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OTP B ANK P LC. A NNUAL R EPORT (2023) B UDAPEST, 20 M ARCH 2024
C ONTENT B USINESS R EPORT OF THE B OARD OF D IRECTORS (SEPARATE 2023) B USINESS R EPORT OF THE B OARD OF D IRECTORS (C ONSOLIDATED 2023) C ONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH I NTERNATIONAL F INANCIAL R EPORTING S TANDARDS AS ADOPTED BY THE E UROPEAN U NION FOR THE YEAR ENDED 31 DECEMBER 2023 S EPARATE FINANCIAL STATEMENTS IN ACCORDANCE WITH I NTERNATIONAL F INANCIAL R EPORTING S TANDARDS AS ADOPTED BY THE E UROPEAN U NION FOR THE YEAR ENDED 31 DECEMBER 2023
Business Report – OTP Bank (separate) The 2023 Business Report of the Board of Directors
BUSINESS REPORT OTP BANK (SEPARATE) 2/26 SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 (in HUF million) Note 31 December 2023 31 December 2022 Cash, amounts due from banks and balances with the National Bank of Hungary 5. 2,708,232 1,092,198 Placements with other banks 6. 2,702,433 2,899,829 Repo receivables 7. 201,658 246,529 Financial assets at fair value through profit or loss 8. 257,535 410,012 Financial assets at fair value through other comprehensive income 9. 559,527 797,175 Securities at amortised cost 10. 2,710,848 3,282,373 Loans at amortised cost 11. 4,681,359 4,825,040 Loans mandatorily measured at fair value through profit or loss 11. 934,848 793,242 Investments in subsidiaries 12. 2,001,952 1,596,717 Property and equipment 13. 107,306 94,564 Intangible assets 13. 98,115 69,480 Right of use assets 66,222 39,882 Investment properties 14. 4,203 4,207 Deferred tax assets 34. 408 35,742 Current tax assets 34. - 1,569 Derivative financial assets designated as hedge accounting relationships 15. 21,628 47,220 Non-current assets held for sale 46. 130,718 - Other assets 16. 365,961 329,752 TOTAL ASSETS 17,552,953 16,565,531 Amounts due to banks and deposits from the National Bank of Hungary and other banks 17. 1,761,579 1,736,128 Repo liabilities 18. 443,694 408,366 Deposits from customers 19. 10,734,325 11,119,158 Leasing liabilities 68,282 41,464 Liabilities from issued securities 20. 1,163,109 498,709 Financial liabilities designated at fair value through profit or loss 21. 19,786 16,576 Derivative financial liabilities designated as held for trading 22. 183,565 373,401 Derivative financial liabilities designated as hedge accounting relationships 23. 27,423 50,623 Deferred tax liabilities 34. - - Current tax liabilities 34. 14,393 3,199 Provisions 24. 22,497 29,656 Other liabilities 24. 295,399 313,188 Subordinated bonds and loans 25. 520,296 294,186 TOTAL LIABILITIES 15,254,348 14,884,654 Share capital 26. 28,000 28,000 Retained earnings and reserves 27. 2,276,759 1,655,601 Treasury shares 28. (6,154) (2,724) TOTAL SHAREHOLDERS' EQUITY 2,298,605 1,680,877 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 17,552,953 16,565,531
BUSINESS REPORT OTP BANK (SEPARATE) 3/26 SEPARATE STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF million) Note Year ended 31 December 2023 Year ended 31 December 2022 Interest Income: Interest income calculated using the effective interest method 29. 1,227,173 721,679 Income similar to interest income 29. 795,906 377,231 Interest income and similar to interest income total 2,023,079 1,098,910 Interest Expense: Interest expenses total 29. (1,556,361) (802,020) NET INTEREST INCOME 466,718 296,890 (Release of loss allowance) / Loss allowance on loan, placement and repo receivables losses 6., 7., 11., 30. 8,616 (47,687) (Release of loss allowance) / Loss allowance on securities at fair value through other comprehensive income and on securities at amortised cost 9., 10., 30. 11,879 (53,238) (Release of provision) / Provision for loan commitments and financial guarantees given 24., 30. 7,172 (5,541) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss 45.4. (980) 11,872 Risk cost total 26,687 (94,594) NET INTEREST INCOME AFTER RISK COST 493,405 202,296 LOSSES ARISING FROM DERECOGNITION OF FINANCIAL ASSETS MEASURED AT AMORTISED COST (19,707) (56,195) MODIFICATION LOSS 4. (9,017) (14,856) Income from fees and commissions 31. 402,885 362,444 Expenses from fees and commissions 31. (78,755) (66,087) NET PROFIT FROM FEES AND COMMISSIONS 324,130 296,357 Foreign exchange (losses) and gains 32. (12,269) 541 Gains and (losses) on securities, net 32. 7,073 (10,605) Gains / (losses) on financial instruments at fair value through profit or loss 32. 91,268 (18,790) Net results on derivative instruments and hedge relationships 32. 13,055 9,917 Dividend income 32. 275,705 194,526 Other operating income 33. 26,184 13,775 Other operating expenses 33. 63,590 (131,942) NET OPERATING INCOME 464,606 57,422 Personnel expenses 33. (195,404) (154,303) Depreciation and amortization 33. (50,814) (46,738) Other administrative expenses 33. (281,918) (290,989) OTHER ADMINISTRATIVE EXPENSES (528,136) (492,030) PROFIT BEFORE INCOME TAX 725,281 (7,006) Income tax 34. (70,293) 13,638 PROFIT AFTER INCOME TAX 654,988 6,632 Earnings per share (in HUF) Basic 43. 2,344 24 Diluted 43. 2,344 24
BUSINESS REPORT OTP BANK (SEPARATE) 4/26 SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF million) Note Year ended 31 December 2023 Year ended 31 December 2022 PROFIT AFTER INCOME TAX 654,988 6,632 Items that may be reclassified subsequently to profit or loss: Fair value adjustment of debt instruments at fair value through other comprehensive income 37,917 (55,804) Deferred tax related to fair value adjustment of debt instruments at fair value through other comprehensive income 34. (3,503) 5,186 Gains / (Losses) on separated currency spread of financial instruments designated as hedging instrument 3,752 (4,887) Deferred tax related to (losses) / gains on separated currency spread of financial instruments designated as hedging instrument 34. (338) 440 (Losses) / Gains on derivative financial instruments designated as cash flow hedge 5,700 (5,641) Deferred tax related to gains on derivative financial instruments designated as cash flow hedge 34. - - Items that will not be reclassified to profit or loss: Gains on equity instruments at fair value through other comprehensive income - 2,675 Fair value adjustment of equity instruments at fair value through other comprehensive income 3,308 61 Deferred tax related to equity instruments at fair value through other comprehensive income 34. (374) (41) Total 46,462 (58,011) TOTAL COMPREHENSIVE INCOME 701,450 (51,379)
BUSINESS REPORT OTP BANK (SEPARATE) 5/26 POST-BALANCE SHEET EVENTS Post-balance sheet events cover the period until 20 February 2024. Hungary  On 23 January 2023 OTP Bank announced that notes were issued with a value date of 31 January 2024, in the aggregate nominal amount of EUR 600 million. The 5 years, Non-Call 4 years Senior Preferred Notes were priced on 23 January 2024.  On 26 January 2024 Scope Ratings affirmed Hungary's long-term local- and foreign-currency issuer and senior unsecured debt ratings at ‘BBB’ with stable outlook.  On 29 January 2024 the Ministry for National Economy announced that following discussions between the Government and the Banking Association, based on the banks' voluntary commitment, from 1 February to 1 May 2024, the interest margin above BUBOR rate for newly contracted Hungarian Forint-based, variable- rate corporate loan contracts (regardless of the purpose of the loan) will be 0%, and the margin will remain at 0% for 6 months from the date of disbursement of the loan, after which it may return to the normal level. At the same time, the Government indicated that the rate cap on outstanding variable rate MSE loans, which expires on 1 April 2024 according to the current legislation, will not be further extended.  On 30 January 2024 the National Bank of Hungary cut its key policy rate by 75 bps to 10.0%.  On 2 February 2024 OTP Bank announced that it decided to terminate the project aiming at establishing a consumer finance joint venture company with its partners in China with a 15%shareholding, as the condition precedents were not fulfilled until the pertaining contractual deadlines.  On 9 February 2024 OTP Bank announced that it concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. (‘BT’). OTP Group is also selling its 100% shareholdings in its other Romanian subsidiaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to BT under the transaction. The financial closing of the transaction is expected in 2024 subject to the necessary regulatory approvals.  On 12 February 2024 OTP Bank received a single permission from the Hungarian National Bank for the repurchase of treasury shares, accordingly the Bank is entitled to repurchase its own shares in the amount of HUF 60 billion until 31 December 2024. The total amount specified in the permission shall immediately be deducted from the own funds in accordance with the law.
BUSINESS REPORT OTP BANK (SEPARATE) 6/26 ACQUISITIONS On 31 May 2021 OTP Bank signed a share sale and purchase agreement on purchasing 100% shareholding of OTP Luxembourg S.a.r.l. and its subsidiaries – Nova KBM d.d. and Aleja Finance d.o.o., which are 80% owned by funds managed by affiliates of Apollo Global Management, Inc. and 20% by EBRD. The financial closing of the transaction took place on 6 February 2023, after obtaining all the necessary regulatory approvals. In line with the sale and purchase agreement concluded on 12 December 2022 between OTP Bank and the Ministry of Economy and Finance of the Republic of Uzbekistan, the first step of the Ipoteka Bank acquisition was completed on 13 June 2023. Consequently, OTP Bank became the majority shareholder of Ipoteka Bank by acquiring a 73.71% stake and became indirect shareholder of Ipoteka Bank’s wholly-owned subsidiaries. In the second step of the transaction, the shares that remained in the ownership of the Ministry will be bought three years after the first step. MACROECONOMIC OVERVIEW Following the rapid recovery after the Covid crisis and the outbreak of the Russian-Ukrainian war, inflation has already started to fall in advanced economies in 2023 and, as the year was nearing its end, the debate on the possible timing of an interest rate cut has begun. Meanwhile, the labour market remained tight, with low unemployment and strong wage dynamics. Developed markets’ long yields fell sharply by the end of 2023, from the multi-decade highs hit in the autumn. However, economic growth printed different patterns on the two sides of the Atlantic. In the USA, 2023 brought a much stronger-than-expected economic performance, and growth shifted into higher gear in the second half of the year. The robust figures were driven by supportive fiscal policy, a surge in household savings during the pandemic, and low interest rates on loans. Headline inflation peaked in June 2022 (+8.9%), but the subsequent decline briefly stalled in the middle of 2023. However, core inflation continued to fall, easing to 3.9% (y-o-y) by the end of 2023. The very loose fiscal policy, which raised the budget deficit from around 5% to 8% of GDP, required very tight monetary policy to bring inflation down. The Fed has aggressively raised the base rate to 5.25–5.5% while beginning to shrink its balance sheet. The energy crisis brought the euro area to its knees, and the economy has been unable to recover from it: amid high inflation and high interest rates, output has been practically stagnant since the 3Q of 2022. Countries with industries that used to rely heavily on Russian energy (e.g. Germany) were hit particularly hard. High interest rates have led to a slowdown in lending, which has also weighed on growth in Europe. Disinflation was very strong in the euro area in 2023: headline and core inflation fell to 2.8% and 3.3%, respectively by the end of the year. The biggest concern in this context is services sector CPI, which has been stagnant at 4.0% (y-o-y) since November 2023. Despite all the weakness in the economy and strong disinflation, the ECB has not yet considered cutting interest rates, and the euro area ended last year with a deposit rate of 4% and a lending rate of 4.5%. Hungary’s economy fell into a longer and deeper recession than the rest of the CEE region in 2023 (GDP y-o-y: 1Q:-0.9%; 2Q:-2.4%; 3Q:-0.4%). However, the recession ended in the third quarter, as growth started to pick up on quarterly basis, helped by the base effect of an unprecedented poor agriculture season in 2022. Inflation peaked at 25.7%, 10%points higher than the region's average, before disinflation started in the spring. From the middle of the year, real wages started to rise again on a monthly basis, but this was only very moderately passed on to consumer spending. Following an over 8% current account deficit in 2022, Hungary’s external balance turned into surplus last year, as gas prices collapsed and imports fell, due to a drop in domestic demand. The initial budget deficit target of 3.9% of GDP turned out to be unsustainable and ended up near 6% of GDP in 2023. The MNB cut the effective interest rate in several steps by 725 basis points, to 10.75% by the end of the year, which had been raised to 18% in autumn 2022, and the base rate regained its role in September, when the former overnight deposit facility was phased out. The EUR/HUF fell from around 400 at the beginning of the year to below 370 at one point in the summer, but stabilized around 380 by the end of 2023. Progress on EU funds was made at the end of last year when the European Commission approved the so-called horizontal enabling conditions for the judicial reform in December. The government was able to unblock about EUR 11 billion of EU funds, thanks to a range of measures implemented last year.
BUSINESS REPORT OTP BANK (SEPARATE) 7/26 DIGITAL AND IT INNOVATIONS OTP Bank broadens the range of remotely available services continually. The number of our digitally active retail clients has far exceeded 2 million, and most of our clients now contact our Bank through mobile banking. Through the mobile application, in addition to the daily banking functions, our clients can purchase investment funds, bonds, car prize deposits, or apply for a new home savings product or travel insurance. In addition, thanks to the piggy bank function, our customers can set up savings goals and put money aside little by little for it, while selecting ‘Split the Bill’, they can easily allocate the costs of a dinner among the participants. The Bank focuses on the continuous upgrades of the Personal Finance Management (PFM) toolset, which supports our users in making more conscious financial decisions. The expense tracker service is already capable of handling user generated, personalized categories as well. The constant ascent in the ratio of our digitally active clients is supported by targeted online campaigns and continuous user education. Machine learning algorithms help the Bank processing all digital data for displaying relevant, personalized offers to the clients. By the end of 2023, nearly 2 million of our retail customers have registered for the new Digital Contract which allows them to apply for digital services via fully online processes. Several products are available via end-to-end online processes for example: retail clients can open a new account with selfie-identification, or contract for a personal loan or travel insurance digitally. VideoBank provides consulting service and application process for mortgages as well. We received numerous positive feedback from clients using the channel. Our customers have access to the chat feature on the website, via our internet banking service and in the mobile application as well, therefore we serve client needs also via identified conversations. We are constantly improving our fraud prevention platform to better identify and prevent fraudulent activity targeting our digital service. In addition to our internet and mobile banking developments, in 2023 we have created a so-called Merchant Portal for partners holding card acceptance contracts, where they can reach analytics, statements and all related documents of card transactions made with us.
BUSINESS REPORT OTP BANK (SEPARATE) 8/26 BRANCH NETWORK OF OTP BANK The Bank provides a full range of commercial banking services through a nationwide network and its branches are available to customers in Hungary. 1011 Budapest, Iskola utca 38-42. 1015 Budapest, Széna tér 7. 1021 Budapest, Hüvösvölgyi út 138. 1024 Budapest, Fény utca 11-13. 1025 Budapest, Szépvölgyi út 4/b. 1025 Budapest, Törökvész út 1/a 1026 Budapest, Szilágyi Erzsébet fasor 121. 1033 Budapest, Flórián tér 15. 1033 Budapest, Szentendrei utca 115. 1037 Budapest, Bécsi út 154. 1039 Budapest, Heltai Jenő tér 2. 1041 Budapest, Erzsébet utca 50. 1042 Budapest, Árpád út 63-65. 1048 Budapest, Kordován tér 4. 1051 Budapest, Nádor utca 16. 1052 Budapest, Deák Ferenc utca 7-9. 1054 Budapest, Szabadság tér 7-8. 1055 Budapest, Nyugati tér 9. 1055 Budapest, Szent István krt. 1. 1062 Budapest, Váci út 1-3. 1066 Budapest, Oktogon tér 3. 1075 Budapest, Károly krt. 1. 1075 Budapest, Károly krt. 25. 1076 Budapest, Thököly út 4 1081 Budapest, Népszínház utca 3-5. 1083 Budapest, Futó utca 35-45 1085 Budapest, József krt. 33. 1085 Budapest, József krt. 53. 1085 Budapest, Kálvin tér 12-13. 1087 Budapest, Könyves Kálmán krt. 76- 1. sz. 1094 Budapest, Ferenc krt. 13. 1095 Budapest, Soroksári út 32-34. 1097 Budapest, Könyves Kálmán krt. 12- 14. 1102 Budapest, Kőrösi Csoma sétány 6. 1103 Budapest, Sibrik Miklós utca 30. 1106 Budapest, Örs vezér tere 25 1115 Budapest, Bartók Béla út 92-94. 1117 Budapest, Hunyadi János út 19. 1117 Budapest, Móricz Zsigmond körtér 18. 1117 Budapest, Október huszonharmadika utca 8-10. 1119 Budapest, Hadak útja 1. 1123 Budapest, Alkotás utca 53 1124 Budapest, Apor Vilmos tér 11. 1126 Budapest, Böszörményi út 9-11. 1133 Budapest, Váci út 80. 1134 Budapest, Váci út 17. 1135 Budapest, Lehel út 70-76. 1137 Budapest, Pozsonyi út 38. 1138 Budapest, Váci út 135-139 1146 Budapest, Thököly út 102/b. 1148 Budapest, Nagy Lajos király útja 19- 21. 1149 Budapest, Bosnyák tér 17. 1149 Budapest, Fogarasi út 15/b. 1151 Budapest, Fő utca 64. 1152 Budapest, Szentmihályi út 131. 1157 Budapest, Zsókavár utca 28. 1161 Budapest, Rákosi út 118. 1163 Budapest, Jókai Mór utca 3/b. 1173 Budapest, Ferihegyi út 93. 1173 Budapest, Pesti út 5-7. 1181 Budapest, Üllői út 377. 1183 Budapest, Üllői út 440. 1188 Budapest, Vasút utca 48. 1191 Budapest, Üllői út 201. 1195 Budapest, Üllői út 285. 1195 Budapest, Vak Bottyán út 75 a-c 1203 Budapest, Bíró Mihály utca 7. 1204 Budapest, Kossuth Lajos utca 44-46. 1211 Budapest, Kossuth Lajos utca 86. 1211 Budapest, Kossuth Lajos utca 99. 1221 Budapest, Kossuth Lajos utca 31. 1222 Budapest, Nagytétényi út 37-45. 1238 Budapest, Grassalkovich út 160. 1239 Budapest, Bevásárló utca 2. 2000 Szentendre, Pannónia út 1-3. 2013 Pomáz, József Attila utca 17. 2030 Érd, Budai út 24. 2030 Érd, Iparos út 5. 2040 Budaörs, Sport út 2-4. 2040 Budaörs, Szabadság utca 131/a. 2060 Bicske, Bocskai köz 1. 2083 Solymár, Szent Flórián utca 2. 2085 Pilisvörösvár, Fő utca 60 2092 Budakeszi, Fő utca 174. 2100 Gödöllő, Szabadság tér 12-13. 2112 Veresegyház, Fő út 52 2119 Pécel, Kossuth tér 4. 2120 Dunakeszi, Barátság utca 29. 2120 Dunakeszi, Nádas utca 6. 2141 Csömör, Határ út 6. 2143 Kistarcsa, Hunyadi utca 7. 2151 Fót, Móricz Zsigmond utca 23/A 2170 Aszód, Kossuth Lajos utca 42-46. 2200 Monor, Kossuth Lajos utca 67. 2220 Vecsés, Fő utca 170. 2220 Vecsés, Fő utca 246-248 2225 Üllő, Pesti út 92/b. 2230 Gyömrő, Szent István út 17. 2234 Maglód, Esterházy utca 1. 2300 Ráckeve, Szt István tér 3. 2310 Szigetszentmiklós, Háros utca 120. 2310 Szigetszentmiklós, Ifjúság útja 17. 2330 Dunaharaszti, Dózsa György utca 25. 2340 Kiskunlacháza, Dózsa György út 219. 2360 Gyál, Kőrösi út 160. 2364 Ócsa, Szabadság tér 1. 2370 Dabas, Bartók Béla út 46. 2400 Dunaújváros, Dózsa György út 4/e. 2440 Százhalombatta, Szent István tér 8. 2457 Adony, Petőfi Sándor utca 2. 2483 Gárdony, Szabadság út 18. 2500 Esztergom, Rákóczi tér 2-4. 2510 Dorog, Bécsi út 33. 2536 Nyergesújfalu, Kossuth Lajos utca 126. 2600 Vác, Széchenyi utca 3-7. 2651 Rétság, Rákóczi út 28-30. 2660 Balassagyarmat, Rákóczi fejedelem utca 44. 2700 Cegléd, Szabadság tér 6. 2721 Pilis, Rákóczi utca 9. 2730 Albertirsa, Vasút utca 4/a. 2750 Nagykőrös, Szabadság tér 2. 2760 Nagykáta, Bajcsy-Zsilinszky utca 1.
BUSINESS REPORT OTP BANK (SEPARATE) 9/26 2800 Tatabánya, Bárdos László utca 2. 2800 Tatabánya, Fő tér 32. 2840 Oroszlány, Rákóczi Ferenc út 84. 2870 Kisbér, Batthyány tér 5. 2890 Tata, Ady Endre utca 1-3. 2900 Komárom, Mártírok útja 23. 2941 Ács, Gyár utca 14. 3000 Hatvan, Kossuth tér 8. fszt. 1. 3021 Lőrinci, Szabadság tér 25/A 3060 Pásztó, Fő utca 73/a. 3070 Bátonyterenye, Bányász utca 1/a. 3100 Salgótarján, Rákóczi út 22. 3170 Szécsény, Feszty Árpád utca 1. 3200 Gyöngyös, Fő tér 1. 3245 Recsk, Kossuth Lajos út 93. 3300 Eger, Törvényház utca 4. 3360 Heves, Hősök tere 4. 3390 Füzesabony, Rákóczi Ferenc út 77. 3400 Mezőkövesd, Mátyás király út 149. 3450 Mezőcsát, Hősök tere 23. 3527 Miskolc, József Attila utca 87. 3530 Miskolc, Rákóczi Ferenc utca 1. 3530 Miskolc, Uitz Béla utca 6. 3535 Miskolc, Árpád út 2. 3580 Tiszaújváros, Szent István út 30. 3600 Ózd, Városház tér 1/a. 3630 Putnok, Kossuth Lajos utca 45. 3700 Kazincbarcika, Egressy Béni út 50. 3770 Sajószentpéter, Bethlen Gábor utca 1/a. 3780 Edelény, Tóth Árpád út 1. 3800 Szikszó, Kassai utca 16. 3860 Encs, Bem József utca 1. 3900 Szerencs, Kossuth tér 3/a. 3910 Tokaj, Rákóczi út 37. 3950 Sárospatak, Eötvös utca 2. 3980 Sátoraljaújhely, Széchenyi tér 13. 4025 Debrecen, Hatvan utca 2-4. 4025 Debrecen, Pásti utca 1-3. 4025 Debrecen, Piac utca 45-47. 4031 Debrecen, Kishatár utca 7. 4032 Debrecen, Egyetem tér 1. 4032 Debrecen, Füredi út 43. 4060 Balmazújváros, Veres Péter utca 3. 4080 Hajdúnánás, Köztársaság tér 17- 18/a. 4087 Hajdúdorog, Petőfi tér 9. 4090 Polgár, Barankovics tér 15. 4100 Berettyóújfalu, Oláh Zsigmond utca 1. 4110 Biharkeresztes, Kossuth utca 4. 4130 Derecske, Köztársaság út 111. 4138 Komádi, Fő utca 1-3. 4150 Püspökladány, Kossuth utca 2. 4181 Nádudvar, Fő út 119. 4200 Hajdúszoboszló, Szilfákalja utca 6-8. 4220 Hajdúböszörmény, Kossuth Lajos utca 3. 4242 Hajdúhadház, Kossuth utca 2. 4244 Újfehértó, Fő tér 15. 4254 Nyíradony, Árpád tér 6. 4300 Nyírbátor, Zrínyi utca 1. 4320 Nagykálló, Árpád utca 10. 4400 Nyíregyháza, Rákóczi utca 1. 4440 Tiszavasvári, Kossuth Lajos utca 6. 4450 Tiszalök, Kossuth Lajos utca 52/a. 4492 Dombrád, Szabadság tér 7. 4501 Kemecse, Móricz Zsigmond utca 18. 4561 Baktalórántháza, Köztársaság tér 4. 4600 Kisvárda, Szt László utca 30. 4625 Záhony, Ady Endre út 27-29. 4700 Mátészalka, Szalkay László utca 34. 4765 Csenger, Ady Endre utca 1. 4800 Vásárosnamény, Szabadság tér 33. 4900 Fehérgyarmat, Móricz Zsigmond utca 4. 5000 Szolnok, Nagy Imre krt. 2/a. 5000 Szolnok, Szapáry utca 31. 5000 Szolnok, Széchenyi István krt. 135. 5100 Jászberény, Lehel vezér tér 28. 5123 Jászárokszállás, Rákóczi Ferenc utca 4-6. 5130 Jászapáti, Kossuth Lajos út 2-8. 5200 Törökszentmiklós, Kossuth Lajos utca 141. 5300 Karcag, Kossuth Lajos tér 15. 5310 Kisújszállás, Szabadság tér 6. 5340 Kunhegyes, Szabadság tér 4. 5350 Tiszafüred, Piac tér 3. 5400 Mezőtúr, Szabadság tér 29. 5420 Túrkeve, Széchenyi utca 32-34. 5430 Tiszaföldvár, Kossuth Lajos út 191. 5440 Kunszentmárton, Kossuth Lajos út 2. 5500 Gyomaendrőd, Szabadság tér 7 5510 Dévaványa, Árpád utca 32. 5520 Szeghalom, Tildy Zoltán utca 4-8. 5525 Füzesgyarmat, Szabadság tér 1. 5530 Vésztő, Kossuth Lajos utca 72. 5540 Szarvas, Kossuth Lajos tér 1. 5600 Békéscsaba, Andrássy út 37-43. 5600 Békéscsaba, Szent István tér 3. 5630 Békés, Széchenyi tér 2. 5650 Mezőberény, Kossuth Lajos tér 12. 5661 Újkígyós, Kossuth utca 38. 5700 Gyula, Bodoky utca 9. 5720 Sarkad, Árpád fejedelem tér 5. 5742 Elek, Gyulai út 5. 5800 Mezőkovácsháza, Árpád utca 177. 5820 Mezőhegyes, Zala György ltp. 7. 5830 Battonya, Fő utca 86. 5900 Orosháza, Kossuth Lajos utca 20. 6000 Kecskemét, Dunaföldvári út 2. 6000 Kecskemét, Korona utca 2. 6000 Kecskemét, Szabadság tér 5. 6050 Lajosmizse, Dózsa György út 102/a. 6060 Tiszakécske, Béke tér 6. 6070 Izsák, Szabadság tér 1. 6080 Szabadszállás, Dózsa György út 1. 6087 Dunavecse, Fő út 40. 6090 Kunszentmiklós, Kálvin tér 11. 6100 Kiskunfélegyháza, Petőfi tér 1 6120 Kiskunmajsa, Csendes köz 1. 6200 Kiskőrös, Petőfi Sándor tér 13. 6230 Soltvadkert, Szentháromság utca 2. 6237 Kecel, Császártöltési utca 1. 6300 Kalocsa, Szent István király út 43-45. 6320 Solt, Kossuth Lajos utca 48-50. 6400 Kiskunhalas, Sétáló utca 7 6430 Bácsalmás, Szt János utca 32. 6440 Jánoshalma, Rákóczi Ferec utca 10. 6449 Mélykút, Petőfi tér 18. 6500 Baja, Deák Ferenc utca 1. 6600 Szentes, Kossuth Lajos utca 26. 6640 Csongrád, Szentháromság tér 2-6. 6720 Szeged, Aradi vértanúk tere 3. 6720 Szeged, Takaréktár utca 7. 6724 Szeged, Londoni krt. 3. 6724 Szeged, Rókusi krt. 42-64. 6760 Kistelek, Kossuth Lajos utca 6-8 6782 Mórahalom, Szegedi út 3. 6800 Hódmezővásárhely, Andrássy út 1. 6900 Makó, Széchenyi tér 14-16. 7000 Sárbogárd, Ady Endre út 172. 7020 Dunaföldvár, Béke tér 11.
BUSINESS REPORT OTP BANK (SEPARATE) 10/26 7030 Paks, Dózsa György utca 33. 7081 Simontornya, Petőfi utca 68. 7090 Tamási, Szabadság utca 33 7100 Szekszárd, Szent István tér 5-7. 7130 Tolna, Kossuth Lajos utca 31. 7140 Bátaszék, Budai utca 13. 7150 Bonyhád, Szabadság tér 10. 7200 Dombóvár, Dombó Pál utca 3. 7300 Komló, Kossuth Lajos utca 95/1. 7370 Sásd, Dózsa György utca 2. 7400 Kaposvár, Honvéd utca 55. 7400 Kaposvár, Széchenyi tér 2. 7500 Nagyatád, Korányi Sándor utca 6. 7561 Nagybajom, Fő utca 107 7570 Barcs, Séta tér 5. 7621 Pécs, Rákóczi út 1. 7621 Pécs, Rákóczi út 44. 7622 Pécs, Bajcsy-Zsilinszky utca 11/1. 7632 Pécs, Diána tér 14. 7633 Pécs, Ybl Miklós utca 7/3. 7700 Mohács, Széchenyi tér 1 7720 Pécsvárad, Bem utca 2/b 7754 Bóly, Hősök tere 8/b. 7773 Villány, Baross Gábor utca 36. 7800 Siklós, Felszabadulás utca 60-62. 7900 Szigetvár, Vár utca 4. 7940 Szentlőrinc, Munkácsy Mihály utca 16/A 7960 Sellye, Köztársaság tér 4. 8000 Székesfehérvár, Holland fasor 2. 8000 Székesfehérvár, Ősz utca 13. 8060 Mór, Deák Ferenc utca 2. 8100 Várpalota, Újlaky út 2. 8130 Enying, Kossuth Lajos utca 43. 8154 Polgárdi, Deák Ferenc utca 16. 8200 Veszprém, Brusznyai Árpád utca 1. 8220 Balatonalmádi, Baross Gábor út 5-7. 8230 Balatonfüred, Petőfi Sándor utca 8. 8300 Tapolca, Fő tér 2. 8330 Sümeg, Kisfaludy Sándor tér 1. 8360 Keszthely, Kossuth Lajos utca 38. 8380 Hévíz, Erzsébet királyné utca 11. 8400 Ajka, Szabadság tér 18. 8420 Zirc, Rákóczi tér 15. 8500 Pápa, Fő tér 22. 8600 Siófok, Fő tér 10/a 8630 Balatonboglár, Dózsa György utca 1. 8638 Balatonlelle, Rákóczi út 202-204 8640 Fonyód, Ady Endre utca 25. 8660 Tab, Kossuth Lajos utca 96. 8693 Lengyeltóti, Csalogány utca 2. 8700 Marcali, Rákóczi utca 6-10. 8790 Zalaszentgrót, Batthyány Lajos utca 11. 8800 Nagykanizsa, Deák tér 15. 8800 Nagykanizsa, Erzsébet tér 23. 8840 Csurgó, Petőfi tér 20/A 8900 Zalaegerszeg, Kisfaludy Sándor utca 15-17. 8960 Lenti, Dózsa György út 1. 9022 Győr, Teleki László utca 51. 9024 Győr, Bartók Béla út 53/b. 9024 Győr, Kormos István utca 6. 9026 Győr, Egyetem tér 1. 9027 Győr, Budai út 1. 9200 Mosonmagyaróvár, Fő utca 24 9300 Csorna, Soproni út 58. 9317 Szany, Ady Endre utca 2. 9330 Kapuvár, Szt. István király utca 4-6. 9400 Sopron, Teleki Pál út 22./A 9400 Sopron, Várkerület út 96. 9431 Fertőd, Fő utca 7. 9500 Celldömölk, Kossuth Lajos utca 18. 9600 Sárvár, Batthyány utca 2. 9700 Szombathely, Fő tér 3-5. 9700 Szombathely, Király utca 10. 9700 Szombathely, Rohonci út 52. 9730 Kőszeg, Kossuth Lajos utca 8. 9737 Bük, Kossuth utca 1-3. 9800 Vasvár, Alkotmány utca 2. 9900 Körmend, Vida József utca 12. 9970 Szentgotthárd, Mártírok út 2.
BUSINESS REPORT OTP BANK (SEPARATE) 11/26 STATEMENT ON CORPORATE GOVERNANCE PRACTICE Corporate governance practice OTP Bank Plc., being registered in Hungary, has a corporate governance policy that complies with the provisions on companies of the act applicable (Civil Code). As the company conducts banking operations, it also adheres to the statutory regulations pertaining to credit institutions. Beyond fulfilling the statutory requirements, as a listed company on the Budapest Stock Exchange (BSE), the company also makes an annual declaration on its compliance with the BSE’s Corporate Governance Recommendations. After being approved by the General Meeting, this declaration is published on the websites of both the Stock Exchange (www.bet.hu) and the Bank (www.otpbank.hu). System of internal controls OTP Bank Plc., as a provider of financial and investment services, operates a closely regulated and state- supervised system of internal controls. OTP Bank Plc. has detailed risk management regulations applicable to all types of risks (credit, country, counterparty, market, liquidity, operational, compliance), which are in compliance with the regulations on prudent banking operations. The Bank Group pays special attention to the management of ESG risks and the implementation of climate protection aspects in business practice. Its risk management system extends to cover the identification of risks, the assessment and analysis of their impact, elaboration of the required action plans and the monitoring of their effectiveness and results. The business continuity framework is intended to provide for the continuity of services. Developed on the basis of international methodologies, the lifecycle model includes process evaluation, action plan development for critical processes, the regular review and testing of these, as well as related DRP activities. OTP Bank Plc.'s internal audit system is realised on several levels of control built on each other. The system of internal checks and balances includes process-integrated control, management control, independent internal audit organisation and executive information system. The independent internal audit organisation as a key element of internal lines of defence promotes the statutory and efficient management of assets and liabilities, the defence of property, the safe course of business, the efficient operation of internal control systems, the minimisation of risks, moreover 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 and audit results for the executive boards. Once a year, the internal audit organisation with the prior opinion of the Audit Committee draws up, for the Supervisory Board, the Board of Directors and the Risk Assumption and Risk Management Committee, objective and independent reports in respect of the operation of risk management, internal control mechanisms and corporate governance functions. Furthermore, in line with the provisions of the Credit Institutions Act, reports, once a year, to the Supervisory Board and the Board of Directors on the regularity of internal audit tasks, professional requirements and the conduct of audits, and on the review of compliance with IT and other technical conditions needed for the audits. In line with the regulations of the European Union, the applicable Hungarian laws and supervisory recommendations, OTP Bank Plc. operates an independent organisational unit with the task of identifying and managing compliance risks. The Compliance Directorate prepares a report quarterly to the Board of Directors, and annually to the Supervisory Board, about the Bank’s and the Bank Group’s compliance activities and position. IT Controls Applications are developed by either in-house group resources or by third parties. OTP Bank applies administrative, logical and physical control measures commensurate with the risk in order to protect the IT systems storing and processing data, as follows: • access to data/systems is only possible on the basis of a predefined authorisation management process that applies the principle of least privilege, ensures segregation of responsibilities, that has regular access right reviews and ensures that dismissed employees’ access is revoked in a timely manner; • user authentication, authorisation and password management processes are controlled by policies and audited; • the systems have test and development environments with appropriate separation from the production environments that have a secure change management procedure, which ensures that program
BUSINESS REPORT OTP BANK (SEPARATE) 12/26 developments or modifications can only be deployed to the operational environment after proper, controlled testing and approval; • systems are protected by appropriate network perimeter protection, various security devices and network segmentation, furthermore all network communications are protected with state-of-the-art encryption; • the IT systems that store and process data are regularly backed up and backup media is stored in controlled premises with adequate protection for long-term retention, and the organisation carries out regular backup restore tests; • adequate redundancy is applied for IT systems that store and process data to ensure business continuity and disaster resiliency; • has developed DRPs and BCPs for critical systems and critical business processes, which are regularly tested and reviewed; • the Bank collects and retains the complete log of all major IT operations and IT security relevant data processing activities and the confidentiality, availability, integrity, authenticity and non-repudiation of these audit logs are ensured; • there is a continuous, up-to-date protection against malicious codes; • it ensures the regular implementation of vendor patches and updates for the environments used; • it uses a data leakage protection (DLP) solution to reduce the risk of inadvertent data loss; • it ensures the continuous monitoring of the operation events of the physical and virtual environment system elements with automated event detection and management tools; • the above measures are documented at an appropriate level, which ensures the traceability of the implementation of data security requirements in a transparent manner; • it ensures permanent secure deletion of the data stored on the media, the destruction of the media and the documentation of the destruction of the media during secure operational media disposal processes; • it enforces data protection requirements already at the design stage of the implementation of the IT systems storing and processing personal data and of the systems operational processes related to them; • acquire and maintain ability to adequately handle application related security events (including cyber threats), entailing prevention, detection, identification, isolation, analysis, recovery and reporting; • remote work is regulated in a controlled and documented way, remote device and user access is protected with multi-factor authentication; • ensures IT security compliance by its managed regulative framework; • revision and update of IT security regulations bi-yearly or in a frequency complying legislative requirements or upon major changes; • ensures vulnerability assessments and penetration tests are carried out as planned; • defines pools for categorization of installed software into preferred, allowed and prohibited and ensures compliance to that policy. • it ensures that its employees have adequate knowledge of data protection requirements and provides regular data protection and information security awareness training for them. General Meeting The General Meeting is the supreme governing body of OTP Bank Plc. The regulations pertaining to its operation are set forth in the Company’s Articles of Association, and comply fully with both general and special statutory requirements. Information on the General Meeting is available in the Corporate Governance Report. 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 The Company’s registered capital is HUF 28,000,001,000, that is twenty-eight thousand million one thousand Hungarian forint, divided into 280,000,010 that is Two hundred and eighty million and ten dematerialised ordinary shares with a nominal value of HUF 100 each, and a total nominal value of HUF 28,000,001,000, that is twenty eight billion one thousand Hungarian forint. The ordinary shares of the Company specified all have the same nominal value and bestow the same rights in respect of the Company. There are no restrictions in place concerning the transfer of issued securities constituting the registered capital of the Company.
BUSINESS REPORT OTP BANK (SEPARATE) 13/26 No securities with special control rights have been issued by the Company. Special Employee Partial Ownership Plan Organization No. I. of OTP Employees and Special Employee Partial Ownership Plan Organization No. II. of OTP Employees (hereinafter referred to as: OTP SEPOPs) were established based on the decision of the Company’s certain employees and executives considered as employees pursuant to the Act XLIV of 1992 on Employee Partial Ownership Plan. Management rights of OTP SEPOPs are exercised by a trust named Alapítvány az OTP Munkavállalók Különleges Résztulajdonosi Programjáért, founded by the same employees setting up OTP SEPOPs. The Company did not participate either in foundation or in management of OTP SEPOPs. The Company in line with the ESOP Act initiated an employee share ownership plan having a remuneration purpose and founded OTP Bank ESOP Organization for its execution (hereinafter referred to as ESOP Organization). Pursuant to the laws, the management rights over the ESOP Organization are exercised by a law firm, the so called trustee. In the case of the ESOP Organization Szűcs Law Firm is entitled to exercise the authorities of the trustee. The Company participated in the foundation of the ESOP Organization, however, after its foundation it cannot participate in its management, and according to the laws, it is not entitled to either give orders or to recall the trustee. Rules on the restrictions of the voting rights: The Company’s ordinary shares confer one vote per share. An individual shareholder or group of shareholders may not exercise voting rights in respect of in an extent exceeding 25%, or – if the voting rights of another shareholder or group of shareholders exceed 10% – exceeding 33% of the total voting rights represented by the shares conferring voting rights at the Company’s General Meeting. The shareholder is obliged to notify the Company’s Board of Directors without delay if the shareholder directly or indirectly, or together with other shareholders in the same group of shareholders, holds more than 2% of the voting rights represented by the shares conferring voting rights at the Company’s General Meeting. Concurrently with this, the shareholder is obliged to designate the shareholders through which the indirect voting right exists, or the members of the group of shareholders. In the event of a failure to provide such notification, or if there are substantive grounds for assuming that the shareholder has made a misleading declaration regarding the composition of the shareholder group, then the shareholder’s voting right shall be suspended and may not be exercised until the shareholder has met the above obligations. The notification obligation stipulated in this paragraph and the related legal consequences are also incumbent upon individuals who are classified or may be classified as the Company’s shareholders under Article 61 of the Capital Markets Act. The Company must also be provided with proof of the conditions for exemption from the notification obligation in accordance with Section 61 (7)-(8) and (11) and Section 61 (10),(11a) and(12), of the Capital Markets Act. Shareholder group: the shareholder and another shareholder, in which the former has either a direct or indirect shareholding or has an influence without a shareholding (collectively: a direct and/or indirect influence); furthermore: the shareholder and another shareholder who is exercising or is willing to exercise its voting rights together with the former shareholder, regardless of what type of agreement between the participants underlies such concerted exercising of rights. For determining the existence and extent of the indirect holding, the rules of the Credit Institutions Act relating to the calculation of indirect ownership shall be applied. If the voting rights that may be exercised by a shareholder group exceed the threshold stipulated above, the voting rights shall be reduced in such a way that the voting rights relating to the shares most recently acquired by the group of shareholders shall not be exercisable. If there are substantive grounds to presume that the exercising of voting rights by any shareholder or shareholders might result in a breach of the rules of the Capital Markets Act relating to the acquisition of a controlling interest, the Board of Directors’ authorised representative responsible for the registration of shareholders at the venue of the General Meeting, or the Chairman of the General Meeting, may exclude the affected shareholders from attending the General Meeting or exercising voting rights. The General Meeting has exclusive authority with respect to the following matters:  changes to the rights associated with specific series of shares, or the transformation of certain categories or classes of shares; (qualified majority)  the decision regarding the delisting of the shares (qualified majority). When making the decisions, shares embodying multiple voting rights shall represent one share.
BUSINESS REPORT OTP BANK (SEPARATE) 14/26 The Company is not aware of any kind of agreements among the owners that could give rise to the restriction of the transfer of issued securities and/or the voting rights. Rules on the appointment and removal of executive officers, and rules on amendment of the Articles of Association: The Board of Directors has at least 5, and up to 11 members. When making the decisions, shares embodying multiple voting rights shall represent one share. The members of the Board of Directors are elected by the General Meeting based on its decision uniformly either for an indefinite period or for five years; in the latter case the mandate ends with the General Meeting concluding the fifth financial year following the election. The mandate of a member elected during this period expires together with the mandate of the Board of Directors. The Board of Directors elects a Chairman and may elect one or more Deputy Chairmen, from among its own members, whose period of office shall be equal to the mandate of the Board of Directors. The Chairman of the Board of Directors is also the Chief Executive Officer (Chairman & CEO) of the Company, unless the Board of Directors decides within its competence that the position of Chairman of the Board of Directors and the Chief Executive Officer of the Company are held by separate persons. The membership of the Board of Directors ceases to exist by a. expiry of the mandate, b. resignation, c. recall, d. death, e. the occurrence of grounds for disqualification as regulated by law. f. termination of the employment of internal (executive) Board members. The General Meeting has exclusive authority with respect to the following matters:  the recall of members of the Board of Directors, the Supervisory Board and Audit Committee, and of the auditor; (qualified majority) More than one third of the members of the Board of Directors and the non-executive members of the Supervisory Board may be recalled within a 12-month period only if any shareholder holds more than 33% of the shares issued by the Company, which have been obtained by the shareholder by way of a public purchase offer.  except in the cases referred by these Articles of Association to the authority of the Board of Directors, the establishment and amendment of the Articles of Association; (qualified majority); the General Meeting decides on proposals concerning the amendment of the Articles of Association – based on a resolution passed by shareholders with a simple majority – either individually or en masse. The Board of Directors is obliged to  prepare the Company’s financial statements in accordance with the Accounting Act, and make a proposal for the use of the profit after taxation;  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 assets and business policy;  provide for the proper keeping of the Company's business books;  perform the tasks referred to its authority under the Credit Institutions Act, in particular: - ensuring the integrity of the accounting and financial reporting system; - elaborating the appropriate strategy and determining risk tolerance levels for each business unit concerned; - setting risk assumption limits; - providing the necessary resources for the management or risk, the valuation of assets, the use of external credit ratings and the application of internal models.
BUSINESS REPORT OTP BANK (SEPARATE) 15/26 The following, in particular, come under the exclusive authority of the Board of Directors:  election of the Chairman & Chief Executive Officer of the Company, and exercising employer’s right in respect thereof;  election of one or more Deputy Chairmen of the Board of Directors;  determination of the annual plan;  the analysis and assessment of the implementation of business-policy guidelines, on the basis of the Company’s quarterly balance sheet;  decisions on transactions referred to the authority of the Board of Directors by the Company's organisational and operational regulations;  decision on launching, suspending, or terminating the performance of certain banking activities within the scope of the licensed activities of the Company;  designation of the employees entitled to sign on behalf of the Company;  decision on the increasing of registered capital at the terms set out in the relevant resolution of the General Meeting;  decision to acquire treasury shares at the terms set out in the relevant resolution of the General Meeting;  decision on approving internal loans in accordance with the Credit Institutions Act;  decision on the approval of regulations that fundamentally determine banking operations, or are referred to its authority by the Credit Institutions Act. The following shall qualify as such regulations: - the collateral evaluation regulations, - the risk-assumption regulations, - the customer rating regulations, - the counterparty rating regulations, - the investment regulations, - the regulations on asset classification, impairment and provisioning, - the organisational and operational regulations, which contain the regulations on the procedure for assessing requests related to large loans, - the regulations on the transfer of signatory rights;  the decision on approving the Rules of Procedure of the Board of Directors;  decision on steps to hinder a public takeover procedure;  decision on the acceptance of a public purchase offer received in respect of treasury shares;  decision on the commencement of trading in the shares in a regulated market (flotation);  decision on the cessation of trading in the shares in a given regulated market, provided that the shares are traded in another regulated market (hereinafter: transfer). The Board of Directors is exclusively authorised to:  decide, in the cases specified in the Civil Code, on acceptance of the Company’s interim balance sheet, subject to the prior approval of the Supervisory Board;  decide, instead of the General Meeting, to pay an advance on dividends, subject to the preliminary approval of the Supervisory Board;  make decisions regarding any change in the Company’s name, registered office, permanent establishments and branches, and in the Company’s activities – with the exception of its core activity – and, in relation to this, to modify the Articles of Association should it become necessary to do so on the basis of the Civil Code or the Articles of Association;  make decision on mergers (if, according to the provisions of the law on the transformation, merger and demerger of legal entities, the approval of the General Meeting is not required in order for the merger to take place). The Board of Directors directly exercises employer's rights in respect of the Chairman & CEO. The person affected by a decision may not participate in the decision making. Employer rights in respect of the executive directors of the Company are exercised by the Board of Directors through the Chairman & CEO, with the proviso that the Board of Directors must be notified in advance of the appointment and dismissal of the Deputy CEOs. With regard to issues related to the exercising of employer's rights in respect of employees, the Company is represented by the Chief Executive Officer and by the senior company employees defined in the Organisational and Operational Regulations of the Company, in accordance with the delegation of authority approved by the Board of Directors. If the Chairman of the Board of Directors and the CEO are
BUSINESS REPORT OTP BANK (SEPARATE) 16/26 different persons, the employer rights in respect of the other executive directors of the Company (CEO, deputy CEOs) are exercised by the Board of Directors through the Chairman of Board of Directors, with the proviso that the Board of Directors shall be notified in advance of the appointment and dismissal of the CEO and Deputy CEOs. With regard to issues related to the exercising of employer's rights in respect of employees, the Company is represented by the persons defined in the Organisational and Operational Regulations of the Company, in accordance with the delegation of authority approved by the Board of Directors. The Board of Directors may delegate, to individual members of the Board of Directors, to executive directors employed by the Company, and to the heads of the individual service departments, any task that does not come under the exclusive authority of the Board of Directors in accordance with these Articles of Association or a General Meeting resolution. The Company may acquire treasury shares in accordance with the rules of the Civil Code. The prior authorisation of the General Meeting is not required for the acquisition of treasury shares if the acquisition of the shares is necessary in order to prevent a direct threat of severe damage to the Company (this provision is not applicable in the event of a public purchase offer aimed at buying up the Company’s shares), as well as if the Company acquires the treasury shares in the context of a judicial procedure aimed at the settlement of a claim to which the Company is entitled, or in the course of a transformation. The Company has not made agreements in the meaning of points (j) and (k) in paragraph 95/A of Act No. C of 2000 on Accounting. Ownership structure of OTP Bank Plc. Description of owner Total equity 1 January 2023 31 December 2023 Ownership share Voting rights 1 Quantity Ownership share Voting rights 1 Quantity Domestic institution/company 31.80% 31.84% 89,040,716 31.40% 31.46% 87,914,205 Foreign institution/company 50.05% 50.11% 140,129,576 54.43% 54.54% 152,405,042 Domestic individual 16.91% 16.93% 47,338,305 12.93% 12.96% 36,217,730 Foreign individual 0.52% 0.52% 1,464,494 0.48% 0.48% 1,349,320 Employees, senior officers 0.55% 0.55% 1,526,762 0.48% 0.48% 1,338,715 Treasury shares 2 0.13% 0.00% 354,144 0.20% 0.00% 572,746 Government held owne r 0.05% 0.05% 139,946 0.05% 0.05% 139,036 International Development Institutions 0.00% 0.00% 3,183 0.01% 0.01% 28,603 Othe r 3 0.00% 0.00% 2,884 0.01% 0.01% 34,613 TOTAL 100.00% 100.00% 280,000,010 100.00% 100.00% 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 2023 ESOP owned 12,095,524 OTP shares. 3 Non-identified shareholders according to the shareholders’ registry. Number of treasury shares held in the year under review (2023) 1 January 31 March 30 June 30 September 31 December OTP Bank 354,144 1,107,117 585,596 602,180 572,746 Subsidiaries 0 0 0 0 0 TOTAL 354,144 1,107,117 585,596 602,180 572,746 Shareholders with over/around 5% stake as at 31 December 2023 Name Nationality 1 Activity 2 Number of shares Ownership 3 Voting rights 3,4 Notes 5 MOL (Hungarian Oil and Gas Company Plc.) D C 24,000,000 8.57% 8.59% Groupama Group F/D C 14,256,813 5.09% 5.10% Groupama Gan Vie SA F C 14,140,000 5.05% 5.06% Groupama Biztosító Ltd, D C 116.813 0.04% 0.04% 1 Domestic (D), Foreign (F). 2 Custodian (CU), Public Institution (PU), International Development Institutions (ID), Institutional (I), Company (C), Private (PR), Employee or senior officer (E). 3 Rounded to two decimals. 4 Voting rights in the General Meeting of the Issuer for participation in decision-making. 5 Eg, professional investor, financial investor, etc.
BUSINESS REPORT OTP BANK (SEPARATE) 17/26 Senior officers, strategic employees and their shareholding of OTP shares as at 31 December 2023 Type 1 Name Position Commencement date of the term Expiration/termination of the term Number of shares IG dr. Sándor Csányi 2 Chairman and CEO 15/05/1992 2026 12,000 IG Tamás Erdei Deputy Chairman 27/04/2012 2026 53,885 IG Gabriella Balogh membe r 16/04/2021 2026 17,793 IG Mihály Baumstark membe r 29/04/1999 2026 59,200 IG Péter Csányi member, Deputy CEO 16/04/2021 2026 25,939 IG dr. István Gresa membe r 27/04/2012 2026 192,458 IG Antal Kovács 3 membe r 15/04/2016 2026 126,584 IG György Nagy 4 membe r 16/04/2021 2026 44,400 IG dr. Márton Gellért Vági membe r 16/04/2021 2026 15,800 IG dr. József Vörös membe r 15/05/1992 2026 196,314 IG László Wolf member, Deputy CEO 15/04/2016 2026 544,502 FB Tibor Tolnay Chairman 15/05/1992 2026 54 FB dr. Gábor Horváth Deputy Chairman 19/05/1995 2026 0 FB Klára Bella membe r 12/04/2019 2026 0 FB dr. Tamás Gudra membe r 16/04/2021 2026 0 FB András Michnai membe r 25/04/2008 2026 1,410 FB Olivier Péqueux membe r 13/04/2018 2026 0 SP András Becsei Deputy CEO 7,199 SP László Bencsik Deputy CEO 15,462 SP György Kiss-Haypál Deputy CEO 15,160 SP Imre Bertalan MC membe r 0 SP Dr. Bálint Csere MC membe r 10,555 TOTAL No. of shares held by management 1,338,715 1 Board Member (IG), Supervisory Board Member (FB), Employee in strategic position (SP) 2 Number of OTP shares owned by Dr. Sándor Csányi, Chairman and CEO, directly or indirectly: 4,712,949. 3 Number of OTP shares owned by Antal Kovács, Member of Board of Directors, directly or indirectly: 130,884. 4 Number of OTP shares owned by György Nagy, Member of Board of Directors, directly or indirectly: 1,068,855. Committees 1 Members of the Board of Directors Dr. Sándor Csányi – Chairman Mr. Tamás Erdei – Deputy Chairman Ms. Gabriella Balogh Mr. Mihály Baumstark Mr. Péter Csányi Dr. István Gresa Mr. Antal Kovács Mr. György Nagy Dr. Márton Gellért Vági Dr. József Vörös Mr. László Wolf Members of the Supervisory Board Mr. Tibor Tolnay – Chairman Dr. József Gábor Horváth – Deputy Chairman Ms. Klára Bella Dr. Tamás Gudra Mr. András Michnai Mr. Olivier Péqueux Members of the Audit Committee Dr. József Gábor Horváth – Chairman Mr. Tibor Tolnay – Deputy Chairman Dr. Tamás Gudra Mr. Olivier Péqueux The résumés of the committee and board members are available in the Corporate Governance Report/Annual Report. 1 Personal changes can be found in the „Personal and organizational changes” chapter.
BUSINESS REPORT OTP BANK (SEPARATE) 18/26 Personal and organizational changes As of 1 January 2023, Mr. Antal György Kovács was replaced by Mr. András Becsei as Deputy CEO of the Retail Division. Mr. Antal György Kovács retained his employment status, thus his position as Deputy CEO until the Annual General Meeting closing the financial year 2022, during which time he was mainly be responsible for group governance. On 28 April 2023, concerning the audit of OTP Bank Plc.’s separate and consolidated annual financial statements in accordance with International Financial Reporting Standards for the year 2023, the Annual General Meeting elected Ernst & Young Ltd. (001165, H-1132 Budapest, Váci út 20.) as the Company’s auditor from 1 May 2023 until 30 April 2024. On 28 April 2023 the Annual General Meeting elected Mr. Antal György Kovács as member of the Board of Directors of the Company until the Annual General Meeting of the Company closing the 2025 business year, but not later than 30 April 2026. On 28 April 2023 the Annual General Meeting elected Mr. Tibor Tolnay Dr. József Gábor Horváth Dr. Tamás Gudra Mr. Olivier Péqueux Mrs. Klára Bella Mr. András Michnai as member of the Supervisory Board of the Company until the Annual General Meeting of the Company closing the 2025 business year, but not later than 30 April 2026. On 28 April 2023 the Annual General Meeting elected Mr. Tibor Tolnay Dr. József Gábor Horváth Dr. Tamás Gudra Mr. Olivier Péqueux as member of the Audit Committee of the Company until the Annual General Meeting of the Company closing the 2025 business year, but not later than 30 April 2026. Operation of the executive boards OTP Bank Plc. has a dual governance structure, in which the Board of Directors is the Company’s executive management body in its managerial function, while the Supervisory Board is the management body in its supervisory function of the Company. It controls the supervision of the lawfulness of the Company’s operation, its business practices and management, performs oversight tasks and accepts the provisions of the Bank Group's Remuneration Policy. The effective operation of Supervisory Board is supported by the Audit Committee, as a committee, which also monitors the internal audit, the risk management, the reporting systems and the activities of the auditor. In order to assist the performance of the governance functions the Board of Directors founded and operates, as permanent or other committees, such as the Management Committee, the Executive Steering Committee, the Remuneration Committee, the Nomination Committee and the Risk Assumption and Risk Management Committee. To ensure effective operation OTP Bank Plc. also has a number of further permanent committees. OTP Bank Plc. gives an account of the activities of the executive boards and the committees every year in its Corporate Governance Report. The Board of Directors held 6, the Supervisory Board held 7 meetings, while the Audit Committee held 3 meetings in 2023. In addition, resolutions were passed by the Board of Directors on 155, by the Supervisory Board on 87 and by the Audit Committee on 29 occasions by written vote. Policy of diversity OTP Bank Plc. determines and regulates the criteria for the selection of senior executives in line with European Union as well as domestic legal requirements and directives fundamentally determining the operation of credit institutions. When designating members of the management bodies (Board of Directors, Supervisory Board) as well as appointing members of the Board of Directors and administrative members (Management), OTP Bank Plc. considers the existence of professional preparation, the high-level human and leadership competence, the versatile educational background, the widespread business experience and business reputation of the utmost
BUSINESS REPORT OTP BANK (SEPARATE) 19/26 importance, at the same time, it is also highly committed to taking efficient measures in order to ensure diversity with regard to corporate operation, including the gradual improvement in women’s participation rate. OTP Bank Plc.’s Nomination Committee continuously keeps tracking the European Union and domestic legislation relating to women’s quota on its agenda, in that when unambiguously worded expectations are announced, it promptly takes the necessary measures. In accordance with OTP Bank Plc.’s currently approved strategy, the goal is to have at least one female member in both the Bord of Directors and the Supervisory Board. It is important to note, however, that, as a public limited company, the selection of the members of the management bodies falls within the exclusive competence of the General Meeting upon which – beyond its capacity to designate enforcing the above aspects to maximum effect – OTP Bank Plc. has no substantive influence. According to OTP Bank Plc.’s Articles of Association, a Board of Directors comprising 5-11 members and a Supervisory Board comprising 5-9 members are set up at OTP Bank Plc. Currently the Board of Directors operates with 11 members and has one female member, the Supervisory Board comprises 6 members and has one female member. The management of OTP Bank Plc. currently comprises 6 members and has no female member.
BUSINESS REPORT OTP BANK (SEPARATE) 20/26 NON-FINANCIAL STATEMENT – OTP BANK PLC. (SEPARATE) ENVIRONMENTAL POLICY, ENVIRONMENTAL PROJECTS The operational functioning of OTP Group and OTP Bank requires the use of natural resources and energy, however, the resulting environmental impact is significantly lesser than the indirect impacts associated with the provision of financial services. Of the operational impacts, OTP Group considers greenhouse gas (GHG) emissions to be the most significant, but we are also working on reducing our impacts beyond this. Emissions exacerbate climate change and damage natural resources. Reducing emissions helps fight climate change. However, the practices of the Bank also have an awareness raising impact in the field of environmental protection and the enforcement of environmental awareness in its operations is a key element of the regional leading role undertaken by OTP Group in relation to green transition. In the context of the provision of financial services, environmental risks are managed and business opportunities related to environmental protection are exploited within the ESG strategy and are not covered in this chapter. In 2023, OTP Group again participated in the CDP's environmental disclosure scheme, maintaining its "B" rating achieved in the previous year. OTP Bank mitigates environmental impacts through the following activities:  Efficient use of resources  Carbon-neutral operation  Energy efficiency investment projects  Purchase of green electricity, use of renewable energy sources  Reducing paper use through digitalisation; using recycled paper  Rationalising business travel  Improving waste management  Transparent reporting on the environmental impacts of operation  Awareness-raising activities for employees and customers OTP Bank members operate in maximum compliance with environmental legislation and no related fines were imposed in 2023 either. Environmental protection at the Bank is governed by an Environmental Policy. OTP Bank prepares annual internal reports on the environmental impact of its operation, for approval by the manager in charge of this function. To enhance knowledge relating to the performance of work, along with general knowledge, every OTP Bank employee is provided with environmental training once every two years. Energy consumption and carbon dioxide emissions OTP Bank's ESG (Environmental, Social, Governance) strategy targets full carbon neutrality by 2030 for Scope 1-2 emissions and net carbon neutrality from 2022. The net carbon neutrality target has been met in 2023. Electricity accounts for approximately half of total energy consumption, and thus the Bank's continued use of predominantly green electricity in 2023 is significantly reducing carbon emissions 2 . OTP Bank's total energy consumption decreased by almost 10 percent compared to 2022, largely due to the use of heating fuels. In addition to the mild winter, the Bank has introduced a number of savings measures that have significantly reduced consumption, such as turning down temperatures and the use of time-programmable control during periods of non-use. 2 In the case of leased premises, the purchase of green electricity cannot be fully implemented.
BUSINESS REPORT OTP BANK (SEPARATE) 21/26 Energy consumption within the organisation (GJ) – OTP Bank 2019 2020¹ 2021 2022 2023 Total non-renewable fuel sources 97,579 93,423 103,54 5 100,691 90,030 Total renewable fuel sources 0 1,360 2,247 2,615 2,821 Total indirect energy purchased (including renewables) 151,026 151,781 152,082 161,57 5 151,392 Self-generated renewable energ y 2,00 5 5,166 5,141 4,053 1,312 Total energy consumption 2 250,610 251,730 263,014 268,934 245,555 Total energy consumption per employee 3 28.14 26.75 26.73 26.17 23.19 Share of renewable energy N/A N/A N/A N/A 54% ¹ Also includes the consumption of the former Monicomp and eBIZ. 2 Deviates slightly from the figures in the Annual Report up to 2021 as the finalised consumption data were received at a later date. 3 In 2019 based on statistical headcount, from 2020 based on average full-time staff numbers. The energy consumption data are derived from metering; solar energy and part of the heat pump energy is estimated based on manufacturer information in the absence of a meter. Where necessary, we used the calorific values taken from the National Inventory Report (NIR) from 2022 onwards, and previously the EU regulation and DEFRA values, to convert the consumed quantities into energy. OTP Bank’s Scope 1 and Scope 2 CO 2 e emissions (t) 2019 2020 1 2021 2022 2023 Direct (Scope 1) 6,779 6,07 8 6,54 8 6,670 6,005 Indirect (Scope 2) Indirect location-based 10,78 6 9,883 9,904 11,49 6 11,64 8 Indirect market-based 8,640 8,350 8,369 1,005 1,110 Total (Scope 1 + 2) location-based 17,565 15,961 16,452 18,165 17,653 Total (Scope 1 + 2) market-based 15,419 14,428 14,917 7,675 7,115 Total (Scope 1 + 2) with carbon offset 15,419 14,428 14,917 675 - 485 Per employee (market-based) N/A 1.5 3 1.5 2 0.7 5 0.6 7 Per employee (with offset) N/A 1.53 1.52 0.07 -0.05 1 Also includes the consumption of the former Monicomp and eBIZ. The figures shown are calculated from energy consumption, in all cases based on the applicable statutory regulations and the factors stipulated by authorities and industry organisations (National Inventory Reports (NIR), IPCC, DEFRA, EU Regulation, AIB, IFI, and data from suppliers for electricity and district heating). For Scope 1 emissions, country-specific factors are applied subject to availability from 2022. We calculate electricity-related emissions using country-specific factors. For district heating use, from 2020 onwards we use the Hungarian, Slovenian and Croatian factors, and for all other countries, we uniformly use the data published by DEFRA, while in previous years we used the Hungarian emission factors, except for Ukraine, Russia and Serbia, in the absence of other reliable data. Scope 1 emissions and, in 2022 and 2023, even district heating cover all GHG emissions. For Scope 2 emissions, the previous years of district heating in Hungary and electricity factors only cover CO 2. For the emission factors used, we do not have information on the GWP values considered in each and every case. In addition, the fact that OTP Bank continuously carries out renovations and modernisations at both its central buildings and in its branch network reduces consumption, and improving energy efficiency is an important aspect of investment projects. In 2023, the modernisation of heating systems, the widest possible use of LED lighting and the installation of additional motion sensors were again the most common types of energy efficiency investments. The rate of business travel has increased at the parent bank. The total kilometres travelled increased at the parent bank by 9 percent compared to the previous year, with air travel also rising. While online meetings remain a dominant part of liaising, with the end of the coronavirus pandemic, face-to-face meetings have become more frequent again, and business needs have influenced the amount of travel. To offset its 2023 Scope 1 and Scope 2 emissions, OTP Bank purchased carbon credits in 2023, thereby preventing the emission of 7,600 tonnes of carbon emissions during the year. The 2023 emission values were determined in advance, with offsets higher than emissions. The credits purchased are retired credits verified as per Verra (VER). The Bank considers it essential that the project supported through offsetting is located in the country of operation of the Banking Group, and has again opted for a project in Bulgaria, which was implemented at the Saint Nikola Wind Farm, the largest wind farm in the country, near the town of Kavarna. Paper use and waste management The steadily increasing range of electronically available services also reduces paper consumption. In addition, the digitalisation of the bank's internal processes is ongoing. At the same time, the paper-based administration demanded by legal requirements inhibits in many cases the further reduction of printing in Hungary and in other countries. The share of electronic account statements also showed an increasing trend in 2023. Their use is continuously encouraged by the Bank. The majority of OTP Bank customers (83 percent of retail clients and almost half of large corporate customers) do not receive paper-based statements, which is a noticeable increase over the previous year.
BUSINESS REPORT OTP BANK (SEPARATE) 22/26 Data on materials used and purchases made by OTP Bank 2019 2020 2021 2022 2023 Number of computers (laptops + PCs) (thousand units) 18 19 19 19 18 Weight of ink cartridges and toners used (t) 8 6 4 5 4 Amount of office pape r (t) 699 478 398 397 354 Amount of paper used for document sorting and packaging (t) 58 75 90 98 26 Amount of indirectly used paper 1 (t) 7 5,845 2 491 558 313 1 E.g. marketing brochures, invoice sheets 2 Mainly consumption of former Monicomp. At OTP Bank, we were able to reduce paper consumption by 11 percent. The parent bank used 47 percent recycled paper in office paper use and 31 percent in total paper use. In Hungary, we use FSC-certified paper even in the case of account statements, marketing publications and envelopes, while we use recycled FSC paper for producing DM letters. All personal hygiene products used at OTP Bank are exclusively ECO Label products. Awareness-raising The members of the Banking Group have launched numerous programmes, awareness-raising campaigns and involved employees to promote environmental awareness and the protection of natural values. To enhance knowledge relating to the performance of work, along with general knowledge, every OTP Bank employee is provided with environmental training once every two years. Green Challenge idea contest OTP Bank has launched the Green Challenge idea contest among its employees. To introduce the contest, the Bank started a series of six articles on sustainability, concluding with a series of quizzes. Employees who answered the questions the fastest received special prizes from OTP. For the idea contest, OTP Bank was looking for applications that support the reduction of the Bank's carbon footprint and can be easily implemented in everyday practice. The challenge proved to be very popular with 136 ideas submitted. The implementation of several of these has already started and four other winning ideas are also to be realised down the line:  Establishment of MOL-Bubi stations around OTP offices,  Green Plate Programme to promote more sustainable dietary habits,  the digitalisation of business travel settlements,  special prize for the idea with the greatest impact: minimising standby power consumption. As a result of the popularity of the competition, we will be launching a permanent sustainability idea box starting from 2024. OTP Bank was also one of the partners of the Green Friday initiative, launched jointly by MasterCard and several organisations to raise awareness about conscious spending and lifestyle. Throughout the programme, dedicated microsites and social media platforms featured awareness-raising articles and tips to promote a greener Christmas. The disclosure obligation of the green asset ratio („GAR”) required by the European Council and Parliament Regulation (EU) 2020/852 of 18 June 2020 (Taxonomy Regulation) is fulfilled by the Bank in the Non-Financial Statement section of the consolidated Business Report.
