Good morning, or good afternoon, depending where you are. I'm László Bencsik speaking, and welcome you to OTP Group's 2025 First Quarter Results Conference Call Presentation and Q&A. I'd like to mention, first of all, that this conference and the whole session will be recorded, so in case you intend to speak, please take that into consideration. First of all, I have the honor and the privilege to introduce Mr. Péter Csányi, who is our new Chief Executive Officer. Péter is not at all new to the organization. He joined OTP Hungary in 2016, so nine years ago. First, he was the Managing Director responsible for digital sales and digital development in general, and then became the head of the Omnichannel Tribe and the head of the Daily Banking Tribe.
In 2021, he became the head of the Digital Division and Deputy CEO, and also a member of the Board of Directors of the group. He also, for the last two years, has been chairman of the newly created Executive Steering Committee, which technically served as the kind of operative de facto operational leadership committee or leading committee of the group. He has been practically in this current role for two years now. Therefore, he is very well known and very, very respected within the organization, professionally and personally as well. Everyone I know has been quite happy to welcome him in this new position.
Before joining OTP, he had had a long and successful career as a management consultant and as an investment banker at McKinsey & Company, serving financial institutions primarily in the Central Eastern European region, and also in Deutsche Bank and Merrill Lynch in the city of London as an investment banker. He has a background in economics and management. He has an MBA from Kellogg School of Management, a master's degree in financial management from Instituto de Empresa, and a bachelor in economics from City University London. I strongly believe that with Peter as CEO and Mr. Csányi continuing in the executive, in the kind of executive chairman position, it is fully assured that we can continue on this successful path, what OTP Group has achieved during the last three years, pretty much, but also creates an opportunity to renew and further improve whatever we do.
With this intro, I'd like to give the floor to Péter Csányi. Please welcome him.
Thank you very much, László, and I welcome all of you to the 2025 Q1 Conference. I would like to briefly talk a little bit about the division of responsibilities between the chairman role and the CEO role, to begin with. First of all, what is important to mention, as László already highlighted, is that the chairman will remain in a full-time active chairman role. He will continue to be, obviously, chairman of the Board of Directors, and he will continue to head the management committee of the group. Regarding strategic decisions, for example, acquisitions or capital decisions, risk governance, risk framework, risk appetite decisions, it is still the chairman and, obviously, the Board of Directors that will make the final decisions on the strategic directions in this regard.
He will continue to appoint members of the management committee, so the Deputy CEOs of the group, the retail division, corporate division, risk finance divisions, and he will continue to appoint the subsidiary CEOs, both in Hungary and in the subsidiaries, in the foreign subsidiaries, and he will continue to appoint the heads of the supervisory boards or board of directors, depending on the relevant jurisdiction of the foreign subsidiaries. Myself, as CEO, I will manage the operational day-to-day activities of the group. As László mentioned, we have formed the Executive Steering Committee about a year and a half, almost two years ago. It has worked well until now, and I strongly believe that we have a better cooperation between the different business units and the enabler functions within the bank for managing the day-to-day operative decisions.
Previous roles that have reported directly to the Chairman in a CEO position will report to me. So marketing, HR, compliance, legal and internal audit, and bank security will report directly to me. Obviously, what is required by regulation to be reported to either the Board of Directors or the Supervisory Board will continue to report to these relevant bodies. I strongly believe that this setup will provide a sort of continuity, but at the same time, a renewal for the group. What we see is that, or what should be highlighted, is that this is effectively an increased management capacity for the governance of the group.
Me being a full-time CEO, I believe, as I mentioned, leads to a stronger cooperation between the departments and also between the subsidiaries that will eventually also allow us to make faster decisions and become more flexible as a management team to react to any regulatory changes, any market changes in the marketplace, and will provide us with a strong foundation for being able to react fast on the market. If we look at the strategy of the last period, we still believe that the strategy has been a successful strategy. We have grown our loan book more than four times in the last 10 years. We have a strong growth in the net income of the bank.
In a very good way, we have both exploited the organic growth opportunities that are available on our markets, which are generally, obviously, because of our geographic footprint, higher growth markets than that of more developed countries in the Eurozone, generally in Western Europe. We have done, obviously, a number of acquisitions that we have been able to integrate well in the last few years. We still believe that the focus should remain on growth, but at the same time, continue our efforts to provide or to achieve superior profitability, especially compared to our peer group, and do this in a conservative way with regards to business and risk policy, and also maintain a relatively strong capital and liquidity position among our peer group. These four pillars of the strategy will remain unchanged.
As I mentioned to you previously, the board of directors has the ability to determine the strategy in the final say. We will continue a strong focus on these three pillars. At the same time, obviously, this does not mean that we cannot look for areas where we can improve the performance, and we will be looking at four categories of initiatives where we will focus on in the next years to continue to improve our performance. Client experience, obviously, we have new entrants, new competitors in the market. We need to enhance our experience and our service offering to a certain extent in order to still be relevant in the marketplace in the long term.
We will be looking at especially our digital offering, not just our digital sales capabilities, but also how we can service our customers through the digital channels in a better way, and also expand into potentially beyond banking products where we have not yet expanded. Obviously, we actively monitor where we have already entered, for example, e-commerce, real estate, and healthcare service offerings. We will be looking to grow those businesses and also better integrating them into our offering. Secondly, cost efficiency. We are looking at further improving our cost efficiency ratio, not just separately in the subsidiaries, but also on a group level. We will be looking at how we can, after successfully integrating or being through a period of integrations, utilize group synergies in not just IT, but in other areas as well.
