortfalls that will result if a default occurs in the 12 months after the reporting date (or a shorter period fi the 2.14 Sale and repurchase agreements, security lending expected life of the financial instrument is less Where debt or equity securities are sold than 12 months), weighted by the probability under a commitment to repurchase them of that default occurring. at a pre-determined price, they remain on the statement of financial position and Expected credit losses are measured in a way the consideration received is recorded that reflects: in Other liabilities or Amounts due to banks (cid:588) an unbiased and probability-weighted and deposits from the National Bank of amount that is determined by evaluating Hungary and other banks, or Deposits a range of possible outcomes, from customers. Conversely, debt or equity (cid:588) the time value of money, and securities purchased under a commitment (cid:588) reasonable and supportable information to resell are not recognized in the statement that is available without undue cost of effort of financial position and the consideration at the reporting date about past events, paid is recorded either in Placements with current conditions and forecasts of future other banks or Deposits from customers. economic conditions. Interest is accrued evenly over the life 2.13 Option to designate a financial asset/liability measured at fair value through profit or loss (FVTPL option) 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 financial liability or financial receivable is The Bank may, at initial recognition, irrevocably recognized for the consideration amount. designate a financial asset or liability as measured at fair value through profit or loss. The Bank may use FVTPL option in the following cases: (cid:588) if doing so eliminates or significantly 2.15 Property, equipment and intangible assets reduces a measurement or recognition Property, equipment and intangible assets are inconsistency (accounting mismatch) that stated at cost, less accumulated depreciation 250 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) and amortization and impairment, if any. generally FIFO formulas to the measurement The depreciable amount (book value less of inventories. Inventories shall be removed residual value) of the non-current assets from books when they are sold, unusable must be allocated over their useful lives. or destroyed. When inventories are sold, the Depreciation and amortization are calculated carrying amount of those inventories shall using the straight-line method over the be recognized as an expense in the period estimated useful lives of the assets based in which the related revenue is recognized. on the following annual percentages: Repossessed assets are classified as inventories. Intangible assets Software Property rights Property 20–33.3% 16.7–33.3% 2.17 Investment properties 1–2% Office equipment and vehicles 9–33.3% Investment properties of the Bank are land, buildings, part of buildings which are held Depreciation and amortization on properties, (as the owner or as the lessee under a equipment and intangible assets starts on finance lease) to earn rentals or for capital the day when such assets are placed into appreciation or both, rather than for use in service. At each balance sheet date, the Bank the production or supply of services or for reviews the carrying value of its tangible and administrative purposes or sale in the ordinary intangible assets to determine if there is any course of business. The Bank measures indication that those assets have suffered an the investment properties at cost less impairment loss. accumulated depreciation and impairment, if any. The depreciable amount (book value If such indication exists, the recoverable less residual value) of the investment amount of the asset is estimated to determine properties must be allocated over their useful the extent (if any) of the impairment loss. lives. Depreciation and amortization are Where it is not possible to estimate the calculated using the straight-line method over recoverable amount of an individual asset, the estimated useful lives of the assets based the Bank estimates the recoverable amount on the 1–2% annual percentages. of the cash-generating unit to which the asset belongs. The fair value of the investment properties is established mainly by external experts. Where the carrying value of property, According to the opinion of the Management equipment, other tangible fixed assets and there is no significant difference between intangible assets is greater than the the fair value and the carrying value of these estimated recoverable amount, it is impaired properties. immediately to the estimated recoverable amount. 2.16 Inventories 2.18 Financial liabilities The financial liabilities are presented within financial liabilities at fair value through profit The inventories shall be measured at the lower or loss or financial liabilities measured at of cost and net realisable value. The cost of amortised cost. In connection to the financial inventories shall comprise all costs of liabilities at fair value through profit or loss, purchase, costs of conversion and other costs the Bank presents the amount of change in incurred in bringing the inventories to their their fair value originated from the changes of present location and condition. The Bank uses market conditions and business environment. IFRS separate financial statements 251 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Financial liabilities at fair value through profit At their date of initial recognition, lease or loss are either financial liabilities held for payments contained in the measurement of trading or they are designated upon initial lease liabilities comprise the following types recognition as at fair value through profit of payments for the right to use the underlying or loss. In the case of financial liabilities asset for the life of the lease: measured at amortised cost, fees and (cid:588) fixed lease payments less any lease commissions related to the origination of incentives, the financial liability are recognised (cid:588) variable lease payments which are through profit or loss during the maturity dependent on market indices, of the instrument. In certain cases the Bank (cid:588) amounts expected to be payable by the repurchases a part of financial liabilities lessee under residual value guarantees, (mainly issued securities or subordinated (cid:588) the strike price of a purchase option, bonds) and the difference between the if it is reasonably certain that the option carrying amount of the financial liability will be exercised, and and the amount paid for it is recognised in (cid:588) payment of contractual penalties for the statement of profit or loss and included terminating the lease, if the lease period in other operating income. reflects that the lessee used the option of terminating the lease. 2.19 Leases The Bank makes use of expedients with respect to short-term leases (less than 12 months) An agreement is a lease or contains a lease if as well as in the case of leases in respect it transfers the rights to control the use of an of which the underlying asset has a low value identified asset for a given period in exchange (less than HUF 1.4 million) and for which for compensation. agreements it will not recognise financial liabilities nor any respective right-of-use Expenses related to the use of lease assets, the assets. These types of lease payments will be majority of which were previously recognised recognised as costs using the straight-line in external services costs, will be currently method during the life of the lease. classified as depreciation/amortisation and interest costs. Usufruct rights are depreciated using a straight line method, while lease Recognition of right-of-use assets Right-of-use assets are initially measured liabilities are settled using an effective at cost. discount rate. The cost of a right-of-use asset comprises: (cid:588) the amount of the initial measurement Recognition of lease liabilities The Bank will recognise lease liabilities related of lease liabilities, (cid:588) any lease payments made at or before to leases which were previously classified the commencement date, less any lease as “operating leases” in accordance with IAS 17 incentives received, Leases. These liabilities will be measured at (cid:588) any initial direct costs incurred by the lessee, the present value of lease payments receivable (cid:588) estimates of costs to be incurred by the as at the date of commencement of the lessee as a result of an obligation to application of IFRS 16. Lease payments disassemble and remove an underlying shall be discounted using the interest rate asset or to carry out renovation/restoration. implicit in the lease or, if that rate cannot be readily determined, the incremental Average weighted amount of the implicit borrowing rate. Interest rate applied by the interest rate/incremental borrowing rate Bank: weighted average lessee’s incremental applied as at 1 January 2019 to recognize borrowing rate: ~1,62% the lease liabilities: ~1,61 % 252 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 2.20 Share capital in the Separate Statement of Profit or Loss on an accrual basis according to IFRS 15. Share capital is the capital determined in (See further details in Note 31). These fees are the Articles of Association and registered by related to deposits, cash withdrawal, security the Budapest-Capital Regional Court. Share trading, bank card etc. capital is the capital the Bank raised by issuing common stocks at the date the shares were issued. The amount of share capital has not 2.24 Dividend income changed over the current period. 2.21 Treasury shares Dividend income refers to any distribution of entity’s earnings to shareholders from stocks or mutual funds that is owned by the Bank. The Bank recognizes dividend income in the Treasury shares are shares which are purchased separate financial statements when its right on the stock exchange and the over-the-counter to receive the payment is established. market by the Bank and are presented in the separate statement of financial position at acquisition cost as a deduction from share- 2.25 Income tax holders’ equity. Gains and losses on the sale of treasury shares are recognised directly to The annual taxation charge is based on shareholder’s equity. Derecognition of treasury the tax payable under Hungarian fiscal law, shares is based on the FIFO method. adjusted for deferred taxation. Deferred 2.22 Interest income and interest expense taxation is accounted for using the balance sheet liability method in respect of temporary differences between the tax bases of assets and liabilities and their carrying value for financial reporting purposes, measured Interest income and expenses are recognised in at the tax rates that are expected to apply profit or loss in the period to which they relate, when the asset is realised or the liability is using the effective interest rate method except settled. derivative financial instruments. Interest from loans and deposits are accrued on a daily basis. Deferred tax assets are recognized by the Interest income and expenses include relevant Bank for the amounts of income tax that are transaction costs and the amortisation of any recoverable in future periods in respect discount or premium between the initial carry- of deductible temporary differences as well ing amount of an interest-bearing instrument as the carry forward of unused tax losses and and its amount at maturity calculated on the carryforward of unused tax credits. an effective interest rate basis. The time-proportional interest income of derivative financial instruments calculated not 2.26 Banking tax using the effective interest method and the positive fair value adjustment of interest rate The Bank is obliged to pay banking tax swaps are also included in interest income. based on Act LIX of 2006. As the calculation 2.23 Fees and Commissions is not based on the taxable profit (but the adjusted Assets total calculated based on the Separate Financial Statements for the second period preceding the current Fees and commissions that are not involved in tax year), banking tax is not considered as the amortised cost model are recognised income tax. IFRS separate financial statements 253 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 2.27 Off-balance sheet commitments and contingent liabilities 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 In the ordinary course of its business, the Bank of a binomial model. The expected life used has entered into off-balance sheet commit- in the model has been adjusted, based on ments such as guarantees, commitments to Management’s best estimate, for the effects extend credit, letters of credit and transactions of non-transferability, exercise restrictions, with financial instruments. The provision and behavioural considerations. The Bank has on off-balance sheet commitments and applied the requirement of IAS 19 Employee contingent liabilities is maintained at a level Benefits. IAS 19 requires to recognise employee adequate to absorb probable future losses benefits to be paid as a liability and as an which are probable and relate to present expense in financial statements. obligations. Those commitments and contingent liabilities Management determines the adequacy of the 2.29 Separate statement of cash-flows provision based upon reviews of individual items, recent loss experience, current economic Cash-flows arising from the operating, conditions, the risk characteristics of the investing or financing activities are reported various categories of transactions and other in the Statement of Cash-flows of the Bank pertinent factors. primarily on a gross basis. Net basis reporting are applied by the Bank in the following cases: The Bank recognizes a provision for off-balance (cid:588) when the cash-flows reflect the activities sheet commitment and contingent liabilities of the customer rather than those of the in accordance with IAS 37 when it has a Bank, and present obligation as a result of a past event; (cid:588) for items in which the turnover is quick, the it is probable that an outflow of resources amounts are large, and the maturities are embodying economic benefits will be required short. to settle the obligation; and a reliable estimate can be made of the obligation. For the purposes of reporting cash-flows, cash and cash equivalents include cash, due from Expected credit loss model is applied for given banks and balances with the NBH excluding financial guarantees and loan commitments compulsory reserve. Cash-flows from hedging which are under IFRS 9 the, when the provision activities are classified in the same category as is calculated (see more details in Note 2.12). the item being hedged. The unrealised gains 2.28 Share-based payment and employee benefit and losses from the translation of monetary items to the closing foreign exchange rates and the unrealised gains and losses from derivative financial instruments are presented net in the statement of cash-flows for the The Bank has applied the requirements monetary items which have been revalued. of IFRS 2 Share-based Payment. The Bank issues equity-settled share-based 2.30 Segment reporting payments to certain employees. Equity-settled share-based payments are measured at fair IFRS 8 Operating Segments requires operating value at the grant date. The fair value segments to be identified on the basis of determined at the grant date of the equity- internal reports about components of the 254 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Bank that are regularly reviewed by the chief of the balance sheet. In the statement of operating decision maker in order to allocate financial position, the Bank presents loans in resources to the segments and to assess their a uniform manner, based on the nature of the performance. instruments, on the line Loans, regardless of their classification and valuation category. At separate level, the Management does not The amounts presented under Loans are separate and makes decisions based on disclosed in the relevant Note by valuation different segments; the segments are category. identified by the Bank only at consolidated level in line with IFRS 8 paragraph 4. At Group The new accounting policy is applied level the segments identified by the Bank are retrospectively by the Bank as if it had always the business and geographical segments. applied this accounting policy. The Bank has The Group’s operating segments under IFRS 8 made the following adjustments to the are therefore as follows: OTP Core Hungary, comparative figures. At the beginning of the Russia, Ukraine, Bulgaria, Romania, Serbia, comparative period and at the end of the Croatia, Montenegro, Albania, Moldova, comparative period, the change in accounting Slovenia, Merkantil Group, Asset Management policy did not result in a material change subsidiaries, other subsidiaries, Corporate Centre. in the carrying amount of the loans involved 2.31 Comparative figures Change in the classification and valuation policy of certain subsidized retail loans and FX margins In 2020, the Bank changed its accounting or equity. Therefore, the Bank did not change the related balance sheet values for the adjustment relating to periods before those presented, the statement, the statement of financial position contains only the data at the end of the current period and at the end of the comparative period. policy regarding the classification and As a result of the change in accounting policy, valuation of a particular class of subsidized the Bank adjusted the data of the comparative retail loans. The interest payments on the period in the statement of profit or loss in retail loans are determined on the basis of accordance with the profit or loss items of the the government bond reference yields and fair valuation categories. Due to the unchanged a multiplier. Previously, in accordance with carrying amounts in the balance sheet, the Bank's accounting policy, these loans this amendment resulted in the following were measured at amortised cost. For the reclassification between profit or loss categories: year ended 31 December 2020, the Bank (cid:588) The Bank recognizes interest income on classified this type of loan as measured at loans measured at fair value through profit fair value through profit or loss. The new or loss for the period in the Income similar accounting policy is in line with the practices to Interest Income line at the value of the majority of the players in the banking corresponding to transactional interest. sector, thus better facilitating comparability. The comparative value of the line of interest Therefore, in the Bank's opinion, the change in income calculated using the effective accounting policy results in a more reliable, interest rate method has been reduced comparable and relevant presentation of the accordingly by the interest income of the effects of the loans in question on the Bank's respective loans determined using the financial position and financial performance in previously applied effective interest rate the financial statements. method. In parallel with the change in accounting income and commission expenses related to policy, the Bank also changed the structure loans at fair value through profit or loss in (cid:588) The Bank presents the amount of commission IFRS separate financial statements 255 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) the Fee and commission income and period, nor the comparative earnings per Fee and commission expense lines. ordinary share. (cid:588) The Bank presents the change in the fair value of loans measured at fair value The other reclassification relates to realized through profit or loss, broken down into foreign exchange results which were two components: previously presented within Net operating – The Bank presents the portion of the income. The change in presentation means change in fair value arising from changes that the result recognized on these trans- in credit risk within Risk cost as Change actions is now presented in Income from fees in the fair value attributable to changes and commissions. in the credit risk of loans mandatorily measured at fair value through profit of In accordance with the new accounting loss. This amount is determined using policy, the Bank has amended its respective expected credit loss models used for disclosure notes. In the comparative figures, loans measured at amortized cost. the Bank has reduced the previously disclosed The comparative amount of Loss amortized cost, gross carrying amount, allowance on loans, placements and repo impairment and fair value data by the receivables has been reduced accordingly amounts related to the loans concerned. with the loss allowance and reversal The Bank has also amended its disclosures amounts for the respective loans. in the notes on assets at fair value through – The Bank presents the remaining profit or loss for comparative information. component of the change in fair value These amendments have been marked under the (Losses)/Gains on financial “Revised” by the Bank. The Bank has also instruments at fair value through profit revised the presentation of the detailed notes or loss. to the amended profit or loss line items for comparative information in accordance The change in accounting policy did not with the new values in the statement of profit impact the net profit for the comparative or loss. Amendments to the information published in the supplementary annexes concerned the following supplementary notes: Note 10 29 30 35 35.1 35.1.1 35.1.1 35.1.1. 35.1.2 35.2 35.4 43 44 44 a) 44 d) Name of the Note Loans Interest income and interest expenses Risk cost Financial risk management Credit risk Gross carrying amount and accumulated loss allowance of financial assets at amortized cost and fair value through other comprehensive income Changes in the Loss allowance of financial assets at amortised cost and fair value through other comprehensive income by IFRS 9 stages Loan portfolio by countries Collaterals Maturity analysis of assets and liabilities and liquidity risk Interest rate risk management Net gain or loss realised on financial instruments Fair value of financial instruments Fair value of financial assets and liabilities Fair value classes 256 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Line item 2020 2019 Revised presentation Reclassification of amounts related to mandatorily measured at fair value through profit or loss Reclassification of gains from foreign exchange margin 2019 As previously presented Interest income calculated using the effective interest method Income similar to interest income Interest incomes and similar to interest incomes Interest expense Loss allowance on loan, placement and repo receivables losses Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss Further risk cost items Risk cost total NET INTEREST INCOME AFTER RISK COST Income from fees and commissions NET PROFIT FROM FEES AND COMMISSIONS Foreign exchange (losses) and gains, net (Losses)/Gains on financial instruments at fair value through profit or loss NET OPERATING INCOME 239,633 81,663 321,296 (99,630) 235,679 88,217 323,896 (119,384) (61,310) (27,511) (3,716) 5,106 1,390 – 4,672 (405) (5,432) (5,432) (5,050) (66,765) 154,901 (6,938) (39,881) 164,631 259,781 248,954 219,031 213,363 (4,518) (671) 3,288 1,260 60,632 130,358 – (760) 630 – – – (630) (630) – – – – – – – – – 9,959 9,959 239,395 83,111 322,506 (119,384) (32,183) – (6,938) (39,121) 164,001 238,995 203,404 (9,959) 13,247 – 1,890 (9,959) 140,947 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES The presentation of separate financial statements in conformity with IFRS requires 3.1 Loss allowance on financial instruments the Management of the Bank to make judgements about estimates and assumptions The Bank regularly assesses its financial that affect the reported amounts of assets instruments for impairment. Management and liabilities and the disclosure of contingent determines the adequacy of the allowances assets and liabilities as at the date of the based upon reviews of individual loans and financial statements and their reported placements, recent loss experience, current amounts of revenues and expenses during the economic conditions, the risk characteristics reporting period. The estimates and associated of the various categories of loans and other assumptions are based on expected loss pertinent factors. The use of a new, three and other factors that are considered to stage model was implemented for IFRS 9 be relevant. The estimates and underlying purposes. The new impairment methodology assumptions are reviewed on an on-going is used to classify financial instruments in basis. Revisions to accounting estimates are order to determine whether credit risk has recognized in the period. Actual results could significantly increased since initial recognition differ from those estimates. Significant areas and able to identify credit-impaired assets. of subjective judgements include: For instruments with credit-impairment or significant increase of credit risk lifetime expected losses will be recognized. (For details see note 35.1.1.) IFRS separate financial statements 257 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) 3.2 Valuation of instruments without direct quotations Liabilities and Contingent Assets. The Bank is involved in a number of ongoing legal disputes. Based upon historical experience Financial instruments without direct quotations and expert reports, the Bank assesses in an active market are valued using the the developments in these cases, and the valuation model technique. The models are likelihood and the amount of potential regularly reviewed and each model is financial losses which are appropriately calibrated for the most recent available market provided for. (See Note 24.) data. While the models are built only on available data, their use is subject to certain Other provision for off-balance sheet assumptions and estimates (e.g. for correla- items includes provision for litigation, tions, volatilities etc). Changes in the model provision for retirement and expected assumptions may affect the reported fair value liabilities and provision for Confirmed of the relevant financial instruments. letter of credit. IFRS 13 Fair Value Measurement seeks to A provision is recognised by the Bank increase consistency and comparability in fair when it has a present obligation as a result value measurements and related disclosures of a past event, it is probable that an outflow through a ‘fair value hierarchy’. The hierarchy of resources embodying economic benefits categorises the inputs used in valuation will be required to settle the obligation, techniques into three levels. The hierarchy and a reliable estimate can be made of the gives the highest priority to (unadjusted) amount of the obligation. quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The objective of a fair 3.4 Business models value measurement is to estimate the price at which an orderly transaction to sell the asset The financial assets held by the Bank are or to transfer the liability would take place classified into three categories depending on between market participants at the measure- the business model within the financial assets ment date under current market conditions. are managed. 3.3 Provisions (cid:588) Business model whose objective is to hold financial assets in order to collect contractual cash-flows. Within this business model the Bank manages mainly loans and Provision is recognised and measured for advances and long-term securities and other commitments to extend credit and for financial assets. warranties arising from banking activities (cid:588) Business model whose objective is achieved based on IFRS 9 Financial Instruments. by both collecting contractual cash-flows and Provision for these instruments is recognised selling financial assets. Within this business based on the credit conversion factor, which model the Bank only manages securities. shows the proportion of the undrawn facility (cid:588) Business model whose objective is to that will be probably funded. achieve gains in a short-term period. Other provision is recognised and measured manages securities and derivative financial based on IAS 37 Provisions, Contingent instrument. Within this business model the Bank 258 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 4: COVID-19 (in HUF mn) Covid-19 has had substantial implications for (III. 24.), a moratorium on payments was the operations of the Bank during 2020. Below introduced in Hungary concerning both are some of the more important Covid-19 principal, interest and fee payment related events that occurred in Hungary: obligations arising from both credit, loan (cid:588) On 16 March 2020 the NBH decided to and finance lease amounts that have expand the range of eligible collaterals with already been disbursed until 18 March 2020. performing corporate loans. Effective from The moratorium did not involve debt 11 May 2020 only corporate loans exceeding forgiveness element. The first moratorium HUF 1 billion can be used as collateral in the was effective until 31 December 2020. liquidity providing operations. The scope of the moratorium included, among (cid:588) In addition to the 1, 3, 6 and 12-month others, both retail and corporate debtors. tenders announced every Monday in the Regarding details and technical provisions, same way, the NBH announced one-week the non-paid interest during the payment FX-swap tenders providing forint liquidity holiday cannot be capitalized to the out- on a daily basis from 17 March 2020 until standing principal (neither during the further notice, in order to maintain moratorium, nor afterwards). The amount the appropriate level of liquidity for the of delayed interest accumulated during banking sector. the moratorium must be repaid after the (cid:588) On 18 March 2020 the NBH took measures moratorium in equal instalments, evenly to support the operation of banks and spread over the remaining years of the loan strengthen the banking system. Among tenor, together with the due instalments. others the NBH requested banks and their (cid:588) Following the moratorium, the tenor will owners to make sure that dividends be prolonged in a way that the sum of the are neither approved, nor paid until the due instalment and the unpaid interest end of September of 2020. during the moratorium (which is to be (cid:588) On 18 March 2020 the Prime Minister of repaid in equal instalments) in total should Hungary announced the first stage of not exceed the instalment according to the economic and job protection measures. original contract. Rules applicable to the The steps, among others, included: interest must also be applied to the fees. – a blanket debt repayment moratorium; The borrower’s participation was automatic, – the introduction of the annual percentage but the moratorium did not affect the rate “APR” caps on new consumer loans: debtors’ right to continue to pay according pursuant to the relevant Government to the original contractual terms. Decrees, APR is temporarily capped (cid:588) On its 24 March 2020 meeting the Monetary at central bank base rate +5 pps in Council decided to introduce a new fixed-rate the case of loans to consumers that collateralized loan instrument with are not collateralized by a mortgage maturities of 3, 6 and 12 months and 3 and and are disbursed based on a contract 5 years. Lending will be provided by the concluded after 19 March 2020. NBH at a fixed interest rate (the NBH defines This provision must be applied until the interest rate of the instrument at each 31 December 2020, then following this tender, but the rate may not be lower than deadline the APR set out in the given the base rate). lender’s Terms & Conditions effective (cid:588) On 1 April 2020 the NBH decided to at the time of the signing of the contract announce one-week deposit tenders at a will be applicable; weekly frequency. The interest rate on – the extension of short-term business the instrument equals to the central bank loans until 30 June. base rate. (cid:588) Pursuant to Government Decree No. 47/2020. (cid:588) On 1 April 2020 the NBH announced that (III. 18.) and Government Decree No. 62/2020. effective from 1 July the capital buffer IFRS separate financial statements 259 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:23)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) requirements for systemically important interest rate on the instrument to deviate banks will be released. The banks must from the base rate upward or downward rebuild their capital buffer initially within the interest rate corridor. The NBH prescribed for 2020 gradually in three said that it will set the interest rate on the years from 2022 onwards. At the time of the instrument each week, at the time of the decision the O-SII buffer applicable for actual tender’s announcement. OTP Bank was 2%. (cid:588) As part of the comprehensive set (cid:588) On 4 April 2020 the Minister of Prime of measures outlined by the NBH on Minister's Office revealed that the 7 April 2020, it decided to Government expects banks to contribute – Launch a government security purchase HUF 55 billion into the new epidemic programme in the secondary market fund. Pursuant to the Government Decree to restore the stable liquidity position 108/2020 published on 14 April, the new of the government securities market and special tax levied on banks is to be paid in influence the longer part of the yield the 2020 tax year, in three equal instalments curve, and to relaunch its mortgage (in June, September and December). bond purchase programme to improve The base of the new special tax is that part of the long-term supply of funding to the the adjusted total assets (as defined in the banking sector. legislation on the “old” bank tax) that exceeds – Details of the programmes including HUF 50 billion. The tax rate is 19 bps. the timing and strategic parameters (cid:588) On 9 June 2020 the law allowing the were revealed on 28 April: accordingly, deductibility of the new special banking levy the NBH launched its government payable in 2020 was promulgated. The new securities and mortgage bonds purchase once-off special banking tax will be returned programmes on 4 May 2020, and it will to the banking system over the next five continue to purchase securities as long years through deductions from the nominal as economic and financial developments amount of the “old” bank tax (in the form arising from the coronavirus pandemic of tax withholding). require it. (cid:588) The new special tax amounts to HUF 14.2 – The NBH did not set a total amount of billion in the case of the Hungarian Group purchases for either programme. members of OTP Group. Pursuant to IFRS – The NBH launched the Funding for Growth standards, parallel with the accounting Scheme Go! scheme on 20 April 2020. of this new bank levy amongst the other Including HUF 500 billion undrawn under expenses, the Group recognized the net the FGS fix, the NBH made available up to present value of the related tax claims HUF 1,500 billion to the SME sector under amongst the other income. Therefore, the the FGS Go!. new special tax did not materially affect – Within the framework of the Bond the Group’s bottom line earnings neither in Funding for Growth Scheme, the so far 2020, nor will it do so over the next 5 years. unutilized over HUF 200 billion was still (cid:588) On 7 April 2020 the NBH adjusted its policy available for the NBH to purchase bonds instruments and modified its operational issued by non-financial corporations framework. The Monetary Council headquartered in Hungary. decided to make the interest rate corridor (cid:588) On 16 April 2020 the Minister of Finance symmetrical, and left the base rate and revealed further tax concessions amounting the overnight deposit rate unchanged at to HUF 200 billion. Among others, the social 0.9% and –0.05%, respectively, and raised security contributions payable by employers the overnight and one-week collateralized were cut to 15.5% from 17.5% effective from lending rates to 1.85%. The one-week deposit July 2020. rate, at the time of the announcement, (cid:588) On 2 July 2020, the NBH decided to expand was equal to the 0.9% base rate; however, the loan purposes available in the FGS Go! the Monetary Council decided to allow the structure. 