BUSINESS REPORT OTP BANK (SEPARATE) 23/26 Fight against corruption and against the practice of bribery The Code of Ethics (https://www.otpbank.hu/static/portal/sw/file/OTP_EtikaiKodex_EN.pdf) , the Partner Code of Ethics (https://www.otpbank.hu/static/portal/sw/file/OTP_Partneri_EtikaiKodex_EN.pdf) publish in 2023 and the Anti-Corruption Policy of OTP Bank Group contains provisions on the fight against corruption and against the practice of bribery, also on the acceptance of individual differences and the denial of discrimination (https://www.otpbank.hu/portal/en/EthicalDeclaration, Anti_Corruption_Policy.pdf (otpbank.hu)). As it can be read in the foreword of the Code and the Anti-Corruption Policy as well, the OTP Bank Plc. and its management have adopted the principle of zero tolerance towards corruption and bribery, taking a definite stance against all forms of corruption and giving full support to the fight against corruption. In addition, the Code states that "As an ethical and compliant institution, the Bank and its management are fully committed to ensuring observance of all relevant legislation, including anti-corruption statutes." The OTP Bank Plc. has set up an ethics reporting system (whistleblowing), which is for the reporting and the handling of the reports on suspected or actual violation of the values set forth in the Code of Ethics, where anonymous reporting of ethics issues is also possible. The OTP Bank Plc. conducts inquiries for the purpose of detecting, preventing anomalies in connection with reports made or anomalies it became aware of otherwise. Through the OTP Bank Plc.'s ethics reporting system a total of 93 reports were received in 2023. In 29 of these reports, we deemed it necessary to conduct an ethical procedure and 8 case’s investigation resulted in declaring ethics offense. The OTP Bank Plc. has created and maintains its Code of Ethics to keep reputational risk and financial losses, which may incur in relation to corruption, bribery and discrimination, on a minimum level. Both employees and newcomers receive education on the Code of Ethics, and in addition, the acceptance to be bound by it is a prerequisite for their employment. In addition, all business partners and clients are communicated about the Anti-Corruption Policy and procedures through the Code of Ethics and Anti-Corruption Policy published publicly on the OTP Bank Plc.'s website and from 2023 the Partner Code of Ethics has been published on the Bank’s website as well. The Anti-Corruption Policy stipulates that, in view of the fact that existing and established relationships with contractual partners also contain the possibility of corruption, the OTP Bank Plc. will act prudently in its dealings with contractors, in particular in the tendering and preparation process, to minimise the risk of corruption. The OTP Bank Plc. establishes relationships with its contractual partners based on an assessment of professionalism, competence and competitiveness, and does not apply other non-professional selection criteria that contain the possibility of corruption. Based on the Compliance’s proposal, the prohibition of corruption will be reflected in the contractual and regulatory documents used by the OTP Bank Plc. in a clearer and well-defined manner from 2023 onwards, through the inclusion of anti-corruption clauses in the business rules and standard contracts. The clause will state from the very beginning of the business relationship that the contracting partner accepts OTP Bank Plc.'s anti-corruption principles, including the prohibition of corruption and the consequences of breaching this prohibition, which can even be termination of contract. Any requests from third parties affecting human rights are treated by the OTP Bank Plc. as a priority. We manage the risks regarding the fight against corruption and bribery within the framework of our operational risk management process. Our quarterly compliance reports cover the changes in risks as well as the steps necessary steps to manage them. The reports are presented to the Executive Steering Committee and the Board of Directors; the annual report is also submitted to the Supervisory Board.
BUSINESS REPORT OTP BANK (SEPARATE) 24/26 Short description of the business model of the company OTP Bank is the market leading credit institution in Hungary. As for its business model, the Bank offers high- quality financial services to retail, private banking, micro and small business, medium and large corporate, as well as municipality clients through both its branch network and its steadily developing digital channels. The Bank provides comprehensive banking and other financial services to both retail and corporate customers: its activities include deposit collection from customers and raising money from the money and capital markets; on the asset side, OTP Bank offers mortgage loans, consumer credits, working capital and investment loans to companies, as well as loans to municipalities, whereas its liquidity reserves are invested in money and capital market instruments. Moreover, the Bank provides a wide range of state-of-the-art services, including wealth management, investment services, payment services, treasury and other services. In addition, OTP Bank's Hungarian subsidiaries deliver a wide range of further financial services. At the end of 2023, OTP Bank and its Hungarian subsidiaries served more than 4.3 million clients in total. The Bank owns foreign subsidiaries in many countries of Central and Eastern Europe as well as in Uzbekistan through capital investments.
BUSINESS REPORT OTP BANK (SEPARATE) 25/26 Non-financial performance indicators  Internal audit: 207 closed audits, 1,385 recommendations, 1,383 accepted recommendations.  Compliance with Budapest Stock Exchange (BSE) Recommendations (yes/no ratio): 72 yes, 0 no.  Compliance: 7 closed consumer protection related investigations by the Compliance.  Bank security investigations, reports: we conducted a total of 3,356 bank security investigations and 253 reports were made to the authorities, most of which were related to cases of fraud committed against customers. The expected damage value from the detected crimes is about HUF 4.7 billion, which is much higher than the loss realized last year, which was HUF 1 billion. The largest part of the loss occurred in the area of financial offences. With regard to financial offences, a downward trend can be observed in consumer loans, primarily in connection with the offences of personal loans, which was about HUF 28 million, almost a fifth of the previous year's value. At the same time, the amount of damage caused by corporate credit fraud was HUF 4.6 billion, of which a significant part of the damage value – HUF 3 billion – was accounted for by one case. There was a drastic increase in the trend of online fraud targeting customers until July 2023, but due to the introduced measures, there was a continuous decrease in both the number of cases and the amount of damage from September 2023. Compared to the losses in July, December's fell to about a third, but a significant customer loss was still realized, which exceeded HUF 10 billion in 2023, and with fraud prevention operative measures and monitoring activities, HUF 6.5 billion of customer losses were prevented. Compared to 2022, an increase can be observed in connection with bank card abuse, both in terms of the number of attempted abuses and the damage. In 2023, the value of successful bank card abuses exceeded HUF 4.5 billion, of which the value of successful transactions with cards issued by OTP amounted to HUF 3.9 billion. As a result of the preventive security measures taken by the bank, the value of fraudulent bank card transactions that failed in 2022 is HUF 10.2 billion. Of this, the value of abuses prevented in the case of cards issued by OTP is HUF 10.1 billion. The ratio of bank card abuse to turnover increased, in the case of OTP the ratio of bank card misuse to turnover remained lower than the European average published by MasterCard (OTP Bank: 0.0203%, European average: 0.0400%).  Ethics issues: 93 ethics reports, establishing ethics offense in 8 cases.
BUSINESS REPORT OTP BANK (SEPARATE) 26/26 LIST OF NON-AUDIT SERVICES BY SERVICE CATEGORIES USED BY THE BANK The statutory audit of OTP Bank is carried out by Ernst and Young Ltd., in addition to which the following services were contracted:  Assurance engagements other than audits or reviews of historical financial information (ISAE 3000)  Engagements to review historical financial statements and interim financial statements (ISRE 2400, 2410)  Issue of Comfort letters  Engagements to perform agreed-upon procedures regarding financial information (AUP according to ISRS 4400)  Consultation relating to interpretation and implementation of accounting standards and relating to accounting of potential future transaction
Business Report OTP Bank (consolidated) The 2023 Business Report of the Board of Directors
BUSINESS REPORT OTP BANK (CONSOLIDATED) 2/200 CONSOLIDATED FINANCIAL HIGHLIGHTS 1 AND SHARE DATA Main components of the adjusted Statement of recognised income 2022 HUF million 2023 HUF million Change % Consolidated profit after tax 347,081 990,459 185 Adjustments (total) (245,466) (18,123) (93) Consolidated adjusted profit after tax 592,547 1,008,583 70 Pre-tax profit 690,022 1,222,328 77 Operating profit 868,487 1,260,850 45 Total income 1,656,571 2,224,584 34 Net interest income 1,093,579 1,459,694 33 Net fees and commissions 397,118 478,146 20 Other net non-interest income 165,874 286,745 73 Operating expenses (788,084) (963,734) 22 Total risk costs (178,465) (38,521) (78) Corporate taxes (97,475) (213,746) 119 Main components of the adjusted balance sheet (closing balances) 2022 2023 % Total assets 32,804,210 39,609,144 21 Total customer loans (net, FX adjusted) 17,929,314 21,447,380 20 Total customer loans (gross, FX adjusted) 18,858,498 22,466,415 19 Performing (Stage 1+2) customer loans (gross, FX-adjusted) 17,946,407 21,496,534 20 Allowances for possible loan losses (FX adjusted) (929,184) (1,019,035) 10 Total customer deposits (FX-adjusted) 24,320,092 29,428,284 21 Issued securities 870,682 2,095,548 141 Subordinated loans 301,984 562,396 86 Total shareholders' equity 3,322,312 4,094,793 23 Indicators based on adjusted earnings 2022 2023 pps ROE (from profit after tax) 11.0% 27.2% 16.2 ROE (from adjusted profit after tax) 18.8% 27.7% 9.0 ROA (from adjusted profit after tax) 1.9% 2.7% 0.8 Operating profit margin 2.78% 3.39% 0.61 Total income margin 5.31% 5.99% 0.67 Net interest margin 3.51% 3.93% 0.42 Cost-to-asset ratio 2.53% 2.59% 0.07 Cost/income ratio 47.6% 43.3% (4.3) Provision for impairment on loan losses-to-average gross loans ratio 0.73% 0.16% (0.56) Total risk cost-to-asset ratio 0.57% 0.10% (0.47) Effective tax rate 14.1% 17.5% 3.4 Net loan/(deposit+retail bond) ratio (FX-adjusted) 74% 72% (1) Capital adequacy ratio (consolidated, IFRS) - Basel3 2 17.8% 18.9% 1.1 Tier1 ratio - Basel3 16.4% 16.6% 0.2 Common Equity Tier 1 ('CET1') ratio - Basel3 16.4% 16.6% 0.2 Share Data 2022 2023 % EPS diluted (HUF) (from profit after tax) 1,288 3,693 187 EPS diluted (HUF) (from adjusted profit after tax) 2,204 3,767 71 Closing price (HUF) 10,110 15,800 56 Highest closing price (HUF) 18,600 16,030 (14) Lowest closing price (HUF) 7,854 9,482 21 Market Capitalization (EUR billion) 7.1 11.6 63 Book Value Per Share (HUF) 14,902 15,294 3 Tangible Book Value Per Share (HUF) 14,290 14,589 2 Price/Book Value 0.7 1.0 52 Price/Tangible Book Value 0.7 1.1 53 P/E (trailing, from profit after tax) 8.2 4.5 (45) P/E (trailing, from adjusted profit after tax) 4.8 4.4 (8) Average daily turnover (EUR million) 24 15 (37) Average daily turnover (million share) 0.8 0.5 (45) 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. 2 Starting from 2023 the consolidated capital adequacy ratios for the actual period and retrospectively for the base period are based on the prudential scope of consolidation, i.e. in line with Capital Requirements Regulation (CRR). For details, see the Supplementary data section.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 3/200 ACTUAL CREDIT RATING S S&P GLOBAL OTP Bank and OTP Mortgage Bank – FX long-term issuer credit rating BBB- OTP Bank – Dated subordinated FX debt BB MOODY'S OTP Bank – FX long term deposits Baa1 OTP Bank – Dated subordinated FX debt Ba2 OTP Mortgage Bank – Covered bonds A1 SCOPE OTP Bank – Issuer rating BBB+ OTP Bank – Dated subordinated FX debt BB+ LIANHE OTP Bank – Issuer rating (China national scale) AAA ACTUAL ESG RATING S AWARD S OTP Bank received six awards at the Global Finance magazine's Sustainable Finance Awards for 2024 competition. OTP Bank was chosen as the winner in one national, and four regional categories („The Best bank for Sustainability Transparency, for Sustainable Project Finance, for Sustainable Financing in Emerging Markets and for ESG-Related Loans”) and for the first time in the Bank's history in a global category. The local subsidiary of the OTP Group earned recognition as Bank of the Year in the framework of The Bankers 2023 "Bank of the Year Awards" in Albania, Croatia, Montenegro and Slovenia. RESULTS OF THE 2023 EBA STRESS TES T OTP Bank enjoyed high rankings in the EU-level stress test survey conducted by the European Banking Authority (EBA) in 2023, which involved 70 European banks. Fully loaded consolidated CET1 ratio and its decrease over the three-year period from 2022 to 2025 under the adverse scenario: CET1 rate end-2025 Ranking CET1 rate decrease Ranking 14.5% No 13 -0.77pp No 4
BUSINESS REPORT OTP BANK (CONSOLIDATED) 4/200 CORPORATE STRATEGY OTP Group is the leading universal banking group in Central and Eastern Europe, and one of the most successful financial institutions in Europe. OTP Group’s strategic objective is to meet the needs and expectations of its customers, investors, and employees at the highest possible level, and to set a positive example from environmental, social and corporate governance perspective even at international level. Our skilled and helpful staff, state-of-the-art IT solutions, and universal yet customisable product offering make us a trustworthy partner for customers in eleven countries of the Central and Eastern European region, and in Uzbekistan in Central Asia. The impressive performance of our employees and the value they create are important building blocks of OTP Group's results. We provide regular training courses to support our highly qualified professionals. OTP Group’s innovations also enhance our competitiveness and contribute to further strengthening our international position. The pillars of our strategy are stability & sustainability, growth, innovation, and profitability. Stability & sustainability OTP Group’s excellent capital and liquidity position provide the fundamentals for stable operation and growth throughout economic cycles. In addition to full compliance with European and local regulations, we promote transparency and prudence, while laying great emphasis to maintaining stability at all times. OTP Group is committed to enforcing sustainability principles in its socio-economic role and in serving customers, as well as in its own operations. Accordingly, OTP Group aims to be the regional leader in financing a fair and gradual transition to a low-carbon economy and building a sustainable future through our responsible solutions. As part of our social activities, we make a positive impact through our financial awareness raising and donation programmes, and extensive civil society partnerships. As a responsible employer, we have designed complex programmes for employee well-being. Growth We believe in the future of the Central and Eastern European region and intend to actively contribute to its progress. Our products and services are designed to help the region grow faster than the EU average. We aim to increase our market share on all our CEE markets through organic growth and acquisitions. We entered Uzbekistan in 2023 with an aim of capitalizing on growth opportunities while becoming the leading retail bank in this underpenetrated market, also supporting the development and transition of the local economy. Our acquisition strategy is based on creating shareholder value by achieving optimal scale of economics and leveraging OTP's expertise in the regional markets. We keep exploring new acquisition opportunities, primarily in the CEE region, and in other countries with high growth potential, too. Innovation To meet our customers' needs, we develop convenient and contemporary services that are easy and fast to access anytime, from anywhere. OTP Bank's innovations are popular for a good reason – millions of customers use our products and services regularly. Digital developments contribute to enhancing customer experience as well as to improving the efficiency of business processes. To explore new directions and opportunities, we have established our own futurology team, and are incorporating best practices. We have hundreds of developments underway. We are partnering with the region’s leading fintech companies and have made considerable progress in building beyond-banking ecosystems, in addition to building our own successful fintech company. Profitability Profitability is crucial for maintaining stable operations, as well as for continuous development and renewal. Our long-term profitability is underpinned by the revenue margin supported by excellent customer experience and cost-efficient processes, along with geographical diversification, which has been increasing in recent years. The market recognizes our success in creating shareholder value through favourable valuation compared to European and regional peers.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 5/200 MANAGEMENT’S ANALYSIS OF THE FULL-YEAR 2023 RESULTS OF OTP GROUP In 2023 the operating environment in Hungary was shaped mainly by the combined impact of the y-o-y declining GDP (-0.9%), the high underlying interest rate environment, as well as the government and central bank measures. On the positive side, from the second half of the year the declining CPI trend accelerated and made room for continuing central bank rate cuts. The base rate dropped to 10.75% by year-end, against 18% O/N rate at the beginning of the year. The December CPI moderated to 5.5%, thus the annual inflation rate was 17.6%. The government tried to reinvigorate the benign lending activity through focused measures: voluntary rate caps by banks in new SME and mortgage loans, lower downpayment requirements in case of first homes, Family Subsidy Scheme Plus, subsidized loan schemes. Furthermore, the government extended the interest rate cap on certain SME and housing loan volumes until 1 April 2024 and 30 June, respectively. On the Group level, all countries enjoyed positivey-o-y GDP growth, and with inflation levels lower than in Hungary, the setback in lending activity was less material, in a couple of markets even significant volume increase occurred. This, and the 3% y-o-y loan growth in Hungary despite economic recession, brought the consolidated FX-adjusted organic performing loan volume growth to 6%, with the overall portfolio quality still demonstrating stable picture. It was positive that the consolidated NIM kept improving. The key liquidity ratios remained stable and deposit volumes grew at most Group members, thus the deposit book increased by 7% y-o-y (FX-adjusted). The CET1 ratio grew further to 16.6%. In 2023 two acquisitions were executed: in February the purchase of the Slovenian NKBM manifested the biggest ever M&A transaction by OTP Bank, in June the purchase of Ipoteka Bank in Uzbekistan was completed. The two banks contributed 11 and 6 months earnings to the consolidated annual profit, respectively. The transactions elevated to Group’s total asset base by around EUR 14 billion, as a result it exceeded EUR 100 billion by the end of 2023. Consolidated earnings: the annual net results reached HUF 990.5 billion; y-o-y improving NIM, stable credit quality, 6% and 7% y-o-y increase in organic performing loan volumes and deposit (FX-adjusted), improving capital ratios The consolidated profit after tax of OTP Group rose to HUF 990.5 billion, an increase of almost 3 times y-o-y, as a result the annual ROE improved to 27.2% (+16.2 pps y-o-y). The balance of adjustment items showed -HUF 18 billion against -HUF 245 billion a year ago. Those items which were a drag on 2022 earnings and were related to the Russian-Ukrainian war practically disappeared or dropped substantially, namely goodwill impairment and the impairment recognized on the Russian government bonds, furthermore the balance of special taxes in Hungary also dropped by around 1/3 y-o-y. At the same time the negative impact of the interest rate caps stayed in place: besides Hungary, Serbia also introduced such measure. The single most important positive item was the badwill impact booked in relation to the Slovenian and Uzbek acquisitions. Accordingly, in 2023 the following main adjustment items were booked:  +HUF 64.9 billion acquisition effects;  -HUF 62.6 billion Hungarian special banking taxes;  -HUF 32.9 billion interest rate cap extension (in Hungary) or introduction (in Serbia);  +HUF 12.4 billlion other adjustment items. The cross-currency rate moves distorted the earning lines mainly in case of the Ukrainian and Russian operations: the average HUF rate against UAH and RUB appreciated by 16% and 26% y-o-y, respectively. With the exception of Ipoteka Bank all Group members were profitable in 2023. Most of the subsidiaries demonstrated material profit improvement y-o-y, the Bulgarian operation’s adjusted earnings exceeded HUF 200 billion, while the pro forma Slovenian operation posted a profit after tax close to HUF 130 billion; the combined profit incorporated only 11 months net earnings contribution from NKBM. Ipoteka Bank, Uzbekistan posted HUF 22 billion negative results in 2H 2023 mainly due to the significant amount of credit risk costs. The overall performance of OTP Group was shaped mainly by the y-o-y 45% increase in operating profit, but total risk costs also dropped by 78% y-o-y. Within the dynamic, y-o-y 34% increase of total income the net interest income surged by 33%, whereas net fees & commissions grew by lower pace, +20% y-o-y. Other non-interest income jumped by 73%. Adjusted for the two acquisitions in 2023, the FX-adjusted operating income grew by 37%, total income by 28%, NII by 25% and NF&C by 15%, respectively.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 6/200 The consolidated annual NIM improved by 42 bps y-o-y reaching 3.93%. Apart from the Hungarian, Ukrainian and Moldovan markets, elsewhere there was trend of interest rate increases that had a positive impact on both NII and NIMs. In 2023 as a whole, the Bulgarian, Slovenian, Serbian, Croatian, Montenegrin, Albanian and Ukrainian NIMs all improved y-o-y, whereas in other markets they dropped, though by different magnitude. In Hungary, the y-o-y 13 bps decline was induced by the changes in the mandatory reserve requirement and the balance sheet structure: as a result of acquisitions, on the assets side the weight of non-interest bearing subsidiary investments increased, while on the liability side the portion of MREL-eligible bonds grew at the expense of household deposits. The amount of the annual operating expenses increased by 22% y-o-y, the high, though declining inflation had its negative impact on all cost items. The consolidated cost-to-income ratio improved further and reached 43.3% (-4.3 pps y-o-y). Without acquisitions the FX-adjusted operating expenses increased by 17% y-o-y. The amount of consolidated total risk costs amounted to -HUF 38.5 billion, less than a quarter of the balance booked in 2022; without the impact of acquisitions the total risk cost showed a positive balance of HUF 20 billion. Within that, the provisions for impairment on loan losses amounted to -HUF 35 billion (2022: -HUF 135 billion). The annual risk cost rate moderated to 16 bps (-56 bps y-o-y), bulk of that was related to impairments in Uzbekistan. The quality of the consolidated credit portfolio remained stable with the major credit quality indicators shaping favourably. The Stage 3 ratio under IFRS 9 comprised 4.3% of the gross loans at the end of 4Q 2023, underpinning a 0.6 pp y-o-y decrease. The own coverage ratio of Stage 3 exposures was close to 61% at the end of 2023. In case of Ipoteka Bank problem loans concentrated in three segments: in a broader sense agriculture, but also in cotton and textile industries. Within agriculture fishery, green house cultivation and hydro cultures, but also the cotton industry were behind the badwill adjustment. The reasons which caused the badwill adjustment and the increase of the non-performing exposures emerged before the acquisition, but their effects materialized only in a later stage. The Risk Division of Ipoteka Bank, including the unit responsible for corporate clients has been reorganized during the summer of 2023. Also, the realignment of the activity in connection with loan restructurings, delinquent exposures and debt collection is in progress. Parallel to this, centralization of the branch activities is a priority, too. This reorganization process at Ipoteka Bank receives great attention from the management both on local and parent bank levels. The FX-adjusted consolidated performing (Stage 1+2) loan volumes got close to HUF 21,500 billion by year-end. In 2023 the loan portfolio grew by 6% y-o-y organically (FX-adjusted). As for individual Group members, the Russian, Bulgarian and Croatian operations demonstrated the largest FX-adjusted volume expansion with 26%, 20% and 8% y-o-y growth. The biggest drop was suffered by the Ukrainian subsidiary (-22%y-o-y). FX-adjusted deposits on a consolidated level got close to HUF 29,500 billion. The consolidated net loan/(deposit + retail bond) ratio moderated to 72%. In 2023 OTP Bank issued altogether EUR 2 billion MREL-eligible bonds of which around EUR 1.7 billion through public deals in forms of Tier 2 and Senior Preferred bonds. Besides, the Bank also utilized private placement and bilateral loan facilities with EUR 185 million Senior Non-Preferred and EUR 110 million Senior Preferred bonds. As a result, the actual MREL ratio for the OTP’s resolution group comfortably exceeded the mandatory minimum level of 23.96% set from 1 January 2024. In the case of Ukraine and Russia OTP management applies a „going concern” approach, however in Russia the management is still considering all strategic options, bearing in mind that any future solution should be strictly within the framework and in accordance with applicable local and international regulations. In 2H 2023 the Russian Central Bank approved twice a dividend payment by OTP’s Russian subsidiary with a total amount of RUB 13.4 billion. If the Russian entity was deconsolidated and the outstanding gross intragroup exposures were written off as well, the effect for the consolidated CET1 ratio would be -11 bps, whereas in the Ukraine the negative effect would be 2 bps.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 7/200 Consolidated capital adequacy ratio (in accordance with BASEL III) At the end of 2023, the consolidated CET1 ratio under the prudential scope of consolidation according to IFRS was 16.6% . This equals to the Tier 1 ratio. Consolidated CAR increased to 18.9%. At the end of 2023, the effective regulatory minimum requirement for the consolidated Tier 1 capital adequacy ratio was 11.5% which also incorporated the effective SREP rate, whereas the minimum CET1 requirement was 9.6%. The components of the capital requirements were shaped by the following recent changes:  The SREP rate for 2023 was 125%, inducing an additional 2% capital requirement in terms of the consolidated CAR ratio. According to the information of NBH the SREP rate was reduced to 120% effective from 1 January 2024, as a result the additional capital requirement moderated to 1.6%.  Effective from 1 July 2020 the original level of O-SII capital buffer (2%) was modified to 0% by the NBH until 31 December 2021. The gradual rebuilding started on 1 January 2022, its level was 1% in 2023 and on 1 January 2024 it will reach the original 2%.  The effective rate of the countercyclical capital buffer in Bulgaria is 2%, in Croatia and Romania 1%, and 0.5% in Slovenia, respectively. Accordingly, on Group level the countercyclical capital buffer was 0.5% as of 31 December 2023. In Hungary the currently effective countercyclical capital buffer is 0%, however from 1 July 2024 NBH will introduce a 50 bps buffer requirement. With such change taking effect locally, on consolidated level the countercyclical capital buffer is expected to increase to 0.7% by the end of 2024. MREL adequacy As a result of MREL-eligible issuances completed in 2023 by 4Q 2023 OTP Group reached an MREL adequacy ratio of 25.1% versus the minimum mandatory requirement of 23.96% effective from 1 January 2024. Credit rating, shareholder structure In 2023 the effective credit ratings were as follows:  OTP Bank’s long-term issuer credit rating by S&P Global is ꞌBBB-ꞌ, the outlook is stable; the credit rating of the dated Tier 2 instrument is ꞌBBꞌ;  the dated subordinated FX debt rating by Moody’s was downgraded from ‘Ba1’ to ꞌBa2ꞌ in February, while the Senior Preferred bond rating is ꞌBaa3ꞌ. OTP Mortgage Bank’s long term issuer rating is ꞌBaa3ꞌ, whereas the mortgage bond rating is ꞌA1ꞌ. The long-term FX deposit rating of OTP Bank Plc. remained unchanged at ꞌBaa1ꞌ. The outlook is stable for all ratings;  OTP Bank Plc’ issuer rating at Scope Ratings is ꞌBBB+ꞌ and the subordinated debt rating ꞌBB+ꞌ, respectively; the outlook was changed from negative to stable in November 2023;  in April the Chinese Lianhe Credit Rating Co. gave ꞌAAAꞌ Long-Term Issuer Credit Rating (China national scale) for OTP Bank Plc’s, the outlook is stable. Regarding the ownership structure of the Bank, on 31 December 2023 the following investors had more than 5% influence (voting rights) in the Company: MOL (the Hungarian Oil and Gas Company, 8.59%), and Groupama Group (5.10%).
BUSINESS REPORT OTP BANK (CONSOLIDATED) 8/200 SUMMARY OF ECONOMIC POLICY MEASURES MADE IN THE LAST PERIOD AND OTHER IMPORTANT DEVELOPMENTS, AS WELL AS POST-BALANCE SHEET EVENTS Post-balance sheet events cover the period until 20 February 2024. Hungary  On 23 January 2024 OTP Bank announced that notes were issued with a value date of 31 January 2024, in the aggregate nominal amount of EUR 600 million. The 5 years, Non-Call 4 years Senior Preferred Notes were priced on 23 January 2024.  On 26 January 2024 Scope Ratings affirmed Hungary's long-term local- and foreign-currency issuer and senior unsecured debt ratings at ‘BBB’ with stable outlook.  On 29 January 2024 the Ministry for National Economy announced that following discussions between the Government and the Banking Association, based on the banks' voluntary commitment, from 1 February to 1 May 2024, the interest margin above BUBOR rate for newly contracted Hungarian Forint-based, variable-rate corporate loan contracts (regardless of the purpose of the loan) will be 0%, and the margin will remain at 0% for 6 months from the date of disbursement of the loan, after which it may return to the normal level. At the same time, the Government indicated that the rate cap on outstanding variable rate MSE loans, which expires on 1 April 2024 according to the current legislation, will not be further extended.  On 30 January 2024 the National Bank of Hungary cut its key policy rate by 75 bps to 10.0%.  On 2 February 2024 OTP Bank announced that it decided to terminate the project aiming at establishing a consumer finance joint venture company with its partners in China with a 15%shareholding, as the condition precedents were not fulfilled until the pertaining contractual deadlines.  On 9 February 2024 OTP Bank announced that it concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. (‘BT’). OTP Group is also selling its 100% shareholdings in its other Romanian subsidiaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to BT under the transaction. The selling price is EUR 347.5 million which is smaller than the net asset value of the to be sold subsidiaries recognized in the consolidated accounts, accordingly the transaction resulted in a negative P&L impact of HUF 59.5 billion (after tax) on consolidated level, booked in 4Q 2023. As a result of the transaction, at the time of the closing of the deal the consolidated capital adequacy ratio is expected to improve by 52 bps. The financial closing of the transaction is expected in 2024 subject to the necessary regulatory approvals.  On 12 February 2024 OTP Bank received a single permission from the Hungarian National Bank for the repurchase of treasury shares, accordingly the Bank is entitled to repurchase its own shares in the amount of HUF 60 billion until 31 December 2024. The total amount specified in the permission shall immediately be deducted from the own funds in accordance with the law. Moldova  On 4 February 2024 the central bank cut the base rate by 50 bps to 4.25%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 9/200 CONSOLIDATED PROFIT AFTER TAX BREAKDOWN BY SUBSIDIARIES (IFRS) 3 Methodological note: starting from 2023 the segmentation of the Hungarian operation has been changed: in contrast to the previous practice, starting from 2023 Corporate Centre was no longer carved out of the OTP Core segment. In the affected tables of this report, the 2022 base periods were presented both under the old and the new segment definitions. The q-o-q and y-o-y changes presented in the affected tables are calculated from the restated figures. For details, see chapter ‘Methodological note: change in the segmentation of OTP Core and Corporate Centre’ in the ‘Supplementary Data’ section. 2022 2022 2023 HUF million Change %/pps as prevoiusly reported HUF million restated HUF million Consolidated profit after tax 347,081 347,081 990,459 185 Adjustments (total) (245,466) (245,466) (18,123) (93) Consolidated adjusted profit after tax 592,547 592,547 1,008,583 70 Banks total 1 535,717 538,685 946,279 76 OTP Core (Hungary) 2 253,232 256,200 302,935 18 DSK Group (Bulgaria) 3 119,885 119,885 201,992 68 OTP Bank Slovenia 4 23,860 23,860 128,730 440 OBH (Croatia) 5 42,801 42,801 53,959 26 OTP Bank Serbia 6 36,873 36,873 68,026 84 OTP Bank Albania 7 10,175 10,175 15,032 48 CKB Group (Montenegro) 8 9,791 9,791 21,814 123 Ipoteka Bank (Uzbekistan) 9 - - (21,857) OTP Bank Russia 10 42,548 42,548 95,665 125 OTP Bank Ukraine 11 (15,922) (15,922) 45,184 (384) OTP Bank Romania 12 3,071 3,071 20,099 554 OTP Bank Moldova 9,403 9,403 14,700 56 Leasing 10,971 10,971 10,267 (6) Merkantil Group (Hungary) 13 10,971 10,971 10,267 (6) Asset Management 9,621 9,621 19,861 106 OTP Asset Management (Hungary) 9,357 9,357 19,673 110 Foreign Asset Management Companies 14 263 263 188 (29) Other Hungarian Subsidiaries 27,645 27,645 30,570 11 Other Foreign Subsidiaries 15 (141) (141) 986 (797) Corporate Centre 16 2,968 - - Eliminations 5,767 5,767 620 (89) Profit after tax of the Hungarian operation 17 167,057 167,057 519,025 211 Adjusted profit after tax of the Hungarian operation 17 303,873 303,873 365,979 20 Profit after tax of the Foreign operation 18 180,024 180,024 471,434 162 Adjusted profit after tax of the Foreign operation 18 288,674 288,674 642,604 123 Share of Hungarian contribution to the adjusted profit after tax 51% 51% 36% (15) Share of Foreign contribution to the adjusted profit after tax 49% 49% 64% 15 3 Belonging footnotes are in the Supplementary data section of the Report.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 10/200 CONSOLIDATED STATEMENT OF PROFIT OR LOSS Main components of the adjusted Statement of recognized income 2022 HUF million 2023 HUF million Change % Consolidated profit after tax 347,081 990,459 185 Adjustments (total, after corporate income tax) (245,466) (18,123) (93) Dividends and net cash transfers (after tax) 1,927 (1,911) Goodwill/investment impairment charges (after tax) (59,254) (3,919) (93) Special tax on financial institutions (after tax) (91,353) (62,551) (32) Expected one-off negative effect of the debt repayment moratorium in Hungary (after tax) (2,473) 0 Expected one-off effect of the interest rate cap for certain loans in Hungary and Serbia (after tax) (36,585) (32,898) (10) Effect of the winding up of Sberbank Hungary (after tax) (10,389) 10,389 Effect of acquisitions (after tax) (15,594) 64,886 Result of the treasury share swap agreement (after tax) 3,028 10,680 253 Impairments on Russian government bonds at OTP Core and DSK Bank booked from 2022 (after tax) (34,775) (2,799) (92) Consolidated adjusted profit after tax 592,547 1,008,583 70 Profit before tax 690,022 1,222,328 77 Operating profit 868,487 1,260,850 45 Total income 1,656,571 2,224,584 34 Net interest income 1,093,579 1,459,694 33 Net fees and commissions 397,118 478,146 20 Other net non-interest income 165,874 286,745 73 Foreign exchange result, net 90,691 123,314 36 Gain/loss on securities, net 1,579 1,994 26 Net other non-interest result 73,604 161,436 119 Operating expenses (788,084) (963,734) 22 Personnel expenses (396,304) (503,959) 27 Depreciation (84,663) (95,561) 13 Other expenses (307,117) (364,215) 19 Total risk costs (178,465) (38,521) (78) Provision for impairment on loan losses (135,231) (34,781) (74) Other provision (43,234) (3,741) (91) Corporate taxes (97,475) (213,746) 119 INDICATORS 2022 2023 %/pps ROE (from profit after tax) 11.0% 27.2% 16.2 ROE (from adjusted profit after tax) 18.8% 27.7% 9.0 ROA (from adjusted profit after tax) 1.9% 2.7% 0.8 Operating profit margin 2.78% 3.39% 0.61 Total income margin 5.31% 5.99% 0.67 Net interest margin 3.51% 3.93% 0.42 Net fee and commission margin 1.27% 1.29% 0.01 Net other non-interest income margin 0.53% 0.77% 0.24 Cost-to-asset ratio 2.53% 2.59% 0.07 Cost/income ratio 47.6% 43.3% (4.3) Provision for impairment on loan losses-to-average gross loans ratio 0.73% 0.16% (0.56) Total risk cost-to-asset ratio 0.57% 0.10% (0.47) Effective tax rate 14.1% 17.5% 3.4 Non-interest income/total income 34% 34% 0 EPS base (HUF) (from profit after tax) 1,289 3,695 187 EPS diluted (HUF) (from profit after tax) 1,288 3,693 187 EPS base (HUF) (from adjusted profit after tax) 2,204 3,769 71 EPS diluted (HUF) (from adjusted profit after tax) 2,204 3,767 71 Comprehensive Income Statement 2022 2023 % Consolidated profit after tax 347,081 990,459 185 Fair value changes of financial instruments measured at fair value through other comprehensive income (119,377) 78,419 Foreign currency translation difference 179,622 (200,928) Change of actuarial costs (IAS 19) 1,016 (400) Net comprehensive income 408,342 864,843 112 o/w Net comprehensive income attributable to equity holders 407,695 863,714 112 Net comprehensive income attributable to non-controlling interest 647 1,129 74 Average exchange rate 1 of the HUF 2022 HUF 2023 HUF Change % HUF/EUR 391 382 (2) HUF/CHF 390 393 1 HUF/USD 373 353 (5) 1 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.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 11/200 ASSET-LIABILITY MANAGEMENT Similar to previous periods OTP Group maintained a strong and safe liquidity position… The primary objective of OTP Bank in terms of asset-liability management has not changed, that is to ensure that the Group’s liquidity is maintained at a safe level. Refinancing sources of the European Central Bank are available for OTP (ECB repo eligible securities portfolio on Group level exceeded EUR 5.5 billion). Total liquidity reserves of OTP Bank remained steadily and substantially above the safety level. As at 31 December 2023 the gross liquidity buffer was around EUR 9.8 billion equivalent. The level of these buffers is significantly higher than the maturing debt within one year and the reserves required to manage possible liquidity shocks. As at 31 December 2023 OTP Group’s consolidated liquidity coverage (LCR) ratio was 246% (4Q 2022: 172%) while NSFR compliance has remained comfortable (4Q 2023: 153%). The volume of issued securities more than doubled on a consolidated basis y-o-y. The increase was driven both by bond issuances of OTP Bank and by the completed acquisitions during the period. In order to optimize capital structure and meet MREL (Minimum Requirements for Own Funds and Eligible Liabilities) requirements, OTP Bank issued bonds in different currencies on the international capital markets several times in 2023. In February USD 650 million Tier 2 notes were issued, while OTP Bank sold Senior Preferred bonds on three occasions: USD 500 million in May, EUR 650 million and RON 170 million in October. Senior Non-Preferred bonds have also been issued: EUR 110 million in June and EUR 75 million in December. The net outstanding amount of retail bonds issued by OTP Bank in the domestic capital market increased by HUF 165 billion in 2023. On the other hand, bonds issued by Nova KBM and Ipoteka Bank in the notional amount of HUF 485 billion equivalent were consolidated as part of the completed acquisitions. In June, Nova KBM issued Senior Preferred bonds on the international capital markets in the amount of EUR 400 million. …and kept its interest-rate risk exposures low Due to the liabilities, which respond to yield changes only to a moderate extent, the Bank has an interest-rate risk exposure resulting from its business operations. The Bank considers the reduction and closing of this exposure as a strategic matter. Besides the interest rate cap measures introduced in 2022, further regulatory/governmental measures distorted the Bank’s balance sheet structure in 2023, therefore the stock of HUF denominated variable interest rate assets decreased further resulting in a change in the HUF interest rate risk position that can be considered nearly closed, currently. Due to the upcoming maturities of the long-term HUF liquid asset portfolio and the operating profit accumulation the stock of variable assets is expected to increase as time passes. Because of the surplus of variable interest rate assets compared to variable interest rate liabilities the net interest income of the EUR (and BGN) denominated portfolio correlates with the rise in money market interest rates: the loans get repriced typically in 3-6 months, the interest rate swaps (IRS) in 6 months, and other liquid assets within 1-3 months. On the deposit side the repricing is not automatic, its extent and speed depends on the level of interest rates and the liquidity position of the Bank. The increase in the interest environment did not cause significant repricing in case of deposits, consequently, and due to the increased nominal yield levels, the Bank Group decided to change its liquid asset placement practice in the second half of the year through increasing the duration of liquid assets, and furthermore it entered into fixed interest rate receiver swap positions, to defend the Bank Group’s net interest income from the negative effects of potential decrease in the EUR yields. Market Risk Exposure of OTP Group The consolidated capital requirement of the trading book positions, the counterparty risk and the FX risk exposure represented HUF 47.7 billion in total. OTP Group is an active participant of the international FX and derivative market. Open FX positions of group members are restricted to individual and global net open position limits (overnight and intraday), and to stop-loss limits. The open positions of the group members outside Hungary except for the Bulgarian DSK Bank – the EUR/BGN exposure of DSK under the current exchange rate regime does not represent real risk – were negligible measured against either the balance sheet total or the regulatory capital. Therefore, the group level FX exposure was concentrated at OTP Bank. In order to mitigate the FX rate sensitivity of the consolidated equity, OTP Bank Plc. has opened a short euro open FX position; the revaluation result of which is recognised directly against equity.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 12/200 CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF OTP GROUP Main components of the adjusted balance sheet 2022 HUF million 2023 HUF million Change % TOTAL ASSETS 32,804,210 39,609,144 21 Cash, amounts due from Banks and balances with the National Banks 4,221,392 7,324,636 74 Placements with other banks, net of allowance for placement losses 1,351,081 1,575,145 17 Securities at fair value throu g h profit or loss 436,387 290,975 (33) Securities at fair value throu g h other comprehensive income 1,739,603 1,640,891 (6) Net customer loans 18,640,624 21,447,380 15 Net customer loans (F X-ad j usted 1 ) 17,929,314 21,447,380 20 Gross customer loans 19,643,558 22,466,415 14 Gross customer loans (F X-ad j usted 1 ) 18,858,498 22,466,415 19 Gross performin g (Sta g e 1+2) customer loans (F X-ad j usted 1 ) 17,946,407 21,496,534 20 o/w Retail loans 9,296,956 11,650,463 25 Retail mort g a g e loans (incl. home equit y) 4,657,067 5,808,199 25 Retail consumer loans 3,845,614 4,853,359 26 SME loans 794,275 988,906 25 Corporate loans 7,403,482 8,498,051 15 Leasin g 1,245,969 1,348,020 8 Allowances for loan losses (1,002,933) (1,019,035) 2 Allowances for loan losses (FX-ad j usted 1 ) (929,184) (1,019,035) 10 Associates and other investments 73,849 96,346 30 Securities at amortized costs 4,891,938 5,475,701 12 Tan g ible and intan g ible assets, net 738,105 878,949 19 o/w Goodwill, net 68,319 66,932 (2) Tan g ible and other intan g ible assets, net 669,786 812,017 21 Other assets 711,230 879,121 24 TOTAL LIABILITIES AND SHAREHOLDERS' EQUIT Y 32,804,210 39,609,144 21 Amounts due to banks, the National Governments, deposits from the National Banks and other banks, and Financial liabilities desi g nated at fair value throu g h profit or loss 1,517,349 2,013,333 33 Deposits from customers 25,188,805 29,428,284 17 Deposits from customers (F X-ad j usted 1 ) 24,320,092 29,428,284 21 o/w Retail deposits 15,760,368 19,322,905 23 Household deposits 13,166,546 16,090,066 22 SME deposits 2,593,823 3,232,839 25 Corporate deposits 8,529,476 10,105,378 18 Accrued interest pa y able related to customer deposits 2 30,247 0 (100) Liabilities from issued securities 870,682 2,095,548 141 o/w Retail bonds 35,766 201,131 462 Liabilities from issued securities without retail bonds 834,916 1,894,418 127 Other liabilities 1,603,078 1,414,790 (12) Subordinated bonds and loans 301,984 562,396 86 Total shareholders' equit y 3,322,312 4,094,793 23 Indicators 2022 2023 %/pps Loan/deposit ratio (FX-ad j usted 1 ) 78% 76% (1) Net loan/(deposit + retail bond) ratio (FX-ad j usted 1 ) 74% 72% (1) Sta g e 1 loan volume under IFRS 9 16,387,792 18,570,222 13 Sta g e 1 loans under IFRS 9/g ross customer loans 83.4% 82.7% (0.8) Own covera g e of Sta g e 1 loans under IFRS 9 1.0% 0.9% (0.1) Sta g e 2 loan volume under IFRS 9 2,286,597 2,926,312 28 Sta g e 2 loans under IFRS 9/g ross customer loans 11.6% 13.0% 1.4 Own covera g e of Sta g e 2 loans under IFRS 9 10.7% 9.2% (1.6) Sta g e 3 loan volume under IFRS 9 969,169 969,881 0 Sta g e 3 loans under IFRS 9/g ross customer loans 4.9% 4.3% (0.6) Own covera g e of Sta g e 3 loans under IFRS 9 61.0% 60.8% (0.2) Consolidated capital adequacy - Basel3, IFRS, accordin g to prudential scope of consolidation 2022 2023 %/pps Capital adequac y ratio 17.8% 18.9% 1.1 Tier1 ratio 16.4% 16.6% 0.2 Common Equit y Tier 1 ('CET1') capital ratio 16.4% 16.6% 0.2 Own funds 3,671,104 4,475,380 22 o/w Tier1 Capital 3,383,161 3,945,570 17 o/w Common Equit y Tier 1 capital 3,383,161 3,945,570 17 Tier2 Capital 287,944 529,810 84 Consolidated risk wei g hted assets (RWA) (Credit&Market&Operational risk) 20,607,706 23,700,282 15 o/w RWA (Credit risk) 18,679,480 21,275,002 14 RWA (Market & Operational risk) 1,928,226 2,425,281 26 Closing exchange rate of the HUF 2022 HUF 2023 HUF Change % HUF/EUR 400 383 (4) HUF/CHF 407 412 1 HUF/USD 376 346 (8) 1 For the FX-adjustment, the closing cross currency rates for the current period were used in order to calculate the HUF equivalent of loan and deposit volumes in the base periods. 2 Starting from 2023, the accrued interest payable related to customer deposits is presented on the deposits from customers line.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 13/200 OTP BANK’S HUNGARIAN CORE BUSINESS Methodological note: starting from 2023 the segmentation of the Hungarian operation has been changed: in contrast to the previous practice, starting from 2023 Corporate Centre was no longer carved out of the OTP Core segment. In the affected tables of this report, the 2022 base periods were presented both under the old and the new segment definitions. The q-o- q and y-o-y changes presented in the affected tables are calculated from the restated figures. For details, see chapter ‘Methodological note: change in the segmentation of OTP Core and Corporate Centre’ in the ‘Supplementary Data’ section. Starting from 2023 OTP Ecosystem Ltd. was eliminated from OTP Core. OTP Core Statement of recognized income: Main components of the Statement of recognised income 2022 2022 2023 Change as previously reported HUF million restated HUF million HUF million % Profit after tax without received dividend 27,274 30,242 313,143 935 Dividend received from subsidiaries 107,907 107,907 187,726 74 Profit after tax 135,181 138,149 500,869 263 Adjustments (total, after tax) (118,051) (118,051) 197,934 Adjusted profit after tax 253,232 256,200 302,935 18 Profit before tax 296,672 300,094 366,502 22 Operating profit 294,257 297,679 341,049 15 Total income 637,469 642,520 751,953 17 Net interest income 412,611 417,662 432,651 4 Net fees and commissions 176,830 176,830 197,104 11 Other net non-interest income 48,028 48,028 122,198 154 Operating expenses (343,212) (344,841) (410,904) 19 Total risk costs 2,415 2,415 25,452 954 Provision for impairment on loan losses 32,850 32,850 15,370 (53) Other provisions (30,435) (30,435) 10,083 Corporate income tax (43,440) (43,894) (63,566) 45 Indicators 2022 2022 2023 pps as previously reported restated ROE (adjusted) 12.6% 12.7% 14.2% 1.5 ROA (adjusted) 1.6% 1.5% 1.6% 0.1 Operating profit margin 1.8% 1.7% 1.8% 0.1 Total income margin 3.97% 3.68% 3.94% 0.26 Net interest margin 2.57% 2.39% 2.26% (0.13) Net fee and commission margin 1.10% 1.01% 1.03% 0.02 Net other non-interest income margin 0.30% 0.27% 0.64% 0.36 Operating costs to total assets ratio 2.1% 2.0% 2.2% 0.2 Cost/income ratio 53.8% 53.7% 54.6% 1.0 Provision for impairment on loan losses / average gross loans 1 (0.55%) (0.55%) (0.23%) 0.31 Effective tax rate 14.6% 14.6% 17.3% 2.7 1 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.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 14/200 Main components of OTP Core’s Statement of financial position: Main components of balance sheet (closing balances) 2022 2022 2023 Change as previously reported restated % Total Assets 15,758,292 17,596,229 18,459,423 5 Financial assets 1 (net) 7,438,066 9,270,006 9,630,766 4 Net customer loans 6,278,620 6,278,620 6,329,293 1 Net customer loans (FX adjusted) 6,213,791 6,213,791 6,329,293 2 Gross customer loans 6,528,001 6,528,001 6,597,968 1 Gross customer loans (FX adjusted) 6,460,305 6,460,305 6,597,968 2 Stage 1+2 customer loans (FX-adjusted) 6,139,203 6,139,203 6,335,682 3 Retail loans 3,482,800 3,482,800 3,752,574 8 Retail mortgage loans (incl. home equity) 1,656,950 1,656,950 1,722,826 4 Retail consumer loans 1,306,916 1,306,916 1,515,264 16 SME loans 518,933 518,933 514,485 (1) Corporate loans 2,656,402 2,656,402 2,583,108 (3) Provisions (249,381) (249,381) (268,675) 8 Provisions (FX adjusted) (246,514) (246,514) (268,675) 9 Tangible and intangible assets (net) 222,587 222,587 296,425 33 Shares and equity investments (net) 1,447,924 1,447,924 1,890,681 31 Other assets (net) 371,094 377,091 312,258 (17) Deposits from customers + retail bonds 11,246,795 11,246,795 10,981,387 (2) Deposits from customers + retail bonds (FX adjusted) 11,098,246 11,098,246 10,981,387 (1) Retail deposits + retail bonds 6,416,859 6,416,859 6,339,542 (1) Household deposits + retail bonds 5,012,354 5,012,354 4,927,751 (2) o/w: Retail bonds 35,766 35,766 201,131 462 SME deposits 1,404,504 1,404,504 1,411,791 1 Corporate deposits 4,681,387 4,681,387 4,641,844 (1) Liabilities to credit institutions 1,251,653 2,313,832 2,326,311 1 Issued securities without retail bonds 471,773 949,421 1,675,963 77 Subordinated bonds and loans 0 294,186 507,277 72 Total shareholders' equity 2,016,019 2,016,019 2,371,964 18 Loan Quality 4Q 2022 4Q 2022 4Q 2023 %/pps as previously reported restated Stage 1 loan volume under IFRS 9 (in HUF million) 5,457,140 5,457,140 5,312,525 (3) Stage 1 loans under IFRS 9/gross customer loans 83.6% 83.6% 80.5% (3.1) Own coverage of Stage 1 loans under IFRS 9 0.8% 0.8% 0.8% 0.0 Stage 2 loan volume under IFRS 9 (in HUF million) 747,905 747,905 1,023,157 37 Stage 2 loans under IFRS 9/gross customer loans 11.5% 11.5% 15.5% 4.1 Own coverage of Stage 2 loans under IFRS 9 8.6% 8.6% 7.8% (0.8) Stage 3 loan volume under IFRS 9 (in HUF million) 322,956 322,956 262,285 (19) Stage 3 loans under IFRS 9/gross customer loans 4.9% 4.9% 4.0% (1.0) Own coverage of Stage 3 loans under IFRS 9 43.2% 43.2% 55.9% 12.7 Market Share 4Q 2022 4Q 2022 4Q 2023 pps as previously reported restated Loans 26.8% 26.8% 26.2% (0.5) Deposits 29.1% 29.1% 28.3% (0.8) Total Assets 27.6% 27.6% 28.3% 0.7 Performance Indicators 4Q 2022 4Q 2022 4Q 2023 pps as previously reported restated Net loans to (deposits + retail bonds) (FX adjusted) 56% 56% 58% 2 Leverage (closing Shareholder's Equity/Total Assets) 12.8% 11.5% 12.8% 1.4 Leverage (closing Total Assets/Shareholder's Equity) 7.8x 8.7x 7.8x (0.9x) Capital adequacy ratio (OTP Bank, non-consolidated, Basel3, IFRS) 19.2% 19.2% 27.6% 8.5 Common Equity Tier1 ratio (OTP Bank, non-consolidated, Basel3, IFRS) 16.3% 16.3% 22.5% 6.2 1 Cash, amounts due from banks and balances with the National Bank of Hungary; placements with other banks; repo receivables; securities and other financial assets. In 2023, OTP Core generated HUF 313 billion profit after tax without dividends from subsidiaries, as opposed to the HUF 30 billion loss in the base period. This improvement partly stemmed from the much better balance of adjustment items: against the impairments on subsidiary investments in 2022, in 2023 impairments were reversed, and in contrast to the base period, Russian bond impairments didn’t weigh on the 2023 results. Also, special banking taxes also moderated y-o-y. On the other hand, the adjusted profit after tax also improved last year, by 18%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 15/200 The annual operating profit went up by 15%. Within total income, net interest income grew by 4%, or HUF 15 billion. Regarding the key factors behind this change, the altogether negative effect of regulatory changes and technicalities was counterbalanced by higher rate environment and business-driven factors:  regulatory changes and technical factors, in total: -HUF 85 billion, of which: o changes to the mandatory reserve rules 4 entailed HUF 45 billion negative y-o-y NII effect; o the issuance of MREL eligible instruments caused HUF 18 billion NII decline y-o-y; o due to new acquisitions, the weight of non-interest-bearing subsidiary investments increased on the asset side at the expense of interest-bearing assets, resulting in HUF 52 billion lower NII; on the other hand, the strategic short EUR position opened in February 2023 with an aim of hedging investments into the Eurozone supported NII by HUF 30 billion.  The impact of higher rate environment, business-driven and other factors, in total: +HUF 101 billion, of which: o given the Bank’s interest rate position, the increase in the annual average key policy rate of the central bank reduced NII by HUF 8 billion; o the erosion of customer deposits resulted in HUF 31 billion lower net interest income y-o-y; o loans granted in 2023 generated HUF 50 billion additional interest revenues; o in 2023 the reinvestment of lower yielding government securities into higher yielding assets improved the y-o-y NII dynamics by HUF 44 billion; o other effects: +HUF 46 billion in total, driven by, among others, increasing total assets, and the retroactive adjustment of subsidized housing loans’ interest subsidies related to previous years. The annual average total assets went up by 9%, while the annual net interest margin narrowed by 13 bps. Annual net fees and commissions rose by 11% last year, mainly supported by stronger fees on deposits, transactions, cards and higher securities commissions, but lending-related fee income declined. Twelve-month other income jumped 2.5 times, predominantly because of the positive fair value adjustment of subsidized housing loans and baby loans measured at fair value booked in 2023 (2022: -HUF 8 billion, 2023: +HUF 87 billion). This was caused by the lower discount rates used to determine the present value of future cash flows, as a result of the shrinking yield curve. Annual operating expenses grew by 19% in the high-inflation environment. Within that, personnel expenses increased by 30%, mostly because of the wage increases in the second half of 2022 and from March 2023, and also due to the 4% growth in the average number of employees. Amortization increased by 10%. Other general expenses grew by 10%, driven by, among others, higher IT, utility, and real estate-related costs, as well as by higher supervisory charges (National Deposit Insurance Fund and Investor Protection Fund contributions were hiked effective from end-2022). In 2023, positive total risk costs amounted to HUF 25 billion; within that, the credit-related and the other risk cost lines also printed positive amounts. The positive amount of provision for impairment on loan losses was shaped by the releases in the second half-year owing to the improvement in macroeconomic expectations, as well as by the release of provisions in 2Q in relation to customers who performed in accordance with their contracts after leaving the debt repayment moratorium, which expired at the end of 2022. The other risk costs line was largely shaped by the release of provision for Hungarian government securities. Overall, loan quality trends remained favourable: the Stage 3 ratio sank by 1 pp y-o-y, to 4.0%, in part because of customers who left the moratorium and performed were moved into a lower risk category. The Stage 2 ratio rose by 4.1 pps y-o-y, partly because a more advanced Stage 2 classification and impairment methodology was introduced from 2Q. The own provision coverage ratio of Stage 3 loans improved by 12.7 ps y-o-y, while the cumulative own provision coverage ratio of the Stage 1+2 portfolio rose by 0.2 pp y-o-y, to 1.9%. Regarding balance sheet developments, OTP Core’s total assets grew by 5% y-o-y. The increase in performing (Stage 1+2) loans markedly slowed: the FX-adjusted dynamics was 3% in 2023, following a 15% growth rate in 2022. In 2023, the retail segment was the driver of growth: consumer loans surged by an impressive 16%, fuelled by sustained increase in both cash loans and baby loans. 4 Starting from October 2022, the required reserve ratio rose from 1% to 5%, and then, starting from April 2023, from 5% to 10%, and the central bank diverted the interest rate paid on reserves from the overnight deposit rate (18%), and paid the base rate (13%) on them from October 2022; starting from April 2023, the central bank did not pay interest on 25% of the mandatory minimum reserve requirement. Thus the effective interest paid on required reserves dropped to 9.75% in April 2023. Starting from July 2023, 15% of the reserve requirement may be met by longer-term deposits at the central bank (paying the O/N interest rate), and the central bank does not pay interest on 25% of the remaining 85% of the minimum requirement.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 16/200 Performing mortgage loans grew by 4% y-o-y. In 2023 applications dropped by a third y-o-y, but the intra-year trend was positive: demand for mortgages rocked bottom in the first quarter, but compared to that, applications more than tripled in 4Q. Performing corporate volumes shrank by 2% y-o-y; within that, MSE loans declined by 1% and corporate volumes contracted by 3%. However, the Széchenyi Card MAX+ and the Baross Gábor Loan Programme generated significant new loan placements: in 2023, OTP signed loan agreements in the amount of HUF 494 billion under the Széchenyi Card MAX+ scheme, while the Baross Gábor Loan Programme reached HUF 202 billion loan applications by the end of 2023. Deposits from customers (including retail bonds) eroded by an FX-adjusted 1% y-o-y. Retail deposits (together with retail bonds) dropped by 2% y-o-y. Overall, corporate deposits remained stable y-o-y. As a result of the Bank’s active presence on capital markets, the volume of issued securities (without retail bonds) jumped by 77% y-o-y, while subordinated debt surged by 72%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 17/200 OTP FUND MANAGEMENT (HUNGARY) Changes in assets under management and financial performance of OTP Fund Management: Main components of P&L account in HUF million 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 9,357 19,673 110 Income tax (1,234) (2,491) 102 Profit before income tax 10,592 22,165 109 Operating profit 10,678 22,193 108 Total income 14,585 27,771 90 Net fees and commissions 14,094 25,923 84 Othe r net non-interest income 491 1,846 276 Operating expenses (3,907) (5,578) 43 Other provisions (86) 11 Main components of balance sheet closing balances in HUF million 2022 2023 % Total assets 27,718 39,461 42 Total shareholders' equity 16,993 28,741 69 Asset under management in HUF billion 2022 HUF billion 2023 HUF billion % Assets under management, total (w/o duplicates) 1 1,782 3,086 73 Volume of investment funds (closing, w/o duplicates) 1,388 2,609 88 Volume of managed assets (closing) 393 477 21 V olume of investment funds (closing, with duplicates) 2 1,869 3,532 89 bond 665 1,924 190 money market 287 484 69 absolute return fund 288 370 29 equity 296 331 12 mixed 285 336 18 commodity market 49 70 45 guaranteed 0 17 1 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. 2 The cumulative net asset value of investment funds with duplications managed by OTP Fund Management. In 2023, OTP Fund Management generated HUF 19.7 billion profit, twice as much as in the previous year. In 2023 net fee and commission income jumped by 84%, in accordance with the dynamic growth of managed assets. Besides, the average annual rate of fund management fee (1.25% in 2023) was 18 bps higher than in the previous year. Annual other income nearly quadrupled, thanks to the improving results of the securities in the Company’s own books. In 2023 operating expenses exceeded the previous year’s level by 43%. The rise in personnel costs stemmed from the higher bonus payments, but salary hikes and higher headcount also played a role. Within other expenses, the high inflationary environment was predominantly reflected in the elevated costs of running real estates and vehicles, but marketing expenses and expert fees also grew. In Hungary’s fund management market, the assets under management once again hit record high at the end of December 2023: the high interest rate environment led to strong inflows and positive yields. These conditions primarily supported the expansion of bond funds and money market funds. In the case of OTP Fund Management, the assets of bond funds tripled y-o-y, thus it made up more than half of the managed funds’ volumes at the end of the year. As to the remaining categories, money market funds and absolute return funds benefited from the effect of positive yields and capital inflows, but the weaker yield performance moderated equity funds’ volume growth. Overall, the volume of funds managed by OTP Fund Management exceeded HUF 3,500 billion (+89% y-o-y) at the end of December; thus it preserved its leader position (31.6%) in the securities funds market.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 18/200 MERKANTIL GROUP (HUNGARY) Performance of Merkantil Group: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 10,971 10,267 (6) Income tax (1,645) (1,683) 2 Profit before income tax 12,616 11,950 (5) Operating profit 13,930 14,954 7 Total income 24,766 28,000 13 Net interest income 22,537 26,257 17 Net fees and commissions 921 759 (18) Other net non-interest income 1,307 983 (25) Operating expenses (10,836) (13,046) 20 Total provisions (1,314) (3,004) 129 Provision for impairment on loan losses (1,068) (2,800) 162 Other provision (246) (203) (17) Main components of balance sheet (closing balances) 2022 2023 % Total assets 948,735 930,761 (2) Gross customer loans 532,054 590,510 11 Gross customer loans (FX-adjusted) 530,372 590,510 11 Stage 1+2 customer loans (FX-adjusted) 516,303 576,217 12 Retail loans 3,145 2,259 (28) Corporate loans 130,664 150,495 15 Leasing 382,494 423,463 11 Allowances for possible loan losses (12,436) (13,637) 10 Allowances for possible loan losses (FX-adjusted) (12,402) (13,637) 10 Deposits from customers 6,151 5,028 (18) Deposits from customer (FX-adjusted) 6,151 5,028 (18) Retail deposits 3,713 2,838 (24) Corporate deposits 2,438 2,190 (10) Liabilities to credit institutions 852,738 839,730 (2) Total shareholders' equity 57,591 61,237 6 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 453,307 533,569 18 Stage 1 loans under IFRS 9/gross customer loans 85.2% 90.4% 5.2 Own coverage of Stage 1 loans under IFRS 9 0.4% 0.8% 0.4 Stage 2 loan volume under IFRS 9 (in HUF million) 64,627 42,648 (34) Stage 2 loans under IFRS 9/gross customer loans 12.1% 7.2% (4.9) Own coverage of Stage 2 loans under IFRS 9 4.5% 7.0% 2.5 Stage 3 loan volume under IFRS 9 (in HUF million) 14,120 14,293 1 Stage 3 loans under IFRS 9/gross customer loans 2.7% 2.4% (0.2) Own coverage of Stage 3 loans under IFRS 9 53.1% 44.1% (9.0) Provision for impairment on loan losses/average gross loans 0.21% 0.50% 0.29 Performance Indicators 2022 2023 pps ROA 1.3% 1.1% (0.2) ROE 19.1% 17.4% (1.8) Total income margin 2.94% 3.00% 0.06 Net interest margin 2.68% 2.81% 0.13 Operating costs / Average assets 1.3% 1.4% 0.1 Cost/income ratio 43.8% 46.6% 2.8 In full year 2023, Merkantil Group posted HUF 10.3 billion adjusted after-tax profit, which brought its ROE to 17.4%. Operating profit grew by 7%, driven by a 13% surge in total income. Full-year net interest income increased by 17%, supported by the extra interest income from the placement of liquid assets, and also because the average interest rate of the loan book increased year-on-year, thanks to new loan placements at higher rates and the repricing of existing loans. Full-year operating expenses grew by 20%, owing to base salary hikes and higher bonus payments, the increase in IT, marketing, and consulting costs, as well as higher amortization. The total risk costs line printed HUF 3 billion in 2023. The ratio of Stage 1 loans increased by 5.2 pps, to 90.4% y-o-y, while the ratio of Stage 2 loans declined comparably; the ratio of Stage 3 loans dropped by 0.2 pp, to 2.4% y-o-y. The Stage 1+2 portfolio’s cumulative own provision coverage reached 1.3%, up from 1.0% seen at the end of 2022.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 19/200 FX-adjusted performing (Stage 1+2) loans grew by 12% y-o-y; within that, corporate loans expanded by 15%, while leasing exposures rose by 11%. In 2023, the volume of newly disbursed loans surged by 13% y-o-y, including a 27% growth in new car loan placements. Credit demand benefited from the subsidized loan facilities: under the KAVOSZ Széchenyi Card programme, since the beginning of the scheme customers have concluded subsidized loan agreements totalling HUF 127 billion (including HUF 84 billion in 2022, and HUF 43 billion in 2023) with Merkantil Bank. Loan agreements under the Baross Gábor programme amounted to HUF 18 billion at the end of December.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 20/200 IFRS REPORTS OF THE MAIN FOREIGN SUBSIDIARIES OF OTP BANK DSK GROUP (BULGARIA) Performance of DSK Group: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 119,885 201,992 68 Income tax (12,680) (21,740) 71 Profit before income tax 132,565 223,732 69 Operating profit 142,383 217,239 53 Total income 230,834 315,981 37 Net interest income 145,461 226,693 56 Net fees and commissions 68,755 72,366 5 Other net non-interest income 16,618 16,921 2 Operating expenses (88,451) (98,742) 12 Total provisions (9,819) 6,493 Provision for impairment on loan losses (10,992) 2,779 Other provision 1,173 3,714 217 Main components of balance sheet (closing balances) 2022 2023 % Total assets 5,946,815 6,456,668 9 Gross customer loans 3,584,751 4,066,527 13 Gross customer loans (FX-adjusted) 3,428,089 4,066,527 19 Stage 1+2 customer loans (FX-adjusted) 3,307,240 3,970,390 20 Retail loans 1,916,055 2,248,406 17 Corporate loans 1,124,524 1,415,644 26 Leasing 266,661 306,339 15 Allowances for possible loan losses (154,361) (125,806) (18) Allowances for possible loan losses (FX-adjusted) (147,621) (125,806) (15) Deposits from customers 4,893,078 5,165,700 6 Deposits from customers (FX-adjusted) 4,672,951 5,165,700 11 Retail deposits 3,833,282 4,343,036 13 Corporate deposits 839,669 822,664 (2) Liabilities to credit institutions 152,193 249,178 64 Total shareholders' equity 779,095 890,188 14 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 3,177,291 3,483,290 10 Stage 1 loans under IFRS 9/gross customer loans 88.6% 85.7% (3.0) Own coverage of Stage 1 loans under IFRS 9 1.1% 0.7% (0.3) Stage 2 loan volume under IFRS 9 (in HUF million) 281,096 487,099 73 Stage 2 loans under IFRS 9/gross customer loans 7.8% 12.0% 4.1 Own coverage of Stage 2 loans under IFRS 9 16.0% 9.3% (6.6) Stage 3 loan volume under IFRS 9 (in HUF million) 126,364 96,137 (24) Stage 3 loans under IFRS 9/gross customer loans 3.5% 2.4% (1.2) Own coverage of Stage 3 loans under IFRS 9 60.2% 57.1% (3.1) Provision for impairment on loan losses/average gross loans 0.33% (0.07%) (0.40) Performance Indicators 2022 2023 pps ROA 2.3% 3.3% 1.1 ROE 16.7% 25.4% 8.8 Total income margin 4.41% 5.24% 0.83 Net interest margin 2.78% 3.76% 0.98 Operating costs / Average assets 1.69% 1.64% (0.05) Cost/income ratio 38.3% 31.2% (7.1) Net loans to deposits (FX-adjusted) 70% 76% 6 FX rates 2022 HUF 2023 HUF Change % HUF/BGN (closing) 204.6 195.7 (4) HUF/BGN (average) 200.1 195.3 (2) In 2023, DSK Group posted excellent results: its adjusted profit after tax jumped by 68%, exceeding HUF 200 billion, its ROE surpassed 25% with net interest margin and cost efficiency indicators both improving. The FX-adjusted performing loan book grew by 20%, an outstanding rate amongst OTP Group members, thus DSK preserved its market leader position in the Bulgarian credit market. The main constituents of the full-year profit improvement were net interest income growing by more than one and a half times and risk costs turning into positive. The increase in net interest income was supported by both dynamic volume growth and widening margin; the latter largely stemmed from the gradual repricing of corporate and leasing exposures priced on the
BUSINESS REPORT OTP BANK (CONSOLIDATED) 21/200 EURIBOR reference rates, in the wake of the rising interest rate environment. However, the increase in the mandatory reserve requirement rate from 10% to 12% in July 2023 had an adverse effect, as the central bank does not pay interest on that stock. Annual net fees and commissions rose by 5%, and other income grew by 2% last year. In 2023 operating expenses grew by 12%, while the average rate of inflation was 9.5% in 2023, and nominal wages may have grown by more than 13% in the economy. DSK’s personnel expenses grew 14%, owing to the implemented wage increases and the higher bonus payments, while the annual average number of employees dropped by 7%, predominantly because DSK Bank sold its subsidiary providing security and ATM services. The increase in other expenses can be partly attributable to higher consulting and marketing expenses, as well as to supervisory fees. The annual cost/income ratio improved by 7 pps, to near 31%, which is one of the best among Group members. In full year 2023 the total risk cost line printed HUF 6.5 billion positive amount, as opposed to -HUF 9.8 billion in the base period. Within that, the positive sign of credit-related risk costs was predominantly because of the release owing to the improving macro expectations. The positive amount of other risk costs was due to the contraction in repo volumes and to the release of provisions for interbank exposures. The ratio of Stage 3 loans dropped by 1.2 pps y-o-y, to 2.4%. However, the ratio of Stage 2 loans increased by 4.1 pps y-o-y, to 12%, largely because a more advanced Stage 2 classification and impairment methodology was introduced in the fourth quarter. As a result, HUF 170 billion worth of loans were shifted from Stage 1 into Stage 2 category. DSK Bank’s performing (Stage 1+2) loans grew by 20% y-o-y (FX-adjusted), the second strongest pace within OTP Group. All segments posted robust performance: mortgage loans jumped by 23%, consumer loans grew by 13%, corporate and MSE loans surged by 24%, while leasing exposures increased by 15%. It is noteworthy that new mortgage loan placements jumped by almost 30% y-o-y, within that in 4Q almost by two-thirds; in 2023 as a whole the placement of new cash loans grew 10% y-o-y, but surged in excess of 40% y-o-y in the fourth quarter. The deposit book’s growth continued: the full-year volume growth was 11% (FX-adjusted). The net loan to deposit ratio rose by 6 pps y-o-y, to 76%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 22/200 OTP BANK SLOVENIA Performance of OTP Bank Slovenia: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 23,860 128,730 440 Income tax (5,710) (8,672) 52 Profit before income tax 29,570 137,402 365 Operating profit 24,046 140,717 485 Total income 51,403 223,315 334 Net interest income 33,688 171,703 410 Net fees and commissions 15,416 46,028 199 Other net non-interest income 2,299 5,584 143 Operating expenses (27,357) (82,598) 202 Total provisions 5,523 (3,316) Provision for impairment on loan losses 7,048 (2,485) Other provision (1,525) (831) (46) Main components of balance sheet (closing balances) 2022 2023 % Total assets 1,790,944 5,892,803 229 Gross customer loans 1,204,641 2,796,313 132 Gross customer loans (FX-adjusted) 1,152,296 2,796,313 143 Stage 1+2 customer loans (FX-adjusted) 1,138,715 2,752,055 142 Retail loans 528,839 1,342,421 154 Corporate loans 431,826 1,220,889 183 Leasing 178,050 188,745 6 Allowances for possible loan losses (14,637) (33,587) 129 Allowances for possible loan losses (FX-adjusted) (14,008) (33,587) 140 Deposits from customers 1,466,625 4,583,072 212 Deposits from customers (FX-adjusted) 1,402,728 4,583,072 227 Retail deposits 1,008,169 3,580,837 255 Corporate deposits 394,560 1,002,235 154 Liabilities to credit institutions 68,172 131,375 93 Issued securities 0 335,400 Subordinated debt 32,025 63,167 97 Total shareholders' equity 194,843 669,622 244 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 1,062,588 2,514,261 137 Stage 1 loans under IFRS 9/gross customer loans 88.2% 89.9% 1.7 Own coverage of Stage 1 loans under IFRS 9 0.2% 0.3% 0.1 Stage 2 loan volume under IFRS 9 (in HUF million) 127,866 237,794 86 Stage 2 loans under IFRS 9/gross customer loans 10.6% 8.5% (2.1) Own coverage of Stage 2 loans under IFRS 9 2.4% 3.4% 0.9 Stage 3 loan volume unde r IFRS 9 (in HUF million) 14,188 44,258 212 Stage 3 loans under IFRS 9/gross customer loans 1.2% 1.6% 0.4 Own coverage of Stage 3 loans under IFRS 9 68.4% 41.4% (27.0) Provision for impairment on loan losses/average gross loans (0.61%) 0.09% 0.71 90+ days past due loan volume (in HUF million) 5,831 15,871 172 90+ days past due loans/gross customer loans 0.5% 0.6% 0.1 Performance Indicators 2022 2023 pps ROA 1.5% 2.5% 1.0 ROE 12.8% 22.6% 9.8 Total income margin 3.25% 4.31% 1.06 Net interest margin 2.13% 3.31% 1.18 Operating costs / Average assets 1.73% 1.59% (0.14) Cost/income ratio 53.2% 37.0% (16.2) Net loans to deposits (FX-adjusted) 81% 60% (21) FX rates 2022 HUF 2023 HUF Change % HUF/EUR (closing) 400.3 382.8 (4) HUF/EUR (average) 391.3 381.9 (2) The financial closure of the transaction related to the purchase of Nova KBM d.d. was completed on 6 February 2023. The balance sheet and P&L figures of the purchased bank have been included into OTP Group’s consolidated figures since February 2023. The Slovenian P&L account was adjusted for the one-off items directly related to the acquisition; these corrections are shown at consolidated level, among adjustment items. The balance sheet components were not adjusted for these effects. In 2023, the combined performance of OTP Group’s Slovenian operation posted the second strongest result among foreign subsidiary banks, following Bulgaria’s DSK. The HUF 129 billion profit after tax includes