Obviously, part of this can come from utilizing new technologies, which can serve as a good tool for improving efficiency, as we have already started introducing AI tools in customer service and digital sales, for example. A few years ago, already started robotic process automation throughout the bank. We will continue to put a strong emphasis on further expanding on this potential. Lastly, as a sort of enabler to all of the above, how we can do this in a much more flexible and efficient way. Those who are closely following the bank obviously know that we have started the agile transformation already back in 2018, 2019, have gone through a number of waves, not just in Hungary, but a number of subsidiaries. We are constantly looking at how we can have a corporate structure which is both efficient and being, at the same time, flexible.
In a nutshell, we believe the strategy is successful. We will continue on these three pillars shown on this page, but that does not mean that we do not need to fine-tune and be able to improve on certain areas. In the recent past, we have also appointed several new management members in key areas. Obviously, my successor as the head of the digital division, let me start with him. András Sebők has overall 14 years of operational banking experience at a smaller Hungarian bank. In the last eight years, he has been with McKinsey on different banking IT consulting projects. I believe his experience brings the best in both worlds. Operational banking experience obviously gives him hands-on experience on what works and how to manage a banking IT team.
On the other hand, given his consulting background all across Europe with McKinsey, it gives him a good experience on what works best in the different banks, in the different jurisdictions, and can bring in a wealth of best practices from the industry. Secondly, Péter Juhász will be the new Head of Marketing and Communication. He joins us from mainly telecom companies and also several FMCG experience. He will play, I believe, a pivotal role for us in order to enhance our brand, make it more innovative, and much more useful, which we believe is needed given especially the changing competitive landscape. Lastly, András Hámori, who just recently joined us as the CEO of OTP Bank Slovenia, CEO candidate to be exact, because it is still subject to receiving the necessary approvals. He is a very seasoned banking executive with strong digital transformation skills.
He got mainly from two places I would highlight, among others, ING Australia, which is a digital-only bank, a large bank in Australia, where he was heading retail banking. Earlier in his career, he was in charge of Zuno, the digital bank of RBI. Obviously, he will be supporting us strongly on a digital-based Eurozone-oriented organic growth platform. We expect his experience to also benefit us, not just in Slovenia, but generally across the whole group. This is, in a nutshell, what I would wanted to explain in the beginning. The new setup between the chairman and the CEO position, the strategy, and how we can improve further, and regarding new hires. With that, I would turn on to sort of the results of OTP Group. This is the standard page, which I'm sure is not new to you.
We generally include it in the conference call presentation, sort of overview of the different aspects of our performance. We continue, obviously, to keep our dominant position in Central Eastern European countries. We have top one or two positions in five of the countries that we are present in. As I mentioned earlier, over the last 10 years, through 14 acquisitions, we have grown our loan book over four times. By now, 75% of our loan book is within the EU, and 43% of the loans are in Eurozone or ERM2 countries. Our profitability remains excellent, in my opinion, after a 23.5% return on equity for the full year in 2024. Our first quarter return on equity in 2025 would have reached 23.7% if the negative items that are booked in one lump sum for the whole year had been recognized evenly.
I will talk about this in a bit more detail at a later stage. Strong portfolio quality, 38 basis points credit risk cost in 2024, and just slightly increasing to 40 basis points in the first quarter of 2025. Our stage three ratio declined further throughout the previous years. We continue to have a stable capital position, 18% CET1, 26.8% MREL, and our leverage ratio is at 10.3%. Finally, a strong and stable liquidity position, 73% net loan-to-deposit ratio, and liquidity coverage at 238%. We still remain committed and further grow our green portfolio and our general commitment to ESG. Diving a little bit into the actual 2025 profit after Q1 profit after tax.
As I mentioned, Q1 profit after tax has been very much influenced by having to recognize in one lump sum the full annual amount of the Hungarian special taxes, including the windfall tax and other supervisory charges. If we adjust for this and evenly distribute it across the four quarters, our Q1 profit after tax would have been HUF 299 billion. If we compare it with the same adjustment to the 2024 first quarter results, it leads to an increase of 4% overall on a quarterly comparison between the first quarter of last year. Reported return on equity is 14.9% for Q1 this year. As I mentioned earlier, had we looked at these adjustments that I mentioned previously, it would have been 23.7%. Relatively flat net interest margin, slightly improving cost-to-income ratio, and a practically flat credit risk cost rate throughout the group.
As I mentioned, our adjusted profit after tax, should we have evened out the distribution of special taxes throughout the four quarters of this year, would have been HUF 299 million. Special taxes relating to the rest of the year and the supervisory charges amounted to HUF 97 billion and HUF 13 billion, respectively. Obviously, these had an effect on the return on equity that you can see on the right-hand side of the page and the cost income ratio. Both of them, obviously, a positive impact if we adjust for these two effects. If we deep dive a little bit into Hungary in the next couple of pages, we see that obviously the first quarter 2025 reported profit after tax is negative HUF 32 billion, which results in a negative return on equity.
We have a slightly increasing net interest margin, which is a very positive sign for us. We have a relatively flat, slightly decreasing cost-to-income ratio, and our credit risk cost rate is still relatively flat, practically 13 basis points. Obviously, you see a little bit of a detail here on the different levies that the Hungarian state is imposing on the group. I believe what is important to mention is that since the last quarterly conference call, the government has announced the extension of the extra profit tax for 2026. We will continue to bear a burden. To the exact extent, we are not exactly sure yet. I am sure it will receive more detail in the upcoming quarters. That is obviously negative news for us.