260 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) (cid:588) On 10 September 2020 the National Bank – Subsidized home renovation loan: of Hungary, in the wake of increased in order to help eligible families to take uncertainties amid the pandemic, called advantage of the non-refundable home upon credit institutions to extend the renovation subsidy (for details, see previously applied restriction on dividend Government Decree 518/2020. [XI. 25.]), payments and decisions, which was a subsidized home renovation loan effective until 30 September 2020, until (for details, see Government Decree 1 January 2021. 641/2020 [XII. 22.]) was introduced by the (cid:588) On 22 September 2020 the NBH increased Government. the available amount under the Bond (cid:588) On 28 December 2020 the National Bank Funding for Growth programme from of Hungary announced that the following HUF 450 to 750 billion. decisions were made: (cid:588) As the utilisation of the Funding for Growth – The central bank recommended credit Go! scheme exceeded HUF 1,000 billion institutions not to pay dividends or not by mid-November, on 17 November 2020 to make any irrevocable commitment to the Monetary Council decided to raise the pay dividends after the 2019 and 2020 total available amount by HUF 1,000 billion financial year, or from previous years’ (to HUF 2,500 billion). profits, until 30 September 2021. Further- (cid:588) As set out in Government Decree 518/2020. more, the central bank suggested that (XI. 25.), published in the Gazette on credit institutions should refrain from 25 November 2020, starting from 1 January treasury share purchases for shareholder 2021 the Hungarian Government provides a remuneration purposes until the same non-refundable home renovation subsidy date (share buybacks for management to families raising or expecting children by remuneration purposes are an exemption). way of refunding certain part of their home The related guideline was set out in renovation costs. Eligible families can get a management circular published on back 50% of their proven improvement 8 January 2021. expenses following the completion of the – The NBH decided to amend the relevant renewal, but maximum HUF 3 million. The detailed guidelines set out in its IFRS subsidy can be applied for within 60 days circular about the application of non- after completing the home renovation and performing and forborne categories in also paying the bills by the families, or until connection with the payment moratorium, 31 December 2022 the latest. and based on this, its guidelines for (cid:588) On 19 December 2020 the Prime Minister creating provisions. The amended circular announced the following measures directly was released on 22 January 2021. affecting banking operations: (cid:588) Effective from 13 January 2021 the National – Extension of the payment moratorium in Bank of Hungary extended the available unchanged form: pursuant to Government amount for the Bond Funding for Growth Decree 637/2020. (XII. 22.) those borrowers scheme by HUF 750 billion to HUF 1,150 billion. are eligible for the moratorium effective At the same time it decided to increase the between 1 January 2021 – 30 June 2021 maximum maturity of corporate bonds that have principal, interest and fee that can be purchased by the central bank payment obligations arising from a credit from 20 to 30 years. Also, the central bank’s contract that have already been disbursed exposure limit to a company group was until 18 March 2020 (also considering revised from HUF 50 billion to HUF 70 billion. Subsection (1) of Section 3 of Act CVII (cid:588) On 4 February 2021 the Prime Minister of 2020). With the above Decree the announced an interest-free loan programme eligibility conditions stipulated in Act CVII for companies in trouble in the wake of of 2020 (published on 28 October 2020) the pandemic. According to Government for retail and corporate borrowers were Resolution 1038/2021. (II. 5.) the programme repealed. will be administered by the Hungarian IFRS separate financial statements 261 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Development Bank, and the available contributions, overhead costs, general amount under the programme will be operating expenses and inventory financing. HUF 100 billion. Companies can take Client interest rate is 0%, the loan tenor can out maximum HUF 10 million each for be up to 10 years, and the servicing of the the purpose of covering wages and social loan will start after a 3 year grace period. Participation in Covid moratorium: OTP Bank Current volume in moratorium 1,059,428 Current participation ratio 26.2% Financial assets modified during the period related to moratorium: Gross carrying amount before modification Loss allowance before modification Net amortised cost before modification Modification loss due to Covid moratoria Net amortised cost after modification 2020 676,764 (47,658) 629,106 (17,358) 611,748 2019 594,938 (14,075) 580,863 – 580,863 NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANK OF HUNGARY (in HUF mn) Cash on hand: In HUF In foreign currency Amounts due from banks and balances with National Bank of Hungary: Within one year: In HUF In foreign currency Subtotal Average amount of compulsory reserve Total Rate of the compulsory reserve 2020 2019 107,523 18,899 126,422 204,942 247,756 452,698 579,120 76,033 503,087 1% 180,259 16,385 196,644 39,871 53,171 93,042 289,686 65,055 224,631 1% The Bank shall deposit compulsory reserve in rate, which are determined by the NBH in a a determined percent of its liabilities at NBH. specific decree. The Bank is required to Liabilities considered in compulsory reserve complete compulsory reserve requirements in calculation are as follows: average in the second month after the reserve a) deposits and loans, b) debt instruments, c) repo transactions. calculation period, requirements shall be completed once a month on the last calendar day. The Bank complies with the compulsory The amount of the compulsory reserve is reserve requirements by the deposit of the multiplication of the daily average the adequate amount of cash as the calculated of the liabilities considered in the compulsory compulsory reserve on the bank account at reserve calculation and compulsory reserve NBH in monthly average. 262 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 6: PLACEMENTS WITH OTHER BANKS, NET OF ALLOWANCE FOR PLACEMENT LOSSES (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Total placements Loss allowance on placement losses Total 2020 2019 905,241 329,633 1,234,874 267,291 39,538 306,829 1,541,703 (5,819) 1,535,884 732,283 476,314 1,208,597 325,308 29,829 355,137 1,563,734 (3,592) 1,560,142 An analysis of the change in the loss allowance on placement losses is as follows: Balance as at 1 January Loss allowance Release of loss allowance Closing balance 2020 3,592 12,724 (10,497) 5,819 2019 2,047 5,068 (3,523) 3,592 Interest conditions of placements with other banks: Placements with other banks in HUF Placements with other banks in foreign currency Average interest of placements with other banks 2020 0%–3.84% (0.76%)–29% 0.81% 2019 0%–3.84% (0.76%)–3.81% 0.56% NOTE 7: REPO RECEIVABLES (in HUF mn) Within one year: In HUF Total gross amount Loss allowance Total repo receivables 2020 183,656 183,656 (292) 183,364 An analysis of the change in the loss allowance on repo receivables is as follows: Balance as at 1 January Loss allowance Release of loss allowance Closing balance 2020 6 362 (76) 292 2019 45,545 45,545 (6) 45,539 2019 12 42 (48) 6 Interest conditions of repo receivables: Repo receivables in HUF Average interest of repo receivables 2020 (0.1%)–0.9% 0.09% 2019 (0.1%)–0.2% 0.32% (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS separate financial statements 263 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) Held for trading securities: Government bonds Other non-interest bearing securities Hungarian government discounted Treasury Bills Corporate shares and investments Other securities Subtotal Securities mandatorily measured at fair value through profit or loss Equity instruments, open-ended fund units Bonds Subtotal Held for trading derivative financial instruments: Foreign currency swaps Interest rate swaps CCIRS and mark-to-market CCIRS swaps* Other derivative transactions** Subtotal Total 2020 6,031 1,964 1,233 426 2,075 11,729 26,594 5,342 31,936 41,852 34,256 7,359 33,351 116,818 160,483 2019 18,269 7,516 12 369 20,089 46,255 17,100 5,180 22,280 38,213 52,516 1,216 11,749 103,694 172,229 Interest conditions and the remaining maturities of securities held for trading are as follows: Within one year: variable interest fixed interest Over one year: variable interest fixed interest Non-interest bearing securities Total Securities held for trading denominated in HUF Securities held for trading denominated in foreign currency Securities held for trading total Government bonds denominated in HUF Government bonds denominated in foreign currency Government securities total Interest rates on securities held for trading in HUF Interest rates on securities held for trading in foreign currency Average interest on securities held for trading 2020 78 2,319 2,397 1,355 5,587 6,942 2,390 11,729 71% 29% 100% 68% 32% 100% 0.5%–6.75% 0.5%–6.38% 0.63% 2019 2 12,323 12,325 1,030 25,014 26,044 7,886 46,255 55% 45% 100% 87% 13% 100% 0.16%–7.5% 0.01%–8.25% 0.67% * 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). 264 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Interest conditions and the remaining maturities of securities mandatorily measured at fair value through profit or loss are as follows: Within one year variable interest Over one year variable interest Non-interest bearing securities Total Securities mandatorily measured at fair value through profit or loss denominated in HUF Securities mandatorily measured at fair value through profit or loss denominated in foreign currency Total Interest rates on securities mandatorily measured at fair value through profit or loss Average interest on securities mandatorily measured at fair value through profit or loss NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) Government bonds Mortgage bonds Interest bearing treasury bills Other securities Listed securities in HUF in foreign currency Non-listed securities in HUF in foreign currency Subtotal Non-trading equity instruments Non-listed securities in HUF in foreign currency Securities at fair value through other comprehensive income total 2020 28 5,314 26,594 31,936 58% 42% 100% 2.49% 2.49% 2020 488,459 332,667 9,957 65,136 42,776 2,968 39,808 22,360 16,782 5,578 896,219 15,731 528 15,203 15,731 911,950 Detailed information of the non-trading equity instruments to be measured at fair value through other comprehensive income: Garantiqa Hage/Közvil/Pénzügykut OBS VISA A Preferrred EASTWESTVC* TCEEFUNDIII* VISA C* Total HUF HUF EUR USD EUR EUR USD 2020 392 136 12,081 3,122 – – – 15,731 2019 25 5,155 17,100 22,280 77% 23% 100% 2.60% 2.60% 2019* 826,054 220,004 339,397 78,202 39,601 2,999 36,602 38,601 18,516 20,085 1,463,657 22,320 528 21,792 22,320 1,485,977 2019 392 136 12,413 – 158 4,486 4,735 22,320 * During 2020 these securities were reclassified to mandatorily FVTPL instruments. IFRS separate financial statements 265 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Interest conditions and the remaining maturities of FVOCI securities can be analysed as follows: Within one year: variable interest fixed interest Over one year: variable interest fixed interest Non-interest bearing securities Total FVOCI securities denominated in HUF FVOCI securities denominated in foreign currency FVOCI securities total Interest rates on FVOCI securities denominated in HUF Interest rates on FVOCI securities denominated in foreign currency Average interest on FVOCI securities 2020 2019 3,779 123,481 127,260 101,555 667,404 768,959 15,731 911,950 83% 17% 100% 0.5%–11% 0.63%–7.25% 2.75% 6,709 609,207 615,916 84,935 762,806 847,741 22,320 1,485,977 83% 17% 100% 0.16%–11% 0.49%–7.25% 2.32% Certain fixed-rate mortgage bonds and other securities are hedged against interest rate risk. (See Note 35.4.) Net gain/(loss) reclassified from other comprehensive income to statement of profit or loss Fair value of the hedged securities: Government bonds 2020 (2,008) – 399,441 2019 229 – 1,465,143 During the year ended 31 December 2020 the other comprehensive income. During 2019 the Bank didn’t sell any of equity instruments Bank sold shares in Kisvállalkozásfejlesztési Ltd., designated to measure at fair value through net gain on the transaction was not significant. NOTE 10: LOANS (in HUF mn) Loans measured at fair value through profit or loss: Within one year Over one year Loans measured at fair value through profit or loss total 2020 25,732 455,205 480,937 2019 Revised 9,682 228,856 238,538 2019 As previously presented 2,873 26,858 29,731 Loans measured at fair value through profit or loss are mandatorily measured at fair value through profit or loss. Loans measured at amortised cost, net of allowance for loan losses: Within one year Over one year Loans at amortised cost gross total Loss allowance on loan losses Loans at amortised cost total 2020 1,793,352 1,748,078 3,541,430 (123,670) 3,417,760 2019 Revised 1,625,352 1,523,245 3,148,597 (72,066) 3,076,531 2019 As previously presented 1,632,245 1,733,010 3,365,255 (79,917) 3,285,338 266 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of the loan portfolio by currency: In HUF In foreign currency Total 2020 61% 39% 100% 2019 57% 43% 100% Interest rates of the loan portfolio mandatorily measured at fair value through profit or loss are as follows: Loans denominated in HUF Average interest on loans denominated in HUF 2020 1.5%–9.85% 4.20% 2019 1.19%–10.08% 3.76% Interest rates of the loan portfolio measured at amortised cost are as follows: Loans denominated in HUF, with a maturity within one year Loans denominated in HUF, with a maturity over one year Loans denominated in foreign currency Average interest on loans denominated in HUF Average interest on loans denominated in foreign currency 2020 0%–37.5% 0%–37.45% (0.50%)–13% 6.09% 2.11% 2019 0%–37.5% 0%–37.45% (0.45%)–13% 6.30% 2.09% An analysis of the loan portfolio by type, before loss allowance on loan losses, is as follows: Retail loans Retail consumer loans Retail mortgage backed loans* Corporate loans Loans to medium and large corporates Municipality loans Loans at amortised cost total Loans at fair value total Gross loans total 2020 662,675 564,698 97,977 2,878,755 2,790,742 88,013 3,541,430 480,937 4,022,367 16% 14% 2% 72% 70% 2% 88% 12% 100% 2019 Revised 626,927 514,179 112,748 2,521,670 2,433,080 88,590 3,148,597 238,538 3,387,135 18% 15% 3% 75% 72% 3% 93% 7% 100% 2019 As previously presented 25% 21% 4% 74% 71% 3% 99% 1% 100% 843,585 720,471 123,114 2,521,670 2,433,080 88,590 3,365,255 29,731 3,394,986 An analysis of the change in the loss allowance on loans at amortised cost is as follows: Balance as at 1 January Reclassification Balance as at 1 January Other movements Loss allowance Release of loss allowance Use of loss allowance Partial write-off Closing balance * Incl. housing loans. 2020 72,066 – 72,066 – 217,012 (156,383) (6,228) (2,797) 123,670 2019 Revised 66,241 (3,308) 62,933 1,621 125,090 (112,051) – (5,527) 72,066 2019 As previously presented 66,241 – 66,241 1,621 134,583 (117,001) – (5,527) 79,917 IFRS separate financial statements 267 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Loss allowance on loans at amortised cost and placements with other banks is summarized as below: Loss allowance on placements with other banks Loss allowance on loans at amortised cost Total 2020 2,227 59,083 61,310 2019 1,545 32,184 33,729 The Bank sells non-performing loans without recourse at estimated fair value to a wholly owned subsidiary, OTP Factoring Ltd. (See Note 39.) NOTE 11: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn) Investments in subsidiaries Controlling interest Other Subtotal Provision for impairment Total 2020 2019 1,965,197 8,938 1,974,135 (425,163) 1,548,972 1,962,010 8,298 1,970,308 (427,770) 1,542,538 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. Significant subsidiaries Investments in companies in which the Bank has a controlling interest (direct) are detailed below. All companies are incorporated in Hungary unless indicated otherwise: 2020 % Held (direct/indirect) 100% 100% 100% 100% 100% 100% 100% 100% 98% 100% 100% 100% 100% - 100% 100% 98% 100% 100% 100% 100% 100% 100% 100% Gross book value 311,390 280,692 205,349 154,294 131,164 133,987 127,140 107,689 74,335 72,784 50,074 32,359 29,150 - 26,063 25,411 24,159 23,663 36,748 17,892 15,300 10,023 11,865 9,234 54,432 1,965,197 2019 % Held (direct/indirect) 100% 100% 100% 100% 100% 100% 100% 100% 98% 100% 100% 100% 100% 99% 100% 100% 98% 100% 100% 100% 100% 100% 100% 100% Gross book value 311,390 280,692 205,349 154,294 131,164 133,987 127,140 107,372 74,335 72,784 50,074 32,359 29,150 29,134 26,063 25,411 24,159 23,663 21,748 17,892 15,300 10,023 11,865 9,234 37,428 1,962,010 OTP Bank JSC (Ukraine) DSK Bank EAD (Bulgaria) OTP banka Hrvatska d.d. (Croatia) OTP Mortgage Bank Ltd. Vojvodjanska Banka a.d. Novi Sad (Serbia) OTP Bank Romania S.A. (Romania) OTP banka Srbija a.d. (Serbia) SKB Banka d.d. Ljubljana (Slovenia) JSC “OTP Bank” (Russia) Crnogorska komercijalna banka a.d. (Montenegro) LLC Alliance Reserve (Russia) OTP Holding Malta Ltd. Balansz Private Open-end Investment Fund OTP Banka Slovensko a.s. (Slovakia) Bank Center No. 1. Ltd. OTP Factoring Ltd. Mobiasbanca – OTP Group S.A. (Moldavia) Merkantil Bank Ltd. Air-Invest Llc. Inga Kettő Ltd. OTP Life Annuity Ltd. OTP Real Estate Ltd. OTP Bank Albania (Albania) Monicomp Ltd. Other Total 268 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of the change in the impairment loss is as follows: Balance as at 1 January Provision for the period Release of provision Use of provision Closing balance 2020 427,770 10,052 (10) (12,649) 425,163 2019 536,075 12,503 (51,310) (69,498) 427,770 The Bank decided that the recoverable amount companies are expected to generate in the is determined based on fair value less cost of future. Applying the EVA method was more disposal. The Bank prepared impairment tests practically than DCF method because it gives of the subsidiaries based on two different a more realistic picture about how the explicit net present value calculation methods that period and the residual value can contribute show the same result; however they represent to the value of the company. different economical logics. On one hand is the discount cash-flow method (“DCF”) that The Bank, in its strategic plan, has taken into calculates the value of the subsidiaries by consideration the effects of the present global discounting their expected cash-flow; on the economic situation, the cautious recovery of other hand the economic value added (“EVA”) economic situation and outlook, the associated method estimates the value of the subsidiaries risks and their possible effect on the financial from the initial invested capital and the sector as well as the current and expected present value of the economic profit that the availability of wholesale funding. An analysis of the impairment loss by significant subsidiaries is as follows: OTP Bank JSC (Ukraine) OTP Mortgage Bank Ltd. OTP banka Srbija a.d. (Serbia) Crnogorska komercijalna banka a.d. (Montenegro) OTP Bank Romania S.A. (Romania) OTP Banka Slovensko a.s. (Slovakia) Air-Invest Ltd. OTP Life Annuity Ltd. R.E. Four d.o.o. (Serbia) OTP Real Estate Ltd. OTP Buildings s.r.o (Romania) Total 2020 207,397 65,096 53,383 23,324 38,416 – 10,491 10,969 3,763 5,557 3,327 421,723 Dividend income from significant subsidiaries and shares held for trading and shares measured at fair value through other comprehensive income is as follows: OTP Factoring Ltd. OTP Holding Malta Ltd. OTP Funds Servicing and Consulting Ltd. OTP Card Factory Ltd. OTP Real Estate Investment Fund Management Ltd. Inga Kettő Ltd. OTP Building Society Ltd. OTP Mortgage Bank Ltd. OTP banka Hrvatska d.d. (Croatia) Other Subtotal Dividend from shares held for trading Dividend from shares fair value through other comprehensive income Total 2020 45,463 4,823 1,894 25 4,000 – – – – 908 60,913 60 – 60,973 2019 207,397 65,096 53,383 23,324 28,575 12,649 10,491 10,969 3,763 5,557 3,327 424,531 2019 14,665 – – – 1,500 4,500 3,000 27,500 21,170 637 72,972 5,728 187 78,887 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:18)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS separate financial statements 269 Significant associates and joint ventures The main figures of the Bank’s indirectly owned associates and joint ventures at cost*: As at 31 December 2020: Assets Liabilities Shareholders’ equity Total income % Held Country/ Headquarter Activity D-ÉG Thermoset Ltd. ** Szallas.hu Ltd. 5,855 1,358 4,497 3,833 47% 3,883 4,629 (746) 2,386 25% Company for Cash Services LLC 2,856 147 2,709 1,531 25% Total 12,594 6,134 6,460 7,750 Hungary, Budapest Hungary, Miskolc Bulgaria, Sofia Wholesale of hardware, plumbing and heating equipment and supplies Web portal services Other financial services, except insurance and pension funding As at 31 December 2019: Assets Liabilities Shareholders’ equity Total income % Held Country/ Headquarter D-ÉG Thermoset Ltd. ** Szallas.hu Ltd. 4,939 1,429 3,510 3,405 50% 3,883 4,629 (746) 2,386 25% Company for Cash Services LLC 2,736 186 2,550 1,315 25% Hungary, Budapest Hungary, Miskolc Bulgaria, Sofia Total 11,558 6,244 5,314 7,106 The transaction, based on the share purchase as a result of which the 99.44% shareholding in agreement signed with KBC Bank NV on its Slovakian subsidiary, OTP Banka Slovensko 17 February 2020, has been financially closed, was acquired by KBC Bank NV. NOTE 12: SECURITIES AT AMORTISED COST (in HUF mn) Government bonds Other bonds Subtotal Loss allowance Total 2020 1,947,821 63,159 2,010,980 (3,288) 2,007,692 2019 1,436,455 12,212 1,448,667 (1,443) 1,447,224 Interest conditions and the remaining maturities of securities at amortised cost can be analysed as follows: Within one year: fixed interest Over one year: fixed interest Total 2020 57,746 57,746 1,953,234 1,953,234 2,010,980 2019 102,296 102,296 1,346,371 1,346,371 1,448,667 * Based on unaudited financial statements. ** D-ÉG Thermosek Kft. is under liquidation. The figures are the last figures available. 270 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The distribution of the securities at amortised cost by currency: Securities at amortised cost denominated in HUF Securities at amortised cost denominated in foreign currency Securities at amortised cost total Interest rates on securities at amortised cost Average interest on securities at amortised cost denominated in HUF 2020 99% 1% 100% 0,5%–7% 2.69% 2019 100% – 100% 0,5%–7,5% 3.31% An analysis of change in the loss allowance on securities at amortised cost: Balance as at 1 January Loss allowance Release of loss allowance Closing balance 2020 1,443 4,822 (2,977) 3,288 2019 1,668 338 (563) 1,443 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) For the year ended 31 December 2020: Intangible assets Property Office equipment Vehicles Construction in progress Right of use assets Cost Balance as at 1 January Additions Disposals Balance as at 31 December Depreciation and Amortization Balance as at 1 January Charge for the year Disposals Balance as at 31 December Net book value Balance as at 1 January Balance as at 31 December 139,026 54,651 (28,802) 164,875 85,744 21,492 – 107,236 53,282 57,639 69,380 3,858 (961) 72,277 22,948 3,192 (351) 25,789 46,432 46,488 87,235 10,766 (4,123) 93,878 66,506 9,495 (4,102) 71,899 20,799 22,065 126 35 (1) 160 56 19 (1) 74 10,523 13,556 (14,658) 9,421 – – – – 20,729 21,979 10,523 9,421 17,827 4,764 (148) 22,443 4,220 4,750 (6) 8,964 13,607 13,479 For the year ended 31 December 2019: Intangible assets Property Office equipment Vehicles Construction in progress Right of use assets Cost Balance as at 1 January Additions Disposals Balance as at 31 December Depreciation and Amortization Balance as at 1 January Charge for the year Disposals Balance as at 31 December Net book value Balance as at 1 January Balance as at 31 December 115,272 28,104 (4,350) 139,026 75,389 14,682 (4,327) 85,744 39,883 53,282 66,925 5,993 (3,538) 69,380 21,718 2,867 (1,637) 22,948 45,207 46,432 80,862 10,744 (4,371) 87,235 62,694 8,137 (4,326) 66,505 18,168 20,730 99 27 – 126 42 15 – 57 57 69 7,010 20,375 (16,862) 10,523 – – – – 7,010 10,523 16,296 1,638 (107) 17,827 – 4,224 (4) 4,220 16,296 13,607 The Bank has no intangible assets with indefinite useful life. Total 324,117 87,630 (48,693) 363,054 179,474 38,948 (4,460) 213,962 144,643 149,092 Total 286,464 66,881 (29,228) 324,117 159,843 29,925 (10,294) 179,474 126,621 144,643 IFRS separate financial statements 271 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 14: INVESTMENT PROPERTIES (in HUF mn) For the year ended 31 December 2020 and 2019, respectively: Property Cost Balance as at 1 January Additions result from subsequent expenditure Disposals Balance as at 31 December Depreciation and Amortization Balance as at 1 January Charge for the year Disposals Balance as at 31 December Net book value Balance as at 1 January Balance as at 31 December 2020 3,061 38 (522) 2,577 680 51 (90) 641 2,381 1,936 2019 2,964 97 – 3,061 631 49 – 680 2,333 2,381 According to the opinion of the Management there is no significant difference between the fair value and the carrying value of these properties. Income and Expenses: Rental income Depreciation 2020 6 49 2019 6 48 NOTE 15: FAIR VALUE OF DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) Positive fair value of derivative financial assets designated as hedge accounting: Interest rate swaps designated as fair value hedge CCIRS designated as fair value hedge Interest rate swaps designated as cash-flow hedge Total 2020 637 6,180 – 6,817 2019 3,758 3,705 9,214 16,677 272 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 16: OTHER ASSETS* (in HUF mn) Other financial assets Receivables from OTP Employee Stock Ownership Program (OTP ESOP) Receivables from card operations Accrued day one gain of loans provided at below-market interest Stock exchange deposit Prepayments and accrued income Trade receivables Receivables from suppliers Receivables from OTP Mortgage Bank Ltd. Other Loss allowance Other financial assets total Other non-financial assets Prepayments and accrued income Receivable related to Hungarian Government subsidies Other Provision for impairment on other assets Other non-financial assets total Total 2020 2019 53,338 8,453 14,465 9,667 14,396 8,233 5,885 1,823 18,847 135,107 (7,928) 127,179 17,732 10,622 14,743 43,097 (482) 42,615 169,794 33,722 9,804 10,227 5,708 2,938 17,200 3,520 3,823 8,186 95,128 (5,646) 89,482 6,986 16,793 3,902 27,681 (464) 27,217 116,699 An analysis of the movement in the loss allowance on other financial assets is as follows: Balance as at 1 January Other movements** Charge for the period Release of loss allowance Use of loss allowance Balance as at 31 December 2020 5,646 – 6,790 (3,971) (537) 7,928 2019 7,362 (1,621) 3,383 (2,391) (1,087) 5,646 An analysis of the movement in the loss allowance on other non-financial assets is as follows: Balance as at 1 January Charge for the period Release of provision Balance as at 31 December 2020 464 81 (63) 482 2019 59 443 (38) 464 NOTE 17: AMOUNTS DUE TO BANKS AND DEPOSITS FROM THE NATIONAL BANK OF HUNGARY AND OTHER BANKS (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Subtotal Total* 2020 2019 172,798 41,643 214,441 457,883 94,653 552,536 766,977 766,977 358,641 136,922 495,563 94,823 147,668 242,491 738,054 738,054 * Other assets are expected to be recovered or settled no more than twelve months after the reporting period. ** For further information please see the analysis of the change in the loss allowance on loans at amortised cost in Note 10. *** It contains the loans lent among the frame of Funding for Growth Scheme. IFRS separate financial statements 273 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Interest rates on amounts due to banks and deposits from the NBH and other banks are as follows: Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Average interest on amounts due to banks in HUF Average interest on amounts due to banks in foreign currency 2020 2019 0%–20% (0.56%)–0.26% (0.03%)–0.9% (0.89%)–8.49% (2.4%)–1.43% (2.4%)–4.84% (0.94%) (2.11%) 0%–0.71% (0.42%)–6.87% 1.00% 2.05% NOTE 18: REPO LIABILITIES (in HUF mn) Within one year: In HUF Over one year: In HUF In foreign currency Subtotal Total 2020 – – – 109,612 109,612 109,612 109,612 2019 20,575 20,575 263,554 178,492 442,046 462,621 462,621 Interest rates on repo liabilities are as follows: Within one year: In HUF In foreign currency Over one year: In HUF In foreign currency Average interest on repo liabilities in HUF Average interest on repo liabilities in foreign currency 2020 2019 – – (0.85%)–0.14% (1%) – 0.63%–3.85% 1.21% 1.05% 0.39%–0.71% (0.45%)–1.92% 1.19% 1.24% NOTE 19: DEPOSITS FROM CUSTOMERS (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF Subtotal 2020 2019 6,412,898 1,438,254 7,851,152 44,583 44,583 7,895,735 5,437,453 1,092,329 6,529,782 43,768 43,768 6,573,550 Interest rates on deposits from customers are as follows: Within one year in HUF Over one year in HUF In foreign currency Average