BUSINESS REPORT OTP BANK (CONSOLIDATED) 23/200 SKB’s 12-month (HUF 32.8 billion), and NKBM’s 11-month result. The 22.6% full-year ROE exceeded the sector’s profitability. The 37% cost/income ratio, which does not include synergy effects yet, is markedly below the Group average. In 2023, total income margin (4.31%) improved by more than 1 pp y-o-y, as did net interest margin (3.31%); the latter benefited from the higher interest rate environment, and from the active liquid asset management. The aggregated performing loan volumes organically declined y-o-y, similarly to deposits, but the Slovenian operation is still market leader in net loans to and deposits from customers. In 2023, NBKM successfully issued EUR 400 million worth of MREL-eligible Senior Preferred bonds (3NC2 tenor). The legal and organizational integration of SKB and Nova KBM began in February 2023, and the management expects it to be completed in September 2024. To counterbalance the damages caused by the flood in August, Slovenia’s government introduced a lot of measures: first, affected individuals and companies could opt for a 12-month payment moratorium, the application deadline was 31 December 2023; in accordance with the low participation rate, the negative result effect is immaterial. Second, banks are obliged to pay bank tax for five years, the rate is 0.2% of the total assets. In the case of the Slovenian operation, this is likely to amount to about EUR 30 million per year, which is deductible form the corporate tax income base. The tax is due from 2025, but the Bank will make accruals in each quarter of 2024 for the expected amount of the tax to be paid in 2025. Last, the corporate tax income rate increased from 19% to 22% for five years, starting from 2024.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 24/200 OTP BANK CROATIA Performance of OTP Bank Croatia: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 42,801 53,959 26 Income tax (9,294) (11,786) 27 Profit before income tax 52,095 65,744 26 Operating profit 49,013 66,742 36 Total income 102,042 122,951 20 Net interest income 70,547 90,996 29 Net fees and commissions 24,692 25,661 4 Other net non-interest income 6,803 6,295 (7) Operating expenses (53,029) (56,210) 6 Total provisions 3,082 (997) (132) Provision for impairment on loan losses 7,102 721 (90) Other provision (4,020) (1,718) (57) Main components of balance sheet closing balances in HUF million 2022 2023 % Total assets 3,224,955 3,278,199 2 Gross customer loans 2,263,825 2,311,788 2 Gross customer loans (FX-adjusted) 2,165,191 2,311,788 7 Stage 1+2 customer loans (FX-adjusted) 2,058,545 2,221,514 8 Retail loans 1,028,471 1,164,441 13 Corporate loans 888,397 880,471 (1) Leasing 141,677 176,602 25 Allowances for possible loan losses (108,490) (97,835) (10) Allowances for possible loan losses (FX-adjusted) (103,791) (97,835) (6) Deposits from customers 2,381,977 2,385,223 0 Deposits from customers (FX-adjusted) 2,275,058 2,385,223 5 Retail deposits 1,696,769 1,742,124 3 Corporate deposits 578,288 643,099 11 Liabilities to credit institutions 337,047 373,142 11 Subordinated debt 24,356 23,438 (4) Total shareholders' equity 390,583 403,487 3 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 1,886,633 1,932,763 2 Stage 1 loans under IFRS 9/gross customer loans 83.3% 83.6% 0.3 Own coverage of Stage 1 loans under IFRS 9 0.5% 0.6% 0.0 Stage 2 loan volume under IFRS 9 (in HUF million) 265,568 288,751 9 Stage 2 loans under IFRS 9/gross customer loans 11.7% 12.5% 0.8 Own coverage of Stage 2 loans under IFRS 9 7.3% 7.6% 0.3 Stage 3 loan volume under IFRS 9 (in HUF million) 111,624 90,274 (19) Stage 3 loans under IFRS 9/gross customer loans 4.9% 3.9% (1.0) Own coverage of Stage 3 loans under IFRS 9 70.6% 72.0% 1.4 Provision for impairment on loan losses/average gross loans (0.34%) (0.03%) 0.31 Performance Indicators 2022 2023 pps ROA 1.5% 1.8% 0.3 ROE 11.4% 14.2% 2.8 Total income margin 3.51% 4.04% 0.53 Net interest margin 2.43% 2.99% 0.56 Operating costs / Average assets 1.83% 1.85% 0.02 Cost/income ratio 52.0% 45.7% (6.3) Net loans to deposits (FX-adjusted) 91% 93% 2 FX rates 2022 HUF 2023 HUF Change % HUF/HRK (closing) 53.1 HUF/HRK (average) 51.9 HUF/EUR (closing) 400.3 382.8 (4) HUF/EUR (average) 391.3 381.9 (2) The Croatian bank generated HUF 54 billion profit after tax in 2023 as its profit jumped by nearly 30% y-o-y, bringing the ROE above 14%. The growth in annual profit was shaped by multiple factors: first, the bank’s operating profit strengthened by 36%, thanks to the dynamic improvement in net interest income, while the strict cost control resulted in lower cost/income ratio; however, the balance of risk costs deteriorated. Net interest income grew by 29% last year, driven by an 8% increase in performing loans, as well as a 56 bps y-o-y improvement in net interest margin, amid the rising interest rate environment. Twelve-month net fees and commissions increased by 4% y-o-y, other revenues declined by 7% y-o-y.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 25/200 In 2023, operating expenses exceeded the previous year’s level by 6%, while average annual inflation was more than 8%. Other expenses rose by 5%, at a lower rate than inflation; the effect of higher marketing expenses and training costs was offset by the base effect of expert fees in 2022 in connection with euro adoption. Personnel expenses grew by 8%, as a result of an increase in the average number of employees, a rise in base salary, and higher bonus payments, particularly in the fourth quarter. Overall, the cost/income ratio improved by 6.3 pps, to 45.7% last year. Following the HUF 3 billion positive amount in 2022, total risk costs amounted to -HUF 1 billion in 2023. The ratio of Stage 3 loans declined by 1.0 pp y-o-y, making up 3.9% of the portfolio at the end of December. This was supported by both the loan portfolio’s overall improvement and a healed corporate loan previously classified as Stage 3. The own provision coverage of Stage 3 loans improved further: it hit 72.0% (+1.4 pps y-o-y) at the end of December. Performing (Stage 1+2) loans grew by an FX-adjusted 8% y-o-y. The retail segment’s y-o-y expansion continued to benefit from the subsidized housing loan facility for first-home-buyers, in a scheme restarted on 21 March 2022; thus the share of this subsidized product within the full-year retail loan disbursement reached 28.5%. The corporate loan book stagnated y-o-y. FX-adjusted deposit volumes expanded by 5% in full-year 2023 but stagnated in the fourth quarter. Despite the better returns on alternative savings forms, retail deposits increased by 3% y-o-y in FX-adjusted terms. Corporate deposit volumes grew dynamically in the second half of the year, showing a growth of 11% y-o-y. The Bank’s net loan/deposit ratio rose by 2 pps y-o-y, to 93% at the end of December. On 1 January 2023, Croatia adopted the euro. The necessary conversion of loan and deposit volumes, as well as the smooth transition of the bank’s IT systems were all successfully accomplished.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 26/200 OTP BANK SERBIA Performance of OTP Bank Serbia: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 36,873 68,026 84 Income tax (6,118) (10,621) 74 Profit before income tax 42,991 78,646 83 Operating profit 58,544 83,732 43 Total income 104,524 133,589 28 Net interest income 76,635 104,050 36 Net fees and commissions 17,954 18,419 3 Other net non-interest income 9,934 11,120 12 Operating expenses (45,980) (49,856) 8 Total provisions (15,553) (5,086) (67) Provision for impairment on loan losses (14,422) (2,293) (84) Other provision (1,131) (2,793) 147 Main components of balance sheet (closing balances) 2022 2023 % Total assets 2,708,993 2,874,794 6 Gross customer loans 2,038,480 1,978,855 (3) Gross customer loans (FX-adjusted) 1,951,119 1,978,855 1 Stage 1+2 customer loans (FX-adjusted) 1,901,668 1,921,146 1 Retail loans 868,659 875,664 1 Corporate loans 937,436 951,833 2 Leasing 95,573 93,648 (2) Allowances for possible loan losses (62,386) (66,259) 6 Allowances for possible loan losses (FX-adjusted) (59,754) (66,259) 11 Deposits from customers 1,551,143 1,868,078 20 Deposits from customers (FX-adjusted) 1,485,623 1,868,078 26 Retail deposits 831,288 936,937 13 Corporate deposits 654,335 931,140 42 Liabilities to credit institutions 682,615 506,900 (26) Total shareholders' equity 358,120 368,344 3 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 1,764,677 1,661,365 (6) Stage 1 loans unde r IFRS 9/gross customer loans 86.6% 84.0% (2.6) Own coverage of Stage 1 loans under IFRS 9 0.9% 0.7% (0.2) Stage 2 loan volume under IFRS 9 (in HUF million) 222,202 259,780 17 Stage 2 loans under IFRS 9/gross customer loans 10.9% 13.1% 2.2 Own coverage of Stage 2 loans under IFRS 9 7.0% 6.7% (0.3) Stage 3 loan volume under IFRS 9 (in HUF million) 51,601 57,710 12 Stage 3 loans under IFRS 9/gross customer loans 2.5% 2.9% 0.4 Own coverage of Stage 3 loans under IFRS 9 59.8% 63.8% 4.1 Provision for impairment on loan losses/average gross loans 0.74% 0.12% (0.62) Performance Indicators 2022 2023 pps ROA 1.5% 2.5% 1.1 ROE 10.9% 19.4% 8.5 Total income margin 4.14% 4.98% 0.84 Net interest margin 3.03% 3.88% 0.85 Operating costs / Average assets 1.82% 1.86% 0.04 Cost/income ratio 44.0% 37.3% (6.7) Net loans to deposits (FX-adjusted) 127% 102% (25) FX rates 2022 HUF 2023 HUF Change % HUF/RSD (closing) 3.4 3.3 (4) HUF/RSD (average) 3.3 3.3 (2) The Serbian banking group’s adjusted profit after tax jumped by more than 80% y-o-y, to more than HUF 68 billion in 2023. The P&L developments were shaped by the dynamic improvement in operating profit (+43% y-o-y) as well as by the decline in risk costs, to a third of the previous year’s level; this brought the return on equity ratio to 19.4% (+8.5 pps y-o-y). Total income grew impressively (+28% y-o-y) in the full year. Within that, net interest income surged by 36%: FX-adjusted performing loan volumes stagnated, but the rising RSD and EUR interest rate environment made its impact through the gradual repricing of predominantly variable rate loans. The National Bank of Serbia’s resolution of 11 September 2023 obligated banks to impose a 4.08% temporary cap on existing variable rate housing loans amounting to less than EUR 200,000, and to impose a 5.03% cap on newly disbursed fixed rate loans. Interest rates shall be frozen for 15 months, from October 2023 to the end of year 2024. The measure’s expected impact was recorded as a lump sum in the third quarter of 2023, among adjustment items presented at consolidated level.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 27/200 Twelve-month net fees and commissions rose by 3% y-o-y. The annual average rate of inflation was above 10% in 2023; in the high inflationary environment, annual operating expenses grew by 11% y-o-y in local currency. Almost 60% of the expense growth was caused by higher personnel expenses, triggered by wage inflation and higher bonus payments, while the number of employees was stable y-o-y (on FTE basis). Cost efficiency indicators further improved; the annual cost/income ratio (37.3%) was one of the lowest among group members. In full year 2023, nearly HUF 5.1 billion total risk cost weighed on profit, as opposed to HUF 15.6 billion in the base period. Within that, credit risk costs fell by more than 80% y-o-y, because of the releases made in the third and fourth quarters of 2023. The y-o-y jump in other risk costs was related to provisions for interbank exposures and litigations. The performing (Stage 1+2) FX-adjusted loan volume y-o-y stagnated. Within that, mortgage loans declined throughout last year in the rising interest rate environment, but the growing demand caused by the interest rate cap reversed the downtrend in the fourth quarter. Despite the stricter lending conditions, the consumer loan book increased y-o-y (+4%), largely driven by cash loans’ and car loans’ growth. The corporate loan book’s expansion continued, too. The deposit stock surged by 26% y-o-y (FX-adjusted), primarily driven by deposits from large corporations. The bank’s net loan/deposit ratio declined by 25 pps y-o-y, to 102%, while interbank funds’ volume fell by 26% y-o-y.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 28/200 OTP BANK ALBANIA Performance of OTP Bank Albania: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 10,175 15,032 48 Income tax (2,013) (3,140) 56 Profit before income tax 12,188 18,173 49 Operating profit 9,335 18,269 96 Total income 20,232 33,387 65 Net interest income 16,927 27,912 65 Net fees and commissions 3,067 3,729 22 Other net non-interest income 238 1,746 Operating expenses (10,896) (15,118) 39 Total provisions 2,852 (96) (103) Provision for impairment on loan losses 2,505 108 (96) Other provision 347 (204) Main components of balance sheet (closing balances) 2022 2023 % Total assets 635,364 669,765 5 Gross customer loans 370,875 367,947 (1) Gross customer loans (FX-adjusted) 369,116 367,947 0 Stage 1+2 customer loans (FX-adjusted) 350,663 345,171 (2) Retail loans 158,940 161,834 2 Corporate loans 187,729 177,640 (5) Leasing 3,994 5,696 43 Allowances for possible loan losses (16,208) (17,690) 9 Allowances for possible loan losses (FX-adjusted) (16,264) (17,690) 9 Deposits from customers 516,668 547,854 6 Deposits from customers (FX-adjusted) 515,946 547,854 6 Retail deposits 447,918 470,591 5 Corporate deposits 68,029 77,263 14 Liabilities to credit institutions 30,279 8,138 (73) Subordinated debt 0 2,861 (100) Total shareholders' equity 60,827 81,102 33 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 318,215 312,494 (2) Stage 1 loans under IFRS 9/gross customer loans 85.8% 84.9% (0.9) Own coverage of Stage 1 loans under IFRS 9 1.0% 0.9% 0.0 Stage 2 loan volume under IFRS 9 (in HUF million) 34,417 32,677 (5) Stage 2 loans under IFRS 9/gross customer loans 9.3% 8.9% (0.4) Own coverage of Stage 2 loans under IFRS 9 9.4% 8.2% (1.2) Stage 3 loan volume under IFRS 9 (in HUF million) 18,243 22,776 25 Stage 3 loans under IFRS 9/gross customer loans 4.9% 6.2% 1.3 Own coverage of Stage 3 loans under IFRS 9 54.4% 53.3% (1.1) Provision for impairment on loan losses/average gross loans (0.83%) (0.03%) 0.80 Performance Indicators 2022 2023 pps ROA 2.0% 2.3% 0.3 ROE 21.1% 21.1% 0.0 Total income margin 4.07% 5.19% 1.13 Net interest margin 3.40% 4.34% 0.94 Operating costs / Average assets 2.19% 2.35% 0.16 Cost/income ratio 53.9% 45.3% (8.6) Net loans to deposits (FX-adjusted) 68% 64% (4) FX rates 2022 HUF 2023 HUF Change % HUF/ALL (closing) 3.5 3.7 5 HUF/ALL (average) 3.1 3.4 9 The consolidated financial statements include the acquired Alpha Bank Albania SH.A. bank’s balance sheet from July 2022, while its profit contribution was consolidated starting from August. On 1 December 2022, Albania’s Court of Registration registered the merger of Alpha Bank Albania and Banka OTP Albania. The Albanian P&L account was adjusted for the one-off items directly related to the acquisition; they are presented at consolidated level among the adjustment items. The balance sheet components were not adjusted for these effects. In 2023, OTP Bank Albania generated HUF 15 billion profit after tax (+50% q-o-q; in local currency +44%), which brought ROE above 21%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 29/200 Most of the change in the P&L lines for last year was induced by the acquisition. Based on the latest data, the bank’s market share by total assets exceeded 9%, which makes it the fifth largest bank in the country. At the end of the year, the number of bank branches was 50, eleven units more than before the acquisition 2Q 2022, while the number of employees was more than 700, 57% higher than before the acquisition. Still, the bank’s cost efficiency has improved by 8.6 pps, thus the cost/income ratio stood at 45.3% in full year 2023. In local currency full-year operating profit grew by 84%, chiefly as a result of the acquisition, owing to the 56% surge in total income, and a 33% growth in operating expenses. Net interest income grew by 57% y-o-y partly a result of the acquisition, and in part due to the repricing of the loan portfolio in the higher interest rate environment, helping the interest margin (4.34%) improve in 2023 (+94 bps y-o-y). The full-year net fees and commissions increased by 16%, while other income grew sixfold, largely because the ALL/EUR rate appreciated more than in the previous period, and also driven by the inclusion of Alpha Bank Albania. In 2023 risk cost was near zero, as opposed to the release made a year earlier. Overall, the FX-adjusted stock of performing (Stage 1+2) loans declined by 2% in 2023 as a result of a 2% rise in retail loans and a 5% drop in corporate ones. The FX-adjusted volume of deposits from customers grew by 6% y-o-y, as retail deposits increased by 5%, and corporate deposits expanded by 14%. Liabilities to credit institutions declined by 73% y-o-y, at the same time, intragroup financing also dropped. The amount on the subordinated debt line is related to the Tier 2 bond issued in the amount of EUR 7.5 million in December 2023.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 30/200 CKB GROUP (MONTENEGRO) Performance of CKB Group: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 9,791 21,814 123 Income tax (2,184) (3,923) 80 Profit before income tax 11,975 25,737 115 Operating profit 15,133 23,537 56 Total income 28,816 38,363 33 Net interest income 20,832 29,717 43 Net fees and commissions 7,106 7,797 10 Other net non-interest income 878 848 (3) Operating expenses (13,683) (14,826) 8 Total provisions (3,158) 2,200 Provision for impairment on loan losses 639 2,929 Other provision (3,797) (728) (81) Main components of balance sheet (closing balances) 2022 2023 % Total assets 664,395 663,676 0 Gross customer loans 447,921 452,493 1 Gross customer loans (FX-adjusted) 428,371 452,493 6 Stage 1+2 customer loans (FX-adjusted) 407,343 433,473 6 Retail loans 185,443 212,758 15 Corporate loans 221,900 220,715 (1) Allowances for possible loan losses (21,893) (17,625) (19) Allowances for possible loan losses (FX-adjusted) (20,937) (17,625) (16) Deposits from customers 524,479 520,168 (1) Deposits from customers (FX-adjusted) 501,225 520,168 4 Retail deposits 276,382 325,770 18 Corporate deposits 224,843 194,398 (14) Liabilities to credit institutions 12,443 2,309 (81) Total shareholders' equity 99,131 113,004 14 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 389,640 399,886 3 Stage 1 loans under IFRS 9/gross customer loans 87.0% 88.4% 1.4 Own coverage of Stage 1 loans under IFRS 9 1.2% 0.8% (0.4) Stage 2 loan volume under IFRS 9 (in HUF million) 36,294 33,587 (7) Stage 2 loans under IFRS 9/gross customer loans 8.1% 7.4% (0.7) Own coverage of Stage 2 loans under IFRS 9 8.9% 5.1% (3.7) Stage 3 loan volume under IFRS 9 (in HUF million) 21,987 19,020 (13) Stage 3 loans under IFRS 9/gross customer loans 4.9% 4.2% (0.7) Own coverage of Stage 3 loans under IFRS 9 64.4% 67.2% 2.9 Provision for impairment on loan losses/average gross loans (0.15%) (0.67%) (0.52) Performance Indicators 2022 2023 pps ROA 1.6% 3.5% 1.8 ROE 10.9% 21.0% 10.1 Total income margin 4.84% 6.10% 1.27 Net interest margin 3.50% 4.73% 1.23 Operating costs / Average assets 2.30% 2.36% 0.06 Cost/income ratio 47.5% 38.6% (8.8) Net loans to deposits (FX-adjusted) 81% 84% 2 FX rates 2022 Ft 2023 Ft Change % HUF/EUR (closing) 400.3 382.8 (4) HUF/EUR (average) 384.9 381.9 (1) In 2023, the Montenegrin CKB Group generated HUF 21.8 billion profit after-tax, twice as much as in the base period. This brought its ROE to 21%. The improvement in the full-year result stemmed from 47% higher net interest income in local currency terms and positive risk costs. In full year 2023, total income grew by 37% y-o-y in local currency, supported by the 47% jump in net interest income, as well as a 13% increase in net fee and commission income, while other income was stable. The increase in interest income stemmed from the repricing of previously disbursed loans (mostly in the case of corporate and consumer loans), but the higher interest rate of newly disbursed loans also had a benign effect. As a result, net interest margin maintained the improving trend , thus it rose by 1.23 pps to 4.73% y-o-y. The bank’s cost efficiency improved in 2023, just like in recent years; the cost to income ratio dropped by 8.8 pps, to 38.6% y-o-y. Operating expenses increased by 11% in EUR terms in 2023, a third of which was
BUSINESS REPORT OTP BANK (CONSOLIDATED) 31/200 caused by elevated wages and wage-like payments, while the rise in other expenses stemmed from higher expert fees and supervisory charges. In 2023, total risk cost amounted to +HUF 2.2 billion. The ratio of Stage 3 loans declined to 4.2% (-0.7 pp y-o-y); their own provision coverage stood at 67.2% (+2.9 pps y-o-y) at the end of the year. Performing (Stage 1+2) loan volumes rose by an FX-adjusted 6% y-o-y, thanks to a 10% surge in mortgage loans and a 17% jump in consumer loans. The FX-adjusted deposit volumes grew by 4% y-o-y, driven by the 11% increase in household deposits, and a 50% jump in MSE deposits. The net loan/deposit ratio stood at 84% at the end of the year (+2 pps y-o-y).
BUSINESS REPORT OTP BANK (CONSOLIDATED) 32/200 IPOTEKA BANK (UZBEKISTAN) Performance of Ipoteka Bank (Uzbekistan): Main components of P&L account 2023 HUF million Adjusted profit after tax (21,857) Income tax (3,381) Profit before income tax (18,475) Operating profit 33,708 Total income 59,655 Net interest income 46,123 Net fees and commissions 5,261 Other net non-interest income 8,270 Operating expenses (25,946) Total provisions (52,184) Provision for impairment on loan losses (51,354) Other provision (830) Main components of balance sheet (closing balances) 2023 Total assets 1,187,368 Gross customer loans 961,533 Gross customer loans (FX-adjusted) 961,533 Stage 1+2 customer loans (FX-adjusted) 847,183 Retail loans 715,113 Corporate loans 132,070 Leasing 0 Allowances for possible loan losses (96,738) Allowances for possible loan losses (FX-adjusted) (96,738) Deposits from customers 327,161 Deposits from customers (FX-adjusted) 327,161 Retail deposits 237,467 Corporate deposits 89,694 Liabilities to credit institutions 561,466 Issued securities 121,082 Subordinated debt 12,162 Total shareholders' equity 145,941 Loan Quality 2023 Stage 1 loan volume under IFRS 9 (in HUF million) 687,252 Stage 1 loans under IFRS 9/gross customer loans 71.5% Own coverage of Stage 1 loans under IFRS 9 2.7% Stage 2 loan volume under IFRS 9 (in HUF million) 159,931 Stage 2 loans under IFRS 9/gross customer loans 16.6% Own coverage of Stage 2 loans under IFRS 9 21.6% Stage 3 loan volume under IFRS 9 (in HUF million) 114,350 Stage 3 loans under IFRS 9/gross customer loans 11.9% Own coverage of Stage 3 loans under IFRS 9 38.0% Provision for impairment on loan losses/average gross loans 10.03% Performance Indicators 2023 ROA (3.3%) ROE (23.1%) Total income margin 9.09% Net interest margin 7.03% Operating costs / Average assets 4.0% Cost/income ratio 43.5% Net loans to deposits (FX-adjusted) 264% FX rates 2023 HUF HUF/1,000 UZS (closing) 28.1 HUF/1,000 UZS (average) 30.9 In line with the sale and purchase agreement concluded on 12 December 2022 between OTP Bank and the Ministry of Economy and Finance of the Republic of Uzbekistan, the first step of the transaction was completed on 13 June 2023. Consequently, OTP Bank became the majority shareholder of Ipoteka Bank by acquiring a 73.71% stake, and became indirect shareholder of Ipoteka Bank’s wholly-owned subsidiaries. In the second step of the transaction, the shares that remained in the ownership of the Ministry of Economy and Finance of the Republic of Uzbekistan will be bought three years after the first step. The balance sheet of Ipoteka Bank was consolidated in the second quarter but its P&L was presented in OTP Group's adjusted P&L only starting from the third quarter of 2023.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 33/200 The P&L account was adjusted for the one-off items directly related to the acquisition; they are presented at consolidated level among the adjustment items. The balance sheet components were not adjusted for these effects. By purchasing Ipoteka Bank, OTP Group entered the Central Asian region, and became the first foreign player to participate in the privatization of Uzbekistan’s banking sector. Pursuant to its agreement with the Republic of Uzbekistan, OTP Bank increased Ipoteka Bank’s capital by UZS 844.6 billion (about USD 68.5 million), which was registered on 25 December 2023. With this, OTP Bank’s ownership stake increased to 79.58%. Based on end-2023 data, Ipoteka Bank was the fifth largest bank in Uzbekistan, with 7.3 % market share by total assets. The Bank had almost 1.8 million retail customers at the end of 2023; since the acquisition, their number grew by 20%, as a result of reshaping the incentive scheme for branches. At the end of 2023, Ipoteka Bank had 39 branches and employed more than 4,400 people. At the end of 2023, total assets amounted to HUF 1,188 billion, including HUF 962 billion worth of performing loans. In FX-adjusted terms, performing loans have been overall stable since the end of June; but it is favourable within that, the household segment’s 41% growth was outstanding. Since the Bank was added to the Group, mortgage loans have increased by 15%, while consumer loans have more than doubled. The improvement in consumer loans owed a lot to the doubling of cash loan volumes, and the quadrupling of car loans. The deposit book reached HUF 327 billion at the end of 2023. Retail deposits rose by 8% q-o-q, and corporate deposits grew by 42%. These developments were primarily due to a greater focus on deposit collection and, in connection with this, the restructuring of the branch incentive scheme. At the end of the year, the net loan/deposit ratio stood at 264%. The Bank’s liability structure continued to heavily rely on largely state funding sources, which typically finance subsidized loans: liabilities to credit institutions made up HUF 561 billion in the bank’s balance sheet. In the second half of 2023, Ipoteka Bank generated HUF 21.9 billion adjusted loss, which was entirely caused by the loss realized in the fourth quarter. Since the consolidation, operating profit amounted to HUF 33.7 billion, including HUF 12.3 billion in the fourth quarter. The second half adjusted total risk cost in the Uzbek segment amounted to HUF 52.2 billion. Problem loans concentrated in three segments: in a broader sense agriculture, but also in cotton and textile industries. Within agriculture fishery, green house cultivation and hydro cultures, but also the cotton industry were behind the badwill adjustment. This extra provision for impairment on loan losses was recognized partly in Ipoteka Bank’s separate P&L, and in part among the adjustment items presented at consolidated level, on the effect of acquisitions line 5 . The ratio of Stage 3 loans grew to 11.9% by the end of the year, from 2.7% at the end of the second quarter, and from 8.6% at the end of the third quarter, mostly because corporate exposures were migrated. The Stage 2 ratio stood at 16.6% at the end of the year. The reason for this growth was the constant review of the loan portfolio, as a result of which mortgage loans were reclassified from Stage 1 to Stage 2 category. 5 In line with accounting standards, the badwill (which is part of the effect of acquisitions adjustment line) can be updated within 12 months after the consolidation, therefore these impairments were partially recognised on this adjustment line.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 34/200 OTP BANK RUSSIA Performance of OTP Bank Russia Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 42,548 95,665 125 Income tax (3,632) (34,506) 850 Profit before income tax 46,179 130,171 182 Operating profit 98,137 149,297 52 Total income 178,494 223,644 25 Net interest income 118,004 122,084 3 Net fees and commissions 35,251 40,831 16 Other net non-interest income 25,239 60,730 141 Operating expenses (80,357) (74,347) (7) Total provisions (51,958) (19,126) (63) Provision for impairment on loan losses (51,046) (16,278) (68) Other provision (911) (2,848) 213 Main components of balance sheet (closing balances) 2022 2023 % Total assets 1,029,721 1,470,796 43 Gross customer loans 784,958 721,212 (8) Gross customer loans (FX-adjusted) 589,608 721,212 22 Stage 1+2 customer loans (FX-adjusted) 496,620 624,130 26 Retail loans 468,477 606,912 30 Corporate loans 28,142 17,218 (39) Allowances for possible loan losses (173,105) (133,255) (23) Allowances for possible loan losses (FX-adjusted) (130,392) (133,255) 2 Deposits from customers 576,865 1,101,084 91 Deposits from customers (FX-adjusted) 453,127 1,101,084 143 Retail deposits 263,310 404,105 53 Corporate deposits 189,816 696,979 267 Liabilities to credit institutions 49,774 19,063 (62) Total shareholders' equity 306,304 274,516 (10) Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 570,949 510,129 (11) Stage 1 loans under IFRS 9/gross customer loans 72.7% 70.7% (2.0) Own coverage of Stage 1 loans under IFRS 9 5.1% 3.0% (2.2) Stage 2 loan volume under IFRS 9 (in HUF million) 91,050 114,001 25 Stage 2 loans under IFRS 9/gross customer loans 11.6% 15.8% 4.2 Own coverage of Stage 2 loans under IFRS 9 31.5% 22.7% (8.8) Stage 3 loan volume under IFRS 9 (in HUF million) 122,959 97,082 (21) Stage 3 loans under IFRS 9/gross customer loans 15.7% 13.5% (2.2) Own coverage of Stage 3 loans under IFRS 9 93.6% 95.0% 1.4 Provision for impairment on loan losses/average gross loans 5.85% 2.38% (3.47) Performance Indicators 2022 2023 pps ROA 3.9% 8.0% 4.1 ROE 14.1% 33.9% 19.8 Total income margin 16.23% 18.69% 2.46 Net interest margin 10.73% 10.20% (0.53) Operating costs / Average assets 7.3% 6.2% (1.1) Cost/income ratio 45.0% 33.2% (11.8) Net loans to deposits (FX-adjusted) 101% 53% (48) FX rates 2022 HUF 2023 HUF Change % HUF/RUB (closing) 5.2 3.9 (25) HUF/RUB (average) 5.7 4.2 (26) Owing to the changes in the exchange rates in the reporting period, the Russian operation’s balance sheet and P&L statement figures in HUF terms differ from the ones calculated in local currency. OTP Bank Russia realized HUF 95.7 billion profit after tax in 2023, more than twice as much as in the base period. This improvement can be attributed to the operating profit increasing by half, and to smaller risk costs. This brought the return on equity (ROE) ratio to 33.9% in 2023. As a result, the bank’s equity grew by 19% y-o-y in RUB, despite the permission to pay RUB 13.4 billion in dividend in the second half-year. Taxes payable on dividends are presented on the corporate tax line. Full-year net interest income grew by 41% in RUB, induced by higher interest income from expanding deposit volumes placed at the central bank, as deposits from customers almost doubled on average last year, but the rising interest rate environment also played a role starting from mid-2023. Starting from 24 July the central bank of Russia raised its benchmark rate in five steps to 16% by the end of 2023, from 7.5% in the first half-year. Net interest margin shrank by 53 bps y-o-y.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 35/200 Net fees and commissions grew by 62% y-o-y in RUB, mostly driven by a jump in income from account maintenance and transaction fees owing to the increase in deposits. The surge in twelve-month other income reflected the effect of stronger income from currency conversion. Reasons for the 25% y-o-y growth in twelve-month operating expenses in local currency included wage inflation, and the increase in IT expenses linked to the digital transformation of the bank’s operation. The bank’s cost to income ratio was 33.2% in 2023 (-11.8 pps y-o-y). In 2023 total risk cost fell by 60% in RUB, to HUF 19 billion, from HUF 52 billion in the previous year. Underlying loan quality developments painted a positive picture: the ratio of Stage 3 loans declined by 2.2 pps, to 13.5% compared with end-2022. The own provision coverage of Stage 3 loans stood at 95% at end-2023. The Stage 2 ratio was 15.8% (+4.2 pps y-o-y) at the end of the fourth quarter. The bank’s total assets increased by 91% y-o-y in RUB, chiefly boosted by deposit growth. The deposit book grew by 143% y-o-y, primarily through deposits from large corporations (FX-adjusted). The bank’s net loan to deposit ratio declined by 48 pps y-o-y, to 53%. On the asset side, most of the additional liquidity was invested in central bank deposits. The Russian bank has stopped providing new loans to corporates since the end of February 2022, thus by the end of 2023 the corporate loan volumes dropped by an FX-adjusted 85% from end-2021 levels; they contracted by 39% compared to end-2022. The volume of FX-adjusted performing (Stage 1+2) retail loans expanded by 30% in 2023, predominantly in the car loan and cash loan segments. At the end of the year, the bank’s capital adequacy ratio was 18.2%, firmly above the 8% regulatory minimum requirement. At the end of 2023, the Russian bank’s intragroup subordinated loans amounted to USD 27 million, unchanged y-o-y. The Russian operation paid back its maturing intragroup financing in 4Q 2022, thus the amount of intragroup financing decreased to nil by the end of 2022 and remained nil throughout 2023.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 36/200 OTP BANK UKRAINE Performance of OTP Bank Ukraine: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax (15,922) 45,184 Income tax (2,718) (37,174) Profit before income tax (13,204) 82,358 Operating profit 79,863 78,294 (2) Total income 110,805 108,853 (2) Net interest income 90,007 93,450 4 Net fees and commissions 12,673 10,837 (14) Other net non-interest income 8,125 4,567 (44) Operating expenses (30,943) (30,560) (1) Total provisions (93,067) 4,064 Provision for impairment on loan losses (90,836) 10,654 Other provision (2,231) (6,590) 195 Main components of balance sheet (closing balances) 2022 2023 % Total assets 1,048,713 1,036,912 (1) Gross customer loans 529,644 393,741 (26) Gross customer loans (FX-adjusted) 484,031 393,741 (19) Stage 1 + 2 customer loans (FX-adjusted) 396,320 308,454 (22) Retail loans 43,392 28,223 (35) Corporate loans 240,664 197,262 (18) Leasing 112,264 82,969 (26) Allowances for possible loan losses (115,754) (84,671) (27) Allowances for possible loan losses (FX-adjusted) (105,587) (84,671) (20) Deposits from customers 783,009 736,621 (6) Deposits from customers (FX-adjusted) 716,718 736,621 3 Retail deposits 279,032 274,374 (2) Corporate deposits 437,686 462,247 6 Liabilities to credit institutions 108,678 91,154 (16) Subordinated debt 7,798 7,530 (3) Total shareholders' equity 122,493 157,088 28 Loan Quality 2022 2023 %/pps Stage 1 loan volume unde r IFRS 9 (in HUF million) 219,078 208,563 (5) Stage 1 loans under IFRS 9/gross customer loans 41.4% 53.0% 11.6 Own coverage of Stage 1 loans under IFRS 9 2.1% 1.9% (0.2) Stage 2 loan volume under IFRS 9 (in HUF million) 214,442 99,891 (53) Stage 2 loans under IFRS 9/gross customer loans 40.5% 25.4% (15.1) Own coverage of Stage 2 loans under IFRS 9 18.1% 14.4% (3.7) Stage 3 loan volume under IFRS 9 (in HUF million) 96,124 85,287 (11) Stage 3 loans under IFRS 9/gross customer loans 18.1% 21.7% 3.5 Own coverage of Stage 3 loans under IFRS 9 75.3% 77.9% 2.6 Provision for impairment on loan losses/average gross loans 14.01% (2.38%) (16.39) Performance Indicators 2022 2023 pps ROA (1.6%) 4.4% 6.0 ROE (12.4%) 30.5% 42.9 Total income margin 10.92% 10.65% (0.27) Net interest margin 8.87% 9.14% 0.27 Operating costs / Average assets 3.0% 3.0% (0.1) Cost/income ratio 27.9% 28.1% 0.1 Net loans to deposits (FX-adjusted) 53% 42% (11) FX rates 2022 HUF 2023 HUF Change % HUF/UAH (closing) 10.2 9.1 (11) HUF/UAH (average) 11.5 9.6 (16) Owing to the exchange rate fluctuations in the reporting period, the Ukrainian operation’s balance sheet and P&L statement figures in HUF terms differ from the ones calculated in local currency. In full year 2023, OTP Bank Ukraine posted HUF 45.2 billion adjusted profit after tax, which brought its ROE above 30%. The corporate tax burden increased materially because on 6 December 2023 Ukraine’s president signed a bill that increased the corporate income tax rate for banks (it remained unchanged in case of leasing companies) from 18% to 50% retroactively for full year 2023 and set the tax rate at 25% from 2024. As a result, almost HUF 23 billion extra corporate income tax was recorded in the fourth quarter, for the full year 2023.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 37/200 Full-year operating profit improved by 17% in UAH (but declined by 2% in HUF). Within that, net interest income jumped by 24% in local currency (by 4% in HUF), predominantly supported by the higher interest income on deposits placed at the National Bank of Ukraine. Net interest margin improved by 27 bps in 2023. Twelve-year net fee and commission income stagnated in UAH. The reason for the decline in full-year other income was the outstandingly high currency conversion income in the base year The 17% growth in full-year operating cost level in UAH reflected the high inflationary environment: in 2023, annual average inflation remained above 13%. Within that, personnel expenses increased by 18% in UAH as a result of high wage inflation, via the implemented wage hikes, while the full-year average number of employees dropped by 7%. Overall, cost efficiency indicators were stable last year: the cost to income ratio of 28.1% remained the lowest in OTP Group. Underlying loan quality developments were overall positive. In full year 2023, total risk cost amounted to +HUF 4.1 billion, as opposed to -HUF 93 billion in the base period. At the end of 2023, the ratio of Stage 3 loans within the portfolio was 21.7%, the 3.5 pps y-o-y growth was partly caused by the contraction in the loan portfolio. The coverage of Stage 3 loans increased to 77.9% (+2.6 pps y-o-y). The ratio of Stage 2 loans sank by 15.1 pps y-o-y, to 25.4%. The ratio of total provisions to total gross loan volumes was 24.5% at the end of December. The other risk costs were set aside mainly for the Ukrainian government bond portfolio. Amid the moderate lending activity, performing (Stage 1+2) loans fell by an FX-adjusted 22% y-o-y. The deposits placed at the central bank grew by 12% last year, to HUF 307 billion by the end of the year. Last year the deposit book rose by 3% (FX-adjusted). The net loan to deposit ratio fell to 42% (-11 pps y-o-y). The bank’s capital adequacy ratio significantly exceeded the regulatory minimum requirements, reaching 36.6% at the end of December (regulatory minimum: 10.0%). The outstanding gross intragroup financing to the Ukrainian operation amounted to HUF 83.1 billion at the end of December.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 38/200 OTP BANK ROMANIA Performance of OTP Bank Romania: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 3,071 20,099 Income tax (649) (3,559) Profit before income tax 3,720 23,657 Operating profit 17,384 20,972 21 Total income 62,596 68,613 10 Net interest income 53,560 53,865 1 Net fees and commissions 4,743 5,019 6 Other net non-interest income 4,293 9,729 127 Operating expenses (45,212) (47,641) 5 Total provisions (13,663) 2,685 Provision for impairment on loan losses (11,094) 2,771 Other provision (2,569) (86) (97) Main components of balance sheet (closing balances) 2022 2023 % Total assets 1,687,581 1,600,237 (5) Gross customer loans 1,228,254 1,136,507 (7) Gross customer loans (FX-adjusted) 1,171,413 1,136,507 (3) Stage 1+2 customer loans (FX-adjusted) 1,109,875 1,075,958 (3) Retail loans 538,979 485,158 (10) Corporate loans 510,400 524,745 3 Leasing 60,496 66,055 9 Allowances for possible loan losses (62,442) (55,856) (11) Allowances for possible loan losses (FX-adjusted) (59,762) (55,856) (7) Deposits from customers 998,452 1,100,016 10 Deposits from customers (FX-adjusted) 951,990 1,100,016 16 Retail deposits 564,695 662,557 17 Corporate deposits 387,295 437,459 13 Liabilities to credit institutions 446,641 261,740 (41) Total shareholders' equity 181,206 192,650 6 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 990,307 919,683 (7) Stage 1 loans under IFRS 9/gross customer loans 80.6% 80.9% 0.3 Own coverage of Stage 1 loans under IFRS 9 1.1% 1.2% 0.1 Stage 2 loan volume under IFRS 9 (in HUF million) 173,679 156,276 (10) Stage 2 loans under IFRS 9/gross customer loans 14.1% 13.8% (0.4) Own coverage of Stage 2 loans under IFRS 9 9.6% 8.5% (1.1) Stage 3 loan volume under IFRS 9 (in HUF million) 64,268 60,549 (6) Stage 3 loans under IFRS 9/gross customer loans 5.2% 5.3% 0.1 Own coverage of Stage 3 loans under IFRS 9 54.1% 51.9% (2.2) Provision for impairment on loan losses/average gross loans 0.93% (0.24%) (1.18) Performance Indicators 2022 2023 pps ROA 0.2% 1.3% 1.1 ROE 1.8% 10.9% 9.2 Total income margin 3.86% 4.28% 0.42 Net interest margin 3.31% 3.36% 0.06 Operating costs / Average assets 2.79% 2.97% 0.18 Cost/income ratio 72.2% 69.4% (2.8) Net loans to deposits (FX-adjusted) 117% 98% (19) FX rates 2022 Ft 2023 Ft Change % HUF/RON (closing) 74.6 80.9 8 HUF/RON (average) 72.8 79.4 9 On 9 February 2024 OTP Bank Plc. concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. (‘BT’). OTP Group is also selling its 100% shareholdings in its other Romanian subsidiaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to BT under the transaction. The selling price is EUR 347.5 million which is smaller than the net asset value of the to be sold subsidiaries recognized in the consolidated accounts, accordingly the transaction resulted in a negative P&L impact of HUF 59.5 billion (after tax) on consolidated level, which was booked in 4Q 2023 and presented amongst the adjustment items. As a result of this, according to IFRS 5, as at the end of 2023 the Romanian operation was presented as an asset classified as held for salein the consolidated balance sheet, and as discontinued operation in the income statement. As opposed to this, in the adjusted financial statements presented in the Stock Exchange
BUSINESS REPORT OTP BANK (CONSOLIDATED) 39/200 Report – in line with the structure of the financial statements monitored by the management – the Romanian operation was presented in a way as if it was still classified as continuing operation. OTP Bank Romania generated HUF 20.1 billion profit after tax in 2023, more than 6.5 times as much as in 2022. Full-year operating profit increased by 25% in local currency, as a result of 13% y-o-y surge in total income and 8% higher operating expenses. In 2023, other income doubled in local currency, net fees and commissions grew by 8%, while net interest income rose by 4%. The full-year net interest income and other income dynamics were influenced by the fact that the result on intragroup FX swap deals changed in the third quarter, and their ytd cumulated result (-HUF 10 billion) was moved from other income to the net interest income line, thus this reclassification was neutral on profits. Without this reclassification’s effect (a total of - HUF 11.5 billion in net interest income in 2023), full-year net interest income would have grown by 22% y-o-y, mostly because of the stable loan volumes and the repricing of outstanding loan volumes in the higher interest rate environment. Annual net fees and commissions expanded by 8% y-o-y in local currency, largely thanks to an increase in card commissions. Full-year operating expenses grew by 8%, the main component of which was the wage hikes by the annual rate of inflation, as well as a rise in other expenses. In the fourth quarter, expenses grew by 10% q-o-q in local currency. The cost to income ratio improved to 69.4% in 2023 (-2.8 pps y-o-y). Full-year risk costs amounted to HUF +3 billion, mainly driven by the HUF +9.5 billion credit risk cost in the second quarter, which stemmed from the sale of the Romanian factoring company’s non-performing loan portfolio. The ratio of Stage 3 loans rose by 0.1 pp, to 5.3% y-o-y; their own provision coverage stood at 51.9%, -2.2 pps y-o-y) at the end of the year. Regarding lending activity, performing (Stage 1+2) loan volumes declined by 3% y-o-y (FX-adjusted), largely as a result of a 12% drop in mortgage loans and a 4% decline in consumer loans, which was only partly offset by the 3% rise in corporate loans and a 9% growth in leasing volumes. The decline in mortgage loans was primarily caused by the rising mortgage rates: in full year 2023, new mortgage loan placements shrank by two-thirds. In FX-adjusted terms, deposits from customers rose by 16% y-o-y; within that, retail deposits grew by 17%, and corporate deposits increased by 13%. A multi-year improvement drove the net loan to deposit ratio below 100% by the end of the year (-19 pps y-o-y); as a result, the volume of liabilities to credit institutions fell by 41% y-o-y. On 27 October 2023, the additional tax affecting the banking sector was approved. The rate of special the tax will be 2% of the annual gross turnover in 2024 and 2025, while starting from 2026 it will be reduced to 1%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 40/200 OTP BANK MOLDOVA Performance of OTP Bank Moldova: Main components of P&L account 2022 HUF million 2023 HUF million Change % Adjusted profit after tax 9,403 14,700 56 Income tax (1,385) (2,059) 49 Profit before income tax 10,788 16,759 55 Operating profit 17,551 13,440 (23) Total income 27,830 25,268 (9) Net interest income 19,172 16,349 (15) Net fees and commissions 2,624 2,389 (9) Other net non-interest income 6,034 6,530 8 Operating expenses (10,279) (11,828) 15 Total provisions (6,763) 3,319 Provision for impairment on loan losses (5,895) 3,106 Other provision (868) 213 Main components of balance sheet (closing balances) 2022 2023 % Total assets 365,658 428,192 17 Gross customer loans 171,412 150,228 (12) Gross customer loans (FX-adjusted) 169,571 150,228 (11) Stage 1+2 customer loans (FX-adjusted) 164,895 144,367 (12) Retail loans 84,143 67,585 (20) Corporate loans 75,994 72,279 (5) Leasing 4,758 4,503 (5) Allowances for possible loan losses (11,177) (7,122) (36) Allowances for possible loan losses (FX-adjusted) (11,095) (7,122) (36) Deposits from customers 264,031 332,062 26 Deposits from customers (FX-adjusted) 259,666 332,062 28 Retail deposits 174,719 204,833 17 Corporate deposits 84,947 127,229 50 Liabilities to credit institutions 42,083 27,489 (35) Total shareholders' equity 53,430 63,353 19 Loan Quality 2022 2023 %/pps Stage 1 loan volume under IFRS 9 (in HUF million) 139,227 127,607 (8) Stage 1 loans under IFRS 9/gross customer loans 81.2% 84.9% 3.7 Own coverage of Stage 1 loans under IFRS 9 2.3% 1.3% (1.0) Stage 2 loan volume under IFRS 9 (in HUF million) 27,452 16,760 (39) Stage 2 loans under IFRS 9/gross customer loans 16.0% 11.2% (4.9) Own coverage of Stage 2 loans under IFRS 9 18.3% 11.7% (6.6) Stage 3 loan volume under IFRS 9 (in HUF million) 4,733 5,861 24 Stage 3 loans under IFRS 9/gross customer loans 2.8% 3.9% 1.1 Own coverage of Stage 3 loans under IFRS 9 61.3% 60.1% (1.2) Provision for impairment on loan losses/average gross loans 3.23% (2.01%) (5.25) Performance Indicators 2022 2023 pps ROA 2.7% 3.9% 1.2 ROE 19.3% 25.5% 6.1 Total income margin 8.05% 6.73% (1.32) Net interest margin 5.55% 4.35% (1.19) Operating costs / Average assets 2.97% 3.15% 0.18 Cost/income ratio 36.9% 46.8% 9.9 Net loans to deposits (FX-adjusted) 61% 43% (18) FX rates 2022 HUF 2023 HUF Change % HUF/MDL (closing) 19.6 19.9 1 HUF/MDL (average) 19.4 19.4 0 In 2023, OTP Bank Moldova contributed to the Group’s adjusted profit with HUF 14.7 billion profit after tax (+56% y-o-y). The Bank’s ROE amounted to 25.5% in 2023. Total income amounted to HUF 25 billion in 2023 (-9% y-o-y); the contribution of net interest income was HUF 16 billion (-15% y-o-y), that of net fees and commissions was HUF 2 billion (-9% y-o-y), and other income was HUF 7 billion (+8% y-o-y). The reason for the y-o-y lower net interest income was the central bank's interest rate cutting cycle, which began at the end of 2022; as a result, the average interest rate on deposits declined at a slower pace due to the high proportion of term deposits previously placed at higher interest rates. In contrast, interest income on placements with the central bank and on government securities decreased faster. As a result, full-year net interest margin eroded by 1.19 pps, to 4.35%. Net fees and commissions declined as card-related expenditures grew.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 41/200 In 2023, operating expenses increased by 17% in local currency. They grew at the same rate as inflation, largely driven by the wage hikes at the bank, and to a smaller degree because other expenses rose. The cost to income ratio stood at 46.8% (+9.9 pps y-o-y). In 2023, risk costs totalled +HUF 3.3 billion, as a result of provisions release. The Stage 3 ratio stood at 3.9% at the end of 2023 (+1.1 pps y-o-y); their own provision coverage exceeded 60%. The FX-adjusted volume of performing (Stage 1+2) loans declined by 12% y-o-y largely as a result of the contraction in the first three quarters, as demand dropped in the higher interest rate environment. Within that, retail loans fell by 20% and-, corporate loans decreased by 5%. FX-adjusted deposit volumes the full-year growth rate to 28%; chiefly because corporate deposits went up by 50%, and retail deposits also surged 17%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 42/200 STAFF LEVEL AND OTHER INFORMATION 31/12/2022 31/12/2023 Branches ATM POS Headcount (closing) Branches ATM POS Headcount (closing) OTP Core 352 1,866 143,078 10,985 342 1,877 156,757 11,257 DSK Group (Bulgaria) 305 998 16,559 5,358 302 979 17,494 5,104 OTP Bank Slovenia 49 81 4,925 875 114 436 15,459 2,355 OBH (Croatia) 111 428 11,344 2,294 107 438 10,889 2,400 OTP Bank Serbia 155 265 18,049 2,632 156 275 20,108 2,676 OTP Bank Albania 58 213 831 730 50 129 988 719 CKB Group (Montenegro) 33 116 7,529 497 28 114 8,323 503 Ipoteka Bank (Uzbekistan) 39 682 232 4,444 OTP Bank Russia (w/o employed agents) 108 191 534 4,471 82 165 278 4,587 OTP Bank Ukraine (w/o employed agents) 71 150 263 2,134 71 165 190 2,074 OTP Bank Romania 97 156 8,325 1,826 95 157 13,848 1,780 OTP Bank Moldova 53 156 0 896 53 154 0 867 Foreign subsidiaries, total 1,040 2,754 68,359 21,713 1,097 3,694 87,809 27,509 Other Hungarian and foreign subsidiaries 619 640 OTP Group (w/o employed agents) 33,318 39,407 OTP Bank Russia – employed agents 2,431 2,018 OTP Bank Ukraine – employed agents 227 123 OTP Group (aggregated) 1,392 4,620 211,437 35,976 1,439 5,571 244,566 41,547 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.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 43/200 STATEMENT ON CORPORATE GOVERNANCE PRACTICE Corporate governance practice OTP Bank Plc., being registered in Hungary, has a corporate governance policy that complies with the provisions on companies of the act applicable (Civil Code). As the company conducts banking operations, it also adheres to the statutory regulations pertaining to credit institutions. Beyond fulfilling the statutory requirements, as a listed company on the Budapest Stock Exchange (BSE), the company also makes an annual declaration on its compliance with the BSE’s Corporate Governance Recommendations. After being approved by the General Meeting, this declaration is published on the websites of both the Stock Exchange (www.bet.hu) and the Bank (www.otpbank.hu). System of internal controls OTP Bank Plc., as a provider of financial and investment services, operates a closely regulated and state- supervised system of internal controls. OTP Bank Plc. has detailed risk management regulations applicable to all types of risks (credit, country, counterparty, market, liquidity, operational, compliance), which are in compliance with the regulations on prudent banking operations. The Bank Group pays special attention to the management of ESG risks and the implementation of climate protection aspects in business practice. Its risk management system extends to cover the identification of risks, the assessment and analysis of their impact, elaboration of the required action plans and the monitoring of their effectiveness and results. The business continuity framework is intended to provide for the continuity of services. Developed on the basis of international methodologies, the lifecycle model includes process evaluation, action plan development for critical processes, the regular review and testing of these, as well as related DRP activities. OTP Bank Plc.'s internal audit system is realised on several levels of control built on each other. The system of internal checks and balances includes process-integrated control, management control, independent internal audit organisation and executive information system. The independent internal audit organisation as a key element of internal lines of defence promotes the statutory and efficient management of assets and liabilities, the defence of property, the safe course of business, the efficient operation of internal control systems, the minimisation of risks, moreover 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 and audit results for the executive boards. Once a year, the internal audit organisation with the prior opinion of the Audit Committee draws up, for the Supervisory Board, the Board of Directors and the Risk Assumption and Risk Management Committee, objective and independent reports in respect of the operation of risk management, internal control mechanisms and corporate governance functions. Furthermore, in line with the provisions of the Credit Institutions Act, reports, once a year, to the Supervisory Board and the Board of Directors on the regularity of internal audit tasks, professional requirements and the conduct of audits, and on the review of compliance with IT and other technical conditions needed for the audits. In line with the regulations of the European Union, the applicable Hungarian laws and supervisory recommendations, OTP Bank Plc. operates an independent organisational unit with the task of identifying and managing compliance risks. The Compliance Directorate prepares a report quarterly to the Board of Directors, and annually to the Supervisory Board, about the Bank’s and the Bank Group’s compliance activities and position. IT Controls Applications are developed by either in-house group resources or by third parties. OTP Bank applies administrative, logical and physical control measures commensurate with the risk in order to protect the IT systems storing and processing data, as follows: • access to data/systems is only possible on the basis of a predefined authorisation management process that applies the principle of least privilege, ensures segregation of responsibilities, that has regular access right reviews and ensures that dismissed employees’ access is revoked in a timely manner; • user authentication, authorisation and password management processes are controlled by policies and audited; • the systems have test and development environments with appropriate separation from the production environments that have a secure change management procedure, which ensures that program developments or modifications can only be deployed to the operational environment after proper, controlled testing and approval;
BUSINESS REPORT OTP BANK (CONSOLIDATED) 44/200 • systems are protected by appropriate network perimeter protection, various security devices and network segmentation, furthermore all network communications are protected with state-of-the-art encryption; • the IT systems that store and process data are regularly backed up and backup media is stored in controlled premises with adequate protection for long-term retention, and the organisation carries out regular backup restore tests; • adequate redundancy is applied for IT systems that store and process data to ensure business continuity and disaster resiliency; • has developed DRPs and BCPs for critical systems and critical business processes, which are regularly tested and reviewed; • the Bank collects and retains the complete log of all major IT operations and IT security relevant data processing activities and the confidentiality, availability, integrity, authenticity and non-repudiation of these audit logs are ensured; • there is a continuous, up-to-date protection against malicious codes; • it ensures the regular implementation of vendor patches and updates for the environments used; • it uses a data leakage protection (DLP) solution to reduce the risk of inadvertent data loss; • it ensures the continuous monitoring of the operation events of the physical and virtual environment system elements with automated event detection and management tools; • the above measures are documented at an appropriate level, which ensures the traceability of the implementation of data security requirements in a transparent manner; • it ensures permanent secure deletion of the data stored on the media, the destruction of the media and the documentation of the destruction of the media during secure operational media disposal processes; • it enforces data protection requirements already at the design stage of the implementation of the IT systems storing and processing personal data and of the systems operational processes related to them; • acquire and maintain ability to adequately handle application related security events (including cyber threats), entailing prevention, detection, identification, isolation, analysis, recovery and reporting; • remote work is regulated in a controlled and documented way, remote device and user access is protected with multi-factor authentication; • ensures IT security compliance by its managed regulative framework; • revision and update of IT security regulations bi-yearly or in a frequency complying legislative requirements or upon major changes; • ensures vulnerability assessments and penetration tests are carried out as planned; • defines pools for categorization of installed software into preferred, allowed and prohibited and ensures compliance to that policy. • it ensures that its employees have adequate knowledge of data protection requirements and provides regular data protection and information security awareness training for them. General Meeting The General Meeting is the supreme governing body of OTP Bank Plc. The regulations pertaining to its operation are set forth in the Company’s Articles of Association, and comply fully with both general and special statutory requirements. Information on the General Meeting is available in the Corporate Governance Report. 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 The Company’s registered capital is HUF 28,000,001,000, that is twenty-eight thousand million one thousand Hungarian forint, divided into 280,000,010 that is Two hundred and eighty million and ten dematerialised ordinary shares with a nominal value of HUF 100 each, and a total nominal value of HUF 28,000,001,000, that is twenty eight billion one thousand Hungarian forint. The ordinary shares of the Company specified all have the same nominal value and bestow the same rights in respect of the Company. There are no restrictions in place concerning the transfer of issued securities constituting the registered capital of the Company. No securities with special control rights have been issued by the Company.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 45/200 Special Employee Partial Ownership Plan Organization No. I. of OTP Employees and Special Employee Partial Ownership Plan Organization No. II. of OTP Employees (hereinafter referred to as: OTP SEPOPs) were established based on the decision of the Company’s certain employees and executives considered as employees pursuant to the Act XLIV of 1992 on Employee Partial Ownership Plan. Management rights of OTP SEPOPs are exercised by a trust named Alapítvány az OTP Munkavállalók Különleges Résztulajdonosi Programjáért, founded by the same employees setting up OTP SEPOPs. The Company did not participate either in foundation or in management of OTP SEPOPs. The Company in line with the ESOP Act initiated an employee share ownership plan having a remuneration purpose and founded OTP Bank ESOP Organization for its execution (hereinafter referred to as ESOP Organization). Pursuant to the laws, the management rights over the ESOP Organization are exercised by a law firm, the so called trustee. In the case of the ESOP Organization Szűcs Law Firm is entitled to exercise the authorities of the trustee. The Company participated in the foundation of the ESOP Organization, however, after its foundation it cannot participate in its management, and according to the laws, it is not entitled to either give orders or to recall the trustee. Rules on the restrictions of the voting rights: The Company’s ordinary shares confer one vote per share. An individual shareholder or group of shareholders may not exercise voting rights in respect of in an extent exceeding 25%, or – if the voting rights of another shareholder or group of shareholders exceed 10% – exceeding 33% of the total voting rights represented by the shares conferring voting rights at the Company’s General Meeting. The shareholder is obliged to notify the Company’s Board of Directors without delay if the shareholder directly or indirectly, or together with other shareholders in the same group of shareholders, holds more than 2% of the voting rights represented by the shares conferring voting rights at the Company’s General Meeting. Concurrently with this, the shareholder is obliged to designate the shareholders through which the indirect voting right exists, or the members of the group of shareholders. In the event of a failure to provide such notification, or if there are substantive grounds for assuming that the shareholder has made a misleading declaration regarding the composition of the shareholder group, then the shareholder’s voting right shall be suspended and may not be exercised until the shareholder has met the above obligations. The notification obligation stipulated in this paragraph and the related legal consequences are also incumbent upon individuals who are classified or may be classified as the Company’s shareholders under Article 61 of the Capital Markets Act. The Company must also be provided with proof of the conditions for exemption from the notification obligation in accordance with Section 61 (7)-(8) and (11) and Section 61 (10),(11a) and(12), of the Capital Markets Act. Shareholder group: the shareholder and another shareholder, in which the former has either a direct or indirect shareholding or has an influence without a shareholding (collectively: a direct and/or indirect influence); furthermore: the shareholder and another shareholder who is exercising or is willing to exercise its voting rights together with the former shareholder, regardless of what type of agreement between the participants underlies such concerted exercising of rights. For determining the existence and extent of the indirect holding, the rules of the Credit Institutions Act relating to the calculation of indirect ownership shall be applied. If the voting rights that may be exercised by a shareholder group exceed the threshold stipulated above, the voting rights shall be reduced in such a way that the voting rights relating to the shares most recently acquired by the group of shareholders shall not be exercisable. If there are substantive grounds to presume that the exercising of voting rights by any shareholder or shareholders might result in a breach of the rules of the Capital Markets Act relating to the acquisition of a controlling interest, the Board of Directors’ authorised representative responsible for the registration of shareholders at the venue of the General Meeting, or the Chairman of the General Meeting, may exclude the affected shareholders from attending the General Meeting or exercising voting rights. The General Meeting has exclusive authority with respect to the following matters:  changes to the rights associated with specific series of shares, or the transformation of certain categories or classes of shares; (qualified majority)  the decision regarding the delisting of the shares (qualified majority). When making the decisions, shares embodying multiple voting rights shall represent one share. The Company is not aware of any kind of agreements among the owners that could give rise to the restriction of the transfer of issued securities and/or the voting rights.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 46/200 Rules on the appointment and removal of executive officers, and rules on amendment of the Articles of Association: The Board of Directors has at least 5, and up to 11 members. When making the decisions, shares embodying multiple voting rights shall represent one share. The members of the Board of Directors are elected by the General Meeting based on its decision uniformly either for an indefinite period or for five years; in the latter case the mandate ends with the General Meeting concluding the fifth financial year following the election. The mandate of a member elected during this period expires together with the mandate of the Board of Directors. The Board of Directors elects a Chairman and may elect one or more Deputy Chairmen, from among its own members, whose period of office shall be equal to the mandate of the Board of Directors. The Chairman of the Board of Directors is also the Chief Executive Officer (Chairman & CEO) of the Company, unless the Board of Directors decides within its competence that the position of Chairman of the Board of Directors and the Chief Executive Officer of the Company are held by separate persons. The membership of the Board of Directors ceases to exist by a. expiry of the mandate, b. resignation, c. recall, d. death, e. the occurrence of grounds for disqualification as regulated by law. f. termination of the employment of internal (executive) Board members. The General Meeting has exclusive authority with respect to the following matters:  the recall of members of the Board of Directors, the Supervisory Board and Audit Committee, and of the auditor; (qualified majority) More than one third of the members of the Board of Directors and the non-executive members of the Supervisory Board may be recalled within a 12-month period only if any shareholder holds more than 33% of the shares issued by the Company, which have been obtained by the shareholder by way of a public purchase offer.  except in the cases referred by these Articles of Association to the authority of the Board of Directors, the establishment and amendment of the Articles of Association; (qualified majority); the General Meeting decides on proposals concerning the amendment of the Articles of Association – based on a resolution passed by shareholders with a simple majority – either individually or en masse. The Board of Directors is obliged to  prepare the Company’s financial statements in accordance with the Accounting Act, and make a proposal for the use of the profit after taxation;  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 assets and business policy;  provide for the proper keeping of the Company's business books;  perform the tasks referred to its authority under the Credit Institutions Act, in particular: - ensuring the integrity of the accounting and financial reporting system; - elaborating the appropriate strategy and determining risk tolerance levels for each business unit concerned; - setting risk assumption limits; - providing the necessary resources for the management or risk, the valuation of assets, the use of external credit ratings and the application of internal models. The following, in particular, come under the exclusive authority of the Board of Directors:  election of the Chairman & Chief Executive Officer of the Company, and exercising employer’s right in respect thereof;  election of one or more Deputy Chairmen of the Board of Directors;  determination of the annual plan;  the analysis and assessment of the implementation of business-policy guidelines, on the basis of the Company’s quarterly balance sheet;  decisions on transactions referred to the authority of the Board of Directors by the Company's organisational and operational regulations;
BUSINESS REPORT OTP BANK (CONSOLIDATED) 47/200  decision on launching, suspending, or terminating the performance of certain banking activities within the scope of the licensed activities of the Company;  designation of the employees entitled to sign on behalf of the Company;  decision on the increasing of registered capital at the terms set out in the relevant resolution of the General Meeting;  decision to acquire treasury shares at the terms set out in the relevant resolution of the General Meeting;  decision on approving internal loans in accordance with the Credit Institutions Act;  decision on the approval of regulations that fundamentally determine banking operations, or are referred to its authority by the Credit Institutions Act. The following shall qualify as such regulations: - the collateral evaluation regulations, - the risk-assumption regulations, - the customer rating regulations, - the counterparty rating regulations, - the investment regulations, - the regulations on asset classification, impairment and provisioning, - the organisational and operational regulations, which contain the regulations on the procedure for assessing requests related to large loans, - the regulations on the transfer of signatory rights;  the decision on approving the Rules of Procedure of the Board of Directors;  decision on steps to hinder a public takeover procedure;  decision on the acceptance of a public purchase offer received in respect of treasury shares;  decision on the commencement of trading in the shares in a regulated market (flotation);  decision on the cessation of trading in the shares in a given regulated market, provided that the shares are traded in another regulated market (hereinafter: transfer). The Board of Directors is exclusively authorised to:  decide, in the cases specified in the Civil Code, on acceptance of the Company’s interim balance sheet, subject to the prior approval of the Supervisory Board;  decide, instead of the General Meeting, to pay an advance on dividends, subject to the preliminary approval of the Supervisory Board;  make decisions regarding any change in the Company’s name, registered office, permanent establishments and branches, and in the Company’s activities – with the exception of its core activity – and, in relation to this, to modify the Articles of Association should it become necessary to do so on the basis of the Civil Code or the Articles of Association;  make decision on mergers (if, according to the provisions of the law on the transformation, merger and demerger of legal entities, the approval of the General Meeting is not required in order for the merger to take place). The Board of Directors directly exercises employer's rights in respect of the Chairman & CEO. The person affected by a decision may not participate in the decision making. Employer rights in respect of the executive directors of the Company are exercised by the Board of Directors through the Chairman & CEO, with the proviso that the Board of Directors must be notified in advance of the appointment and dismissal of the Deputy CEOs. With regard to issues related to the exercising of employer's rights in respect of employees, the Company is represented by the Chief Executive Officer and by the senior company employees defined in the Organisational and Operational Regulations of the Company, in accordance with the delegation of authority approved by the Board of Directors. If the Chairman of the Board of Directors and the CEO are different persons, the employer rights in respect of the other executive directors of the Company (CEO, deputy CEOs) are exercised by the Board of Directors through the Chairman of Board of Directors, with the proviso that the Board of Directors shall be notified in advance of the appointment and dismissal of the CEO and Deputy CEOs. With regard to issues related to the exercising of employer's rights in respect of employees, the Company is represented by the persons defined in the Organisational and Operational Regulations of the Company, in accordance with the delegation of authority approved by the Board of Directors. The Board of Directors may delegate, to individual members of the Board of Directors, to executive directors employed by the Company, and to the heads of the individual service departments, any task that does not come under the exclusive authority of the Board of Directors in accordance with these Articles of Association or a General Meeting resolution.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 48/200 The Company may acquire treasury shares in accordance with the rules of the Civil Code. The prior authorisation of the General Meeting is not required for the acquisition of treasury shares if the acquisition of the shares is necessary in order to prevent a direct threat of severe damage to the Company (this provision is not applicable in the event of a public purchase offer aimed at buying up the Company’s shares), as well as if the Company acquires the treasury shares in the context of a judicial procedure aimed at the settlement of a claim to which the Company is entitled, or in the course of a transformation. The Company has not made agreements in the meaning of points (j) and (k) in paragraph 95/A of Act No. C of 2000 on Accounting. OWNERSHIP STRUCTURE OF OTP BANK PLC. Description of owner Total equity 1 January 2022 31 December 2023 Ownership share Voting rights 1 Quantity Ownership share Voting rights 1 Quantity Domestic institution/company 26.66% 26.97% 74,637,180 31.40% 31.46% 87,914,205 Foreign institution/company 66.69% 67.47% 186,733,858 54.43% 54.54% 152,405,042 Domestic individual 4.79% 4.84% 13,405,389 12.93% 12.96% 36,217,730 Foreign individual 0.11% 0.12% 319,712 0.48% 0.48% 1,349,320 Employees, senior officers 2 0.48% 0.48% 1,341,018 0.48% 0.48% 1,338,715 Treasury shares 3 1.16% 0.00% 3,251,484 0.20% 0.00% 572,746 Government held owne r 0.07% 0.07% 188,326 0.05% 0.05% 139,036 International Development Institutions 0.04% 0.04% 120,871 0.01% 0.01% 28,603 Othe r 4 0.00% 0.00% 2,172 0.01% 0.01% 34,613 TOTAL 100.00% 100.00% 280,000,010 100.00% 100.00% 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 2023 ESOP owned 12,095,524 OTP shares. 3 Non-identified shareholders according to the shareholders’ registry. NUMBER OF TREASURY SHARES HELD IN THE YEAR UNDER REVIEW (2023) 1 January 31 March 30 June 30 September 31 December OTP Bank 354,144 1,107,117 585,596 602,180 572,746 Subsidiaries 0 0 0 0 0 TOTAL 354,144 1,107,117 585,596 602,180 572,746 SHAREHOLDERS WITH OVER/AROUND 5% STAKE AS AT 31 DECEMBER 2023 Name Nationality 1 Activity 2 Number of shares Ownership 3 Voting rights 3,4 Notes 5 MOL (Hungarian Oil and Gas Company Plc.) D C 24,000,000 8.57% 8.59% Groupama Group F/D C 14,256,813 5.09% 5.10% Groupama Gan Vie SA F C 14,140,000 5.05% 5.06% Groupama Biztosító Ltd. D C 116,813 0.04% 0.04% 1 Domestic (D), Foreign (F). 2 Custodian (CU), Public Institution (PU), International Development Institutions (ID), Institutional (I), Company (C), Private (PR), Employee or senior officer (E). 3 Rounded to two decimals. 4 Voting rights in the General Meeting of the Issuer for participation in decision-making. 5 Eg: professional investor, financial investor, etc.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 49/200 SENIOR OFFICERS, STRATEGIC EMPLOYEES AND THEIR SHAREHOLDING OF OTP SHARES AS AT 31 DECEMBER 2023 Type 1 Name Position Commencement date of the term Expiration/termination of the term Number of shares IT dr. Sándor Csányi 2 Chairman and CEO 15/05/1992 2026 12,000 IT Tamás Erdei Deputy Chairman 27/04/2012 2026 53,885 IT Gabriella Balogh membe r 16/04/2021 2026 17,793 IT Mihály Baumstark membe r 29/04/1999 2026 59,200 IT Péter Csányi member, Deputy CEO 16/04/2021 2026 25,939 IT dr. István Gresa membe r 27/04/2012 2026 192,458 IT Antal Kovács 3 member, Deputy CEO 15/04/2016 2026 126,584 IT György Nagy 4 membe r 16/04/2021 2026 44,400 IT dr. Márton Gellért Vági membe r 16/04/2021 2026 15,800 IT dr. József Vörös membe r 15/05/1992 2026 196,314 IT László Wolf member, Deputy CEO 15/04/2016 2026 544,502 FB Tibor Tolnay Chairman 15/05/1992 2023 54 FB dr. Gábor Horváth Deputy Chairman 19/05/1995 2023 0 FB Klára Bella membe r 12/04/2019 2023 0 FB dr. Tamás Gudra membe r 16/04/2021 2023 0 FB András Michnai membe r 25/04/2008 2023 1,410 FB Olivier Péqueux membe r 13/04/2018 2023 0 SP László Bencsik Deputy CEO 7,199 SP György Kiss-Haypál Deputy CEO 15,462 TOTAL No. of shares held by management: 1,338,715 1 Board Member (IG), Supervisory Board Member (FB), Employee in strategic position (SP) 2 Number of OTP shares owned by Dr. Sándor Csányi, Chairman and CEO, directly or indirectly: 4,712,949. 3 Number of OTP shares owned by Antal Kovács, Member of Board of Directors, directly or indirectly: 130,884. 4 Number of OTP shares owned by György Nagy, Member of Board of Directors, directly or indirectly: 1,068,855. Committees 6 Members of the Board of Directors Dr. Sándor Csányi – Chairman Mr. Tamás Erdei – Deputy Chairman Ms. Gabriella Balogh Mr. Mihály Baumstark Mr. Péter Csányi Dr. István Gresa Mr. Antal Kovács Mr. György Nagy Dr. Márton Gellért Vági Dr. József Vörös Mr. László Wolf Members of the Supervisory Board Mr. Tibor Tolnay – Chairman Dr. József Gábor Horváth – Deputy Chairman Ms. Klára Bella Dr. Tamás Gudra Mr. András Michnai Mr. Olivier Péqueux Members of the Audit Committee Dr. József Gábor Horváth – Chairman Mr. Tibor Tolnay – Deputy Chairman Dr. Tamás Gudra Mr. Olivier Péqueux The résumés of the committee and board members are available in the Corporate Governance Report/Annual Report. 6 Personal changes can be found in the „Personal and organizational changes” chapter.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 50/200 Personal and organizational changes As of 1 January 2023, Mr. Antal György Kovács was replaced by Mr. András Becsei as Deputy CEO of the Retail Division. Mr. Antal György Kovács retained his employment status, thus his position as Deputy CEO until the Annual General Meeting closing the financial year 2022, during which time he was mainly be responsible for group governance. On 28 April 2023, concerning the audit of OTP Bank Plc.’s separate and consolidated annual financial statements in accordance with International Financial Reporting Standards for the year 2023, the Annual General Meeting elected Ernst & Young Ltd. (001165, H-1132 Budapest, Váci út 20.) as the Company’s auditor from 1 May 2023 until 30 April 2024. On 28 April 2023 the Annual General Meeting elected Mr. Antal György Kovács as member of the Board of Directors of the Company until the Annual General Meeting of the Company closing the 2025 business year, but not later than 30 April 2026. On 28 April 2023 the Annual General Meeting elected Mr. Tibor Tolnay Dr. József Gábor Horváth Dr. Tamás Gudra Mr. Olivier Péqueux Mrs. Klára Bella Mr. András Michnai as member of the Supervisory Board of the Company until the Annual General Meeting of the Company closing the 2025 business year, but not later than 30 April 2026. On 28 April 2023 the Annual General Meeting elected Mr. Tibor Tolnay Dr. József Gábor Horváth Dr. Tamás Gudra Mr. Olivier Péqueux as member of the Audit Committee of the Company until the Annual General Meeting of the Company closing the 2025 business year, but not later than 30 April 2026. Operation of the executive boards OTP Bank Plc. has a dual governance structure, in which the Board of Directors is the Company’s executive management body in its managerial function, while the Supervisory Board is the management body in its supervisory function of the Company. It controls the supervision of the lawfulness of the Company’s operation, its business practices and management, performs oversight tasks and accepts the provisions of the Bank Group's Remuneration Policy. The effective operation of Supervisory Board is supported by the Audit Committee, as a committee, which also monitors the internal audit, the risk management, the reporting systems and the activities of the auditor. In order to assist the performance of the governance functions the Board of Directors founded and operates, as permanent or other committees, such as the Management Committee, the Executive Steering Committee, the Remuneration Committee, the Nomination Committee and the Risk Assumption and Risk Management Committee. To ensure effective operation OTP Bank Plc. also has a number of further permanent committees. OTP Bank Plc. gives an account of the activities of the executive boards and the committees every year in its Corporate Governance Report. The Board of Directors held 6, the Supervisory Board held 7 meetings, while the Audit Committee held 3 meetings in 2023. In addition, resolutions were passed by the Board of Directors on 155, by the Supervisory Board on 87 and by the Audit Committee on 29 occasions by written vote. Policy of diversity OTP Bank Plc. determines and regulates the criteria for the selection of senior executives in line with European Union as well as domestic legal requirements and directives fundamentally determining the operation of credit institutions. When designating members of the management bodies (Board of Directors, Supervisory Board) as well as appointing members of the Board of Directors and administrative members (Management), OTP Bank Plc. considers the existence of professional preparation, the high-level human and leadership competence, the versatile educational background, the widespread business experience and business reputation of the utmost importance, at the same time, it is also highly committed to taking efficient measures in order to ensure diversity with regard to corporate operation, including the gradual improvement in women’s participation rate.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 51/200 OTP Bank Plc.’s Nomination Committee continuously keeps tracking the European Union and domestic legislation relating to women’s quota on its agenda, in that when unambiguously worded expectations are announced, it promptly takes the necessary measures. In accordance with OTP Bank Plc.’s currently approved strategy, the goal is to have at least one female member in both the Bord of Directors and the Supervisory Board. It is important to note, however, that, as a public limited company, the selection of the members of the management bodies falls within the exclusive competence of the General Meeting upon which – beyond its capacity to designate enforcing the above aspects to maximum effect – OTP Bank Plc. has no substantive influence. According to OTP Bank Plc.’s Articles of Association, a Board of Directors comprising 5-11 members and a Supervisory Board comprising 5-9 members are set up at OTP Bank Plc. Currently the Board of Directors operates with 11 members and has one female member, the Supervisory Board comprises 6 members and has one female member. The management of OTP Bank Plc. currently comprises 6 members and has no female member. Fight against corruption and against the practice of bribery The Code of Ethics (https://www.otpbank.hu/static/portal/sw/file/OTP_EtikaiKodex_EN.pdf) , the Partner Code of Ethics (https://www.otpbank.hu/static/portal/sw/file/OTP_Partneri_EtikaiKodex_EN.pdf) publish in 2023 and the Anti-Corruption Policy of OTP Bank Group contains provisions on the fight against corruption and against the practice of bribery, also on the acceptance of individual differences and the denial of discrimination (https://www.otpbank.hu/portal/en/EthicalDeclaration, Anti_Corruption_Policy.pdf (otpbank.hu)). As it can be read in the foreword of the Code and the Anti-Corruption Policy as well, the OTP Bank Plc. and its management have adopted the principle of zero tolerance towards corruption and bribery, taking a definite stance against all forms of corruption and giving full support to the fight against corruption. In addition, the Code states that "As an ethical and compliant institution, the Bank and its management are fully committed to ensuring observance of all relevant legislation, including anti-corruption statutes." The OTP Bank Plc. has set up an ethics reporting system (whistleblowing), which is for the reporting and the handling of the reports on suspected or actual violation of the values set forth in the Code of Ethics, where anonymous reporting of ethics issues is also possible. The OTP Bank Plc. conducts inquiries for the purpose of detecting, preventing anomalies in connection with reports made or anomalies it became aware of otherwise. Through the OTP Bank Plc.'s ethics reporting system a total of 93 reports were received in 2023. In 29 of these reports, we deemed it necessary to conduct an ethical procedure and 8 case’s investigation resulted in declaring ethics offense. The OTP Bank Plc. has created and maintains its Code of Ethics to keep reputational risk and financial losses, which may incur in relation to corruption, bribery and discrimination, on a minimum level. Both employees and newcomers receive education on the Code of Ethics, and in addition, the acceptance to be bound by it is a prerequisite for their employment. In addition, all business partners and clients are communicated about the Anti-Corruption Policy and procedures through the Code of Ethics and Anti-Corruption Policy published publicly on the OTP Bank Plc.'s website and from 2023 the Partner Code of Ethics has been published on the Bank’s website as well. The Anti-Corruption Policy stipulates that, in view of the fact that existing and established relationships with contractual partners also contain the possibility of corruption, the OTP Bank Plc. will act prudently in its dealings with contractors, in particular in the tendering and preparation process, to minimise the risk of corruption. The OTP Bank Plc. establishes relationships with its contractual partners based on an assessment of professionalism, competence and competitiveness, and does not apply other non-professional selection criteria that contain the possibility of corruption. Based on the Compliance’s proposal, the prohibition of corruption will be reflected in the contractual and regulatory documents used by the OTP Bank Plc. in a clearer and well-defined manner from 2023 onwards, through the inclusion of anti-corruption clauses in the business rules and standard contracts. The clause will state from the very beginning of the business relationship that the contracting partner accepts OTP Bank Plc.'s anti-corruption principles, including the prohibition of corruption and the consequences of breaching this prohibition, which can even be termination of contract. Any requests from third parties affecting human rights are treated by the OTP Bank Plc. as a priority. We manage the risks regarding the fight against corruption and bribery within the framework of our operational risk management process. Our quarterly compliance reports cover the changes in risks as well as the steps necessary steps to manage them. The reports are presented to the Executive Steering Committee and the Board of Directors; the annual report is also submitted to the Supervisory Board.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 52/200 Non-financial performance indicators  Internal audit: 207 closed audits, 1,385 recommendations, 1,383 accepted recommendations.  Compliance with Budapest Stock Exchange (BSE) Recommendations (yes/no ratio): 72 yes, 0 no.  Compliance: 7 closed consumer protection related investigations by the Compliance.  Bank security investigations, reports: we conducted a total of 3,356 bank security investigations and 253 reports were made to the authorities, most of which were related to cases of fraud committed against customers. The expected damage value from the detected crimes is about HUF 4.7 billion, which is much higher than the loss realized last year, which was HUF 1 billion. The largest part of the loss occurred in the area of financial offences. With regard to financial offences, a downward trend can be observed in consumer loans, primarily in connection with the offences of personal loans, which was about HUF 28 million, almost a fifth of the previous year's value. At the same time, the amount of damage caused by corporate credit fraud was HUF 4.6 billion, of which a significant part of the damage value – HUF 3 billion – was accounted for by one case. There was a drastic increase in the trend of online fraud targeting customers until July 2023, but due to the introduced measures, there was a continuous decrease in both the number of cases and the amount of damage from September 2023. Compared to the losses in July, December's fell to about a third, but a significant customer loss was still realized, which exceeded HUF 10 billion in 2023, and with fraud prevention operative measures and monitoring activities, HUF 6.5 billion of customer losses were prevented. Compared to 2022, an increase can be observed in connection with bank card abuse, both in terms of the number of attempted abuses and the damage. In 2023, the value of successful bank card abuses exceeded HUF 4.5 billion, of which the value of successful transactions with cards issued by OTP amounted to HUF 3.9 billion. As a result of the preventive security measures taken by the bank, the value of fraudulent bank card transactions that failed in 2022 is HUF 10.2 billion. Of this, the value of abuses prevented in the case of cards issued by OTP is HUF 10.1 billion. The ratio of bank card abuse to turnover increased, in the case of OTP the ratio of bank card misuse to turnover remained lower than the European average published by MasterCard (OTP Bank 0.0203%, European average 0.0400%).  Ethics issues: 93 ethics reports, establishing ethics offense in 8 cases.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 53/200 OTP GROUP’S SUSTAINABILITY ACTIVITIES FOR 2023 7 NON-FINANCIAL STATEMENT The following parts of the document called OTP BANK Nyrt. non-financial statement up to and including subsection 6.2. BUSINESS MODEL OTP Group’s business model is focused on serving the financial needs of retail, private banking, micro and small business, medium and large corporate and municipal customers at a high level, both through its branch networks and its constantly evolving digital and innovative remote service channels, as well as through its agents and other contracted partners. The Group served the financial needs of approximately 17.4 million customers at the end of 2023. The Group aims to continuously develop its services in a constantly evolving digital and technological environment, so that they are easily accessible and secure for an increasingly broad range of customers. In addition to digitalisation, OTP Group places great emphasis on sustainability, aiming to avoid negative environmental and social impacts while at the same time exploiting potential business benefits. The Bank plays an active role in developing the financial awareness of the population, enriching cultural values, preserving environmental values and ensuring equal opportunities. OTP Group is present in 11 countries in the Central and Eastern European region and entered the Central Asian region in 2023 with the acquisition of Ipoteka Bank in Uzbekistan. The parent bank of OTP Group, OTP Bank Plc., is the leading credit institution in Hungary. In addition to its operations in Hungary, the Bank has foreign subsidiaries in 11 countries through equity investments, in which it typically holds 100% or close to 100% stakes. Among the Group members, OTP’s Montenegrin subsidiary is also the market leader, while its Bulgarian, Slovenian and Serbian operations are the second largest in the local market in terms of total assets. The Albanian subsidiary is ranked third, while the Croatian and Moldovan subsidiaries are ranked fourth in the local ranking of banks. Both OTP Bank and its foreign subsidiaries offer a wide range of banking and financial services in both the retail and corporate segments: they collect deposits from their customers and raise funds from the money and capital markets; on the asset side, they provide mortgage loans, consumer loans, business investment and working capital loans, and municipal loans. Depending on the balance sheet structure of the given entity, Group members invest their liquidity reserves in the money and capital markets or receive inter-group funding. In addition, the subsidiary banks and other domestic and foreign subsidiaries provide their clients with a wide range of modern financial services, including asset management and investment services, cash management, treasury and other services. However, there are differences between the various countries in terms of, among other things, business focus, the range of services and products offered and the distribution channels. In terms of business focus, while in most countries of the Group the share of retail, corporate and leasing volumes is relatively balanced, in the Ukraine the weight of corporate and leasing portfolios within outstanding loans exceeds 90 percent, while in Russia the share of retail consumer loans reaches 97 percent and in both countries the share of mortgage loans is negligible. 7 Symbols @ For more information see another page of the Business Report or the home page. The symbols for, and the contents of, the indicators GRI 2-1, ST1, TCFD I, FN-CB-240a.4 etc. are to be found in the @GRI content index. Information relevant to specific subsidiaries and countries are marked by country codes: AL BG HU HR MO MD RO RS RU SI UA UZ