I think what's also important to mention on this page is that, as you can see on the right-hand chart on the bottom, that we booked HUF 94 billion for the windfall tax. Overall, for the year, we expect HUF 54 billion windfall tax. The reason why we booked more is because of the way how we have to book this. In essence, we have to book the full extent of the windfall tax. Throughout the following quarters of 2025, if we increase the stock of government securities required, then we can decrease, basically receive back, the paid-in tax in the first quarter. Practically, in the following quarters, the windfall tax will, if we increase the government securities stock, be a positive effect, not a negative effect on the quarterly results. We look at different business lines in Hungary.
In retail, we see a very good trend in retail mortgage loans, 19% increase in the first quarter in the contractual amounts. Our market share is slightly decreasing, but that is a conscious decision as we do not want to engage in certain pricing competition. We have a very strong market share in the, as always, in the subsidized loans. If we look at the cash loans also, very strong growth, 43% growth in contractual amounts, and 43.5% market share in the first quarter, which is a continuation of our strong market share performance that we have seen in the last three years. In terms of retail savings and retail deposits, we see very good trends. Relatively large stock of high coupon government bonds have been expiring in the first quarter and/or have switched to lower coupon payments going forward.
Retail obviously had a positive impact on the savings market share. We also see a strong pickup in the retail deposits. I believe this is a very good indication that we have a good offering on the market. In terms of corporate, our corporate loan volume is rather stagnant. We still have not seen a general pickup in the corporate segment, mainly attributable to the current macroeconomic landscape. In the GDP, we have seen a very sharp decline in investments. We have yet to see the turnaround in the corporate segment. Still, our market share is very stable, 19.8%. In the corporate segment also, we have a very strong market share in the subsidized government subsidized products. Switching to the foreign subsidiaries, overall, a very strong, continued strong contribution to group results.
We see good ROEs, relatively good ROEs in both the small markets and the larger markets. Within the EU markets, so the top three, around 10-19% return on equity for the first quarter of 2025. Obviously, higher return on equity outside the EU, as expected, obviously, different risk profile, different expectations on return. As I mentioned, overall, good evolution of the cost-to-income ratio, which on a group level has improved in the first quarter of 2025. If we dig a little bit deeper on the drivers behind the group performance, net interest margin has practically remained flat on a quarter-over-quarter basis. On a year-over-year basis, very strong contribution from Hungary. Our sensitivity, our euro sensitivity has decreased from EUR 190 million back in the first quarter in 2023 to EUR 105 million at the end of Q1 2025.
Should a 100 basis point decline in euro rates occur, this is in our view manageable. On the half sensitivity, practically at 6.5% base rate, practically insignificant sensitivity. Obviously, it was a different case when the base rate was 18% for a while. Regarding volume growth, in terms of performing loans, 3% increase quarter-over-quarter effects adjusted, balanced composition among all of the retail and corporate lines. I would highlight Ukraine, 14% growth in consumer lending. This is, again, a strong growth following the good performance from last year. Also in deposits, 3% growth. As I already talked about, significant growth in Hungary, 7%, both a strong performance from retail and corporate. Overall, this has allowed us to keep our loan-to-deposit ratio at 73%. In terms of portfolio quality, our stage three ratio decreased further to 3.5%, even without Russia, Ukraine, and Uzbekistan. It is a decreasing trend.
If we look at our coverage ratios, we have a conservative approach, and we still have a significantly higher coverage ratio than most of our peers. This is not just because of Russia, Ukraine, Uzbekistan. As you can see, even without these countries, it is higher compared to our regional peers at the end of the first quarter this year. Turning to capital, our Common Equity Tier 1 ratio in the first quarter of 2025 decreased to 18%. Our capital adequacy ratio is standing at 20%, MREL ratio at 26.8%. The decrease in the Common Equity Tier 1 ratio was mainly attributed to the introduction of Basel IV regulations as of the 1st of January. On the right-hand side of the page, you can see the breakdown impacted Common Equity Tier 1 ratio by 86 basis points.
Negatively, the good news obviously is that most of the majority, practically all of the effect for this year has already been booked in the first quarter of this year. We do not expect to see such an extent of negative effect due to Basel IV in the upcoming quarters. This also obviously includes the HUF 43 billion dividend deduction that the AGM has approved a couple of weeks ago. If we look a little bit at the decomposition, as I mentioned, our ratio is standing at 18%. It includes, if we look at it on a fully loaded basis, one should take into account two additional factors. One is the phasing out of previous COVID capital release, which were provided during the COVID pandemic, and also the effect of the HUF 150 billion share buyback that we announced in the second quarter of 2025.
If we look at it on a loaded basis, the quarter-year-one ratio is 17.2%. Compared to the benchmarks, to the peers, yes, it is somewhat on the conservative side. We do have a bit of reserve, but it's not, in our view, excessive when especially comparing to the benchmarks on a tier-one ratio level. If we look at the leverage ratio, 10.3% in Hungary is higher than for the peers. Obviously, this is due to a more conservative approach by the Hungarian Central Bank and more stringent regulations that we have to abide. Obviously, we have no AT1 capital, and our tier two is not fully utilized. We view this full utilization of tier two and the potential issuance of AT1 as potential reserves for strategic acquisitions. We are not sort of putting any additional reserves on top for acquisitions.