interest on deposits from customers in HUF Average interest on deposits from customers in foreign currency 2020 (4.58%)–7.96% 0.01%–0.4% (0.58%)–15.5% (0.07%) (0.04%) 2019 (3.13%)–7.96% (5.09%)–7.96% (0.6%)–21% 0.04% 0.21% 274 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) An analysis of deposits from customers by type, not including accrued interest, is as follows: 2020 2019 Retail deposits Household deposits Corporate deposits Deposits to medium and large corporates Municipality deposits Total 3,840,950 3,840,950 4,054,785 3,301,434 753,351 7,895,735 49% 49% 51% 41% 10% 100% 3,204,450 3,204,450 3,369,100 2,729,209 639,891 6,573,550 NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) Within one year: In HUF In foreign currency Over one year: In HUF Total 2020 11,115 1,356 12,471 15,964 15,964 28,435 Interest rates on liabilities from issued securities are as follows: 49% 49% 51% 42% 10% 100% 2019 18,340 3,753 22,093 21,191 21,191 43,284 Issued securities denominated in HUF Issued securities denominated in foreign currency Average interest on issued securities denominated in HUF Average interest on issued securities denominated in foreign currency 2020 0%–1.7% 0.01%–0.01% 1.18% 2019 0%–1.7% 1.1%–1.48% 0.39% 1.12% 1.87% Term Note Program in the value of HUF 200 billion for the year of 2020/2021 On 21 April 2020 the Bank initiated term dematerialized bonds in public. The NBH approved on 28 June 2019 the prospectus of Term Note Program and the disclosure as at 16 August 2019. The prospectus is valid note program in the value of HUF 200 billion for 12 months following the disclosure. with the intention of issuing registered dematerialized bonds in public. The NBH The Issuer can initiate to introduce the approved on 9 July 2020 the prospectus bonds issued under the program to the of Term Note Program and the disclosure as Hungarian, Slovakian, Romanian, Bulgarian at 10 July 2020. The prospectus is valid for and Croatian Stock Exchange without any 12 months following the disclosure. obligations. The Issuer can initiate to introduce the bonds issued under the program to the Hungarian Hedge accounting Certain issued structured securities are and to other stock exchanges without any hedged by the Bank with interest rate swaps obligations. Term Note Program in the value of HUF 200 billion for the year of 2019/2020 On 25 June 2019 the Bank initiated term (“IRS”) which exchange the fixed and floating interest rate with the interest rate of the securities between the parties at a notional amount that equals the nominal amount of the hedged securities. These are considered as fair value hedge relationships as they cover note program in the value of HUF 200 billion the interest rate risk arising from the coupons with the intention of issuing registered of the hedged securities. OTP Bank does not IFRS separate financial statements 275 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) intend to be exposed to the risk embedded in actually hedges and the quantity of the the structured bonds, consequently as part of hedging instrument that the Bank actually interest rate swap transaction the structured uses to hedge that quantity of hedged item interest payments are swapped to floating interest rate. This hedging relationship meets The cash-flows of the fixed rate securities all of the following hedge effectiveness issued by the Bank are exposed to the changes requirements: in the HUF/EUR foreign exchange rate and the (cid:588) there is an economic relationship between volatility of the quoted interest rates of EUR the hedged item and the hedging and HUF. The interest rate risk and foreign instrument exchange risk related to these securities are (cid:588) the effect of credit risk does not dominate hedged with EUR and HUF IRS transactions, the value changes that result from that where the fixed interests were swapped to economic relationship payments linked to 3 month HUF BUBOR (cid:588) the hedge ratio of the hedging relationship and EURIBOR, resulting in a decrease in the is the same as that resulting from the interest rate and foreign exchange exposure of quantity of the hedged item that the Bank issued securities. Issued securities denominated in HUF as at 31 December 2020 (in HUF mn): Name Date of issuance Maturity 31/05/2021 31/05/2022 25/10/2021 13/07/2021 23/03/2022 31/05/2023 31/05/2022 23/03/2022 24/03/2023 31/10/2022 31/05/2023 28/12/2022 31/05/2024 31/05/2025 30/12/2021 18/07/2022 31/05/2024 30/12/2021 21/06/2021 31/05/2026 24/03/2023 27/12/2021 27/12/2022 16/10/2024 28/06/2022 01/04/2021 21/06/2024 28/10/2022 20/12/2024 26/06/2023 23/03/2022 28/06/2022 24/09/2021 31/05/2025 31/05/2027 30/12/2021 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 15/12/2018 29/05/2020 20/10/2011 05/07/2011 22/03/2012 29/05/2020 15/12/2018 22/03/2012 22/03/2013 29/10/2012 15/12/2018 28/12/2012 29/05/2020 29/05/2020 21/12/2011 18/07/2012 30/05/2019 21/12/2011 17/06/2011 29/05/2020 22/03/2013 21/12/2011 28/12/2012 10/10/2014 28/06/2012 01/04/2011 18/06/2014 29/10/2012 15/12/2014 28/06/2013 22/03/2012 28/06/2012 19/09/2011 30/05/2019 29/05/2020 21/12/2011 OTP_DK_21/I OTP_DK_22/II OTPRF2021B OTPRF2021A OTPRF2022A OTP_DK_23/II OTP_DK_22/I OTPRF2022B OTPRF2023A OTPRF2022E OTP_DK_23/I OTPRF2022F OTP_DK_24/II OTP_DK_25/II OTPRF2021C OTPX2022B OTP_DK_24/I OTPRF2021D OTPX2021B OTP_DK_26/I OTPX2023A OTPX2021D OTPX2022D OTPX2024B OTPRF2022D OTPX2021A OTPX2024A OTPX2022C OTPX2024C OTPX2023B OTPX2022A OTPRF2022C OTPX2021C OTP_DK_25/I OTP_DK_27/I OTPRF2021E Other Subtotal issued securities in HUF Total 276 OTP Bank Annual Report 2020 Nominal value in HUF million 3,520 3,175 2,894 2,607 2,065 997 993 831 787 761 717 623 592 592 527 172 426 372 245 392 324 259 248 295 260 183 241 201 242 198 201 190 231 104 95 76 213 26,849 28,205 Amortised cost in HUF million 3,501 3,133 2,954 2,807 1,920 970 965 772 740 715 679 592 566 555 544 440 390 381 370 361 327 325 299 284 251 246 237 233 232 225 214 196 192 91 85 74 213 27,079 28,435 Interest conditions Hedged discount discount indexed indexed indexed discount discount indexed indexed indexed discount indexed discount discount indexed indexed discount indexed indexed discount indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed discount discount indexed indexed – – 1.70 1.70 1.70 1.70 1.70 – 1.70 – – 1.70 – 1.70 0.70 1.70 – 1.30 1.70 0.60 0.60 – 1.70 – hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged – hedged (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Interest conditions Hedged 0.70 hedged Issued securities denominated in HUF as at 31 December 2019 (in HUF mn): Name Date of issuance Maturity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 18/06/2014 15/12/2018 20/10/2011 10/10/2014 11/11/2010 05/07/2011 15/12/2014 15/12/2018 12/07/2010 22/03/2012 12/07/2010 22/03/2013 22/03/2012 29/10/2012 15/12/2018 15/12/2018 28/12/2012 21/12/2011 30/05/2019 21/12/2011 22/03/2013 10/10/2014 21/12/2011 28/06/2010 28/12/2012 15/12/2014 17/06/2011 28/06/2012 18/06/2014 25/03/2010 19/09/2011 22/03/2012 29/10/2012 28/06/2013 01/04/2011 18/07/2012 16/12/2010 28/06/2012 11/11/2010 30/05/2019 21/12/2011 OTPX2020E OTP_DK_21/I OTPRF2021B OTPX2020F OTPRF2020C OTPRF2021A OTPX2020G OTP_DK_20/I OTPRF2020A OTPRF2022A OTPRF2020B OTPRF2023A OTPRF2022B OTPRF2022E OTP_DK_22/I OTP_DK_23/I OTPRF2022F OTPRF2021C OTP_DK_24/I OTPRF2021D OTPX2023A OTPX2024B OTPX2021D OTPX2020B OTPX2022D OTPX2024C OTPX2021B OTPRF2022D OTPX2024A OTPX2020A OTPX2021C OTPX2022A OTPX2022C OTPX2023B OTPX2021A OTPX2022B OTPX2020D OTPRF2022C OTPX2020C OTP_DK_25/I OTPRF2021E Other Subtotal issued securities in HUF Total 22/06/2020 31/05/2021 25/10/2021 16/10/2020 05/11/2020 13/07/2021 21/12/2020 31/05/2020 20/07/2020 23/03/2022 20/07/2020 24/03/2023 23/03/2022 31/10/2022 31/05/2022 31/05/2023 28/12/2022 30/12/2021 31/05/2024 30/12/2021 24/03/2023 16/10/2024 27/12/2021 09/07/2020 27/12/2022 20/12/2024 21/06/2021 28/06/2022 21/06/2024 30/03/2020 24/09/2021 23/03/2022 28/10/2022 26/06/2023 01/04/2021 18/07/2022 18/12/2020 28/06/2022 05/11/2020 31/05/2025 30/12/2021 Nominal value in HUF million 2,939 3,520 2,654 2,650 2,622 2,402 2,371 3,295 2,152 1,869 1,276 760 728 661 993 717 538 505 426 357 340 311 274 267 265 259 255 249 241 238 231 217 217 214 192 183 177 171 166 104 67 218 38,291 42,034 Amortised cost in HUF million 2,903 3,451 2,858 2,551 2,662 2,804 2,273 3,282 2,252 1,797 1,429 746 698 645 946 664 532 558 380 385 370 302 305 285 379 249 424 278 253 326 198 235 278 268 253 318 193 205 221 89 68 218 39,531 43,284 indexed discount indexed indexed indexed indexed indexed discount indexed indexed indexed indexed indexed indexed discount discount indexed indexed discount indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed indexed discount indexed 0.20 0.30 1.70 1.70 1.70 1.70 1.70 1.70 0.70 1.70 0.60 1.70 1.30 1.70 0.60 1.70 1.70 Issued securities denominated in foreign currency as at 31 December 2020 (in HUF mn): Name Date of issuance Maturity 1 2 3 4 OTP_VK1_21/1 OTP_VK1_21/2 OTP_VK1_21/3 OTP_VK1_21/4 Subtotal issued securities in foreign currency 20/02/2020 20/02/2021 02/04/2020 02/04/2021 14/05/2020 14/05/2021 18/06/2020 18/06/2021 Currency Nominal value in FX HUF million million 414 370 351 221 1,356 1.39 1.24 1.18 0.74 4.55 USD USD USD USD Nominal value in FX HUF million million 414 370 351 221 1,356 1.39 1.24 1.18 0.74 4.55 Interest conditions (in % actual) variable variable variable variable 0.01 0.01 0.01 0.01 hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged hedged Hedged (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS separate financial statements 277 Issued securities denominated in foreign currency as at 31 December 2019 (in HUF mn): Name Date of issuance Maturity 1 2 3 4 5 6 7 8 OTP_VK1_20/2 OTP_VK1_20/5 OTP_VK1_20/4 OTP_VK1_20/7 OTP_VK1_20/1 OTP_VK1_20/8 OTP_VK1_20/3 OTP_VK1_20/6 Subtotal issued securities in foreign currency 04/04/2019 04/04/2020 15/08/2019 15/08/2020 27/06/2019 27/06/2020 07/11/2019 07/11/2020 21/02/2019 21/02/2020 19/12/2019 19/12/2020 16/05/2019 16/05/2020 26/09/2019 26/09/2020 Currency Nominal value in FX HUF million million 727 589 552 494 450 448 263 220 3,743 2.47 2.00 1.87 1.68 1.53 1.52 0.89 0.75 12.71 USD USD USD USD USD USD USD USD Nominal value in FX HUF million million 731 591 552 495 452 448 263 221 3,753 2.48 2.01 1.87 1.68 1.54 1.52 0.89 0.75 12.74 Interest conditions (in % actual) Hedged variable variable variable variable variable variable variable variable 1.42 1.20 1.32 1.10 1.48 1.10 1.32 1.20 NOTE 21: FINANCIAL LIABILITIES DESIGNATED AS FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) Within one year: In HUF Over one year: In HUF Subtotal 2020 2,010 2,010 23,892 23,892 25,902 2019 2,679 2,679 26,182 26,182 28,861 Interest rates on financial liabilities designated as fair value through profit or loss are as follows: Within one year: In HUF Over one year: In HUF Average interest on amounts due to banks in HUF 2020 2019 0.51%–2.5% 0.01%–2.59% 0%–2.5% 2.46% 0.01%–2.59% 1.34% NOTE 22: HELD FOR TRADING DERIVATIVE FINANCIAL LIABILITIES (in HUF mn) Negative fair value of held for trading derivative financial liabilities by deal types: Interest rate swaps Foreign currency swaps CCIRS and mark-to-market CCIRS Other derivative contracts* Total 2020 28,812 34,327 7,285 29,563 99,987 2019 42,841 29,084 1,037 10,126 83,088 * Incl.: FX, equity, commodity and index futures; FX forward; commodity and equity swap; FRA; FX option. 278 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 23: FAIR VALUE OF DERIVATIVE FINANCIAL LIABLITIES DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) Fair value of derivative financial liabilities designated as hedge accounting is detailed as follows: IRS designated as fair value hedge CCIRS designated as fair value hedge IRS designated as cash-flow hedge Total NOTE 24: OTHER LIABILITIES* (in HUF mn) Other financial liabilities Liabilities from investment services Accounts payable Accrued expenses Provision on off-balance sheet commitments, contingent liabilities Liabilities from customer's credit card payments Accrued day one gain of loan liabilities at below-market interest Liabilities due to short positions Other Other financial liabilities total Other non-financial liabilities Technical accounts Current income tax payable Social contribution Provision on off-balance sheet commitments, contingent liabilities Other Other non-financial liabilities total Other liabilities total 2020 5,266 5,865 (8,027) 3,104 2019 8,265 1,758 – 10,023 2020 2019 62,490 24,121 15,473 17,490 11,195 14,391 9,131 13,249 167,540 37,304 9,680 3,746 2,416 4,211 57,357 224,897 101,417 20,742 16,517 14,288 10,753 10,177 7,040 10,157 191,091 34,025 9,633 4,130 2,508 2,393 52,689 243,780 The provision on other liabilities, off-balance sheet commitments and contingent liabilities are detailed as follows: Provision for losses on other off-balance sheet commitments and contingent liabilities Provisions in accordance with IFRS 9 Provision for litigation Provision for retirement pension and severance pay Provision on other liabilities Provisions in accordance with IAS 37 Total 2020 17,490 17,490 199 1,300 917 2,416 19,906 2019 14,288 14,288 663 1,000 845 2,508 16,796 Movements in the provision for losses on commitments and contingent liabilities in accordance with IFRS 9 can be summarized as follows: Opening balance Provision for the period Release of provision for the period Closing balance 2020 14,288 57,246 (54,044) 17,490 2019 8,494 29,517 (23,723) 14,288 * Other liabilities are expected to be recovered or settled no more than twelve months after the reporting period. IFRS separate financial statements 279 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:16)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Movements in the provision for losses on commitments and contingent liabilities in accordance with IAS 37 can be summarized as follows: Opening balance Provision for the period Release of provision Use of provision Closing balance 2020 2,508 20,970 (21,062) – 2,416 2019 2,891 1,252 (130) (1,505) 2,508 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) Within one year: In foreign currency Over one year: In foreign currency Total 2020 2,972 301,271 304,243 2019 2,695 276,699 279,394 Interest rates on subordinated bonds and loans are as follows: Subordinated bonds and loans denominated in foreign currency Average interest on subordinated bonds and loans denominated in foreign currency 2020 2.5%–2.9% 2.74% 2019 2.6%–2.9% 2.73% Subordinated loans and bonds are detailed as follows as at 31 December 2020: Type Nominal value Subordinated bond EUR 327.8 million Date of issuance 7 November 2006 Date of maturity Issue price Interest conditions Perpetual 99.875% Three-month EURIBOR + 3%, variable (payable quarterly) Fixed 2.875% annual in the first 5 years and callable after 5 years, variable after year 5 (payable annually) calculated as a sum of the initial margin (320 bp) and the 5 year mid-swap rate prevailing at the and of the 5 year Current interest rate 2.484% 2,875% Subordinated bond EUR 499.8 million 15 July 2019 15 July 2029 99.738% NOTE 26: SHARE CAPITAL (in HUF mn) Authorized, issued and fully paid: Ordinary shares 2020 2019 28,000 28,000 The nominal value of the shares is HUF 100 shareholders. Furthermore there are no per shares. All of the shares are ordinary restrictions on the distribution of dividends shares representing the same rights to the and the repayment of capital. 280 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) Based on the instructions of Act C of 2000 The EUR denominated exchangeable bonds on accounting (“Act on Accounting”) financial are perpetual and the investors can exercise statements of the Bank are prepared in the conversion right between year 6 and accordance with IFRS as issued by the IASB as 10. The bonds carry a fixed coupon of 3.95% adopted by the EU. during the first 10 years thereafter the Issuer has the right to redeem the bonds at face NBH warns the financial institutions in an value. Following the year 10, the bonds carry excecutive circular dated 8 January 2021 not to a coupon of 3 month EURIBOR +3%. OTP Bank pay or enter into an irrevocable obligation of has discretional right to cancel the payments. dividend payment based on the performance The interest payable is non-cumulative. for the financial years ended 2019 and 2020, or any reserves cumulated from previous years Due to the conditions described above, ICES until 30 September 2021. Furthermore NBH was accounted as an equity instrument and warns to stop treasury share purchases (except therefore any payment was accounted as equity share purchase related to share based payment distribution paid to ICES holders. programs) until 30 September 2021 too. Equity correlation table shall contain the The intention of the Management is paying opening and closing balances of the share- HUF 119,248 million dividend (for the year holder’s equity in accordance with IFRS, ended 2019 HUF 69,440 million and for the year furthermore deducted from this the opening ended 2020 HUF 49,808 million) regarding and closing balances of the specified equity which – in accordance with the NBH circular – elements. Equity correlation table shall contain the Bank doesn’t enter into an irrevocable also untied retained earnings available for obligation. Accordingly it remains as part the payment of dividends, covering retained of the shareholders’ equity until the obligation earnings from the last financial year for which hasn’t been settled. accounts have been adopted comprising net profit for the period of that financial year Based on paragraph 114/B of Act on Accounting minus cumulative unrealized gains claimed Equity Correlation Table is prepared and in connection with any increase in the fair disclosed as a part of the explanatory notes value of investment properties, as provided for the reporting date by the Bank. in IAS 40 – Investment Property, reduced by the cumulative income tax accounted for On 19 October 2006 the Bank sold 14.5 million under IAS 12 – Income Taxes. Treasury shares owned by OTP Group through an issue of Income Certificates Exchangeable for Shares (“ICES”). Within the transaction Share capital 10 million shares owned by OTP Bank and 4.5 million OTP shares owned by OTP Fund Share capital is the portion of the Bank’s equity Management Ltd. were sold during the under- that has been obtained by the issue of shares in writing period of ICES on the weighted average the corporation to a shareholder, usually for cash. market price (HUF 7,080) of the Budapest Stock Exchange. The shares have been purchased by Opus Securities S.A. (“OPUS”), which issued an Share-based payment reserve exchangeable bond with a total face value of EUR 514,274,000 backed by those shares. The Share-based payment reserve represents exchangeable bonds have been sold at a 32% the increase in the equity due to the goods premium over the selling price of the shares. or services were received by the Bank in an (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:15) 281 (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) equity-settled share-based payment trans- Other comprehensive income action, valued at the fair value of the goods or services received. Retained earnings Other comprehensive income comprises items of income and expense (including reclassifica- tion adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs. Profit of previous years generated by the Bank that are not distributed to shareholders as dividends. General reserve Put option reserve The Bank shall place ten per cent of the after tax profit of the year into general reserve prescribed by the Act CCXXXVII of 2013 on OTP Bank Plc. and MOL Plc. entered into a share Credit Institutions and Financial Enterprises. swap agreement in 16 April 2009, whereby OTP The Bank is allowed to use general reserves has changed 24,000,000 OTP ordinary shares only to cover operating losses arising from for 5,010,501 “A series” MOL shares. The final their activities. maturity of the share swap agreement is 11 July 2022, until which any party can initiate cash or physical settlement of the transaction. Tied-up reserve Put option reserve represents the written put option over OTP ordinary shares were The tied-up reserve shall consist of sums tied accounted as a deduction from equity at the up from the capital reserve and from the date of OTP-MOL share swap transaction. retained earnings. The equity correlation table of the Bank based on paragraph 114/B of Act on Accounting as at 31 December 2020: 31 December 2020 Share Capital Capital reserve Share- based payment reserve Retained earnings and reserves Option reserve Treasury Shares Revaluation reserve Tied-up reserve Net profit for the year Total 28,000 52 42,573 1,709,976 (55,468) (46,799) – – 1,678,334 – – – – – – – – – (55,468) (46,799) – – – – 42,573 (42,573) (998) (44,356) – – – – – – – – (92,474) (105,371) 1,466,777 – – – – 55,468 – – 46,799 – – – – – – – – – – 44,356 – – – 998 – – – – – – – – – – – – 105,371 92,474 – – – – – – – – 28,000 (59,642) 44,356 106,369 92,474 1,678,334 Components of Shareholder’s equity in accordance with IFRS Unused portion of reserve for developments Other comprehensive income Option reserve Treasury shares Share based payments Net profit for the year General reserve Components of Shareholder’s equity in accordance with paragraph 114/B of Act on Accounting 282 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) The equity correlation table of the Bank based on paragraph 114/B of Act on Accounting as at 1 January 2020: 31 December 2020 Share Capital Capital reserve Share– based payment reserve Retained earnings and reserves Option reserve Treasury Shares Revaluation reserve Tied–up reserve Net profit for the year Total Components of Shareholder’s equity in accordance with IFRS Unused portion of reserve for developments Other comprehensive income Portion of supplementary payment recognised as an asset Option reserve Treasury shares Share based payments Net profit for the year General reserve Components of Shareholder’s equity in accordance with paragraph 114/B of Act on Accounting 28,000 52 39,179 1,644,591 (55,468) (2,636) – – – – – – – – – – – (55,468) (2,636) – – – – – 39,179 (39,179) (1,473) (62,975) (310) – – – – – – – – (193,354) (96,115) 1,290,364 28,000 (18,873) – – – – – – 55,468 – – 2,636 – – – – – – – – – – 62,975 – – – – – – – – 1,653,718 1,473 – – – – – – – – – – – – 96,115 193,354 – – – (310) – – – – – 62,975 97,588 193,354 1,653,408 Calculated untied retained earnings in accordance with paragraph 114/B of Act on Accounting: Calculated retained earnings Net profit for the year Untied retained earnings Items of retained earnings and other reserves: Retained earnings Capital reserve Option reserve Other reserves Fair value of financial instruments measured at fair value through other comprehensive income Share-based payment reserve Fair value of derivative financial instruments designated as cash-flow hedge Net profit for the period Retained earnings and other reserves 2020 1,466,777 92,474 1,559,251 2019 1,290,364 193,354 1,483,718 2020 1,465,037 52 (55,468) 105,370 44,356 42,573 2,739 92,474 1,697,133 2019 1,289,112 52 (55,468) 96,115 62,975 39,179 3,035 193,354 1,628,354 Fair value adjustment of securities at fair value through other comprehensive income: Balance as at 1 January Change of fair value correction Deferred tax related to change of fair value correction Transfer to profit or loss due to derecognition Deferred tax related to accumulated transfer to profit or loss Closing balance 2020 51,011 (22,069) 1,973 6,073 (547) 36,441 2019 35,675 8,481 (796) 8,408 (757) 51,011 IFRS separate financial statements 283 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Expected credit loss on securities at fair value through other comprehensive income: Balance as at 1 January Increase of loss allowance Release of loss allowance Closing balance Fair value changes of equity instruments as at fair value through other comprehensive income: Balance as at 1 January Change of fair value correction Deferred tax related to change of fair value correction Transfer to retained earnings Closing balance NOTE 28: TREASURY SHARES (in HUF mn) 2020 1,702 795 (783) 1,714 2020 10,262 (3,276) 310 (1,095) 6,201 2019 1,859 550 (707) 1,702 2019 6,743 3,867 (348) – 10,262 Nominal value (ordinary shares) Carrying value at acquisition cost 2020 433 46,799 2019 32 2,636 The changes in the carrying value of treasury shares are due to repurchase and sale transactions on market authorised by the General Assembly. Change in number of shares: Number of shares as at 1 January Additions Disposals Number of shares at the end of the period 2020 320,165 8,296,388 (4,285,384) 4,331,169 2019 169,852 2,979,754 (2,829,441) 320,165 Change in carrying value: Balance as at 1 January Additions Disposals Closing Balance Number of treasury shares held by OTP Group members (except the Bank) 2020 2,636 85,922 (41,759) 46,799 2020 1,959 2019 1,964 34,185 (33,513) 2,636 2019 1,746 284 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) NOTE 29: INTEREST INCOME AND EXPENSES (in HUF mn) 2020 2019 Interest income accounted for using the effective interest rate method from/on Loans at amortised cost FVOCI securities Securities at amortised cost Placements with other banks Financial liabilities Amounts due from banks and balances with National Bank of Hungary Repo receivables Subtotal Income similar to interest income Loans mandatorily measured at fair value through profit or loss Swap and forward deals related to Placements with other banks Swap and forward deals related to Loans at amortised cost Swap and forward deals related to FVOCI securities Investment properties Subtotal Interest incomes and similar to interest incomes total Interest expense due to/from/on Amounts due to banks and deposits from the National Bank of Hungary and other banks Deposits from customers Leasing liabilities Liabilities from issued securities Subordinated bonds and loans Investment properties (deprecation) Financial assets Repo liabilities Subtotal NOTE 30: RISK COST (in HUF mn) Loss allowance of loans at amortised cost Loss allowance Release of loss allowance Loss allowance of placements with other banks Loss allowance Release of loss allowance Loss allowance of FVOCI securities Loss allowance Release of loss allowance Loss allowance of securities at amortised cost Loss allowance Release of loss allowance Provision on loan commitments and financial guarantees Provision for the period Release of provision Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss Risk cost total 143,652 29,095 48,654 12,248 1,544 4,391 49 239,633 15,094 56,341 14,011 (3,789) 6 81,663 321,296 67,747 19,598 257 414 8,327 49 1,622 1,616 99,630 137,183 40,332 47,119 8,034 1,720 1,196 95 235,679 5,106 65,090 24,114 (6,099) 6 88,217 323,896 78,644 28,146 244 224 5,323 48 2,278 4,477 119,384 2020 2019 215,544 (156,461) 59,083 12,724 (10,497) 2,227 2,119 (2,116) 3 4,822 (2,977) 1,845 57,246 (54,044) 3,202 405 66,765 143,175 (115,664) 27,511 5,068 (3,523) 1,545 1,295 (1,471) (176) 338 (563) (225) 29,517 (23,723) 5,794 5,432 39,881 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) IFRS separate financial statements 285 NOTE 31: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) Income from fees and commissions: Fees and commissions related to lending Deposit and account maintenance fees and commissions Fees and commission related to the issued bank cards Fees and commissions related to security trading Fees and commissions paid by OTP Mortgage Bank Ltd. Net insurance fee income Other Fees and commissions from contracts with customers Total Income from fees and commissions: 2020 11,141 106,341 77,115 25,414 8,725 7,155 23,890 248,640 259,781 2019 5,999 104,123 76,296 27,332 11,836 6,013 17,355 242,955 248,954 Contract balances: Receivables, which are included in other assets Loss allowance Liabilities which are included in other liabilities 2020 14,721 (570) – 2019 6,228 (88) – Performance obligations and revenue recognition policies: Fee type Deposit and account maintenance fees and commissions Fees and commission related to the issued bank cards Fees and commissions related to security account management services Nature and timing of satisfaction of performance obligations, and the significant payment terms The Bank provides a number of account management services for both retail and corporate customers in which they charge a fee. Fees related to these services can be typically account transaction fees (money transfer fees, direct debit fees, money standing order fees etc.), internet banking fees (e.g. OTPdirect fee), account control fees (e.g. sms fee), or other fees for occasional services (account statement fees, other administration fees etc.). Fees for ongoing account management services are charged to the customer’s account on a monthly basis. The fees are commonly fix amounts that can be vary per account package and customer category. In the case of the transaction based fees where the services include money transfer the fee is charged when the transaction takes place. The rate of the fee is typically determined in a certain % of the transaction amount. In case of other transaction-based fees (e.g. SMS fee), the fee is settled monthly. In case of occasional services the Bank basically charges the fees when the services are used by the customer. The fees can be fixed fees or they can be set in %. The rates are reviewed by the Bank regularly. The Bank provides a variety of bank cards to its customers, for which different fees are charged. The fees are basically charged in connection with the issuance of cards and the related card transactions. The annual fees of the cards are charged in advance in a fixed amount. The amount of the annual card fee depends on the type of card. In case of transaction-based fees (e.g. cash withdrawal/payment fee, merchant fee, interchange fee etc.), the settlement of the fees will take place immediately after the transaction or on a monthly basis. The fee is typically determined in % of the transaction with a fixed minimum amount. For all other cases where the Bank provides a continuous service to the customers (e.g. card closing fee), the fees are charged monthly. The fee is calculated in a fix amount. The rates are reviewed by the Bank regularly. The Bank provides its clients with security account management services. Fees will be charged for account management and transactions on accounts. Account management fees are typically charged quarterly or annually. The amount is determined in%, based on the stocks of securities managed by the clients on the account in a given period. Fees for transactions on the securities account are charged immediately after the transaction. They are determined in%, based on the transaction amount. Fees for complex services provided to clients (e.g. portfolio management or custody) are typically charged monthly or annually. The fees are fixed monthly amounts and in some cases a bonus fee are charged. Revenue recognition under IFRS 15 Fees for ongoing account management services are charged on a monthly basis during the period when they are provided. Transaction-based fees are charged when the transaction takes places or charged monthly at the end of the month. Fees for ongoing services are charged on a monthly basis during the period when they are provided. Transaction-based fees are charged when the transaction takes places or charged monthly at the end of the month. Fees for ongoing services are charged quarterly or annually during the period when they are provided. The fees are accrued monthly. Transaction-based fees are charged when the transaction takes places. 