BUSINESS REPORT OTP BANK (CONSOLIDATED) 54/200 ESG STRATEGIC DIRECTIONS OTP Group aims to play a leading long-term financing role in the green and fair transition of the Central and Eastern European region. The Banking Group defines its long-term sustainable, transparent and ethical operation through stable management, responsible and transparent governance, as a responsible employer in the labour market and an active player in society. Our aim is to provide responsible and fair financial services tailored to our customers’ needs, to establish open cooperation with our stakeholders based on trust, and to reduce our negative environmental impacts. OTP Group’s ESG strategy, and its related vision and mission have not changed in 2023. Vision Responsible financial decisions and socially and environmentally adequate, ethical financial solutions are available for all economic participants and citizens in all of the countries covered by the OTP Group’s operations. Mission For us, sustainability means taking responsibility for our economic, social and environmental impacts. We firmly believe that by our leading role in the Central and Eastern European Region and our presence in Central Asia, with our pioneering developments, conscious and ethical business operation and exemplary partnerships we create value and contribute to a sustainable future. ESG strategy ST4, 305: 3-3, TCFD II.a,b, IV.c The ESG strategy of OTP Group was unanimously approved by the Management Committee in 2021 and is reviewed annually to adapt it to changes in the market and regulatory environment. The strategy rests on the following three pillars: responsible service provider, responsible employer and responsible social actor. In addition to business opportunities, the strategy includes the identification and management of material risks, as well as social and governance objectives. Our goal is to achieve ESG integration in all relevant areas and all relevant topics by 2025. Strategic goals Long-term KPIs for the OTP Group End-2023 results Responsible service provider • green products and solutions facilitating the green transition of the economy • products and investment services to facilitate investments into the sustainable economy • active ESG risk management Total green credit portfolio of HUF 1,500 bn by 2025 We exceeded the HUF 414 bn green loan portfolio target for 2023 by more than HUF 200 bn Responsible employer • active ESG management practices in corporate governance • strengthening employee well-being and development, diversity and employee engagement Steady increase in the level of employee engagement, to reach a global 1 75 percentile at Group level (in 2023: 78%) The level of employee engagement was 72% at Banking Group level Responsible social actor • strongly reducing emissions from our own operation • significant contribution to social objectives and SDGs through responsible products and services and through donations Net carbon neutrality by the end of 2022 (goal met), total carbon neutrality by 2030 for OTP Bank We met the short-term target OTP Bank will become a member of the S&P Dow Jones Sustainability Index by 2025 The Bank’s score in the S&P Global Corporate Sustainability Assessment improved by 9 percent in 2023 compared to the previous year, up 4 points 1 Based on a benchmark of more than 750 companies. The majority of subsidiary banks have developed their ESG strategy in 2022, setting their own targets, which are also aligned with the parent bank’s objectives. The strategies cover segments such as ESG risk management, the development of green lending, the organisational frameworks, social matters and reducing their operations’ environmental impacts. The subsidiary banks have also defined KPIs to measure the effectiveness of the achievement of the targets set. The Board of Directors of OTP Bank is also informed of
BUSINESS REPORT OTP BANK (CONSOLIDATED) 55/200 the achievement of ESG targets and the annual review of the plans, as is the Supervisory Board. The Russian, Ukrainian and Moldovan subsidiaries developed their strategies in 2023 and are expected to adopt these in 2024. The two Slovenian subsidiaries have drawn up a joint ESG strategy at the end of 2023 in preparation for the merger, which is also expected to be adopted in 2024. UN Principles for Responsible Banking At the end of 2021, OTP Bank signed the commitment to follow the United Nations Principles for Responsible Banking (UN PRB). The Principles provide a framework to ensure that banks’ strategies and operation conform to the future vision outlined in the UN’s sustainable development goals and the Paris Agreement. The Serbian subsidiary of the Banking Group was the first Serbian bank to join the Principles at the end of 2023, while the Romanian subsidiary has postponed its planned accession until 2024. OTP Bank fulfils its PRB reporting obligation in this report, in the Reporting and Self-Assessment Template. Recognising the sustainability performance of subsidiary banks SI HR After 2022, in 2023 Slovenian NKBM has again been awarded the Green Star Certificate of the Slovenian organisation “CER – Partnership for a Sustainable Economy”. The Croatian subsidiary bank also participated in the 2023 ESG rating of the Croatian Chamber of Economy, where it was ranked third in the financial sector. In addition, the bank is a member of the Croatian Sustainability Index (HRIO), compiled by the Croatian Business Council for Sustainable Development.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 56/200 GRI 2-6 Summary ESG data of OTP Group GRI indicator number OTP Bank (2022) OTP Bank (2023) OTP Group (2022) OTP Group (2023) @Percentage of women on the Supervisory Board 405-1 17% 17% 24% 1 26% 1 @Percentage of women on the Board of Directors 405-1 9% 9% 20% 1 16% 1 @Percentage of women in top management 405-1 0% 0% 23% 2 21% 2 @Amount donated HUF 2.5 billion HUF 3.0 billion HUF 4.0 billion HUF 5.0 billion Number of customers – total 2-6 4.6 million 3 4.3 million 3 15.7 million 17.4 million Number of retail customers 2-6 4.2 million 3 4.0 million 3 14.8 million 16.5 million Number of corporate customers 2-6 0.4 million 3 0.3 million 3 0.9 million 0.9 million @Young customers 5 2-6 18% 19% 11% 13% @Micro and small enterprise assets 2-6, FS6 HUF 570 billion 3.4 HUF 578 billion HUF 874 billion HUF 1,146 billion @Medium and large corporation assets 2-6, FS6 HUF 2,772 billion 3.4 HUF 3,326 billion HUF 7.820 billion HUF 9,405 billion @Percentage of accessible branches and customer offices 99% 99% 78% 77% @Customer satisfaction (TRI*M) 6 66 points 57 points varies by country varies by country @Number of participants in the financial education trainings of OK Training Centres 29,307 37,117 35,237 47,889 @Headcount of employees (active, persons, 31.12) 2-7 10,516 10,715 38,775 44,468 @Percentage of women 405-1 64% 63% 69% 66% @Female-to-male salary ratio (in the same job category) 405-2 98.57% 98.16% 90.47% 92.24% @Turnove r 401-1 12.2% 12.1% 26.9% 20.8% @Turnover (excluding agents employed) 401-1 12.2% 12.1% 20.4% 17.4% @Average training hours 404-1 80 79 35 34 @Employee satisfaction/engagement 76% 76% 70% 72% @Energy consumption (GJ) 302-1 268,934 245,555 1,091,006 1,107,043 @Energy consumption per employee (GJ) 26.17 23.19 29.22 25.58 @CO 2 emissions (Scope 1+2, tCO 2e ) – market-based 305-1, 305-2 7,675 7,115 73,701 70,649 @CO 2 emissions (Scope 1+2, tCO 2e ) – with offset 305-1, 305-2 675 -485 66,701 60,874 @CO 2 emissions per employee (tCO 2e) – market-based 0.75 0.67 1.97 1.63 @CO 2 emissions by turnover (tCO 2e /HUF million) – market-based 0.014 0.012 0.044 0.032 1 Consolidated data for the management bodies of the parent bank and subsidiary banks. 2 Consolidated data for the parent bank and subsidiary banks. 3 OTP Core. 4 Consolidated by country 5 As a percentage of retail customers. 6 On a scale of -66 to 134 points, national data
BUSINESS REPORT OTP BANK (CONSOLIDATED) 57/200 MATERIALITY ANALYSIS GRI 3-1 Materiality analysis is a fundamental and guiding element of our activities promoting sustainable development and our sustainability reports. Materiality can be defined in a variety of ways. The materiality assessment for 2022 is based on the GRI Standards requirements and guidelines. Its basic principle is that material topics are topics that represent the organisation’s most significant impacts on the economy, the environment and people, including human rights, (impact materiality). In the Dow Jones Sustainability World Index approach, the material sustainability factors are those that have, or may, in the future, have significant impacts on the Company’s value/value factors, competitive position, including long term shareholder value-creation and business performance (financial materiality). 8 The Corporate Sustainability Reporting Directive (CSRD) will require reporting companies to observe the principle of “double materiality”. Accordingly, each dimension (impact and financial) was applied in our analysis – prioritising the GRI requirements. The potentially material impacts: • the stakeholder survey, • the other available stakeholder feedback (customer satisfaction survey, employee engagement survey) • topics of the GRI Standards • the topics included in ESG ratings, and • identified on the basis of the topics comprised in the UN PRB impact analysis tools The stakeholder survey was conducted with the involvement of authorities and public bodies, professional associations and representatives of civil society organisations and scientific organisations with experience in various segments of sustainability, having a comprehensive overview, with adequate information on the activities of the OTP Group, sustainability experts, media representatives, the representative of OTP Bank’s trade union and representatives of sales partners. In-depth interviews were conducted with groups of stakeholders as well as individual stakeholders by an external professional consultant without the involvement of the Banking Group’s representatives to encourage the expression of honest opinions. The stakeholders identified sustainability topics considered as material regarding the Banking Group. According to the respondents, being a major market participant entails a great deal of responsibility, and they also expect OTP Bank to be an example and provide guidance in relation to sustainability. The stakeholders clearly found the environmental impacts of financing more important this time than in earlier surveys and in their earlier feedback. OTP Group’s list of impact areas was compiled based on feedback from stakeholders and the sources listed above. The areas were first assessed based on the basis of the impacts on sustainability: economy, environment and society. Evaluation was based on objective metrics (e.g. number of stakeholders, degree of involvement, financial indicators, ratios) by expert estimation, with the inclusion of an external consultant and the Bank’s ESG division. The financial impacts on the Group of the impacts identified from the aspect of sustainability and the relevance of the GRI indicators for the various materiality areas were determined and ranked on a 7-point scale (-3 to 3) with the assistance of ESG Operational Subcommittee members. An annual review of the materiality analysis was carried out in 2023, in line with the GRI Standards for 2021. The scope of the Banking Group’s activities has not changed significantly compared to previous years. Its range of subsidiaries has expanded, with the most significant change being the acquisition of NKBM of Slovenia and Ipoteka Bank of Uzbekistan in 2023. New, potentially material impacts may arise in the case of the Uzbek bank, which will be assessed in detail once integration is completed in 2024. Monitoring external global and regional processes and the methodology of ESG ratings, we have not identified any new material topics. Based on the experience of the previous year’s reporting, it was considered expedient to merge certain topics, as they are not treated separately within the Group. This is how the material topics have changed relative to the previous year. GRI 2-14 Both the 2022 and the revised materiality analysis were approved by the ESG Committee. 8 Financial materiality is defined in various ways, which are essentially identical in terms of content. The Dow Jones Sustainability World Index has been measuring large enterprises’ ESG performance since 1999 and has been producing the most comprehensive Corporate Sustainability Assessment (CSA) year after year to date, which is why its definition is regarded as adequately authentic.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 58/200 GRI 3-2 OTP Group’s material sustainability topics are shown in the white background of the chart. Changes in material topics compared to the previous yea r Title of topic Description of change Social impacts and indirect economic impacts of financial products Social and indirect economic impacts of lending and the Indirect economic impacts of investment merged Tax payment No change Contribution to economic stability No change Environmental impact and GHG emissions of financial products Environmental impact and GHG emissions of lending and Environmental impact and GHG emissions of investment products merged Green products Green loan products and Green investment products topics merged Operational GHG emissions No change Access to finances No change Financial well-being No change Responsible employment Responsible employment and Impact on livelihoods and salary levels merged Diversity and equal opportunities No change Financial literacy for vulnerable groups No change Customer data and information security No change Compliance Merging of the topics of Prevention of money laundering, Anti-corruption activities, Compliance awareness and Non-discrimination Financing of high social risk sectors No change
BUSINESS REPORT OTP BANK (CONSOLIDATED) 59/200 1. ESG GOVERNANCE, RESPONSIBILITIES GRI 2-9, 2-12, 2-13, TCFD I.a,b ESG governance at Banking Group level is unchanged in 2023. In 2021, based on Green Recommendation No. 5/2021 (IV.15.) of the MNB, a conceptual proposal for the establishment of the ESG Committee, the ESG Sub-Committee and the ESG Control Function, which constitute the Bank’s standing ESG organisation, was discussed and unanimously approved by both the Management Committee and the Board of Directors. With the decision of the Board of Directors, the Bank’s ESG organisation was established in December 2021. The organisation is multi-level: the Board of Directors is the main decision-making body, assisted and reported to by the ESG Committee. The ESG Committee is a standing committee set up by the Bank’s Board of Directors. Its Chair is appointed by the Chairman & CEO from the members of the BoD and its members include OTP Bank’s Deputy CEOs and elected directors. The Committee • is responsible for defining the Bank’s and the Banking Group’s ESG strategy, plans and policies; • gives its opinion in advance on all ESG-related proposals to be submitted to the management body; • the ESG Committee is responsible for identifying ESG risks, formulating strategy, plans and policies, setting target and performance objectives and evaluating them, together with the relevant organisations, in order to define and manage climate change and environmental risks, as well as social and governance risks, assess their consequences. The ESG Sub-Committee is the standing decision-preparing forum of the ESG Committee, coordinating, consulting on and implementing the work of the ESG Committee in the framework of its technical support work. The head of the Subcommittee – who is also the leader of the ESG business transformation – is the director of the Green Programme Directorate. The Board of Directors is provided with a comprehensive report on the implementation and furtherance of OTP Bank’s ESG strategy. The Supervisory Board receives written information on the annual report of the Board of Directors. ESG coordination is also ensured in the subsidiaries, which have established their own ESG organizational units. GRI 2-19 Compliance-conscious operation and CSR each makes up at an at least 5 percent share of the targets set out for each of OTP Bank’s Chairman & CEO, Deputy CEOs and executive directors. These two elements comprise the satisfaction of sustainability criteria as well. In reviewing the target systems of foreign subsidiary bank executives, sustainability targets were also included among objectives. The ESG-CSR indicator is a mandatory KPI with a uniform weighting of 5 percent for the senior executives of each foreign subsidiary. Content of the indicator: Performing tasks arising from ESG risks and business opportunities; implementing ESG integration tasks within own competencies in line with the Group’s ESG strategy and green KPI; implementing ESG aspects in own business processes and internal regulatory documents; raising ESG awareness within the organisation; providing quality data for sustainability/integrated reporting, for the appropriate functioning of CSR-related processes. GRI 2-17 Five (45%) of the members of the Board of Directors and two (33%) of the members of the Supervisory Board had completed the five-module ESG training for senior management developed in 2023 (see also @5.5) by the end of the year. A number of standing committees are directly involved in the management of the Group’s environmental, social and economic impacts. They are discussed in the @Responsible Corporate Governance Report. The organisational structure and governance levels of OTP Bank are shown in the @Organisational Chart. GRI 2-12, 2-16 The Board of Directors and the Supervisory Board are kept informed by regular (annual, semi-annual) reports from the various committees and divisions. The members of the management bodies can access the documents of all of committees and boards, and can ask any division of the bank for information through the Management Information Portal.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 60/200 No critical stakeholder remarks were made in 2023; nonetheless, the governing bodies were provided with information on feedback from stakeholders, including employees, customers, shareholders and regulatory bodies: • A report on the process and results of the group-wide engagement survey was presented to the Supervisory Board. • Semi-annual reports are prepared for the BoD and the Supervisory Board on customer complaints and the lessons drawn from their management as well as the MNB’s consumer protection audit. They were also informed about customer complaints received by the foreign subsidiaries. • The management bodies are informed on a quarterly basis at the Banking Group level on the closed audits of audit organizations, as well as on the MNB’s supervisory procedures and the status of implementation of the recommendations made to the Bank. The Supervisory Board or the Supervisory Board and the Board of Directors reviews and approves the audit reports containing the results of the audits to be carried out by Internal Audit as required by MNB Resolutions and Recommendations before they are sent to the Supervisory Authority. Other situations affecting the Banking Group of which the management bodies have been informed: • OTP Bank was included on the list of the Ukrainian National Agency on Corruption Prevention (NACP) in May, as one of the international supporters of the war. Our Bank has indicated in a press release and in several press responses that it considers the NACP’s action as unworthy and is seeking to convince the Ukrainian authorities of this, and has also explained that the NACP has made a number of erroneous and untrue arguments in support of its stigmatising decision. The Bank has refuted the most significant of these in detail in its press releases and press responses. OTP Bank stressed that it condemns any aggression against any sovereign country and is committed to supporting Ukrainian citizens and the country’s economy. In the course of discussions with the European External Action Service and the Agency, our Bank made commitments regarding its future plans for the Russian market, and the Agency removed OTP Bank from the list of international supporters of the war in early October 2023. • In a New York Times article, it was published – and subsequently proven to be false – that money was transferred to a foundation owned by a sanctioned Russian person from a third country through our Russian subsidiary bank. On account of the significance of the matter, the bodies were informed. GRI 2-9 OTP Bank’s Supervisory Board, Board of Directors and standing committees had a total of 117 members on 31 December 2023. Some of them are members of more than one body. 14 of the members are independent 9 and 16 are women. There are a total of three employee delegates in the Supervisory Board and the Ethics Committee. The Supervisory Board, the Board of Directors, the Audit Committee, the Remuneration Committee, the Risk Exposure and Risk Management Committee, the Nomination Committee and the Management Committee are presented separately in the Other Information section of the Annual Report and in the Corporate Governance Report; with information on members, their other important positions and engagements also available in their respective CVs. Other committees are – by virtue of their tasks – made up nearly exclusively of OTP Bank managers; their members do not hold any other external important positions. The primary criterion in the selection of committee members is professional expertise. GRI 2-13, 3-3, TCFD I.b The governance and regulation of individual sustainability and ESG domains are implemented as follows: ESG / sustainability domain Responsibility, manager Policy References Taxation: Head of the Accounting and Finances Directorate (Chief Accountant): responsible and accountable for tax policy. The taxation division is independent of the business divisions. @ Tax Policy: – approved by: Board of Directors – presents the principles and practices followed by OTP Group with respect to taxation @ taxation Compliance: ‐ responsible corporate governance, ‐ non-discrimination, In terms of compliance, governance and organisational responsibility lies with the Board of Directors and the Supervisory Board. Compliance officer, consumer protection officer: Executive Director heading the Compliance Directorate @Compliance Policy: ‐ approved by: Board of Directors ‐ declares the requirement to observe the law, the directives and guidelines of national and international supervisory authorities and the internal regulations; its Annexes: @ reporting, monitoring, measures @ risk assessment 9 According to the @definition applied to independence, they do not hold senior management positions at OTP Bank.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 61/200 ESG / sustainability domain Responsibility, manager Policy References ‐ consumer protection ‐ anti-corruption (ABC), ‐ @ Consumer Protection Compliance Program ‐ @ Anti-Corruption Policy ‐ international sanctions requirements, ‐ @ Sanctions Policy – @ Financing services related to the defence secto r ‐ processing and protection of personal data, Manager responsible for the Bank’s data processing and the protection of customers’ personal data: Deputy CEO of the Digital Division and the data protection officer (reporting directly to the top management of the controller or the processor, not accepting instructions from anyone regarding the discharge of their duties) - @ Data Protection Policy @ data protection training @ fraud ‐ business ethics, conflict of interest (including the whistleblowing system) Ethics Committee: guidance, second-tier decision-making regarding reports of ethical offences GRI 2-23 @ Code of Ethics ‐ approved by: Board of Directors @ Human Rights Statement: – approved by: Executive Director heading the Human and Organisation Development Directorate @ reporting ethical offences, training ‐ regular statutory reporting to supervisory and other government bodies Heads of division and managers of regional profit centres ‐ protection from money laundering and terrorist financing Anti-Money Laundering Committee: decisions on sustaining or creating high-risk business relationships within its competence @ Anti-money laundering Security: ‐ overall security, ‐ cyber security, Responsibility for security rests with the Board of Directors and the Supervisory Board. Manager responsible for compliance with IT security and bank security requirements: Managing Director of the Bank Security Directorate Security policy: ‐ approved by: Board of Directors ‐ sets forth the principles and main guidelines concerning security at the Bank, ‐ declares the Bank’s engagement to maintaining and preserving security at all times. Group Information Security Policy: - approved by: CEO - it declares the directions of development and relevant requirements Group Cyber Defence Strategy @ reporting, risk assessment @ training @ fraud Risk Management: ‐ all risk types Audit Committee and Risk Exposure and Risk Management Committee: they monitor the risk management activity. Risk Committees (Credit and Limit Committee, Work-out Committee, Group Operational Risk Management Committee): ultimate decision-making competence on the cornerstones of risk management methodologies. Manager responsible for risk management: Deputy CEO responsible for the Credit Approval and Risk Management Division Risk Assumption Strategy: ‐ approved by: Board of Directors ‐ defines the risk management framework and the principles and guidelines for risk assumption. @ rules, functions @ exclusions @ lending policy, responsible lending @ operational risk assessment @ debtor protection Green finance: Green Programme Directorate: supporting all members of OTP Group in taking advantage of the opportunities in green financing @ESG strategy @ Green Loan Framework @ sustainable financial framework
BUSINESS REPORT OTP BANK (CONSOLIDATED) 62/200 ESG / sustainability domain Responsibility, manager Policy References Product development, sales: Product Development, Sales and Pricing Committee: adopts decisions applicable to OTP Bank and the Hungarian group members on the development, introduction, discontinuation, pricing and terms of new schemes and product variants, and on sales and incentives. Approves major campaign plans. International Product Development, Sales and Pricing Committee: approves the annual action plans of the foreign subsidiary banks. @ Compliance Policy: ‐ approved by: Board of Directors ‐ declares that, in designing its products and services, the Bank pays priority attention to the enforcement of consumer protection principles, and to reducing the information asymmetry between customers and the Bank. Annexed to the policy is @ Consumer Protection Compliance Program Accessibility for disabled strategy: ‐ the goal is to ensure equal opportunity in service. @ objective, clear information @ responsible sales @ green products @ products with social benefits @ accessibility for disabled Human resource management: ‐ HR overall, Manager responsible for human resource management: Executive Director heading the Human and Organisation Development Directorate HR strategy: ‐ approved by: Management Committee ‐ determines the medium-term areas of focus for human resource management. @ turnover @ training @ income @ freedom of association ‐ diversity and equal opportunity, @ Diversity Policy: engagement to diversity among the members of management bodies and management. @ Strategy for Gender Equality @organisational diversity ‐ (occupational) health and safety Manager responsible for health and safety: Head of the Chairman & CEO Cabinet Health and Safety Regulation: ‐ approved by: CEO - uniform and comprehensive preventative health and safety strategy to implement safe working conditions that do not constitute a health risk. @ reporting, risk assessment, training, accidents Procurement/purchasing ‐ expectation of ethical conduct, ‐ sustainability, environmental criteria The procurement activity is performed by the requesting organisation. Procurement policy: - approved by: CEO - regulates the procurement process, scopes of responsibility, procurement principles; stipulates that the procurements of members of the Banking Group are supervised and coordinated by OTP Bank. @ rules @ materials used Environmental protection: ‐ environmental protection in operations, ‐ environmental awareness in procurement The Chairman & CEO is responsible for the Bank’s environmental protection activities. Manager responsible for supervising environmental protection activities: Head of the Facility Services Unit for the Chairman & CEO Cabinet Environmental Code: ‐ approved by: CEO ‐ ensures legal compliance and facilitates the consideration of environmental criteria and their integration into the Bank’s business operations in order to minimise the environmental impacts of operating and maintaining the Bank’s organisation; sets out the guidelines on environmentally aware procurement. @ reporting, training @ CO2 Emissions
BUSINESS REPORT OTP BANK (CONSOLIDATED) 63/200 2. ENVIRONMENTAL AND SOCIAL IMPLICATIONS OF FINANCIAL SERVICES This chapter presents the activities related to the following material topics, with each material topic presented in several places within the chapter: ST1: GRI 3-3, 203-2 Social impacts and indirect economic impacts of financial products Impacts: The Banking Group enables consumption and investment through the responsible allocation of resources. Therefore, we have an impact not only on the customers but, indirectly, also on economic growth, people’s living standards, and basic needs such as housing, and the utilisation of natural resources. By providing funds, we also contribute to the development of businesses and the economy, and indirectly help create jobs. The effects can also be potentially negative, such as over-indebtedness and over-consumption. This material topic supports the achievement of the following SDGs: Engagement: Our aim is to make financial resources available to the region’s businesses and households, through prudent lending, to protect depositors’ funds and prevent over-indebtedness. It is of paramount importance to us that schemes involving public and international institutions are accessible, and our results often go beyond market share. We help enable access to basic needs. Acts: Active lending in the region Strict, conservative risk management by integrating ESG risks Debtor protection programmes Active role in national and international programmes Products for vulnerable social groups (e.g. the youth and pensioners) Serving the financial needs of micro, small and medium-sized businesses at a high standard of quality Stakeholder cooperation: Our Banking Group continuously analyses and measures customer needs and feedback concerning the design and operation of its products and services. We liaise with government and international institutions and regulatory bodies to ensure compliance and in relation to subsidised product schemes. ST3: GRI 3-3 Environmental impact and GHG emissions of financial products Impacts: The investment projects and operations implemented with our financing and investments have a significant impact on the use of natural resources and generate greenhouse gas emissions. The extent and effectiveness of these depend largely on the characteristics of the organisation or individual carrying out the activity and their efforts to reduce environmental loads. This material topic supports the achievement of the following SDGs: Engagement: Our aim is to assess and understand the environmental loads and GHG emissions associated with our services and mitigate the negative impacts, helping the transition to environmentally-sustainable development. The Banking Group is making less use of exclusions, and is instead supporting its customers to implement green solutions in order to ensure that fewer customers are affected by the more difficult and costly financing that will be imposed on brown projects in the future. Acts: Integrating ESG risks into risk management Increasingly accurate measurement of GHG emissions of the financed portfolio Preparing a group-wide decarbonisation plan Continued compliance with regulatory requirements, including in respect of the green transition
BUSINESS REPORT OTP BANK (CONSOLIDATED) 64/200 Stakeholder cooperation: The Banking Group also maintains active contact with customers and investors to understand their expectations and to cooperate constructively, and its relations with regulators are aimed at understanding and meeting expectations. ST4: GRI 3-3 Green financial products Impacts: The impacts of this topic are almost inseparable from the environmental impacts of financial products. Green financial products support the solution of global environmental challenges and the achievement of objectives. The positive impact can occur if activities generating actual environmental benefits are financed. The extent of the impact is largely determined by the scale of these products. This material topic supports the achievement of the following SDGs in the same way as the previous one: Engagement: OTP Group strives to create an environment that supports sustainable financing and intends to play a leading role in green financing. The Banking Group also plays a dominant role in the implementation of initiatives of state and international institutions. Acts: Setting strategic, medium-term targets for green lending Developing a green loan framework Gradual availability of green products and product variants in all segments Active role in national and international programmes Stakeholder cooperation: The Banking Group also maintains active contact with customers, investors, and state and international financing institutions to understand their expectations and to cooperate constructively. Its relations with regulators are aimed at understanding and meeting expectations. ST9: GRI 3-3 Financing of high social risk sectors Impacts: The risk of negative social impacts is higher for these funded activities. The negative impacts can be avoided or mitigated by prudent lending. This material topic supports the achievement of the following SDGs: Engagement: OTP Group does not finance activities that violate the laws of the given country or international law. We conduct prudent lending, as well as rigorous and conservative risk management. The Banking Group’s @Compliance policy and relevant internal regulations contain the applicable sanctions procedures and engagements. The relevant members of OTP Group publish extracts of the group-level @Sanctions Policy on their website. Acts: Social risk assessment as part of ESG risk management Application of exclusions list, compliance with sanctions obligations Demanding that customers comply with laws and regulations Priority checks of sensitive transactions Stakeholder cooperation: Its relations with regulators are aimed at understanding and meeting expectations. The Group actively engages with investors to understand their expectations. The Group communicates its expectations to its customers and monitors compliance with these. Details of activities relating to material topics are presented in the following pages, along with their outcomes and how their effectiveness is assessed. For further information, visit our @website.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 65/200 2.1. Sustainable finances The group-level @green loan framework was completed in 2023, setting out the general principles of green lending, not only in Hungary, but also in Bulgaria, Slovenia, Croatia, Serbia, Albania, Montenegro and Romania. GRI 201-2 In addition to the extension of the framework to subsidiary banks, several new green lending targets have been added, focusing on sectors that are relevant to OTP Group’s portfolio and to climate change mitigation and adaptation. The relevant sectors and activities are defined at country level. The framework covers the following sectors as identified in the EU Taxonomy and the CBI (Climate Bond Initiative) Taxonomy: • EU Taxonomy: energy, manufacturing, transport, construction and real estate, forestry, waste management; • CBI Taxonomy: energy, industry, transport, buildings, land use and marine resources, waste and pollution control. The framework covers non-retail customers, from large multinational corporations to micro-enterprises, including municipalities and condominiums. The compliance of green activities is verified through the country-specific Green Alignment Assessment Tool (GAAT), for which country-specific supporting documents have been drawn up. When assessing compliance with the EU Taxonomy, minimum safeguards (MS) are also checked, in line with the expectations. The Green Loan Framework, which is also supported by an SPO, was approved by the MNB in July 2023. It also ensures that loans that meet the conditions of the framework are eligible in respect of the MNB’s green corporate and municipal preferential capital requirement programme. A number of controlling developments have also been implemented during the year, but significant improvements in green data infrastructure are still needed to ensure efficient recording of green loans at group level. The further detailing of targets continued, and the targets set for 2024 and 2025 have now been approved by OTP Bank’s ESG Committee in both retail and corporate breakdown. To reach our target of HUF 1,500 billion in green loans by 2025, we have committed to dynamic growth in the next two years. The Banking Group’s fundraising activities were again supported by the Group-wide Sustainable Financial Framework in 2023, covering both social and environmental sustainability. The @framework supported by an SPO 10 is available on the OTP Group website, and has not changed in 2023. Under the framework, the Bank or any of its subsidiaries may issue green and social financial instruments, including bonds, commercial paper (sustainable financial instruments). The framework was worked out on the basis of the ICMA 11 Green Bond Principles, 2021; the ICMA Social Bond Principles, 2021, the LMA 12 Green Loan Principles, 2021 and the LMA Social Loan Principles, 2021. The framework imposes the following restrictions: sustainable financial instruments cannot be used to finance loans related to fossil energy production, nuclear energy production, arms and defence, mining, gambling or tobacco. Financed green categories 13 : • green buildings, • renewable energy, • clean transportation. Financed social categories: • job creation and programmes to prevent and/or alleviate unemployment resulting from socio- economic crises, including through the potential impact of SME financing and microfinancing. OTP Group reports to investors annually within one year of the transaction (bond issue) of the sustainable financial instrument and thereafter until the full allocation of the proceeds. For @allocation report and @impact assessment report for 2022 are available on the website, and the documents for 2023 will be available in summer 2024. OTP Jelzálogbank publishes the key financial and environmental impact data relating to the green mortgage bond it issued in 2021 (allocation report) once a year on its @website, No green bonds and green mortgage bonds were issued in the Banking Group in 2023. 10 SPO: Second Party Opinion 11 International Capital Market Association 12 Loan Market Association 13 The precise criteria are specified in the framework.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 66/200 2.2. Green lending GRI 201-2, ST4: 3-3, TCFD II.a,b, IV.a,c OTP Group was able to increase the green loan and bond portfolio on its books significantly in 2023, significantly exceeding its HUF 414 billion commitment set for the end of 2023. Compared to the end of the previous year, the portfolio increased from HUF 270 billion to HUF 656 billion. This is an important step towards the Banking Group becoming a regional leader in financing a fair and gradual transition to a low carbon economy and to build a sustainable future. Corporate lending The bulk of the green portfolio is comprised of corporate loans and bonds, mainly large corporate and project loans, whose share continued to increase in 2023. At the end of 2023, the corporate green loan portfolio at group level amounted to HUF 470 billion, with investment projects for the use of renewable energy making up the largest share. For years, renewable energy projects have been a preferred lending purpose in project financing. In 2023, in response to market needs, we have added new terms and conditions for lending based on market sales of electricity rather than a sales contract covering all or most of the financing term. Already during 2023, the Bank has financed a number of projects where at least part of the cash flow from free market sales of electricity is the source of the loan repayment. In addition to financing renewable energy production, project loans for the implementation/refinancing of properties with international sustainability building certification (e.g. LEED, BREEAM) were also more prominent in 2023. In 2023, two new renewable energy projects were contracted or refinanced in the project finance area, which is part of the green portfolio. At the Group level, this amounted to HUF 19.2 billion, of which OTP Bank’s share was HUF 9.6 billion. In Romania, a 48.4 MW solar farm project is under construction and a Bulgarian wind farm with a capacity of 156 MW is being refinanced. At the end of 2023, the total capacity of renewable energy projects in the portfolio through project financing was 1,414 MW. In terms of capacity, wind energy accounts for two-thirds, solar energy for 31%, and projects for water, biomass and biogas utilisation are also in the portfolio. Most of the projects are financed by the OTP Group, with only a few cases involving third parties as financiers. In 2023, we signed a green real estate financing contract for a property in Hungary. The loan amount is HUF 30.6 billion and will be disbursed in 2024. In Hungary, the active participation of banks in state-subsidised lending schemes has been the main contributor to the growth of corporate green lending, given the macroeconomic environment. Both the Széchenyi Investment MAX and MAX+ and the EXIM Baross Gábor Reindustrialisation Green Investment Loan schemes included loan targets that met the conditions of the MNB’s green corporate and municipal preferential capital requirement programme. Most of the investments implemented financed energy efficiency improvements and/or developments related to renewable electricity production. It is typical that micro and small enterprises have made less use of these credit facilities. Developing our own product would not have been a competitive alternative in this environment, and thus we did not offer such product. 27% 46% 14% 1% 11% Capacity of renewable energy sources (MW) Project financing portfolio 31 December 2023 Hungary Romania Bulgaria Croatia Serbia
BUSINESS REPORT OTP BANK (CONSOLIDATED) 67/200 The Green Loan Framework also provides borrowing opportunities for agricultural customers, but the portfolio in this sector is not yet significant. Most of the corporate loans (45%) are part of the portfolio of the Hungarian member companies, while 32% are on the books of Bulgarian DSK. The other subsidiary banks with a green loan portfolio each account for less than ten percent of the portfolio. Typical green loans of subsidiary banks 14 : BG The Bulgarian subsidiary’s portfolio includes loans for renewable energy production and electric vehicle financing. Approximately 50 new transactions were concluded in 2023. SI The two Slovenian subsidiary banks are seeing a strong engagement to ESG among their large corporate customers, with demand for green loans focusing on energy efficiency, project financing and the financing of the transition, In 2024, green products will be launched as a joint product of SKB and NKBM 15 . HR In 2023, the Croatian subsidiary bank introduced two products for micro and small business customers. Sunny loans are available for solar panel installation and other energy efficiency equipment. The condominium loan can be used for building renovation, energy efficiency improvements and is subsidised by the EU. In 2023, disbursements were made to 36 customers. The Bank also offers financial instruments linked to the use of funds from the EU’s national Recovery and Resilience Facility (RFF) as part of several schemes, supporting green transition and/or digital transformation in specific areas of Croatia, as well as supporting R&D&I and other investments that support competitiveness and resilience. In 2023, four loans were accepted by the subsidiary bank. RS The Serbian subsidiary is involved in several collaborations to help make green loans more accessible. It cooperates with the EFSE (European Fund for Southeast Europe), IFIs (International Financing Institutions) and helps to implement environmental investment projects through the Green for Growth Fund. UZ The Uzbek subsidiary bank provides businesses with low-interest, preferential loans for solar panel and battery installation. In 2023, approximately 50 businesses used the product. The bank has started negotiations with the EBRD to participate in several schemes. UA Under the EBRD-supported scheme, small and medium-sized enterprises can purchase electric and hybrid cars with a 20 percent subsidy and receive investment loans for energy efficiency. 90 people used the scheme for vehicle purchases in 2023. The investment loan is a new facility, and has not been disbursed yet in 2023. It was designed to be accessible to local agricultural producers. RO OTP Bank Romania is seeing a growing demand for green financing among its corporate customers, with loans also provided for solar farm and wind turbine projects. The bank held ESG workshops for 14 The green loan portfolio only includes loans from the Bulgarian, Croatian, Serbian, Albanian and Romanian subsidiary banks and Slovenian SKB Bank. 15 NKBM portfolios will be included in the green loan portfolio from 2024 onwards, and are not included in 2023 data. In 2023, the definitions of green lending were agreed and the OTP Green Loan Framework was rolled out in the bank, but consistent data reporting has not yet been implemented in the subsidiary acquired in 2023. 56.75% 14.06% 29.17% 0.03% Breakdown of corporate green loans by loan purpose 31 December 2023 Renewable energy Electromobility Real estate Agriculture
BUSINESS REPORT OTP BANK (CONSOLIDATED) 68/200 corporate customers on responsible finance and investment strategies. In addition, it also helped with the purchase of electric and plug-in vehicles. MD In 19 cases, the Moldovan subsidiary bank provided loans under the EU4BUSINESS EBRD preferential lending facility, partly for environmental purposes. In 2023, the EIB decided to extend the availability of funds under the Fruit Garden scheme by two years and expanded the eligibility for grain production, livestock breeding and fish farming. In 2023, OTP Bank Moldova disbursed 17 loans. The Moldovan subsidiary has seen a significant increase in lending for energy efficiency and renewable energy investment projects, with numerous companies building solar parks and electric charging stations in the country. Retail loans The year-end green loan portfolio amounted to HUF 148 billion. 16 In July 2023, OTP Bank introduced two new own products, the OTP Green Housing Loan and the Green Évnyerő Housing Loan for the purchase, construction and modernisation of new homes. The only difference between the two products is in the repayment schedule. The retail green loan portfolio consists mainly of loans under the Hungarian Green Home Program (ZOP), which was available in 2021 and 2022 for the purchase or construction of energy-efficient new homes. In 2023, a total of HUF 34.5 billion was disbursed for new green housing loan transactions. The uniform registration of retail green loans in foreign subsidiary banks has not yet been implemented in 2023, therefore, they are not included in the portfolio, but the available schemes are presented below. BG At DSK Bank, the preferential mortgage loan product has been available from the end of 2022 for residential properties with an energy rating B or better. By the end of 2023, the bank has disbursed approximately 150 loans. SI At Slovenian NKBM, green housing, electromobility and energy efficiency loans were available in 2023, with preferential interest rates to encourage take-up. The housing loan can be used to buy, build and insulate energy-efficient homes, as well as to install solar panels and heat pumps. By the end of 2023, 55 disbursements had been made, 90 percent of which were used by customers for solar panel installation. For loans for the purchase and installation of energy-efficient equipment and for the purchase of hybrid and electric vehicles, 9 disbursements have been made by the end of 2023, 96% of these for the purchase of electric cars. In the second half of 2023, SKB Bank introduced the green housing loan product, also for the purchase and renovation of energy-efficient residential property. 2.3. Disclosure according to the Taxonomy Regulation Information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities according to Regulation (EU) 2020/852 regulation I. Mandatory disclosure Own indicator The Taxonomy Regulation applies to financial market participants that make available financial products and undertakings which are subject to the obligation to publish a non-financial statement or a consolidated non-financial statement pursuant to Article 19a or Article 29a of Directive No. 2013/34/EU of the European Parliament and of the Council, respectively (Article 1 (b) and (c) of Chapter I of (EU) 2020/852). Pursuant to Article 8 of the Taxonomy Regulation, any undertaking which is subject to an obligation to disclose non-financial information pursuant to Article 19a or Article 29a of Directive No. 2013/34/EU shall include in its non-financial statement or consolidated non-financial statement information on how and to what extent the undertaking’s activities are associated with economic activities that qualify as environmentally sustainable under Articles 3 and 9 of (EU) 2020/852 Regulation. The OTP group report is based on the exposures and balance sheet according to the scope of prudential consolidation in accordance with Regulation (EU) No. 575/2013, Title II, Chapter 2, Section 2 for the types of assets and accounting portfolios specified in point 1.1.2 of Annex V of Commission Delegated Regulation (EU) No. 2021/2178, including information on stock and flows, on transitional and enabling activities, and on specialised and general purpose lending. 16 This amount comprises only the Hungarian portfolio already accounted for towards the MNB in the latter’s Green Preferential Capital Requirement Programme in the case of which the disbursed amount is slightly higher.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 69/200 The tables below present the consolidated information on OTP Group’s mandatory KPIs under Regulation (EU) No. 2020/852 (Taxonomy Regulation), which have been prepared using the template published in Annex VI of Regulation No. 2021/2178. The gross carrying amount of exposures are based on the reference date of 31. December 2023. OTP Group discloses the relevant KPIs on a consolidated basis, taking into account the scope of prudential consolidation, in accordance with Annex V, point 1.1.1 of EU 2021/2178. Accordingly, the exposures of the various subsidiaries, including those of fund managers and credit institutions, are part of the consolidated credit institution KPIs. There are several explanations regarding the low taxonomy-aligned stock and KPI percentage disclosed in the mandatory part. First of all, as part of the mandatory reporting, in line with legal compliance, only the exposures of companies fall under the "non-financial reporting obligation" were included. Significant share of OTP Group's corporate funding (> 90%) is directed to non-financial companies that are not subject of NFRD obligation. This means that the taxonomy related share of such exposures is not included as part of the mandatory reporting. Moreover, the green financing of taking place in non-EU subsidiaries is also not covered by the mandatory reporting and as such excluded from the KPIs. The interpretation of the alignment requirement for retail exposures has been significantly amended by the draft EU Commission Notice published in December 2023. According to the draft notice, funding towards households that only meet the substantial contribution criterion cannot be considered as aligned. The necessary information and data to fulfil the additional conditions is not available due to the short notice involved. Therefore, following prudent approach, these exposures have not been taken into account in the KPI calculation at this stage. For taxonomy-eligible stocks, the percentage decreased slightly compared to the same data last year, despite of the increase in green stocks. This is the result of at least two things: an increase in the balance sheet total and a change in methodology. We would like to highlight, that as disclosed in Table 1 line #20 below, the share of taxonomy-eligible exposures compared to the total asset of non-financial undertakings subject to "non-financial reporting" obligation is more than 16%. Moreover, the their ratio of taxonomy-aligned exposures is close to 6.5%. In addition, the share of the taxonomy-eligible household portfolio compared to total household exposure exceeds 27%, a significant share of which is related to the purchase, construction or renovation of real estate. The same ratio for retail car loans is 38%. Overall, the main KPI indicators in the mandatory report do not fully reflect the efforts of the OTP Group in the area of sustainable finance. Therefore, information on the broader green portfolio of the OTP Group is presented as part of the voluntary report. Templates 1 to 5 for OTP Group as published in Annex VI of Regulation No. 2021/2178 and the templates of KPIs for the EU subsidiary banks using the same methodology are part of the mandatory report.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 70/200 0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation Total environmentally sustainable assets (Turnover) HUF mn Total environmentally sustainable assets (CapEx) HUF mn KPI – turnover 2 KPI – CapEx 3 % coverage (over total assets) 1 % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Main KPI Green asset ratio (GAR) stock 12,451.02 23,481.10 0.05% 0.09% 64.83% 29.19% 35.17% 1 % of assets covered by the KPI (GAR total asset) over banks’ total assets 2 based on the turnover KPI of the counterparty 3 based on the CapEx KPI of the counterparty, except for lending activities where for general lending turnover KPI is used Total environmentally sustainable activities (Turnover) HUF mn Total environmentally sustainable activities (CapEx) HUF mn KPI - turnover (compared to flow of total covered assets) KPI - CapEx (compared to flow of total covered assets) % coverage (over total assets) % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Additional KPIs GAR (flow) 3.31 346.09 0.000% 0.005% 54.35% 24.61% 45.65% Financial guarantees 0.00 0.00 0.00% 0.00% Assets under management 2,033.70 6,130.15 0.01% 0.02% Comment 1: For reporting templates: cells with a black background do not need to be completed. Comment 2: Fees and commissions (worksheet 6) and the Trading book (worksheet 7) are only applicable from 2026,
BUSINESS REPORT OTP BANK (CONSOLIDATED) 71/200 1. Assets for the calculation of GAR (Turnover) in HUF million Disclosure reference date 31.12.2023 Total [gross] carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 14,106,303 3,339,778 0 0 0 0 0 0 0 3,375,433 12,451 0 0 0 2 Financial undertakings 2,191,060 0 0 0 0 0 0 0 0 4,288 0 0 0 0 3 Credit institutions 1,435,223 0 0 0 0 0 0 0 0 0 0 0 0 0 4 Loans and advances 854,447 0 0 0 0 0 5 Debt securities, including UoP 580,776 0 0 0 0 0 6 Equity instruments 0 0 0 0 0 7 Other financial corporations 755,837 4,288 0 0 0 0 8 of which investment firms 59,625 0 0 0 0 0 0 0 0 0 0 0 0 0 9 Loans and advances 59,624 0 0 0 0 0 10 Debt securities, including UoP 0 0 0 0 0 0 11 Equity instruments 1 0 0 0 0 12 of which management companies 26,032 0 0 0 0 0 0 0 0 0 0 0 0 0 13 Loans and advances 0 0 0 0 0 0 14 Debt securities, including UoP 0 0 0 0 0 0 15 Equity instruments 26,032 0 0 0 0 16 of which insurance undertakings 1,797 0 0 0 0 0 0 0 0 0 0 0 0 0 17 Loans and advances 1,795 0 0 0 0 0 18 Debt securities, including UoP 0 0 0 0 0 0 19 Equity instruments 1 0 0 0 0 20 Non-financial undertakings 192,736 0 0 0 0 0 0 0 0 31,367 12,451 0 0 0 21 Loans and advances 76,929 20,111 6,135 0 0 0 22 Debt securities, including UoP 115,807 11,255 6,316 0 0 0 23 Equity instruments 0 0 0 0 0 24 Households 11,722,507 3,339,778 3,339,778 0 0 0 0 25 of which loans collateralised by residential immovable property 4,915,444 3,040,924 3,040,924 0 0 0 0 26 of which building renovation loans 127,689 127,416 127,416 0 0 0 0 27 of which motor vehicle loans 446,413 171,438 171,438 0 0 0 0 28 Local governments financing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 29 Housing financing 0 0 0 0 0
BUSINESS REPORT OTP BANK (CONSOLIDATED) 72/200 in HUF million Disclosure reference date 31.12.2023 Total [gross] carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 30 Other local government financing 0 0 0 0 0 31 Collateral obtained by taking possession: residential and commercial immovable properties 10,315 0 0 0 0 0 32 Assets excluded from the numerator for GAR calculation (covered in the denominator) 11,562,435 33 Financial and Non-financial undertakings 9,385,343 34 SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations 6,860,587 35 Loans and advances 6,712,884 36 of which loans collateralised by commercial immovable property 37 of which building renovation loans 38 Debt securities 146,932 39 Equity instruments 771 49 Non-EU country counterparties not subject to NFRD disclosure obligations 2,524,756 41 Loans and advances 2,492,214 42 Debt securities 30,472 43 Equity instruments 2,070 44 Derivatives 41,967 45 On demand interbank loans 574,648 46 Cash and cash-related assets 605,799 47 Other categories of assets (e.g. Goodwill, commodities etc.) 954,677 48 Total GAR assets 25,679,052 3,339,778 0 0 0 0 0 0 0 3,375,433 12,451 0 0 0 49 Assets not covered for GAR calculation 13,930,092 50 Central governments and Supranational issuers 6,307,758 51 Central banks exposure 7,401,137 52 Trading book 221,197 53 Total assets 39,609,144 3,339,778 0 0 0 0 0 0 0 3,375,433 12,451 0 0 0 Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations
BUSINESS REPORT OTP BANK (CONSOLIDATED) 73/200 in HUF million Disclosure reference date 31.12.2023 Total [gross] carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 54 Financial guarantees 173,787 55 Assets under management 1,651,364 0 0 0 0 0 0 0 0 22,282 2,034 0 346 1,688 56 Of which debt securities 794,009 933 76 0 0 76 57 Of which equity instruments 274,403 21,349 1,958 0 346 1,612
BUSINESS REPORT OTP BANK (CONSOLIDATED) 74/200 2. Assets for the calculation of GAR (CapEx) in HUF million Disclosure reference date 31.12.2023 Total [gross] carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 14,106,303 3,339,778 0 0 0 0 0 0 0 0 3,390,535 23,481 0 0 0 2 Financial undertakings 2,191,060 0 0 0 0 0 0 0 0 0 3,358 0 0 0 0 3 Credit institutions 1,435,223 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4 Loans and advances 854,447 0 0 0 0 0 5 Debt securities, including UoP 580,776 0 0 0 0 0 6 Equity instruments 0 0 0 0 0 7 Other financial corporations 755,837 3,358 0 0 0 0 8 of which investment firms 59,625 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 Loans and advances 59,624 0 0 0 0 0 10 Debt securities, including UoP 0 0 0 0 0 0 11 Equity instruments 1 0 0 0 0 12 of which management companies 26,032 0 0 0 0 0 0 0 0 0 0 0 0 0 0 13 Loans and advances 0 0 0 0 0 0 14 Debt securities, including UoP 0 0 0 0 0 0 15 Equity instruments 26,032 0 0 0 0 16 of which insurance undertakings 1,797 0 0 0 0 0 0 0 0 0 0 0 0 0 0 17 Loans and advances 1,795 0 0 0 0 0 18 Debt securities, including UoP 0 0 0 0 0 0 19 Equity instruments 1 0 0 0 0 20 Non-financial undertakings 192,736 0 0 0 0 0 0 0 0 0 47,400 23,481 0 0 0 21 Loans and advances 76,929 26,788 14,188 0 0 0 22 Debt securities, including UoP 115,807 20,612 9,293 0 0 0 23 Equity instruments 0 0 0 0 0 24 Households 11,722,507 3,339,778 3,339,778 0 0 0 0 25 of which loans collateralised by residential immovable property 4,915,444 3,040,924 3,040,924 0 0 0 0 26 of which building renovation loans 127,689 127,416 127,416 0 0 0 0 27 of which motor vehicle loans 446,413 171,438 171,438 0 0 0 0 28 Local governments financing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 29 Housing financing 0 0 0 0 0
BUSINESS REPORT OTP BANK (CONSOLIDATED) 75/200 in HUF million Disclosure reference date 31.12.2023 Total [gross] carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 30 Other local government financing 0 0 0 0 0 31 Collateral obtained by taking possession: residential and commercial immovable properties 10,315 0 0 0 0 0 32 Assets excluded from the numerator for GAR calculation (covered in the denominator) 11,562,435 33 Financial and Non-financial undertakings 9,385,343 34 SMEs and NFCs (other than SMEs) not subject to NFRD disclosure obligations 6,860,587 35 Loans and advances 6,712,884 36 of which loans collateralised by commercial immovable property 37 of which building renovation loans 38 Debt securities 146,932 39 Equity instruments 771 49 Non-EU country counterparties not subject to NFRD disclosure obligations 2,524,756 41 Loans and advances 2,492,214 42 Debt securities 30,472 43 Equity instruments 2,070 44 Derivatives 41,967 45 On demand interbank loans 574,648 46 Cash and cash-related assets 605,799 47 Other categories of assets (e.g. Goodwill, commodities etc.) 954,677 48 Total GAR assets 25,679,052 3,339,778 0 0 0 0 0 0 0 0 3,390,535 23,481 0 0 0 49 Assets not covered for GAR calculation 13,930,092 50 Central governments and Supranational issuers 6,307,758 51 Central banks exposure 7,401,137 52 Trading book 221,197
BUSINESS REPORT OTP BANK (CONSOLIDATED) 76/200 in HUF million Disclosure reference date 31.12.2023 Total [gross] carrying amount Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Of which towards taxonomy relevant sectors (Taxonomy-eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which towards taxonomy relevant sectors (Taxonomy- eligible) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy-aligned) Of which environmentally sustainable (Taxonomy- aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 53 Total assets 39,609,144 3,339,778 0 0 0 0 0 0 0 0 3,390,535 23,481 0 0 0 Off-balance sheet exposures - Undertakings subject to NFRD disclosure obligations 54 Financial guarantees 173,787 55 Assets under management 1,651,364 0 0 0 0 0 0 0 0 0 31,796 6,130 0 2,092 4,039 56 Of which debt securities 794,009 1,389 113 0 1 112 57 Of which equity instruments 274,403 30,407 6,018 0 2,090 3,927
BUSINESS REPORT OTP BANK (CONSOLIDATED) 77/200 2. GAR sector information (Turnover) Breakdown by sector - NACE 4 digits level (code and label) Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WMR + CE + P + BE) Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount HUF mn Of which environmentally sustainable (CCM) HUF mn Of which environmentally sustainable (CCM) HUF mn Of which environmentally sustainable (CCA) HUF mn Of which environmentally sustainable (CCA) HUF mn Of which environmentally sustainable (CCM + CCA + WTR + CE + PPC + BIO) HUF mn Of which environmentally sustainable (CCM + CCA + WTR + CE + PPC + BIO) 1 6420 53,016 7,952 2 2442 11,420 9,365 3 1920 27,517 1,928 4 2120 26 0 5 4211 739 311 6 6201 26,372 451 7 4690 25 0 8 3250 1,825 0 9 1107 355 0 10 1105 4,893 0 11 6110 2,522 53 12 6831 5,208 4,984 13 3511 5,689 2,265 14 2732 1,744 628 15 2550 10,979 0 16 2012 1 0 17 3513 2,926 2,911 18 4634 1,453 0 19 2059 698 93 20 5221 2,930 0 21 7010 14,894 21 22 2110 3,898 0 23 6190 1,057 19 24 2219 2,257 160 25 4730 365 65 26 2041 1,625 0 27 3523 1,717 129 28 N/A 6,585 31
BUSINESS REPORT OTP BANK (CONSOLIDATED) 78/200 2. GAR sector information (CapEx) Breakdown by sector - NACE 4 digits level (code and label) Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WMR + CE + P + BE) Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD Non-Financial corporates (Subject to NFRD) SMEs and other NFC not subject to NFRD [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount [Gross] carrying amount HUF mn Of which environmentally sustainable (CCM) HUF mn Of which environmentally sustainable (CCM) HUF mn Of which environmentally sustainable (CCA) HUF mn Of which environmentally sustainable (CCA) HUF mn Of which environmentally sustainable (CCM + CCA + WTR + CE + PPC + BIO) HUF mn Of which environmentally sustainable (CCM + CCA + WTR + CE + PPC + BIO) 1 6420 53,016 20,676 2 2442 11,420 4,454 3 1920 27,517 3,817 4 2120 26 0 5 4211 739 163 6 6201 26,372 259 7 4690 25 4 8 3250 1,825 778 9 1107 355 0 10 1105 4,893 19 11 6110 2,522 71 12 6831 5,208 5,010 13 3511 5,689 3,953 14 2732 1,744 663 15 2550 10,979 321 16 2012 1 0 17 3513 2,926 2,920 18 4634 1,453 0 19 2059 698 130 20 5221 2,930 0 21 7010 14,894 2,820 22 2110 3,898 417 23 6190 1,057 8 24 2219 2,257 169 25 4730 365 159 26 2041 1,625 0 27 3523 1,717 300 28 N/A 6,585 289
BUSINESS REPORT OTP BANK (CONSOLIDATED) 79/200 3. GAR KPI stock (Turnover) % (compared to total covered assets in the denominator) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 13.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.1% 0.0% 0.0% 0.0% 0.0% 8.5% 2 Financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3 Credit institutions 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 8 of which investment firms 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 20 Non-financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.1% 21 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.1% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 23 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24 Households 13.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.0% 0.0% 0.0% 0.0% 0.0% 8.4% 25 of which loans collateralised by residential immovable property 11.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.8% 0.0% 0.0% 0.0% 0.0% 7.7%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 80/200 % (compared to total covered assets in the denominator) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 26 of which building renovation loans 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.3% 27 of which motor vehicle loans 0.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 0.0% 0.0% 0.4% 28 Local governments financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 29 Housing financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 32 Total GAR assets 13.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 13.14% 0.05% 0.00% 0.00% 0.00% 8.52%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 81/200 3. GAR KPI stock (CapEx) % (compared to total covered assets in the denominator) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 13.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.2% 0.1% 0.0% 0.0% 0.0% 13.2% 2 Financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3 Credit institutions 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 8 of which investment firms 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 20 Non-financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.1% 0.0% 0.0% 0.0% 0.1% 21 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.0% 0.0% 0.0% 0.1% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.1% 23 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24 Households 13.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13.0% 0.0% 0.0% 0.0% 0.0% 8.4% 25 of which loans collateralised by residential immovable property 11.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.8% 0.0% 0.0% 0.0% 0.0% 7.7% 26 of which building renovation loans 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.3%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 82/200 % (compared to total covered assets in the denominator) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 27 of which motor vehicle loans 0.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 0.0% 0.0% 0.4% 28 Local governments financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 29 Housing financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 32 Total GAR assets 13.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 13.20% 0.09% 0.00% 0.00% 0.00% 8.56%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 83/200 4. GAR KPI flow (Turnover) % (compared to flow of total covered assets) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total new assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 24.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.2% 0.0% 0.0% 0.0% 0.0% 13.1% 2 Financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3 Credit institutions 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 8 of which investment firms 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 20 Non-financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 21 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 23 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24 Households 24.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.1% 0.0% 0.0% 0.0% 0.0% 13.1% 25 of which loans collateralised by residential immovable property 22.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 22.1% 0.0% 0.0% 0.0% 0.0% 12.0%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 84/200 % (compared to flow of total covered assets) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total new assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 26 of which building renovation loans 0.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 0.0% 0.0% 0.0% 0.0% 0.5% 27 of which motor vehicle loans 1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.1% 0.0% 0.0% 0.0% 0.0% 0.6% 28 Local governments financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 29 Housing financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 32 Total GAR assets 24.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 24.17% 0.00% 0.00% 0.00% 0.00% 13.14%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 85/200 4. GAR KPI flow (CapEx) % (compared to flow of total covered assets) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total new assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling GAR - Covered assets in both numerator and denominator 1 Loans and advances, debt securities and equity instruments not HfT eligible for GAR calculation 24.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.1% 0.0% 0.0% 0.0% 0.0% 13.1% 2 Financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3 Credit institutions 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 7 Other financial corporations 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 8 of which investment firms 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 9 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 12 of which management companies 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 13 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 15 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16 of which insurance undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 19 Equity instruments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 20 Non-financial undertakings 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 21 Loans and advances 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 22 Debt securities, including UoP 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 23 Equity instruments 24.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.1% 0.0% 0.0% 0.0% 0.0% 0.0% 24 Households 22.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 22.1% 0.0% 0.0% 0.0% 0.0% 0.0% 25 of which loans collateralised by residential immovable property 0.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 0.0% 0.0% 0.0% 0.0% 0.0%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 86/200 % (compared to flow of total covered assets) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total new assets covered Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 26 of which building renovation loans 1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 27 of which motor vehicle loans 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 28 Local governments financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 29 Housing financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 30 Other local government financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 31 Collateral obtained by taking possession: residential and commercial immovable properties 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 32 Total GAR assets 24.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 24.13% 0.00% 0.00% 0.00% 0.00% 13.12%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 87/200 5. KPI off-balance sheet exposures (Turnover) % (compared to total assets covered) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 1 Financial guarantees (FinGuar KPI) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2 Assets under management (AuM KPI) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.35% 0.12% 0.00% 0.02% 0.10% 5. KPI off-balance sheet exposures (CapEx) % (compared to total assets covered) Disclosure reference date 31.12.2023 Climate Change Mitigation (CCM) Climate Change Adaptation (CCA) TOTAL (CCM + CCA + WTR + CE + PPC + BIO) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-eligible) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Proportion of total covered assets funding taxonomy relevant sectors (Taxonomy-aligned) Of which Use of Proceeds Of which transitional Of which enabling Of which Use of Proceeds Of which enabling Of which Use of Proceeds Of which transitional Of which enabling 1 Financial guarantees (FinGuar KPI) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2 Assets under management (AuM KPI) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.93% 0.37% 0.00% 0.13% 0.24%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 88/200 Summary of credit institution KPIs for the OTP Group's subsidiary banks 0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation – DSK Bank EAD (Bulgaria) Total environmentally sustainable assets (Turnover) HUF mn Total environmentally sustainable assets (CapEx) HUF mn KPI – turnover 2 KPI – CapEx 3 % coverage (over total assets) 1 % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Main KPI Green asset ratio (GAR) stock 0 0 0.00% 0.00% 75.50% 28.16% 24.50% 1 % of assets covered by the KPI (GAR total asset) over banks’ total assets 2 based on the turnover KPI of the counterparty 3 based on the CapEx KPI of the counterparty, except for lending activities where for general lending turnover KPI is used Total environmentally sustainable activities (Turnover) HUF mn Total environmentally sustainable activities (CapEx) HUF mn KPI - turnover (compared to flow of total covered assets) KPI - CapEx (compared to flow of total covered assets) % coverage (over total assets) % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Additional KPIs GAR (flow) 0 0 0.00% 0.00% 68.17% 14.79% 10.25% Financial guarantees 0 0 0.00% 0.00% Assets under management 0 0 0.00% 0.00% Comment 1: For reporting templates: cells with a black background do not need to be completed. Comment 2: Fees and commissions (worksheet 6) and the Trading book (worksheet 7) are only applicable from 2026,