Obviously, our goal for the tier two is to have it fully utilized, and we still have significant room potentially in AT1 issuance if we find a potential acquisition opportunity where we have a good market potential. We have a favorable market to enter or a favorable market where we would like to expand and we find a target which is healthy and a price point at which a deal would make sense. Regarding our liquidity position, as I mentioned previously, 73% loan-to-deposit ratio, our liquidity coverage is at 238%. Compared to the last conference call, there have been no new issuances of bonds. However, positive news should we want to issue bonds is that S&P Standard and Poor's upgraded our credit rating and is currently actually one notch above the Hungarian sovereign rating, which we view obviously as positive news.
You can see on the right-hand side of this page, on the top, our Emerald call date and maturity profile is manageable in 2026 and further years, especially given our current profit-generating capabilities. To close off, as usual, with the management guidance, we do not see a reason at this moment to change our 2025 group guidance. Our loan growth volume could be slightly above 9% in 2024. Based on our first quarter results, we still believe this is achievable. Our net interest margin could be similar to the levels in 2024. Our cost income may be higher, but not much, than in 2024. Our risk profile will be similar, and our return on equity may be somewhat lower given the expected decrease in leverage. Based on the first quarter results in 2025, we reaffirm this guidance for the full year.
Obviously, the AGM approved, as I mentioned earlier, HUF 270 billion dividend payment in April. We have also received the approval from the central bank for an additional HUF 150 billion of treasury share buyback until the end of this year. At this stage, we still do not consider treasury shares to be a significant share within the company, so we will make a decision later on in what sequence and to what amount we would like to use this permission that was granted to us. That was my presentation on the performance and the guidance for 2025. I am planning to go to London next week. We are doing a non-deal roadshow, which is being arranged by JP Morgan. Both in-person format and also our scheduled calls are taking place with investors from the U.S. and other countries.
There will be a fireside chat and dinner with analysts on the 15th of May. Anyone who would like to join and actually meet me in person, meet us in person, please contact the people displayed on this page. In general, I would like to host result presentations once a year. They'll probably be the full year results presentations that are in March. Going forward, I will myself personally take part in at least one or two roadshows during the year. Obviously, if there's any extraordinary circumstances, I am here. For the rest of the results presentations and roadshows, László will continue to take the lead and be the key point of contact for investor and analyst presentations.
With that, thank you for your attention, and I would like to hand over to the Q&A, and we are happy to answer all your questions with László.
Thank you, ladies and gentlemen. We will now begin our question and answer session. If you have a question for our speaker, please click on the raise hand icon or press star nine on your phone's dial pad. The first question is from Martin Nemes, UBS.
Yes. Good afternoon, and thank you for the presentation. Péter, congratulations to the appointment, and thank you for presenting the results. I have a couple of questions, please. The first one is on the next five years. If you could just share qualitatively and quantitatively, what would you consider a successful tenure in, say, five years' time? How would you assess that? The second question would be on cost efficiency.
You clearly highlighted that as a potential focus area of improvement. You also mentioned there's hope to improve group synergies beyond technology and IT. Are you referring to central support functions here like HR, finance, ops? Can you give us a sense of the magnitude of the improvement opportunity on this front? The last question would be on inorganic growth and M&A. I think you alluded to that in the presentation as well. Can you update us on your latest thoughts on M&A? Where do you see opportunities? If you could specifically comment on any interest in Poland, how do you assess the opportunity in the country? Thank you.
Thank you. Thank you for congratulating me, László. Next five years and sort of financial performance KPIs. If you follow, obviously, closely OTP Bank, we generally don't give guidance, long-term guidance on key metrics.
Obviously, that does not mean that internally or I myself do not have ambitions in this regard. Obviously, this is why we are actively looking at improving our cost efficiency, improving our operational structure, our governance structure. Typically, beyond the yearly guidance that we give, we try to avoid giving longer-term guidance. The environment that we are operating in, the geopolitical environment, the macroeconomic uncertainties, I do not think would warrant any kind of strong dependence on such KPIs. Our approach has been always to remain conservative, be rather prepared for any uncertainty, and be able to manage it swiftly. I would not go into guidance for the five years.
Obviously, as I mentioned in the beginning, the three pillars: growth, profitability, and stability will remain a core part of the strategy, and I would like to see, obviously, in growth, still strong growth in the long term, at least keep our profitability, if possible, at the current levels and operate with the same kind of stability regarding capital and liquidity position. Cost efficiency, group synergies, yes, obviously. What is kind of already ongoing, right? IT synergies, we have ongoing initiatives. For example, core banking replacement, core banking being obviously a significant cost and a significant project for a group. We are utilizing, we are implementing the same system in Hungary and in Bulgaria. We have a number of ongoing group projects in internal procedures, processes, especially in lending origination, CRM, and certain, obviously, basic operational, organizational operational tools that are common across the group already.
We continue to do this. Obviously, what your question referred to is outside of IT, what we are looking at could be potentially operational services which we provide throughout the group. I generally try not just to focus on IT, but, for example, common product development, having a common product in different countries, for example. I very much go outside IT and see if there are any synergies in other areas. We will continue to look at these. The exact magnitude, I mean, we look at it on a project-on-project basis, as with most of the projects. We look at it on an MPV level. I would not go as far as to say a magnitude because the actual performance of the bank in the end is determined by a lot of factors, not just on the actual achieved synergies in terms of cost. M&A activity.