286 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:3) Performance obligations and revenue recognition policies (continued): Fee type Fees and commissions paid by OTP Mortgage Bank Ltd. Net insurance fee income Other Nature and timing of satisfaction of performance obligations, and the significant payment terms The Bank provides a number of services to its subsidiaries, in connection with fees are charged. These fees typically include services related to various warranties and guarantees, credit account management, agency activities, and marketing activities. The credit account management fee granted to OTP Mortgage Bank is settled on a monthly basis. It has a fixed part that is based on the number of the managed credit accounts, and a variable one determined by the profit split method. The fees for the guarantee services provided by the Bank are charged monthly. The fee is determined by% and based on the stock being guaranteed. Fees for agent services are charged monthly. The rate is %, based on the products sold during the period. Due to the fact that the Bank does not provide insurance services to its clients, only acts as an agent, the fee income charged to the customers and fees payable to the insurance company are presented net in the fee income. In addition, agency fee charged for the sale of insurance contracts is also recorded in this line. The fee is charged on a monthly basis and determined in %. Fees that are not significant in the Banks total income are included in Other fees category. Such fees are safe lease, special procedure fee, account rent fee, adlak service fee, fee of a copy of document etc. Other fees may include charges for continuous services or for ad hoc administration services. Continuous fees are charged monthly (e.g., safe lease fees) at the beginning of the period, typically at a fixed rate. Fees for ad hoc services are charged immediately after the service obligation had been met, typically also in a fixed amount. Revenue recognition under IFRS 15 Fees for ongoing services are charged on a monthly basis during the period when they are provided. Transaction-based fees are charged when the transaction takes places. Fees for ongoing services are charged on a monthly basis during the period when they are provided. Fees for ongoing services are charged on a monthly basis during the period when they are provided. Fees for ad hoc services are charged when the transaction takes places. Fees and commissions: Other fees and commissions related to issued bank cards Insurance fees Fees and commissions related to lending Fees and commissions related to security trading Fees and commissions relating to deposits Trust activities related to securities Postal fees Money market transaction fees and commissions Other Total 2020 31,701 758 3,432 983 1,355 1,167 202 91 1,061 40,750 219,031 2019 29,204 720 1,839 598 1,199 1,001 253 41 736 35,591 213,363 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 287 NOTE 32: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn) Other Operating Income Intermediary and other services Income from lease of tangible assets Gains on derecognition of deposits Gains on sale of receivables Gains on transactions related to property activities Income from written off receivables Gains on discount from advertising agency fees Gains on sale of tangible assets Non-repayable assets received Other operating income from OTP Employee Stock Ownership Program (OTP ESOP) Collateral valuation service fee received from OTP Building Society Ltd. Other Total Net Other Operating Expenses Release of loss allowance/(Loss allowance) on investments in subsidiaries Financial support for sport association and organization of public utility Non-repayable assets contributed Release of loss allowance on other assets Losses on other assets Fine imposed by Competition Authority Release of provision for off-balance sheet commitments and contingent liabilities Other Total Other Administrative Expenses Personnel expenses Wages Taxes related to personnel expenses Other personnel expenses Subtotal Depreciation and amortization Other administrative expenses Taxes, other than income tax* Services Administration expenses, including rental fees Professional fees Advertising Subtotal Total 2020 2,677 749 710 377 266 206 171 150 26 236 - 2,332 7,900 (10,042) (7,999) (4,055) (3,521) (697) (25) 92 (1,817) (28,064) 89,705 16,308 12,485 118,498 38,948 85,733 44,090 15,517 13,769 7,405 166,514 323,960 NOTE 33: INCOME TAX (in HUF mn) The Bank is presently liable for income tax at a rate of 9% of taxable income. A breakdown of the income tax expense is: Current tax expense Deferred tax (benefit)/expense Total A reconciliation of the deferred tax liability is as follows: Balance as at 1 January Deferred tax benefit/(expense)/ Tax effect of fair value adjustment of FVOCI securities and ICES recognised in comprehensive income Closing balance 2020 1,849 (1,077) 772 2020 (5,875) 1,077 1,736 (3,062) 2019 1,921 590 486 163 203 257 170 271 264 2,244 396 540 7,505 38,807 (4,069) (4,187) 186 (1,095) (143) 383 (3,367) 26,515 84,122 17,861 13,052 115,035 29,925 81,178 43,369 15,943 11,091 8,617 160,198 305,158 2019 4,625 5,215 9,840 2019 1,241 (5,215) (1,901) (5,875) * Special tax of financial institutions was paid by OTP Bank in the amount of HUF 11.6 and 7.9 billion for the year ended 31 December 2020 and 2019, recognized as an expense thus decreased the corporate tax base. For the year ended 31 December 2020 financial transaction duty was paid by the Bank in the amount of HUF 60 billion. 288 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) A breakdown of the deferred tax liability is as follows: Unused tax allowance Amounts unenforceable by tax law Deferred tax asset Fair value adjustment of held for trading and securities at fair value through other comprehensive income Difference in depreciation and amortization Amounts unenforceable by tax law Deferred tax liabilities Net deferred tax liabilities A reconciliation of the income tax (income)/expense is as follows: Profit before income tax Income tax at statutory tax rate Income tax adjustments due to permanent differencies are as follows: Deferred use of tax allowance Tax effect related to accounting policy change Share-based payment Use of tax losses Deferred tax asset due to unused tax allowance Amounts unenforceable by tax law Use of tax allowance in the current year Dividend income Other Income tax Effective tax rate 2020 1,321 247 1,568 (4,199) (329) (102) (4,630) (3,062) 2020 93,246 8,392 – 69 305 (167) (1,038) (39) (2,023) (5,488) 761 772 0.8% 2019 283 210 493 (5,935) (329) (104) (6,368) (5,875) 2019 203,194 18,287 5,046 – 319 – – (58) (6,975) (7,100) 321 9,840 4.8% NOTE 34: LEASE (in HUF mn) The Bank as a lessee At initial application of IFRS 16 the Bank as lessee chose the modified retrospective approach (see Note 2.19), so there are no comparative figures for 31 December 2018. Amounts recognised at initial application: Lease liability Prepaid or accrued lease payments as at 31 December 2018 Right-of-use asset Cumulative impact recognized as an adjustment to the equity at the date of initial application 1 January 2019 16,150 145 16,295 – Average weighted amount of the implicit interest rate/incremental borrowing rate applied as at 1 January 2019 to recognise the lease liabilities: ~1.61%. Amounts recognised in profit and loss: Interest expense on lease liabilities Expense relating to short-term leases Expense relating to leases of low value assets Expense relating to variable lease payments not included in the measurement of lease liabilities 2020 257 2,128 – 1,084 2019 244 4,212 12 874 IFRS separate financial statements 289 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:24)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Leasing liabilities by maturities: Within one year Over one year Total 2020 4,423 9,683 14,106 2019 3,826 9,834 13,660 An analysis of movement in the carrying amount of right-of-use assets by category is as follows: Gross carrying amount Balance as at 1 January Additions due to new contracts Derecognition due to matured contracts Change due to revaluation and modification Balance as at 31 December 2019 Additions due to new contracts Derecognition due to matured contracts Change due to revaluation and modification Balance as at 31 December 2020 Depreciation Balance as at 1 January Depreciation charge Derecognition due to matured contracts Balance as at 31 December 2019 Depreciation charge Derecognition due to matured contracts Balance as at 31 December 2020 Net carrying amount Balance as at 31 December 2019 Balance as at 31 December 2020 Right-of-use of real estate Right-of-use of machinery and equipment 16,259 786 (107) 852 17,790 3,706 (18) 928 22,406 – 4,218 (4) 4,214 4,744 (6) 8,952 13,576 13,454 37 – – – 37 – – – 37 – 6 – 6 6 – 12 31 25 Total 16,296 786 (107) 852 17,827 3,706 (18) 928 22,443 – 4,224 (4) 4,220 4,750 (6) 8,964 13,607 13,479 NOTE 35: FINANCIAL RISK MANAGEMENT (in HUF mn) A financial instrument is any contract that areas and loan types. Such risks are monitored gives rise to a financial asset of one entity and on a periodical basis and subject to an annual a financial liability or equity instrument of or more frequent review. The exposure to another entity. any borrower including banks and brokers is Financial instruments may result in certain further restricted by sublimit covering on- and risks to the Bank. The most significant risks the off-balance sheet exposures and daily delivery Bank faces include: 35.1 Credit risk 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 The Bank takes on exposure to credit risk regular analysis of the ability of borrowers which is the risk that a counter-party will be and potential borrowers to meet interest and unable to pay amounts in full when due. capital repayment obligations and by changing The Bank structures the levels of credit risk it these lending limits when appropriate. undertakes by placing limits on the amount Exposure to credit risk is partly managed of risk accepted in relation to one borrower, obtaining collateral, corporate and personal or banks of borrowers, and to geographical guarantees. 290 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) 35.1.1 Analysis by loan types (cid:588) retail exposure irrespective of the amount, Defining the expected credit loss on individual and collective basis (cid:588) micro and small enterprise exposures irrespective of the amount, (cid:588) all other exposure which are insignificant on a stand-alone basis and not part of the On individual basis: workout management, Individually assessed are the non-retail (cid:588) exposure which are not in stage 3, significant or micro and small enterprise exposure of on a stand-alone basis, significant amount on a stand-alone basis: (cid:588) purchased or originated credit-impaired (cid:588) exposure in stage 3, instruments which are in accordance with (cid:588) exposure in workout management the conditions mentioned above. (cid:588) purchased or originated credit-impaired instruments which are in accordance with In the collective impairment methodology the conditions mentioned above credit risk and the change of credit risk can The calculation of impairment must be prepared be correctly captured by understanding the and approved by the risk management risk characteristics of the portfolio. In order functional areas. The calculation, all relevant to achieve this the main risk drivers shall be factors (amortised cost, original and current identified and used to form homogeneous EIR, contracted and expected cash-flows (from segments having similar risk characteristics. business and/or collateral) for the individual The segmentation is expected to stay stable periods of the entire lifecycle, other essential from month to month however a regular information enforced during the valuation) (at least yearly) revision of the segmentation and the criteria thereof (including the factors process should be set up to capture the underlying the classification as stage 3) must change of risk characteristics. The segmentation be documented individually. must be performed separately for each The expected credit loss of the exposure equals parameter, since in each case different factors the difference of the receivable's AC (gross book may have relevance. value) on the valuation date and the present value of the receivable's expected cash-flows The Bank's Headquarters Group Reserve discounted to the valuation date by the Committee stipulates the guidelines related exposure's original effective interest rate (EIR) to the collective impairment methodology (calculated at the initial recognition, or in the at group level. In addition, it has right of case of variable rate, recalculated due to the agreement in respect of the risk parameters last interest rate change). The estimation of the (PD – probability of default, LGD – loss given expected future cash-flows should be forward default, EAD – exposure at default) and looking, it must also contain the effects of the segmentation criteria proposed by the group possible change of macroeconomic outlook. members. At least two scenarios must be used for the estimation of the expected cash-flow. At least The review of the parameters must be one scenarios should anticipate that realised performed at least annually and the results cash-flows will be significantly different from should be approved by the Group Reserve the contractual cash-flows. Probability weights Committee. Local Risk Managements is must be allocated to the individual scenarios. responsible for parameter estimations and The estimation must reflect the probability updates, macroeconomic scenarios are of the occurrence and non-occurrence of the calculated by OTP Bank Headquarters for credit loss, even if the most probable result is each subsidiary and each parameter. Based the non-occurrence of the loss. on the consensus proposal of Local Risk On collective basis: Management and OTP Bank Headquarters, the Group Reserve Committee decides on The following exposures are subject to collective the modification of parameters (all parameters assessment: for impairment calculation). IFRS separate financial statements 291 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) The impairment parameters should be economic conditions. This may be achieved backtested at least annually. by applying 3–5 different macroeconomic The expected loss calculation should be scenarios, which may be integrated in the PD, forward looking, including forecasts of future LGD and EAD parameters. Gross carrying amount and accumulated loss allowance of financial assets at amortized cost and fair value through other comprehensive income by IFRS 9 stages: As at 31 December 2020: Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Retail consumer loans Mortgage loans Municipal loans Corporate loans Loans at amortised cost FVOCI securities* Securities at amortised cost Other financial assets Total as at 31 December 2020 Loan commitments Financial guarantees Factoring loan commitments Bill of credit Loan commitments and financial guarantees total As at 31 December 2019: Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Retail consumer loans Mortgage loans Municipal loans Corporate loans Loans at amortised cost FVOCI securities* Securities at amortised cost Other financial assets Total as at 31 December 2019 Loan commitments Financial guarantees Factoring loan commitments Bill of credit Loan commitments and financial guarantees total Carrying amount/ Exposure Gross carrying amount/ Stage 1 Stage 2 Stage 3 579,120 579,120 1,535,884 1,540,240 183,364 531,115 95,762 86,061 2,704,822 3,417,760 911,950 2,007,692 127,179 8,762,949 1,429,732 1,412,663 304,993 5,026 3,152,414 183,656 456,034 29,857 72,406 2,361,979 2,920,276 911,950 2,010,980 93,491 8,239,713 1,369,379 1,409,766 299,908 5,039 3,084,092 – 2 – 98,027 58,609 15,564 380,458 552,658 – – 40,452 593,112 69,998 8,609 3,551 – 82,158 – 1,461 – 10,632 6,602 43 37,177 54,454 – – 1,133 57,048 1,683 161 1,810 – 3,654 Carrying amount/ Exposure Gross carrying amount/ Stage 1 Stage 2 Stage 3 289,686 289,686 1,560,142 1,563,732 45,539 500,153 111,064 86,907 2,378,407 3,076,531 1,485,977 1,447,224 89,482 7,994,581 1,487,112 1,079,896 227,871 747 2,795,626 45,545 492,435 91,058 83,136 2,294,436 2,961,065 1,485,977 1,448,667 56,577 7,851,249 1,485,861 1,080,423 225,703 749 2,792,736 – 2 – 16,157 12,619 122 92,411 121,309 – – 37,499 158,810 8,136 4,276 589 – 13,001 – – – 5,583 6,031 5,332 36,020 52,966 – – 1,015 53,981 511 1,813 1,853 – 4,177 * FVOCI securities are measured at fair value in the Statement of Financial Position (see Note 9). Loss allowance for FVOCI securities is recognised in the Statement of Other Comprehensive Income, which is included in the accumulated loss allowance of this table. 292 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Notional amount Purchased or originated credit impaired Total Stage 1 Stage 2 Stage 3 Purchased or originated credit impaired Loss allowance Write–off – – – 5 2,909 – 11,128 14,042 – – 31 14,073 – – – – – 579,120 – 1,541,703 183,656 564,698 97,977 88,013 2,790,742 3,541,430 911,950 2,010,980 135,107 8,903,946 1,441,060 1,418,536 305,269 5,039 3,169,904 4,356 292 5,945 20 227 16,314 22,506 1,714 3,288 2,407 34,563 5,442 5,087 175 13 10,717 – 2 – 20,866 688 1,709 43,034 66,297 – – 4,504 70,803 5,047 738 35 – 5,820 – 1,461 – 6,770 1,313 16 25,127 33,226 – – 996 35,683 839 48 66 – 953 – – – 2 194 – 1,445 1,641 – – 21 1,662 – – – – – – – – 6 3,038 – 10,213 13,257 – – 37 13,294 – – – – – 289,686 – 1,563,734 45,545 514,181 112,746 88,590 2,433,080 3,148,597 1,485,977 1,448,667 95,128 8,077,334 1,494,508 1,086,512 228,145 749 2,809,914 3,590 6 5,135 19 435 21,188 26,777 1,702 1,443 583 34,101 6,577 4,784 201 2 11,564 – 2 – 5,542 234 8 12,894 18,678 – – 4,291 22,971 620 456 1 – 1,077 – – – 3,348 1,314 1,240 19,939 25,841 – – 754 26,595 199 1,376 72 – 1,647 – – – 3 115 – 652 770 – – 18 788 – – – – – Total – 5,819 292 33,583 2,215 1,952 85,920 123,670 1,714 3,288 7,928 142,711 11,328 5,873 276 13 17,490 – – – – – – 25,720 25,720 – – – 25,720 – – – – – Total – 3,592 6 14,028 1,682 1,683 54,673 72,066 1,702 1,443 5,646 84,455 7,396 6,616 274 2 14,288 – – – – – – 34,770 34,770 – – – 34,770 – – – – – Notional amount Purchased or originated credit impaired Total Stage 1 Stage 2 Stage 3 Purchased or originated credit impaired Loss allowance Write–off (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 293 Changes in the Loss allowance of financial assets at amortised cost and fair value through other comprehensive income by IFRS 9 stages: Loans at amortised cost: Loss allowance as at 1 January 2019 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Unwind of discount Write-offs Other movements Loss allowance as at 31 December 2019 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Unwind of discount Write-offs Loss allowance as at 31 December 2020 Stage 1 16,498 369 (979) (91) 1,295 14,474 (4,826) – (61) 98 26,777 51 (4,374) (188) (2,154) 11,393 (8,975) – (24) 22,506 Stage 2 13,860 (4,053) 7,012 (1,071) (855) 4,836 (2,501) – (32) 1,482 18,678 (612) 45,995 (1,683) (149) 7,498 (3,354) – (76) 66,297 Stage 3 31,608 (181) (431) 3,795 (6,235) 3,014 (3,086) 874 (3,558) 41 25,841 (21) (1,308) 6,670 4,397 2,918 (3,717) 1,613 (3,167) 33,226 Loan commitments and financial guarantees: Provision as at 1 January 2019 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Net remeasurement of loss allowance New financial assets originated or purchased Decrease Provision as at 31 December 2019 Transfer to Stage 1 Transfer to Stage 2 Transfer to Stage 3 Net remeasurement of loss allowance New financial assets originated or purchased Decrease Provision as at 31 December 2020 Stage 1 6,331 84 (21) (9) 1,245 5,204 (1,270) 11,564 10 (501) (9) (807) 2,843 (2,383) 10,717 Stage 2 1,928 (1,029) 413 (21) 291 98 (603) 1,077 (125) 4,279 (28) (106) 796 (73) 5,820 Placements with other banks, net of allowance for placement losses: Loss allowance as at 1 January 2019 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2019 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2020 Stage 1 2,035 290 2,202 (937) 3,590 515 2,321 (2,070) 4,356 Stage 2 12 – 2 (12) 2 – – – 2 POCI 967 – – – (183) 6 (12) 320 (328) – 770 – – – 839 45 (11) 217 (219) 1,641 Stage 3 235 (15) (15) 1,514 (7) 31 (96) 1,647 (17) (21) 731 (1,336) 67 (118) 953 Stage 3 – – – – – – 1,461 – 1,461 Total 62,933 (3,865) 5,602 2,633 (5,978) 22,330 (10,425) 1,194 (3,979) 1,621 72,066 (582) 40,313 4,799 2,933 21,854 (16,057) 1,830 (3,486) 123,670 Total 8,494 (960) 377 1,484 1,529 5,333 (1,969) 14,288 (132) 3,757 694 (2,249) 3,706 (2,574) 17,490 Total 2,047 290 2,204 (949) 3,592 515 3,782 (2,070) 5,819 294 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Repo Receivables: Loss allowance as at 1 January 2019 New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2019 New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2020 Securities at amortised cost: FVOCI Securities: Loss allowance as at 1 January 2019 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2019 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2020 Loss allowance as at 1 January 2019 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2019 Net remeasurement of loss allowance New financial assets originated or purchased Financial assets derecognised (other than write-offs) Loss allowance as at 31 December 2020 Loan portfolio by countries Stage 1 12 42 (48) 6 362 (76) 292 Stage 1 1,668 (149) 58 (134) 1,443 1,334 595 (84) 3,288 Stage 1 1,859 (148) 550 (559) 1,702 286 509 (783) 1,714 Total 12 42 (48) 6 362 (76) 292 Total 1,668 (149) 58 (134) 1,443 1,334 595 (84) 3,288 Total 1,859 (148) 550 (559) 1,702 286 509 (783) 1,714 An analysis of carrying amount of the non-qualified and qualified gross loan portfolio by country is as follows: Country Hungary Malta Croatia Serbia Bulgaria Slovakia Montenegro Other Loans, placements with other banks and repo receivables at amortised cost total Hungary Other Loans at fair value total Loans, placements with other banks and repo receivables total 31 December 2019 Loss allowance 31 December 2020 Gross loan and placements with other banks portfolio 3,797,729 759,425 126,886 126,431 102,067 73,808 66,319 214,124 (99,295) (3,985) (917) (5,151) (9,158) (207) (686) (10,382) Gross loan and placements with other banks portfolio 3,189,583 746,431 68,887 255,525 80,708 114,758 37,021 264,963 5,266,789 (129,781) 4,757,876 480,933 4 480,937 – – – 238,538 – 238,538 Loss allowance (59,242) (4,225) (35) (4,163) (2,798) (293) (56) (4,852) (75,664) – – – 5,747,726 (129,781) 4,996,414 (75,664) IFRS separate financial statements 295 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) 35.1.2 Collaterals The collateral value held by the Bank by collateral types is as follows (total collateral value). The collaterals cover loans as well as off-balance sheet exposures. Types of collateral Mortgages Guarantees and warranties Deposit from this: Cash Securities Other Total 2020 1,450,951 1,074,420 191,268 62,469 128,799 563 2,717,202 2019 1,258,217 609,357 185,537 46,293 135,202 794 2,053,905 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 off-balance sheet exposures. Types of collateral Mortgage Guarantees and warranties Deposit from this: Cash Securities Other Total 2020 687,688 836,874 94,397 8,204 86,193 423 1,619,382 2019 478,265 492,747 118,387 13,318 101,578 632 1,090,031 The coverage level of loan portfolio to the extent of the exposures increased from 23.13% to 31.86% as at 31 December 2020, while the coverage to the total collateral value decreased from 43.59% to 53.46%. The collateral value (total collateral value) held by the Bank related to non-performing loan portfolio is as follows: As at 31 December 2020: Retail consumer loans Mortgage loans Municipal loans Corporate loans Total Gross carrying amount 10,632 6,602 43 37,177 54,454 As at 31 December 2019: Retail consumer loans Mortgage loans Municipal loans Corporate loans Total Gross carrying amount 5,583 6,031 5,332 36,020 52,966 Loss allowance (6,770) (1,313) (16) (25,127) (33,226) Loss allowance (3,348) (1,314) (1,240) (19,939) (25,841) Carrying amount 3,862 5,289 27 12,050 21,228 Carrying amount 2,235 4,717 4,092 16,081 27,125 Collateral value 128 32,302 104 46,210 78,744 Collateral value 291 26,239 9,526 37,435 73,491 296 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) 35.1.3 Restructured loans Consumer loans Mortgage loans Corporate loans* SME loans Municipal loans Total 31 December 2020 31 December 2019 Gross portfolio 5,399 2,156 27,963 6,295 41 41,854 Loss allowance (2,575) (68) (8,283) (1,278) (16) (12,220) Gross portfolio 5,188 7,934 7,087 7,111 – 27,319 Loss allowance (2,107) (238) (2,062) (1,332) – (5,739) Restructured portfolio definition Restructured definition used by the Bank is in accordance with EBA (EU) 2015/227 regulation. Financial instruments by rating categories** Held for trading securities as at 31 December 2020: Other non-interest bearing securities Government bonds Mortgage bonds Hungarian government discounted Treasury Bills Hungarian government interest bearing Treasury Bills Shares Other bonds Total A2 A3 B1 Ba2 Ba3 Baa1 Baa2 Baa3 Not rated Total – – – – – 36 – 36 – – – – – 33 495 528 – – – – – 5 – 5 – – – – – 7 – 7 – 465 – – – – – 465 – – – – – 45 – 45 – – – – – 7 – 7 – 1.964 1.964 5.566 – 1.233 – 36 998 7.833 – – – – 6.031 – 1.233 – 257 582 2.803 426 2.075 11.729 Securities mandatorily measured at fair value through profit or loss as at 31 December 2020: Government bonds Mortgage bonds Shares Total Not rated 23,818 5,342 2,776 31,936 Total 23,818 5,342 2,776 31,936 FVOCI securities as at 31 December 2020: A2 A3 Ba1 Ba3 Baa2 Baa3 Mortgage bonds Government bonds Hungarian Treasury Bills Non-treading equity instruments Other bonds Total 63,577 226 – – – 63,803 – 7,391 – – 4,815 12,206 – 4,624 – – 3,958 8,582 – 15,055 – – – 15,055 250,673 – – – 1,620 252,293 – 461,163 9,957 – 37,961 509,081 Not rated 18,417 – – 15,731 16,782 50,930 Total 332,667 488,459 9,957 15,731 65,136 911,950 * Incl.: project and syndicated loans. ** Moody’s ratings. IFRS separate financial statements 297 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Securities at amortised cost as at 31 December 2020: Government bonds Mortgage bonds Total Ba2 2,816 – 2,816 Baa3 1,941,855 14,579 1,956,434 Not rated – 48,442 48,442 Total 1,944,671 63,021 2,007,692 An analysis of securities (held for trading, mandatorily FVTPL, FVOCI and amortised cost) in a country breakdown is as follows: Country 31 December 2020 31 December 2019 Hungary Russia United States of America Luxembourg Securities at amortised cost total Hungary Luxembourg Slovakia Russia Slovenia Romania Serbia Sweden Croatia Lithuania Poland Bulgaria United States of America Germany FVOCI securities total Austria Luxembourg Hungary Portugal United States of America Non–trading equity instruments designated to measure at fair value through other comprehensive income Hungary Luxembourg Russia Serbia Germany Ireland Romania Netherlands United States of America Australia United Kingdom Held for trading securities total Hungary United States of America Luxembourg Portugal Securities mandatorily measured at fair value through profit or loss Securities total Gross carrying amount 1,986,362 2,757 1,069 20,792 2,010,980 761,472 85,006 – 29,697 7,391 – – – – – – – 12,653 – 896,219 12,079 – 530 – 3,122 15,731 8,613 771 808 465 410 32 (1) – 625 1 5 11,729 18,470 2,776 10,428 262 31,936 Loss allowance (3,194) (3) (4) (87) (3,288) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Gross carrying amount 1,448,667 – – – 1,448,667 1,341,792 – 15,025 40,120 6,984 13,126 6,902 1,503 1,657 6,536 15,636 10,817 – 3,559 1,463,657 12,412 4,486 530 157 4,735 22,320 28,027 10,482 7,279 – 306 – 8 153 – – – 46,255 17,100 – 5,180 – 22,280 Loss allowance (1,443) – – – (1,443) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,966,595 (3,288) 3,003,179 (1,443) 298 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) 35.2 Maturity analysis of assets and liabilities and liquidity risk process. The monitoring of liquidity reserves for both centralized and decentralized liquid asset portfolio has been built into the daily Liquidity risk is a measure of the extent to reporting process. which the Bank may be required to raise funds to meet its commitments associated with Due to the balance sheet adjustment process financial instruments. The Bank maintains its (deleveraging) experienced in the last few liquidity profiles in accordance with regulations years, the liquidity reserves of the Bank laid down by the NBH. increased significantly while the liquidity risk exposure has decreased considerably. The essential aspect of the liquidity risk Currently the (over)coverage of risk liquidity management strategy is to identify all relevant risk exposure by high quality liquid assets systemic and idiosyncratic sources of liquidity is at all-time record highs. There were risk and to measure the probability and no material changes in the liquidity risk severity of such events. During liquidity risk management process for the year ended management the Bank considers the effect of 31 December 2020. liquidity risk events caused by reasons arising in the bank business line (deposit withdrawal), The following tables provide an analysis of the national economy (exchange rate shock, assets and liabilities about the non-discounted yield curve shock) and the global financial cash-flow into relevant maturity groupings system (capital market shock). based on the remaining period from the balance sheet date to the contractual maturity In line with the Bank’s risk management policy date. It is presented under the most prudent liquidity risks are measured and managed consideration of maturity dates where options on multiply hierarchy levels and applying or repayment schedules allow for early integrated unified VaR based methodology. repayment possibilities. The basic requirement is that the Bank must keep high quality liquidity reserves by means The contractual amounts disclosed in the it can fulfil all liabilities when they fall due maturity analyses are the contractual without material additional costs. undiscounted cash-flows like gross finance lease obligations (before deducting finance The liquidity reserves can be divided into charges); prices specified in forward agree- two parts. There are separate decentralized ments to purchase financial assets for cash; liquid asset portfolios at subsidiary level and net amounts for pay-floating/receive-fixed a centralized flexible liquidity pool at Group interest rate swaps for which net cash-flows level. The reserves at subsidiary levels are held are exchanged; contractual amounts to be to cover the relevant shocks of the subsidiaries exchanged in a derivative financial instrument which may arise in local currencies (deposit for which gross cash-flows are exchanged; withdrawal, local capital market shock, gross loan commitments. unexpected business expansion), while the centralized liquidity pool is held to cover the Such undiscounted cash-flows differ from the OTP Bank’s separate shocks (deposit-, yield amount included in the statement of financial curve- and exchange rate shocks) and all group position because the amount in that statement member’s potential shocks that may arise in is based on discounted cash-flows. When foreign currencies (deposit withdrawal, capital the amount payable is not fixed, the amount market shock). disclosed is determined by reference to the conditions existing at the end of the reporting The recalculation of shocks is made at least period. For example, when the amount payable quarterly while the recalibration of shock varies with changes in an index, the amount measurement models and review of the risk disclosed may be based on the level of the management methodology is an annual index at the end of the period. IFRS separate financial statements 299 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:2)(cid:21)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) As at 31 December 2020: Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans at amortised cost Loans mandatorily measured at fair value through profit or loss Securities at amortised cost Investment properties Investments in subsidiaries, associates and other investments Other financial assets TOTAL ASSETS Amounts due to banks and deposits from the National Bank of Hungary and other banks Deposits from customers Repo liabilities Liabilities from issued securities Subordinated bonds and loans Financial liabilities at fair value through profit or loss Leasing liabilities Other financial liabilities TOTAL LIABILITIES NET POSITION* Receivables from derivative financial instruments classified as held for trading Liabilities from derivative financial instruments classified as held for trading Net position of derivative financial instruments classified as held for trading Receivables from derivative financial instruments designated as hedge accounting Liabilities from derivative financial instruments designated as hedge accounting Net position of derivative financial instruments designated as hedging accounting Net position of derivative financial instruments total Commitments to extend credit Confirmed letters of credit Factoring loan commitment Bank guarantees Off–balance sheet commitments Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total 579,120 – – – 578,907 656,143 273,834 33,027 183,656 – – – – – – 579,120 1,541,911 183,656 1,401 1,151 3,576 9,042 22,121 37,291 14,453 111,117 402,797 305,507 15,731 849,605 – – 3,641,015 495,299 1,134,542 728,410 1,132,083 645,980 14,850 19,735 – – 11,674 37,950 – – 85,000 383,775 1,354,479 – 559,171 – – 1,936 1,971,335 1,936 – – 1,548,972 1,548,972 133,832 2,660,496 1,277 1,547,722 – 3,251,769 – 1,936,502 – 1,588,760 135,109 10,985,249 152,633 62,871 492,291 73,574 7,716,000 – 636 2,972 131,890 – 11,835 – 30,628 109,612 15,256 – 14,115 – 487 302,182 3,159 1,421 6,115 15,207 – – – – – – 1,073 161,652 8,038,125 (5,377,629) 3,350 4,877 216,244 1,331,478 7,213 1,417 662,532 2,589,237 2,470 – 408,035 1,528,467 – – – 1,588,760 160,910 3,156,604 552,687 