BUSINESS REPORT OTP BANK (CONSOLIDATED) 89/200 0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation – OTP banka Hrvatska d.d. (Croatia) Total environmentally sustainable assets (Turnover) HUF mn Total environmentally sustainable assets (CapEx) HUF mn KPI – turnover 2 KPI – CapEx 3 % coverage (over total assets) 1 % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Main KPI Green asset ratio (GAR) stock 0.00 213.87 0.00% 0.01% 67.88% 29.27% 32.12% 1 % of assets covered by the KPI (GAR total asset) over banks’ total assets 2 based on the turnover KPI of the counterparty 3 based on the CapEx KPI of the counterparty, except for lending activities where for general lending turnover KPI is used Total environmentally sustainable activities (Turnover) HUF mn Total environmentally sustainable activities (CapEx) HUF mn KPI - turnover (compared to flow of total covered assets) KPI - CapEx (compared to flow of total covered assets) % coverage (over total assets) % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Additional KPIs GAR (flow) 0.00 0.00 0.00% 0.00% 49.13% 24.53% 50.87% Financial guarantees 0.00 0.00 0.00% 0.00% Assets under management 0.00 0.00 0.00% 0.00% Comment 1: For reporting templates: cells with a black background do not need to be completed. Comment 2: Fees and commissions (worksheet 6) and the Trading book (worksheet 7) are only applicable from 2026,
BUSINESS REPORT OTP BANK (CONSOLIDATED) 90/200 0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation – OTP Bank Romania S.A. (Romania) Total environmentally sustainable assets (Turnover) HUF mn Total environmentally sustainable assets (CapEx) HUF mn KPI – turnover 2 KPI – CapEx 3 % coverage (over total assets) 1 % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Main KPI Green asset ratio (GAR) stock 0.00 213.87 0.00% 0.01% 67.88% 29.27% 32.12% 1 % of assets covered by the KPI (GAR total asset) over banks’ total assets 2 based on the turnover KPI of the counterparty 3 based on the CapEx KPI of the counterparty, except for lending activities where for general lending turnover KPI is used Total environmentally sustainable activities (Turnover) HUF mn Total environmentally sustainable activities (CapEx) HUF mn KPI - turnover (compared to flow of total covered assets) KPI - CapEx (compared to flow of total covered assets) % coverage (over total assets) % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Additional KPIs GAR (flow) 0.00 0.00 0.00% 0.00% 49.13% 24.53% 50.87% Financial guarantees 0.00 0.00 0.00% 0.00% Assets under management 0.00 0.00 0.00% 0.00% Comment 1: For reporting templates: cells with a black background do not need to be completed. Comment 2: Fees and commissions (worksheet 6) and the Trading book (worksheet 7) are only applicable from 2026,
BUSINESS REPORT OTP BANK (CONSOLIDATED) 91/200 0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation – Nova KBM d.d. (Slovenia) Total environmentally sustainable assets (Turnover) HUF mn Total environmentally sustainable assets (CapEx) HUF mn KPI – turnover 2 KPI – CapEx 3 % coverage (over total assets) 1 % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Main KPI Green asset ratio (GAR) stock 5,521 5,653 0.00 0.00 60.0% 23.0% 40.0% 1 % of assets covered by the KPI (GAR total asset) over banks’ total assets 2 based on the turnover KPI of the counterparty 3 based on the CapEx KPI of the counterparty, except for lending activities where for general lending turnover KPI is used Total environmentally sustainable activities (Turnover) HUF mn Total environmentally sustainable activities (CapEx) HUF mn KPI - turnover (compared to flow of total covered assets) KPI - CapEx (compared to flow of total covered assets) % coverage (over total assets) % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Additional KPIs GAR (flow) 0.00 0.00 0.08% 0.10% 13.33% 4.36% 26.46% Financial guarantees 1,990 2,641 0.01% 0.10% Assets under management 0.00 0.00 0.00% 0.00% Comment 1: For reporting templates: cells with a black background do not need to be completed. Comment 2: Fees and commissions (worksheet 6) and the Trading book (worksheet 7) are only applicable from 2026,
BUSINESS REPORT OTP BANK (CONSOLIDATED) 92/200 0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation – SKB Banka d.d. Ljubljana (Slovenia) Total environmentally sustainable assets (Turnover) HUF mn Total environmentally sustainable assets (CapEx) HUF mn KPI – turnover 2 KPI – CapEx 3 % coverage (over total assets) 1 % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Main KPI Green asset ratio (GAR) stock 0.00 0.00 0.00% 0.00% 69.2% 26.5% 30.8% 1 % of assets covered by the KPI (GAR total asset) over banks’ total assets 2 based on the turnover KPI of the counterparty 3 based on the CapEx KPI of the counterparty, except for lending activities where for general lending turnover KPI is used Total environmentally sustainable activities (Turnover) HUF mn Total environmentally sustainable activities (CapEx) HUF mn KPI - turnover (compared to flow of total covered assets) KPI - CapEx (compared to flow of total covered assets) % coverage (over total assets) % of assets excluded from the numerator of the GAR (Article 7 (2) and (3) and Section 1.1.2. of Annex V) % of assets excluded from the denominator of the GAR (Article 7 (1)) and Section 1.2.4 of Annex V) Additional KPIs GAR (flow) 0.00 0.00 0.00% 0.00% 55.0% 23.0% 45.0% Financial guarantees 0.00 0.00 0.00% 0.00% Assets under management 0.00 0.00 0.00% 0.00% Comment 1: For reporting templates: cells with a black background do not need to be completed. Comment 2: Fees and commissions (worksheet 6) and the Trading book (worksheet 7) are only applicable from 2026, The separate report published by OTP Fund Management and the templates specified in Annex XII of Regulation No. 2021/2178 are presented under a separate sub-heading.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 93/200 General qualitative information on the content and methodology of KPIs published in Annex XI of Regulation No. 2021/2178: The scope of assets and activities covered by the KPIs: Asset portfolio covered The calculation of the green asset ratio (GAR) for on-balance sheet exposures shall cover the following accounting categories of financial assets, including loans and advances, debt securities, equity holdings and repossessed collaterals: a) financial assets at amortised cost; b) financial assets at fair value through other comprehensive income; c) investments in subsidiaries; d) joint ventures and associates; e) financial assets designated at fair value through profit or loss and non-trading financial assets mandatorily at fair value through profit or loss; f) real estate collaterals obtained by credit institutions by taking possession in exchange for the cancellation of debts. In accordance with Article 7(1) of Regulation No. 2021/2178, exposures to central governments, central banks and supranational issuers shall be excluded from the calculation of the numerator and denominator of key performance indicators of financial undertakings. Pursuant to Article 7 of Regulation No. 2021/2178, the following assets are excluded from the numerator of the GAR: a) financial assets held for trading; b) on-demand interbank loans; c) (c) exposures to undertakings that are not obliged to publish non-financial information pursuant to Article 19a or 29a of Directive No. 2013/34/EU; d) derivatives; e) cash and cash-related assets; f) other categories of assets (e.g. goodwill, goods, etc.). The calculation of KPIs for off-balance sheet exposures considered financial guarantees granted by OTP Group, and assets under management for guarantee and investee non-financial undertakings. Other off-balance sheet exposures such as commitments have been excluded from that calculation. The exposures of all entities included in the prudential consolidation scope of OTP Bank (credit institution subsidiaries, other financial institutions and non-financial undertakings) are included in – relevant rows in column ‘a’ (Total gross carrying amount) of total assets – Template 1 of Annex VI of Regulation No. 2021/2178, thus ensuring that the balance of row 55 (“Total assets”) is equal to the total assets row of the consolidated FINREP balance sheet. Exceptions to this are entities whose exposures relative to the exposures of credit institutions do not meet the thresholds set by the financial materiality criteria, taking into account materiality criteria. Based on the guidance in Annex III of EU Regulation No. 2021/2178, gross exposures have been aggregated in the relevant row of Template 1 of the GAR for credit institutions based on the separate report of OTP Fund Management. Exposures on assets under management are shown on a consolidated basis in the asset GAR indicator in summary template 0. Financial data are identified solely based on the Bank’s analytical credit and risk database and FINREP balance sheet data. In respect of alignment with the taxonomy, data were generated through individual data requests or from publicly available data.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 94/200 Findings concerning Annex VI of Regulation No. 2021/2178, worksheet ‘0’ The use of CAPEX and turnover-based reporting has necessitated the duplication of KPI cells. The definition of the KPIs shall be based on the following components: a) the numerator, which shall cover the loans and advances, debt securities, equities and repossessed collaterals, financing Taxonomy-aligned economic activities based on turnover KPI and CapEx KPI of underlying assets. b) (b) the denominator, which shall cover the total loans and advances, total debt securities, total equities and total repossessed collaterals and all other covered on-balance sheet assets. Pursuant to point 1.2.3. (Fees and commissions) of Annex V, KPIs for trading book items and fees and commissions are applicable from 1 January 2026. Findings concerning Annex VI of Regulation No. 2021/2178, Template 1 The template has been duplicated on the basis of counterparty turnover and CapEx data. The numerators of the two GAR KPIs differ for (general) loans for unknown purpose, bond exposure and equity holdings to non-financial undertakings. Exposures were analysed along the following customer segmentation: • financial undertakings • non-financial undertakings • retail customers (with the following sub-categories: residential property, home renovation and car loans) • local governments (only with the following sub-category: housing financing) – rental housing financing or known green loan purpose • collateral obtained by taking possession, residential and commercial real estate For the completion of the T-1 gross carrying amount fields, the exposures are filled in based on the bank databases, filtered for the T-1 period in the same way as for the T period. Data on taxonomy alignment is completed based on data from the 2022 report, where available. Information on financial undertakings According to the Bank's interpretation in 2024 (for the 2023 financial year) it will not be required to report the share of their Taxonomy-aligned economic activity in respect of exposures to financial undertakings. This is because financial institutions will only publish their GAR indicators in 2024 (concerning the end of 2023) and, therefore, the data are not available for financial institutions to include in their 2024 reports. Financial institutions will, therefore, only have to report them from 2025 (taking into account the latest available data). The published data on taxonomy eligibility is not comprehensive (no environmental breakdown), so the Bank was forced to rely on the information in the Bank’s IT systems and the Bank’s markers (for transactions that have undergone a green alignment assessment) to identify green exposures for the 2023 financial year. The Bank’s short-term plans include the integration of financial counterparty reporting into bank group level controlling systems. Information on non-financial undertakings Customers covered by the NFRD were identified as follows: Public interest entities subject to NFRD under Hungarian accounting Public interest entities subject to NFRD for the following EU subsidiary banks: Bulgaria, Croatia, Romania, Slovenia Number of employees > 500 persons > 500 persons At least two of the following are met listed on a stock exchange and Total assets > HUF 6 billion > EUR 20 million Annual net sales revenue > HUF 12 billion > EUR 40 million Number of employees > 250 persons For the application of the above filtering criteria, data compiled by an external data provider and existing in the banking systems were used. Loans and debt securities exposures to non-financial undertakings were taken into account on the basis of known and unknown loan purposes. In the case of known loan purposes, transactions that have been designated on the basis of the Bank’s eligibility and alignment checks have been taken into account. In the case of unknown loan purposes and for equity exposures, the counterparty’s disclosed turnover and CAPEX eligibility and alignment information has been taken into account.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 95/200 If no published information was available for the counterparty concerned, the Bank did not take into account the counterparty’s exposures for the purposes of eligibility and alignment in the course of reporting. The breakdown by environmental objective is not available for publicly available data for Taxonomy-eligible exposures, so the Bank presents data in the total (CCM + CCA) fields for the given exposure category for transparency and ease of interpretation. A further limitation is that we currently have limited ability to identify and examine the group-level exposure of companies subject to the NFRD. The Bank’s short term plans include the comprehensive and up-to-date identification of the non-financial counterparties concerned by the GAR report and the integration of the necessary data records into the appropriate banking IT systems. Information on households In preparing the report, the entities operating in the following countries were considered: Bulgaria, Croatia, Hungary, Romania and Slovenia. GAR for retail exposures to residential real estate or house renovation loans was calculated as a proportion of loans to households collateralised by residential immovable property or granted for house renovation purposes that is Taxonomy-aligned in accordance with the relevant technical screening criteria for buildings, in particular renovation and acquisition and ownership in accordance with Annex I and Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, and 7.7 respectively of Annex II to Delegated Regulation (EU) No. 2021/2139 or Sections 3.1 and 3.2 of Annex II to Delegated Regulation (EU) No. 2023/2486, compared to total loans to households collateralised by residential immovable property or granted for house renovation purposes. By households, the Bank means retail customers and sole proprietors. Under EU Regulation No. 2021/2178, the Bank includes general purpose loans collateralised by residential immovable property in the gross exposure, but these exposures are excluded during the Taxonomy check. In line with the spirit of the legal interpretation, in order to avoid duplication of exposures, the Bank has decided to show exposures related to building modernisation as defined in Section 7.2 of Annex I of the Delegated Act only in row 28 of Template and to exclude these exposures from loans collateralised by residential immovable property. GAR for retail exposures to credit consumption loans for car loans shall be calculated as the proportion of loans financing cars complying with the technical screening criteria as laid down in Section 6.5 of Annex I to Climate Delegated Act. This GAR shall include disclosures of transitional activities, and disclosures of stock of loans only for loans granted after [the date of application of this Regulation (EU) No. 2021/2178] and flow of loans. The special lending field cannot be interpreted for this exposure category and is not completed by the Bank in the report. According to the European Commission’s interpretation published in December 2023, the assessment of exposures to households must also be carried out according to the DNSH (do no significant harm) criteria. The Bank is unable to carry out such an assessment for this year’s report due to lack of data. As part of the mandatory report, therefore, only the Taxonomy-eligible category will be presented. By doing so, the Bank will present, as part of the voluntary report, the compliance of its exposures to households with the criteria set out in the technical screening criteria test (as material contributory exposures that do not meet the DNSH condition). Information on the financing of local governments The Bank was unable to identify any exposure to rental housing financing beyond any doubt, so the fields in this category do not contain any data. Based on the interpretation of the legislation, exposures related to other non-rental housing or known green loan purposes must be excluded from both the numerator and denominator of the GAR. Accordingly, all other exposures to local governments are reported under the category “Other assets not included in the GAR calculation” in the Sovereign Entities row. Information relating to collateral obtained by taking possession, residential and commercial real estate For the given exposure class, the methodology used shall contain the gross carrying amount of commercial and residential repossessed real estate collaterals compliant with the technical screening criteria for buildings in Section 7.7 of Annex I to Delegated Act.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 96/200 The denominator shall include the total gross carrying amount of held-for-sale commercial and residential real estate collaterals repossessed by the credit institution. Due to the inconsistencies between Annex V and Annex VI of Regulation No. 2021/2178, the Bank has taken the opportunity to insert rows in Annex VI to ensure consistency with Annex V and by reference to Regulation No. 2022/2453, whereby the relevant rows in the first template of Annex VI of Regulation No. 2021/2178 will be presented as follows: 30 Financing of local governments 31 Housing financing 32 Other local government funding 33 Collateral obtained by taking possession, residential and commercial real estate Findings concerning Annex VI of Regulation No. 2021/2178, worksheet ‘2’ The Bank’s interpretation is that column (a) of the template should contain – in a breakdown by 4-digit NACE code – the core activities of all the Bank’s counterparties that fall within the scope of the NFRD. Findings concerning Annex VI of Regulation No. 2021/2178, worksheet ‘3’ In this template, the Bank has disclosed the GAR KPI for the loan portfolio, which have been calculated for the covered assets on the basis of the data reported in template 1, using the formulae provided in the template published by the Commission. The Bank has duplicated this template for turnover-based and CapEx-based disclosures. Findings concerning Annex VI of Regulation No. 2021/2178, worksheet ‘4’ The Bank has duplicated this template for turnover-based and CapEx-based disclosures. In disclosing information on changes in portfolio, the Bank has reported exposures incurred in the current year. Findings concerning Annex VI of Regulation No. 2021/2178, worksheet ‘5’ In the calculation of the KPIs for off-balance sheet exposures (financial guarantees and assets under management), the Bank has used the data on covered assets provided in Table 1 and the formulas suggested in this table. Exposures for which information was not available in the Bank's systems are not considered and disclosed in this report. Findings concerning Annex XII of Regulation No. 2021/2178 The Bank makes the following disclosures pursuant to Article 8(6) to (7) of Regulation No. 2021/2178: The Bank makes the following disclosures pursuant to Article 8(6) to (7) of Regulation 2021/2178, on the basis of information published by the data owners: Table 1: Nuclear and fossil gas related activities Nuclear energy related activities 1. The undertaking carries out, funds or has exposures to research, development, demonstration and deployment of innovative electricity generation facilities that produce energy from nuclear processes with minimal waste from the fuel cycle. No 2. The undertaking carries out, funds or has exposures to construction and safe operation of new nuclear installations to produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production, as well as their safety upgrades, using best available technologies. Yes 3. The undertaking carries out, funds or has exposures to safe operation of existing nuclear installations that produce electricity or process heat, including for the purposes of district heating or industrial processes such as hydrogen production from nuclear energy, as well as their safety upgrades. Yes Fossil gas related activities 4. The undertaking carries out, funds or has exposures to construction or operation of electricity generation facilities that produce electricity using fossil gaseous fuels. Yes 5. The undertaking carries out, funds or has exposures to construction, refurbishment, and operation of combined heat/cool and power generation facilities using fossil gaseous fuels. Yes 6. The undertaking carries out, funds or has exposures to construction, refurbishment and operation of heat generation facilities that produce heat/cool using fossil gaseous fuels. Yes
BUSINESS REPORT OTP BANK (CONSOLIDATED) 97/200 Table 2: Taxonomy-aligned economic activities (denominator) in HUF million Economic activities A mount and proportion - Turnover A mount and proportion - Capex CCM + CCA Climate change mitigation (CCM) Climate change adaptation (CCA) CCM + CCA Climate change mitigation (CCM) Climate change adaptation (CCA) A mount % A mount % Amount % A mount % A mount % A mount % 1. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0 0% 0 0% 2. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0 0% 0 0% 3. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 4,241.3 0.02% 4,241.3 0.02% 5,831.8 0.02% 5,831.8 0.02% 4. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0 0% 0 0% 5. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0 0% 0 0% 6. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0 0% 0 0% 7. Amount and proportion of other taxonomy-aligned economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI 25,851,399 99.98% 25,849,808 99.98% 8. Total applicable KPI 25,855,640 100% 25,855,640 100%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 98/200 Table 3: Taxonomy-aligned economic activities (numerator) in HUF million Economic activities A mount and proportion - Turnover A mount and proportion - Capex (CCM+CCA) Climate change mitigation (CCM) Climate change adaptation (CCA) CCM + CCA Climate change mitigation (CCM) Climate change adaptation (CCA) A mount % A mount % Amount % A mount % A mount % A mount % 1. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI 0 0% 0 0% 2. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI 0 0% 0 0% 3. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI 3,997.4 32% 3,997.4 5,916.6 25% 5,916.6 4. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI 0 0% 0 0% 5. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI 0 0% 0 0% 6. Amount and proportion of taxonomy-aligned economic activity referred to in Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the numerator of the applicable KPI 0 0% 0 0% 7. Amount and proportion of other taxonomy-aligned economic activities not referred to in rows 1 to 6 above in the numerator of the applicable KPI 8,454 68% 17,564 75% 8. Total amount and proportion of taxonomy-aligned economic activities in the numerator of the applicable KPI 12,451 100% 23,481 100%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 99/200 Table 4: Taxonomy-eligible but not taxonomy-aligned economic activities in HUF million Economic activities A mount and proportion - Turnover A mount and proportion - Capex (CCM+CCA) Climate change mitigation (CCM) Climate change adaptation (CCA) CCM + CCA Climate change mitigation (CCM) Climate change adaptation (CCA) A mount % A mount % Amount % A mount % A mount % A mount % 1. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI - 0% 0 0% 2. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 10.6 0% 10.6 0 0% 3. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI - 0% 0 0% 4. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI - 0% 171.4 0.01% 171.4 5. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 507.2 0.02% 507.2 402.3 0.01% 402.3 6. Amount and proportion of taxonomy-eligible but not taxonomy-aligned economic activity referred to in Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI - 0% 16.4 0% 16.4 7. Amount and proportion of other taxonomy-eligible but not taxonomy-aligned economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI 3,374,915 99.98% 3,389,945 99.98% 8. Total amount and proportion of taxonomy eligible but not taxonomy-aligned economic activities in the denominator of the applicable KPI 3,375,433 100% 3,390,535 100%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 100/200 Table 5: Taxonomy non-eligible economic activities in HUF million Economic activities Turnover Capex A mount Percentage A mount Percentage 1. Amount and proportion of economic activity referred to in row 1 of Template 1 that is taxonomy-non-eligible in accordance with Section 4.26 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0% 0% 2. Amount and proportion of economic activity referred to in row 2 of Template 1 that is taxonomy-non-eligible in accordance with Section 4.27 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0% 0% 3. Amount and proportion of economic activity referred to in row 3 of Template 1 that is taxonomy-non-eligible in accordance with Section 4.28 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0% 0% 4. Amount and proportion of economic activity referred to in row 4 of Template 1 that is taxonomy-non-eligible in accordance with Section 4.29 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 1,708.3 0.01% 1,371.6 0.01% 5. Amount and proportion of economic activity referred to in row 5 of Template 1 that is taxonomy-non-eligible in accordance with Section 4.30 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0% 0% 6. Amount and proportion of economic activity referred to in row 6 of Template 1 that is taxonomy-non-eligible in accordance with Section 4.31 of Annexes I and II to Delegated Regulation 2021/2139 in the denominator of the applicable KPI 0% 0% 7. Amount and proportion of other taxonomy-non-eligible economic activities not referred to in rows 1 to 6 above in the denominator of the applicable KPI 22,478,499 99.99% 22,478,835 99.99% 8. Total amount and proportion of taxonomy-non-eligible economic activities in the denominator of the applicable KPI 22,480,207 100% 22,480,207 100%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 101/200 II. Voluntary report One of the key objectives of OTP Group's ESG strategy is to increase its green portfolio. The stock of green exposures are presented here according the OTP Group's internal green KPI, which reached HUF 656 billion (including the part identified by green assessment but not yet reported in the controlling system, HUF 679 billion) by the end of 2023. Significant part of this portfolio is towards non-financial corporates not subject to NFRD and as well as the financing activities of subsidiaries outside the EU. As part of the voluntary report, the Bank presents the composition of its broader green portfolio, in both the corporate and retail segments. The internal green KPI is based on exposures comply at least one of the following: OTP Group's Green Loan Framework, the OTP Group Sustainable Finance Framework and the MNB's preferential capital requirements program for green municipal, corporate and retail exposures, the also the EU taxonomy. By end of 2023 OTP Green Loan Framework exposures aligned with EU Taxonomy was approximately 3.4 billion Ft. The template below shows the extent to which the exposures in the Bank’s green portfolio are aligned with EU taxonomy requirements. Exposures in the Taxonomy-eligible category also follow use-of-proceeds approach, while the taxonomy-aligned category is reported based on compliance with the technical screening criterion (TSC). For corporate exposures, the assessment is fully in line with the TSC and MS alignment requirements, while for retail exposures, the compliance with DNSH and MS (Minimum Safeguards) has not been assessed. OTP Green Portfolio (CCM + CCA) in HUF million Total gross carrying amount of which aimed at loan purposes relevant to the Taxonomy (Taxonomy-eligible) of which environmentally sustainable (Taxonomy- aligned) Share of Taxonomy- eligible exposures* Share of Taxonomy-aligned exposures* Non-financial undertakings 9,578,080 508,012 3,396 5.30% 0.04% Loans and advances 9,282,028 470,508 3,396 5.07% 0.04% Debt securities 293,211 37,503 12.79% 0.00% Households** 11,722,507 171,234 62,980 1.46% 0.54% of which: loans secured by residential real estate 4,915,444 167,142 58,988 3.40% 1.20% of which: building modernisation loans 127,689 100 - 0.08% 0.00% of which: car loans 446,413 3,992 3,992 0.89% 0.89% Total GAR assets 25,679,052 679,246 66,376 2.65% 0.26% * calculated at the gross carrying amount of the relevant exposure ** DNSH, without MS test The Taxonomy-eligible share of non-financial undertakings relative to gross carrying amount exceeds 5%. A significant proportion of the household exposures in the green portfolio are related to the Hungarian entity, and we expect the green share of the portfolio to increase as data quality improves. The aggregate Taxonomy-eligible share as a proportion of assets included in the GAR calculation exceeds 2.5% while the share of Taxonomy-aligned exposures exceeds 0.25%.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 102/200 III. Independent report by OTP Fund Management Template for the KPI of asset managers Standard template for the disclosure required under Article 8 of Regulation (EU) No. 2020/852 (asset managers) The weighted average value of all the investments that are directed at funding, or are associated with taxonomy-aligned economic activities relative to the value of total assets covered by the KPI, with following weights for investments in undertakings per below: Turnover-based: 1.35% CapEx-based: 1.93% The weighted average value of all the investments that are directed at funding, or are associated with taxonomy-aligned economic activities, with following weights for investments in undertakings per below: Turnover-based: HUF 31,796,128,854 CapEx-based: HUF 22,282,164,194 The percentage of assets covered by the KPI relative to total investments (total AuM). Excluding investments in sovereign entities, coverage ratio: 5.42% The monetary value of assets covered by the KPI. Excluding investments in sovereign entities. Coverage: HUF 89,511,419,370 Additional, complementary disclosures: breakdown of denominator of the KPI The percentage of derivatives relative to total assets covered by the KPI. - The value in monetary amounts of derivatives: - The proportion of exposures to EU financial and non-financial undertakings not subject to Articles 19a and 29a of Directive No. 2013/34/EU over total assets covered by the KPI: For non-financial undertakings: 2.19% For financial undertakings: 14.77% Value of exposures to EU financial and non-financial undertakings not subject to Articles 19a and 29a of Directive No. 2013/34/EU: For non-financial undertakings: HUF 36,108,426,625 For financial undertakings: HUF 243,948,380,249 The proportion of exposures to financial and non-financial undertakings from non-EU countries not subject to Articles 19a and 29a of Directive No. 2013/34/EU over total assets covered by the KPI: For non-financial undertakings: 6.08% For financial undertakings: 5.39% Value of exposures to financial and non-financial undertakings from non-EU countries not subject to Articles 19a and 29a of Directive No. 2013/34/EU: For non-financial undertakings: HUF 100,473,439,807 For financial undertakings: HUF 89,000,990,894 The proportion of exposures to financial and non-financial undertakings subject to Articles 19a and 29a of Directive No. 2013/34/EU over total assets covered by the KPI: For non-financial undertakings: 8.02% For financial undertakings: 49.91% Value of exposures to financial and non-financial undertakings subject to Articles 19a and 29a of Directive No. 2013/34/EU: For non-financial undertakings: HUF 132,484,817,417 For financial undertakings: HUF 824,203,191,271 The proportion of exposures to other counterparties and assets over total assets covered by the KPI: 13.63 % Value of exposures to other counterparties and assets: HUF 225,144,631,767 The value of all the investments that are funding economic activities that are not taxonomy-eligible relative to the value of total assets covered by the KPI: - Value of all the investments that are funding economic activities that are not taxonomy-eligible: - The value of all the investments that are funding taxonomy- eligible economic activities, but not taxonomy-aligned relative to the value of total assets covered by the KPI: - Value of all the investments that are funding Taxonomy-eligible economic activities, but not taxonomy-aligned: - Additional, complementary disclosures: breakdown of numerator of the KPI The proportion of Taxonomy-aligned exposures to financial and non-financial undertakings subject to Articles 19a and 29a of Directive No. 2013/34/EU over total assets covered by the KPI: For non-financial undertakings: Turnover-based: 1.35% Capital expenditures-based: 1.93% For financial undertakings: Turnover-based: - Capital expenditures-based: - Value of Taxonomy-aligned exposures to financial and non- financial undertakings subject to Articles 19a and 29a of Directive No. 2013/34/EU: For non-financial undertakings: Turnover-based: HUF 31,796,128,854 Capital expenditures-based: HUF 22,282,164,194 For financial undertakings: Turnover-based: - Capital expenditures-based: - The proportion of Taxonomy-aligned exposures to other counterparties and assets over total assets covered by the KPI: Turnover-based: - Value of Taxonomy-aligned exposures to other counterparties: Turnover-based: - Capital expenditures-based: -
BUSINESS REPORT OTP BANK (CONSOLIDATED) 103/200 Capital expenditures-based: - Breakdown of the numerator of the KPI per environmental objective Taxonomy-aligned activities: 1. Climate change mitigation Transitional activities Turnover: 0.02% CapEx: 0.13% HUF 346,004,571 HUF 2,091,506,111 Enabling activities: Turnover: 0.08% CapEx: 0.18% HUF 1,360,074,552 HUF 3,008,731,644 2. Climate change adaptation Transitional activities - - Enabling activities: Turnover: 0.02% CapEx: 0.06% HUF 327,518,516 HUF 1,029,909,809
BUSINESS REPORT OTP BANK (CONSOLIDATED) 104/200 Contextual information in support of the quantitative indicators including the scope of assets and activities covered by the KPIs, information on data sources and limitation; The KPI considered covers the equity and bond assets in the funds and portfolios managed by the Fund Manager, but does not include collective investment schemes and investments in government securities, which may represent a significant proportion of certain portfolios, where data are not available. For the various activities in this reporting period, only activities related to climate change mitigation and adaptation to climate change are covered. Further limiting the coverage, the data reporting obligation under Articles 19a and 29a of Directive No. 2013/34/EU only covers a limited number of target companies receiving the Fund Manager’s investments, thus in respect of a significant part of the investments, the Fund Manager and its ESG service provider (MSCI ESG Research) do not have usable data. Explanations of the nature and objectives of Taxonomy-aligned economic activities and the evolution of the Taxonomy-aligned economic activities over time, starting from the second year of implementation, distinguishing between business-related and methodological and data-related elements; OTP Fund Management does not have a general objective in respect of Taxonomy-aligned economic activities that is typical of fund management as a whole, but it does take into account the impact of a particular investment on environmental objectives, in particular GHG emissions, waste and pollutant emissions and water load, when assessing the sustainability of a particular investment. The fund manager has specific environmental objectives for the SFDR funds it manages as follows: OTP Climate Change Fund (OTP Klímaváltozás Alap) The primary objective of the Fund is to mitigate climate change and promote adaptation to climate change. The Fund aims to achieve its objective, in accordance with Article 16 of the Taxonomy Regulation, by investing in companies whose activities, mainly through the products they produce, contribute directly to the activities of other companies making a significant contribution to the fight against climate change. The Fund does not have a sustainability objective, but commits to invest at least 51% of its investments in sustainable investments, within which 10% are Taxonomy-aligned environmentally-sustainable investments. OTP Omega Alapok Alapja (OTP Omega Fund of Funds) The Fund invests in other actively and passively-managed funds in accordance with the fund of funds structure. The research advisor (MSCI) publishes an ESG rating for some funds, but not for others. This depends partly on the business considerations of the ESG consultant, but also partly on the business considerations of the individual fund managers themselves. The Fund does not have a sustainability objective, but commits to invest at least 51% of its investments in sustainable investments, within which it will not invest in Taxonomy-aligned environmentally sustainable investments. OTP Ökotrend Alap (OTP Ecotrend Fund) The Fund seeks to make a commitment to promote environmental features, primarily through its bond portfolio. The Fund plans to invest partly in green government bonds to finance or refinance expenditures that promote the transition to a low-carbon, climate resilient and environmentally sustainable economy. Thus, it falls into one of the six green sectors: renewable energy, energy efficiency, waste and water management, land use and use of living natural resources, clean transport, and adaptation. The Fund does not have a sustainability objective, nor does it have a commitment to a minimum ratio of sustainable investments. Description of the compliance with Regulation (EU) No. 2020/852 in the financial undertaking’s business strategy, product design processes and engagement with clients and counterparties; OTP Fund Management is committed to taking sustainability risks into account in its investment decisions and to continuously increasing the number of SFDR-rated products that invest in a significant share of sustainable investments. For funds and portfolios that have a commitment to sustainable investment under the Taxonomy Regulation, the EU taxonomy DNSH indicators are taken into account in addition to the sustainability indicator calculated by the ESG data provider selected by the Fund Manager (MSCI ESG Research) to determine Taxonomy compliance, in accordance with the commitment of the fund/portfolio concerned.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 105/200 2.4. Other green services Cogo – transaction-based CO2 calculator in the Hungarian mobile bank New Zealand’s Cogo has been selected as a partner of our Bank in 2022 as part of the OTP Startup Booster Programme. As a result of the cooperation, the transaction-based carbon calculator was launched in the domestic mobile bank at the end of summer 2023, which also encourages the reduction of the carbon footprint. Cogo has more than 10 years of experience in sustainability, with several banks using its calculator with proven results. The calculator: – calculates the monthly carbon footprint, – compares it with the Hungarian population average, and – also shows emissions by spending category. To ensure the most accurate operation possible, Hungarian factors are used in the calculation and are reviewed and corrected on a quarterly basis. Cogo also improves the knowledge of users: the interface allows users to become familiar with how the calculator works. In the future, we plan to introduce an ecological footprint calculator for MSE customers. Also in the framework of the 2022 OTP Startup Booster Program, we selected the solution by software company Agremo, with which we started a long-term cooperation. The software uses drone and satellite imagery data to perform yield analysis and forecasts for agricultural areas. The Serbian subsidiary plans to introduce this in 2024. So-called MFB Points have been present in Hungary since 2017 in OTP Bank branches, intermediating the Hungarian Development Bank’s (MFB) products funded by the European Union and MFB itself. In 2023, we operated 167 MFB Points (at 49% of branches), offering both retail and business banking products. In 2023, two loan schemes were available to private individuals, condominiums and housing co-operatives that served an environmental purpose by using renewable energy sources and/or making energy efficiency investments. Three loan schemes were available to companies for the same purposes. In 2023 (due to the deadline for the full closure of the 2014-2020 EU budget cycle), the sale of all loan schemes closed, but disbursements were still made and the portfolio was significant at the end of the year: HUF 31.4 billion in the retail segment and HUF 5.2 billion in the SME segment. The amount of loans disbursed in 2023 was HUF 409 million. Among the products sold at MFB Points, the above loan purposes accounted for 11.4 percent of the portfolio. BG The DSK Mastercard Wildlife Impact Debit Card was available at DSK Bank in 2023 for the second year running. The joint initiative is aimed at protecting endangered animal species from extinction. Upon the issuance of every new card the Bank and Mastercard contributes one dollar to the costs of protecting and restoring natural habitats. The use of recycled and recyclable material for the manufacture of the card results in a 63 percent reduction in emissions in comparison with conventional bank cards. RS The Serbian subsidiary bank also continued its cooperation with the Mastercard Priceless Planet Coalition. The subsidiary bank plants a tree whenever a new account is opened or when the Google Pay or the Apple Pay service is activated for an existing account. Over the past three years, more than 80,000 trees have been planted with the bank’s help. Gamechanger RS Generator (Gamechanger) is the Serbian subsidiary bank’s programme that has been helping local startups for a number of years now. In 2023, the Generator Zero competition launched in the context of the programme again sought for and rewarded specifically innovative climate change mitigating and carbon footprint reducing solutions. In addition to the HUF 6.5 million cash prize, the winner received mentoring and additional prizes from two supporting partner organisations. In 2023, a record 116 entries were received for the competition, which was won by the Fragment board project with its building material made from 73% recycled glass. The Serbian subsidiary bank rewarded the MOSQ-SWITCH team with an opportunity to be featured. Their product is a booth installed in a public space that sprays customers with a mosquito repellent made of natural materials that lasts for three hours. RO The Romanian subsidiary bank continued its programme to support the purchase of tickets for public transport by bank card. In 2023, contactless ticket purchases became available at terminals installed in Timisoara and Satu Mare. The OTP Hungaro-Project helped its customers in drafting applications and in winning grants in 2023 as well. During the year, 90 percent of customers were agricultural businesses. The company submitted 69 grant applications for its customers under the EU Rural Development Programme for irrigation development,
BUSINESS REPORT OTP BANK (CONSOLIDATED) 106/200 at a total cost of HUF 50.4 billion. Under the Factory Saver Scheme, 11 applications were submitted to support energy efficiency and energy production investment projects. Of these, 9 applications (HUF 6 billion in grant amount, total cost of HUF 14 billion) were awarded a grant, and deliberation for two applications were still pending at the end of the year. 2.5. Investments ST1, ST3, ST4: 3-3, TCFD II.a,b, III.a,b,c, IV.a Meeting the growing regulatory requirements for investment funds and investment services is an ongoing challenge. The mandatory publication in 2023 of the Statement on the principal adverse impact of investment decisions on sustainability factors and the expansion of the scope of ESG data for issuers provides an increasingly accurate picture of the sustainability characteristics of funds. The range of responsible funds available to customers has expanded. FN-IB-410a.3. In 2023, the Statement on the principal adverse impact of investment decisions on sustainability factors (also including principal adverse impact indicators) was published for the first time, for both fund managers and portfolio management activity in 2022. These documents are available on the group members’ websites in accordance with the requirements of the SFDR Regulation 17 . In the case of the discretionary portfolio management service, in 2023 we expanded the exclusion rules set as a percentage limit to include the MSCI Overall Flag indicator, in addition to the controversial armament that was already in place. The Overall Flag is a general indicator to assess the overall sustainability performance of a company or investment fund (environmental, social or governance controversial issues). For this service, we also apply so-called cumulative risk limits in relation to ESG. Portfolio managers put together their portfolios making sure that the aggregated weight of the lowest scoring elements from the perspective of sustainability – i.e. those categorised as CCC, B and BB on the 7-grade MSCI scale – is as low as possible. The selection of the funds recommended in the context of investment advice has not changed in 2023, and is based on quantitative and qualitative criteria, including sustainability risk considerations inter alia. Excluded from investment advice are investment funds with high or medium sustainability risks (CCC and B on the MSCI scale). The scope of issuer ESG data is constantly expanding, so the sustainability perception of financial instruments may change without a change in methodology. OTP Fund Management applies a screening system based on an exclusion list to take account of the principal adverse impacts, with limits set for tobacco, gambling, coal mining, weapons, alcohol and authoritarian regimes. Data sources for sectoral limits are Bloomberg, MSCI ESG Manager and MSCI BarraOne. The principal adverse impacts are assessed on a monthly basis, while the ESG limits for the SFDR Article 8 funds are assessed on a weekly basis and are set out in the Sustainability Risk Management Policy. GRI 203-2 The investments of investment funds are selected as described in the funds’ management policies. Some of OTP Alapkezelő’s funds (OTP Közép-Európai Részvény Alap/OTP Central European Equity Fund, OTP Quality Alap/OTP Quality Fund, BUX ETF Alap/BUX ETF Fund) focus their investments specifically on the Central and Eastern European region. Such investments accounted for 1.97 percent of the assets managed at the end of 2023. Responsible investments ST4: 3-3, GRI 201-2 The Banking Group’s fund managers offer a number of ESG funds to their customers. The OTP Group’s four own funds promote environmental and/or social characteristics and are, therefore, Article 8 compliant products according to the SFDR classification. In 2023, OTP Fund Management established the @OTP Ökotrend Hozamvédett Zártvégű Alap (OTP Ecotrend Yield-Guaranteed Closed-End Fund), whose subscription period closed on 27 October. The fund also offered a suitable opportunity for low-risk investors, aiming to benefit from the economic transformation and green transition resulting from the objectives of the transition to renewable resources, with a particular focus on new energy storage solutions, the automotive industry and new transport technologies. The fund gains exposure to companies active in the sector through options, and provides capital protection and fixed returns through interest-bearing instruments. 17 Regulation (EU) No. 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector
BUSINESS REPORT OTP BANK (CONSOLIDATED) 107/200 The previously registered SFDR Article 8 funds of the Banking Group were also available. The aim of OTP Fund Management’s @Klímaváltozás Részvény Alap (Climate Change Equity Fund) is to select equities that may be potential winners or losers of the global climate adaptation process. As of December 2023, at least 70 percent of the final portfolio must be made up of equities of companies that have a good – “sustainable” – ESG rating besides contributing, in our opinion, to the conservation of planet Earth. In the case of @Omega Alapok Alapja (Omega Fund of Funds), the objective is to have SFDR Article 8 or Article 9 funds have at least a 70 percent weight. Again, at least 50 percent of the final portfolio must be made up of equities of companies that have a good – “sustainable” – ESG rating. 18 The number of fund units in circulation of the two open-ended funds decreased in 2023. At the end of 2023, the assets of the OTP Ecotrend Fund amounted to HUF 1.8 billion, the assets of the OTP Climate Change Equity Fund to HUF 29.8 billion and the assets of the OTP Omega Fund of Funds to HUF 36.4 billion. The three ESG funds accounted for 1.71% of OTP Fund Management’s total assets under management. RO The Article 8 investment fund of OTP Asset Management Romania SFDR is the @OTP Innovation Fund. The fund invests in international companies that spend a significant proportion of their revenues on research and development (R&D). The investments are effected in the technological, biotechnological, e-commerce and automotive sectors, to name but a few. The aim is to keep the fund’s aggregate sustainability risk profile low and make sure that at least 85 percent of the portfolio is made up of medium or low sustainability risk elements, which the fund manager measures in terms of the MSCI ratings. The fund applies an exclusion policy as well. The fund’s total asset amounted to HUF 553 million and had nearly 500 investors at the end of 2023. As well as the Banking Group’s own ESG funds, other fund managers’ ESG funds are also available for customers. At the end of 2023, the portfolio of investment funds under Articles 8 and 9 of the SFDR accounted for 2.17 percent of the retail securities account portfolio. In the context of investment advisory activities, the five “green” model portfolios, which meet the most stringent sustainability preferences and are based on the framework set out in the MIFID2 19 framework fitness test, are renewed on a quarterly basis. At renewal, financial products are selected in accordance with the Statement on the principal adverse impact of investment advice on sustainability factors, which is effective as from the beginning of 2023. The proportion of customers opting for “green” model portfolios is still low, and we have not seen an increase in demand in this area. SI Slovenian NKBM offers 29 SFDR Article 8 funds to its customers (managed by Raiffeisen Capital Management, Sava Infond and Triglav Skladi), while SKB offers Amundi funds that promote environmental and/or social objectives. 2.6. Products with social benefits ST1: 3-3 Most of the OTP Group banks offer products aimed at young people and some banks also offer products aimed at the financial needs of the elderly. Several members of OTP Group offer preferential schemes to facilitate housing. The sustainable financial framework identifies the eligible social category exclusively in the segment of loans and credits available for financing and/or refinancing SMEs. Products beyond this target group are also described below. OTP Group offered special preferential products for young people in 9 countries 20 in 2023. At group level, 13% of retail customers (2.2 million customers) are under 26 years old. The selection of products varies from country to country. It includes account packages, savings for children, overdraft facilities, bank cards and student loans. Some subsidiaries offer preferential terms for accounts held for the receipt of scholarships. In 2023, OTP Bank introduced the Student Loan Account, which provides students with preferential account management and banking services. The account can also be opened online. We have extended the discounts for Junior accounts: for those over 14 years of age, there is no charge for mobile or internet bank 18 Based on Bloomberg Industry Classification data 19 DIRECTIVE No. 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive No. 2002/92/EC and Directive No. 2011/61/EU, and the relevant regulations. The test is designed to assess the customer’s financial knowledge, investment objectives, risk-bearing capacity as well as financial situation and income, to help the Bank offer the customer products aligned to these factors. 20 Hungary, Bulgaria, Slovenia, Croatia, Albania, Montenegro, Uzbekistan, Ukraine, Romania, Moldova. The age limit is not 26 for all schemes.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 108/200 transfers, or for group direct debits up to a certain amount, and we have also extended the discounts for university students. We have created the Career Start account package, which offers a preferential account management option for customers aged 18–28. RS The Serbian subsidiary bank has introduced a debit card for 11–18 year olds linked to their parents’ accounts. UZ The Uzbek subsidiary bank offers a preferential loan for BSc and MSc tuition fees, with state subsidisation. For women, the interest on the loan is covered by the state. The loan was taken out by 35,541 people in 2023. RO During the year, the Romanian subsidiary bank expanded the availability of the debit card for the youngest, making it available from the age of 8, with parental supervision. The bank has introduced internet banking and mobile banking for 14–18 year olds, and to encourage students to open an account online, administrative fees are waived up to the age of 25. OTP Bank Romania, with the support of the Szül ő földön magyarul (In Hungarian in the motherland) programme, is offering a dedicated debit card to students studying in Romania in Hungarian language to access scholarships. The programme affects 185,000 young people. The number of pensioner customers typically surpasses that of younger customers at the banks of OTP Group. Special products are available in 6 countries, Bulgaria, Croatia, Serbia, Albania, Montenegro and Ukraine, to meet their needs. No new product/service was introduced in this segment in 2023. Piggy Bank OTP Bank has introduced a new feature on the internet and mobile banking platform to encourage conscious money management and savings. Savings can be put aside in different piggy banks (for different purposes) on an ad hoc basis or on a regular basis. Customers can also assign a target amount and a target date to the piggy banks, making it easy to track where they stand in reaching their target. The scheme is completely flexible, they can withdraw a part of the amount from the piggy bank before reaching the target, or empty the piggy banks completely and the amount is returned to the payment account with just one click. The popularity of the feature is demonstrated by the fact that in the 5th month after its launch, more than 100,000 customers had a Piggy Bank account. Minimum packages are available for customers who require a narrower range of services. Access to basic financial services is provided by such accounts. The Croatian bank offers a preferential package for socially disadvantaged customers. The demand for such basic packages has been rather low for years now; not more than a few hundred customers uses them at any one of our banks. BG DSK Bank provides customers with reduced mobility accounts with debit cards under preferential terms and conditions, which were used by close to 42 thousand customers at the end of the year. Disabled customers can apply for the housing accessibility grant at OTP Bank, which was used by 316 customers in 2023. A state-subsidised loan has been available for couples planning or expecting a child in Hungary for several years. An important feature of the interest-free Childbirth Incentive Loan of up to HUF 10 million is that the debt is assumed by the state in case a minimum of three children are born. The loan was originally planned to be available until the end of 2022 but remained accessible in 2023, and due to the uncertainty of eligibility, we experienced a surge in applications in December 2022 and expected a significantly lower take- up in 2023. This expectation came true: In 2023, we disbursed 41 percent less in loan amounts than in 2022. OTP Bank’s share of disbursements in 2023 was nearly 40%, while its share of the outstanding portfolio was 42%. The share of loans in the volume of retail consumer credit disbursements fell significantly to 28%. Access to real estates, modernisation GRI 203-2 Members of the Banking Group play an important role in the implementation of housing goals primarily through mortgage loans. 21 We provide our customers with predictable loans, taking into account their capacity to bear the costs and helping them to adopt energy-efficient solutions. The number of active housing loans of OTP Group exceeded 500 thousand at the end of 2023, of which the number of new loans was 48 thousand. In addition to Hungary, we provide increased assistance for house purchasing and renovation in Uzbekistan, Bulgaria, Slovenia, Serbia and Croatia. 21 OTP Bank Russia does not offer mortgage loans and nor does this type of service account for much of OTP Bank Ukraine’s operations either.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 109/200 Demand for housing loans in Hungary remained subdued in 2023. Approximately 16 thousand contracts were concluded during the year. The number of active housing loans was 217 thousand 22 at the end of the year, while our market share increased by 0.5 percentage points to 31.3 percent by the end of the year. Throughout the year, there was an interest rate freeze in place, which led us to suspend the sale of mortgage loans with fixed interest rates not until the end of the term, including the market-based Qualified Consumer- friendly Housing Loan (MFL). We introduced a one-off interest rate reduction service for our non-MFL market-based housing loans and general purpose mortgage loans, available from the 121st month. The OTP 1x1 Housing Loan scheme, launched for second-hand home purchase loans, was available with an interest rate reduction of 50 basis points. In 2023, the Home Qualified Consumer-friendly Subsidised Housing Loan was still available, with nearly 6,000 new transactions during the year, worth HUF 57.7 billion in total. The product accounted for 30 percent of all mortgage loans signed in 2023. As in previous years, non-refundable grants were available under the Family Housing Allowance (CSOK) programme, with a total disbursement of HUF 46.8 billion in 2023. During the year, 79% of housing loans taken out with the Hungarian Banking Group were used to purchase second-hand homes, a significantly higher proportion than before; only 8% each were used for construction, extension and new home purchases, and 5% for renovation and modernisation. In 2023, OTP Ingatlanlízing continued to offer a preferential home leasing scheme for customers belonging to the Hungarian Defence Forces. The product was used for 41 new transactions during the year. Several preferential options were also available at the subsidiary banks. SI Both Slovenian subsidiary banks participated in the loan scheme facilitating first home purchases with a state guarantee for young people, which only a few customers had taken advantage of by the end of the year. HR The Croatian subsidiary bank also offered preferential loan terms for the purchase of a first home, with state subsidisation. The rate of interest subsidies were higher in less developed regions. In 2023, approximately 900 loans were disbursed, worth HUF 38.3 billion in total. UZ A state-subsidised housing loan was also available at Ipoteka Bank, with more than 3,500 people taking advantage. UA The Ukrainian subsidiary bank joined the state assistance programme for owners of war-damaged houses. The support can be applied for via the bank’s mobile app and is paid into an OTP Bank account. The service is free of charge. RO The Romanian subsidiary provided mortgage loans with state guarantee to help young people purchase their first homes. Under the scheme, OTP Bank was able to offer loans with a 15 percent higher loan amount, and also linked to this scheme was the possibility of granting preferential loans for A, B or C energy-efficiency category housing. In 2023, 39 loan transactions amounting to HUF 718 million were concluded. More than 80 percent of the new housing loan applications submitted to the Bank in 2023 were for homes with A and B energy-efficiency category. MD The Moldovan bank continued its participation in the First Home programme, where the maturity was extended from 84 months to 300 months. In 2023, the bank disbursed 14 new loans amounting to HUF 164 million. The number of active loans under the preferential scheme was 862 at the end of the year. In Hungary, OTP Bank plays an important role in serving the financial needs of condominiums. At the end of 2023, the number of condominium customers was almost the same as the previous year, at over 39,000. At Group level, the number of condominium customers reached 50,000, with OTP Bank Croatia and CKB having a larger customer base in terms of population. OTP Condominium grant scheme For the 15th time, the parent bank announced its Condominium Grant Campaign, doubling the amount of support compared to the previous year to HUF 30 million. This time, the professional jury selected 15 winners from nearly a thousand entries. The aim of the campaign was to improve the quality of the close environment of condominiums and housing co-operatives and to promote energy-efficient investments in their operation. Of the 15 winning condominiums, 8 were outside of Budapest and 7 in Budapest. The winning rural apartment buildings are equally divided between the Transdanubian and Eastern Hungarian regions. As a new element in 2023, the Bank supported Habitat for Humanity Hungary’s Second Chance Program with HUF 1 million for every 100 valid applications submitted. As a result, we gave the organisation a grant 22 OTP Core and OTP Ingatlanlízing
BUSINESS REPORT OTP BANK (CONSOLIDATED) 110/200 of HUF 10 million, and with this money we have created – through voluntary work – a decent and affordable home for a family with young children who have lost their housing. OTP Bank volunteers also participated in the renovation of the home. Micro, small and medium-sized business customers ST1: 3-3 Micro and small business loan portfolios varied across the group’s banks. There was an outstanding increase of around 20 percent in Croatia, and the portfolio also increased in Montenegro. In several countries – Hungary, Bulgaria, Albania, Romania – the portfolio stagnated. In Slovenia, the overall portfolio increased as a result of the acquisition of NKBM, while SKB’s portfolio decreased year-on-year due to a decline in investment loans that started in the third quarter. The Serbian subsidiary bank saw a slight decrease in portfolio volume. The expected growth did not materialise because the EIF Guarantee Fund (Cosme), which accounts for 60% of the segment’s lending, was exhausted at the beginning of 2023. In addition, as a result of the portfolio re-segmentation, part of the loans have been moved to the medium-sized business category. There were also decreases in the Ukraine, Russia and Moldova. In Hungary, the segment was dominated by products interest-subsidised by the state. In particular, the MAX+ products of the Széchenyi Card Programme were available to micro, small and medium-sized enterprises, providing them with preferential access to the resources necessary for the maintenance and development of their business. We were the first to launch the Széchenyi Card MAX+ product on the market, with a market share of 41%. Energy efficiency investment projects were prioritised in the scheme (see also @2.2). The Baross Gábor Reindustrialisation Loan Scheme also provided preferential funding to companies to offset the negative impacts of the energy crisis and the disruption in international value chains. 23 GRI 203-2 The loan products available through MFB Points (see also @2.4) were also popular among SMEs as a result of the waiver of bank fees. In 2023, due to the funding cycles of EU grants, no new loan products were available, but there was still HUF 168.8 billion in disbursed loans to support the development of businesses. OTP Bank has renewed its pre-financing product for agricultural grants, which was launched in December 2023 and will show results in 2024. OTP Bank’s OTP Business Café online series of events supports the knowledge and skills of small and medium-sized entrepreneurs with useful and inspiring discussions. The event feature a given success story, an inspiring interview about the economic success of the business concerned. The series has been running for 3 years and has around 10,000 subscribers on YouTube. Our subsidiary banks have also worked with a number of public and international institutions to support the SME sector. RS The Serbian subsidiary bank participated in a programme implemented in cooperation between the Ministry of Finance and the Serbian Development Agency (with EU funding), which provides non-refundable grants and loans to small businesses, sole proprietors and cooperatives for the purchase of production equipment or machinery, as well as for energy efficiency and environmental protection developments. In 2023, 12 new loans were disbursed under the facility for a total of HUF 262 million, with a year-end portfolio of 56 loans totalling HUF 993 million. UZ A facility is available with the Uzbek subsidiary bank to provide access to loans on preferential terms with state support to local service sector manufacturers and producers for the overall development of enterprises and the economy and society of the Autonomous Republic of Karakalpakstan. In the framework of the Women Entrepreneurs Programme, the Uzbek subsidiary bank cooperates with the Association for Businesswomen in Uzbekistan, providing training for women entrepreneurs. The training is available in all regions of Uzbekistan and is open to both potential and existing customers. ME CKB participated in the EBRD’s (European Bank for Reconstruction and Development) Regional SME Competitiveness Support Programme, which encourages businesses to meet EU and international standards by offering a preferential scheme to achieve a target in the areas of environmental protection, occupational health and safety, product quality and safety, and energy efficiency. The subsidiary bank has signed a framework agreement for HUF 1.1 billion for the scheme. RO The Romanian subsidiary bank continued to be a partner bank in several schemes to help SMEs and sole proprietors to cope with the aftermath of COVID-19, the energy crisis and the effects of the war between 23 The scheme was also available to large companies.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 111/200 Russia and the Ukraine. The bank has participated in the Start-up Nation and Women in Tech government- supported programmes. For beneficiaries of the programmes, the bank both transfers and pre-finances the grant. In total, 663 SME customers gained access to preferential funding in 2023. UA OTP Bank Ukraine is participating in a joint programme with USAID to reimburse interest on loans to businesses that have been relocated or affected by war, or to micro and small enterprises in critical areas for economic recovery or that are owned by women. MD The Moldovan subsidiary bank had access to the preferential scheme of the IFAD (International Fund for Agricultural Development) Young Entrepreneurs Loan, but it was not used by the bank’s customers in 2023. From 2023, the subsidised loan was made subject to a maximum area size, which the bank’s customers exceeded. OTP Hungaro-Project and OTP Consulting Romania The member companies contributed to the achievement of social goals by preparing applications and providing project management services. In 2023, the OTP Hungaro-Project provided 90% of its services to agricultural enterprises, submitting applications, mainly for environmental projects, as described in Section @2.4. In the social and innovation area, it prepared an application with a total eligible cost of HUF 2.8 billion and a requested grant of HUF 1.4 billion. The application was not evaluated in 2023. The OTP Hungaro-Project also supports the uptake of sustainable activities and related reporting through its ESG consultancy activities. In 2023, the company held ESG training for SMEs at three locations, supported by the Budapest Stock Exchange and funded by the European Union, with the participation of nearly 50 companies, and supported the preparation of the first ESG report of several companies. RO In 2023, the Romanian subsidiary was involved in the implementation of three EU-funded projects started earlier, which aim to promote environmental awareness and the development of vulnerable and disadvantaged local communities through the development of human capital. The two-year AID4NEETs project aimed to help young unemployed people in the north-east and central regions of the country, with a special focus on equal opportunities – minimum criteria were set for Roma, people from rural areas and people from difficult backgrounds. The HUF 1.3 billion project, which concluded in 2023, helped more than 1,000 unemployed young people (NEETs) and supported the creation of 29 businesses. The SIA – Innovative Students, Entrepreneurs of the Future project, and the Innovative Entrepreneurship for Students project also ended in 2023. The projects had a total budget of HUF 764 million (EUR 2 million) each, developed the entrepreneurial skills of at least 700 students and provided non-reimbursable support to 28 start-ups, creating 130 jobs. The projects were implemented in the seven least developed regions of Romania. PortfoLion OTP Group’s venture capital fund manager invests in early, growth and mature stage companies. The company automatically excludes companies with a high ESG risk category from potential investments. The company’s policy for managing sustainability risks is available on the @website. In 2023, the company’s portfolio also included companies whose activities contribute to social or environmental objectives. Coding Giants is a Warsaw-based programming school that teaches the most popular programming languages to 7–19 year-olds using proprietary curriculum. 75 percent of the courses are delivered online. The company is the market leader in Poland, teaching around 15,000 students a year with 550 teachers. From September 2023, training has also started in Spain and Italy. Renewabl enables its corporate customers to monitor their renewable energy consumption 24 hours a day and is working on an end-to-end platform where customers can choose the most appropriate renewable sources for their consumption profile. OTP Social Lab The Bank has been working to establish a radically new business model in 2023. The Social Lab aims to create a business programme that is sustainable and has a positive social impact in the longer term by addressing real social and environmental problems through innovative collaboration. The Bank seeks
BUSINESS REPORT OTP BANK (CONSOLIDATED) 112/200 business solutions by using its relevant local knowledge, ecosystem and network of contacts to work with the community concerned. In 2023, it prepared, in the scope of broader cooperation, a concept that fits OTP Group, is sustainable in the long term, and is meaningful and pervasive for both society and business. It identified its material areas and set up its operational framework. The sustainable business model and related programmes will bring stakeholders together. The support of initiatives and the operation of the OTP Social Lab will commence in 2024. 2.7. Management of ESG risks GRI 201-2, TCFD II.a,b, III.a,b,c, IV.a A separate ESG Programme has been defined within the OTP Group Risk Strategy, prioritising the further development of ESG risk management procedures. Significant progress has been made towards this goal. In the framework of the ESG Risk Management Programme, tasks for the integration of ESG factors have been formulated for the various risk management areas and progress is monitored on a quarterly basis. The Supervisory Board was informed at the end of 2023 about ESG risk management issues, including developments for the identification and assessment of climate change risks. The assessment of the adequacy of ESG risk management is mainly based on compliance with the MNB’s Green Recommendations 24 , on which regularly reporting is made to the Management Committee and the ESG Committee. The Recommendations set out specific expectations for the management of environmental risks. The Bank also monitors the content of the recommendations and guidelines of the European Banking Authority (EBA) and the European Central Bank (ECB). In the case of DSK Bank in Bulgaria and NKBM in Slovenia, the ECB has direct supervisory powers, thus compliance with the EBA/ECB’s framework of expectations is a key focus for these banks in the assessment and management of environmental and climate risks. Supervisory expectations are increasingly ambitious in this area. FN-CB-410a.2, FN-MF-450a.3. The ESG risk management framework for lending and monitoring for the corporate business, already applied at Group level from 2022, was revised in 2023, with the most significant change being the tightening of the methodology for the risk classification of leasing transactions for motorised assets, with specific, stricter categorisation rules for trucks. The policy was incorporated into the Credit Risk Policy of OTP Group concurrently with the revision. The elements of the ESG risk management framework (ESG risk heat map, ESG exclusion list and ESG risk rating system) introduced in the corporate business are applied uniformly across the Banking Group. ESG considerations are reflected in individual corporate lending decisions, and methodologies are continuously developed in line with the evolution of available data and methodologies. In terms of environmental risks, the Bank has started to establish a baseline database based on geospatial data to map physical risks for the assessment of climate risks. This helps to determine the link between the financial data of the borrowing firms and climate risk data. The methodology for assessing physical risks will also be incorporated into the individual corporate lending process. HR Together with the Croatian Banking Association and other banks, the Croatian subsidiary has developed a questionnaire to assess the ESG performance of its customers, which will be applied from 2024. ST9: 3-3, own indicator The ESG exclusion list has not changed in 2023. The list contains activities and behaviours that, due to their disputed nature or effects, cannot be reconciled with the core principles of OTP Group, the protection of human rights and the promotion of sustainable development. Among others, the list includes the following exclusions: • customers whose financing is forbidden in international accords, EU acts or national laws; • customers and transactions who/which violate the legislation of the country concerned or international laws (e.g. illegal arms trade, prohibited gambling, illegal trade of drugs and medicines); • financing in relation to controversial weapons (nuclear, biological or chemical weapons, anti- personnel mines); • manufacturing and trading products that contain PCBs; • trading in specimens of wild animals under the CITES Treaty or in the products made from them. The full exclusion list is set out in the Group’s internal policies. Customers are required, as a minimum, to comply with the relevant and applicable environmental and social laws and regulations and have the permits, licences and authorisations required for their operation. 24 Recommendation No. 10/2022. (VIII.2.) of the National Bank of Hungary (MNB) on climate change and environmental risks and the integration of environmental sustainability aspects in the activities of credit institutions