We have been closely looking at Poland for a number of years. We have looked at several banks closely within Poland over the several years. I believe we are quite familiar with the Polish or quite know the sort of opportunities in the Polish market, but we also see the risks in the Polish market, that mainly being, obviously, the foreign exchange mortgage loans, which have still not allowed us to be fully comfortable with the Polish market in terms of entering. Otherwise, we see the Polish market as an attractive market. It is a large market, very developed banks, digitally very developed banks as well. Would there be a good opportunity? We would definitely consider it if the risks would be properly mitigatable in the short run. Should we find something which is at a reasonable price point?
At the moment, Polish banks are relatively expensive at around two or even higher price to book value. Just with other markets, obviously, we are looking, we are opportunistic, and we will look at any market which has a high growth potential. It is generally a market where we see potential, not just new markets. We will also consider acquisitions in markets where we are already present in, and we can grow further. This is helpful. Thank you very much. Thank you.
The next question is from Gábor Kemény, Autonomous Research.
Oh, hi, Peter. Pleasure to be talking to you. Firstly, maybe on your agenda and related to the business initiatives, I mean, just given OTP's franchise, your market positions, we normally think about a bank of your caliber as being on the offense. Do you see areas where OTP might be on the defense?
I mean, thinking about digital disruption, how you react to that, regulatory headwinds, or any other areas you would like to highlight to us. My second question would be on capital. Shall we interpret it as this 17%-ish CET1 ratio? Do you view yourself here as having excess capital, or is this the level where you would like to be, roughly? Let's say you assume that you would finance, you would be able to finance acquisitions through future profit generation, AT1 issuance, tier 2 issuance. Is this how we should think about it? Just finally, on your point of the retail savings or retail-held government bonds expiring and some of them finding their way into retail deposits, to what extent have you captured this in your guidance? I'm thinking about it in terms of the retail deposits being a very profitable product for you.
Wondered if this could offer any upside to your stable name guidance for the year. Thank you.
Thank you very much. Hi, Gábor. Regarding your first question, we like to be obviously on the offense if there is a good opportunity. As I mentioned previously, it is worth being on the offense. In certain markets, we are very strong where the pricing can be, where the pricing makes sense. I'm not just talking in terms of sort of M&A, but also from a business perspective. I mentioned that, for example, in Hungary in mortgage, we don't want to go into unnecessary, we don't want to decrease prices to a level where we see that it's not profit maximizing. We will be on the offense as long as we believe it maximizes our profit rather than our size or our general growth.
On certain new entrants, I mentioned to you that, and I mentioned this on a lot of forums, that certain cross-border competitors can offer a better value proposition in Hungary, partly due to the different cost structure that they can achieve because they do not have to pay some of the Hungarian special levies that we are paying, transaction tax. They do not have to take part in some of the government initiatives that are imposed on the banking sector. I am strongly against that. I hope that will change, not just in Hungary, but I believe this is a wider question. This is much more of a European question, that similar activity should have similar regulation across the different jurisdictions within the EU. Regarding capital, we do have some, as I mentioned, reserves. What we would like is to be relatively well capitalized compared to our peers.
I would like to highlight here compared to our peers part. We believe that in times of crisis, obviously, it matters, the capitalization. It is not just up to us in a sense, not just up to our capital adequacy that people will judge, investors will judge us, but also compared to our peer group. We are not saying we want to be excessively capitalized, but we want to be relatively, at least in line, if not a little bit above our peer group. As I mentioned, we do not put additional reserves for acquisitions. We see plenty of, we see a strong continued profit generation capability. As I mentioned, we still have the tier 2 bucket part that is unutilized, and we have the 81. Should an even bigger acquisition opportunity come, nobody said we cannot issue any more capital.
We do not want to hold any sort of significant excess capital for acquisitions. On the retail government bonds and the deposits, I would like to ask László to answer. Thank you.
As you rightly spotted, in the first quarter in Hungary, we had an unusually strong retail deposit development, 6%, in just one quarter. That is mostly due to the fact that quite a large amount of retail government bonds turned into lower coupons. Also, there was another effect, and that is the 13th month's pension, which was paid for pensioners in February. Neither of these are going to continue for the rest of the year so much. There will be some remaining positive effect in the second quarter coming from the retail mortgages, a lower amount of retail mortgages turning to a lower yield, and it might induce some deposit development.
Most of this kind of positive one-off effect, you can already see in the numbers in the first quarter. Obviously, it's a question of what percentage of these kind of extra deposits are going to stay long-term, how much people will spend, and how much they will eventually invest, either in the form of buying real estate or cars or putting them into securities. The very short answer to your question, no, it wasn't specifically part of our kind of original guidance. Yes, maybe due to this effect, it's certainly kind of improving the expectations, so to say. It is certainly positive compared to the original expectations.
But then again, there have been other developments, unfortunately, the U.S. policy measures, for instance, and the potential impact of higher tariffs and exports from Hungary to the U.S., or as a ramification of that, maybe somewhat lower, even lower euro rate, which on the other hand might have a somewhat negative impact on our expected potential NIM and margin environment. Yes, this specific item, it's positive marginally compared to our original guidance, but there have been other developments or might happen other developments as well, which are not so positive. All in all, we don't think that this kind of justifies to change the guidance for the year or something like that. It is marginally positive, it's true. Are you happy, Gábor?
Yes, thanks very much. All very clear and helpful. Appreciate your thoughts. Thank you. Thank you.
The next question is from Gábor Bukta, Concorde Securities. Gábor, click on the small microphone icon. Gábor Bukta, Concorde Securities.