270,557 (88,685) (3,774,109) (490,468) (226,529) 72,225 (617,505) 62,219 44,028 183 7,286 168,912 173,109 (40,485) (114,512) (472,245) (88,720) (40,302) (107,226) (303,333) 84,389 31,923 (724,731) (241,114) 128,417 1,441,060 5,039 305,269 115,485 1,866,853 – – – 136,569 136,569 – – – 305,714 305,714 – – – 861,775 861,775 – – – – – – – – – – – – 781,369 7,892,633 109,612 28,214 305,154 25,902 14,106 167,946 9,324,936 1,660,313 4,140,758 (4,579,791) (439,033) 349,490 (715,962) (366,472) (805,505) 1,441,060 5,039 305,269 1,419,543 3,170,911 * Analysis for net position of assets and liabilities are calculated in accordance with IFRS 7, therefore certain financial instruments are presented in the earliest period in which the Bank could be required to pay. On-demand deposits are presented in the earliest (within 3 month) period category, however based on Management’s discretion the Bank has appropriate liquidity reserves as maintenance and management of liquidity risk. 300 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) As at 31 December 2019: Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans at amortised cost Loans mandatorily measured at fair value through profit or loss Securities at amortised cost Investment properties Investments in subsidiaries, associates and other investments Other financial assets TOTAL ASSETS Amounts due to banks and deposits from the National Bank of Hungary and other banks Deposits from customers Repo liabilities Liabilities from issued securities Subordinated bonds and loans Financial liabilities at fair value through profit or loss Leasing liabilities Other financial liabilities TOTAL LIABILITIES NET POSITION* Receivables from derivative financial instruments classified as held for trading Liabilities from derivative financial instruments classified as held for trading Net position of derivative financial instruments classified as held for trading Receivables from derivative financial instruments designated as hedge accounting Liabilities from derivative financial instruments designated as hedge accounting Net position of derivative financial instruments designated as hedging accounting Net position of derivative financial instruments total Commitments to extend credit Confirmed letters of credit Factoring loan commitment Bank guarantees Off-balance sheet commitments – – – 289,686 1,563,735 45,545 58,308 – – 3,152,291 243,823 Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total 289,686 – – – 314,057 892,859 251,037 105,782 45,545 6,347 – – – 5,855 17,810 12,678 15,618 200,724 408,955 499,697 268,379 22,360 1,400,115 919,347 702,458 905,776 624,710 2,529 16,828 – – 7,368 84,903 – – 50,113 183,813 895,227 – 399,029 – – 2,381 1,395,987 2,381 – – 1,542,538 1,542,538 93,158 1,888,221 475 2,102,873 30 2,619,690 6 1,594,397 1,460 1,584,357 95,129 9,789,538 477,237 17,302 202,653 40,862 6,407,569 20,419 4,193 2,695 121,985 – 17,912 – 28,404 442,202 19,817 – 15,592 – 104 277,591 677 1,928 9,605 16,651 – – – – – – 593 176,696 7,090,079 (5,201,858) 3,234 105 162,466 1,940,407 8,086 – 710,767 1,908,923 1,747 – 352,547 1,241,850 – – – 1,584,357 1,784,183 1,498,417 957,269 502,071 (2,271,319) (1,202,620) (903,040) (396,707) (487,136) 295,797 54,229 105,364 238 93,792 151,536 164,409 (6,611) (249,914) (233,863) (74,862) (6,373) (156,122) (82,327) 89,547 (493,509) 139,675 (28,098) 194,911 1,494,508 749 228,145 49,506 1,772,908 – – – 104,474 104,474 – – – 170,493 170,493 – – – 762,827 762,827 – – – – – – – – – – – – 738,054 6,573,550 462,621 42,026 280,286 28,861 13,660 176,801 8,315,859 1,473,679 4,741,940 (4,773,686) (31,746) 409,975 (565,250) (155,275) (187,021) 1,494,508 749 228,145 1,087,300 2,810,702 * Analysis for net position of assets and liabilities are calculated in accordance with IFRS 7, therefore certain financial instruments are presented in the earliest period in which the Bank could be required to pay. On-demand deposits are presented in the earliest (within 3 month) period category, however based on Management’s discretion the Bank has appropriate liquidity reserves as maintenance and management of liquidity risk. IFRS separate financial statements 301 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) 35.3 Net foreign currency position and foreign currency risk As at 31 December 2020: Assets* Liabilities Derivative financial instruments Net position As at 31 December 2019: Assets* Liabilities Derivative financial instruments Net position USD 174,993 (291,985) 116,987 (5) EUR 1,929,758 (1,623,605) (350,237) (44,084) CHF 17,509 (35,701) 18,614 422 Others 251,877 (105,346) (146,208) 323 Total 2,374,137 (2,056,637) (360,844) (43,344) USD 257,687 (297,771) 45,528 5,444 EUR 1,762,176 (1,418,426) (427,768) (84,018) CHF 28,949 (35,679) 6,977 247 Others 247,647 (164,325) (85,447) (2,125) Total 2,296,459 (1,916,201) (460,710) (80,452) The table above provides an analysis of the to what extent it is exposed to interest Bank’s main foreign currency exposures. rate risk. The remaining foreign currencies are shown within ‘Others’. The Bank monitors its foreign The majority of the Bank's interest bearing assets exchange position for compliance with the and liabilities are structured to match either regulatory requirements of the NBH and its short-term assets and short-term liabilities, or own limit system established in respect of long-term assets and liabilities with repricing limits on open positions. The measurement of opportunities within one year, or long-term the Bank’s open its currency position involves assets and corresponding liabilities where monitoring the VaR limit on the foreign repricing is performed simultaneously. exchange exposure of the Bank. In the table Derivative financial instruments between the different types of interest bearing are stated at fair value. assets and liabilities enables the Bank to In addition, the significant spread existing 35.4 Interest rate risk management benefit from a high level of flexibility in adjusting for its interest rate matching and interest rate risk exposure. The following table presents the interest Interest rate risk is the risk that the value repricing dates of the Bank. Variable yield of a financial instrument will fluctuate due assets and liabilities have been reported in to changes in market interest rates. The length accordance with their next repricing date. of time for which the rate of interest is fixed Fixed income assets and liabilities have been on a financial instrument, therefore, indicates 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. 302 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) As at 31 December 2020: within 1 month within 3 months over 1 month HUF Foreign currency HUF Foreign currency within 1 year over 3 months Foreign currency HUF within 2 years over 1 year HUF Foreign currency over 2 years Non–interest– bearing Total HUF Foreign currency HUF Foreign currency HUF Foreign currency Total ASSETS Cash, amounts due from banks and balances with the National Bank of Hungary fixed interest non-interest-bearing 144,030 239,960 144,030 239,960 – – – – – – – – – – – – – – – – – Placements with other banks 783,024 80,732 177,155 189,231 43,239 64,447 23,378 220,175 17,719 15,106 179,174 562,849 63,013 162,049 10,057 13,934 29,305 fixed interest variable interest non-interest-bearing Repo receivables fixed interest Securities held for trading fixed interest variable interest non-interest-bearing Securities mandatorily measured at fair value through profit or loss variable interest non-interest-bearing Securities at fair value through other comprehensive income fixed interest variable interest non-interest-bearing Loans measured at amortised cost fixed interest variable interest – – – 567 567 – – – – – – – 183,364 183,364 1,260 354 906 – – – – – – – 526 – 526 – 5,342 5,342 – – – – 287 287 – – – – – 79,240 5,717 16,218 600 5,717 78,640 – – – 673 15,545 – 2,769 8,967 1,285 74,088 552,542 243,715 390,010 1,037,915 non-interest-bearing Loans mandatorily measured at fair value through profit or loss variable interest Securities at amortised cost fixed interest Other financial assets non-interest-bearing – 24,870 24,870 – – – – – – – – – – – – 59 59 – – – – – – – – 168,435 26,695 312,465 266,655 579,120 – – – 144,030 239,960 383,990 – 168,435 26,695 168,435 26,695 195,130 122,035 27,080 19,194 2,740 1,168,025 367,859 1,535,884 64,447 23,378 – – – – – – – – 122,035 27,080 – – – – – – – – 465 465 1,250 1,250 298 298 2,983 2,983 1,095 1,095 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 394,628 292,049 686,677 754,203 73,070 827,273 19,194 2,740 19,194 2,740 21,934 – – – – 183,364 183,364 1,926 464 – – – – 1,926 464 8,314 5,482 906 1,926 – – 3,415 2,425 526 464 183,364 183,364 11,729 7,907 1,432 2,390 18,470 8,124 18,470 13,466 31,936 – – – 18,470 8,124 18,470 5,342 8,124 5,342 26,594 – – – 608 608 – – – – – 111,153 10,223 3,533 19,578 551,328 99,229 528 15,203 762,000 149,950 911,950 – 100,003 10,223 3,533 19,578 551,328 99,229 – – 11,150 – – – – – – – – – – – – – – – 656,137 134,747 790,884 105,335 – 105,335 528 15,203 528 15,203 15,731 8,970 33,604 15,984 700,585 56,172 11,731 42,532 – 334 334 – – – 58,028 11,935 – – – – 368 368 – – – – 9,344 – 455,306 455,306 1,065 1,065 38,112 38,112 – 393,442 1,092 1,551,614 22,367 – 393,442 1,092 1,551,614 22,367 – – – 749,974 164,181 914,155 – 1,006,363 1,339,658 2,346,021 – 125,861 31,723 125,861 31,723 157,584 – – – – – – 480,937 480,937 – – 480,937 480,937 – 1,983,168 24,524 2,007,692 – 1,983,168 24,524 2,007,692 – – – – – – – – – – – 112,055 15,124 112,055 15,124 127,179 – 112,055 15,124 112,055 15,124 127,179 39,765 101,640 733,551 248,095 3,173,724 1,861,463 5,035,187 – – – – Derivative financial instruments 936,413 706,442 880,140 378,405 557,115 419,548 26,738 fixed interest variable interest non-interest-bearing – – – – – – 16,010 138,790 221,387 195,178 –2,143 31,607 920,404 567,652 658,754 183,228 559,258 387,941 26,799 40,012 101,640 555,311 252,682 391,295 1,112,003 54,263 66,998 45,539 15,984 709,929 56,172 125,861 31,723 1,882,198 1,535,562 3,417,760 LIABILITIES Amounts due to banks and deposits with the National Bank of Hungary and other banks fixed interest variable interest non-interest-bearing Financial liabilities designated to measure at fair value through profit or loss fixed interest variable interest Repo liabilities variable interest fixed interest variable interest non-interest-bearing Liabilities from issued securities fixed interest variable interest Subordinated bonds and loans variable interest Leasing liabilities fixed interest variable interest Other financial liabilities non-interest-bearing 106,883 86,885 12,008 40,429 3,363 7,491 39,270 36,937 69,946 – 25,902 79 25,823 – – 15,136 71,749 – – – – – – 12,008 – – – – – – – 8,569 31,860 – – – – – – 3,363 – – – – – – 1,490 6,001 – – – – 109,612 – 109,612 325,464 116,385 133,886 15,540 101,496 13,367 5,885,626 1,287,977 – 3,090 213 2,877 – – 149 103 46 – – – – – 221 11,691 – – 221 11,691 – – 414 – 414 – – 4,502 3,500 1,002 – – 721 – 721 – – 187 11 176 – – – – 120,153 120,153 – 184,090 – 184,090 260 69 191 – – 477 40 437 – – 1,267 528 739 – – 2,082 170 1,912 – – Deposits from customers 6,211,090 1,404,362 133,886 15,540 101,496 13,367 –247 – 467,479 467,479 – – – – – – – – – – – 3,698 3,698 – – – 5,747 2,796 2,951 – – – – – 2,205,227 1,247,793 3,453,020 – 234,945 365,575 600,520 – 733,551 248,095 733,551 248,095 981,646 – – – – – – – – – – – – – – – – – – 1,371 37 1,334 1,678 1,491 630,681 136,296 766,977 – – – – 559,057 25,195 584,252 69,946 109,610 179,556 1,678 1,491 1,678 1,491 3,169 – – – – – – – – – – 25,902 79 25,823 – – – 25,902 79 25,823 – – 109,612 109,612 109,612 109,612 10,782 4,985 6,457,481 1,438,254 7,895,735 – – – 561,073 145,292 706,365 – 5,885,626 1,287,977 7,173,603 10,782 4,985 – – – – – – – – – – – – – – – – 10,782 27,079 11,509 15,570 4,985 1,356 – 1,356 15,767 28,435 11,509 16,926 – – 304,243 304,243 304,243 304,243 8,756 4,203 4,553 5,350 14,106 323 5,027 4,526 9,580 – 138,508 29,032 138,508 29,032 167,540 – 138,508 29,032 138,508 29,032 167,540 – – – 3,629 3,629 – – – – – – 7,333 7,333 – – – – – – – – – – – – – – – – – – – – –61 – 39,270 – – – – – – – 227 227 – – 4,098 4,098 – – – 1,333 1,233 707 626 – – 9,453 9,514 (61) – 65 1,168 – – 24,907 24,907 – – Derivative financial instruments 1,264,723 383,260 1,035,481 206,796 479,506 492,403 fixed interest variable interest non-interest-bearing 1,111,371 376,748 648,762 188,722 481,293 469,699 153,351 6,512 386,719 18,074 (1,787) 22,704 – – – – – – 49,757 89,983 724,945 253,430 3,563,865 1,450,778 5,014,643 50,004 89,802 (247) – 181 – – – 2,300,945 1,149,878 3,450,822 – 537,975 47,471 585,446 – 724,945 253,430 724,945 253,430 978,374 NET POSITION (4,904,324) (583,514) 271,828 1,297,462 214,690 (248,085) 439,867 21,774 2,906,279 216,230 304,108 59,231 (767,552) 763,097 (4,455) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 303 – – – – – – – – – – – – – – – – – – As at 31 December 2019: within 1 month within 3 months over 1 month HUF Foreign currency HUF Foreign currency within 1 year over 3 months Foreign currency HUF within 2 years over 1 year HUF Foreign currency over 2 years Non–interest– bearing Total HUF Foreign currency HUF Foreign currency HUF Foreign currency Total ASSETS Cash, amounts due from banks and balances with the National Bank of Hungary fixed interest non-interest-bearing 3,997 44,924 3,997 44,924 – – – – – – – – – – – – – – – – – Placements with other banks 279,847 102,963 409,557 192,520 182,348 172,320 27,926 1,041 39,292 33,137 151,361 637 168,730 27,926 278,806 63,671 376,420 41,159 181,711 3,590 – – – – 216,133 24,632 220,130 69,556 289,686 – – – 3,997 44,924 48,921 – 216,133 24,632 216,133 24,632 240,765 137,228 30,155 18,324 6,954 1,055,230 504,912 1,560,142 fixed interest variable interest non-interest-bearing Repo receivables fixed interest Securities held for trading fixed interest variable interest non-interest-bearing Securities mandatorily measured at fair value through profit or loss variable interest non-interest-bearing Securities at fair value through other comprehensive income fixed interest variable interest non-interest-bearing Loans measured at amortised cost fixed interest variable interest – 45,539 45,539 632 – 632 – – – – – – – 458 458 – – – – – – – – 1 1 – – – – – – – – 5,929 5,529 400 – 5,180 5,180 – – – – – – – 137,228 30,155 – – – – – – – – 2,124 2,124 3,908 3,908 4,400 4,400 9,166 9,166 10,571 10,571 1,181 1,181 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 199,969 389,538 589,507 836,937 108,420 945,357 18,324 6,954 – – – – 7,541 344 – – – – 7,541 344 18,324 45,539 45,539 25,269 17,096 632 7,541 6,954 25,278 – – 20,986 45,539 45,539 46,255 20,242 37,338 400 344 1,032 7,885 17,100 – 17,100 – – – 17,100 5,180 22,280 – 5,180 5,180 17,100 – 17,100 110,186 9,073 138,245 6,845 425,639 2,443 108,947 93,663 445,303 123,313 528 21,792 1,228,848 257,129 1,485,977 47,975 62,211 – 9,073 123,562 6,845 410,889 2,443 108,947 93,663 445,303 123,313 – – 14,683 – – – 14,750 – – – – – – – – – – – – – – 1,136,676 235,337 1,372,013 – 91,644 – 528 21,792 528 21,792 91,644 22,320 364,280 50,168 359,142 273,935 340,521 1,023,840 29,577 6,595 439,199 55,290 113,446 20,538 1,646,165 1,430,366 3,076,531 152 28,661 814 107,804 10,851 7,685 25,644 6,595 433,294 55,290 364,128 21,507 358,328 166,131 329,670 1,016,155 3,933 non-interest-bearing Loans mandatorily measured at fair value through profit or loss variable interest Securities at amortised cost fixed interest Other financial assets non-interest-bearing – 29,826 29,826 – – – – – – – – – – – – 121 121 – – – – – – – – – – – – 379 379 86,578 86,578 – – – – – – – – – – 463 463 38,125 38,125 – – – – – – – 5,905 – 207,749 207,749 1,322,521 – 1,322,521 – – – – – – – 470,755 206,035 676,790 – 1,061,964 1,203,793 2,265,757 – 113,446 20,538 113,446 20,538 133,984 – – – – – – – – – – – – 238,538 238,538 – 1,447,224 – 1,447,224 – – 238,538 238,538 – 1,447,224 – 1,447,224 80,862 80,862 8,620 8,620 80,862 80,862 8,620 8,620 89,482 89,482 Derivative financial instruments 963,211 434,210 847,077 359,966 765,879 460,639 15,461 273,268 20,355 85,686 326,585 206,753 2,938,568 1,820,522 4,759,090 fixed interest variable interest 927,322 424,177 697,547 335,776 766,569 424,851 15,461 273,268 20,355 85,686 35,889 10,033 149,530 24,190 –690 35,788 – – – 2,427,254 1,543,758 3,971,012 – 184,729 70,011 254,740 non-interest-bearing – – – – – – – 326,585 206,753 326,585 206,753 533,338 – – – – – – Deposits from customers 5,210,837 1,059,229 170,649 19,293 92,329 10,290 LIABILITIES Amounts due to banks and deposits with the National Bank of Hungary and other banks fixed interest variable interest non-interest-bearing Financial liabilities designated to measure at fair value through profit or loss fixed interest variable interest Repo liabilities fixed interest fixed interest variable interest non-interest-bearing Liabilities from issued securities fixed interest variable interest Subordinated bonds and loans variable interest Leasing liabilities fixed interest Other financial liabilities non-interest-bearing 285,808 189,729 65,914 76,986 4,820 17,091 1,102 231,909 83,070 65,914 53,899 106,659 – 28,861 102 28,759 20,574 20,574 – – – – – – – – – – – – – 3,430 73,556 – – – – – – 4,820 5,053 1,102 12,038 – – – – – – – – – – – – – – – – – 263,554 178,493 – 263,554 178,493 215 215 – – 3,451 3,451 – – – – – – – – – – – – 392,749 124,384 170,649 19,293 92,329 10,290 4,818,088 934,845 – – – – 552 12,565 1,265 – – – 552 12,565 1,265 – – 4,728 3,282 1,446 – – 1,936 – 1,936 – – 112,792 112,792 – 166,602 – 166,602 – 16,708 218 16,490 – – 62 62 – – – – – 136 136 – – 1,107 1,107 2,126 2,126 1,147 1,147 1,702 1,702 4,399 4,399 2,586 2,586 123 123 – – 272 272 – – – – – – – – 8 – – 8 – – – – – 1,647 452,601 285,453 738,054 – – 398,694 91,553 490,247 53,899 192,253 246,152 1,647 8 1,647 1,655 – – – – – 28,861 102 28,759 – – – 28,861 102 28,759 284,128 178,493 462,621 284,128 178,493 462,621 7,192 3,516 5,481,222 1,092,328 6,573,550 – – – 655,942 153,967 809,909 – 4,818,088 934,845 5,752,933 7,192 3,516 – – – – – – – – – – – – – – 7,192 39,531 9,030 30,501 3,516 3,753 – 10,708 43,284 9,030 3,753 34,254 – – 279,394 279,394 279,394 279,394 6,838 6,838 6,822 6,822 13,660 13,660 – – 8,783 8,783 – – – – – 139,657 51,434 139,657 51,434 191,091 – 139,657 51,434 139,657 51,434 191,091 36,475 72,359 278,557 255,503 3,322,400 1,409,430 4,731,830 36,475 72,148 211 – – – – – 2,852,545 1,111,057 3,963,602 – 191,298 42,870 234,168 – 278,557 255,503 278,557 255,503 534,060 Derivative financial instruments 1,272,904 127,050 829,127 357,480 623,979 588,255 281,358 fixed interest variable interest non-interest-bearing 1,222,356 121,202 688,335 341,669 624,021 567,255 281,358 50,548 5,848 140,792 15,811 (42) 21,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 94,949 94,949 – – – – – – – – – – – 2,079 2,079 – – – NET POSITION (5,038,236) (734,900) 675,765 276,287 1,076,505 876,850 (325,928) 193,714 2,445,024 220,680 355,105 (22,467) (811,765) 810,164 (1,601) 304 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) 35.5 Market risk a given holding period for a specified confidence level. The VaR methodology is The Bank takes on exposure to market risks. a statistically defined, probability-based Market risks arise from open positions in interest approach that takes into account market rate, currency and equity products, all of which volatilities as well as risk diversification are exposed to general and specific market by recognising offsetting positions and movements. The Bank applies a Value-at-Risk correlations between products and markets. (“VaR”) methodology to estimate the market Risks can be measured consistently across risk of positions held and the maximum losses all markets and products, and risk measures expected, based upon a number of assumptions can be aggregated to arrive at a single for various changes in market conditions. risk number. The one-day 99% VaR number The Management Board sets limits on the value used by the Group reflects the 99% of risk that may be accepted, which is monitored probability that the daily loss will not on a daily basis. (Analysis of liquidity risk, foreign exceed the reported VaR. currency risk and interest rate risk is detailed in Notes 35.2, 35.3 and 35.4 respectively.) VaR methodologies are employed to calculate daily risk numbers include the historical and variance-covariance approaches. 35.5.1 Market risk sensitivity analysis In addition to these two methodologies, Monte Carlo simulations are applied The VaR risk measure estimates the to the various portfolios on a monthly basis potential loss in pre-taxation profit over to determine potential future exposure. The VaR of the trading portfolio can be summarized as follows (in HUF million): Historical VaR (99%, one-day) by risk type Average Foreign exchange Interest rate Equity instruments Diversification Total VaR exposure 2020 1,507 77 141 – 1,725 2019 337 97 21 – 455 While VaR captures the OTP’s daily exposure exchange rate against EUR, over a 3 months to currency and interest rate risk, sensitivity period. Monte Carlo simulation is used when analysis evaluates the impact of a reasonably reporting foreign currency risk internally to possible change in interest or foreign currency key management personnel and represents rates over a year. The longer time frame Management’s assessment of the reasonably of sensitivity analysis complements VaR possible change in foreign exchange rates. and helps the OTP Bank to assess its market The sensitivity analysis includes only the risk exposures. Details of sensitivity analysis residual foreign currency denominated for foreign currency risk are set out in monetary items as partially closed strategic Note 35.5.2, for interest rate risk in Note 35.5.3 open positions related to foreign activities. and for equity price sensitivity analysis in In accordance with the Bank’s decision, the Note 35.5.4. subsidiaries’ P&L measured in EUR is going to have a higher weight than measured in HUF. Thus, a decision was made about closing 35.5.2 Foreign currency sensitivity analysis the former EUR (310) million strategic open position. As a result of the partial close, an open position of EUR (132) million remained in The following table details the Group’s the Bank's book evaluated against profit sensitivity to the rise and fall in the HUF or loss as of 31 December 2020. IFRS separate financial statements 305 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) A positive number below indicates an increase the EUR, there would be an equal and opposite in profit where the HUF strengthens against impact on the profit, and the balances below the EUR. For a weakening of the HUF against would be negative. Probability Effects to the P&L in 3 months period in HUF billion 1% 5% 25% 50% 25% 5% 1% Notes: 31 December 2020 (5.9) (4.1) (1.7) (0.2) 1.2 3.2 4.6 31 December 2019 (12.2) (8.4) (3.5) (0.4) 2.6 6.8 9.7 (cid:588) The assets and liabilities with interest rate 1) The short-term loss on the strategic open lower than 0.3% assumed to be unchanged position is compensated by the long-term during the whole period. exchange rate gain on the foreign operations. 2) Monte Carlo simulation is based on the The sensitivity of interest income to changes empirical distribution of the historical in BUBOR was analysed assuming two interest exchange rate movements between 2002 rate path scenarios: and 2020. 1. HUF base rate and BUBOR decreases gradually by 15 bps over the next year (probable scenario) 35.5.3 Interest rate sensitivity analysis 2. HUF base rate and BUBOR decreases gradually by 60 bps over the next year (alternative scenario) The sensitivity analyses below have been determined based on the exposure to interest The net interest income in a one year period rates for both derivatives and non-derivative after 1 January 2021 would be decreased by instruments at the balance sheet date. HUF 1,476 million (probable scenario) and The analysis is prepared assuming the amount HUF 6,420 million (alternative scenario) as a of assets and liabilities outstanding at the result of these simulation. The same simulation balance sheet date were outstanding for the indicated HUF 1,261 million (probable scenario) whole year. The analysis was prepared by and HUF 3,256 million (alternative scenario) assuming only the adverting interest rate decrease in the Net interest income in a one changes. The main assumptions were as year period after 1 January 2020. This effect is follows: counterbalanced by capital gains HUF 584 mil- (cid:588) Floating-rate assets and liabilities were lion (or probable scenario), HUF 2,329 million repriced to the modelled benchmark (for alternative scenario) as at 31 December 2020 yields at the repricing dates assuming the and (HUF 223 million for probable scenario, unchanged margin compared to the last HUF 2,670 million for alternative scenario as repricing. at 31 December 2019) on the government bond (cid:588) Fixed-rate assets and liabilities were portfolio held for hedging (economic). repriced at the contractual maturity date. Furthermore, the effects of an instant 10bps (cid:588) As for liabilities with discretionary repricing parallel shift of the HUF, EUR and USD yield- feature by the Bank were assumed to be curves on net interest income over a one-year repriced with two-weeks delay, assuming no period and on the market value of the hedge change in the margin compared to the last government bond portfolio booked against repricing date. capital was analysed. 306 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Description 2020 2019 HUF (0.1%) parallel shift EUR (0.1%) parallel shift USD (0.1%) parallel shift Total Effects to the net interest income (one-year period) Effects to shareholder’s equity (Price change of FVOCI government bonds) Effects to the net interest income (one-year period) Effects to shareholder’s equity (Price change of FVOCI government bonds) (1,991) (676) (165) (2,832) 389 – – 389 (1,793) (673) (104) (2,570) 558 – – 558 35.5.4 Equity price sensitivity analysis by recognising offsetting positions and correlations between products and markets. The daily loss will not exceed the reported The following table shows the effect of the VaR number with 99% of probability. equity price sensitivity. The Group uses VaR The stress test assumes the largest price calculation with 1 day holding period and movement of the last year and calculates 99% confidence level. The VaR methodology with it as the adverse direction. These scenario is a statistically defined, probability-based shows the loss of the portfolio when all approach that takes into account market prices change with the maximum amount volatilities as well as risk diversification of the last year. Description VaR (99%, one day, million HUF) Stress test (million HUF) 2020 141 (233) 2019 21 (52) 35.6 Capital management ensuring and developing its profitability. In case the planned risk level of the Bank Capital management The primary objective of the capital manage- exceeded its Core and Supplementary capital, the Bank ensures the prudent operation ment of the Bank is to ensure the prudent by occasional measures. A further tool in operation, the entire compliance with the the capital management of the Bank is prescriptions of the regulator for a persistent the dividend policy, and the transactions business operation and maximising the share- performed with the treasury shares. holder value, accompanied by an optimal financing structure. Capital adequacy The Capital Requirements Directive package The capital management of the Bank includes (CRDIV/CRR) transposes the global standards the management and evaluation of the share- on banking regulation (commonly known holders’ equity available for hedging risks, other as the Basel III agreement) into the EU legal types of funds to be recorded in the equity and framework. The rules are applied from all material risks to be covered by the capital. 1 January 2014. They set stronger prudential requirements for institutions, requiring them The basis of the capital management of to keep sufficient capital reserves and liquidity. the Bank in the short run is the continuous This framework makes institutions in the EU monitoring of its capital position, in the long more solid and strengthens their capacity to run the strategic and the business planning, adequately manage the risks linked to their which includes the monitoring and forecast activities, and absorb any losses they may of the capital position of the Bank. incur in doing business. The Bank maintains the capital adequacy The Bank has entirely complied with the required by the regulatory bodies and the regulatory capital requirements in 2020 as planned risk taking mainly by means of well as in 2019. IFRS separate financial statements 307 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) The Bank’s capital adequacy calculation is regulatory capital requirements of the credit in line with IFRS and based on Basel III as at risk and market risk while in case of the 31 December 2020 and 2019. The Bank uses operational risk the Advanced Measurement the standard method for determining the Approach (AMA). The calculation of the Capital Adequacy ratio as at 31 December 2020 and 2019 is as follows: Core capital (Tier 1) Primary core capital (CET1) Supplementary core capital (AT1) Supplementary capital (Tier2) Regulatory capital Credit risk capital requirement Market risk capital requirement Operational risk capital requirement Total eligible regulatory capital Surplus capital CET1 ratio Capital adequacy ratio Basel III 2020* 1,598,295 1,598,295 – 295,795 1,894,090 526,283 11,550 27,597 565,430 1,328,660 22.61% 26.80% 2019 1,559,656 1,559,656 – 276,699 1,836,355 511,588 9,628 31,569 552,785 1,283,570 22.57% 26.58% Basel III Common equity Tier 1 capital (CET1): Tier2 capital: Issued capital, Capital reserve, useable part of Subsidiary loan capital, Subordinated loan Tied-up reserve, General reserve, Profit reserve, capital, deductions due to repurchased Profit for the year, Treasury shares, Intangible loan capital and Subordinated loan capital assets, deductions due to investments, issued by the OTP Bank, adjustments due adjustments due to temporary disposals to temporary disposals. NOTE 36: TRANSFER AND RECLASSIFICATION OF FINANCIAL INSTRUMENTS (in HUF mn) Reclassification from securities held for trading to securities measured at fair value through other comprehensive income: As at 31 December 2020 Date of reclassification Reason Type of securities Nominal value Fair value EIR at the date Interest income 1 September 2018 Change in business model Retail hungarian government bonds 1,069 1,087 2%–3% 28 During the year 2018, securities issued by the amount was presented as at 31 December 2020. Hungarian Government with the nominal value The Bank has previously held retail of HUF 66.506 million were transferred from government bonds in the portfolio measured the trading portfolio to the securities measured at fair value through other comprehensive at fair value through other comprehensive income. During 2018 the Bank changed the income, of which HUF 1,087 million remaining business model of the retail government * Due to the Covid-19 pandemic, in order to strengthen the banking system, National Bank of Hungary recommended banks that dividends are neither approved, nor paid until 30 September 2021. But the potential amount of dividend is deducted from the regulatory capital due to prudential reasons (in accordance with regulation 241/2014 EU). The final amount of dividend payment depends on the decision of the Annual General Meeting. 