BUSINESS REPORT OTP BANK (CONSOLIDATED) 113/200 During the corporate credit approval process, the customers’ and the transactions’ ESG risk rating is seen, and taken into account, by the decision maker, in decision making. GRI 2-13, TCFD I.a From 2023 onwards, reports on the Group’s ESG credit risk exposure is provided to the Credit and Limit Committee on a monthly basis and to the Board of Directors on a quarterly basis. Improving data quality and eliminating deficiencies between data systems is ongoing. UZ In 2023, the Uzbek subsidiary bank applied its previously introduced environmental and social risk management system to all corporate loans. The system was developed with experts from the International Finance Corporation (IFC) and follows the IFC’s Environmental and Social Management System (ESMS) methodology. The bank has an ESG risk management policy and regulations in place, as well as an exclusion list, also based on the IFC list. The system has been operational since 2021. As a first step, transactions are screened against an exclusion list and then categorised according to ESG risks in order to determine which ESG assessment needs to be carried out. Following the ESG assessment, the environmental and social conditions of the financing are established and included in the loan contract. Once the contract is signed, the fulfilment of ESG requirements is monitored. The Group has also further developed its ESG lending appetite framework. In addition to the exclusion list, the indicator applied from the beginning of 2023 is to limit the share of new transactions with a high ESG risk rating within new risk exposure by setting a limit. The limit is part of the Risk Appetite Statement for OTP Bank and part of the Corporate Lending Policy for the subsidiary banks in three EU Member States (Bulgaria, Croatia and Slovenia). The utilisation of the limits is back-tested quarterly, as part of internal monitoring. Additional ESG-specific guidelines were incorporated into the 2024 Corporate Lending Policies. In the case of the collateralised commercial real estate, the application of the ESG valuation methodology developed by OTP Jelzálogbank Zrt. was launched in the Hungarian operation in February 2023. Qualification is based on ESG factors. ESG data fields have been created in the bank’s record-keeping system, and their completion is partially automated from information in the state’s Lechner Knowledge Centre database. The methodology is shared with the subsidiary banks on a scheduled basis by incorporating the valuation procedures into the group-wide property valuation guidelines. In the retail sector, ESG risks are most significant for retail loans secured by real estate. In the case of residential property collateral, ESG risk categories (4 categories) have been set up for 2023, taking into account the value of the energy feature. In Hungary, ESG risks are identified on a quarterly basis. This methodology has been added to the Collateral Valuation Regulation, and the extension to subsidiary banks is gradual. Energy certificates are not used in all countries of operation of OTP Group, and the lack of availability is estimated according to a methodology developed within the organisation. GRI 201-2 The second climate change stress test was carried out in 2023 as part of the internal capital adequacy assessment process, with an improved methodology. The stress test (CChSTs) focused on the determination of financial losses due to climate change, and assessed the exposure of OTP Group’s portfolio to physical and transition risks in the long term (until 2050) and the short term (in the next 3 years). The long-term results show that even under the worst-case so-called Hot House scenario, annual losses would increase only modestly (by about 0.15 percentage points of credit exposure) until 2050, compared to the climate-neutral path. There is, of course, a considerable uncertainty factor in these assessments. The OTP Group’s exposure to physical risks is in line with the average exposure of banks in the euro area. This type of risk is higher in two countries: Russia and Romania. The OTP Group’s exposure to transition risks is somewhat higher than that of average banks in the euro area – because of the higher carbon intensity of the economies in the Central and Eastern European region. In the area of the Banking Group’s operations, the economies of Bulgaria and the non-EU member states are significantly more carbon intensive. 25 The short-term analysis shows that transition risks can lead to a credit loss in the corporate portfolio that is about 10 percent higher in the scenario where transition risks become material, compared to the base stress scenario. In terms of market risks, transition risks are not significant (market risks are interpreted in relation to the risks to the Group’s trading portfolio). The third element of the short-term analysis is the operational risk of non-compliance with climate change regulations and other stakeholder expectations. Based on our analysis, this may represent a non-negligible but tolerable reputational loss (~0.15% of total capital). GRI 305-3, 305-5, TCFD II.c, IV.b As a step to mitigate climate risks in preparation for the decarbonisation plan, a second estimate of indirect greenhouse gas emissions for the credit portfolio (Scope 3, Category 15 financed emissions) was produced in 2023. The calculation based on the PCAF (Partnership for Carbon Accounting Financials) Greenhouse Gas Protocol methodology has been refined, and IT development for the integration of customer data and estimation has started. 25 At purchasing power parity, as a proportion of GDP
BUSINESS REPORT OTP BANK (CONSOLIDATED) 114/200 Based on the results, the Banking Group has started to develop a Group-wide decarbonisation strategy, which will be completed by 2025. This is also when we will publish the rate of Scope 3 financed emissions for 2024. The definition of financed emissions completed in 2023 refers to the year-end 2022 group-level portfolio. Four segments were formed as prescribed by the PCAF protocol: corporate loans, retail mortgage loans, commercial real estates and motor vehicle loans. In lieu of adequate guidance, unsecured real estate loans were not included. On the whole, the calculation covers 74.6% of the total loan portfolio. It is important to note that there are serious challenges in the area of data quality, mainly due to the lack of data and inaccuracy; and overcoming these challenges is a priority in the short term. The calculation is the current best available approximate estimate. In 2023, ESG risk management in operational risk has not changed materially, and we have continued to apply the processes we had previously put in place. The Group-wide ESG operational risk tolerance score is monitored on a quarterly basis. The integration of ESG risks has already been implemented in 2021. In the annual process-based risk and control self-assessment, respondents also assess expected losses in the coming year from an ESG relevance perspective, while at the same time assessing less frequent losses in the medium/long term through the estimation of changes. For risks with an expected loss of more than HUF 200 million, the responsible departments must develop measures to mitigate the risks. Loss data are also monitored from the aspect of ESG relevance. To ensure tighter control, we intend to place greater emphasis on the quality of loss data and the monitoring of risk mitigation measures. In 2012, the MNB authorised the partial use of the AMA (Advanced Measurement Approach) methodology for the calculation of the operational risk capital requirement, one of the conditions of which is that an annual scenario analysis is carried out in the assessment of operational risks. For the assessment of low probability but significant impact events, the Group uses scenario analysis – with standardised estimation – to assess the realistic long-term impact of events. The same methodology is applied in the scenario analyses for the parent bank, foreign subsidiaries and Merkantil Bank. In 2023, OTP Bank Ukraine has identified the largest expected loss (financial impact of the occurrence of the risk) among the group members, at HUF 1.8 billion. OTP Bank gave a similar figure. Compared to the previous year, the expected loss value of the climate change scenario increased for the majority of subsidiaries, but was among the 15 to 20 scenarios analysed with small to medium expected losses for the member companies. Business impact analysis and business continuity plans also include consideration of the potential impact of climate change risk.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 115/200 2.8. Portfolio breakdown by sector GRI 2-6, FS6, FN-CB-410a.1 Micro and small enterprises Assets by sector, on-balance sheet exposure to own customers without leasing and consolidation, 31.12.2023 26 Hungary Bulgaria Croatia Slovenia Serbia Albania Montenegro Uzbekistan Russia Ukraine Romania Moldova Agriculture, forestry, fishing 7% 24% 16% 5% 2% 3% 3% 0% 1% 0% 8% 44% Mining, quarrying 0% 0% 0% 0% 0% 0% 1% 0% 0% 0% 0% 0% Manufacturing 9% 12% 7% 19% 23% 15% 13% 0% 8% 0% 10% 11% Electricity, gas, steam and air conditioning supply 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% Water supply; sewerage, waste management and remediation activities 0% 0% 0% 1% 1% 0% 0% 0% 0% 0% 1% 0% Construction 19% 8% 6% 16% 8% 4% 9% 0% 42% 0% 14% 4% Wholesale and retail trade; repair of motor vehicles and motorcycles 29% 29% 9% 18% 37% 33% 35% 0% 23% 2% 34% 26% Transportation and storage 6% 11% 4% 9% 9% 2% 13% 0% 4% 0% 10% 4% Accommodation and food service activities 5% 3% 6% 8% 2% 30% 10% 0% 4% 0% 3% 1% Information, communication 3% 1% 1% 3% 3% 1% 2% 0% 0% 0% 2% 0% Financial and insurance activities 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 3% 1% Real estate activities 9% 2% 1% 1% 0% 2% 2% 0% 1% 0% 1% 2% Professional, scientific and technical activities 5% 3% 3% 9% 5% 1% 6% 0% 5% 0% 6% 2% Administrative and support service activities 5% 2% 44% 3% 2% 2% 3% 0% 11% 0% 3% 1% Public administration and defence; compulsory social security 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Training 0% 0% 1% 1% 1% 1% 0% 0% 0% 0% 1% 0% Human health and social work activities 1% 3% 2% 2% 1% 3% 0% 0% 0% 0% 3% 2% Arts, entertainment and recreation 1% 0% 1% 2% 0% 0% 0% 0% 1% 0% 0% 0% Other services 1% 1% 1% 2% 1% 4% 2% 0% 1% 0% 1% 0% Activities of households as employers; undifferentiated goods for own use 0% 0% 0% 0% 0% 0% 0% 0% 0% 57% 0% 0% Not classified 0% 0% 0% 0% 6% 0% 1% 100% 0% 40% 0% 1% Total (HUF billions) 578.2 92.2 70.2 54.7 52.7 29.5 6.9 224.8 0.6 0.9 24.8 10.5 26 The table includes data for sectors with a share of more than 0.5 percent. As a result and due to rounding, not all columns sum to 100%. Industrial classification is according to UN (ISIC) classification. The size of the company is according to the current legal classification.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 116/200 Medium and large enterprises Assets by sector, on-balance sheet exposure to own customers without leasing and consolidation, 31.12.2023 27 Hungary Bulgaria Croatia Slovenia Serbia Albania Montenegro Uzbekistan Russia Ukraine Romania Moldova Agriculture, forestry, fishing 6% 3% 4% 1% 6% 2% 1% 0% 0% 21% 18% 8% Mining, quarrying 0% 0% 0% 0% 6% 2% 0% 0% 0% 0% 0% 0% Manufacturing 8% 22% 16% 27% 21% 11% 4% 0% 22% 28% 12% 17% Electricity, gas, steam and air conditioning supply 4% 19% 14% 5% 15% 16% 0% 0% 0% 0% 3% 0% Water supply; sewerage, waste management and remediation activities 0% 1% 2% 1% 0% 0% 0% 0% 4% 0% 1% 0% Construction 4% 4% 13% 6% 7% 15% 10% 0% 20% 0% 12% 1% Wholesale and retail trade; repair of motor vehicles and motorcycles 9% 15% 14% 13% 18% 29% 29% 0% 30% 42% 15% 44% Transportation and storage 2% 4% 5% 5% 5% 1% 3% 0% 0% 4% 5% 3% Accommodation and food service activities 3% 4% 8% 2% 1% 7% 21% 0% 0% 0% 4% 0% Information, communication 0% 4% 3% 3% 7% 4% 0% 0% 0% 0% 1% 5% Financial and insurance activities 34% 9% 2% 15% 0% 1% 1% 0% 2% 0% 8% 7% Real estate activities 15% 11% 3% 6% 7% 1% 2% 0% 23% 4% 17% 4% Professional, scientific and technical activities 3% 2% 4% 7% 1% 0% 1% 0% 0% 0% 1% 0% Administrative and support service activities 1% 0% 1% 1% 1% 1% 2% 0% 0% 0% 1% 0% Public administration and defence; compulsory social security 3% 2% 9% 3% 5% 0% 26% 0% 0% 0% 2% 2% Training 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% Human health and social work activities 0% 0% 1% 2% 0% 4% 0% 0% 0% 0% 1% 8% Arts, entertainment and recreation 0% 0% 0% 1% 0% 0% 0% 0% 0% 0% 1% 0% Other services 4% 0% 0% 0% 0% 5% 0% 0% 0% 0% 0% 0% Not classified 1% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% Total (HUF billions) 3,376.8 1,427.8 900.5 1,244.8 956.0 186.9 230.9 188.7 30.2 236.7 550.6 75.3 The environmental and social risks of economic activities are defined for Level 4 NACE codes. All activities within the Mining sector group are high risk. In the case of the activities involved in Real Estate Activities, Administrative and Support Services, Human Health and Social Work Activities and Other Services, the highest consolidated environmental and social risk rating is medium. Professional, Scientific and Technical activities are low-risk activities. The risk rating of activities in the rest of the sector groups ranges from low to high. Exposure calculations are not based on Schedule RC-C and Schedule RC-I, and the classification is not in line with the NAICS classification. 27 The table includes data for sectors with a share of more than 0.5 percent. As a result and due to rounding, not all columns sum to 100%. Industrial classification is according to UN (ISIC) classification. The size of the company is according to the current legal classification.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 117/200 3. FINANCIAL WELFARE, RESPONSIBLE CUSTOMER SERVICE This chapter presents the activities related to the following material topics, which are discussed at multiple places within the chapter: ST6: GRI 3-3 Financial welfare: Impacts: With its products and service provision methods, the Banking Group can contribute to the financial welfare of its clients and enable them to make the responsible financial decisions best suited to their particular life situations. The group’s practices influence the extent to which responsible cash handling options are available or unavailable to customers in different financial and social circumstances. Financial products and services are often complex, and the information provided by the Banking Group is essential to understanding them. This material topic supports the achievement of the following SDGs: Engagement: We are committed to promoting our customers’ financial welfare and we offer them products that are aligned with their real needs and possibilities. We always aim to make sure that our communication and customer service is fair, clear and straightforward. Our objectives are also presented in our @Responsible Marketing Policy and @Consumer Protection Compliance Program. Acts: Designing ethical and fair products Transparent and understandable product structure Providing tools and knowledge to enable good financial decisions, offering educational videos and calculators Continually enhancing our responsible marketing communication practices Highly visible information in plain language Thorough exploration of customer situations and requirements Responsible sales, product offers Stakeholder cooperation: We carry out preliminary research on the practices we intend to introduce, often running pilots to test them. We regularly carry out customer satisfaction surveys. We conduct mystery shopping to check compliance with the requirements. Our clients can report inappropriate practices in our complaints handling system (see @4.3); all complaints are investigated and the customer is always informed of the outcome of the investigation. We are on the lookout for opportunities to work with NGOs to promote responsible practices (e.g. Advertising Self-Regulatory Board, banking associations). ST5: GRI 3-3 Equal opportunities in accessing financial services: Impacts: Access to financial services is a prerequisite for financial wellbeing. Positive social/economic impacts can be achieved only if disadvantaged groups are also able to manage their finances, with reasonable effort, through the digital channels, bank branches or ATMs available. This material topic supports the achievement of the following SDGs: Engagement: To ensure equal opportunities and promote the principles of social solidarity, it is also crucial that the bank’s services be accessible, that disadvantaged people also have access to the basic functions required for managing their finances and, to the extent possible, are able to borrow as well. We impose strict conditions on the use of our services, both for the stability of the Banking Group and in the interests of our clients.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 118/200 Acts: Expanding online services Maintaining the option of personal customer service, strengthening the advisory function Developing accessibility for disabled Products available to vulnerable groups as well (see Chapter 2.6) Stakeholder engagement/compliance: We carry out preliminary research on the practices we intend to introduce, often running pilots to test them. We conduct mystery shopping to check compliance with accessible customer service requirements. We look for opportunities to work with NGOs to promote responsible practices. Details of activities relating to material topics are presented in the following pages, along with their outcomes and how their effectiveness is assessed. For more details on our principles and overall objectives, please visit @our website. 3.1 Responsible communication and sales ST6: 3-3 Responsible communication takes many forms on many levels within the Banking Group. Information and communication about banking products and services is a highly regulated area in most countries where OTP Group operates. Regulations tend to require providers to make a wide range of information available. Responsible communication means complying with such rules while also using clear language and raising awareness. Clear communication is a priority for us at all times. To this end, all new employees of OTP Bank’s Marketing and Communication Directorate attend in-house training on the subject; after their initial training, they receive regular further and refresher training and share best practices, which is intended to ensure that such best practices are applied at all times. The Tone of Voice manual, in which the use of plain language is prescribed as a basic goal and requirement, is available across the Group. The manual contains templates and guidance on advertising, websites and social media communication. We have started to measure what our clients think about clear communication and how their view is changing. The parent bank and several subsidiaries improved their information and communication practices during the year.  In order to make our customer communications more transparent and help service users in their planning, OTP Bank introduced in 2023 a practice of announcing 30 days in advance all IT system shutdowns that meet the definition of bank holiday; the information is provided to clients on our website and on the signature pads in branches.  We updated our internal regulations and our branch data systems by standardizing the range of services available in the branches, and we also modified their wording to make external communications clearer.  At the end of 2023 we relaunched the website where we explain the services available at ATMs; all ATM services are presented in detail, and short video summaries are provided about the more complex services.  The website also offers answers to our clients’ frequently asked questions (FAQs) related to complaint handling.  The branch locator on the Bank’s website is to be revamped in early 2024 so that it can return more precise results and present a clear, filterable view of services and other information, including on accessibility.  Videos and screenshots available on the Bank’s regularly updated IBMB Guide page help clients use the new internet and mobile banking features.  The savings pages of the Bank’s website are constantly being updated, also enhancing client focus; the investment fund search function has also been updated. SI NKBM of Slovenia has a dedicated website to inform its clients about what to consider before taking out a loan; it also provides useful information on what to do after borrowing. HR The Croatian subsidiary has continued to review its communication practices and solutions to achieve simpler language, clearer structures and easier navigation. The Bank tries to use colloquial language at all times and communicate in a more personal, customer-centric way. In 2023 the subsidiary continued to prioritise the promotion of the packages and products intended for students. In compliance with the
BUSINESS REPORT OTP BANK (CONSOLIDATED) 119/200 requirements formulated by the Croatian National Bank, the subsidiary discloses the potential risks of the products in their descriptions. RS The Serbian subsidiary modified its text message communication practices in order to provide clearer information; it rewrote all language that could have been misleading for clients due to the use of banking jargon. ME CKB also worked on improving the content of its text messages to ensure clearer and more straightforward communication. The bank intensified its product communications via Viber, also drawing clients’ attention to the important changes. UA In 2023 the Ukrainian subsidiary again faced a number of crises due to the war. It adopted a crisis response policy and, in order to provide timely and transparent information to clients, within two hours of any incident the bank publishes information on its website and on social media regarding shutdowns or errors in the bank’s core system, products or services. RO OTP Bank Romania modified its mortgage loan application guide to educate its clients, presenting the benefits of a more energy-efficient home and encouraging greener choices. OTP Group works to ensure that the products it offers and sells to its customers are aligned with their life situations and needs, and help them achieve their financial goals. Remuneration criteria and incentives are adapted to the local markets, they are not uniform across the Banking Group. None of the members of the Banking Group introduced material changes to their sales processes. DSK Bank launched a new incentive scheme. All front office staff in branches that perform above the NPS target 28 receive a fixed bonus. Improving financial awareness regarding banking services In addition to informing clients responsibly, we promote responsible cash handling in a number of other ways, providing a more comprehensive knowledge and understanding of banking services and offering features that help clients achieve stability in their finances. Animated videos on data security have been added to the OTP Knowledge Bank YouTube channel; these videos explain in plain terms how financial products and services work. The third video had more than 1 million views, while the first two videos had nearly 700,000 views each. We believe that these outstanding viewing figures demonstrate the importance of this topic and the wide reach of the videos. During the year, a total of 14 general financial education videos were available, supplemented with videos specifically presenting OTP Bank’s services. In 2023 the general-content videos were viewed a total of 1.99 million times; films on subjects other than phishing were viewed 260,000 times. The next step: Our research shows that young people’s cash handling habits are shaped by the role models in their families; however, parents are often unaware of this fact and try to avoid speaking about money in front of their children. Because of the importance of this topic, we have put family role models at the heart of a campaign we launched in November 2023. Three short clips were produced by the end of the year, showing how the families of three online media personalities manage their money and how they involve the children as well. At the end of each video useful tips are offered by experts (a psychologist, a banking specialist, the head of education at the OTP Fáy András Foundation). The videos direct visitors to the page @akovetkezolepes.hu, which is a new financial awareness website of OTP Bank. The website offers parents and anyone else interested in financial education a wide range of clear and structured practical information on good money management practices. We launched a series entitled Finance Made Easy in cooperation with RTL Online and the Bank360 online platform. In the videos, experts from OTP Bank and Bank360 discuss and suggest solutions to financial issues that arise in typical life situations. Short films were produced about a variety of topics such as when and what financial products can be of use for children, and how to track income and expenditures in a convenient and more purposeful way. The video series was launched at the end of 2023 and will continue in 2024 as well, covering the subjects of equal opportunities and charitable donations. While the financial situations presented in the videos are generic, we do recommend specific OTP products in our communications promoting them. In an important outcome resulting from our cooperation with Cogo, a carbon calculator is now available in the Personal Finance Manager module of OTP Bank’s mobile banking app (see also @2.4). We have added this feature in order to encourage customers to make financially as well as environmentally sound decisions. 28 Net Promoter Score - a measure of customer satisfaction
BUSINESS REPORT OTP BANK (CONSOLIDATED) 120/200 BG DSK Bank implemented a joint initiative with the largest media group in Bulgaria (Net Info). In the “Your Money” programme, 10 videos and a series of online articles were created, delving into the most important aspects of banks, the banking system and money. Videos were produced with titles such as “Why do banks exist?”, “How to get a loan” and “What is a POS?”. The bank also shares informative content on its social media platforms about banking products in general, and has started a “Financial Tuesday” series on LinkedIn, where it also shares useful information about the banking system and its products and services. SI In Slovenia, NKBM and SKB joined forces to improve financial literacy. The focus of their activities in 2023 was to promote the 50:30:20 rule, which makes it easier to reach financial goals. The principle behind this rule is to spend 50% of your income on basic needs and household expenses, 30% on leisure activities and 20% on savings. This and other useful ways to save money are demonstrated in six animated films based on the life of a fictional Slovenian family. The videos showed, for example, how to plan monthly expenses, how to save for future goals or retirement, and how to become financially independent. These stories from the life of the Bogataj family can be viewed on both banks’ websites, social media channels and other digital channels, and a dedicated website has also been created. SKB has set up a webpage for posting educational videos that help clients improve their awareness in how they manage their personal finances. The bank continued its #Nevergiveup motivational campaign in 2023; in this campaign, it communicates messages and challenges to the customers. Throughout the year, the focus has been on healthy exercise and sporting careers; the bank also put out a message at the time of the natural disaster in August, encouraging people to help and volunteer. RS The Serbian subsidiary enhanced the My Finance feature available in its mobile banking service and allowing retail clients to split their savings and set target dates for their goals. AL Each month the Albanian subsidiary publishes financial planning and education news and posts financial challenges and games on its social media platforms. In 2023 the bank ran several campaigns to promote environmental awareness and the use of recyclable materials. MD Our Moldovan subsidiary also promoted environmental awareness across society, raising awareness on several occasions of how to consume in rational ways and why reuse and recycling are important. 3.2 Debtor protection ST1, ST6: 3-3 A number of conditions need to be met – from a correct assessment of possibilities through the Bank’s prudent risk management to an adequate regulatory environment – for borrowing to actually be the way forward for our clients. In addition to implementing these, OTP Group also considers it a key objective to offer solutions to distressed debtors. The interest rate freeze introduced in Hungary in order to reduce the credit risk of customers continued in 2023. That aim is also served by the Qualified Consumer-Friendly Housing Loans (MFL) scheme. By the end of 2023 the share of MFL loans had increased to 60 percent of all personal loans granted by OTP Bank. In real estate loans, the interest rate moratorium led us to stop selling loans that do not have a fixed interest rate until the end of the term; we offered only Family Housing Allowance loans, which have consumer- friendly classification. Debtor protection programmes are available across the Group; compared to the total loan portfolio, only a small number of debtors make use of these schemes. In 2023 we introduced several changes to prevent the non-performance of loans. We produced training videos and simplified and extended our communications in order to help distressed clients find out about the options available to them. A video about solutions for payment difficulties was posted on our Knowledge Bank channel described in the previous chapter. Together with our foreign subsidiary banks, we reviewed our processes related to debt protection programmes, the options available to clients, and the effectiveness and operation of the programmes. While the overall proposal describing the opportunities for improvement will be finalised only in 2024, our Russian, Ukrainian and Slovenian subsidiaries were already expanding their debtor protection options in 2023. SI Following the floods in Slovenia, our Slovenian subsidiary banks offered their clients a moratorium on loan payments. Whenever clients are in arrears, OTP Bank immediately contacts them; after all, the chances for settlement decrease as the amounts in arrears increase. Debtors in arrears have several options, such as extending their repayment period, reducing their repayments or capitalizing the amount in arrears. We recommend repayment insurance to our customers.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 121/200 In 2023 Merkantil Bank shared an information video on its website, in which it explains the debt settlement options available to clients in arrears. At OTP Bank the number of people resorting to debt protection schemes increased significantly during 2023, reaching almost 15,000 by the end of the year (up from around 10,000 at its beginning). The total amount of these loans almost doubled, to HUF 24 billion. Clients in arrears with their overdraft payments represent the largest proportion of debtors in debt protection programmes, while the steepest rate of increase was measured in housing loans. We believe that the increase in the number of participants in the programme is attributable mainly to the economic environment, the rising cost of living. Total restructured loans at our foreign subsidiaries amounted to HUF 411 billion, of which non-performing exposures represented HUF 218 billion. 1 more than 90 days overdue 3.3 Customer satisfaction GRI 2-29 Feedback from customers is a priority for OTP Group both in terms of overall satisfaction and our customers’ views on our new services. The satisfaction of our retail clients is measured with the standard TRI*M method across the Group, which some of the member companies supplement with the NPS or the SQM methodology. TRI*M gauges the overall satisfaction and loyalty of our own customers as well as customers of all of our major competitors, along with the main factors for satisfaction. Information is also analysed by customer segment (e.g. career starters, juniors, premium customers). We perform one measurement per year per country on a representative 29 sample of 1,000 persons. In some countries the survey covers retail as well as corporate clients; however, the results presented apply to the retail segment in each case. OTP Bank’s customer retention score was 57 30 in 2023, down nine points year-on-year. Satisfaction varied among competitors, with two showing improvement and two a worsening trend. The average TRI*M value of competitors was 68 points. OTP Bank is perceived more favourably by Junior customers and higher earners. Customers consider the Bank better than its competitors in terms of access to branches and ATMs. In addition to the general aspects of banking (e.g. price, respect, product and service offering, clear information), the second most important factor for customer satisfaction and loyalty is security and reliability. 29 Based on distribution by age, sex, education, municipality type, region. Data was collected online in Hungary, Croatia, Serbia and Slovenia. Personal interviews were conducted in the rest of the countries. 30 The TRI*M score can range between -66 and 134 points. Own indicator Share of overdue loans in the retail and MSE segments 1 (31.12.2023) OTP Core OTP Group Mortgage loan HUF 72 billion 4.0% HUF 122 billion 2.0% Consumer loan HUF 79 billion 5.0% HUF 274 billion 5.5% MSE loans HUF 38 billion 6.8% HUF 87 billion 6.1%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 122/200 Satisfaction with OTP Group member banks increased in Croatia and Serbia 31 , even as the sector average tended to decrease in the countries surveyed. The customer retention rate of OTP Group banks remains above the peer average in Slovenia (SKB Bank), Serbia, Albania and Montenegro. The Bulgarian subsidiary achieved the highest level of satisfaction. Overall satisfaction with banks is still well above the regional average in Bulgaria. In Moldova we performed below our competitors due to the change in the bank’s name and the fact that the OTP Bank brand is not yet sufficiently established there. The performance of the Ukrainian subsidiary is significantly affected by the fact that OTP is a second bank for most clients there. Similarly to other smaller banks in that country, our customer retention is lower than that of the main banks. The war does not affect the bank’s image. SI NKBM of Slovenia also uses the Net Promoter Score method to measure the satisfaction of customers in general terms and also with specific service channels, and to assess the opinions of the different customer segments. The overall result in the retail business line was 19 points 32 (a good result, two points higher than in the previous year), while the NPS for branches was 91 and for digital channels it stood at 78. The bank also uses other methods to measure satisfaction, for example by looking at opinions on different products and segments. RU The Russian subsidiary also uses the NPS methodology. In 2023 NPS stood at 23, 4 points up year-on- year. In 2023 the subsidiary bank also used CSI 33 methodology to measure customer satisfaction; the result was good, a score of 8.1 on a scale of 1 to 10. The performance of the subsidiary is significantly influenced by the fact that its product portfolio is focused on consumer loans and it therefore tends to be the second bank of its customers. OTP Bank measures Service Quality Management (SQM) for retail and SME clients by conducting online surveys 34 . In 2023 service quality increased and was again outstanding. Achieving 90% in the retail segment and 95% for business customers, it exceeded its targets in both segments. SI SKB of Slovenia uses the same methodology to assess customer service. In 2023 satisfaction with in- branch services was 96 percent, contact centre satisfaction was 90 percent, and satisfaction with electronic channels (e-mail, website) was 82 percent. BG In addition to TRI*M, DSK Bank also uses the NPS indicator to measure the experience of customers visiting its branches. In 2023 its NPS continued the positive trend of the previous year, rising to a level above 80 points. 31 There were no surveys conducted in Moldova and Ukraine in 2022 and in Romania in 2023. 32 On a scale of -100 to +100 33 Customer Satisfaction Index 34 All branches are measured either on a semi-annual or on a quarterly basis. The number of questionnaires depends on the frequency of transactions in the preceding period. 69 66 57 91 72 64 71 84 86 89 30 51 77 72 68 94 70 70 77 82 82 88 37 84 -66 -46 -26 -6 14 34 54 74 94 114 134 Hungary, 2021 Hungary, 2022 Hungary, 2023 Bulgaria Slovenia (SKB Bank) Slovenia (NKBM) Croatia Serbia Albania Montenegro Ukraine Moldova TRI*M, 2023 OTP Group Member Sectoral average
BUSINESS REPORT OTP BANK (CONSOLIDATED) 123/200 3.4 Accessibility of financial services ST5: 3-3 Providing a wide range of services tailored to customer needs is a priority for our Banking Group. We are constantly expanding our customer service methods and functions, and work on explaining to our clients the wide range of options available to them for managing their finances. Our customers typically welcome the introduction of new possibilities and regard them as positive developments. Remote access through digital channels The expansion of digital channels is a persistent, long-term trend. The Group’s objective is to broaden the range of products that are partly or fully digitally accessible, making sure that the processes are accessible as conveniently, and for as many customers, as possible. The Banking Group also prioritises the sharing of knowledge on how to use on-line channels, thereby also encouraging their use. Over 2 million retail banking customers of OTP Bank were digitally active at the end of 2023, and the proportion of digital-only customers has also been increasing steadily. In 2023 we again developed and launched several new digital features. The Piggy Bank feature helps our customers improve their financial awareness and achieve their savings goals, while the Bill Splitter functionality allows our clients to easily share a bill, for instance when dining out with friends. SI In Slovenia, NKBM made several of its services available to clients electronically in 2023. These include managing an investment portfolio, changing card limits and managing text message notifications. The bank improved the process of applying for consumer loans combined with insurance, introduced Google Wallet and developed an electronic signature process for the micro- and premium segments, as a result of which certain documents can now be signed without visiting a branch. The subsidiary also offers a video banking service, which was used by 300 to 400 clients per month in 2023. RS At the end of the year the Serbian subsidiary introduced the option of opening bank accounts via video chat. The bank also introduced a chatbot to automate the responses to customer queries on the website. Feedback from customers has been positive. RO The Romanian subsidiary now supports Apple Pay for customers with a Visa debit card. MD A new mobile banking application was launched by the Moldovan subsidiary. Logins are easier and faster in the app, which is more customer-friendly to use. In-branch and ATM service OTP Group also serves its customers through its extensive network of branches and ATMs. It had more than 1,500 branches as of the end of 2023 (@Headcount and other figures 35 ). Many financial transactions are more convenient and faster to transact on electronic channels, therefore the role of branches and ATMs is changing. While a slight reduction in their numbers is a typical trend everywhere, branches remain an important channel for serving customers. There functions are also constantly being expanded and their services are being adapted to the needs of customers. GRI FS13 The Banking Group has the largest branch and ATM network in Bulgaria and Montenegro and very extensive networks in Hungary, Slovenia and Serbia. In 2023 there was a significant number of branch closures only in Russia; the overall number of branches in the Banking Group increased due to acquisitions. NKBM of Slovenia had 65 branches and Ipoteka of Uzbekistan had 162 at the end of 2023. OTP Bank also operates a dedicated innovation branch, where we continuously seek and test innovations to simplify and digitize processes so that, on the basis of the feedback received from our customers, we can provide services that are even better aligned with client requirements. In 2023 the employees of our innovation branch played an active role in judging an in-house competition of ideas for greening the operations of OTP Bank; some of the ideas will be put into practice during the revamping of the branch network. Our focus points in our branch services include the continuous improvement of quality standards, providing advisory services based on the customer’s need, and solving complex banking issues. The aim is to build long-term relationships based on trust through serving our clients. One of the main aims of the ongoing branch renovations is to create a more comfortable, ergonomic and discreet environment. The Client Oriented Programme aims to achieve this. At selected branches, digital education for clients was treated as a priority in order to encourage them to carry out routine transactions using electronic channels. In the same 35 In addition, OTP Pénzügyi Pont and OTP Ingatlanpont have 6 and 30 customer service points, respectively, and Merkantil Bank has one bank branch.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 124/200 programme, we also increased the frequency of customers being served by dedicated advisors; this is facilitated by a redesign of the queue management system, which has made appointment scheduling easier. The results of the changes are very positive, with the average service time for cash payments of up to HUF 1 million reduced by around 30 percent, to 4.1 minutes, and branch waiting time reduced to 6.5 minutes. Several members of the Group prioritised the development of more efficient branch operating practices, including a reduction in waiting times. We aim to serve our customers within 10 minutes in 80% of cases. Around half of all group members met this target during the year. Our Croatian subsidiary saw a significant increase in branch traffic in the first months of the year due to the introduction of the euro in 2023; while this resulted in longer waiting times, by the second quarter more than 70% of customers had to wait for no more than 10 minutes. The Montenegrin and Serbian subsidiaries started to measure waiting times, which in itself improved the results. Our Montenegrin bank also reorganised its branch processes and centralized the servicing of large corporate clients. In order to provide greater confidentiality (an important consideration for customers), the parent bank started to roll out to its nationwide branch network the use of ambient music. This is to make sure that customers do not overhear what is being said and also feel more relaxed while waiting. Customers interested in taking out real estate loans had access to OTP Bank’s remote expert system at 117 smaller branches in 2023. With the help of this system, the residents of micro-regions can receive high-quality services at our branches as they can consult with our well-trained and highly experienced specialists via videophone. Through the branch video banking service, customers can contact branch employees remotely, from their homes. SI SKB worked with property agencies to set up a network of outsourced mortgage lending experts, who can assist borrowers effectively in the process of buying real estate as they are closer and more accessible to customers. UZ RU In Russia, self-service terminals are available in all branches for banking transactions, while the Uzbek subsidiary bank now offers digital internet banking to its corporate clients. BG SI RS RO Advisory functions are the priority for cashless branches, the number of which is constantly rising. In 2023 the number of cashless branches reached 28 at group level, with 16 cashless branches in Hungary, 5 in Bulgaria, 3 in Serbia, and 2 each in Slovenia and Romania. Cash transactions can be executed in such branches at the smart ATMs provided. In addition to electronic channels, ATMs now play an increasingly important role in routine financial transactions. The number of ATMs has increased as a result of acquisitions. SI Since March 2023 clients have been able to withdraw cash and check their balances free of charge using their Visa or corporate debit cards at the ATMs of NKBM and SKB in Slovenia. Since July clients have also been able to withdraw cash with their Visa debit cards free of charge from OTP Bank ATMs. The Banking Group is continuously and dynamically increasing the number and proportion of cash-in ATMs, which provide a wide variety of other financial services besides accepting cash deposits. In 2023 Hungary achieved the target of having at least one ATM in every bank branch where clients can both withdraw and deposit cash; the total number of such machines reached 425 by the end of the year. The amount deposited at ATMs is growing dynamically, up 19% in 2023 compared to a year earlier. The increase in the number of cash-in ATMs continued at several subsidiaries; more than 1,100 (~20%) such machines were available to clients across the Group. GRI 3-3, FS13 Owing to its extensive branch network, OTP Group provides substantial access to in-person financial transacting for the populations of disadvantaged regions in several countries. Nevertheless, these regions have a lower concentration of bank branches and ATMs. Only some of the members of the Banking Group have information on how our competitors perform in these regions. 36 The Croatian subsidiary has fewer access points in both disadvantaged and non-disadvantaged areas than its competitors. The networks of our Serbian and Russian banks offer very similar coverage to the competitors. Our Ukrainian bank has two branches located in regions with low population density; these branches also have the special function of serving clients from the Hungarian minority. Formerly a state-owned bank, the subsidiary in Uzbekistan is present in all regions of the country and, in a comparison with its competitors, its ATM network is denser than its branch network. 36 No disadvantaged regions can be identified in Bulgaria and Slovenia.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 125/200 Access points in disadvantaged regions¹ Branch ATM OTP Bank – Hungary² Number of access points (as a % of the total number of access points) 63 (18%) 194 (10%) Number of new access points (as a % of all new ones) 0 (0%) 12 (15%) Number of terminated access points (as a % of total terminated) 4 (29%) 5 (7%) Change from the previous yea r -6% 4% DSK Bank – Bulgaria N/A – there are no disadvantaged regions defined OTP Bank Slovenia (SKB + NKBM) N/A – there are no disadvantaged regions defined OTP Bank Croatia Number of access points (as a % of the total number of access points) 19 (18%) 28 (6%) Number of new access points (as a % of all new ones) 0 N/A 1 (4%) Number of terminated access points (as a % of total terminated) 1 (25%) 1 (7%) Change from the previous year % -5% 0% OTP Bank Serbia Number of access points (as a % of the total number of access points) 8 (5%) 39 (14%) Number of new access points (as a % of all new ones) 0 N/A 0 (0%) Number of terminated access points (as a % of total terminated) 0 N/A 10 (200%) Change from the previous year % 0% -7% OTP Bank Albania N/A – there are no disadvantaged regions defined CKB – Montenegro⁴ Number of access points (as a % of the total number of access points) 0 (0%) 15 (13%) Number of new access points (as a % of all new ones) 0 N/A 0 (0%) Number of terminated access points (as a % of total terminated) 0 (0%) 0 (0%) Change from the previous year % N/A 650% Ipoteka Bank - Uzbekistan Number of access points (as a % of the total number of access points) 0 (0%) 0 (0%) Number of new access points (as a % of all new ones) 0 (0%) 0 (0%) Number of terminated access points (as a % of total terminated) 0 (0%) 0 N/A Change from the previous yea r N/A N/A OTP Bank Russia Number of access points (as a % of the total number of access points) 42 (6%) 5 (3%) Number of new access points (as a % of all new ones) 0 N/A 0 (0%) Number of terminated access points (as a % of total terminated) 0 (12%) 3 (18%) Change from the previous year % 0% -38% OTP Bank Ukraine Number of access points (as a % of the total number of access points) 2 (3%) 25 (15%) Number of new access points (as a % of all new ones) 0 N/A 7 (32%) Number of terminated access points (as a % of total terminated) 0 (0%) 1 (17%) Change from the previous year % 0% N/A OTP Bank Romania Number of access points (as a % of the total number of access points) 42 (44%) 49 (31%) Number of new access points (as a % of all new ones) 0 N/A 1 (33%) Number of terminated access points (as a % of total terminated) 0 (0%) 0 (0%) Change from the previous yea r 0% 2% OTP Bank Moldova Number of access points (as a % of the total number of access points) 5 (9%) 18 (12%) Number of new access points (as a % of all new ones) 0 N/A 7 (18%) Number of terminated access points (as a % of total terminated) 0 N/A 3 (9%) Change from the previous year % 0% 29% ¹ Sub-regions and districts defined as such under the laws of each country, determined according to social and demographic indicators, and indicators related to housing and living conditions, the local economy and labour market, infrastructure and the environment. ² At this time, the branches/offices of OTP Ingatlanpont, OTP Pénzügyi Pont, OTP Merkantil and OTP Faktoring are not present in disadvantaged regions. 3.5 Accessible customer service ST5: 3-3 We seek to provide equal access for persons living with disability through services adapted to their special needs. In Hungary we have launched a dedicated project in preparation for the new Accessibility Act, which is to enter into force in 2025. OTP Bank reviewed its complex accessibility for disabled strategy in 2023. In a project launched to comply with the Accessibility Act, we assessed the prevailing conditions and identified the needs for improvement in 2023. There is greater need for improvement on our electronic channels, but investments are also needed in the branch network. Starting in 2023, we formulated and published our recommendations to the entire Banking Group on how to improve accessibility across all digital and physical channels and all disability groups. Our accessibility survey conducted in 2022 provided a solid basis for this accessibility for disabled project, in terms of both the physical network and digital accessibility for disabled. We organised a digital accessibility
BUSINESS REPORT OTP BANK (CONSOLIDATED) 126/200 for disabled convention in 2023 in order to raise awareness among our colleagues and lay the groundwork for accessible services. At our service planning day for employees, our staff had the opportunity to experience an accessible adventure park. We also plan to cover the topic of accessibility for disabled and equal opportunities in a video within our Finance Made Easy series (see @3.1). RU The Russian subsidiary bank revised its training on how to serve disabled persons. In 2023 we offered the following accessibility for disabled tools to the clients we served. To assist customers with reduced mobility: • Physical accessibility for disabled is provided in all branches in Hungary, with one exception 37 . In Slovenia, all but three branches are accessible. With the exception of the Serbian and Albanian subsidiaries, more than 50% of the branches at our subsidiaries are wheelchair accessible. 77% of the branches of the Banking Group are accessible. • We also strive to make ATMs wheelchair accessible. As of the end of 2023, 46% of the ATMs of the Banking Group were accessible 38 . • The OTP Bank website supports one-handed use. We assist our blind and visually impaired customers as follows: • There is a tactile push button on the branch ticket dispenser at every branch of OTP Bank Hungary and the Croatian and Russian subsidiaries. The push button allows visually impaired customers to signal their arrival. At group level, 62% of queue management systems have a push button. A tactile strip helps locate the push button and navigation is assisted with Braille signs. • Tactile guide strips are available in 179 OTP Bank branches, while all of our Russian branches have a tactile sign at the entrance. • At group level, nearly half of all ATMs are Braille-enabled. Text-to-speech software is installed at 1121 ATMs of OTP Bank (60% of the total), and 39% of the Moldovan subsidiary’s ATMs provide audio support. We assist our hearing impaired customers as follows: • In Hungary, KONTAKT Interpreter Services can be used by customers in 167 branches; this service enables a sign language interpreter to assist with administrative tasks in the branch through live video chat. Utilisation of the service was still low in 2023. These interpreting services are available in 24 branches of the Serbian subsidiary bank. • An induction loop (signal amplifier) is available for clients using a hearing aid at 118 branches of the parent bank, 11 branches in Croatia and at the Merkantil Bank branch. • 11 major branches of OTP Bank and 29 branches of the Serbian subsidiary have colleagues trained in sign language. As a result of the accessibility for disabled improvement project, all OTP Bank branches will have laptops for video interpreting services as well as tactile guide strips for the blind. Digital accessibility for disabled is widely available at OTP Bank, Merkantil Bank, OTP Pénzügyi Pont, OTP Jelzálogbank and OTP Lakástakarékpénztár. The Web Content Accessibility Guidelines – WCAG 2.1 “A” level recommendations – were taken into account in the design, development and content editing of the websites in order to enable navigation with alternative devices and the use of text-to-speech software. Due to the technology used to develop them, the websites of the subsidiaries OTP Ingatlanpont, OTP Alapkezelő, OTP Egészségpénztár and OTP Faktoring already provide some accessibility features; when these websites are due for an update, accessibility criteria will be fully taken into account already in the design stage. The website of OTP Ingatlan Befektetési Alapkezelő Zrt. was under development as of the end of 2023; its new website will satisfy accessibility for disabled criteria. OTP Bank continues developing and adding accessible parts and components to its mobile application (on both Android and iOS) and to its internet banking site. The OTP Pension Fund website is accessible for blind and partially sighted people, while the OTP Travel and PortfoLion websites and mobile apps have certain accessibility features for blind and partially sighted people. 37 Accessibility for disabled is not feasible at this branch due to the listed building regulations and the characteristics of the building and its environment (there is a significant height difference between street level and the branch floor level, which are connected by stairs). 38 The collection of this information started in 2023, and data were not available for all subsidiary banks.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 127/200 Digital accessibility for disabled at foreign subsidiary banks was partially implemented during 2023, as follows. HR The Omoguru widget (mini app) operates on the website of our Croatian subsidiary; it helps customers suffering from dyslexia and reading difficulties understand the content of the website. The InternetBank and the MobileBank services include functions facilitating access for visually impaired users. BG, SI, RS, UZ DSK Bank’s website is accessible for visually impaired users. The website and InternetBank of the Slovenian subsidiary does not support automatic display changes, making it easier to understanding the content. At the Serbian subsidiary accessibility is focused on the mobile banking application; the basic features have been adapted to support text-to-speech and speech synthesis. For the time being, speech synthesis is limited to English. On the Uzbek bank’s website visually impaired people can opt for a black and white version and increase font size; there is also the possibility to have text read out automatically in certain scenarios. RU The Russian subsidiary helps mentally handicapped people via the chat function and has simplified the language of its information leaflets, to which it has also added easy-to-read diagrams. There are notes in Russian made available to persons who have difficulty absorbing visual information. These options are provided on the website, in internet banking and mobile banking.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 128/200 4. ETHICAL BUSINESS PRACTICE Details of activities relating to material topics are presented in the following pages, along with their outcomes and how their effectiveness is assessed. ST7: GRI 3-3 Compliance: Impacts: Through our practices we influence the reliability of the financial sector, the ethical and moral standards of our employees, and the prevalence of (financial) crime in general. The greater our weight on the market of a country, the greater the impact we may have; nevertheless, even where we are smaller players, we may have a pull effect through the good practices we implement. This material topic supports the achievement of the following SDGs: Engagement: We are committed to utmost compliance with the laws and to operating ethically. Preventing corruption and money laundering is important to us and we act with circumspection and take all the necessary steps when investigating potential breaches. We deal with customer complaints fully, quickly and fairly. An extract from our @Compliance Policy, our @Complaints Policy, @Anti-Corruption Policy, our @Code of Ethics and related documents, and the @Human Rights Declaration are available on our website. Acts: Operating a network of compliance officers, continuous training of staff Further enhancements to our internal communications about changes in relevant legislation Minimum compliance standards and policies for all members of the Group Operation and development of the sanctions pre-screening function Complex, multi-channel compliance knowledge and awareness development for employees Revising the Code of Ethics and operating a whistleblowing system; delivering the related training and information Comprehensive anti-corruption programme and anti-corruption clause Revision of the Gift Policy Regular and individual conflict-of-interest checks More centralized pre-qualification of suppliers Fair complaints handling Stakeholder cooperation: Cooperation with financial control/supervisory/audit bodies and authorities, and the police in relation to the prevention and detection of crime. Complaint management, and cooperation with the Financial Arbitration Board. GRI 418: 3-3 Customer data and information security: Impacts: The secure processing of data also affects our customers’ financial welfare and may also have repercussions for the general levels of financial crime. By protecting the personal data of our clients, we respect their privacy. This material topic supports the achievement of the following SDGs: Engagement: Data protection and the protection and confidential processing of the personal data of customers are a basic and indispensable condition for the reliability of the Banking Group. Our goal is to protect the data of our clients and our IT systems as best as possible and prevent incidents. Our @Data Protection Policy available on our website.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 129/200 Acts: Internal cyber security audits Security awareness raising among customers/residents and employees Continuous development of security systems and work processes, training of our employees Inclusion of stakeholders We cooperate with, among others, the National Police Headquarters (ORFK), ELTE University, and the banking associations of some countries. We use a range of tools and platforms to promote security awareness among our customers and staff. Details of activities relating to material topics are presented in the following pages, along with their outcomes and how their effectiveness is assessed. For our core principles and comprehensive objectives relating to compliance 39 and security, see @our website). 4.1 Compliance and adherence to laws and regulations We consider it a fundamental principle that the law, international standards and norms and ethical requirements must be adhered to. The purpose of the compliance function is to identify and manage compliance risks 40 . The compliance role is performed by the Compliance Directorate. It works with a focus on the control and management of compliance risks associated with data protection, consumer protection, ethics, conflicts of interest, sanctions, money laundering and the capital markets. In 2023 OTP Bank merged its Data Protection and Consumer Protection departments. Their closer cooperation allows us to give more concerted attention to queries from clients and the authorities alike. A further aim is to ensure that data protection and consumer protection considerations are given ever greater priority when introducing products and developing processes. GRI 2-13 Our group-wide compliance policy demands that we place emphasis at all times on preventing compliance risks from becoming a reality. When an action or incident constituting a breach nevertheless occurs, we take appropriate and effective measures in order to address it. We are operating a group-wide compliance officer network. The Head of Compliance reports on compliance quarterly to the Bank’s Board of Directors, and annually to its Supervisory Board. In 2023 the relevant Hungarian subsidiaries implemented both the Legislation Monitoring Policy and the Competition Law Compliance Procedure. As regards the latter, competition law training will be provided to the management and staff of subsidiaries in 2024, and the centralized competition law training for foreign group members will also be developed. In order to respond quickly to changes in legislation, the Bank notifies all its regulation officers whenever a summary of changes in legislation is published. We are constantly on the lookout for information on opportunities and technical innovations that can make our operations more automated and fully compliant. This remains a goal for us in 2024 as well. We are constantly monitoring EU regulations and the changes taking place in the regulatory environment (including the recommendations of the European Banking Authority (EBA), the European Securities Market Authority (ESMA), the European Central Bank (ECB)) and examining and analysing all legislation applicable to the operations of the Bank and/or the Banking Group. We also monitor EU employment legislation and produce monthly/quarterly reports on the most important news regarding EU lawmaking that may have implications for the Banking Group in terms of capital markets, capital requirements and resolution matters. We produce weekly English-language briefings on changes to EU law in order to improve our compliance with legislation. Our foreign subsidiaries are expected to meet the same group-wide minimum compliance standards. These minimum standards are regularly communicated to the subsidiaries in a priority order. There is now consistency across the Group in terms of consumer protection, capital market compliance, data protection, conflicts of interest, ethics, sanctions provisions and compliance governance. In 2023 we reviewed how the minimum standards issued so far are applied in practice across the Banking Group. In the area of governance, we contributed to the drafting of a Corporate Governance Manual for banks, based on certain supervisory requirements (the MNB’s Green Recommendation, the EBA Guidelines on 39 Compliance with legislative requirements and international norms and standards on ethical business conduct 40 Compliance risk is the risk of potential legal consequences, supervisory or other official sanctions, significant financial losses or reputational damage due to a failure to adhere to legislation or other non-legislative standards and internal rules applicable to financial organisations.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 130/200 internal governance); the Manual is intended to ensure (among other things) better compliance with ESG regulatory requirements. In capital market compliance a number of small improvements were made to combat insider trading and enhance market monitoring and the oversight of personal transactions. In 2023 the personal transaction reporting practices of employees involved in investment service activities were audited. As a result of this audit, there was a demonstrable further improvement in compliance awareness. In 2024 we will review our internal regulation on capital markets compliance and update and automate capital markets compliance processes. We have further strengthened our sanctions pre-screening. Having switched from World-Check Online to World-Check One, the entire Banking Group now has access to a wider database and screening criteria when carrying out the simplified identification of sanctioned and high-risk corporate clients; this has strengthened our first line of defence further. An in-house collection of questions and answers (FAQs) about sanctions was developed for guidance purposes, intended primarily for the corporate business line. In 2023 we revised our sanctions policy, which now allows for a more sophisticated risk assessment (four-tier risk rating). The new rules will enter into force in early 2024. The practical application of the compliance checklist for the detection of sanction risks is now being monitored at the subsidiaries in order to ascertain whether they comply with the relevant expectations of the Group. During the compliance risk assessment performed annually in two separate cycles, we did not identify any high risks that would require Group-level action in 2023. The assessment of ethical and corruption risks is also part of the risk assessment process. The result of the assessment is forwarded to the Group Operational Risk Management Committee and it is also a part of the annual Compliance Report. Where high-risk areas are identified, we expect the relevant functional areas to draft and implement action plans. The compliance risk assessment system is supported by an IT application. Enhancing compliance awareness GRI 2-15 Training the employees – based on identical principles across the Banking Group – is one of the key elements of enhancing compliance awareness. The training of the employees is monitored and where deficiencies are identified, arrangements are made to update or transfer knowledge, as necessary. Special training courses are also provided on a continuous basis with a focus on specific compliance topics. Mandatory compliance trainings at OTP Bank: • Compliance orientation material – Content: compliance function and organisation, ethics and conflicts of interest, personal transactions, market abuse, “Chinese wall” rules – Timing: a mandatory requirement for every newly hired employee when they come on board. • Compliance I. training material – Content: compliance risks and policy, Code of Ethics, non- discrimination and conflicts of interest, forms of insider trading and market abuse – Timing: annual refresher for all staff • Consumer protection training – Content: main rules and their application, damage to reputation, customer loss, avoidance of consumer protection fines – Timing: annual refresher for all staff • Data protection training – Content: the importance of data protection, data protection organisation at the Bank, processing of personal data, data impairment – Timing: annual refresher for all staff • High-risk transactions – Content: transactions under sanctions and sensitive transactions – Timing: annual refresher for staff concerned The compulsory training courses are followed by tests in which a score of at least 70% is required. Failure to complete the training may – after several warnings – result in consequences under the labour law. Compliance awareness raising was organised by the parent bank and delivered in the following channels: • A series of articles on the internal communication platform: in 2023, these articles focused on the Code of Ethics, conflicts of interest, gift policies and whistleblowing. • Newsletters for the Compliance Officer Network. • Compliance Officers’ Forum: IT platform with important information, training materials and newsletters. • Compliance Officers’ Professional Conference: annual professional training. • Two international compliance conferences for the top compliance officers of foreign subsidiary banks. • Training on the use of the sanctions screening system, money laundering, sanctions-related and sensitive transactions, and data protection. • Study visits for employees of subsidiary banks for the purposes of mutual knowledge sharing. • Consumer protection workshop for compliance officers of the Budapest region to assess the problems and risks identified by them. In addition to the above, the subsidiary banks implemented several measures of their own:
BUSINESS REPORT OTP BANK (CONSOLIDATED) 131/200 BG The Bulgarian subsidiary bank expanded its network of compliance officers in 2023. It delivered general and targeted compliance training courses on subjects including sanctions, conflicts of interest and data protection. SI In Slovenia, SKB Bank organised a comprehensive campaign about whistleblowing. At NKBM, compliance staff visited the branches. HR The Croatian subsidiary organised a whistleblowing campaign to promote ethical behaviour and compliance with the Code of Ethics. AL Following the merger with Alpha Bank, the Albanian subsidiary restructured its compliance department in 2023. All employees declared whether they had any conflicts of interest arising from the merger. The 43 conflicts of interest declared were analysed and recommendations for solutions were made to the employees concerned and their superiors. Compliance staff received more training on sanctions and embargoes; this was followed by further development efforts and awareness-raising campaigns in several relevant departments of the organisation. Campaigns and training courses were held on the subjects of whistleblowing, ethics and gifts. ME In Montenegro, training was provided on topics such as data protection, sanctions, ethics, conflict of interest, etc. Regular one-to-one training sessions were introduced for new hires. RO The Romanian subsidiary introduced internal consumer protection training and tightened control over consumer protection content in the complaint handling process. MD In Moldova a new whistleblowing channel was introduced and business ethics training was delivered. Code of Ethics and reporting of ethical offences GRI 2-23, 2-24 The basics and principles of ethical business conduct is summarized in the @Code of Ethics. Our Code of Ethics was significantly revised in 2023 through a restructuring of its content. A new chapter summarizes what is expected of employees in terms of ethical conduct, and a separate chapter sets out the business ethics commitments of OTP Group. A separate document was created to summarize the external guidelines, legislation and internal documents applicable to the Code. We also created our group-wide @Partner Code of Ethics, the purpose of which is to provide clear and unambiguous guidelines and expectations on ethical business conduct for those who enter into a business relationship with OTP Group. OTP Group aims to ensure that all its suppliers, business partners, agents and other contractual partners undertake to comply with the provisions of the Partner Code of Ethics (or equivalent own regulations) by accepting the General Terms and Conditions, which form an integral part of the contract with the OTP Group member; alternatively, they may make this commitment under a separate clause within their contract or in a declaration of acceptance. The foreign subsidiary banks and the relevant subsidiaries in Hungary started the implementation of the Codes in 2023. The mandatory compliance training course was updated with additional questions on the new sections of the Code of Ethics and the Partner Code of Ethics, and all employees were informed of the changes in newsletters. GRI 205-2, 2-15 All new employees, executive officers and sales agents are required to sign the Code of Ethics to familiarize themselves with it and to accept it. Some members of OTP Group run dedicated training courses about the Code of Ethics. Completing this course is mandatory for new hires and sales agents within a certain time limit of starting to work for us. The Code of Ethics, the reporting of ethical breaches and legal infringements, and the issue of conflicts of interest are all included in the compulsory annual compliance training. GRI 2-26 Every bank of the OTP Group operates a whistleblowing system. The conditions for filing whistleblowing reports and the relevant contact information are provided in the Codes of Ethics, which are published on the banks’ websites, or in the accompanying documents detailing the reporting procedures. On the parent bank’s website, detailed information is provided in a dedicated document entitled @OTP Bank Plc’s whistleblowing system. Whistleblowing reports may be made anonymously as well. A new group-wide online whistleblowing platform was also developed and tested in 2023; it will be launched in 2024 and may be used to report to OTP Bank Plc., its subsidiary banks and the relevant subsidiaries in Hungary. Reports received by complaint management regarding matters of relevance to the Code of Ethics or the Bank as a whole are transferred to the Ethics Department on the basis of a separate rule. The Banking Group received a total of 180 notifications in 2023 via its whistleblowing hotlines. Together with cases carried over from previous years, a total of 176 reports were closed, of which only 60 cases were categorised as ethical issues. We found 24 cases of ethical offense, of which eight occurred at OTP Bank, seven at DSK Bank, one at the Albanian, three at the Uzbek and two at the Russian subsidiary bank; three took place at Merkantil Group.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 132/200 The Code of Ethics prohibits all forms of discrimination. The Bank is making efforts to create a working environment in which individual differences are accepted and appreciated. Any negative discrimination based on a person’s actual or perceived characteristics or traits is prohibited. GRI 406-1 Four reports relating to discrimination were submitted to OTP Bank and one each to DSK Bank and the Moldovan subsidiary. All six cases were investigated and one of them (at OTP Bank) was substantiated. It involved an employee who had committed an ethical offense by using discriminatory language in an internal letter. GRI 410-1 Training on the Code of Ethics, including requirements pertaining to human rights. 84% of security guards, who are either employed or subcontracted by the Banking Group, have received training on the Code of Ethics. 73 percent of the security personnel engaged through subcontractors received such training across the Group. Training coverage has been complete at OTP Bank and its Bulgarian, Serbian, Albanian, Ukrainian and Moldovan subsidiaries. There is no training for outsourced employees at SKB Bank in Slovenia and at the subsidiaries in Uzbekistan, Russia and Romania. At NKBM of Slovenia and the Croatian and Montenegrin subsidiary banks, some but not all security guards employed through subcontractors attended such training in 2023. Anti-corruption activities OTP Group is committed to combating corruption and has declared zero tolerance towards all forms of bribery and the gaining of unfair advantages. Our Compliance Policy includes our @Anti-Corruption Policy. The policy is also available on the group member companies’ websites. The policy lays down the principles of the Group’s anti-corruption activity, identifies the areas particularly exposed to the risk of corruption and serves as a core document for the formulation of the regulatory documents required for the Banking Group’s anti-corruption efforts and for the anti-corruption activity of the employees concerned. The basic principles and provisions laid down in the policy are applicable across the whole of the organisation of each group member, fully covering all facets of their operations from the drafting of their internal regulatory documents, to the contracts to be concluded with their partners, to all actions of every individual employee, in all of the activities of the group members. The scope of the policy covers all employees and contracted partners of the group members as well as all other persons participating in the performance of their activities in any way. We launched a comprehensive anti-corruption programme in 2023 We drew up an action plan to identify what activities and areas should be inspected on a risk basis. Implementation of the programme has started and will continue in 2024. We produced an anti-corruption clause, which stipulates that our partners must always report if they become subject to corruption proceedings and that OTP Bank will have the right to terminate the contract in such a case. In addition, partners must explicitly state that they will not use the money received from the Bank for corruption. The clause was added first to the Corporate Business Rules, which the Bank’s partners must sign off on when they conclude a contract with us. In 2024 this clause will also be added to the General Contracting Terms and Conditions for suppliers. Derogations from the clause may be allowed only in exceptional and justified cases (and subject to informing Compliance), at the sole discretion and under the risk and responsibility of the contracting organisation. When the Code of Ethics was revised, a Gifts Policy was added as a new annex; this Policy sets out the detailed rules on business gifts and invitations. We imposed a lower cap on gifts, linking it to the definition in the Income Tax Act on what constitutes a small gift in terms of value (HUF 23,200 in 2023). Our foreign subsidiary banks also linked their caps on gift value to the applicable legislative provisions, if any. All countries have values similar to the one applicable in Hungary. A change was introduced to the way gifts handed over in the customer area should be reported, with the aim of increasing the willingness to report such instances. Invitations to events must always be reported to Compliance, and the department will decide on its acceptability. Since 2023 OTP Bank has been sending out transparency information to partners invited by it to a certain subset of events (selected based on value and/or type of event). GRI 205-2 OTP Bank’s Code of Ethics also defines and prohibits all activities involving, or relating to, corruption and lays down rules relating to gifts. The annual compliance training, which is mandatory for all employees, also covers corruption via the Code of Ethics. Each year the members of the managing bodies sign off on the Code of Ethics, i.e. they are fully informed. They do not receive training. All of our tied agents and suppliers were given information on our Code of Ethics at the time of contracting, which may have taken place in 2023 or in prior years. About 98 percent of contractual partners (~15,240 agents, ~21,560 suppliers) were provided with information on the relevant