Hi, can you hear me? Sorry. Yes. Now we can hear you. Thank you for the presentation, and congrats to your new role, Peter. I have two questions. The first one is coming with regard to Ipoteka because when I looked at the performance of Ipoteka, I felt that it was quite poor, if I can say, as incomes dropped both on annual and quarterly basis. I see that the market is growing on the other hand. The upside outflow was also massive. Yeah, there was some explanation behind the drop in deposits. Can you give us more color what's happening there? If you have any plans to acquire a bank or grow organically, it would be nice to hear more about that.
The second question is reflecting on the Russian bond coverage. It was 73% at the end of December and 74% at the end of March. You booked around HUF 6 billion during Q1. Can you give context of it as the gross exposure was around HUF 130 billion? It would be great to know, was it the effects impact or what was the difference between the two methodologies at the end of Q4 and at the end of Q1? Thank you.
I will ask László to answer these two questions.
I mean, Ipoteka, as we kind of talked about it last year, despite the very strong development in consumer lending in the market, we somewhat dropped behind. That was partially due to or mostly due to operational kind of weaknesses.
For us, it's taking time to bring up the kind of operational level of the bank in order to be able to service the large volumes, the ever-increasing volumes given the strong market. These are typically IT developments, and they took time. Originally, we expected to be fully ready by the end of last year. Now, it seems that it took somewhat longer, and it also took the first quarter. By now, we can say, and we just said we have been, I mean, we are following this very closely. Peter personally kind of talking to the management team there biweekly and having a status. This is something we follow closely from here. It seems by now that mostly these kind of operational weaknesses have been improved. Now, we actually, especially in April, started to book much higher volumes.
This should continue to build up over the year. The promise from our CEO in Uzbekistan is that in the second half of the year, the retail market shares in consumer loans and in mortgages are going to start to grow. We hope to turn around this negative trend in retail, which has been there for a year due to our operational weaknesses primarily. It was primarily operational weakness, but it was also our kind of somewhat more conservative approach to retail risk than some of our competitors. We seem to be in a way more conservative in taking into consideration income, for instance. Unverified income, we have not taken into consideration so far. I mean, you could argue whether it has been a good or bad strategy.
We understand from one of our local strong competitors' recent kind of quarterly results and the publicly available information that they run into difficulties in terms of retail credit quality. I think to some extent, our approach has been therefore verified. This is a situation we are not happy with. We are turning this around, and most of the operational work which had to be done has been done. In terms of our plans, we do like the country, and if anything, it has by far overexceeded already our original expectations in terms of the robustness of growth and business potential. If there were a suitable target, we would certainly consider that, not necessarily the larger banks, because we are going to be present in the corporate segment, but that's not our primary focus.
The large kind of remaining large banks, state-owned banks, are much more corporate-oriented than we are. If we could find maybe a smaller, more retail-oriented bank for sale at a good value, we would certainly consider that. We also do not exclude potentially buying another big bank, but that is not maybe the primary goal. In terms of organic growth, again, the opportunity is huge, and especially compared to our recent performance, it can further improve, certainly. Your second question regarding the increased provisioning on the Russian bonds, there has not been any particular development. We are pretty much following the kind of guidance and expectations of our supervisor here in Hungary. If you remember, we started to increase these provisions somewhere in the second quarter last year. Following the kind of strong guidance from my supervisor, we, in general, would like to provision more and not less.
We tend to be conservative, and we agree with this approach, but this is rather theoretical. I would not say that there has been a major change in the underlying valuation of the situation. It is more the level of conservativeness that is applied. In that respect, we follow willingly our supervisor in Hungary. All in all, we have HUF 97 billion. This is a provision on these amounts. If you were to ask what could be the potential impact if there is an end to the war and maybe a really partial release of the sanctions on Russia, then obviously, you can look at this amount as a potential for release. Thank you.
I mean, the provision coverage was 73% at the end of the year. [crosstalk] Oh, yeah, the difference. I mean, that is FX. Yeah, that is due to the FX.
These are dollar exposures, and these numbers we report in half, right? Obviously, we provision in dollar, and the stock of provision is kind of big enough, and the dollar actually weakened compared to the half. That is why that is the discrepancy.
Okay, absolutely clear. Thank you very much. Sure. Thank you.
The next question is from Simon Melis. The floor is open.
Thank you very much. Welcome, Peter. I am sure László will be happy to share the burden of dealing with us analysts and the investor community. We can be tricky sometimes. I guess my first question for you would be on your priorities. I mean, you have given a pretty long list of things you want to do. What do you think you can do differently, better, quickly? They just are not beyond banking products.
I mean, I think it's been quite tricky for banks to, some banks have done quite well there. Others have not. I think OTP Simple wasn't a particular success. I'm just wondering how you think you could expand into beyond banking products in a successful way. I have one specific question back on the Uzbek business. Your competitor, TBC, had issues with data integrity around the tax registry. Apparently, there were some fraudulent actors that were able to upload fraudulent salary data. I was just wondering if you faced similar issues in Uzbekistan and you're aware of that particular fraud and are tackling it. Thank you.
Thank you very much. Your first question on priorities. As I mentioned in the beginning, our strategy has been successful, and I believe, I strongly believe that we have one of the best management teams in the group.
One of my key priorities, as I mentioned in the beginning, is that we have much better coordination internally and be able to make decisions more quickly to react. This has been a positive effect of the Executive Steering Committee that we have been operating for the last year and a half. Now, going forward, obviously, we are, as I mentioned, reviewing where we can be better, right? Not just in Hungary, but across the group. We are reviewing sort of our initiatives that are ongoing in the group. We are reviewing what we can do better, what we should speed up, what we should actually potentially deprioritize. In order to facilitate this discussion, we are actually dedicating management time and attention to it as we speak in the next couple of weeks.