308 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) bonds to manage all on the basis of a single the Bank is no longer able to maintain its business model aimed at collecting the future sole trading intent with these securities that contractual cash-flows and/or selling them. the Bank applied earlier. Furthermore there is an option-agreement between the Bank In 2018, the terms and conditions of sale of retail and the Government Debt Management government bonds and the pricing environment Agency (“GDMA”) that GDMA will buy back this have changed significantly, as a result of which portfolio therefore it has been reclassified. Derecognition Financial assets transferred but not derecognised Securities measured at fair value through other comprehensive income Securities measured at amortised cost Total 2020 2019 Transferred assets Associated liabilities Transferred assets Associated liabilities Carrying amount – 125,244 125,244 – 109,612 109,612 110 438,846 438,956 111 462,510 462,621 As at 31 December 2020 and 2019, the Bank securities category. The related liability is had obligation from repurchase agreements measured at amortized cost in the Statement about HUF 110 billion and HUF 463 billion of Financial Position as ’Amounts due to respectively. Securities sold temporarily under banks and deposits from the National Bank repurchase agreements will continue to of Hungary and other banks’. Under these be recognized in the Statement of Financial repurchase agreements only Hungarian and Position of the Bank in the appropriate foreign government bonds were transferred. NOTE 37: OFF-BALANCE SHEET ITEMS (in HUF mn) In the normal course of business, the referred to as off-balance sheet financial Bank becomes a party to various financial instruments. The following represents notional transactions that are not reflected on the amounts of these off-balance sheet financial statement of financial position and are instruments, unless stated otherwise. Contingent liabilities and commitments Loan commitments Guarantees arising from banking activities from this: Payment undertaking liabilities (related to issue of mortgage bonds) of OTP Mortgage Bank Factoring loan commitments Confirmed letters of credit Contingent liabilities and commitments total in accordance with IFRS 9 Legal disputes (disputed value) Liabilities due to venture capital fund contribution Other Contingent liabilities and commitments total in accordance with IAS 37 Total 2020 1,441,060 1,419,543 683,736 305,269 5,039 2019 1,494,508 1,087,300 558,100 228,145 749 3,170,911 2,810,702 4,720 32,712 602 38,034 5,233 17,142 2,665 25,040 3,208,945 2,835,742 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:3)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 309 Legal disputes the total unused commitments since most commitments to extend credit are contingent At the balance sheet date the Bank was involved upon customers maintaining specific credit in various claims and legal proceedings of standards. a nature considered normal to its business. The level of these claims and legal proceedings Guarantees, irrevocable letters of credit and corresponds to the level of claims and legal undrawn loan commitments are subject proceedings in previous years. to similar credit risk monitoring and credit policies as utilised in the extension of loans. The Bank believes that the various asserted The Management of the Bank believes the claims and litigations in which it is involved market risk associated with guarantees, will not materially affect its financial position, irrevocable letters of credit and undrawn future operating results or cash-flows, although loan commitments are minimal. no assurance can be given with respect to the ultimate outcome of any such claim or litigation. Provision due to legal disputes was HUF 199 million and HUF 663 million as at 31 December Guarantees, payment undertakings arising from banking activities 2020 and 2019, respectively. (See Note 24.) Payment undertaking is a promise by the Commitments to extend credit, guarantees and letter of credit 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 fulfilling conditions, without checking the underlying The primary purpose of these instruments transactions. The guarantee’s liability is joint is to ensure that funds are available to a and primary with the principal, in case of customer as required. Guarantees and standby payment undertaking, while the Bank assumes letters of credit, which represent irrevocable the obligation derived from guarantee assurances that the Bank will make payments independently by the conditions established in the event that a customer cannot meet its by the Bank. A guarantee is most typically obligations to third parties, carry the same required when the ability of the primary credit risk as loans. obligor or principal to perform its obligations under a contract is in question, or when Documentary and commercial letters of credit, there is some public or private interest which which are written undertakings by the Bank on requires protection from the consequences behalf of a customer authorising a third party of the principal's default or delinquency. to draw drafts on the Bank up to a stipulated A contract of guarantee is subject to the amount under specific terms and conditions, statute of frauds (or its equivalent local laws) are collateralised by the underlying shipments and is only enforceable if recorded in writing of goods to which they relate and therefore and signed by the surety and the principal. carry less risk than a direct borrowing. If the surety is required to pay or perform Commitments to extend credit represent due to the principal's failure to do so, the unused portions of authorisations to extend law will usually give the surety a right of credit in the form of loans, guarantees or subrogation, allowing the surety to use the letters of credit. With respect to credit risk surety's contractual rights to recover the cost on commitments to extend credit, the Bank of making payment or performing on the is potentially exposed to loss in an amount principal's behalf, even in the absence of an equal to the total unused commitments. express agreement to that effect between the However, the likely amount of loss is less than surety and the principal. 310 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Contingent liabilities related to OTP Mortgage Bank Ltd. non-performing. The repurchase guarantee contract of non-performing loans between OTP Mortgage Bank Ltd. and OTP Bank Plc. Under a syndication agreement with its wholly was modified in 2010. According to the owned subsidiary, OTP Mortgage Bank Ltd., new arrangement the repurchase guarantee the Bank had guaranteed, in return for an was cancelled and OTP Bank Plc. gives bail annual fee, to purchase all mortgage loans to the loans originated or purchased by held by OTP Mortgage Bank Ltd. that become the Bank. NOTE 38: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn) Previously approved option program required the amount of share-based payment and share a modification thanks to the introduction of price determined by Supervisory Board2. the Bank Group Policy on Payments accepted in resolution of Annual General Meeting The value of the share-based payment at regarding to the amendment of CRD III. the performance assessment is determined Directives and Act on Credit Institutions within 10 days by Supervisory Board based on and Financial Enterprises. the average of the three previous trade day’s middle rate of OTP Bank’s equity shares fixed Key management personnel affected by the on the Budapest Stock Exchange. Bank Group Policy receive compensation based on performance assessment generally in the At the same time the conditions of discounted form of cash bonus and equity shares in a ratio share-based payment are determined, and of 50–50%. Assignment is based on OTP shares, share-based payment shall contain maximum furthermore performance based payments are HUF 2,000 discount at the assessment date, deferred in accordance with the rules of Credit and earnings for the shares at the payment Institutions Act. date is maximum HUF 4,000. OTP Bank ensures the share-based payment Employee benefits are all forms of considera- part for the management personnel of tion given by an entity in exchange for service OTP Group members. rendered by employees or for the termination of employment. IAS 19 Employee Benefits shall During implementation of the Remuneration be applied in accounting for all employee Policy of the Group it became apparent benefits, except those to which IFRS 2 Share- that in case of certain foreign subsidiaries based Payment applies. it is not possible to ensure the originally determined share-based payment because Short-term employee benefits are employee of legal reasons – incompatible with relevant benefits (other than termination benefits) EU-directives –, therefore a decision was made that are expected to be settled wholly before to cancel the share-based payment in affected twelve months after the end of the annual countries, and virtual share based payment reporting period in which the employees – cash payment fixed to share price – was render the related service. Post-employment made from 2017. benefits are employee benefits (other than termination and short-term employee The quantity of usable shares for individuals benefits) that are payable after the completion calculated for settlement of share-based of employment. Post-employment benefit plans payment shall be determined as the ratio of are formal or informal arrangements under 2 Until the end of 2014 Board of Directors. IFRS separate financial statements 311 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) which an entity provides post-employment of an employee’s employment as a result of benefits for one or more employees. Post- either: an entity’s decision to terminate an employment benefit plans are classified as employee’s employment before the normal either defined contribution plans or defined retirement date or an employee’s decision to benefit plans, depending on the economic accept an offer of benefits in exchange for the substance of the plan as derived from its termination of employment. Other long-term principal terms and conditions. employee benefits are all employee benefits Termination benefits are employee benefits postemployment benefits and termination provided in exchange for the termination benefits. other than short-term employee benefits, The parameters for the share-based payment relating to the years from 2015 by Supervisory Board for periods of each year as follows: Year Share purchasing at a discounted price Price of remuneration exchanged to share Share purchasing at a discounted price Price of remuneration exchanged to share Share purchasing at a discounted price Price of remuneration exchanged to share Exercise price Maximum earnings per share Exercise price Maximum earnings per share HUF per share Exercise price Maximum earnings per share for the year 2015 for the year 2016 for the year 2017 2016 2017 2018 2019 2020 2021 2022 4,892 4,892 4,892 4,892 – – – 2,500 3,000 3,000 3,000 – – – 6,892 6,892 6,892 6,892 – – – – 7,200 7,200 7,200 7,200 – – – 2,500 3,000 3,500 4,000 – – – 9,200 9,200 9,200 9,200 – – – – 8,064 8,064 8,064 8,064 8,064 – – 3,000 3,500 4,000 4,000 4,000 – – 10,064 10,064 10,064 10,064 10,064 Year 2019 2020 2021 2022 2023 2024 2025 2026 Share purchasing at a discounted price Price of remuneration exchanged to share Share purchasing at a discounted price Price of remuneration exchanged to share Exercise price Maximum earnings per share Exercise price Maximum earnings per share HUF per share for the year 2018 for the year 2019 10,413 10,413 10,413 10,913 10,913 10,913 10,913 – 4,000 4,000 4,000 4,000 4,000 4,000 4,000 – 12,413 12,413 12,413 12,413 12,413 12,413 12,413 – – 9,553 9,553 9,553 9,553 9,553 9,553 9,553 – 4,000 4,000 4,000 4,000 4,000 4,000 4,000 – 11,553 11,553 11,553 11,553 11,553 11,553 11,553 312 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Based on parameters accepted by Supervisory Board, relating to the year 2016 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2017 Remuneration exchanged to share provided in 2017 Share-purchasing period started in 2018 Remuneration exchanged to share provided in 2018 Share-purchasing period started in 2019 Remuneration exchanged to share provided in 2019 Share-purchasing period starting in 2020 Remuneration exchanged to share applying in 2020 Approved pieces of shares 147,984 4,288 321,528 8,241 161,446 4,033 166,231 4,303 Exercised until 31 December 2020 147,984 4,288 321,528 8,241 161,446 4,033 164,039 4,303 Weighted average share price at the date of exercise (in HUF) 9,544 9,194 10,387 10,098 12,415 11,813 13,585 11,897 Expired pieces Exercisable at 31 December 2020 – – – – – – – – – – – – – – 2,192 – Based on parameters accepted by Supervisory Board, relating to the year 2017 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2018 Remuneration exchanged to share provided in 2018 Share-purchasing period started in 2019 Remuneration exchanged to share provided in 2019 Share-purchasing period starting in 2020 Remuneration exchanged to share applying in 2020 Share-purchasing period starting in 2021 Remuneration exchanged to share applying in 2021 Share-purchasing period starting in 2022 Remuneration exchanged to share applying in 2022 Approved pieces of shares 108,243 11,926 212,282 26,538 101,571 11,584 – – – – Exercised until 31 December 2020 108,243 11,926 212,282 26,538 94,830 11,584 – – – – Weighted average share price at the date of exercise (in HUF) 11,005 10,098 12,096 11,813 11,878 11,897 – – – – Expired pieces Exercisable at 31 December 2020 – – – – – – – – – – – – – – 6,741 – 120,981 12,838 42,820 3,003 Based on parameters accepted by Supervisory Board, relating to the year 2018 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2019 Remuneration exchanged to share provided in 2019 Share-purchasing period starting in 2020 Remuneration exchanged to share applying in 2020 Share-purchasing period starting in 2021 Remuneration exchanged to share applying in 2021 Share-purchasing period starting in 2022 Remuneration exchanged to share applying in 2022 Share-purchasing period starting in 2023 Remuneration exchanged to share applying in 2023 Remuneration exchanged to share applying in 2024 Remuneration exchanged to share applying in 2025 Approved pieces of shares 82,854 17,017 150,230 33,024 Exercised until 31 December 2020 82,854 17,017 3,448 33,024 Weighted average share price at the date of exercise (in HUF) 13,843 11,829 12,471 11,897 – – – – – – – – – – – – – – – – – – – – – – – – Expired pieces Exercisable at 31 December 2020 – – – – – – – – – – – – – – 146,782 – 74,529 16,167 99,341 17,042 45,155 4,114 864 432 IFRS separate financial statements 313 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Based on parameters accepted by Supervisory Board, relating to the year 2019 effective pieces are follows as at 31 December 2020: Share-purchasing period started in 2019 Remuneration exchanged to share provided in 2019 Share-purchasing period starting in 2020 Remuneration exchanged to share applying in 2020 Share-purchasing period starting in 2021 Remuneration exchanged to share applying in 2021 Share-purchasing period starting in 2022 Remuneration exchanged to share applying in 2022 Share-purchasing period starting in 2023 Remuneration exchanged to share applying in 2023 Remuneration exchanged to share applying in 2024 Remuneration exchanged to share applying in 2025 Approved pieces of shares 91,403 22,806 Exercised until 31 December 2020 91,403 22,806 Weighted average share price at the date of exercise (in HUF) 12,218 11,897 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Expired pieces Exercisable at 31 December 2020 – – – – – – – – – – – – – – 202,386 32,238 109,567 15,554 125,771 18,025 44,421 6,279 1,000 500 Effective pieces relating to the periods and connecting compensation, shares given starting in 2021–2026 settled during as a part of payments detailed above and valuation of performance of year 2017–2019, for the year 2020 based on performance can be modified based on risk assessment assessment accounted as equity-settled and personal changes. share based transactions HUF 3,394 million In connection with the share-based was recognized as expense for the year ended compensation for Board of Directors 31 December 2020. NOTE 39: RELATED PARTY TRANSACTIONS (in HUF mn) The Bank provides loans to related parties, and collects deposits. Transactions with related parties (subsidiaries), other than increases in share capital or dividend received, are summarized below: 39.1 Loans provided to related parties OTP Financing Malta Company Ltd. (Malta) OTP Mortgage Bank Ltd. Merkantil Bank Ltd. OTP banka dioničko drustvo (Croatia) OTP Employee Stock Ownership Program (OTP ESOP) Crnogorska komercijalna banka a.d. (Montenegro) OTP Real Estate Leasing Ltd. OTP banka Srbija a.d. (Serbia) Vojvodjanska Banka a.d. Novi Sad OTP Bank Romania S.A. (Romania) Air-Invest Llc. JN Parkolóház Llc. Other Total 314 OTP Bank Annual Report 2020 2020 Gross carrying amount 726,619 585,732 341,436 114,385 53,580 50,635 48,555 37,670 37,556 1,544 1,150 4,324 82,699 2,085,885 Loss allowance (3,903) (1,356) (2,161) – – (351) (505) (128) (171) (1,461) (1,150) (628) (490) (12,304) 2019 Gross carrying amount 716,721 676,761 361,671 – Loss allowance (4,053) (956) (1,348) – – 3,304 32,936 123,244 86,756 9,911 – 4,284 202,888 2,218,476 – – (566) (523) (347) – – (30) (432) (8,255) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) 39.2 Deposits from related parties OTP Funds Servicing and Consulting Ltd. JSC “OTP Bank” (Russia) Merkantil Bank Ltd. OTP Building Society Ltd. Bank Center Llc. Inga Kettő Ltd. OTP Factoring Ltd. OTP Holding Ltd./OTP Financing Ciprus Co. Ltd. (Ciprus) Air-Invest Llc. OTP Employee Stock Ownership Program (OTP ESOP) Balansz Private Open-end Investment Fund OTP Mortgage Bank Ltd. OTP Real Estate Investment Fund Management Ltd. Crnogorska komercijalna banka a.d. (Montenegro) OTP banka Hrvatska d.d. (Croatia) DSK Bank EAD (Bulgaria) OTP Bank JSC (Ukraine) OTP Bank Romania S.A. (Romania) Expressbank AD (Bulgaria) Other Total 39.3 Interests received by the Bank* OTP Financing Malta Company Ltd. (Malta) Merkantil Bank Ltd. OTP Mortgage Bank Ltd. Other Total 39.4 Interests paid by the Bank* JSC “OTP Bank” (Russia) Merkantil Bank Ltd. OTP Funds Servicing and Consulting Ltd. OTP Financial Point Ltd. DSK Bank EAD (Bulgaria) OTP banka Hrvatska d.d. (Croatia) Expressbank AD (Bulgaria) Other Total 39.5 Commissions received by the Bank From OTP Building Society Ltd. (agency fee in relation to finalised customer contracts) From OTP Real Estate Investment Fund Management Ltd. in relation to trading activity From OTP Fund Management Ltd. in relation to trading activity OTP Mobile Service Llc. OTP Funds Servicing and Consulting Ltd. From OTP banka Srbija a.d. Beograd Ljubljana in relation to loans, deposits and money transfer From SKB Banka d.d. Ljubljana in relation to loans, deposits and money transfer Other Total * Derivatives and interest on securities are not included. 2020 126,867 79,685 29,866 25,982 21,938 18,404 16,112 7,937 6,904 6,284 5,662 4,692 4,411 1,988 1,736 1,125 402 331 – 40,324 400,650 2020 10,445 5,312 3,931 1,308 20,996 2020 4,790 287 226 176 110 32 – 603 6,224 2020 6,820 3,941 3,667 2,873 554 325 286 1,407 19,873 2019 84,035 108,691 7,289 41,383 22,214 10,615 16,064 17,095 4,033 7,089 6,745 31,789 4,370 8,864 21,964 363,072 11,493 43,608 134,235 42,337 986,985 2019 15,538 4,621 1,416 1,057 22,632 2019 7,688 12 225 2 3,532 94 1,448 472 13,473 2019 4,550 4,886 4,596 1,656 512 100 – 1,077 17,377 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 315 39.6 Commissions paid by the Bank OTP Faktoring Ltd. related to commission fee OTP Pénzügyi Pont Ltd. Total 39.7 Transactions related to OTP Mortgage Bank Ltd. 2020 151 593 744 2019 224 173 397 Fees and commissions received from OTP Mortgage Bank Ltd. relating to the loans 2020 8,725 2019 11,836 39.8 Transactions related to OTP Factoring Ltd. The gross book value of the loans sold Loss allowance for loan losses on the loans sold Loans sold to OTP Factoring Ltd. without recourse (including interest) Loss on these transaction (recorded in the separate financial statements as loan and placement loss) 2020 6,339 4,443 1,115 781 2019 16,410 10,950 3,304 2,156 The underlying mortgage rights were also transferred to OTP Factoring Ltd. 39.9 Transactions related to OTP Banka Slovensko a.s. (Slovakia) Securities issued by OTP Banka Slovensko a.s. (Slovakia) held by OTP Bank (nominal value in HUF million) 2020 – 2019 14,873 39.10 Related party transactions with key management The compensation of key management, making process in accordance with the such as the members of the Board of Directors, compensation categories defined in IAS 24 the members of the Supervisory Board Related Party Disclosures, is summarised and the employees involved in the decision- below: Short-term employee benefits Share-based payment Long-term employee benefits (on the basis of IAS 19) Total Loans provided to companies owned by the Management (in the normal course of business) Commitments to extend credit and bank guarantees 2020 2,923 2,619 278 5,820 2020 87,791 36,738 2019 2,143 2,732 304 5,179 2019 54,325 27,624 316 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Outstanding balances and of banking products provided to key management: As at 31 December 2020: Type of product Total r i e h t d n a s r o t c e r i D f o d r a o B f o s r e b m e M s r e b m e m y l i m a f e s o l c s r e b m e m y l i m a f e s o l c r i e h t d n a d r a o b y r o s i v r e p u S f o s r e b m e M r i e h t d n a e v i t u c e x E s r e b m e m y l i m a f e s o l c Interest conditions Handling charges Annual fee Collateral 73 26.37%–31.77% – 12,038–20,596 HUF – 26.85%–30.45% – 6,656 HUF 110 29.73%–29.85% – 12,038–20,916 HUF Income received to bank account Income received to bank account Income received to bank account 183 159 5,59%–30% 1% 1.442 2.26%–3.26% 14 5.67%–11.99% – – – 0.00% 3.19%–3.56% 1% Income received to bank account Government bond, Shares in investment funds Income received to bank account Income received to bank account and state guarantee Property – – – – – Interest conditions Handling charges Annual fee Collateral Mastercard BonusGold/ Mastercard Arany Mastercard Bonus/ Mastercard Klasszik Visa Infinite Credit cards total Overdraft loans 87 3 142 232 254 12 2 27 41 91 Lombard loans 55,486 54,044 Personal loans Baby expecting loans Mortgage loan 22 75 34 8 9 – 2 1 5 8 4 – – – – As at 31 December 2019: Type of product Total r i e h t d n a s r o t c e r i D f o d r a o B f o s r e b m e M s r e b m e m y l i m a f e s o l c s r e b m e m y l i m a f e s o l c r i e h t d n a d r a o b y r o s i v r e p u S f o s r e b m e M Mastercard Arany Mastercard BonusGold Visa Infinite Credit cards total Overdraft loans 12 38 94 144 87 11 5 20 36 84 Lombard loans 55,080 53,661 Personal loans 7 – – – 5 5 3 – – 66 34 r i e h t d n a e v i t u c e x E s r e b m e m y l i m a f e s o l c 1 33 69 103 – floating, monthly 2.23% floating, monthly 2.46% floating, monthly 2.49% central bank base rate+5% 1,419 0.66%–2.39% 7 11.99%–17.99% – – – 1% – – 15,834 HUF 16,966 HUF 20,288 HUF Income received to bank account Income received to bank account Income received to bank account – – – Income received to bank account Government bond, Long-term Invest– ment Account, Shares in invest– ment funds Income received to bank account IFRS separate financial statements 317 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) An analysis of payment to Executives related to their activity in Board of Directors and Supervisory Board is as follows (in HUF mn): Members of Board of Directors Members of Supervisory Board Total 2020 1,012 116 1,128 2019 1,310 113 1,423 In the normal course of business, OTP Bank enters into other transactions with its subsidiaries, the amounts and volumes of which are not significant to these financial statements taken as a whole. NOTE 40: TRUST ACTIVITIES (in HUF mn) The Bank acts as a trustee for certain As these loans and related funds are loans granted by companies or employers not considered to be assets or liabilities to their employees, mainly for housing of the Bank, they have been excluded from purposes. The ultimate risk for these loans the accompanying separate statement rests with the party advancing the funds. of financial position. In the percentage of the total assets Loans managed by the Bank as a trustee 2020 28,055 2019 29,296 NOTE 41: CONCENTRATION OF ASSETS AND LIABILITIES In the percentage of the total assets Receivables from, or securities issued by the Hungarian Government or the NBH Securities issued by the OTP Mortgage Bank Ltd. Loans at amortised cost 2020 22.69% 2.24% 6.48% 2015 23.18% 1.76% 7.03% There were no other significant concentrations separately partner-by-partner. If necessary, it of the assets or liabilities of the Bank as at modifies partner-limits in due course thereby 31 December 2020 or 31 December 2019. reducing the room for manoeuvring of the Treasury and other business areas. OTP Bank continuously provides the Authority with reports on the extent of dependency The Bank’s internal regulation (Limit- on large depositors as well as the exposure management regulation) controls risk of the largest 50 depositors towards OTP Bank. management which related to exposures Further to this obligatory reporting to the of clients. Bank makes a difference between Authority. OTP Bank pays particular attention clients or clients who are economically on the exposure of its largest partners and connected with each other, partners, partners cares for maintaining a closer relationship operating in the same geographical region or with these partners in order to secure the in the same economic sector, exposures from stability of the level of deposits. customers. Limit-management regulation includes a specific range provisions system The organisational unit of OTP Bank in charge used by Bank to control risk exposures. of partner-risk management analyses the This regulation has to be used by the Bank largest partners on a constant basis and sets for its business (lending) risk-taking activity limits on OTP Bank’s and the Group’s exposure in both the retail and corporate sector. 318 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) To specify credit risk limits, the Bank strives The validity period of this policy is 12 months. their clients get an acceptable margin of risk The limit shall be reviewed prior to the expiry based on their financial situation. In the Bank date but at least once a year based on the rele- limit system a lower level decision-making vant information required to limit calculations. delegation has to be provided. The maximum credit exposure to any client If an OTP Group member takes risk against or counterparty among Loans at amortised a client or group of clients (either inside the cost was HUF 722 billion and HUF 713 billion local economy or outside), the client will be as at 31 December 2020 and 2019 respectively, qualified as a group level risk and these limits before taking into account collateral or other will be specified at group level. credit enhancements. NOTE 42: EARNINGS PER SHARE Earnings per share attributable to the weighted average number of ordinary Bank’s ordinary shares are determined by shares outstanding during the year. dividing Net profit for the year attributable Dilutive potential ordinary shares are to ordinary shareholders, after the deduction deemed to have been converted into of declared preference dividends, by the ordinary shares. Net profit for the year attributable to ordinary shareholders (in HUF mn) Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) Basic Earnings per share (in HUF) Separate net profit for the year attributable to ordinary shareholders (in HUF mn) Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) Diluted Earnings per share (in HUF) Weighted average number of ordinary shares Average number of Treasury shares Weighted average number of ordinary shares outstanding during the year for calculating basic EPS Dilutive effect of options issued in accordance with the Remuneration Policy/Management Option Program and convertible into ordinary shares* The modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS 2020 92,474 2019 193,354 277,301,936 279,697,301 333 92,474 691 193,354 277,310,069 279,721,775 333 691 2020 280,000,010 (2,698,074) 2019 280,000,010 (302,709) 277,301,936 279,697,301 8,133 24,474 277,310,069 279,721,775 The ICES bonds could potentially dilute basic EPS in the future, but were not included in the calculation of diluted EPS because they are antidilutive for the period presented. * In 2020 and 2019 dilutive effect is in connection with the Remuneration Policy. IFRS separate financial statements 319 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:15)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) NOTE 43: NET GAIN OR LOSS REALISED ON FINANCIAL INSTRUMENTS (in HUF mn) For the year ended 31 December 2020 Financial assets measured at amortised cost Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Loans Securities at amortised cost Financial assets measured at amortised cost total Financial assets measured at fair value Securities held for trading Securities at fair value through other comprehensive income Loans mandatorily measured at fair value through profit or loss Financial assets measured at fair value total Financial liabilities measured at amortised cost Amounts due to banks and deposits from the National Bank of Hungary and other banks Repo liabilities Deposits from customers Leasing liabilities Liabilities from issued securities Subordinated bonds and loans Financial liabilities measured at amortised cost total Financial liabilities designated to measure at fair value through profit or loss Derivative financial instruments** Total Net interest income and expense Net non-interest gain and loss Loss allowance Other comprehensive income 4,369 10,650 49 143,650 48,654 207,372 – 368 29,095 15,094 44,557 (9,862) (1,476) (3,985) (244) (598) (8,327) (24,492) (307) (5,053) 222,077 – – – 23,298 360 23,658 – 2,251 – 2,227 286 55,444 1,845 59,802 – – – – – – – – – – 6,073 * 3 (17,734) 2,125 10,449 – – 216,512 – – – 216,512 1,270 5,818 257,707 – 3 – – – – – – – – – (17,734) – – – – – – – – – 59,805 – (17,734) * For the year ended 31 December 2020 HUF 6,073 million net non-interest gain on securities at fair value through other comprehensive income was transferred from other comprehensive income to profit or loss. ** Gains/losses from derivative financial instruments recognised in net interest income as Income similar to interest income. 320 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) For the year ended 31 December 2020 Financial assets measured at amortised cost Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Loans Securities at amortised cost Financial assets measured at amortised cost total Financial assets measured at fair value Securities held for trading Securities at fair value through other comprehensive income Loans mandatorily measured at fair value through profit or loss Financial assets measured at fair value total Financial liabilities measured at amortised cost Amounts due to banks and deposits from the National Bank of Hungary and other banks Repo liabilities Deposits from customers Leasing liabilities Liabilities from issued securities Subordinated bonds and loans Financial liabilities measured at amortised cost total Financial liabilities designated to measure at fair value through profit or loss Derivative financial instruments** Total Net interest income and expense Net non-interest gain and loss Loss allowance Other comprehensive income 1,188 5,789 95 137,161 47,119 191,352 231 40,329 5,106 45,666 – (11,300) (3,995) (3,726) (244) (2,214) (5,323) (26,802) (367) (5,064) 204,785 – – – 19,674 714 20,388 739 – 1,545 (6) 7,680 (225) 8,994 – 8,408 * (176) (418) 8,729 – – – 210,822 – – – 210,822 (21) 3,675 243,593 – (176) – – – – – – – – – – – – – – – – 20,599 – 20,599 – – – – – – – – – – 8,818 – 20,599 * For the year ended 31 December 2019 HUF 8,408 million net non-interest gain on securities at fair value through other comprehensive income was transferred from other comprehensive income to profit or loss. ** Gains/losses from derivative financial instruments recognised in net interest income as Income similar to interest income. IFRS separate financial statements 321 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) NOTE 44: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) In determining the fair value of a financial (cid:588) the contractual cash-flows are considered asset or liability the Bank in the case of for the performing loans and for the instruments that are quoted on an active non-performing loans, the amortised cost market uses the market price. In most less impairment is considered as fair value, cases market price is not publicly available (cid:588) the future cash-flows for floating interest so the Bank has to make assumptions or rate instruments are estimated from the use valuation techniques to determine yield curves as of the end of the reporting the fair value of a financial instrument. period, See Note 43. d) for more information about (cid:588) the fair value of the deposit which can be fair value classes applied for financial due in demand cannot be lower than the assets and liabilities measured at fair amount payable on demand. value in these financial statements. For classes of assets and liabilities not To provide a reliable estimate of the fair measured at fair value in the statement of value of those financial instrument that financial position, the income approach was are originally measured at amortised cost, used to convert future cash-flows to a single the Bank used the discounted cash-flow current amount. Fair value of current assets analysis (loans, placements with other is equal to carrying amount, fair value of banks, amounts due to banks, deposits liabilities from issued securities and other from customers). The fair value of issued bond-type classes of assets and liabilities not securities and subordinated bonds is based measured at fair value measured based on on quoted prices (e,g, Reuters), Cash and Reuters market rates and, fair value of other amounts due from banks and balances with classes not measured at fair value of the the National Bank of Hungary represent statement of financial position are measured amounts available immediately thus the fair using the discounted cash-flow method. Fair value equals to the cost. value of loans, net of allowance for loan losses measured using discount rate adjustment The assumptions used when calculating the technique, the discount rate is derived from fair value of financial assets and liabilities observed rates of return for comparable assets when using valuation technique are the or liabilities that are traded in the market. following: (cid:588) the discount rates are the risk free rates Fair value measurements – in relation to related to the denomination currency instruments measured not at fair value – adjusted by the appropriate risk premium are categorized in level 2 of the fair value as of the end of the reporting period, hierarchy. 