BUSINESS REPORT OTP BANK (CONSOLIDATED) 133/200 provisions of the Code of Ethics and the Anti-Corruption Policy during the year – either directly or on the websites of OTP Bank and its subsidiaries 41 . GRI 205-1 Corruption risk assessment was carried out as part of the compliance risk assessment process in the Banking Group, with one exception: at NKBM 42 , risk assessment was carried out using an earlier system. There was no risk assessment at Ipoteka Bank. We assessed corruption risks in 459 (69%) of the Banking Group’s 666 organisational units. No significant corruption risks were identified in the risk assessment process. GRI 205-3 The Banking Group was not subject to any public lawsuits relating to corruption in 2023. There were two confirmed corruption incidents, one at OTP Bank and one in Merkantil Group. A branch employee of OTP Bank reported that she had received chocolates and small cash gifts on 5 occasions from a lawyer she regularly recommended to clients. An ethics procedure was launched and it established that ethical misconduct had taken place. At Merkantil Bank, a trader received indirectly from one of the bank’s partners some of the commission paid to that partner by the Bank. In both cases we took the necessary action and dismissed or sanctioned the employees involved. Lobbying It is through industry bodies, predominantly the Hungarian Banking Association and the Association of Investment Service Providers that OTP Bank participates in the reviewing of legislation concerning the financial sector and coordinating that review process. It also takes part in the work of the Corporate Governance Committee of the Budapest Stock Exchange. In 2023 the Bank registered in the EU Transparency Register, which shows what and whose interests the various organisations lobby for at EU level, and also provides information on the financial and human resources dedicated to these purposes. In 2023 we participated in, among other things, the drafting of the Hungarian ESG Bill, which is to implement the Corporate Sustainability Reporting Directive. Foreign subsidiaries are also members of local banking associations, while our Croatian subsidiary participated in public consultations organised by advocacy organisations. Since June 2023 the CEO of the Ukrainian subsidiary bank has served as Chairman of the Board of Directors of the Ukrainian Independent Banking Association. Supplier qualification Suppliers are pre-qualified by OTP Bank if the value of the procurement is expected to exceed a gross amount of HUF 1 million or, in the case of IT procurements, HUF 3.6 million. This pre-qualification system requires that the supplier has no public debts and that it complies with statutory requirements regarding health, security and environmental protection. Sanctions screening was integrated in the qualification process in relation to the war in Ukraine. In 2023 the pre-qualification process was centralized with IT support at 15 Hungarian subsidiaries. Extensive pre-qualification systems are also in place at DSK Bank, NKBM and SKB Bank, and OTP Bank Albania. Since 2022 NKBM has expected its suppliers to complete a separate ESG questionnaire. The minimum pre-qualification standard for other subsidiary banks was revised in 2023 and a group-wide policy was established. From 2024 onwards, our foreign subsidiary banks will be required to pre-qualify suppliers whose contract exceeds the sum of EUR 10,000. Ipoteka will apply the minimum standard from 2024. GRI 2-6, 205-2 The procurements of the OTP Group are related primarily to making sure that the requisites for the performance and sale of services are available. OTP Bank’s procurement policy declares the requirement of responsible and ethical conduct on the part of suppliers (see above, Anti-corruption activities). OTP Bank worked with 4,394 suppliers in 2023, whereas OTP Group had around 22,000 suppliers. The procurement strategy assigns special significance to sustainability considerations. The aim is to maintain business relations only with suppliers and entrepreneurs that undertake environmental and social responsibility in compliance with Hungarian and international treaties, standards and laws. The environmental aspects of procurements are listed in the Bank’s Environmental Policy. Details on our procurement principles are available on @our website. 41 A few small subsidiaries do not have websites. 42 Corruption risks were assessed among subsidiaries subject to consolidated supervision with OTP Bank Plc., covered by the group governance function of OTP Bank Plc’s Compliance Directorate.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 134/200 Proceedings by authorities, and other legal procedures GRI 2-27 There were 3 major 43 cases dealt with by the authorities/legal cases involving the Banking Group in 2023:  The MNB imposed a HUF 49 million fine on OTP Bank for shortcomings identified in its anti-money laundering and terrorist financing activities. Weaknesses were identified in relation to the reporting of suspected money laundering transactions, the internal control and information system and monitoring activities, risk assessment, customer due diligence practices, risk mitigation measures and money laundering prevention training.  The MNB carried out a comprehensive audit of the OTP National Voluntary Health and Mutual Fund. The audit found several deficiencies and a fine of HUF 9.5 million was imposed.  The Russian subsidiary bank paid fines totaling HUF 62.5 million for 148 cases of inadequate communication with debtors (interactions without consent, exceeding the permitted frequency of interactions, misleading communication). GRI 2-27, 206-1, 417-2, 417-3 Closed proceedings by authorities, and other legal procedures, fines paid, 2023 OTP Bank OTP Group All closed cases All cases closed with fines Fine paid Fine charged for practice applied in 2023 Fine charged for practice applied in earlier periods All closed cases All cases closed with fines Fine paid Fine charged for practice applied in 2023 Fine charged for practice applied in earlier periods No. of items HUF million No. of items HUF million violation of competition rules 1 0 0 0 0 0 2 2 1.5 0.7 0.7 violation of consumer protection rules 30 25 13.8 13.8 0 232 42 28.7 22.3 6.4 violation of rules on equal opportunity (not under the labour law) 0 0 0 0 0 1 0 0 0 0 supervisory procedures 6 4 64.4 58.4 6.0 214 155 144.4 128.1 16.4 violation of IT security / Cyber security rules 0 0 0 0 0 0 0 0 0 0 violation of taxation rules 2 0 0 0 0 5 0 0 0 0 violation of environmental rules 0 0 0 0 0 3 0 0 0 0 violation of marketing communication rules 0 0 0 0 0 1 1 0.3 0.3 0 violation of information provision rules 1 1 0.4 0.4 0 1 1 0.4 0.4 0 violation of data protection rules 4 1 10.0 10.0 0 20 5 11.1 10.1 1.1 violation of labour law rules 0 0 0 0 0 7 0 0 0 0 violation of health and safety rules 1 0 0 0 0 3 0 0 0 0 other proceedings 0 0 0 0 0 8 8 7.8 4.9 2.9 Total 2023 44 31 88.5 82.5 6.0 489 214 194.2 166.8 27.4 Total 2022 41 17 93 93 0 358 117 186 152 34 Total 2021 25 12 17.5 452 74 76.4 Total 2020 26 9 16.1 168 66 83.3 Total 2019 33 14 136.2 2521 71 265.4 ¹ Also includes breaches of antitrust and anti-monopoly rules. The Interchange competition case reported in 2022 was still ongoing in 2023. The Romanian subsidiary bank had 9 competition cases pending at the end of the year. There may be a significant cross-country difference between the administrative practices applied; hence the significant differences between the numbers of procedures. Data were presented in earlier years in a different way (in accordance with the GRI Standards 2016 requirements), therefore comparability is limited. 4.2 Prevention of money laundering As a responsible financial service provider we spare no effort to make sure that the Banking Group is not used for money laundering. Money laundering is when attempts are made to conceal or cover up the origins of money originating from crime. Perpetrators or other persons typically try to use services of financial institutions to produce proof of the legitimate origin of the money. One of the main objectives of the anti-money laundering function is to ensure concerted action at a group level, based on a group-wide anti-money laundering policy. In accordance with the relevant AML regulations one of the main obligations of the Banking Group is to execute adequately in-depth customer due diligence actions. Its aim is to get to know the customer and the business relationship from the aspect of risks, and to identify transactions that do not fit in with the customer profile so constructed and that are thus suspicious from the aspect of money laundering. In the customer due diligence process we ask our customers for data to establish the identity and intents of the persons using the Bank’s services and the backgrounds of the various transactions. In accordance with the applicable statutory requirements we do not execute orders for customers who do not provide proof of their identity. 43 Major case: the fine charged in one case, or in multiple cases in aggregate, equals at least HUF 10 million. Cases in which no fine is charged are essentially not categorised as major cases, but our member companies may decide otherwise.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 135/200 In addition to legal compliance we continuously monitor the latest trends in money laundering as well as the modes of perpetration; we also introduce risk management actions to prevent money laundering. In 2023, the anti-money laundering prevention organisation was transferred from the Security Directorate to the Compliance Directorate. We have upgraded the former departmental function to a general departmental level, with a separate department to handle customer acceptance and transaction monitoring. We have significantly increased the headcount of the department. GRI 2-13 The anti-money laundering division provides monthly statistical data and explanations to the Anti- Money Laundering Committee, and prepares proposals on current issues at the Committee’s quarterly meetings. In 2023, we launched a new, more advanced version of our anti-money laundering monitoring system at OTP Bank. We have already begun providing this system to our foreign subsidiary banks as well. We have made targeted improvements to our international transaction screening system, in order to make it more efficient in handling transactions with Russian stakeholders. At OTP Bank, annual training on money laundering is mandatory for all branch employees and employees working at the head office who are involved in the activities defined in the Act on the Prevention and Combating of Money Laundering and Terrorist Financing (the “AML Act”) and are therefore legally required to undergo training. Special training materials have been prepared for branch staff, head office staff and senior staff. In addition to the compulsory annual training, a total of 38 online training sessions were held for a total of 731 new branch and corporate employees. In addition, the anti-money laundering division regularly delivers training for the new hires of the branches and provides in-person training for branches frequented by high-risk customers. Employees who have completed the training act with increased awareness, identify risky customers and identify transactions that are suspicious of money laundering more easily. The foreign subsidiary banks also deliver mandatory trainings on the subject for all of their employees at least once a year. In three of the subsidiary banks, “only” customer-facing staff are required to complete the training. In the context of the fight against money laundering, OTP Bank is continuously cooperating with the competent domestic and international authorities and interest organisations. In the context of such cooperation arrangements we also share best practices, whereby all participants can improve the effectiveness of their actions against money laundering. We are a member of the Europol Financial Intelligence Public Private Partnership; we have been involved in the organisation’s project to fight against human trafficking and sexual exploitation, working closely with the Financial Intelligence Unit. In 2023, we started working on the anti-terrorist financing workstream. 4.3 Complaint management GRI 2-25 We strive to achieve error-free customer service; we investigate and address the reported complaints. We aim to prevent complaints by continuously improving our practices. The regular (typically semi-annual) reports on complaints and their handling are also received by the top managers of our member companies. In order to prevent complaints, we assign great significance to the continuous training of our employees. We strive to investigate complaints faster than prescribed by legislation, and we aim to reduce response times. We constantly monitor and analyse the number, type, reason and response time of all complaints received. In the case of errors affecting multiple customers, or in the case of losses of larger amounts, the issue is notified to the division concerned, an action plan is prepared, and the progress of rectification is monitored. At OTP Bank, there are several types of complaints that can be promptly resolved, for which we provide immediate solutions that are acceptable to our customers. For customers who can be identified by e-mail address, we further accelerate the procedure by replying via e-mail. E-mail messages on the status of their complaints are sent to customers. The complaints function uses a continuous feedback process after the closure of complaint tickets, asking for feedback from customers via email regarding the solutions provided. In 2023, we have also introduced a performance management system for complaint handling. As part of this, we have reviewed our processes from a lean perspective, and created flowcharts to standardise them. The effectiveness of the changes is demonstrated by the significant reduction in the number of overdue cases, and there is further potential for a significant reduction in the amount of overtime previously required. In 2023, we began overhauling the IT system used for complaint handling. In addition, during the year, we held face-to-face meetings with the business areas concerned to find possible solutions to 5 of the most common complaints.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 136/200 For credit card complaints, we will move from transaction-based to complaint-based reporting in 2023. A single complaint may be associated with multiple transactions, which is the reason for the significant decrease in the number of customer complaints compared to previous years. In 2024, we plan to improve our complaint feedback system, and aim to reduce both the number of complaints received and the per-complaint response time by 10 percent. BG SI RS AL ME RU RO Complaints management satisfaction measurement is in place in OTP Bank, the Bulgarian subsidiary bank, the Slovenian subsidiary bank NKBM, as well as the Serbian, Albanian, Montenegrin, Russian and Romanian subsidiary banks. According to our customers’ feedback, the methods and effectiveness of our complaint management is within the adequate range. BG The Bulgarian subsidiary bank has standardised its responses to the most frequent complaints. SI SKB Bank in Slovenia has created an e-learning curriculum on effective complaint handling, and has made it mandatory for all new entrants and existing employees. NKBM has introduced daily reminders to staff working on outstanding complaints. The process of delegating and following up on complaints has been improved. RS The Serbian subsidiary bank has introduced a new method of receiving and handling oral complaints. RO The Romanian subsidiary bank has introduced new complaint handling software, which has significantly reduced the number of errors. The skills of the staff dealing with complaints have been improved. MD The Moldovan subsidiary bank has improved the complaint handling skills of its branch managers. OTP Otthonmegoldások Kft. has restructured its customer service tasks to ensure fast complaint resolution. As a result, around 80% of legitimate complaints were resolved within 2 working days. 189,882 302,166 251,927 245,502 142,057 125,242 202,040 155,299 148,994 73,559 144,406 84,476 35,848 73,438 82,199 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 2019 2020 2021 2022 2023 Customer complaints, OTP Bank* number of complaints closed number of substantiated complaints compensation awarded (HUF thousands) * OTP Bank, OTP Jelzálogbank, OTP Lakástakarékpénztár There were two complaints about accessibility, and no complaints about the transparency of the product structure.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 137/200 Complaints handling procedures and definitions are being standardised across the Group and as a result, the data content of complaints handling gradually become more consistent. However, as cultural attitudes and financial literacy differ from country to country and shape customers’ complaint reporting habits, customer complaints data from different subsidiaries are not comparable. Customer complaints 2019 2020 2021 2022 2 2023 5 Number of complaints closed thousand units N/A 589 513 537 452 Number of substantiated complaints thousand units N/A 358 274 294 244 Compensation paid¹ HUF millions 367 188 131 8,241 224 Amount of compensation per warranted complaint¹ HUF 2,300 500 480 28,030 916 Total number of complaints relating to accessibility for disabled No. of items N/A N/A N/A 2 4 16 Number of complaints related to product structure transparency 3 No. of items N/A N/A N/A 12,751 4 12,756 ¹ OTP Bank Croatia and OTP Bank Russia were unable to provide compensation figures. 2 HUF 7,947 million of the damages was paid by the Montenegrin subsidiary bank. 3 99% of complaints were registered by the Russian subsidiary; this included all complaints received in relation to the operation of the product. 4 The Russian, the Romanian and the Montenegrin subsidiary, as well as the Financial Point, do not keep records of complaints relating to accessibility for disabled, and therefore could not provide such data. No data could be provided regarding the transparency of the product structure by OTP Bank, the Romanian and the Montenegrin subsidiary and the OTP Financial Point. 5 The Montenegrin subsidiary bank was unable to supply data. Typical complaints At OTP Bank, the largest number of complaints received in 2023 was in relation to card fraud. Complaints related to current accounts, card charges, cash withdrawals and deposits were also common. BG At the Bulgarian subsidiary, most complaints were in regard to increased credit limits for credit cards, disputed online card transactions, disputed e-banking transfers, problems with e-banking services, misuse of personal data and fraudulent loans. SI At SKB Bank in Slovenia, the most frequent customer complaints were in regard to a change in the legal interpretation about the partial reimbursement of the cost of loans that were repaid early. Complaints about credit cards and online transfers (including fraud) were also common. Most of the complaints received by NKBM were regarding bank cards, ATMs and bank accounts. HR Most of the complaints received by our Croatian subsidiary bank were regarding the introduction of the euro; the vast majority of these complaints were received in January. RS Our Serbian subsidiary bank received complaints primarily regarding bank cards, bank accounts and loans. A significant number of these were related to fraud or incorrect credit card transactions. The most frequent subject of complaints regarding loans was changing interest rates. AL In our Albanian subsidiary bank, the majority of complaints were regarding the merger, as well as ATM and card-related complaints about how frequently these services were used. ME Most of the complaints received by our Montenegrin subsidiary bank were regarding card transactions, account management fees and the calculation of interest on loans. UZ The complaints received by our Uzbek subsidiary bank were primarily about loan contract amendments, the repayment of incorrectly deducted loan amounts, as well as specific issues with mortgage, consumer and education loans. RU For our Russian subsidiary bank, the most common complaints received were related to the loyalty programme, disputed debts, transactions, as well as the functionality of the mobile app. UA Most of the complaints received by our Ukrainian subsidiary bank were regarding bank cards (not enough ATMs, not receiving text messages) and fraud. RO At our Romanian subsidiary bank, the most common complaints and problems were regarding product loans, current accounts and the quality of services provided. MD Our Moldovan subsidiary bank received complaints primarily about bank cards, ATMs, and the mobile application.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 138/200 4.4 Safe operation Safe and secure operation is a priority for out Banking Group. With that in mind, we assess and manage operational risks and ensure that we are strongly protected against fraud attempts. What with the expansion of IT services, IT and cyber security are becoming more and more important in the operation of our companies. In particular, fraud management and prevention has become crucially important. IT, cyber and bank security framework GRI 2-13 It is a fundamental principle of OTP Group that the primary purpose of our measures is to prevent and inhibit security incidents. The principles and main guidelines concerning security at the Bank are set out in the Security Policy. The Information Security Policy defines, inter alia, the theoretical objectives and application areas of information security, the principles of risk assessment, the requirements of compliance and those of the security awareness training, and confirms the Bank’s engagement to the continuous enhancement of the information security management system. IT security also includes cybersecurity. The Security Directorate reports annually on the security situation to the Board of Directors and Supervisory Board. The Group Information Security Policy, completed in 2022, has been successfully implemented by 9 out of our 10 subsidiary banks existing at that time, and is currently in the process of being implemented by our remaining subsidiary banks as well. The Bank also has a separate Anti-Fraud Strategy and Policy; anti-fraud processes are governed by a CEO Order. We operate an Anti-Fraud Competence Centre at OTP Bank, and we regularly hold on-line fraud prevention consultations with our subsidiary banks. We operate a working group at OTP Bank with the involvement of the Security Operations Centre (SOC), in order to seek solutions against data phishing methods committed via IT devices, and to make proposals for business divisions for mitigating risks. In 2023 we executed the Banking Group’s second annual Cyber Defence Programme (CDP), aimed at mitigating risks from the cyber space, primarily via the provision of group-wide services. The effectiveness of our cyber defences is measured using the NIST Cyber Defence Framework. The details of information security risk management are laid down in the regulation on the regime of IT logical risk analysis. We carry out a risk analysis every two years. In the case of newly introduced systems, before going live we conduct an annual vulnerability test for IT systems classified into the two highest-level security classes; moreover, vulnerability tests are performed on a weekly and/or monthly basis for the supporting operating systems. In 2023, our automated vulnerability scanning tool, task and staff were moved to the first line of defence 44 and we began scanning mobile banking applications at the bank-wide level. The changes to the ICT (Information and Communication Technology) risk framework in 2023 were also reflected in organisational changes, facilitating a clearer separation of responsibilities between the first and second lines of defence. A new ICT Risk Control Unit was established within the Credit Approval and Risk Management Division, under the Integrated Risk Management Directorate. This department is only responsible for second line of defence tasks. Within the ICT risk function, the ICT Risk Control Unit is responsible for defining the overall risk framework, as well as the related management and measurement policies, methodologies and standards. It is also responsible for determining ICT risk appetite and integrating ICT risks – including cyber risks – into the operational and overall risk framework, including risk strategy, risk assessment (methodologies) and the reporting framework. By the end of 2023, work was in progress on setting up the ICT Risk Committee, which have the necessary authorisations to cover the full range of ICT risks (including cyber risks). Our aim is to provide a more frequently used operational forum suitable for knowledge transfer, monitoring ICT risks, and developing ICT risk management, along with the development of standardised reporting for both the headquarters and our subsidiaries. Our independent organisational units vested with audit rights conduct an internal audit on compliance with IT security objectives, the implementation thereof, and the successful adoption and maintenance of the 44 The Bank applies the “three lines of defence” model for managing risks and implementing internal controls. The first line of defence holds the primary responsibility for risks associated with the organisation’s operations, thus its adequacy is mostly ensured by employees and operational managers. The second line of defence monitors and assists the controls of the first line of defence. The functions of the second line of defence include independent risk management, risk control, compliance assurance and certain internal security controls. The third line of defence is the independent internal audit. For more information, refer to @Responsible Corporate Governance Report
BUSINESS REPORT OTP BANK (CONSOLIDATED) 139/200 requirements. IT security maturity assessment is carried out at our foreign subsidiaries once a year, their results are summed up in executive summaries. To evaluate the effectiveness of security activities in 2022, we started on-site audits of the foreign subsidiary banks. In 2023, on-site audits were conducted at six subsidiary banks. The results were summed up in executive summaries and in reports for the foreign top managers. Thematic audits were conducted four times at our foreign subsidiary banks in an online questionnaire format on topics such as security awareness, protection against malicious code, authorised and prohibited software, and application management. Cyber threat information is continuously gathered through Cyber Threat Intelligence. Cyber Threat Hunting can proactively identify in the cyber space and the internal network.  In 2023, we introduced the NIST Cybersecurity Framework at OTP Bank to help understand, manage and mitigate cyber risks and strengthens the protection of the networks and data. The system will be introduced in our subsidiary banks in 2024.  We introduced a central incident management and cyber threat intelligence sharing platform (MISP) at OTP Bank with the participation of MNB and the National Cybersecurity Office to gather, analyse and share information regarding cyber security incidents and malware. We plan to roll out the system to our subsidiary banks in 2024.  In connection with the Group-wide brand and supply chain protection service (e.g. for identifying fake OTP websites or Facebook pages), in 2023 we have also activated the brand protection service on Meta platforms (e.g. Facebook). If a profile misuses OTP Bank’s visual and layout elements, we will report it via our official OTP Bank Facebook page. In the past, these have been blocked very quickly, often within hours. 15–20 profiles were removed every day.  To effectively maintain information security we cooperate with the National Cyber Security Centre of the Special Service for National Security. We created the @ELTE-OTP Cyber Defence Industrial Research Laboratory (KIBERLAB), which had 7 researchers in 2023. Security incidents and their management In total, 856 information security or other cyber security incidents (involving unauthorised access) occurred in the Banking Group. In the vast majority of cases, no customer or employee data was compromised. In one case linked to OTP Mobil, 10,279 customers were affected, and additionally a total of 113 customers or employees were affected at the group level. There were no such incidents at OTP Bank. The scale of the cyber security incidents is indicated by the fact that we handled around 34,000 alerts, and investigated 6,000 data leaks and 742 phishing reports (of which 88 were organised phishing campaigns). A considerable number of criminal acts or attempts are committed against customers by way of deception year after year. In these cases, the customers themselves provide the perpetrators with (or allow them access to) their confidential banking data. There were three common methods of perpetrating these offences in Hungary in 2023.  The perpetrators, impersonating OTP Bank employees, usually claim that a fraud (unauthorised transfers/debit card transactions) or sometimes a mistaken transfer is in progress, typically attempting to deceive the bank’s customers by phone.  They generally use phishing sites to exploit classified advertisements posted by the customers and obtain their Internet banking login details, then use this information to login to the customer’s Internet banking account and initiate unauthorised transfers. We prevent this by effectively detecting phishing sites.  Internet advertisements offering get-rich-quick schemes are a way for fraudsters to obtain the customer’s money, and later their data as well. In response, we have made it more difficult to attach the device to an existing account, making it more difficult to commit fraud. The global phishing campaigns and the resulting increase in customer losses are also reflected in the indicators of our subsidiary banks.  Preventing fraud involving unauthorised transfers initiated by the customer themselves is the most difficult, as the transaction is initiated from the customer’s own device, significantly reducing the number of potential fraud indicators. These events resulted in HUF 2.4 billion in customer losses, as well as HUF 344 million in prevented customer losses. Over 80 percent of customer losses occurred at our Slovenian subsidiary banks. Fraud against customers, OTP Bank 2022 2023 damage, HUF millions 2,901 10,086 customer losses prevented, HUF millions 883 3,195
BUSINESS REPORT OTP BANK (CONSOLIDATED) 140/200  The unauthorised transfers initiated by the perpetrators resulted in HUF 1,691 million in customer losses, as well as HUF 1,222 million in prevented customer losses. Over 50 percent of customer losses occurred at SKB Bank. The bank seeks to mitigate customer harm primarily through improving customer awareness, education and security checks and rules – in most such cases, customers receive no compensation. The MNB and the Financial Arbitration Board are also setting increasingly stringent standards regarding online financial abuse, in order to protect both consumer interests and the reputation of the financial sector. Own indicator Both OTP Bank and its subsidiary banks have a significantly lower ratio of card fraud to turnover than the European average published by Mastercard (OTP Bank: 0.0203%, subsidiary banks’ average: 0.013%, European average 0.04% 45 ). The total amount of fraud at OTP Bank was HUF 4.1 billion, with an additional HUF 9.5 billion at the group level. OTP Bank prevented HUF 10.1 billion worth of credit card fraud, while the amount of unsuccessful attempted fraud at its subsidiary banks amounted to HUF 7.9 billion. The highest risk cases targeting the Banking Group included primarily credit frauds against OTP Bank, while our foreign subsidiaries were most commonly targeted by lending fraud, employee abuse and violent crime (ATM attacks, bank robberies). Of all the acts aimed at causing bank losses, expected bank losses related to credit fraud were the highest in 2023. Although the number of cases of lending fraud decreased significantly between 2022 and 2023, the expected bank loss due to lending fraud at our Ukrainian subsidiary bank increased nearly threefold. The number of employee misconduct cases halved in one year, and the related expected bank loss drastically decreased to one-tenth of its previous value: HUF 263 million. (This can be primarily attributed to the very high expected bank losses related to employee misconduct at our Montenegrin subsidiary bank in 2022). There was an increase in the incidence of all main types of violent acts (bank robberies, burglaries, cash theft from ATMs, ATM vandalism). In comparison with the previous two categories, the expected bank losses associated with these forms of misconduct are negligible. We have taken a number of steps to reduce misconduct in 2023: • In order to effectively deal with the increased incidence of fraud targeting customers, the Security Directorate has implemented organisational and structural changes: ‐ The responsibilities for handling fraud reports and taking immediate actions were transferred from the Contact Center to the Security Directorate. ‐ In 2023, the department handling alerts from the real-time account and card monitoring system saw a headcount increase of 29 staff members, partly due to taking over responsibilities from the contact centre, and partly to handle the increased number of alerts. ‐ To expedite the reception and handling of customer reports regarding fraud, as well as to increase customer satisfaction and thus prevent and reduce further potential losses, we have 45 Issuers page. 0.0203 0.008270 0.007407 0.013490 0.008700 0.017300 0.015900 0.010900 0.003200 0.013800 0.034400 0.009600 0 0.005 0.01 0.015 0.02 0.025 0.03 0.035 0.04 0.045 OTP Bank DSK Bank SKB Bank NKBM OTP Bank Croatia OTP Bank Serbia OTP Bank Albania CKB OTP Bank Russia OTP Bank Ukraine OTP Bank Romania OTP Bank Moldova % Bank card fraud versus total turnover, 2023 Card not present when fraud committed Card present when fraud committed European average 2023
BUSINESS REPORT OTP BANK (CONSOLIDATED) 141/200 created a separate department of 33 people called the Anti-Fraud Support Unit. Here, specially trained employees answer incoming calls and take preliminary actions. • OTP Bank has signed a cooperation agreement with the National Police Headquarters (ORFK), establishing a 24-hour contact process to help the authorities take quick and effective action to bring offenders to justice. The main areas of cooperation include: crime prevention; education, training; the creation of an Anti-Fraud Academy; joint press coverage; joint evaluation and analysis; regular evaluation of offence patterns and trends, and the results of analyses; data provision, the establishment of a permanent on-call service to speed up the transfer of information. • We have extended and tightened the rules on financial transactions and transfers: ‐ We have introduced third factor authentication (customers attempting to transfer a sum exceeding ten times their previous average transaction value – but no less than HUF 1 million – will need to provide am authorisation code sent via email). ‐ Only a financial transaction can activate mobile banking services within 24 hours. ‐ We have capped the daily card limit for micro and small business customers. ‐ We have reviewed our existing rules for the bank card and transaction monitoring system (PRM), amending them where necessary and introducing 26 new rules. We aimed to create real-time rules aimed at preventing the very first suspicious transaction. Where this was not possible, we created near real-time rules with more advanced habit checking and autobl functionality, providing a higher accuracy for alerts. The improvements to our rules have helped reduce the number of daily alerts by an average of 2,000 in 2023. In late 2023, we introduced a real-time link between the PRM and the card system, which is expected to make rule-making and operations more efficient. ‐ With regard to the rules, we have developed new habit analyses to reduce the number of false alerts. • We have initiated developments in the use of customer asset-based data (SEON, Threatmark). • We have launched the Central Fraud Filtering System Project – as required by MNB. • We have created a new feature for our mobile banking services, allowing customers to suspend their account and card at the touch of a button, in order to prevent further losses. Improvements aimed at preventing online credit fraud: • Fraud victims: a new feature has been added to the system to clearly identify whether a customer has been a victim of online credit fraud in the past. If so, we will contact the customer over the phone if they try to take out another online loan. • Online attempts: Customers who have initiated a large number of online requests within a specified time period will trigger and automatic alert or block. Raising awareness among our staff and customers Since the awareness of our employees may result in the prevention of a lot fraud attempts, we laid particular emphasis on raising security awareness in 2023 as well. A lot of the relevant activities were executed in October, in connection with the European Month of Cyber Security. According to the Bank Security Regulations, annual IT security awareness training is mandatory for all employees at the group level, requiring the successful completion of an exam administered by OTP Bank. New employees are also required to complete the training. We typically review the training materials annually. In 2023, we conceptually and methodologically overhauled OTP Bank training materials, and produced a bank-specific video package with the engagement of a professional creative-film agency. The overhaul was followed by publication and backtesting. The original initial group of the course included nearly 11,000 active employees on launch day, of whom 92.5% successfully completed the course, while 808 individuals (7.5%) failed to complete it despite repeated requests. The overhauled training course has been well received by our employees. About 10% of those having completed the training also filled out the evaluation questionnaire, with 82% of respondents being very satisfied with the training, and 96% of them stating that the course content helps them in their daily work. From 2023 onwards, branch employees will receive on-site training in addition to the annual bank security e-learning training. In addition to general training, we also organised role-specific training courses, which likewise concluded with an exam. These were completed by 831 individuals. We have developed a curriculum for training security personnel. From 2024, branch security guards will receive in-person training, while other stakeholders (cash transporters; responders) will be sent the curriculum.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 142/200 We have kept our employees informed of the latest fraud methods through our internal bank communication channels. During Cyber Security Month, we reached out to our employees with professional and awareness- raising articles, as well as roundtable discussions. For the fifth year in a row, we have organised a phishing simulation for the Bank’s entire employee community, assessing employee response to receiving phishing emails. In 2023, the simulation was performed group-wide. We also carried out a successful “abandoned thumb drive” test at our head office. In 2023, we organised two International Rotation Programmes for the security managers and employees of our foreign subsidiaries. The spring programme focused on information security, with four subsidiary banks participating. In the autumn, in line with the change in the responsibilities of the group management area, we implemented a programme covering several security areas, involving colleagues from seven subsidiary banks from different areas. Our subsidiary banks also make efforts to raise security awareness among their employees, in addition to mandatory training and phishing simulations. SI SKB Bank in Slovenia ran campaigns in the autumn and spring to raise awareness of security issues among colleagues. They also performed a phishing test. RS Our Serbian subsidiary bank organised a social engineering test for its employees, in order to further improve their cybersecurity awareness. RU Our Russian subsidiary bank has published articles on key IT security topics on its internal channels. In addition to the Banking Group’s high degree of preparedness and our employees’ security awareness, our customers’ security awareness also needs to be raised. We continue to improve our methods for customer education. Specifically: • During the waiting time when customers are on hold, the Contact Center issues warnings for “Foxpost” fraud and fraudulent phone calls made in the Bank’s name. • Branch leaflets were produced to warn customers (100,000 leaflets). Branches have access to the internal Electronic Banking Security Portal, where staff will always be able to read information on the latest fraud trends and how to prevent them. • We have set up a dedicated phone number to help us serve customers affected by fraud more quickly and efficiently; this phone number is prominently listed on the bank’s website and on the login and logout pages of the internet banking interface. • The OTP website https://www.otpbank.hu/portal/hu/Adathalaszat contains detailed information on the various forms of fraud and misconduct. • We also have chatbots provide information to our customers on phishing and fraud, secure banking and credit card security. These provide our customers with easy access to thematically organised content and downloadable documents. • We have also added fraud warnings to the envelopes containing account statements. • During our branch training sessions, we reminded our administrators to inform customers about fraud. • On a few occasions, our employees have given public presentations on financial fraud. • In addition, we post alerts on Facebook, the Bank’s website, the internal Electronic Banking Security Portal, as well as other social media whenever new methods or stories of fraud are available. • Our three KnowledgeBank videos on data security received a high number of views (see @chapter 3.1). SI HR In cooperation with the Slovenian Banking Association and the Croatian Banking Association, our subsidiary banks also participated in the awareness-raising activities of the European Month of Cyber Security. In Slovenia, SKB Bank and NKBM organised a spring and autumn campaign, informing customers of existing dangers by email, as well as via mobile and online banking. RS Our Serbian subsidiary bank also used its communication channels to warn customers about fraud. They also published four videos on phishing, phone phishing, cyber-attacks and account fraud. AL Our Albanian subsidiary bank has implemented a social media campaign on secure online payments, focusing on credit cards in 2023. UA Our Ukrainian subsidiary bank participated in the communication campaign of the National Bank of Ukraine “Goodbye to fraud”. The bank financed the development of the campaign’s education programme, and also organised its own education programmes aimed at the general public. RO The IT security manager of our Romanian subsidiary bank gave a presentation at the Bucharest Cybersecurity Conference.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 143/200 Protection of customers’ personal data The Banking Group applies the most modern solutions for data processing and data security and in order to prevent data leaks. The protection and processing of personal data are also a part of our Compliance Policy, in which the regular assessment of risks and the maintenance and improvement of awareness are discussed. Data protection is closely linked to fraud prevention and cyber security. We last renewed the Directive on the protection of personal data introduced in OTP Bank and our domestic group members in 2022. At OTP Group banks, dedicated data protection officers and data owners are responsible for ensuring compliance with the data protection requirements (e.g. supervising personal data processing, principle of data minimisation, the processing of high-risk data). To this end, data managers receive annual professional training. We naturally provide our customers with complaint handling channels for the event of fraud suffered as a result of the data management practices of OTP Group, while suspected ethical offenses (including human rights offenses) can also be reported via our whistleblowing system. 48 of the data leakage cases in the OTP Group occurred in OTP Faktoring Zrt., and resulted from the fact that the address provided by the debtor was used by a third party who obtained unauthorised access to personal data by opening the letter. A further 18 data leakage incidents occurred at SKB Bank, primarily due to the negligence of the bank’s administrators and a mobile bank configuration error. GRI 418-1 Abuse of personal data OTP Bank OTP Group 2019 2020 2021 2022 2023 2019¹ 2020 2021 2022 2023 2 number of substantiated complaints by external parties (cases) 0 3 0 0 0 33 20 277 128 43 number of complaints by regulatory authorities (cases) 0 6 0 0 0 23 35 22 23 21 number of breaches of customer privacy (cases) 0 0 0 0 0 1,045 29 61 31 73 number of data theft incidents (cases) 0 0 0 0 0 1 2 17 0 2 number of times data were lost by the organisation (cases) 0 0 0 0 0 1 2 0 1 2 ¹ Our Ukrainian subsidiary bank was unable to supply data. 2 Our Montenegrin subsidiary bank was unable to supply data. There is a considerable risk in on-line abuse based on deceiving customers – in such cases the customers themselves disclose their own confidential data (see above). 4.5 Tax payment This chapter describes the activities related to the following relevant topic: GRI 207: 3-3, 207-1, 207-2, 207-3: Tax payment Impacts: In the areas where we operate, we have an impact on state revenues and the tax practices of the sector. Through tax payment, the Banking Group makes a meaningful contribution to the provision of community services and the management of social inequalities, thus ultimately to socio-economic stability. This material topic supports the achievement of the following SDGs: Engagement: The OTP Group aims to achieve maximum compliance with the legal regulations on taxation; accordingly, it settles its tax liabilities in the amounts prescribed by those regulations together with all of its other tax-related obligations (e.g. data supply) in each country in which it performs activities or in which it comes under the local tax regulations for any other reason. Strict prohibition of tax evasion and of taking advantage of loopholes in the law in ways contrary to the purposes of those laws, is a key element of its corporate culture. We always aim to file tax returns in time, to fulfil our data supply obligations and avoid being fined. Acts: Implementation and continuous application of the OTP Group Tax Policy In Hungary, we have also contributed to the stability of public finances by bearing extra burdens (moratorium, bank tax, extra-profit tax) Meeting the requirements on taxation is included in the objectives of the organisation managers
BUSINESS REPORT OTP BANK (CONSOLIDATED) 144/200 Stakeholder cooperation: Interests relating to taxation are asserted via the Banking Association. As regards the interpretation of the legal regulations we even communicate directly with the authority and regulatory bodies. GRI 207-2, 207-3 The OTP Group’s tax policy defines uniform principles: it seeks to establish and maintain an open, transparent and trust-based relationship with the tax authorities. Our goal is to expedite the closure of audits, and provide high-quality information services. The @Tax policy which was established by OTP Group in 2022 and came into effect in 2023, applies to the entire OTP Group, every member of the group members’ management bodies and every employee of the Group, along with all natural and legal persons performing expert or consultancy assignments or agency activities for the Group. The Tax Policy presents the principles and practices followed by the OTP Group with respect to taxation (it is essentially a code of conduct within the framework of the law). The Tax Policy is based on, and is in line with the elements of, the Code of Ethics. Upon any impairment of the Tax Policy, an ethics offence can be reported. The Tax Policy is approved, and revised at least once a year, by OTP Bank’s Board of Directors, paying particular attention to changes in the regulatory environment and tax authority’s and courts’ practices, in the guidelines issued by international organisations shaping international tax policies and in international practices. OTP Group ensures the implementation of the Tax Policy through processes defined in group-level and local internal regulations, with the highest level accountable person being the Managing Director (Chief Accountant) of the Accounting and Finances Directorate leading the taxation division. The taxation division is independent of the business divisions. GRI 207-1, 207-2 Owing to the complexity of the taxation rules and the constant change of judicial practice, taxation risks (e.g. tax deficit, fine) cannot be altogether precluded. Their management is regulated at the highest level by the Tax Policy. The Banking Group has no specific tax payment strategy. 4.6 Contribution to economic stability This chapter describes the activities related to the following relevant topic: GRI ST2: 3-3: Contribution to economic stability Impacts: The members of OTP Group are important participants in several markets within the CEE region and in Uzbekistan, and through their operations and results they have a significant impact on the respective countries’ economies and financial systems, as well as on improving the standard of living. This material topic supports the achievement of the following SDGs: Engagement: Stability is one of the most important values for the Banking Group, therefore it spares no effort to secure this. Our clear aim is to meet both regulatory requirements and competitive practices. We always aim to file tax returns in time, to fulfil our data supply obligations and avoid being fined. Acts: Traditionally high CET1 ratio High liquidity ratio Prudent risk management Low ratio of non-performing loans (see @chapter 3.2) Stakeholder cooperation: We follow regulatory requirements with the goal of maximum compliance, providing all necessary information in a transparent manner. We assign a high priority to answering investor and analyst questions. Own indicator OTP Bank’s capital strength and stability are also confirmed by the results of the stress test conducted by the European Banking Authority in 2023, with the assistance of the National Bank of Hungary. OTP Group was the only Hungarian-owned credit institution to have participated in the survey. OTP Group’s capitalisation results have improved slightly compared to two years ago, and the Group’s capital reserves would remain well above the current regulatory capital requirements over the horizon of the stress test. In
BUSINESS REPORT OTP BANK (CONSOLIDATED) 145/200 terms of CET1 ratio decrease over the three-year stress scenario period, 46 OTP Bank achieved the 4th best result in the test from among the 70 banks examined, and ranked 13th in terms of its absolute CET1 ratio. Own indicator The CET1 ratio remained stable overall in 2023, despite the completion of the largest acquisition in the Banking Group’s history – the Slovenian NKBM transaction – and the equally significant acquisition of the Uzbek Ipoteka. The MREL, or the minimum requirement for own funds and eligible liabilities, is determined in collaboration with the resolution authorities of the Bank and its subsidiaries, representing a new level of regulatory expectations for banking resources. The level of the requirement varies from bank to bank, taking size and business model into consideration. The resources available for meeting the MREL requirement ensure that in the event of resolution, any losses are borne by the Bank’s owners and subordinated lenders, minimising the need for state aid. Our Bank has met the level of the MREL requirement required to be achieved by January 2024 through capital accumulated during normal operations and bond issuances on international and domestic capital markets. In 2023, we developed an internal regulation titled “Order of Management and Procedures Related to Resolution” (A szanálási szempontú irányítás és a szanáláshoz kapcsolódó eljárások rendje) to meet the corporate governance expectations required by the National Bank of Hungary in the event of resolution, in order to implement recapitalisation to the extent necessary. Throughout the year, numerous questions were received from investors and analysts, induced by the bank failures in the US and Switzerland. In all cases, OTP Bank was able to provide reassuring answers based on the low deposit concentration, the ratio of insured deposits, the healthy balance sheet structure, and its conservative (73%) loan-to-deposit ratio. The Banking Group’s presence in Russia is a matter of public interest, and we also provide regular and transparent information on this. Even under the most unfavourable scenarios, the situation of our subsidiary bank will not jeopardize the stability of OTP Group. GRI 201-4 In 2023, the Banking Group received subsidies in four countries. In Hungary, nine subsidiaries of OTP Bank received subsidies. NAGISZ Zrt., HAGE Zrt., Nemesszalóki Mezőgazdasági Zrt. and Nádudvari Élelmiszer Kft. received a total of HUF 3.3 billion in investment, agricultural and animal welfare subsidies. MONICOMP has signed a three-year contract with the National Agency for Research and Innovation for the lease of a supercomputing infrastructure. The total cost of the project is HUF 7.3 billion, with a total subsidy grant of HUF 2.6 billion. The second instalment of the aid (HUF 846 million) was received in 2023. The environment requires 40% less energy compared to other HPCs 47 , which is exceptional at the regional level, and provides the opportunity to create GPT-level large language models, significantly supporting the Bank’s customer service, campaign management, knowledge sharing, and educational activities. By the end of the second year, a Hungarian-English, GPT-3 level large language model will be made available to the public sector, as well as to higher education institutions. In the course of additional training steps, the model will also be trained with the languages of the countries where OTP Group is present. Our Bulgarian subsidiary received state aid for financing their electricity costs. The Merkantil Group and OTP Factoring Zrt. received GINOP Plus subsidies for employee development through a European Union tender. OTP Travel received de minimis levels of subsidy, Foglaljorvost Online Kft. received SME Start Innovation (KKV Start Innováció) subsidies, and OTP Holding and Financing Malta used state subsidies for hybrid car procurement. GRI 201-4 Financial assistance (HUF millions)¹ 2019 2020 2021 2022 2023 Hungary 167 50 1,248 2,363 4,237 Bulgaria 0 0 74 721 156 Slovenia 0 0 0 74 0 Croatia 3 5 7 5 0 Romania 3 14 8 0 0 Malta 0 0 0 0 5 Total 173 69 1,337 3,164 4,397 ¹ The tax allowance granted on the basis of the Hungarian Banking Group’s sponsorship of spectator team sports and performing arts, as well as the tax relief in Slovenia used for donations, are not included here as they cannot be interpreted as financial assistance received by the Bank 46 common equity tier 1 capital 47 High Performance Computing
BUSINESS REPORT OTP BANK (CONSOLIDATED) 146/200 5. RESPONSIBLE EMPLOYER This chapter describes the activities related to the following relevant topic: GRI 401, 404, 405, 3-3: Responsible employment Impacts: The Banking Group makes major contributions to improving labour market adaptability and competitiveness, sustainable development efforts, and socially responsible employer behaviour through responsible employment. The quality of life of employees (and those working in the sector) is fundamentally influenced by income, thus the remuneration practices of the Banking Group are a key factor. Ensuring gender equality also has an important impact on economic growth and a sustainable future. Working conditions and the workplace atmosphere also significantly impact stress levels, motivation and sense of security, which can have either positive or negative effects. Given the size of the Banking Group, the impacts are also felt in the broader community. This material topic supports the achievement of the following SDGs: Engagement: The Banking Group is committed to fair employment, stability, and performance-proportional, equitable remuneration sufficient for a decent living. The Banking Group considers its employees to be its most important asset, and seeks to promote their well- being and development. Ensuring the latter includes continuous training and development, while the former is guaranteed by a caring and family-friendly corporate culture promoting equal opportunities and a healthy work environment. OTP Bank’s HR strategy focuses on the employee experience. Acts Decent remuneration and a performance-based benefits system Flexible employment opportunities Strengthening non-discriminatory, inclusive attitudes Promoting gender equality (in training and development) Preparing action plans based on satisfaction surveys, and following up completed programmes Leadership and skills development Health insurance services, screening programmes, sports and recreational possibilities Stakeholder cooperation: The Group continuously monitors employee satisfaction. We take action based on employee feedback and inclusion. Our employees regularly undergo performance evaluations. We see ourselves as cooperative partners with advocacy groups. We cooperate with higher education institutions, professional organisations and service partners. Our interaction with supervisory authorities and agencies aims to ensure compliance with expectations. Details of activities relating to material topics are presented in the following pages, along with their outcomes and how their effectiveness is assessed. Further basic principles and comprehensive goals relating to employees are to be found on our @website. 5.1 Employment In 2023, the Banking Group faced numerous new challenges due to both internal changes and external factors. Our focus has been on comprehensive programmes supporting engagement and effective change management. Our goal is to prepare the organisation for the future. SI, UZ For OTP Bank, one of the biggest challenges in the field of human resources was presented by the growth of OTP Group. The integration of the Uzbek Ipoteka Bank and the Slovenian NKBM was the most significant change at the group level, affecting both international cooperation and the employees. During corporate integration, the Bank strives to treat its employees responsibly. Integrity and transparency play a key role in change management. We strive for open communication (about the causes, processes and consequences of change), create forums and platforms to facilitate dialogue, and support employees with a wide range of tools in adapting to the new environment. More information on this can be found in @chapter 5.2.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 147/200 GRI 2-7 at the end of 2023, a total of 44,468 employees worked for the OTP Group 48 , the majority in foreign subsidiaries. The 15% increase in the Banking Group’s headcount was primarily due to international acquisitions, which resulted in Uzbekistan’s Ipoteka Bank contributing 4,344 employees to the total headcount, and NKBM contributing 1,575. Proportionally, the 49% increase (247 employees) in the headcount of the Albanian subsidiary bank was also a result of a previous international expansion: the acquisition of Alpha Bank. Other group members experiences no change or only slight increases in headcount. There was a 10% increase in the headcount of the Montenegrin CKB, while our Russian (-15%) and Ukrainian (-7%) subsidiary banks, as well as the DSK Group (-5%), experienced significant decreases in headcount. OTP Bank Russia’s headcount reduction continues to be driven by the significant decline in business activity, as well as decreases in the role of the physical POS, and the branch’s role as channel. The number of OTP Bank Ukraine employees has decreased as a consequence of the war that broke out in February 2022. GRI 2-7, 207-4 GRI 2-7 Employee headcount OTP Bank 2019 2020 2021 2022 2023 (as of 31 December) Total Total Total Men Women Total Men Women Total Men Women Full time employees 8,396 8,872 9,228 3,487 5,741 9,654 3,678 5,976 9,841 3,904 5,937 Part-time employees 922 954 850 60 790 862 70 792 874 74 800 Employees, total 9,318 9,826 10,078 3,547 6,531 10,516 3,748 6,768 10,715 3,978 6,737 Women/men ratio 35% 65% 36% 64% 37% 63% Employees with fixed-term contracts 6% 4% 5% 3% 6% 4% 2% 6% 3% 2% 3% Employees with fixed-term contracts 562 419 491 115 376 460 88 372 282 61 221 Employees with indefinite-term contracts 8,756 9,407 9,587 3,432 6,155 10,056 3,660 6,396 10,433 3,917 6,516 The data are accurate and derive from our internal records. 48 Number of active employees. A part of the workforce – a total of 2,275 by the end of 2023 – will work as agents, mainly in Russia (2,119) and Ukraine (150). No employees are working in the Banking Group in regimes without guaranteed working hours. 13,821 5,251 2,501 2,590 2,840 748 550 4,344 6,853 2,276 1,818 871 5 Number of employees by country 31.12.2023, total number of employees Hungary Bulgaria Slovenia Croatia Serbia Albania Montenegro Uzbekistan Russia Ukraine Romania Moldova Malta
BUSINESS REPORT OTP BANK (CONSOLIDATED) 148/200 GRI 2-7 Employee headcount OTP Group (as of 31 December) 2019 1 2020 2021 2 2022 3 2023 Total Total Total Men Women Total Men Women Total Men Women Full time employees 36,027 36,364 38,504 11,524 26,980 36,458 11,547 24,911 42,236 14,565 27,671 Part-time employees 1,481 1,451 1,811 339 1,472 2,317 433 1,884 2,232 421 1,811 Employees, total 37,508 37,815 40,315 11,863 28,452 38,775 11,980 26,795 44,468 14,986 29,482 Ratio of women/men 100% 100% 100% 29% 71% 31% 69% 34% 66% Employees with fixed-term contracts 7% 6% 6% 4% 7% 4% 2% 5% 3% 2% 4% Employees with fixed-term contracts 2,633 2,283 2,338 426 1,912 1,646 272 1,374 1,372 246 1,126 Employees with indefinite-term contracts 34,875 35,532 37,977 11,437 26,540 37,129 11,708 25,421 43,096 14,740 28,356 1 Not including the figures of Expressbank and OTP banka Srbija a.d. Beograd. 2 Full consolidated group. 3 Including the entire consolidated group, without the figures of Alpha Bank The data are accurate and derive from our internal records GRI 2-8 Non-employed staff headcount, 31.12.2023. OTP Bank OTP Group 2022 2023 2022 2023 Temporary agency workers 88 69 157 229 Other external workforce¹ 1,090 1,067 3,589 2,740 ¹ The figure is based partly on estimates. The reasons for the changes are not tracked at Group level. Independent workforce in legal terms include for the most part IT experts (developers, operators), trainers and other specialists performing other services, as well as students. GRI 205-2 A considerable number of sales agents (15,550 persons) are cooperating with the OTP Group in Hungary and in the region alike. Their numbers have decreased overall in 2023. The sales agent network remains more significant in Russia, as well as within a small group of the parent bank and domestic subsidiaries (OTP Financial Point, OTP Real Estate Point), and OTP Bank Romania. In Ukraine, the decline is due to the war situation, while in other countries it is typically due to the recovery from earlier inactivity and the expiration of contracts. New recruits and employee turnover GRI 2-7, 401-1 In spite of the unfavourable macroeconomic processes, the challenging international environment and the companies’ internal transformations, turnover 49 continued to decrease both at Group level and for Group members. Turnover at the banking group level decreased to 20.8% in 2023, with the voluntary departure rate being 16.0%. Employee statistics GRI 401: 3-3, 401-1, Annex 50 49 The statistics include termination of employment both by employee and employer, as well as retirement. Since turnover is traditionally high among the sales agents of the Russian and Ukrainian subsidiaries, we also present their ratios without sales agents. 50 The companies having their registered offices in Malta are not indicated separately among the country data. No employee of the Banking Group work in other countries.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 149/200 12.08% 13.65% 17.06% 6.20% 7.53% 14.37% 35.03% 8.00% 9.78% 55.48% 45.38% 29.70% 18.98% 20.30% 15.84% 20.81% 17.37% 26.94% 0% 10% 20% 30% 40% 50% 60% OTP Bank Hungary Bulgaria Slovenia Croatia Serbia Albania Montenegro Uzbekistan Russia Russia – excluding agents Ukraine Ukraine – excluding agents Romania Moldova OTP Group 2023 OTP Group 2023 – excluding agents OTP Group 2022 Turnover, 2023 employee turnover per country as a percentage of the closing headcount figure 21.0% 9.8% 12.3% 11.5% 12.4% 46.3% 16.1% 12.6% 16.7% 22.9% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Under 30 years 30–49 years Over 50 years Men Women Turnover ratio within specific employee groups as a percentage of the closing headcount of each category, 2023 OTP Bank OTP Group (including agents) 16.6% 18.5% 20.2% 7.1% 9.0% 15.7% 32.0% 10.4% 12.3% 44.7% 43.7% 19.5% 14.8% 18.1% 12.6% 20.8% 19.2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% OTP Bank Hungary Bulgaria Slovenia Croatia Serbia Albania Montenegro Uzbekistan Russia Russia – excluding agents Ukraine Ukraine – excluding agents Romania Moldova OTP Group 2023 OTP Group 2023 – excluding agents New hires, 2023 new hires per country as a percentage of the closing headcount figure
BUSINESS REPORT OTP BANK (CONSOLIDATED) 150/200 GRI 405: 3-3, 405-1, 205-2 46.98% 13.46% 5.10% 19.71% 14.74% 56.11% 15.21% 6.01% 21.59% 20.35% 0% 10% 20% 30% 40% 50% 60% Under 30 years 30–49 years Over 50 years Men Women Percentage of new hires within specific employee groups as a percentage of the closing headcount of each category, 2023 OTP Bank OTP Group (including agents) 74 83 79 52 32 83 91 100 49 35 26 17 21 48 68 17 9 51 65 0% 20% 40% 60% 80% 100% Supervisory Board Board of Directors Senior managers Middle managers Employees Supervisory Board Board of Directors Senior managers Middle managers Employees OTP Group* OTP Bank Distribution of management body members and employees by gender, per level of position, 31.12.2023 Women Men * Calculated from parent bank and subsidiary bank bodies combined in the case of members of the Supervisory Board and the Board of Directors. Employee categories include all employees of the member companies.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 151/200 Equal opportunity and workplace diversity GRI 2-10, 405: 3-3, 406: 3-3 OTP Bank’s strategy for gender equality was completed in 2021. In it, the Bank has set the following strategic objectives: ‐ ensuring equal opportunities for all employee groups, ‐ creating an open and inclusive workplace, free from discrimination, ‐ supporting a diverse, professionally outstanding, and cooperative work culture. As part of the strategy, OTP Bank committed to increasing the ratio of women in its management bodies, appointing at least one female member to the Board of Directors and the Supervisory Board. The nomination process is carried out by the Nomination Committee based on suitability, leadership, and expertise, in accordance with the requirements laid down in the Credit Institutions Act. The Bank has committed to having at least 25% female candidates for group-level leadership succession. The strategic objectives will also be accomplished through a gender-neutral remuneration policy and the strengthening of a non-discriminatory and inclusive attitude through management training and internal awareness raising campaigns. According to the employee engagement survey, 82% of employees at the group level and 88% of employees at OTP Bank feel that professional success at the company is independent of gender, age, cultural background, ethnicity, and religion. Further actions and practices: • During the year, the ratio of female candidates in the succession planning for international and Hungarian priority manager positions was 30%. In the 2023 OTP Academy international talent programmes, the Advanced Leadership Program (33%) and the Strategic Risk Leadership Program (58%), the ratio of female employees exceeded 30%. • To enhance non-discrimination, those involved in recruitment took part in labour law and sensitivity training. As in previous years, the principle of an objective and discrimination-free process for attracting talent was reinforced by standardising our internal application process, allowing internal employees to participate in a selection process fully identical to that of external applicants. In 2024, OTP Bank plans to launch new diversity programs. Diversity awareness training materials will be prepared to help managers and employees eliminate unconscious biases. Women’s leadership development programs and the launch of the international Women Network will prepare and encourage women for higher leadership roles. Dedicated succession programs are also planned to strengthen the employment of women in digital and IT fields. 2 19 2 17 33 54 55 73 62 17 9 33 70 59 67 46 44 25 19 83 91 67 28 24 0% 20% 40% 60% 80% 100% Supervisory Board Board of Directors Senior management Middle managers Employees Supervisory Board Board of Directors Senior management Middle managers Employees OTP Group* OTP Bank Distribution of management body members and employees by age, per level of position, 31.12.2023 Over 50 years 30–49 years Under 30 years * Calculated from parent bank and subsidiary bank bodies combined in the case of members of the Supervisory Board and the Board of Directors. Employee categories include all employees of the member companies.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 152/200 GRI 202-2 Proportion of women and members from the local community in senior management, 31.12.2023 Company Directorate Management ¹ Proportion of locals² (%) Proportion of women (%) Proportion of locals 2 (%) Proportion of women (%) OTP Bank 100 9 100 0 DSK Bank 88 13 88 13 OTP Bank Slovenia (SKB Bank + NKBM) 38 50 92 31 OTP Bank Croatia 83 0 83 0 OTP Bank Serbia 33 0 86 14 OTP Bank Albania - - 83 17 CKB 86 29 71 29 Ipoteka Bank 63 0 63 0 OTP Bank Russia 100 0 0 0 OTP Bank Ukraine 100 40 100 40 OTP Bank Romania 80 40 55 27 OTP Bank Moldova 100 17 83 17 ¹ Management: In Hungary: the chairman of an enterprise elected by the management body in its managerial function and employed by the enterprise, or the chief executive officer appointed to manage the enterprise and employed by the enterprise, as well as all deputies of that officer; abroad: the chief executive appointed to manage the enterprise, who is employed by the enterprise, as well as all deputies of that officer and the Heads of Division. ² Citizen of the relevant country. Many of the OTP Group’s subsidiaries have guidelines and/or policies prohibiting discrimination at the workplace and promoting diversity and equal opportunity. The policies on employee performance evaluation and financial incentives are also gender-neutral, consistently applying the principle of equal pay for male and female employees for equal or equivalent work across subsidiaries. BG The Bulgarian DSK Group launched the LaDySK initiative in 2023, in order to strengthen the economic and social role of women and support their careers. The community, consisting of 27 female leaders, has its own logo, mission, and vision. Its members have received special training, including on emotional intelligence, time management, and neuro-linguistic programming (NLP). The community also actively participates in charity initiatives within the bank. HR Our Croatian subsidiary bank published its Diversity, Inclusion, and Equality Policy on its @website. In 2023, it developed the social pillar of its ESG strategy, in parallel with an assessment of its social impacts. Consequently, it reviewed its main internal regulations, supplementing them with provisions related to human rights and diversity. The bank’s employees participated in the Workplace Inclusion Champion educational programme organised by the Croatian Business Council for Sustainable Development, to implement a detailed Diversity and Inclusion (D&I) action plan in 2024, as part of achieving the goals set in the ESG strategy. AL OTP Bank Albania is committed to non-discrimination and the protection of vulnerable groups. In 2023, it signed a memorandum with UN Women 51 , promoting gender equality. UZ In 2023, Ipoteka Bank had a Gender Equality Committee and a Women’s Committee, providing financial contributions and benefits to women. Women received free medical check-ups and vaccinations, as well as health care and sanatorium services for those in need. Retired employees and those with over 45 years of work experience receive special recognition and gifts, and once annually, financial support is provided to employees with disabilities. RO OTP Bank Romania’s brand philosophy as an employer, the #otpmindset concept, is based on diversity and equal opportunity. A total of 483 persons with disabilities were employed at the end of 2023. Within OTP Group, the DSK Group employs the largest number of people with disabilities (156 people) and OTP Bank Ukraine the largest ratio (5.5%). At OTP Bank employees with disabilities are provided by a monthly amount of HUF 10,000 in the way of rehabilitation allowance in addition to the extra holiday stipulated in the Labour Code. OTP Group is committed to supporting career starters and, in connection with this, to cooperation with higher education institutions and students. Most Banking Group members regularly host trainees and students completing their practical training, and employ students temporarily. Within the framework of its cooperation with higher education institutions, OTP Bank actively participates in university mentoring programmes, job fairs and student organisation events, as well as supporting lectures, research and study competitions. 51 UN Women is a United Nations organisation dedicated to empowering women and girls in the social, economic and political arenas.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 153/200 Following the practice of previous years, the OTP Group employed 979 interns in 2023. Among the Group members, the Ukrainian, Romanian, and Albanian subsidiary banks welcomed the highest number of trainees in proportion to their headcount. OTP Bank operates a dedicated Trainee Program. In 2023, a total of 229 trainees and 300 students were offered employment, and 300 university students were provided opportunities to work as professional trainees in the branch network and central areas. Around 60 percent of young people who have completed an (apprenticeship) traineeship or student placement have been recruited by the Bank as staff. 23 percent of the employees who joined in 2023 were under the age of 25, thus the Bank offered employment opportunities to approximately 300 young professionals. RS The Serbian subsidiary bank cooperates with several NGOs for the employment of disabled and disadvantaged young people. Trainees were hosted through the Roma Entrepreneurship Development Initiative (REDI) programme, and at the end of 2023, they began collaborating with the UNDP (United Nations Development Programme) and the Forum for Young Disabled People. They helped to inform stakeholders about open positions and traineeship opportunities within the bank, and the bank’s employees participated in forums and conferences organised by the two organisations. A dedicated traineeship competition for young people with disabilities was launched at the end of the year. RO As a unique initiative, the Romanian subsidiary bank has launched the Hungarian Native Speaker Trainee Programme 2023. The programme gives Hungarian-speaking young people the opportunity to learn about the bank and the financial sector, and to gain experience in their profession. Students typically remain in the bank as employees after the mentoring and learning phase. GRI 2-30, 402-1 All members of OTP Group respect the rights of freedom of association and collective bargaining, and provide opportunities for advocacy in accordance with applicable local laws. Relations with advocacy groups are collaborative. 65 percent of OTP Bank’s employees are members of a union, with a group-level ratio of 40% 52 . The Bulgarian, Croatian, Montenegrin, and Uzbek subsidiary banks have a high rate of union membership. The majority of the Banking Group’s employees (70%) are covered by a collective bargaining agreement. For OTP Bank employees, this ratio is 97% 53 . There are collective bargaining agreements in force at OTP Bank, DSK Bank, OTP Bank Serbia, OTP Bank Croatia, OTP Bank Romania, the Uzbek Ipoteka Bank, OTP Bank Ukraine, CKB, the Slovenian SKB 54 and NKBM Banks, and the Hungarian subsidiaries OTP Lakástakarék, OTP Jelzálogbank, NAGISZ and Velvin Ventures. As it relates to the minimum notice period regarding operational changes that could substantially affect employees, the banks of OTP Group follow varying practices in compliance with local requirements (see @Annex). Employees’ rights, policies, employment rules and practices are available to employees and are displayed in internal communication channels, on the relevant intranet pages. Labour complaints GRI 401: 3-3 During the year a total of 48 labour procedures were commenced against companies of the OTP Group, of which 36 procedures were closed by the end of the year. 35 of the cases closed were labour lawsuits. The compensation paid in 2023 amounted to 233 million HUF, including a fine for practices from a previous period amounting to 218 million HUF. In the case of CKB Group, a verdict was reached in favour of the plaintiff regarding an unlawful termination of employment in 2019 for compensation of lost earnings. The Russian, Ukrainian, Serbian, and Bulgarian subsidiary banks were also involved in the labour proceedings. 5.2 Employee inclusion, measuring engagement GRI 2-29, 401: 3-3 Continuous dialogue with the employees is a key element of OTP Bank’s HR strategy – we communicate through a variety of channels and in diverse forms, to get to know their needs, requirements and opinions and receive feedback at the same time. OTP Group places a high importance on employee satisfaction and strengthening employee engagement. Annual engagement surveys and targeted pulse surveys allow the effects of developments to be measured. 52 Slovenian banks are not allowed by national law to keep records of trade union members, so this is not included in the data. 53 At OTP Bank, the working conditions and terms and employment conditions of employees not covered by a collective bargaining agreement are also determined on the basis of the existing collective bargaining agreement. The working conditions and the terms and conditions of employment of employees not covered by collective bargaining agreements at the members of the Banking Group are typically not determined on the basis of the collective bargaining agreement of the member company or other organisation. 54 Not the organisation's own collective agreement, but a sectoral collective agreement.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 154/200 Own indicator OTP Bank conducted an employee engagement assessment in 10 countries applying the same methodology across the group, for the third time. 55 In 2023, a total of 28,990 employees took the opportunity to provide feedback, representing an extremely high (91%) response rate. While maintaining the participation rate, the Banking Group also managed to improve employee engagement and remain an attractive workplace in the labour market. Survey results:  Employee engagement level increased by two percentage points to 72%, compared to 76% for OTP Bank in 2023.  With this 2 percent increase, the engagement rate is approaching the global financial sector average (75%) 56 . OTP Group’s goal aims to reach the global 75th percentile of engagement, which was 78% in 2023.  In addition to Hungary, the highest levels of engagement were found in Albania, Ukraine and Romania. Seven of the ten countries surveyed saw an increase in engagement compared to the previous year.  As a result of the actions taken at group level, a larger proportion of employees (68% instead of 60%) reported positive changes in their environment as a result of the (previous) survey. Most respondents found it important that communication had become more open and more regular, leading to improved cooperation with colleagues. They also noted positive changes in terms of remuneration. 