As I mentioned, we generally do not give very strong guidance on actually sort of performance and long-term performance. Regarding beyond banking, obviously, it is tricky, right? It is a field which is relatively new not just for us, I think for any banking player which has entered into different industries. Obviously, we see good examples, a lot from Asia. Obviously, DBS has made a significant entry into beyond banking and several good examples from other banks where they have managed to really embed into the service offering beyond banking products where it complemented or secured for the longer term the market share for the traditional banking products. Our aim is to do the same.
Our aim is to, in my view, a customer doesn't come to OTP or the bank to get a loan and walk out happily from the branch or log out from our digital channel and be happy that they got a mortgage and they can pay interest going forward, but actually needs a solution, right, for a certain life event or a certain change of needs. This is what we are trying to serve. This is much more about putting significantly more emphasis on customer satisfaction and customer experience. Now, obviously, it would be great if we could look at these adjacent industries, let's say, and be able to say that standalone, it makes sense financially to be present in those markets. In many cases, it's a much more nuanced view.
As I mentioned, it complements either to keep our existing market share, keep our profitability, be able to offer superior services for our clients. This is the view that we take. I think so far, we have been relatively conservative. We really entered into areas such as what you mentioned, Simple in payments, which are relatively closer to banking, to the traditional banking industries. Yes, I believe not all of them will necessarily be a success, but this is a kind of a manageable risk that we need to take and say that we will look at entry and expanding our service offering, even if not 10 out of 10 will be necessarily 100% success. Simple, by the way, has been, on one hand, not so successful regarding the app, but Simple is doing more than 80% of the card acquiring, both in transactions and volumes in Hungary.
The card acquiring is actually a very good fee generation business for OTP. It allowed us to be able to innovate in one of the fastest changing landscapes, being payments, in a very, very flexible way. We entered e-commerce. We launched last year Fizz.hu. We see significant month-over-month growth in products being sold. In terms of volume, we see increasing commission revenue, but obviously, it has not been practically a year since we launched it. I would need to give it a bit more time. Healthcare, a relatively small investment into a healthcare private appointment booking. These are visible, potentially, but not significant investments. If we look at the group, I think we would make a bigger mistake if we do not try entering these adjacent industries.
Your second question on Uzbekistan salary fraud and data integrity, we do not see, we have not been, László mentioned in the previous question, we have been relatively conservative in the segment that we are targeting and the kind of requirements we take in terms of credit policy in Uzbekistan, partly as the reason why we have not been able to develop with the market as fast as the market. We do not see this as a big issue. Thank you. Thank you.
We continue our question and answer session. The next question is from Valentina Stoikova, Barclays. The floor is open.
Yes. Hi, good afternoon. Thank you very much for the presentation and congratulations on the new role, Peter. My questions are related to your Uzbekistan business.
I was just wondering whether you can give us a bit more color on your strategy there regarding the de-risking and the cleaning of the balance sheet and what should we expect with regards to key financial metrics for this year. Any guidance on net interest margins, cost of risk, capital metrics will be super helpful. It will be great if we can also share the capital ratios and buffers over minimums for Q1 of Ipoteka and your refinancing plans for the upcoming senior year-bond maturity. Do you plan to refinance it within the group or in the markets? I'm referring to the Ipoteka year-bonds that are due in November this year.
I think I tried to answer this. I'm László, but it won't be as satisfactory as you would like.
I mean, as Peter mentioned, I mean, we have a rather kind of strict approach to what guidance we give, even on a group level. Specific to one of the entities in the group, which is even not the largest, I do not think it would be appropriate to kind of give line-by-line guidance. I think the most important metrics at this stage, I think, is market share. Our market share declined quite materially in consumer loans, and consumer loans are the most profitable business on the market and growing very fast. That is potentially the most important short-term KPI for us to turn around this trend, the declining trend, which has been there for a year. It was up at higher than 14%, and now we are actually somewhat lower than 10% in terms of market share. This trend, we want to turn around.
As I said before, our CEO in Uzbekistan just promised us, the management team in the HQ, that they will most probably achieve this starting from the beginning of the second half of the year. That is one expectation. The other expectation is regarding mortgage market shares. Again, we have seen some erosion of the market share in mortgages. Ipoteka is still by far the largest mortgage lender in the country, but our market share started to erode somewhat. This is not by far much less than in consumer lending, but still it did. That is the second point in metrics terms where we want to turn around. Obviously, if that happens, then it should have a positive impact on revenues and earnings.
Unfortunately, what you've seen in the first quarter is that actually operating profit declined year on year by 30%, primarily because revenues declined by 17-18%. This is a very negative trend where we have to turn around, and we will. That's the kind of primarily target. In terms of if you look at the bottom line, that was reasonably strong despite all of this in the first quarter. That is due to the fact that we started to see write-backs from the quite sizable provisions that we created in the second half of 2023 when some of the corporate book went into stage three. Due to our very hard work in terms of work out on these exposures, we started to see improvements, paybacks, and kind of solutions for these situations.
They can kind of bolster or smooth out somewhat the actual profit after tax line even when there is a temporary decline in the operational profits. That is what you could see in the first quarter. There is some probability that it is going to continue to happen over the course of the year that we might be able to further release some of the provisions that we created back in 2023. Regarding the bond which matures in November, it is a year-bound, EUR 300 million. We are looking at, obviously, it will depend on market conditions, and it will depend on the liquidity needs in FX of the bank. That pretty much depends on our corporate lending activity growth because retail lending is all local currency. I mean, the capital markets are not very developed, so it is swapping.