322 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) a) Fair value of financial assets and liabilities Cash, amounts due from banks and balances with the National Bank of Hungary Placements with other banks, net of allowance for placement losses Repo receivables Financial assets at fair value through profit or loss Held for trading securities Held for trading derivative financial instruments Securities mandatorily measured at fair value through profit or loss Securities at fair value through other comprehensive income Loans at amortised cost Loans mandatorily measured at fair value through profit or loss Securities held-to-maturity Derivative financial assets designated as hedging accounting Other financial assets FINANCIAL ASSETS TOTAL Amounts due to banks and Hungarian Government, deposits from the National Bank of Hungary and other banks Deposits from customers Repo receivables Leasing liabilities Liabilities from issued securities Derivative financial liabilities designated as hedging accounting Financial liabilities at fair value through profit or loss Financial liabilities from OTP-MOL transaction Subordinated bonds and loans Other financial liabilities FINANCIAL LIABILITIES TOTAL 2020 Carrying amount Fair value 2019 Carrying amount Fair value 579,120 579,120 289,686 289,686 1,535,884 1,550,747 1,560,142 1,532,900 183,364 160,483 11,729 116,818 183,664 160,483 11,729 116,818 45,539 172,229 46,255 103,694 45,546 172,229 46,255 103,694 31,936 31,936 22,280 22,280 911,950 911,950 1,485,977 1,485,977 3,417,760 3,710,048 3,076,531 3,400,670 480,937 480,937 238,538 238,538 2,007,692 2,085,881 1,447,224 1,570,899 6,817 6,817 127,179 9,411,186 127,179 9,796,826 16,677 89,482 8,422,025 16,677 89,482 8,842,604 766,977 754,573 738,054 737,235 7,895,735 109,612 14,106 28,435 3,104 25,902 99,987 304,243 167,540 9,415,641 7,895,211 111,548 14,105 31,588 3,104 25,902 99,987 295,218 167,540 9,398,776 6,573,550 462,621 13,660 43,284 10,023 28,861 83,088 279,394 191,091 8,423,626 6,574,041 464,901 13,660 49,282 10,023 28,861 83,088 276,838 191,091 8,429,020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 323 b) Derivative financial instruments hedging instrument is compared in the OTP Bank regularly enters into hedging different scenarios. Economic relationship transactions in order to decrease its financial is justified if the change of the fair value of risks. However some economically hedging the hedged item and the hedging instrument transaction do not meet the criteria to are in the opposite direction and the absolute account for hedge accounting, therefore these changes are similar amounts. The hedge transactions were accounted as derivatives ratio is determined as the ratio of the notional held for trading. Net investment hedge of the hedged item and the notional of the in foreign operations is not applicable in hedging instrument. The sources of hedge separate financial statements. ineffectiveness are the not hedged risk components (e,g, change of cross currency The assessment of the hedge effectiveness basis spreads in case of interest rate risk (both for fair value hedges and cash-flow hedges), slight differences in maturity dates hedges) to determine the economic relation- and interest payment dates in case of fair ship between the hedged item and the value hedges, and differences between hedging instrument is accomplished with the carrying amount of the hedged item prospective scenario analysis via different and the carrying amount of the hedging rate shift scenarios of the relevant risk factor(s) instrument in case of FX hedges (e,g, caused of the hedged risk component(s). The fair by interest rate risk components in the fair value change of the hedged item and the value of the hedging instrument). 324 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Fair value of derivative financial instruments The Bank has the following held for trading derivatives and derivatives designated as hedge accounting: Before netting Assets Liabilities 2020 Netting* After netting 2019 Before netting Assets Liabilities Assets Liabilities Held for trading derivative financial instruments Interest rate derivatives Interest rate swaps Cross currency interest rate swaps OTC options Forward rate agreement Total interest rate derivatives (OTC derivatives) From this: Interest rate derivatives cleared by NBH Foreign exchange derivatives Foreign exchange swaps Foreign exchange forward OTC options Foreign exchange spot conversion Total foreign exchange derivatives (OTC derivatives) From this: Foreign exchange derivatives cleared by NBH Equity stock and index derivatives Commodity Swaps Equity swaps OTC derivatives Exchange traded futures and options Total equity stock and index derivatives Derivatives held for risk management not designated in hedges 30,216 7,315 356 – (28,474) (7,285) (356) – 37,887 (36,115) 5 (72) 39,644 6,990 3,909 619 (30,374) (9,869) (3,836) (704) 51,162 (44,783) 5,211 (1,852) 13,999 7,071 21,070 (12,901) (560) (13,461) 379 (1,262) 21,449 (14,723) 8,984 – – – 8,984 21,232 7,315 356 – (19,490) (7,285) (356) – 29,008 1,141 298 13 (26,622) (1,037) (298) (32) 28,903 (27,131) 30,460 (27,989) – – – – – – – – – – – – 5 (72) – (61) 39,644 6,990 3,909 619 (30,374) (9,869) (3,836) (704) 31,666 2,538 3,126 18 (24,607) (4,839) (3,129) (50) 51,162 (44,783) 37,348 (32,625) 5,211 (1,852) 4,166 (259) 13,999 7,071 21,070 (12,901) (560) (13,461) 379 (1,262) 1,213 4,530 5,743 5 (960) (558) (1,518) (248) 21,449 (14,723) 5,748 (1,766) Interest rate swaps Foreign exchange swaps Forward Cross currency interest rate swaps 25,760 2,208 28 44 (22,058) (3,953) (75) – 12,736 – – – 13,024 2,208 28 44 (9,322) (3,953) (75) – 23,508 6,547 8 75 (16,219) (4,477) (12) – Total derivatives held for risk management not designated in hedges From this: Total derivatives cleared by NBH held for risk management Total Held for trading derivative financial instruments Derivative financial instruments designated as hedge accounting relationships Derivatives designated in cash-flow hedges Interest rate swaps Total derivatives designated in cash-flow hedges Derivatives designated in fair value hedges Interest rate swaps Cross currency interest rate swaps Total derivatives designated in fair value hedges From this: Total derivatives cleared by NBH held for hedging Total derivatives held for risk management (OTC derivatives) Total 28,040 (26,086) 12,736 15,304 (13,350) 30,138 (20,708) 759 (6,269) – 759 (6,269) 1,305 (6,689) 138,538 (121,707) 21,720 116,818 (99,987) 103,694 (83,088) 8,027 8,027 – – 2,432 6,180 (7,061) (5,865) 8,612 (12,926) – (1,691) 16,639 (12,926) 155,177 (134,633) 8,027 8,027 1,795 – 1,795 – 9,822 31,542 – – 8,027 8,027 637 6,180 6,817 (5,266) (5,865) (11,131) 9,214 9,214 3,758 3,705 7,463 – – (8,265) (1,758) (10,023) – (1,691) – (2,886) 6,817 (3,104) 16,677 (10,023) 123,635 (103,091) 120,371 (93,111) * Certain derivative financial assets and liabilities are offset and the net amount is presented in accordance with IAS 32 in the Statement of Financial Position. The Bank has the ability and the intention to settle those instruments on a net basis, which are settled through the same clearing house. IFRS separate financial statements 325 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) c) Hedge accounting Regulations on the Management of Liquidity Interest rate risk management is centralized Risk and Interest Rate Risk of Banking Book”. at OTP Group. Interest rate risk exposures The interest rate risk management activity aims in major currencies are managed at HQ on to stabilize NII within the approved risk limits. consolidated level. Although risk exposures in local currencies are managed at subsidiary The risk management objective of these hedge level, the respective decisions are subject to relationships is to mitigate the risk of clean HQ approval. Interest rate risk is measured by fair value (i.e. excluding accrued interest) simulating NII and EVE under different stress change of MIRS loans due to the change of and plan scenarios, the established risk limits interest rate reference indexes (BUBOR, EURIBOR, are described in “OTP Bank’s Group-Level LIBOR etc.) of the respective currency. Amount, timing and uncertainty of future cash-flows – hedging instruments: As at 31 December 2020: Type of hedge Type of risk Type of instrument Fair Value Hedge Interest rate risk Interest rate swap HUF Within one month Within three months and over one month Within one year and over three months Within five years and over one year More than five years Total Notional Average Interest Rate (%) EUR – – Notional Average Interest Rate (%) 15 (0.11%) USD Notional Average Interest Rate (%) RUB Notional Average Interest Rate (%) Fair Value Hedge FX & IR risk Cross currency interest rate swap EUR/HUF Notional Average Interest Rate (%) Average FX Rate Fair Value Hedge FX risk Cross currency interest rate swap EUR/HUF Notional Average FX Rate RON/HUF Notional Average FX Rate RUB/HUF Notional Average FX Rate Interest rate swap HUF Notional Interest rate swap HUF Notional Average FX Rate Fair Value Hedge Other Cash–flow hegdes Interest rate risk 326 OTP Bank Annual Report 2020 – – – – – – – – – – – – – – – – – – – – – 60,000 (89,622) 173,810 144,188 1.31% 1.06% 1.35% 5 102 10 132 0.09% 0.24% 0.22% 21 2.00% 171 29 221 2.38% 2.35% – – 2 2,100 7.38% 2,100 – – 12 14 28 (1.55%) 311.08 (1.59%) 310.95 (1.60%) 310.82 (1.63%) (1.67%) 310.14 308.15 1 360.19 92 354.92 123 360.47 – – – – – – – – 613 356.03 1,550 72.60 4,100 4.46 (183) 6,940 8,342 – – – – – – – 829 1,550 4,100 15,099 – – – – 12,194 1.77 28,027 2.46 40,221 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) As at 31 December 2019: Type of hedge Type of risk Type of instrument Fair Value Hedge Interest rate risk Interest rate swap HUF Notional Average Interest Rate (%) EUR Notional Average Interest Rate (%) USD Notional Average Interest Rate (%) RUB Notional Average Interest Rate (%) Fair Value Hedge FX & IR risk Cross currency interest rate swap Fair Value Hedge FX risk EUR/HUF Notional Average Interest Rate (%) Average FX Rate Cross currency interest rate swap RON/HUF Notional Average FX Rate RUB/HUF Notional Average FX Rate Fair Value Hedge Other Interest rate swap Cash-flow hegdes Interest rate risk HUF Notional Interest rate swap HUF Notional Average FX Rate Within one month Within three months and over one month Within one year and over three months Within five years and over one year More than five years Total – – – – – – – – – – – – – – – – – – – – 20 3.88% – – – – – – – – – – – 229,600 65,268 145,510 440,378 1.84% 1.29% 1.26% – – 8 177 27 224 0.14% 0.61% 437 29 474 2.64% 1.92% 2.35% – – 2 2,100 7.38% 2,100 – – 15 14 31 (1.60%) 310.37 (1.63%) (1.66%) 309.79 308.69 150 67.50 2,000 4.20 1,050 68.83 9,100 4.33 – – – – – 1,200 11,100 29,097 (310) 13,644 15,763 – – – – 12,194 1.77 28,027 2.46 40,221 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 327 Amount, timing and uncertainty of future cash-flows – hedging instruments: Type of instrument Type of risk Nominal amount of the hedging instrument Carrying amount of the hedging instrument for the year ended 31 December 2020 After Before netting netting Netting Assets Liabilities Assets Liabilities Line item in the statement of financial position where the hedging instrument is located Changes in fair value used for calculating hedge ineffectiveness for the year ended 31 December 2020 Fair value hedge Interest rate swap Interest rate risk 468,574 1,900 (7,062) 1,795 105 (5,267) Cross– currency swap Cross– currency swap Interest rate swap Cash-flow hedge FX & IR risk 8,874 – (1,408) – – (1,408) FX risk 438,401 6,182 (4,456) – 6,182 (4,456) Other 16,224 530 – – 530 – Interest rate swap Interest rate risk 133,379 8,027 – 8,027 – 8,027 Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management (370) (36) (809) 2 (85) 31 December 2020 Type of risk Carrying amount of the hedged item Assets Liabilities 35,256 (100,299) 177,888 91,950 – 47,560 10,378 303,572 – – – – – – – (15,032) 666,604 (115,331) Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item Assets Liabilities Line item in the statement of financial position in which the hedged item is included 507 884 1,154 – 793 9 10,855 – 14,202 (151) Loans Securities at amortised cost Securities at fair value through other comprehensive income Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans Loans Liabilities from issued securities – – – – – – (3,144) (3,295) 40,221 – 58 – Loans Fair value hedges Loans Goverment bonds Goverment bonds Goverment bonds Other securities Loans Loans Other securities Fair value hedges total Cash-flow hedges Loans Interest rate risk Interest rate risk Interest rate risk Interest rate risk Interest rate risk FX & IR risk FX risk Other risk Interest rate risk 328 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Type of instrument Type of risk Nominal amount of the hedging instrument Carrying amount of the hedging instrument for the year ended 31 December 2019 Assets Liabilities Line item in the statement of financial position where the hedging instrument is located Changes in fair value used for calculating hedge ineffectiveness for the year ended 31 December 2019 Interest rate swap Interest rate risk 663,949 2,251 (8,265) Cross–currency swap Cross–currency swap Interest rate swap FX & IR risk 9,523 – (376) FX risk 137,390 3,705 (1,382) Other 30,983 1,507 Interest rate swap Interest rate risk 133,379 9,214 Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management Derivative assets (liabilities) held for risk management 341 (113) (271) 7 (98) – – Fair value hedge Cash-flow hedge Type of risk Interest rate risk Interest rate risk Fair value hedges Loans Government bonds Government bonds Interest rate risk Government bonds Interest rate risk Other securities Loans Loans Other securities Fair value hedges total Cash-flow hedges Loans Interest rate risk FX & IR risk FX risk Other risk Interest rate risk Carrying amount of the hedged item for the year ended 31 December 2019 Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item for the year ended 31 December 2019 Line item in the statement of financial position in which the hedged item is included Assets Liabilities Assets Liabilities 36,709 578,026 144,234 – 85,231 10,076 136,088 – – – – – – – – (29,018) 990,364 (29,018) 521 109 1,074 – 166 2 1,465 – 3,337 – – – – – – – (5,765) (5,765) Loans Securities at amortised cost Securities at fair value through other comprehensive income Financial assets at fair value through profit or loss Securities at fair value through other comprehensive income Loans Loans Liabilities from issued securities 40,221 – 32 – Loans (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:2)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 329 31 December 2020: Type of instrument Type of risk Interest rate swap Interest rate risk 31 December 2019: Type of instrument Type of risk Interest rate swap Interest rate risk Change in the value of the hedging instrument recognised in cash-flow hedge reserve Hedge ineffectiveness recognised in profit or loss 296 (85) Line item in profit or loss that includes hedge ineffectiveness Interest Income from Placements with other banks, net of allowance for placement losses Change in the value of the hedging instrument recognised in cash-flow hedge reserve Hedge ineffectiveness recognised in profit or loss 2,086 (98) Line item in profit or loss that includes hedge ineffectiveness Interest Income from Placements with other banks, net of allowance for placement losses d) Fair value classes Methods and significant assumptions used observable for the asset or liability to determine fair value of the different classes either directly or indirectly, Fair value of financial instruments: measurements – in relation with Level 1: quoted prices (unadjusted) in instruments measured not at fair active markets for identical assets value – are categorized in level 2; or liabilities; Level 3: inputs for the asset or liability that Level 2: inputs other than quoted prices are not based on observable market included within Level 1 that are data (unobservable inputs). The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: As at 31 December 2020 Loans at fair value through other comprehensive income Financial assets at fair value through profit or loss from this: securities held for trading from this: positive FVA of derivative financial instruments designated as held for trading from this: securities mandatorily measured at fair value through profit or loss Securities at fair value through other comprehensive income Positive fair value of derivative financial instruments designated as hedge accounting Financial assets measured at fair value total Financial liabilities at fair value through profit or loss Negative fair value of derivative financial instruments classified as held for trading Short position Negative fair value of derivative financial instruments designated as hedge accounting Financial liabilities measured at fair value total Total 480,937 160,483 11,729 116,818 31,936 911,950 6,817 1,560,187 25,902 99,987 9,131 3,104 Level 1 – 34,643 10,453 378 Level 2 – 123,064 1,276 116,440 Level 3 480,937 2,776 – – 23,812 5,348 2,776 426,566 485,384 – 461,209 – 1,263 9,131 – 6,817 615,265 – 98,724 – – – 483,713 25,902 – – 3,104 – 138,124 10,394 101,828 25,902 330 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) As at 31 December 2019 Loans at fair value through other comprehensive income Financial assets at fair value through profit or loss from this: securities held for trading from this: positive FVA of derivative financial instruments designated as held for trading from this: securities mandatorily measured at fair value through profit or loss Securities at fair value through other comprehensive income Positive fair value of derivative financial instruments designated as hedge accounting Financial assets measured at fair value total Financial liabilities at fair value through profit or loss Negative fair value of derivative financial instruments classified as held for trading Short position Negative fair value of derivative financial instruments designated as hedge accounting Financial liabilities measured at fair value total Total 238,538 172,229 46,255 103,694 Level 1 – 52,247 29,961 6 Level 2 – 119,982 16,294 103,688 22,280 22,280 – 1,485,977 1,082,071 399,171 16,677 – 1,704,614 28,861 1,134,318 – 83,088 7,040 10,023 129,012 249 7,040 – 7,289 16,677 535,830 – 82,839 – 10,023 92,862 Level 3 238,538 – – – – 4,735 – 34,466 28,861 – – – 28,861 Valuation techniques and sensitivity analysis on Level 3 instruments as well as the availability and reliability of observable proxy and historical date and the impact of using alternative models. The calculation is based on range or spread Sensitivity analysis is performed on products data of reliable reference source or a scenario with significant unobservable inputs (Level 3) based on relevant market analysis alongside to generate a range of reasonably possible the impact of using alternative models. alternative valuations. The sensitivity Sensitivities are calculated without reflecting methodologies applied take account of the the impact of any diversification in the nature of the valuation techniques used, portfolio. Unobservable inputs used in measuring fair value: Type of financial instrument VISA C shares Loans mandatory measured at fair value through profit and loss Valuation technique Significant unobservable input Range of estimates for unobservable input Market approach combined with expert judgement Discount applied due to illiquidity and litigation Discounted cash-flow model Probability of default +/–12% +/–20% The effect of unobservable inputs on fair value measurement assumptions could lead to different measurements of fair value. For fair value measurements in Level 3 changing the Although the Bank believes that its assumptions used to reasonably possible estimates of fair value are appropriate, alternative assumptions would have the the use of different methodologies or following effects. As at 31 December 2020 VISA C shares Loans mandatory measured at fair value through profit and loss Total Fair values Favourable 1,514 Unfavourable 1,154 Effect on profit and loss Favourable 180 Unfavourable (180) 28,656 30,170 28,430 29,584 113 293 (113) (293) (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 331 As at 31 December 2019 VISA C shares Loans mandatory measured at fair value through profit and loss Total Fair values Favourable 2,609 Unfavourable 1,983 Effect on profit and loss Favourable 313 Unfavourable (313) 29,951 32,560 29,511 31,494 220 533 (220) (533) The favourable and unfavourable effects In the case of loans mandatory measured of using reasonably possible alternative at fair value through profit and loss the assumptions for the valuation of Visa C Bank calculated the favourable and shares have been calculated by modifying unfavourable effects of using reasonably the discount rate used for the valuation possible alternative assumptions by by +/–12% as being the best estimates of modifying the rates of probability of default by the management as at 31 December 2020 +/–20% as the most significant unobservable and 31 December 2019 respectively. input. Reconciliation of the opening and closing balances of Level 3 instruments for the year ended 31 December 2020: Loans at fair value through other comprehensive income Securities mandatorily measured at fair value through profit or loss Securities at fair value through other comprehensive income Financial liabilities at fair value through profit or loss Total Opening balance Issuance/ Disbursement FVA Reclassification Settlement Closing balance 238,538 257,055 (2,555) – (12,101) 480,937 – 4,735 (28,861) 214,412 – – – 257,055 523 453 1,270 (309) 5,188 (2,935) 2,776 (5,188) – – – – 1,689 (25,902) (13,347) 457,811 Reconciliation of the opening and closing balances of Level 3 instruments for the year ended 31 December 2019: Loans at fair value through other comprehensive income Securities at fair value through other comprehensive income Financial liabilities at fair value through profit or loss Total Opening balance 42,037 3,146 (32,231) 12,952 Issuance/ Disbursement FVA Settlement Closing balance 208,952 (6,198) (6,253) 238,538 – – 1,589 – 4,735 21 3,349 (28,861) 208,952 (4,588) (2,904) 214,412 332 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) NOTE 45: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2020 1) Sale of the Slovakian subsidiary See details about the event above in Note 11. NOTE 46: SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD Compliance with the executive circular indicating a significant increase in credit issued in January 2021 by the National Bank risk” does not significantly impact the of Hungary on the “use of macroeconomic determination of expected credit losses information in applying IFRS 9 and factors as at 31 December 2020. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) IFRS separate financial statements 333 OTP Bank Annual Report 2020 334 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Corporate Governance (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:23) 335 (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Senior management and executive members of the Board of Directors1 of OTP Bank Dr. Sándor Csányi Chairman & CEO Dr. Zsolt Barna General Deputy CEO until 20 July 2020 Group Governance and Operations Division László Bencsik Deputy CEO Strategy and Finance Division In 1996, Mr. László Bencsik 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. Between 1996 and 2000 he worked as a consultant at Andersen Consulting (now Accenture). From 2000 to 2003 he was a project manager at consulting firm McKinsey & Company. He joined OTP Bank in 2003, when he became managing director of the Bank Operations Management Directorate, and the manager with overall responsibility for controlling and planning. He has been deputy CEO of OTP Bank, and head of the Strategy and Finance Division, since August 2009. Since 13 March 2012 he has been Chairman of the Supervisory Board of DSK Bank. As of 31 December 2020 he held 43,037 ordinary OTP shares. Dr. Zsolt Barna started his professional career at the State Financial and Capital Market Supervisory Commission, and rising through the ranks he became managing director of the Financial and Capital Market Supervisory Directorate in 2006. In this position, he was responsible for the supervision of banks and banking groups. Between 2006 and 2010, he was a member and permanent invitee to the CESR’s, CEBS’s management bodies and professional committees. From 2008 to 2009 he was one of the decisive figures in crisis management activities conducted in the banking sector. Between 2010 and 20 July 2020, he held the following offices at the OTP Group: He was initially the Chairman of the Board of Directors of CKB Bank in Montenegro, where he was in charge or the bank’s reorganisation. He was Chairman & CEO of OTP Real Estate Investment Fund Management Ltd. between 8 June 2016 and 31 August 2018. From September 2016 to 31 August 2018, he was the Chairman of the Board of Directors of OTP Fund Management Ltd. He was Chairman of the Board of Directors of OTP Real Estate Investment Fund Management Ltd. between 8 June 2016 and 20 July 2020. Between 10 September 2018 and 29 March 2019, he was Chairman of the Supervisory Board of OTP Real Estate Ltd. Between 1 September 2018 and 20 July 2020, he was the General Deputy CEO in charge of OTP Bank’s Group Governance and Operations Division. Between 29 March 2019 and 20 July 2020, he was Chairman of the Board of Directors of OTP Real Estate Ltd. Between 13 December 2019 and 20 July 2020, he was a member of the Board of Directors, and between 16 December 2019 and 20 July 2020, he was Chairman of the Board of SKB Banka in Slovenia. 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 Karl Marx University of Economic Sciences with a degree in economics. He is an economist with a specialisation in finance, and a certified 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. He has been Chairman & CEO of OTP Bank Plc. since 1992. He is Deputy Chairman of the Board of Directors of MOL Plc., Co-Chairman of the National Association of Entrepreneurs and Employers (VOSZ), and Co-Chairman of the Chinese-Hungarian Business Council. He has been Chairman of the Hungarian Football Association (MLSZ) since 2010, and a member of the UEFA Executive Committee since March 2015; has been the Deputy Chairman of the UEFA Executive Committee in 2019. Since 2017 he has been a member of the FIFA Council and the Deputy Chairman of the FIFA Council since 2018. Since 1995 he has been the Deputy Chairman of the Board of Trustees of the International Child Rescue Service, and since 2003 he has been the Chairman of the Board of Trustees of the Prima Primissima Foundation. In 2005, he established the Csányi Foundation for Children from his own assets. Since 2009, he has been a member of the Board of Trustees of the Media Union Foundation for Social Consciousness Shaping. Since 2020, he has been the chairman of the Board of Trustees of the Foundation for the University of Sopron. In 2021, he became chairman of the Board of Trustees of the Foundation for the Hungarian University of Agricultural and Life Sciences. As of 31 December 2020 he held 926,378 ordinary OTP shares (while the total number of OTP shares held by him directly and indirectly was 4,712,505). 1 The members of the Board of Directors are elected by the General Meeting for a term of five years. 336 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Tibor András Johancsik Deputy CEO IT Division György Kiss-Haypál Deputy CEO Credit Approval and Risk Management Division Antal György Kovács Deputy CEO Retail Division László Wolf Deputy CEO Commercial Banking Division Mr. Tibor András Johancsik graduated from the Budapest Technical University with a degree in electrical engineering in 1988, and then in 1993 earned a further degree in foreign trade business administration from the College of Foreign Trade. He began his professional career at as a researcher in the field of industrial automation at the Hungarian Academy of Sciences Institute for Computer Science and Control (MTA SZTAKI). From 1994 onwards he held management positions at the Hungarian subsidiaries of international IT develop- ment companies (ICL, Unisys, Cap Gemini). From 2001 he worked as an advisor in the fields of IT and organisational develop- ment, then from 2003, as managing director of JET-SOL Kft., he participated in the development of numerous systems in Hungary and abroad. Since 24 February 2016 he has been Deputy CEO in charge of OTP Bank’s IT Division. He has been Chairman of the Supervisory Board of Monicomp Zrt. since 1 April 2016. As of 31 December 2020 he held 31,055 ordinary OTP shares. Mr. György Kiss-Haypál is a qualified economist. He graduated from the Buda- pest University of Economic Sciences in 1996. He started his career as a project finance analyst for Budapest Bank Plc., and by 2007 he had been appointed head of the bank’s risk management department. Between 2002 and 2006 he also worked in Ireland as corporate credit risk portfolio manager for GE Consumer Finance, and in Austria as GE Money Bank’s consumer loans portfolio manager. From 2015 he was deputy head of the Credit Approval and Risk Management Division of OTP Bank Plc., and was then appointed acting head of the Division. Since 3 May 2017, he has been deputy CEO of the Credit Approval and Risk Manage- ment Division. As of 31 December 2020 he held 7,592 ordinary OTP shares. Mr. Antal György Kovács graduated from the Karl Marx University of Economic Sciences 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, first as a county director and from 1998 as the executive 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. Between April 2007 and April 2012 he was Chairman of the Super- visory Board of OTP banka Hrvatska d.d. He has been Chairman of the Supervisory Board of OTP Bank Romania SA since 12 December 2012. He has been Chairman of the Board of Directors of OTP Mortgage Bank Ltd. and OTP Building Society Ltd. since 24 April 2014. He is Chairman of the Supervisory Board of OTP Fund Manage- ment and OTP Mobile Kft. He was a member of OTP Bank’s Supervisory Board from 2004 to 14 April 2016. He has been a member of OTP Bank's Board of Directors since 15 April 2016. As of 31 December 2020 he held 46,651 ordinary OTP shares. Mr. László Wolf graduated from the Karl Marx 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. Member of DSK Bank’s Supervisory Board. He has been Chairman of the Board of Directors of OTP banka Srbija since 10 December 2010. He has been a member of OTP Bank's Board of Directors since 15 April 2016. As of 31 December 2020 he held 571,925 ordinary OTP shares. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Corporate governance 337 Non-executive members of the Board of Directors of OTP Bank Tamás György Erdei Deputy Chairman BSc Business Administration Mihály Baumstark BSc Agricultural Business Administration, MSc Economics Dr. Tibor Bíró College Associate Professor Mr. Mihály Baumstark graduated with a degree in agricultural business administ- ration at Gödöllő University of Agriculture (1973), and went on to do a masters in economics at the Karl Marx University of Economic Science (1981). He was employed by the Ministry of Agriculture and Food Industry between 1978 and 1989. When he left the Ministry he was deputy head of the Investment Policy Department. After this he was managing director of Hubertus Bt., and from 1999 to 2011 he was deputy CEO and then Chairman & CEO of Villányi Winery Ltd. (now Csányi Winery Ltd.). He is currently retired. He was a member of OTP Bank’s Super- visory Board from 1992 to 1999, and has been a non-executive member of OTP Bank’s Board of Directors since 1999. He has been Chairman of OTP Bank's Ethics Committee since 2010, as well as a member of its Remuneration Committee since 2011. He was the member of the Nomination Committee between 2014 and 2020. As of 31 December 2020 he held 53,200 ordinary OTP shares. Dr. Tibor Bíró graduated from the College of Finance and Accountancy (1974) and from the Karl Marx University of Economics (1978) with a degree in business administ- ration. He has been a certified auditor and chartered accountant since 1986. He was the Head of the Financial Depart- ment of the City Council of Tatabánya from 1978 to 1982. From 1982, he was a professor at the College of Finance and Accounting, and between 1990 and 2013 head of department at the Budapest Business School. Since his retirement in 2015, he has been a visiting lecturer, and working actively in his auditing and con- sulting company. From 2000 onwards, for a period of ten years, he was a member of the Presidium of the Budapest branch of the Chamber of Hungarian Auditors, and also worked as a member of the Chamber’s Education Committee for five years. He has been a non-executive member of OTP Bank’s Board of Directors since 1992. He has been a member of OTP Bank's Remuneration Committee since 2009, and he was the chairman of the Nomination Committee between 2014 and 2020. As of 31 December 2020 he held 38,600 ordinary OTP shares. Mr. Tamás György Erdei graduated in 1978 with a degree from the College of Finance and Accounting. He began his professional career at OTP, in a variety of administ- rative roles (his last position was branch manager), before going on to work at the Ministry of Finance 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 and 2011, he was the elected president of the Hungarian Banking Association. He is the chairman of the Supervisory Board of the Inter- national Children’s Safety Service. He has been a member of OTP Bank’s Board of Directors since 27 April 2012. He has been the chairman of OTP Bank's Risk Assumption and Risk Management Committee, and he was a member of the Nomination Committee between 2014 and 2020. He has been Deputy Chairman of the Board of Directors of OTP Bank Plc. since April 2019 and the Deputy Chairman of the Work-out Committee since October 2019. He has been Chairman of the Board of Directors at OTP Factoring Ltd. between since December 2019. As of 31 December 2020 he held 29,657 ordinary OTP shares. 338 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:24) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Dr. István Gresa PhD Business Administration and Economics Dr. Antal Pongrácz PhD Economics Dr. László Utassy Chairman & CEO Merkantil Bank Ltd. Dr. József Vörös Professor, academician University of Pécs Dr. László Utassy graduated from the Faculty of Law of Eötvös Loránd 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 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. He has been a member of OTP Bank's Risk Assumption and Risk Management Committee since 2014. He has been Chairman of the Board of Directors of OTP Real Estate Leasing Ltd. since 28 November 2019. As of 31 December 2020 he held 190,847 ordinary OTP shares. Dr. József Vörös earned a degree in economics from the Karl Marx 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 manage- ment 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 Economic Council of the University of Pécs. He has been a non-executive member of OTP Bank’s Board of Directors since 1992. He has been Chairman of OTP Bank's Remuneration Committee since 2009, and of its Risk Assumption and Risk Management Committee since 2014. As of 31 December 2020 he held 164,514 ordinary OTP shares. Dr. István Gresa graduated from the College of Finance and Accountancy in 1974 and received a degree in economics from the Karl Marx University of Economic Sciences in 1980. He earned a PhD from the University of Economic Sciences in 1983. He has worked in the banking sector since 1989. Between 1989 and 1993 he was branch Dr. István Gresa graduated from the College of Finance and Accountancy in 1974 and received a degree in economics from the Karl Marx University of Economic Sciences in 1980. He earned a PhD from the University of Economic Sciences 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 Direc- torate, and from 1998 he served as the managing director of the bank’s West Transdanubian Region. From 1 March 2006 until 14 April 2016 – when he retired – he was deputy CEO of the Credit Approval and Risk Management Division. He was Chairman of the Board of Directors at OTP Factoring Ltd. between 2006 and 2017. He has been a member of OTP Bank’s Board of Directors since 27 April 2012. As of 31 December 2020 he held 163,658 ordinary OTP shares. Dr. Antal Pongrácz graduated from the Karl Marx University of Economic Sciences in 1969 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, he was the first Deputy Chairman of the State Office for Youth and Sports. Between 1988 and 1990 he was the first 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 1998–1999 he served as CEO of Hungarian flagship carrier, Malév. Since 2001 he has been managing director of OTP Bank’s Staff Division and more recently – up until his retirement on 14 April 2016 – Deputy CEO. 1992–1999: Chairman of the Supervisory Board of Gemenc Zrt., 2002–2010: Chairman of the Board of Directors, 1999–2007: Chairman of the Supervisory Board of British American Tobacco (BAT), 2002–2008: Chairman of the Board of Directors of Casinos Hungary, Between 2007–2012, he was Chairman of OTP Bank Romania’s Supervisory Board. He has been Chairman of the Supervisory Board of OTP banka Hrvatska d.d. since 12 April 2012, and was Chairman of the Supervisory Board of Splitska banka from 2 May 2017 until its successful integration (on 30 November 2018). He has been a member of OTP Bank’s Board of Directors since 2002. He was Deputy Chairman of OTP Bank’s Board of Directors from 9 June 2009 to 14 April 2016. As of 31 December 2020 he held 70,000 ordinary OTP shares. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:22)(cid:21) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Corporate governance 339 Members of the Supervisory Board2 of OTP Bank Independent members: Tibor Tolnay Chairman of the Supervisory Board Dr. József Gábor Horváth Deputy Chairman of the Supervisory Board Lawyer Olivier Péqueux Chairman Groupama-Avic Property Insurance Company Ltd. Dr. Márton Gellért Vági General Secretary Hungarian Football Association Mr. Tibor Tolnay graduated from the Budapest University of Technology with a degree in civil engineering in 1978 and then in economic engineering in 1983, and subsequently received a degree in economics from the Budapest University of Economics in 1993. From 1989 to 1992, he was Director of State Construction Company No. 21. From 1992 to 1994 he was CEO, then from 1994 to 2015 he was Chairman & CEO of Magyar Építő Rt. He has been the managing director of ÉRTÉK Kft. since 1994, From 2001 to 2015, he was President of the National Association of Building Contractors. From 2018, President of the National Association of Entrepreneurs and Employers. and a member of OTP Bank's Supervisory Board since 1992, and Chairman of the same Board since 1999. He was a member and Deputy Chairman of OTP Bank’s Audit Committee between 2007 and 2011, and has been again since 2014, He has been the chairman of OTP Bank’s Nomination Committee since 2020. As of 31 December 2020 he held 54 ordinary OTP shares. Dr. József Gábor Horváth earned a degree in law from Eötvös Loránd University in Budapest in 1980. From 1983 he worked for the Hungarian State Development Bank. From 1986 he worked for the Hungarian State Development Bank. He has been a lawyer since 1986, and since 1990 has run his own law firm, which specialises in cor- porate finance and corporate governance. His main fields of expertise are corporate finance and corporate governance. He has been a member of the Supervisory Board of OTP Bank since 1995, and was a member of MOL Plc.’s Board of Directors between 1999 and 2014. He has been Deputy Chairman of OTP Bank's Super- visory Board since 2007. He was a member of OTP Bank's Audit Committee between 2007 and 2011, and has been again since 2014. He has been a member of OTP Bank’s Nomination Committee since 2020. He was a member of the Board of Directors of INA Industrija Nafte d.d. from 2014 to 2018. As of 31 December 2020 he held no ordinary OTP shares. Mr. Olivier Péqueux graduated from the Institute of Actuaries of France and Poly- technique School and ENSAE Paris Tech. He started work in 1998 as an insurance commissioner for the French Insurance Supervisory Authority. In 2003, he joined the French Ministry of Finance to take part in the reform of the pension laws and the establishment of a pension fund for French civil servants. He then became technical adviser to the French Minister of Health and Pensions. In 2005, he joined Groupama Group, first in charge of the actuary and accounting department of Gan Patrimoine, a life insurance company, and then in 2007 as Chief Financial Officer of Groupama Paris Val de Loire. He moved to China in March 2011 as deputy CEO of Groupama China, where he was in charge of finance, actuary matters and invest- ments in the joint venture between Groupama and AVIC. From 2015 to 2017, he was the CEO of Groupama AVIC. Since March 2018, he has been the Inter- national Director of Groupama Assurances Mutuelles. Since September 2020, he has been Deputy CEO of Groupama Assurances Mutuelles. He has been a member of the Supervisory Board and Audit Committee of OTP Bank since 2018. As of 31 December 2020 he held no ordinary OTP shares. 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). From 1987 to 2000 he was a member of the university faculty, in the capacity of associate professor and head of department from 1994 onwards. He holds a university doctorate and a PhD in economics. He has authored or co- authored more than 80 research papers, essays and books. 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. In various periods between 2000 and 2010, he was the Chairman of the Board of Directors of Magyar Villamos Művek, Paks Nuclear Power Plant and the National Textbook Publishing House. Between 2002 and 2010, he was a member of the Board of Directors of Földhitel és Jelzálog- bank Nyrt., and the Chairman of the Board of Directors for 4 years. Since 2010 he has been general secretary of the Hungarian Football Association. He has been a member of UEFA’s HatTrick Financial Assistance Committee since 2011. He has been a member of FIFA’s Financial Committee since 2017. He has been a member of OTP Bank Plc.’s Super- visory Board since 2011. He has been a member of OTP Bank Plc.’s Audit Committee since 2014. He has been a member of OTP Bank Plc.’s Nomination Committee since 2020. As of 31 December 2020 he held 2,000 ordinary OTP shares. 2 Supervisory Board members are elected by the General Meeting for a term of three years. 340 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:3) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Employee delegates: Klára Bella Director Corporate Directorate András Michnai Managing Director Mrs. Klára Bella graduated from the College of Finance and Accountancy and later received a degree from the Budapest University of Economic Sciences. From 1992 to 1994 she worked as a clerk at the Fertőszentmiklós branch of OTP Bank. From 1994 to 1995 she was a lending consultant at Polgári Bank. From 1995 to 1996 she worked as a risk manager at the Central Branch of OTP Bank. From 1996 to 1997 she was a credit authorizer in the Credit Approval and Risk Manage- ment Division. From 1997 to 2010 she was Deputy Executive Director at the Central Branch. From 2010 to 2016 she was Director at the Central Branch. Between 2017 and 2020, he was Director of the Corporate Directorate. Since 1 July 2020, she has been the Director of the Corporate Department of the Special Financing Directorate. She has been a member of OTP Bank’s Supervisory Board, and representative of the Bank’s employees, since 12 April 2019. As of 31 December 2020 she held 93 ordinary OTP shares. Mr. András Michnai graduated in 1981 from the College of Finance and Accounting with a degree in business administration. He has been an employee of the Bank since 1974, and until 1981 held a variety of posts in the branch network. Following this he held a management position in the central network coordination depart- ment before returning to work in the branch network. From 1994, as deputy management director, he participated in the central coordination of the branch network. Between 2005 and 2014 he headed the Bank’s Compliance Depart- ment as a managing director. He further expanded his professional skills, earning a Master’s degree at the Budapest Business School, and is a registered tax advisor. He has been a member of OTP Bank’s Supervisory Board, and representative of the Bank’s employees, since 2008. He has been Secretary of OTP Bank’s Employees’ Trade Union since December 2011. As of 31 December 2020 he held 100 ordinary OTP shares. (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:15) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Corporate governance 341 Information for Shareholders General company data Date of foundation: Registered head office 31 December 1990, registered by the of OTP Bank Plc.: Metropolitan Court of Budapest as Court H–1051 Budapest, Nádor utca 16. of Registration on 28 October 1991 under Telephone: +36 1 473 5000 company registration number 01-10-041585. Fax: +36 1 473 5955 The latest Bylaws may be requested from the company or may be downloaded from Share capital: the Bank’s website. OTP Bank’s share capital as at 31 December 2020 Legal predecessor: 280,000,010 ordinary shares of nominal value Országos Takarékpénztár, founded 1 March 1949. HUF 100 each. was HUF 28,000,001,000, consisting of Ownership structure of OTP Bank Plc. as at 31 December 2020: Description of owner Total equity Domestic institution/company Foreign institution/company Domestic individual Foreign individual Employees, senior officers Treasury shares2 Government held owner International Development Institutions Other3 Total 1 January 2020 31 December 2020 Ownership share 18.84% 77.01% 2.98% 0.13% 0.80% 0.12% 0.08% 0.04% 0.00% 100.00% Voting 1 rights 18.86% 77.10% 2.98% 0.13% 0.80% 0.00% 0.08% 0.04% 0.00% 100.00% Quantity 52,750,611 215,635,699 8,344,202 356,377 2,240,465 323,520 219,372 122,218 7,546 280,000,010 Ownership share 20.93% 71.60% 4.79% 0.11% 0.85% 1.55% 0.08% 0.04% 0.04% 100.00% Voting 1 rights 21.26% 72.73% 4.87% 0.12% 0.87% 0.00% 0.08% 0.04% 0.04% 100.00% Quantity 58,605,628 200,480,153 13,424,090 319,346 2,393,390 4,334,140 219,800 108,981 114,482 280,000,010 Stock exchange listing bank for OTP GDRs is the Bank of New York, and the safekeeping bank is OTP Bank Plc. The ordinary shares of OTP Bank Plc. are (Stock exchange symbol for OTP Bank shares: listed on the Budapest Stock Exchange under OTP, Reuters: OTP.BU) 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) Participation and voting rights at the Annual General Meeting Regulation S GDRs are traded on the London According to the current situation due SEAQ International, and Rule 144A GDRs are to the virus epidemic, on 22 February 2021 traded in the PORTAL system. The custodian the Parliament passed Act I of 2021 on 1 Voting rights in the General Meeting of the Issuer for participation in decision-making. 2 Treasury shares do not include the OTP shares held by ESOP (OTP Bank Employee Stock Ownership Plan Organization). Pursuant to Act V of 2013 on the Civil Code, OTP shares held by the ESOP are not classified as treasury shares, but the ESOP must be consolidated in accordance with IFRS 10 Consolidated Financial Statements standard. On 31 December 2020 ESOP owned 5,097,255 OTP shares. 3 Non-identified shareholders according to the shareholders’ registry. 342 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:2) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) the prevention of the coronavirus pandemic, of the general meeting convened pursuant which extends the validity of Government to Section 9 (7), if it is not subsequently Decree no. 502/2020 (XI. 16.) on the approved by the general meeting. re-introduction of various provisions on the b) Pursuant to Section 9 (6) of the Government operation of personal and property pooling Decree, the convening of the general organizations in the event of a State of meeting may be initiated pursuant to Danger (hereinafter: Government Decree) Section 9 (7) for the purpose of subsequent until 22 May 2021. Pursuant to Section 9 of approval of the decision on the financial the Government Decree, during its force, a statements and the use of the after tax general meeting with personal attendance profit, with the exception that shareholders may not be held at a public limited company. have the right to convene the general Pursuant to Section 9 of the Government meeting within 30 days of the publication of Decree, the management (Board of Directors) the decision of the management on of a public limited company may decide the financial statements and the use of on all issues on the published agenda, the after tax profit. Failure to meet this including amendments to the Articles of deadline, including if the shareholder's Association, as well as on matters specified application is not received by the public in the Government Decree according to which limited company by the last day of the the Board of Directors are entitled to pass deadline, will result in forfeiture. In case resolutions in the competency of the General of initiating the convening of the general Meeting. According to the above, the Board meeting, the announcement of the general of Directors shall decide acting within meeting shall be published within 45 days the competency of the General Meeting after the termination of the state of danger, on the agendas of the General Meeting on if the state of danger has already ceased 16 April 2021 (Friday). upon receipt of the shareholder's request, within 45 days of receiving the shareholder's The Board of Directors shall publish the request. resolutions brought within the competency c) Pursuant to Section 9 (7) of the Government of the General Meeting immediately, but Decree, within 30 days after the termination not later than within one working day, of the state of danger, shareholders holding in accordance with the Articles of Association at least 1% of the votes may request the of the Company on the website of the convening of the general meeting for the Company (www.otpbank.hu), on the website subsequent approval of resolutions, on of the Budapest Stock Exchange (BSE) agendas not mentioned in Section 9 (5), of (www.bet.hu), and on the website operated the management acting in the competency by the National Bank of Hungary of the general meeting during the state (www.kozzetetelek.hu). of danger. The right to convene a general meeting shall be vested to shareholders The Company informs its Shareholders that who are included in the share register a) Pursuant to Section 9 (4) of the Government of the public limited company on the Decree, if the shareholders request the basis of the shareholder identification convening of the general meeting in procedure requested and carried out in accordance with Section 9 (7) of the connection with the general meeting Government Decree, for the subsequent originally announced or published under approval of the amendment of the articles this Government Decree. The provisions of association pursuant to Section 9 (2) on registration in the share register of the Board of Directors, the amendment prior to the general meeting shall apply of the articles of association shall cease to the shareholder identification procedure to be valid on the day following the date and registration in the share register Corporate governance 343 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:22) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) carried out pursuant to the announcement. at the earliest, on the working day following The announcement to the general meeting the closure of the decisions of the Board of shall be published within 45 days of the Directors acting in the competency of the receipt of the shareholder's request within Annual General Meeting. the forfeiture period. Only persons whose names are registered in d) Pursuant to Section 9 (8) of the Government the Share Register at the time of its closure Decree, if the period between the are entitled to exercise shareholder rights. termination of the state of danger and The closure of the Share Register will not limit 1 April of the following calendar year is less the right of any person registered in the Share than 180 days, the convening of the general Register in respect of the transfer of his/her meeting according to Section 9 (6) and shares following the closure of the Share Section 9 (7)is not possible, however, the Register. Any transfer of shares prior to the approval of the resolutions of the general initial day of the Annual General Meeting shall meeting passed by the management of the not preclude the right of a person registered company during the state of danger may in the Share Register to exercise the rights as be put on the agenda at the next general Government Decree to which he/she is entitled meeting. as a shareholder. The Company requests the KELER Central Depository Private Company Limited by Announcements Shares (hereinafter: KELER Ltd.) to perform shareholder identification for the date of the OTP Bank Plc. fulfils its disclosure obligations decision of Board of Directors acting in the related to corporate events and prescribed competency of the General Meeting, as a in Act CXX of 2001 on the website of the corporate event. The date of the shareholder OTP Bank Plc. (www.otpbank.hu), on the identification is 9 April 2021 (Friday). website of the Budapest Stock Exchange The rules pertaining to the shareholder (www.bet.hu), and on the website operated identification process are set out in the latest by the National Bank of Hungary effective regulations of KELER Ltd. (www.kozzetetelek.hu). The Company, at 18:00 Budapest time on the second working day before the decision Investor relations of the Board of Directors acting in the competency of the Annual General Meeting, Institutional shareholders of OTP Bank Plc. shall delete all the data in the Share Register, should contact the following address if they and concurrently with this it shall register require further information: the results of the shareholder identification OTP Bank Plc. Investor Relations & DCM process in the Share Register, and shall H–1051 Budapest, Nádor utca 16. close it with the results of the shareholder Telephone: +36 1 473 5460 identification. After this any entry related to a Fax: +36 1 473 5951 shareholder’s shareholding may only be made, Email: investor.relations@otpbank.hu 344 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:19) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Anti-money laundering measures Money laundering is any act or attempted act banking or financial transactions that might by criminals or other persons to conceal or enable, or in themselves constitute, money disguise the identity of obtained proceeds of laundering. criminal offences so that they appear to have (cid:588) It has internal regulations, in accordance originated from legitimate sources, for which with the Anti-money Laundering Act, MNB they may try using the services of financial Decree 26/2020. (VIII. 25.) and NGM Decree institutions. 21/2017. (VIII. 3.) (cid:588) The employees of the bank must fulfil their In order to prevent the use of our bank for customer due diligence and reporting money-laundering purposes, we do our best obligations. to ascertain the true identities of those who (cid:588) Compliance with the reporting obligations would use our services and the rationale is not construed as a breach of bank, of using the services. OTP Bank establishes securities, insurance or business secrets. business relationship only with those clients (cid:588) Failure to fulfil the reporting obligation may who give evidence of their true identities in result in prosecution under criminal law. accordance with the relevant legal provisions. (cid:588) OTP Bank cooperates with the criminal investigation authorities in the investigation In keeping with the provisions of Act LIII of 2017 of all circumstances suggestive of money on the Prevention and Combating of Money laundering. Laundering and Terrorist Financing OTP Bank has introduced, and applies, the following OTP Bank discloses the customer identification measures and rules: procedure applied by the bank and the related (cid:588) It operates an internal control and data processing in an Announcement posted information system designed to prevent in all rooms open for serving customers. With trust and responsibility for each other Corporate social responsibility In 2020, OTP Bank gave a total of educational institutions and disadvantaged HUF 3.704 billion in charitable donations families. Through the Humanitás Social for empowerment and community building. Foundation, OTP Bank provided HUF 1.7 billion Dealing with the difficulties of the pandemic in donations to health care institutions, was a priority for us; in a challenging period, supporting several hospitals, including we helped those who were our first line hospitals in the most disadvantaged areas of defense, as well as those who were already of the country, with medical devices and in a very difficult situation: healthcare and 20 ventilators. Corporate governance 345 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:23) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) As one of Hungary's primary donors, our bank a school context. Four age-specific outdoor channels its charitable donations mainly training programmes, each two hours long, through its own foundations, contributing to were developed to meet the needs of schools. empowerment (Humanitás Social Foundation) During the year, the Centre also ran a regional and education (OTP Fáy András Foundation). educational programme as well as summer The Príma Primissima Foundation has in camps, and also developed adult educational particular donated to 10 organizations that materials. In order to shape social attitudes have been disadvantaged by the extraordinary and raise awareness, three short films were circumstances that have arisen from the broadcast 800 times on national commercial pandemic. In order to ensure the efficient and channels; these films touched on the subjects effective use of our resources, our bank has of self-care, digital banking solutions and also continued its cooperation with several consumer empowerment. The refurbishment local NGOs and major strategic partners. of the OK Educational and Innovation Centre was completed, ensuring that the Foundation can deliver its educational programmes at Developing financial literacy even greater capacities and relying on an even more modern infrastructure. OTP Bank remains committed to improving financial literacy, which remains the focal In addition to its charitable donations, the bank point of its social responsibility schemes. believes in the importance of shaping social In 2019, it spent a total of HUF 950 million attitudes; in 2020, it highlighted the problems on education, which was more than half of of overconsumption. Our aim with the short its total charitable donations. The activities film Keep it in the Family! was also to improve of the Foundation in 2020 were determined financial literacy and shape attitudes; in this mostly by the coronavirus pandemic and the film, two sets of parents and children spoke refurbishment of the educational centre in about money and their relationship with it. Budapest, which had been started in 2019. The video is available online and has been Digital Training modules developed joined the “Élj maradéktalanul!” campaign in-house, using a unique methodology of the Hungarian Food Bank Association, which The OTP Fáy András Foundation’s OK encourages reducing food waste. viewed more than 400,000 times. We also Education Centre has been playing an active role in the development of young people’s financial, economic and management Empowerment skills, also offering career advice in 2020. Replacing in-person classroom training In addition to improving public financial – due to the pandemic, only 2,212 persons literacy, empowerment continues to be a focal were in attendance – emphasis shifted to point of OTP Bank’s CSR endeavours. As part digital education programmes. The Fáy digital of its socially responsible activities, OTP Bank educational programme was created for supports valuable initiatives, encourages its students from Years 5 through 12 and consists employees to volunteer, and is ready to stand ofes live presentations, online videos, e-learning by private individuals who strive to serve materials and a game application. By the end noble causes, thus highlighting social issues. of the year, the learning materials that had been produced during the year were used Volunteering – OTP Local Value by 2,000 students, while the games app Volunteering has been a tradition at our bank (Platypus: A Finlit Story) had over 30 thousand for over ten years. Our employees work with downloads. The app is available without any local communities to help those in need; limitations and free of charge even outside they can apply for funding to the programme 346 OTP Bank Annual Report 2020 (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:18) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) twice a year. In addition to the programmes and persons, in a tender system. In 2020, implemented through application funding, focused donations to hospitals were its most they have also organised volunteering events, significant activity. with over 2,000 employees taking part. The Foundation's traditional programmes In addition to local employee initiatives, our and activities continued last year. With the Bank also joined the Jótett Bank sector-wide Bank’s financial support, the Foundation was joint volunteer program announced by the able to donate 265 PCs and computer screens Hungarian Banking Association, in the frame- in 2020 to schools, hospitals, children’s homes, work of which the members of the organization institutions serving the disabled, and hospitals. cooperate in various socially beneficial activities. Employees of OTP Bank took part in Blood Play for Prevention Donors Week, a joint initiative of the Hungarian OTP Bank has been a sponsor of the “Play for Banking Association, member organizations, Prevention” programme of the Hungarian the National Blood Supply Service and the Charity Service of the Order of Malta since Hungarian Red Cross. At the initiative of the 2011. Over the past years, the programme Banking Association’s Digital Accelerator, reached out to almost 25,000 children in 825 our bank has helped educational, social and of Hungary’s “most disadvantaged” small health care institutions and individuals by communities. In the Christmas seasons over offering digital devices for remote education. the last 8 years, our bank donated a total of HUF 250 million to support this initiative, Humanitás Social Foundation using the five mobile playgrounds (minibuses) The Foundation’s main objective is to support received from OTP Bank to bring the experience those in need due to social conditions or of play to children. This is important because health problems, by providing funding for most children from an underprivileged the purchase of medicines, medical aids and background are unable to bridge the gap treatments. In accordance with the principle on their own. of equal opportunity, the Foundation – in cooperation with its founder OTP Bank – Through the Charity Service, we offered regularly publishes calls for applications on additional donations and computers to its website, where private individuals can disadvantaged families’ children to enable apply for the Foundation’s grants. their participation in remote schooling. By concentrating on healthcare and education, For more information about OTP Bank’s the Humanitás Social Foundation provides CSR principles, objectives and current events, support for disadvantaged communities please visit www.otpfenntarthatosag.hu (cid:2)(cid:3)(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:4)(cid:10)(cid:11)(cid:12)(cid:13)(cid:6)(cid:14)(cid:14)(cid:4)(cid:4)(cid:4)(cid:22)(cid:19)(cid:16) (cid:15)(cid:16)(cid:17)(cid:3)(cid:18)(cid:17)(cid:2)(cid:15)(cid:4)(cid:4)(cid:4)(cid:15)(cid:19)(cid:20)(cid:22)(cid:15) Corporate governance 347 Publisher: OTP Bank Plc. Responsible: Investor Relations & DCM Cover Design: László Lelkes Pre-press, production: OTP Bank Plc. 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