FX swaps do not so much exist in a large scale in the market. The different currency markets are pretty kind of segregated. FX funding, we may need for corporate growth. We are actually revisiting and renewing our corporate strategy as we speak. This is something we are going to do during the next couple of months to gauge our kind of growth appetite and strategic intention related to corporate. Obviously, we want to be a universal bank, a retail-focused but universal bank. Corporate is important. Depending on the outcome of that exercise and also on market conditions, we may renew that bond or may not. That has not yet been decided, but I think we prepare as if we were to renew it and then see. In terms of kind of strategic approach to Uzbekistan, we remain very, very positive.
The market is strong. The country is developing fast and is on the right track, stable. The way they handled geopolitically and kind of locally, domestically the last couple of years, I think that has been a very good example of good management. We are quite happy to be there, and our ambitions are very high. Thank you.
Thanks a lot.
Thank you. If you have a question for our speaker, please indicate it. The next question is from Máté Nemes, UBS. Yes.
Thank you. I had two more questions, two follow-ups, please. The first one is on the euro rate sensitivity. I think it is EUR 105 million now for 100 basis points. This has gone up slightly, I think, since year-end. Could you comment on what the reason for this is? Is there any change in your securities portfolios or any other reason?
The other question would be on corporate loan growth. I think you commented that we haven't seen a turnaround in corporate credit growth yet. Clearly, there's some positive momentum, at least visible in the numbers, but particularly in Hungary, what do you see in terms of investment sentiment and credit demand when talking to clients? A large German bank CEO this morning clearly said they are seeing improving sentiment in the Mittelstand or the large SME segment in the country. When do you think this could translate to higher credit demand, specifically in your region?
Yeah. Indeed, somewhat increased the euro rate sensitivity. I mean, this number is kind of fluctuating somewhat. Deposit growth was reasonably strong. We issued a tier two, relatively large size, and that increased the liability fixed side.
We are kind of reaching the limits of our ability to buy fixed yield securities on the asset side, primarily from a risk point of view. Regarding credit swaps, which are obviously there as a potential, the recent environment has been quite volatile in a way. Rate expectations have been going up and down almost every second day. We have been relatively kind of less active than we could have in a way. There is nothing major, large change here underlying this. It is most likely to stabilize around this EUR 100 million per year NII equivalent. I do not see a large opportunity to further decrease this. We also try to maintain it close to this level.
There is this kind of plus-minus HUF 5 million-HUF 10 million volatility in this number, which is subject to typically many smaller changes in the balance sheet structure. Corporate loan growth in Hungary, this was an area where I personally was quite hopeful or optimistic and maybe somewhat more optimistic than reality so far proved. The first quarter so far this year, the growth on the non-retail side was mostly micro and small, where we still have subsidized structures. Within those subsidized structures, we have up to 50% market share. We actually had 5% growth in micro small corporates in Hungary, but large corporate was technically flat. We have not yet seen a shift or a major change in the sentiment or intention of corporates to start investing in a major way in the country.
What you just said, we do expect to eventually kind of spill over to CEE in general and Hungary in particular, certainly given the large export exposure of the country and most of those exports being oriented to Germany. We do hear as well these kind of voices from Germany itself that they might turn around their investment cycle and actually start to invest again. It has not yet appeared domestically in Hungary. It is going to do so. I mean, again, I have been personally kind of over-optimistic, so I do not want to do that again. I do not want to give you kind of promises or something like that. We do see this potential positive development coming from core Europe. Sooner or later, it is going to reach Hungary as well, hopefully in the second half of the year, but maybe only next year. Understood.
We'll watch this space. Thank you, László. Thank you.
Thank you, Máté. The next question is from an attendee joined via phone. I opened the line. You will receive an automatic message about it. Please press star six to unmute. Please press star six to unmute.
László, hi. This is Nick Dimitrov, Morgan Stanley Investment Management in New York. Just a quick question going back to Uzbekistan. There's been a new regulation that caps consumer loans at 25% of the loan book. How is that going to change the dynamics in your investment thesis behind being in Uzbekistan? I know that this has been kind of the product line that's been very lucrative and of most interest for you.
I mean, this is an advantage for us because our biggest competitors in this segment have they typically only have consumer loans. Now, this is not a [crosstalk]—Oh, the market share. Yeah.
They are the strongest growing and by far the most sophisticated competitors. If anything, this is going to limit their future growth potential. Having said that, this is not something which is applied from today on. There are a couple of years, I think five years or something, by which date banks have to comply with this. We see it as potentially positive for our competitive positioning on the market because this is going to clearly limit our most aggressive competitors in this segment. I mean, we are much bigger in mortgage lending, so that is a strong part. We do have intentions to maybe—I mean, we do not want to be a corporate bank, but we want to develop a universal bank. Corporate lending will continue. Therefore, we anyway wanted to have a kind of balanced asset structure.
This we interpret as rather positive for us. It's very interesting.
Great. Thank you so much.
Thank you.
If you have further questions, please indicate it. As there are no further questions, I hand back to the speakers.
Ladies and gentlemen, thank you very much for joining us today. I hope we gave an insightful presentation and we managed to answer all your questions. As I mentioned to you, I will be in London. Anyone who wants to join, please reach out to the contact details that are at the end of the presentation. With that, we are ready to close this conference call. Thank you very much and have a good rest of the day.