91 percent of respondents noted career opportunities, employee well-being and recognition as key factors in their engagement, and 72 percent of respondents (2022: 71%) believe that the survey will result in improvement initiatives. All employees received comprehensive information about the survey results, and were given the opportunity to provide feedback on it. This process serves as a basis for the 2024 action plan, focusing on the following three areas:  providing career opportunities (by extending the job system internationally, creating transparent career paths, initiating international mobility),  employee well-being (reviewing and streamlining processes for welfare services, increasing efficiency),  and strengthening the involvement of senior management (reinforcing the dialogue between managers and employees). Additionally, each organisational unit must identify at least two to three specific goals that will provide an effective response to employee feedback. The importance of a feedback culture is increasingly significant in the Group’s operations, collecting feedback from members of OTP Group in a number of different ways beyond just the engagement survey. SI The Slovenian group conducted a pulse survey on the inter-bank integration process and a cultural survey to explore their employees’ views on the current and desired organisational culture. RS Our Serbian subsidiary bank has rolled out the Heartcount app – already tested in 2022 – to its 1,600 employees. Heartcount is a tool for efficiently collecting and analysing employee feedback. RU Our Russian subsidiary bank conducted employee surveys on various programmes, including gamification, health insurance, transparency of the bonus process, and the potential for internal collaboration. Open internal communication, change management For the Slovenian and Uzbek banks, internal communication played a crucial role in change management due to company mergers and integration into the banking group. Priorities included harmonising operations, strengthening cooperation and defining the necessary management steps towards the desired organisational culture. In both cases, the aim was to make integration a predictable and understandable process for employees. SI The two Slovenian banks have embarked on a number of new activities to strengthen employee engagement. This included the introduction of “crossbank” team-building events, a new change management training programme for managers, regular meetings to strengthen communication and information sharing (monthly and quarterly business review meetings), and organising community-building 55 In Russia, the survey was conducted on a different platform and with some different questions. The response rate was 90%, and the detailed results are still being processed. The first survey in Uzbekistan will take place in 2024. 56 The Financials Avg benchmark contains six million responses from 116 companies of the world classified on the basis of the GICS method.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 155/200 events and activities (Bankathlon, Christmas events, health improvement programmes, mobility week) that can appeal to all of the employees of both banks. Organisational culture workshops were also held with managers to jointly define the core values and desired behaviours of the bank created as a result of the merger – which is planned for 2024 – and to incorporate them into performance management and moral recognition systems. RO In 2023, OTP Bank Romania held an internal event, the HR Open Days, to give colleagues the opportunity to ask questions about the bank’s market position and sales. A dedicated internal communication platform was also established for this purpose, named the “Dialogue of Colleagues”. 5.3 Career opportunities OTP Bank operates a uniform, consistent, transparent and equal remuneration and incentive structure. This is governed by the Job Framework. The job framework was implemented in the Bank and its Hungarian subsidiaries 57 in 2022, with the Group-level international rollout slated for the end of 2024. The job framework defines the career paths offered by the Banking Group to its employees. Performance management and remuneration are linked to the wage brackets aligned to the career levels. The standardised system of criteria resulted in a job structure which is a lot simpler, more transparent and flexible than the structure it replaced. A new IT system supporting the system will also provide job maps, allowing employees to see the skills and competencies required for a particular position. In 2023, OTP Bank introduced a uniform internal application framework across the company, supporting internal job rotation and transparent, horizontal career paths. GRI 404: 3-3, 404-3 The Bank provides a review of development goals twice annually to all employees as part of the performance review, defining the directions for personal growth and discussing development solutions. Among the subsidiary banks, this is fully implemented at the Serbian subsidiary bank, but only to a lesser extent at other member banks, resulting in 41 percent of employees receiving a career development review at the group level. Men and women are almost equally represented in the review, while by job category, 56% of middle managers and 39% of employees are included. 58 Talent programme We have developed a standardised talent development framework and manager succession planning scheme. In 2023, we introduced international talent programmes as part of the OTP Academy framework. OTP Academy Framework OTP Academy provides an opportunity for uniform, comprehensive, and high-level knowledge acquisition at the Group level. The aim of the programme is to build a high-quality international professional community, in addition to promoting professional and personal development. Each academy is designed to develop key skills at different levels of proficiency. However, a common feature is that, in addition to knowledge development, they also develop skills based on practical application, experience exchange, feedback, and development. The main objective of the professional academies is to develop key skills for business success along key job families such as risk management, digitalisation or business development. Leadership academies aim to create an international, cross-organisational community of leaders. As part of the OTP Academy programme, we have introduced several leadership development programmes at the Group level. For more information on international leadership talent programmes, see @chapter 5.5 “Training and education” (Advanced Leadership Program and Executive Leadership Program). Performance review GRI 404: 3-3, 404-3 Employee performance is assessed by the members of the OTP Group based on different methodologies. Regular feedback, linked to individual and corporate objectives and based on objective criteria, is fully implemented at OTP Bank and at several foreign subsidiary banks. Defining development objectives and assessing competences is a subject of discussion between the manager and the employee. The HR information system is used to set objectives and evaluate their achievement. The frequency and metrics of the performance evaluation process can vary by area (e.g., head office, sales, 57 For Hungarian subsidiaries where this was justified by the headcount of employees and the group-wide impact, including Faktoring Zrt., Merkantil Zrt., Jelzálogbank Zrt. and Lakástakarék Zrt. 58 OTP Bank Romania could not provide accurate data on the number of employees provided with career building overviews. Among top managers the career building overview is, in most cases, no longer relevant, therefore no specific data on this are presented.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 156/200 customer service, agile organisations), with each case governed by specific internal regulations. In the engagement survey, 71% (2022: 66%) of OTP Bank employees indicated receiving meaningful recognition for their achievements. OTP Bank is gradually introducing OKRs (Objectives and Key Results), aiming to develop and support a management feedback culture, in addition to achieving the company’s strategic goals. In 2023, the objectives and leader evaluations of approximately 3,600 employees were based on this methodology. The novelty of the system is that, in addition to organisation-specific goals, we can also set horizontal indicators and goals. Thus in 2023, the individual organisations have also defined indicators related to the development of financial literacy, as well as the enhancement of digital knowledge and skills. More than 95 percent of staff in the Bulgarian, Slovenian, Serbian, Albanian, Ukrainian and Moldovan subsidiary banks abroad received regular performance evaluations. 59 At the group level, 85 percent of women and 75 percent of men received performance evaluations in 2023. Broken down by job categories, 82% of senior managers, 87% of middle managers and 81% of employees received a performance rating. HR RS In 2023, the Croatian and Serbian subsidiary banks prepared separate training materials on giving and receiving feedback, aimed at developing both managerial and employee skills. 5.4 Remuneration, rewarding of the employees Benefits GRI 405: 3-3, 2-19, 2-20, 401-2 OTP Bank’s Remuneration Policy is in line with SRD II – it covers the whole of the organisation and includes a description of the decision making process relating to determination, revision and implementation, including measures aimed at preventing or managing conflicts of interest, the role of the Remuneration Committee; managers’ bonuses, the components of fixed and variable remuneration and the objectives for directors. The system of targets of foreign subsidiary managers were fully revised and the targets were harmonised, for 2023. Sustainability considerations were also taken into account in the process (see @chapter 1). In line with legislative requirements and its engagement to equal opportunity, the OTP Group consistently employs the principle of ‘equal pay for equal work’, including ensuring gender equality. OTP Bank’s gender- neutral remuneration policy declares that job-specific wage brackets are aligned with the level of positions and market practices in its wage setting strategy; regular wage audits control and ensure that no significant wage differences can emerge between the genders. OTP Group member companies typically provide the same benefits to full-time, part-time and fixed-term contract employees 60 . Members of OTP Group remunerate their employees at the rates customary in the market of the relevant country. Some of our employees’ pay is dependent on their measurable performance. Every Group member increased wages in 2023, by more than 5% in most cases. Nearly all members of the Banking Group also offer fringe benefits to their employees. OTP Bank’s remuneration practice differs from those generally applied by other market participants in Hungary: in addition to the annual pay rising process enabling basic wages to be regularly adjusted, the average bonuses are also significantly higher than the usual market rate. The renumeration structure of the Uzbek Ipoteka Bank differs from the Group’s practice, and harmonising it will be one of the tasks for the coming period. OTP Bank’s remuneration and incentive practices are closely linked to the newly introduced job framework. We operate a clear, consistent, transparent and equitable remuneration and incentive structure at all levels. Consultations and coordination with the trade union also take place in relation to remunerations. OTP Bank has had an employee stock ownership plan for years; it is used as a long-term incentive tool. At the end of 2023, 918 people were participating in the programme. RS In 2023, our Serbian subsidiary bank paid special attention to recognising and rewarding employees: it implemented wage increases among branch network employees, introduced a quarterly bonus as a regular form of remuneration, and applied annual performance-related salary adjustments. Additionally, it provided a flexible benefit (birthday leave) to employees on a trial basis. 59 In Ipoteka Bank in Uzbekistan, the performance management system will be implemented in 2024. 60 An exception is the practice of OTP Bank Russia, which provides part-time and fixed-term employees with life insurance, health protection, extra days off and other benefits only up to the level required by law, while full-time employees are entitled to these benefits. OTP Bank Albania provides the other benefits to full-time employees but not to part-time employees, and OTP Bank Serbia provides the health care benefit only to full-time employees.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 157/200 ¹ Average of the parent bank and the subsidiary banks. GRI 405-2 Total benefits for women compared to men, 31.12.2023 Men Women Senior managers Middle managers Employees A verage OTP Bank 100% not interpretable 93.4% 97.8% 97.3% DSK Bank 100% 97.7% 98.8% 89.8% 89.9% OTP Bank Slovenia (SKB Bank only) 100% 105.8% 98.0% 99.7% 99.9% OTP Bank Croatia 100% not interpretable 84.6% 88.2% 87.8% OTP Bank Serbia 100% 86.0% 85.0% 83.0% 83.0% OTP Bank Albania 100% 81.0% 96.5% 85.5% 87.5% CKB 100% 70.8% 87.3% 92.7% 91.7% Ipoteka Bank 100% not interpretable 91.0% 95.0% 94.0% OTP Bank Russia 100% not interpretable 87.0% 92.0% 92.0% OTP Bank Ukraine 100% 102.2% 76.0% 96.3% 95.3% OTP Bank Romania 100% N/A N/A N/A N/A OTP Bank Moldova 100% 92.6% 81.1% 72.7% 74.4% OTP Group¹ 100% 91.0% 89.6% 92.7% 92.4% ¹ Average of the parent bank and the subsidiary banks. ME At the beginning of 2023, CKB introduced compensation for lower-paid categories of employees to keep wages stable in the face of inflationary pressures. A uniform 17% wage increase was introduced in the second half of the year, and the budget for bonuses was also increased. UA In Ukraine, due to the crisis situation caused by the war, the subsidiary bank provided accommodation compensation for employees during the forced relocation in 2023, as well as financial support and salaries for mobilised employees, a significant wage increase and a company discount on health insurance. OTP Social Foundation In Hungary, the Foundation provides help to OTP Group employees, (including pensioner employees) and their families in crisis situations. One-off, long-term or in-kind assistance (including medical care or support by a psychologist) is granted based on applications. Besides crisis situations, the assistance may also be requested for camps or start-of-school expenses. 5.5 Training and education GRI 404: 3-3, 404-2 In 2023, the Banking Group has placed a strong emphasis on leadership development and continues to offer a broad training portfolio to its staff. In 2023, the OTP Group spent more than HUF 4 billion on employee training. The average per capita training cost nearly doubled, as a result of the price increases and the intensive trainings for middle and top managers. The average training time was 34 hours/employee. Every single employee of the OTP Group was provided with training. The parent bank provided the most training in 2023, with nearly 80 percent of employees attending training beyond the mandatory courses. Leadership development One of the most important goals of OTP Bank’s HR strategy is to support and develop its managers as they play a key role in maintaining the cohesion, and ensuring the effectiveness, of the organisational units and in change management. GRI 405-2 Ratio of the basic salary of women to men, 31.12.2023 Men Women Senior managers Middle managers Employees Average OTP Bank 100% not interpretable 95.8% 98.5% 98.2% DSK Bank 100% 92.1% 98.0% 94.4% 94.5% OTP Bank Slovenia (SKB Bank + NKBM) 100% 99.8% 94.2% 98.1% 98.2% OTP Bank Croatia 100% not interpretable 91.3% 96.6% 96.3% OTP Bank Serbia 100% 92.0% 87.0% 84.0% 84.0% OTP Bank Albania 100% 81.8% 101.9% 92.4% 94.1% CKB 100% 78.2% 85.7% 87.2% 86.9% Ipoteka Bank 100% not interpretable 91.0% 95.0% 94.0% OTP Bank Russia 100% not interpretable 85.0% 84.0% 84.0% OTP Bank Ukraine 100% 103.1% 82.1% 92.9% 92.4% OTP Bank Romania 100% 88.8% 90.8% 93.3% 93.3% OTP Bank Moldova 100% 94.8% 80.0% 72.6% 74.2% OTP Group¹ 100% 92.6% 90.8% 92.4% 92.2%
BUSINESS REPORT OTP BANK (CONSOLIDATED) 158/200 In 2023, we heavily focused on international leadership training. In the Executive Leadership Program, the Advanced Leadership Program and the Risk Leadership Program, in addition to leadership development, we placed a strong emphasis on collaborative project work and community building.  OTP Bank, in cooperation with INSEAD, has implemented its first group-wide Executive Leadership Program, with the participation of 30 middle managers from 12 countries. The aim of the programme is for high potential middle managers to develop the skills and knowledge they need to reach senior management positions. The training gave them the opportunity to work on real projects, build their network of contacts and learn from experienced leaders (mentors).  A total of 31 international strategic leaders from 9 countries participated in the Advanced Leadership Program. As part of the 9-month programme, participants learned from world-class experts from London Business School and worked in teams on comprehensive, group-wide strategic development projects. Excellent solutions in the areas of customer experience, digital innovation, talent management, international collaboration and leadership development were developed and presented at the International CEO Forum. The feasibility of projects is decided by the Executive Steering Committee of the parent bank.  Also in 2023, the Strategic Risk Leadership Program as part of the OTP Risk Academy international leadership development programme was completed. The 9-month training was attended by 24 risk managers from 10 countries, with the SEED Executive School involved in preparing them for the role of strategic leader. Participants also worked in teams on strategic programmes for banking group risk management. The results and proposals will be incorporated into the strategic planning of the area. The OTP Risk Academy, the first of its kind to be launched in 2023 among professional academies, is open to all employees working in risk management. More than 1,400 Banking Group employees have access to the basic module focusing on professional knowledge. Digital learning (11 e-learning) materials and webinars, which are uniform on group-level, cover the main areas of risk management. By the end of the year, more than 60% of the colleagues concerned had completed the training. OTP Bank will continue to expand its professional academies in 2024, including the Risk Academy, Collection Academy, Digital Academy and Retail Academy. ESG training In 2023, we created an ESG training course comprising five modules and targeting nearly 900 managers, with the inclusion of an external advisor. Available in English and Hungarian, the training covers ESG fundamentals and legal background, business opportunities, risk management, employer responsibility and ESG governance. 50 DSK Bank managers took part in a three-hour educational game on climate change, based on the IPCC reports. Comprehensive leadership development continues at the parent company headquarters, with regular forums, experiential learning and using the latest tools and methods. The Bank offers a targeted training portfolio for branch managers, geared to their specific challenges. The development of their problem solving skills is facilitated by a dedicated platform called EDUardo by simulating life-like situations, real-time feedback and interactive case studies. SI In 2023, the Slovenian Group’s leadership development programme also covered the area of change management to develop the competences of leaders to successfully manage significant organisational change. Professional training programmes and competence development Development of the employees’ professional expertise is one of the most important tasks at all group members. Participation in the professional and other training courses necessary for work performance (e.g. ethics, compliance, security, health and safety, environmental protection) is based on annual training plans. Training plans are developed with the inclusion of staff, taking into account the results of performance reviews. Strengthening communication skills, cooperation skills and personal productivity and supporting stress and change management, play a special role in trainings aimed at skills development. OTP Bank also provides self-development opportunities for its 500 employees by giving them access to different platforms (Udemy O’Reilly, Cloud Guru). In 2023, OTP Bank renewed its portfolio of leadership and employee skills development programmes. 45 curricula development and updates (e.g. basic training in banking curricula are reviewed quarterly, job
BUSINESS REPORT OTP BANK (CONSOLIDATED) 159/200 preparation materials annually, mandatory training courses, etc.). Satisfaction with training and education is above 9 according to the satisfaction measurement questionnaire. 5.6 Safe and healthy working environment Work-life balance, employee well-being Psychosocial risks can have a negative impact not only on the individual but also on the whole organisation and the efficiency of the national economy, so managing them effectively is an important task. The objective of the HR strategy focusing on employee experience is to ensure a supportive workplace atmosphere; to this end, the OTP Group applies a number of practices making it possible for employees to achieve the best possible work-life balance and maintain mental health. GRI 405: 3-3 Atypical forms of employment, including part-time work, teleworking and working from home office, are possible for members of the Banking Group. Following previous practice, hybrid working (partly office work, partly home office work) was typically available to those in central jobs, to varying degrees from area to area. For OTP Bank employees, the proportion of working days spent in the home office was 17%, with an average of 28% in the central area and just over 1% in the network. In line with international trends, the number of home office days available at OTP Bank in 2023 was two days per week. Changes in Hungarian legislation have allowed parents with young children to have more flexible working conditions. Several subsidiary banks have made teleworking easier. BG The Bulgarian subsidiary provides an extra two days of paid leave or employee recreation and regeneration, and teleworking was greatly simplified in 2023 based on employee feedback. HR OTP Bank Croatia rewards exceptional performance with extra day off and has introduced teleworking for more than 1,800 employees. They also allowed for so-called “temporary teleworking” for vulnerable groups and for exceptional and justified cases. The rate of extraordinary work in OTP Bank decreased compared to the previous year. The annual number of overtime hours per capita was 39.4 hours in 2023 (based on the number of overtime workers), 17.9% less than in 2022. The average number of hours of overtime worked per person was 19.1 hours. In the satisfaction survey, 70% (2022: 69%) of OTP Bank employees, 69% on Group level, found that the Bank treats employee well-being as a priority. We aim to continuously improve this value. OTP Bank also conducted a separate survey on satisfaction with welfare services. The most important welfare services for employees are contributions to personal health/pension accounts, private health services, bonus holidays and employee discounts from OTP and its partner companies. The survey has shown that what is needed is not the introduction of new physical, mental, social or financial welfare services, but the simplification and efficiency of processes. So in 2023, we focused primarily on expanding existing services and making them easier to access and use. Under a health insurance contract, OTP Bank financed a total of 32,161 screening tests or healthcare treatments resulting from health complaints in 2023. An extended screening bus service has become available to employees in the Hungarian branch network in the regions. Several members of the OTP Group provide their employees with healthcare services over and above what is required by law, including health insurance and screening tests, in view of employee needs and requirements. Because of the high proportion of women in the workforce, the examinations that are important for them are in focus. In addition, in 2023, several new projects and measures related to work-life balance and employee well-being were implemented by the group members: BG In 2023, the DSK Group launched its well-being initiative entitled “Balance Your Life”, providing a platform for colleagues to discuss the topic and organised webinars. Its Wellness Academy continued to focus on healthy living, exercise and medical consultations. GRI 404: 3-3, 404-1 Annual training per employee, number of hours (2023) OTP Bank OTP Group Senior manage r 61 82 Middle manage r 97 62 Employee 77 31 Men 76 34 Women 81 33 2023 average 79 34 2022 average 80 35 2021 average 76 47 2020 average 74 50 2019 average 80 50
BUSINESS REPORT OTP BANK (CONSOLIDATED) 160/200 SI The well-being and health promotion programmes of Slovenian banks continued to be extensive in 2023. They offered office exercise, massage, sports club programmes and health awareness webinars. Psychological support is available in both banks, provided by an outsourced specialist who guarantees anonymity to employees. AL OTP Bank Albania has introduced several engagement programmes to promote work-life balance. Work- life balance is also a theme of the new entrants’ orientation programme. The In4Change Workshop aims to develop the perceptions and feedback of employees on major events and situations in their work environment or in their personal lives. ME The main elements of the group’s well-being programme include: free yoga classes, expert presentations on mental health, parenting, healthy eating, exercise and topics that employees think are important. Family-friendly programmes Many of OTP Bank’s employee have small children or are preparing to have children. For years, the Bank has been providing discounted camping opportunities for employees’ children through the OTP Social Foundation, and they can also apply for financial education camps organised by the OTP Fáy Foundation and for programming summer camps organised in association with the Association of Computer Managers. Our employees were also eligible to apply for a contribution to cover the costs of summer camps outside the Bank, with 777 children benefiting in 2023. In 2023, the Bank provided children’s daycare for 10 weeks during the school holidays at its headquarters. Each time, 17 children were supervised and a total of 620 children used the service. The Bank has increased the number of vouchers issued for domestic reward holidays and the number of summer camp tours. A total of 363 children attended the summer day camps, which lasted several days. Several members of the OTP Group offer their employees the opportunity to apply for start-of-school allowance, family support options (e.g. for the birth of a child or the funeral of a close relative) and company events (e.g. Family Day, Santa Claus, Children’s Day programmes) in which family members can also participate. In 2023, Elf Factories welcomed children were welcomed in 5 locations across the country. In addition to OTP Bank employees, employees of domestic subsidiaries and mothers with young children at home were also invited to the programme. 1,700 children spent happy hours with Santa Claus, made small gifts or took part in the concerts. Across the group, thousands of employees are on long term parental leave. 61 Parental leave is also available for fathers, but still few of them take advantage of it. GRI 401-3 Employees taking parental leave and employees returning, 31.12.2023 OTP Bank OTP Group Men Women Men Women Persons entitled to childcare leave (persons) 45 1,098 1,675 7,664 Persons taking childcare leave (persons) 3 930 85 4,104 Number of people returning to the company after childcare leave (persons) 2 292 62 1,184 Percentage returning to the company after childcare leave (%) 100 92 93 63 Still employed 12 months after return (retention rate) (%) 0 96 60 68 Stress management and individual support own indicator - The OTP Group lays particular emphasis on preventing and eliminating the problems inherent in the nature of its operations (e.g. stress, sitting at work). Reducing psychosocial risks and preventing their consequences for mental and physical health is an important task of health and safety at work. In order to identify and reduce psychosocial risks, stress management, burnout prevention training and online webinars are available for employees in the majority of member companies. In 2024 Q1, OTP Bank will launch a comprehensive survey to map these risks. Participation in the survey is voluntary. To overcome mental health difficulties, OTP Bank continued to provide support services for individuals and families in 2023. The Smart Hour webinar series continued. Weekly presentations by external specialists discussing typically problems relating to mental health, personal development and various common situations at work or in private life, and recommending solutions. 61 Long-term childcare leave, which can be taken by both women and men, depending on local regulations. The definition does not cover the short term parental leave introduced in Hungary in 2023.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 161/200 For the first time, the Bank organised a Health Day with external professional partners. In addition to learning about healthy lifestyles and psychological factors, the hybrid event also provided participants with practical help in @bhc.hu and @meghallgatunnk.online experts on how to manage stress, get restful sleep and have a healthy diet. Each time, the presentations were attended by 30–50 people on the spot, but there was also a lot of interest online, so in the future the Health Day will be held every six months. Since 2020, Bank employees have had the opportunity to consult specialists of the @meghallgatunk.online portal (coaches, psychologists, mental health professionals) free of charge. Feedback suggests that the service is useful and that more and more people are using this kind of help. From its launch until September 2023, more than 2,000 counselling sessions were held to deal with work and family problems or health issues. In 2023, employees participated in 960 consultation sessions. In special cases (in 2023, there were several non-work-related deaths in the Bank), we held a series of group consultation to process grief. During the year, office massage, specifically tailored for office sedentary workers, was made available with the help of medical masseurs. HU RO MD OTP Bank and OTP Bank Romania have several hotels where 96 employees and their families (284 people) could stay at a discounted rate, while the top performers could stay for free. In addition to OTP Bank and OTP Bank Romania, some of the Hungarian subsidiaries and employees of the Moldovan subsidiary bank have the possibility to benefit from discounted rates at these hotels. Sports The OTP Group encourage its employees to do physical exercise. In 2023, OTP Bank organised its traditional central sports day, which was also attended by the employees of the Group’s Hungarian members. The primary objective of OTP Bank’s community sports application scheme is to encourage workplace communities (at least 10 strong teams) to engage in joint sports activities. In 2023, the Bank increased the budget for the call for proposals, which resulted in more than 173 events, mobilising 6,135 employees. In order to promote sport, sports-related articles were regularly published on the internal communication platform and the Bank took over the registration fee for AllYouCanMove and, to a limited extent, the entry fee for people doing individual sports. The bank’s sports clubs regularly organise home championships, which are open to employees of subsidiaries as well. A wide range of sporting opportunities were also available in 2023 among member companies. These typically involved the organisation of sports days, the participation of company teams in sports competitions and the funding of sports clubs. RS The Serbian subsidiary organised an OTP All Star sports day with the participation of 500 people and supported the active participation of employees in local sports competitions (Business Run). AL The Albanian subsidiary held a volleyball and football tournament for the purposes of teambuilding. UA In Ukraine, a traditional sports day was organised and a running club is run. MD The mission of the CKB Mission Possible Team is to build a community of people working in different areas. In 2023, 300 people participated in activities such as hiking and boat trips. To promote physical activity, several member companies run or make available exercise and fitness programmes for their employees. SI SKB Bank was awarded the WAC (Workplace Active Certification) certificate in 2023 for its achievements in 2022. The bank offers a variety of sports and clubs for recreational sports and competitions. In 2023, a Bankathlon sporting event was organised for the employees of the NKBM and SKB. The NKBM sports club also has a hiking section, which organised 8 mountain hikes in Slovenia in 2023. UZ The Uzbek subsidiary bank its employees the opportunity to exercise regularly in the fitness centre. A special fitness programme was offered for women. The trade union is actively involved in organising sporting events in the company, and twice a year it organises tourist trips to cities in Uzbekistan. RO The Body Awareness Program of OTP Bank Romania was established with a view to supporting sports, healthy eating and awareness; it contributed to the achievement of the objectives with a series of videos presenting sports exercises, mindfulness training and 3 sports camps. Occupational health and safety and accidents GRI 3-3 The OTP Group makes every effort to maintain safe working conditions. The low number and severity of accidents is proof of the effectiveness of these efforts. From an occupational health and safety perspective, the Banking Group’s employees are mainly employed in low-risk jobs, the framework for occupational health and safety is regulated in accordance with local legislation and occupational health and safety activities are carried out in accordance with it. In 2023, OTP Bank’s Occupational Health and Safety
BUSINESS REPORT OTP BANK (CONSOLIDATED) 162/200 Code was revised. A more significant change is that the scope of the responsibilities and professional training of the person responsible for occupational health and safety has been specified due to the changes in the law on occupational health and safety, and the regulation has been amended to include printing and logistics activities; occupational health has been modified for certain jobs. The most important work and fire safety task in 2023 was the inauguration of the data centre, which is a priority area from a safety point of view. The employees of the Banking Group also receive regular training in occupational health and safety in accordance with local legislation. OTP Bank employees participate in annual training, which goes beyond the expectations. Group-wide cooperation with the Hungarian subsidiaries has been strengthened, and the renewed e-learning material on occupational safety and fire prevention has also been shared. GRI 403-9 At OTP Bank, the rate of work-related accidents 62 increased to 1.5 in 2023, which is good compared to the national statistical average (4.4 to 5 accidents at work per 1,000 employees). For the OTP Group, the indicator remained unchanged from the previous year at 2.0 in 2023. Accidents were investigated in accordance with the relevant legislation. At Group level, accidents at work continue to be predominantly work-related, occurring in the Banking Group’s facilities, while walking (falls, slips) or during manual materials handling. GRI 403-9 Work-related injuries OTP Bank OTP Group 2020 2021 2022 2023 2020 ¹ 2021 2022 2023 Number of accidents² (pcs) 22 18 9 16 42 77 85 85 Accident rate² (per 1 million hours worked) 1.35 1.05 0.5 0.88 0.63 1.11 1.27 1.13 Number of high-consequence injuries (pcs) 0 0 0 0 1 1 6 5 Serious accident rate (per 1 million hours worked) - - - - 0.02 0.01 0.09 0.07 ¹ OTP Bank Ukraine was unable to provide data and is therefore not included in the projection base. ² Accidents subject to reporting. The number of hours worked was 18,084,383 for OTP Bank and 75,368,421 for OTP Group in 2023. The data reporting covers all employees. It is an important achievement at OTP Bank that still no accident occurred while employees worked from home, just as there were no accidents involving supervised employees or persons working on company premises either in 2023. 63 External workers working at OTP Bank’s premises are provided, and familiarise themselves, with the occupational health and safety regulation upon the handover of the worksite and they are obliged to report any accident occurring at the premises. First aid In the summer of 2023, our employees successfully provided first aid on several occasions after several cases of customers becoming unwell due to heatwaves. These cases highlight the crucial importance of first aid training. The training will continue in 2024 to ensure that all the Bank’s organisation units are fully equipped with first aid personnel, further enhancing the safety of employees and customers. 62 Number of work-related injuries per 1,000 employees 63 Of the foreign subsidiaries, DSK Bank, OTP Bank Albania, and OTP Bank Moldova were unable to provide data.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 163/200 6. COMMUNITY ENGAGEMENT 6.1 Activities aimed at improving financial literacy This chapter describes the activities related to the following relevant topic: ST8: GRI 3-3 Strengthening of financial awareness in vulnerable groups Impact: Financial products and services may be highly complex – financial literacy is indispensable for one to understand such products and services, for making responsible and good financial decisions as well as for accomplishing one’s objectives. This knowledge is harder to acquire for vulnerable groups (including young people), even though it is of above-average importance for them in creating a stable financial background. The OTP Group has the knowledge to expand the knowledge of these groups. This material topic supports the achievement of the following SDGs: Engagement: The OTP Group is committed to the development of financial literacy, which is the focus of its community engagement. To reach target groups as widely and as effectively as possible, we are also working to promote financial awareness through our own foundation and through partnerships with other organisations. We are constantly looking for ways to make our work more effective. The OTP Group strives to communicate clearly and understandably about its products and services and uses a number of tools to support understanding, which are described in @chapter 3.1. Objectives: Raising awareness of the future among people Deepening financial literacy and raising awareness Acts: Running a wide range of financial education programmes through its own foundations Training programme for the socially disadvantaged Cooperation with NGOs, professional organisations and universities Encouraging volunteering in the development of financial literacy Stakeholder engagement/compliance: Extensive cooperation with NGOs and professional organisations, local communities, conducting research, involving employees and clients, requesting feedback on results and experiences, transparent communication on donation activities, publishing ESG strategic objectives. Details of the relevant thematic activities, their results and the evaluation of their effectiveness are presented on the following pages. For further information visit our @website. The OTP Group is a dedicated supporter of financial literacy across the region. Member companies are helping in many ways to ensure that today’s young people make informed financial decisions as tomorrow’s adults. In 2023, the OTP Group spent 23 percent more on the development of financial literacy within the scope of its donation activities compared to the previous year. The largest proportion of participants in training and programmes were from the OC training programmes. FN-CB-240a.4, own indicator - Information on the development of financial literacy, OTP Group, 2023 Number of participants in the company’s own and the OK training programmes 49,054 persons Number of participants in trainings implemented in cooperation with other organisations 10,409 persons Donation for the development of financial literacy HUF 1,176 million Sponsorship for the development of financial literacy HUF 167 million
BUSINESS REPORT OTP BANK (CONSOLIDATED) 164/200 OTP Fáy András Foundation OTP Bank is primarily active in the development of financial literacy in Hungary through the OTP Fáy András Foundation. The foundation’s mission is to raise awareness of the future among people. It provides free of charge training mainly for primary and secondary school students and young adults in economic and financial education, career and vocational orientation and sustainability topics, supplemented by social skills development. In addition to the practice-oriented, experience-based in-person and digital training, the Foundation’s activities increasingly focus on awareness-raising and attitude-shaping educational activities for the general public. In 2023, the Foundation has further increased the number of students regarding in-person and digital education:  More than 37,000 persons took part in training sessions, an increase of 27 percent in a year. The result is due to the expansion of the range of partners in public education and at universities, the extension of cooperation, the development of e-learning courses and the popularity of in-person training.  The number of participants in adult education almost tripled, while the number of those involved in training programmes for young people increased by 14 percent. The number of people completing e-learning modules for young people has increased by almost a quarter. The youth courses continue to be mostly attended by secondary school students. FN-CB-240a.4 Number of participants in training programmes in 2023 (No. of persons) Training programmes for young people (No. of persons) In-person training Participants of 24 different courses 13,139 of which disadvantaged participants 606 Digital training those taking 43 different streamed learning materials 6,377 of which disadvantaged participants 641 those taking 37 different 45-minute e-learning materials 12,568 of which disadvantaged participants 659 Total 32,084 Adult education programmes (persons) In-person training 2 types of training 1,253 of which disadvantaged participants 166 Digital training 3 types of e-learning training 3,780 of which disadvantaged participants 78 Total trainings 5,033 Disadvantaged participants: students: participants in the organization of civil organizations dealing with young people, those coming from regions disadvantaged by law, as well as the teacher's statement on the number of officially registered disadvantaged students in his class in youth training. Adults: people from disadvantaged regions defined by law. At the end of 2023, the Foundation’s training portfolio consisted of more than 100 training materials, two thirds of which were in digital format. The number of live streamed interactive training courses and e-learning materials for youth and adults has increased significantly. In 2023, the focus was on reviewing and qualitatively transforming the training portfolio, preceded by extensive testing. The methodological, thematic and visual renewal of the entire secondary school portfolio was launched, incorporating Finnish teaching methodology and good practices. At the same time, adult education programmes have been fine-tuned. In 2023, all three of the Foundation’s adult learning materials will be available to university partners.  The Modern Entrepreneurship online course on starting and running a business in blended learning 64 format was launched as a stand-alone subject in the first semester of the ELTE 2023/24 academic year.  The Financial Awareness, Career Planning – Decisions and Consequences competency development training was offered as a separate module at the University of Nyíregyháza and the Hungarian University of Agricultural and Life Sciences in 2023.  The Financial Basics Programme for young adults, in e-learning format, has been integrated into the curricula of several universities (Hungarian University of Agricultural and Life Sciences, University of Nyíregyháza, Pannon University and Budapest Business School). In total, 148 public education institutions became partners of the Foundation during the year. Based on a new concept, the network of model and partner schools of the OTP Fáy András Foundation was established, which opened up the possibility of wider cooperation (curriculum testing, market research, joint events, charity initiatives, etc.). The number of model schools has been increased to four, including the 64 Blended learning is a form of education that combines elements of online learning and traditional classroom teaching.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 165/200 ELTE Radnóti Miklós Teacher Training School, the leader in the ranking of national schools. In addition, the Foundation has signed partnership agreements with 19 primary and secondary schools. In the area of adult education, the network of university and vocational training partners has been expanded and cooperation deepened. The Foundation established strategic partnerships with 8 universities and students from 11 vocational training centres participated in adult education courses in 2023. Through relations with universities, joint research, curriculum development, hosting interns and methodological presentations have also been carried out. In order to further reach young adults, the Financial Basics Programme was also taught at the Jesuit Roma College, and workshops and interactive presentations were given by representatives of the Foundation at the GEN Z Festival. The event was organised for the first time in 2023 with the aim of providing Generation Z with information and opportunities in the areas of financial awareness, career development and home purchases. In addition to students and young adults, teachers remain an important training target group for the Foundation. The teacher training programme organised jointly with Eötvös Loránd University continued in 2023. In addition to educational programmes, the Foundation also held awareness-raising and educational events and communication programmes:  The OTP Fáy Educational Innovation Award aims to recognise and promote outstanding and innovative practices in the field of educational tools and methodologies. Almost 300 applications were received in the three categories announced. The Grand Prize winner was Redmenta Edutech Kft. with their AI-based content creation application. In addition to the net prize of HUF 5 million, they also received patent, legal, financial-investment and communications support.  The Foundation organised a professional conference entitled “Education in the Future – Competences for the Future” for leaders in public education, higher education and the labour market.  The “Fáy Fröccs” podcast series has been launched. The discussions aim to raise public awareness of financial awareness and future awareness. In 2023, the guests were Judit Polgár (chess player and school curriculum developer) and Katica Nagy (actress and sustainability influencer).  The Foundation’s staff organised awareness-raising activities at events and festivals. For five weeks, education camps were held for primary and secondary school students in Budapest and in the countryside. In 2023, for the first time, financial training sessions were held at the programming camp of the Hungarian Association of Lead IT-Managers and at the “FunWeek” camp of the Hungarian Association of the Deaf and Hard of Hearing. They organised a financial quiz in the framework of the Jászberény Book Thursday programme, presented interactive workshops and playful exercises on vocational guidance at the Nyíregyháza SzakMAfest, and on sustainability at the Climate Heroes conference organised by UNICEF. In their professional work, the OK Training Centres in Romania and Moldova draw on methodologies proven in Hungary and they shall similarly develop strategic partnerships with prominent actors in the field of education: NGOs, educational institutions and teacher communities. Their training and programmes reached 1,822 persons in Romania and 9,400 persons in Moldova. RO The popular free training programmes of the OTP Bank Romania Foundation continued in 2023:  young adults (687) were provided training through the Financial Fitness training programme,  startAware, a vocational orientation programme for secondary school students, was held with 45 participants,  the Education Programme in Miercurea Ciuc provided experiential financial education to 640 local secondary school students. They also launched a podcast series called the Light Financial Podcast with Itsy Bitsy Radio to promote financial literacy to a wider audience. MD In three and a half years of operation, the OK Foundation in Moldova has become a local reference centre for financial education. During European Money Week and Savings Week, the Foundation’s financial experts gave presentations and workshops. A dedicated financial management training programme for SMEs was held. During the six-week free training, entrepreneurs learned how to plan their finances effectively, analyse their financial performance, manage financial risks and make responsible financial decisions. Since the programme started, more than 500 Moldovan SMEs have participated in the training.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 166/200 Collaboration in financial education Several banks of the OTP Group joined the local implementation of Global Money Week and European Money Week. In Hungary, the Hungarian Banking Association and the Foundation for Financial Awareness (Pénziránytű Alapítvány) organised the event for the ninth time under the name of PÉNZ7 [European Money Week]. 114 OTP Bank employees mainly gave presentations in the programme aimed to raise financial awareness. OTP Bank experts accounted for more than a fifth of the volunteers joining the national programme, twice as many as a year earlier. There was a huge interest in the European Money Week, with 145,000 students from more than 1,100 schools taking part in around 12,000 lessons. BG HR RS AL UZ UA MD BG Lectures were also given to students in Bulgaria, where financial fraud was the main topic of the initiative. HR Employees of the Croatian subsidiary organised several financial workshops for primary and secondary school students in Pula and Zadar. In addition, on the occasion of World Money Day, financial fraud prevention was highlighted to the graduating students of the Zadar School of Economics and Business, who also worked on the project “Protect your money”. RS On the occasion of the European Money Week, the Serbian subsidiary held workshops for students of two faculties of the University of Belgrade and launched a post-series of financial education content on its social media pages. AL The Albanian subsidiary held training sessions in cooperation with the Albanian Banking Association. OTP Bank Albania also sponsored the “Take care of your money and build your future” programme element and the related video making competition. UZ Ipoteka Bank staff from Uzbekistan also held financial lectures and training sessions in 17 primary schools, with a total of 425 students attending. UA The Ukrainian subsidiary implemented three programmes during 2023 in cooperation with the National Bank of Ukraine. It has joined the “Savings Week” initiative to improve financial literacy among Ukrainian children. He was also a major sponsor of the “Digital Finance for All” marathon initiative. In addition to the financial support, its staff gave lectures and workshops on “Financial protection. Bankers’ Profession” on the basics of digital finance and secure digital banking. The results of the OTP Self-Provision Index 65 show that the financial literacy of the Hungarian population is still generally weak, going back many years. Survey 2023 shows Hungarian people are talking more and more about self-provision, but not taking the necessary steps to create a stable financial situation. The main average of the index remained at 37 points after the rise in 2022. Several factors are behind this, including the uncertain economic environment and fears regarding the future. Four out of 10 respondents have no savings at all, and a significant proportion of the population think that although their financial situation is stable, it is a challenge for them to save. 11 percent of the survey participants have pension savings and only 32 percent plan to save for their future retirement – despite the growing lack of confidence in the state pension scheme. OTP Bank joined the roundtable discussion “Every little item counts – Managing finances smarter in the 21st century” held in the framework of the Brain Bar event. Participants in the discussion explored the relationship with the future, conscious finance, the psychological mechanisms that inhibit it and possible solutions with participation of the audience. Financial education of socially disadvantaged groups One of the most important objectives of the OTP Fáy András Foundation was to promote the inclusion of socially disadvantaged people regarding financial awareness. In 2023, three times as many students (2,150 66 persons) from difficult circumstances participated in the Foundation’s training as in the previous year – 61 percent of them opted for digital training. The exploratory research, launched in 2022 to develop a specific, tailor-made training programme, was completed in 2023, leading to the identification of the themes, effective training formats and relevant platforms. 65 OTP Bank has been conducting surveys for over a decade now to explore the Hungarian population’s self-provision habits and behaviour and their responses to various economic situations, on a sample of 1,500 18–70 years old bank account holders. 66 The scope of disadvantaged students is defined as: those coming from youth NGOs, those from disadvantaged regions as defined by law and, in training programmes for young people, a declaration by the teacher of the number of officially registered disadvantaged students in his/her class.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 167/200 The Foundation continued to work with partner organisations to deliver specific, tailor-made training sessions: • With the Szent Ágota Child Protection Service, training sessions were held for young people over 17 years of age who are about to become independent and young adults in aftercare, to help them make informed decisions about the use of financial resources that will become available once they become of age. • In addition to the financial education camp organised for the mentors of the Csányi Foundation, the Parents’ Academy programme continued, with playful financial awareness training sessions for students and their parents in Kaposvár, Jászberény and Szeged. • The Fáy Forum continued, focusing on creating opportunities for children in difficult circumstances, their development and motivation. The results of a survey among students aged 12–16 and their teachers were also presented on socially disadvantaged students’ attitudes to learning, their vision of the future, their attitude to money management and their media consumption habits. The presentation was followed by a panel discussion where practitioners exchanged views on the topic. BG DSK is committed to supporting SOS Children’s Villages, as part of which they have launched online financial training courses. Bank staff regularly share their knowledge and experience with SOS young adults and provide them with financial advice. UZ In the framework of the “Women in Business” project, Ipoteka Bank, in partnership with the Business Women Association, organised training sessions for women to help them find their way in the financial world and become successful entrepreneurs. 6.2 Community engagement The OTP Group is an active member of local communities. A dominant market share in multiple countries entails responsibility as well: the resulting tasks include reduction of social inequalities, contribution to creating opportunities and giving answers to current local challenges. The entire OTP Group pays particular attention to alleviating social hardship, ensuring sustainability and volunteering. The support provided by OTP Bank has for years been steadily focused – besides the development of financial literacy – on  creating opportunities: helping the disadvantaged and those in need,  supporting culture and the arts: creating and preserving value,  sports. The OTP Bank subsidiaries make their own decisions on which local causes and initiatives they support or sponsor and how they engage their stakeholders in those. Subsidiaries draw on their own expertise and resources to meet local needs. A common feature of the flagship projects is measurability and cooperation with organisations. OTP Bank typically supports long-established social and regional cultural projects and participates in long term cooperation arrangements, overarching decades in cases, which facilitate real impacts and predictability. In 2023, the OTP Group spent HUF 5 billion on donations, which is 27 percent more than in the previous year. The Group spent the most on financial education, which accounted for 23 percent of donations, followed by social sector, which accounted for one fifth of donations. The dramatic increase in environmental aid is due to the HUF 840 million pledged to mitigate the natural damage caused by the Slovenian floods. The cash contribution represented 99 percent of the value of the grants. 67 67 There is no complete data available on the value of supports in kind, so does not reflect their real value.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 168/200 In 2023, there were three areas of OTP Bank’s community engagement activities that should be highlighted in addition to the above:  humanitarian aid,  the success of the OTP Donation Platform, i.e. our work to deepen the culture of micro-donations,  the voluntary community engagement of our staff. Providing assistance in a crisis The OTP Group represents a culture of cooperation and assistance. The Banking Group responds sensitively to humanitarian emergencies and natural disasters, working with other organisations to respond quickly and effectively to crisis situations. Unfortunately, this has been necessary several times in recent years. In crisis situations, the Banking Group provides immediate donations, typically in cash and in kind, to support those in need and also helps with recovery efforts. SI The members of the OTP Group, the Slovenian NKBM, SKB Bank and OTP Bank have provided a total of EUR 2.2 million (~ HUF 840 million) in aid to the victims of the natural disaster of floods and landslides in Slovenia. The funding was allocated to voluntary organisations such as the Slovenian Red Cross, the Slovenian Mountain Rescue Association and the Slovenian Firefighters Association, which were the first to provide assistance. 18 employees of SKB Bank were directly affected, receiving immediate solidarity aid from the Slovenian bank. The Slovenian bank also set up community channels to encourage material and in-kind assistance between employees within the bank. To help the victims of the natural disaster, the two subsidiary banks also offered special services, including preferential loans for the affected population, special loans for corporate clients and free of charge transfers to the accounts of humanitarian organisations. UA In the summer of 2023, the dam at the Kakhovka Hydroelectric Power Plant in Ukraine was destroyed during the war in Ukraine. The consequences of the dam bursting were catastrophic, endangering the population of the region and causing serious water shortages as the central water supply was cut off. To mitigate the damage caused by the broken dam, a humanitarian donation programme was launched within OTP Bank with the Humanity Social Foundation 68 . A total of 25,000 bottles of mineral water were donated to the population from a fundraising campaign organised among OTP Bank employees, worth approximately HUF 4.5 million. To accommodate Ukrainian families who fled to Hungary because of the Ukrainian-Russian war, OTP Life Annuity offered another apartment, the furnishing of which was contributed to by the Humanity 68 OTP Bank exercises founder’s rights over the Foundation. 31 1,692 279 9 56 82 2,112 340 79 352 566 292 583 619 611 595 323 611 647 666 956 1,171 958 1,176 1,807 992 1,018 29 88 1,963 1,061 1,075 116 198 452 615 220 525 726 468 713 276 1,534 1,063 24 9 0 129 126 146 133 36 190 185 583 82 137 127 140 876 585 226 360 516 21 23 58 69 79 30 25 61 73 866 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 OTP Bank OTP Group HUF million Donations by OTP Bank and OTP Group healthcare culture financial education other training and education social local communities sports environmental protection In the years 2019 to 2021 the financial education and other training and education categories were recorded together.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 169/200 Social Foundation. With their support, an emergency ambulance was equipped with medical devices for the Arcadia Clinical Sanatorium of the Ukrainian State Border Guard Service. The Russian-Ukrainian war has also increased the number and value of social and health subsidies provided by the Ukrainian subsidiary bank. In 2023, one of the most important projects was the support of the Superhumans Center, where wounded Ukrainians are provided assistance, rehabilitation and prostheses. They also raised money for people in need of prostheses by organising charity fairs. HU In Hungary in 2023, the most damage was caused by violent summer storms due to increasingly extreme weather. OTP Bank donated HUF 10 million to Jánoshida, which suffered serious damage, to cover the cost of storm damage restoration works. Developing a culture of donation OTP Bank makes efforts – through its services and electronic channels, and by involving its employees – to make donation, as an internal motive and practice, become part of everyday life. The Bank will continue to offer the opportunity to donate micro-donations of HUF 100-200-500 through its digital banking channels and ATMs in order to promote the culture of donation. In 2023, customers and employees offered a total of HUF 270 million in donations to 9 social organisations helping people in need on the donation platform. The success of the programme is proven by the fact that the amount of donations increases year on year. The organisations supported are recognised for their activities and the grants help to improve the living conditions of disadvantaged people and to strengthen communities. At the @website of OTP Bank’s micro-donation programme, a list of supported organisations and a detailed description of their programmes can be found. Names of organisations sponsored in 2023 Use of aid Amigos for Children Supporting sick children Szent Ferenc Hospital of Budapest Recovery of heart and lung transplant patients “Hintalovon” Children’s Rights Foundation Responsible adults for the protection of children InDaHouse Hungary Association Developing disadvantaged children “Kaptár” Day Care Centre Accessible bus for young people with special needs Hungarian Maltese Charity Service Kommandó – Rebuilding burnt houses Hungarian National Association of the Blind and Visually Impaired Guide dog training International Children’s Safety Service Mobile dental clinic for the screening of disadvantaged children International Children’s Safety Service Support for sick children in need “R É S” Social and Cultural Foundation Upgrading shelters for women and families in crisis Two subsidiary banks continue to facilitate regular and small amount donations: BG The Bulgarian bank’s DSK Helps! platform, launched in 2022, will provide an opportunity to donate. The projects supported on the platform are focused on four main areas under the Bank’s CSR policy: children and education, nature conservation, arts (including their “City as Its People” development project to improve the urban environment), employee engagement and volunteering. HR OTP Bank Croatia has continued its joint programme with Mastercard, “Round up!”, which allows customers to round up the total amount of their purchases. The difference will be provided to the chosen charity organisation. In the 4 years since its launch, EUR 800,000 (~HUF 300 million) has been donated to children’s wards in 8 hospitals in Croatia, with contributions from 18,000 customers. In the 2023 campaign, the children’s wards of Zadar Hospital and Osijek Clinical Hospital Centre benefited from the HUF 80 million donation.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 170/200 Volunteering by our staff Volunteering is a tradition for most members of the OTP Group. We encourage initiatives and are happy to contribute to the efforts of our staff. Almost all subsidiaries organise corporate volunteering activities or create opportunities to join. At group level, 10 percent of employees are engaged in volunteer activities. OTP Bank’s OTP Local Value internal voluntary application programme was successfully implemented again in 2023. This time, 71 volunteer teams won a grant of HUF 200,000 to help a number of institutions, local communities and their surroundings. The teams were able to manage a total of HUF 14.2 million and the 1,267 volunteer colleagues provided support to nearly 19,595 people in need. In 2023, the Bank extended the tender opportunity to a significant number of its Hungarian subsidiaries. The Humanity Foundation continued to support the teams as a mentor. The employees of OTP Bank collected donations of money and goods for the Hegyközi Elementary School and its four other member schools and their students as part of the donation campaign launched on Family Day. Thanks to staff donations, the campaign raised HUF 1.1 million, which was doubled by the Bank. The money was used to improve the school’s infrastructure. This year, the year-end fundraising campaign addressing employees raised a record HUF 3.5 million, which was matched by the Bank and the Humanity Social Foundation with a further HUF 4 million. Thanks to the initiative, 150 disadvantaged families received a donation package of durable food, and three kindergartens received various toys, development tools and kindergarten supplies. The number of voluntary initiatives among Hungarian subsidiaries has increased. Many of them have provided additional help to organisations supported by the company in this way. Staff have mainly helped disadvantaged and sick children through fundraising and supported schools through their work. OTP Bank and most of the Group companies have a long tradition of blood donation, one of the most selfless forms of volunteering. Every year, more than a thousand bank employees sign up to donate blood to support uninterrupted blood supply. OTP Bank joins the Bank Blood Donors Week every year, as it did in 2023. HR The Croatian subsidiary is one of the main sponsors of the “Croatia Volunteers” movement, which was announced for the 13th time in 2023. Bank staff in six cities collected donations of food and hygiene products for the Red Cross. They have also contributed to two building renovations and helped 350 disadvantaged children start school. RO During 2023, the Romanian subsidiary bank participated in 8 volunteer campaigns in partnership with charities, specifically supporting poor children in disadvantaged communities. They have helped disadvantaged schools with painting and planting activities in the EduPlant programme, filled backpacks for poor children starting school in their “Hátizsák” [Backpack] programme, provided books and furniture for a school library, and ran a sustainable clothing donation campaign. V oluntary activity performance indicators, 2023 OTP Bank OTP Group Participants number of 1,177 4,222 percentage of, relative to total headcount (%) 11,1 10,0 Time spent doing voluntary activity hours 9,416 14,025 Number of blood donors persons 1,852 2,621 In 2023, OTP Bank announced the Responsible for Each Other Award with a renewed content and approach. One of the prizes awarded at the year-end OTP Gala is the award, which has been given since 2016 to the teams that have been most active and versatile in implementing social and environmental responsibility programmes. An important change in the content of the award was that each team could apply with a single, comprehensive, long-term project. The award was given to the staff of the Document Management Services Department, who are regular and dedicated supporters of Bethesda Children’s Hospital. Their exemplary project was built on their expertise: they developed a new professional registration system for hospital X-rays, and also separated industrial silver in X-rays for recycling.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 171/200 Priority grants, programmes HU Thanks to the support of OTP Bank, the Children’s Safety Service’s dental screening bus was able to continue its work in 2023, during which it screened more than 3,300 children free of charge. The donation of HUF 50 million was used to renovate the bus and purchase equipment for screenings. The bus visited more than 11 locations across the country, including communities where dental care is difficult for children to access. BG DSK Bank has been partnering with SOS Children’s Villages in Bulgaria for 12 years. During this period, 424 children and young people in SOS families and homes were helped through corporate donations and donations made available through the ATM network and the Bank’s online banking service. A further 469 young people were supported through the “Start of Independent Life” and “Pathways to Freedom” programmes, and a further 3,900 children received support through the SOS Counselling Centres and the “Family Support and Separation Prevention” project. HR In 2023, the Croatian subsidiary’s donation programme was again open to organisations in the categories of youth, education and science, culture, historical and traditional heritage, environment, humanitarian projects and sports. On this occasion, the jury selected 34 projects. Over the past twelve years, it has helped to deliver more than 500 projects of value to the development of communities and society as a whole. OTP Class Grant In 2023, OTP Bank launched the OTP Class Grant for the first time, with the aim of supporting school communities in addition to raising financial awareness. Fifth grade classes could enter their ideas in two categories – community development and cleaning up the classroom or the school environment. Around 300 entries were received in the form of a 2–3 minute creative video and a budget plan was also required for entering the competition. In addition to the four classes, each of which received a cash prize of HUF 500,000, two OTP Fáy special winners were also announced, who were given the opportunity to participate in a half-day practical financial training course at the Budapest Zoo. The winners used the prize money for a class trip to Prague, sign language training and a trip with hearing-impaired children, as well as to improve the school yard and buy sports equipment and replace cabinets in changing rooms. Sponsoring of sports OTP Bank is a committed supporter of Hungarian football, especially youth football. The OTP Bozsik Institutional Programme contributes to the education of young players in Hungarian football. The 2023/2024 season saw an increase of more than 10 percent in the number of registered players, which also means that this was the highest number of school football players (135,796) in the history of the programme. Girls accounted for 28 percent of the players, up 13 percent in a year to 38,646. In 2023, 15 percent more clubs joined the Bozsik programme than in 2022. 70 percent of the newly involved associations operates in disadvantaged municipalities. SI RS The OTP Group is a key sponsor of the national Olympic team in several countries, including Slovenia and Serbia, in addition to Hungary. MD OTP Bank Moldova is also committed to the development of football and youth football development. With their support, hundreds of children can once again do sports at the Zimbru Football Academy. In 2023, the bank sponsored members of the Moldovan Paralympic Team who represented the country at the Tokyo Paralympics Games. The grant was used to cover travel and other expenses of the athletes.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 172/200 7. ENVIRONMENTAL POLICY AND ENVIRONMENTAL PROTECTION MEASURES Information and data relating to environmental protection are, in accordance with the Accounting Act, presented separately. The direct environmental impacts of the operations of the Banking Group, as well as the Group’s awareness raising activities, are described in this chapter. The environmental risks relating to the provision of financial services are managed and the relevant environmental opportunities are utilised in the framework of the ESG strategy, therefore these activities are discussed in the chapters of the Non- Financial Statement. This chapter describes the activities related to the following relevant topic: GRI 3-3: 305 Greenhouse gas emissions from operations Impacts: The operational functioning of OTP Group requires the use of natural resources and energy, however, the resulting environmental impact is significantly lesser than the indirect impacts associated with the provision of financial services. Among the environmental impacts of our operations, greenhouse gas (GHG) emissions have been identified as a key sustainability topic, but we are also working to mitigate our impacts beyond it. Emissions exacerbate climate change and damage natural resources. Reducing emissions will help fight climate change. The practices of the Banking Group also have an awareness raising impact in the segment of environmental protection and the promotion of environmental awareness in its operations is a major element of the regional leading role undertaken by the Group in relation to the green transition. This material topic supports the achievement of the following SDGs: Engagement: Our objective is to reduce the environmental impact of our operations. We are committed to the efficient use of resources, carbon-neutral operations and economy. Encouraging environmentally responsible behaviour in society through our employees and customers. We report transparently on the environmental impacts stemming from our operations, focusing on energy consumption and GHG emissions. Group members set targets to achieve carbon neutrality. Acts: Reporting on the environmental impacts of the Group’s operation Energy efficiency investment projects Purchase of green electricity, use of renewable energy sources Reducing paper use through digitalisation; using recycled paper Rationalising business travel Improving waste management Awareness-raising activities Stakeholder cooperation: We work with service providers and NGOs to implement environmentally responsible practices. We do a lot to raise the awareness of our customers and our employees. Details of the relevant thematic activities, their results and the evaluation of their effectiveness are presented on the following pages. For our basic principles concerning environmental protection and the fundamentals of our practices, please visit our @website. OTP Bank’s ESG strategy has set a target of full carbon neutrality by 2030 for Scope 1–2 emissions, with the net carbon neutrality target achieved in 2023. In 2022 the subsidiary banks set themselves goals concerning environmental protection as well in relation to their operations under their respective ESG strategies, focusing primarily on energy consumption, carbon dioxide emission and paper use. SI RO RS ME Slovenian SKB has set a target of net carbon neutrality for Scope 1–2 emissions by 2023, the Romanian subsidiary by 2025 and the Serbian subsidiary by 2027. CKB is expected to become carbon neutral by 2035. GRI 2-13 Environmental protection at OTP Bank is regulated by the Environmental Policy. Environmental policies are in place at some of the subsidiary banks. OTP Bank prepares annual internal reports on the environmental impact of its operation, for approval by the manager in charge of this function. To enhance
BUSINESS REPORT OTP BANK (CONSOLIDATED) 173/200 knowledge relating to the performance of work, along with general knowledge, every OTP Bank employee is provided with environmental training once every two years. Energy consumption and carbon dioxide emission GRI 305: 3-3, TCFD IV.C Even with the two major acquisitions – Ipoteka Bank and NKBM – OTP Group’s energy consumption did not increase drastically, as several members of the Banking Group significantly reduced their energy consumption (by up to 10–20 percent). Consumption decreased most in relation to heating (mainly natural gas and district heating), while consumption related to car use increased and electricity usage decreased to a lesser extent at the member companies. OTP Bank’s total energy consumption decreased by almost 10 percent compared to 2022, again largely due to the use of heating fuels. At the Group level, the reduction in consumption was driven by the savings measures implemented, which, in addition to environmental considerations, were also encouraged by the significant price increase in 2022 and a milder winter. In several cases, consumption was moderated by timers during the period of non-use, and changes in the property portfolio and moves also affected consumption trends. Some of the team members educated colleagues on the functioning of the office heating and ventilation system and how to set the temperature correctly. The fact that the OTP Group continuously carries out renovations and modernisations at both its central buildings and in its branch network also reduces consumption, and improving energy efficiency is an important aspect of investment projects. In 2023, the modernisation of heating systems, the widest possible use of LED lighting and the installation of additional motion sensors were again the most common types of energy efficiency investments. Two subsidiary banks carried out energy efficiency audits. During the replacement of air conditioning units we make sure that the new units use environment-friendly coolants. BG 14 buildings of DSK Bank have been energy audited and issued with energy efficiency certificates. The subsidiary bank also carried out a major heating upgrade and introduced a building management system in 6 buildings. SI SKB Bank in Slovenia carried out energy audits at 16 locations, including its headquarters. According to the results, lighting replacements and other investments will be implemented. An energy efficiency monitoring system has been installed at NKBM. RS The Serbian subsidiary has replaced its old air conditioners with devices using environmentally friendly refrigerants. The bank increased the number of areas with LED lighting by 30 percent compared to the previous year and installed motion sensors in toilets. By means of the 2023 projects aimed at improving energy efficiency and at using renewable energy OTP Bank saved a total of 2,058 GJ energy. The entire OTP Group saved 7,745 GJ. The Banking Group is also expanding its own renewable energy power plants, with significant new solar capacity installed in 2023. At Group level, our systems generated a total of 3,330 GJ of solar energy, 64 percent more than in 2022. OTP Bank’s heat pump production decreased significantly because the archives using geothermal energy moved to another site. BG In 2023, a solar PV system with a capacity of 201 kW was installed on the 3 buildings of DSK Bank. HR The Croatian bank installed solar panels at two sites in 2023, with a capacity of 48 kW. The HEP Opskrba service provider uses the green electricity surcharge on energy efficiency improving renovations of social institutions, including schools, pre-schools, kindergartens and old people’s homes. RS The Serbian subsidiary bank has also installed solar panels on one of its buildings. UZ Bank Ipoteka has installed 849 kW of solar panels on its headquarters’ building and at its branches. By continuing to invest, the bank expects a 30 percent reduction in electricity consumption. The energy consumption of the OTP Group 69 in 2023 was 1,107 thousand GJ, practically the same as in the previous year. Electricity accounts for around half of the Banking Group’s energy consumption, so increasing green electricity procurement reduces carbon emissions. In 2023, OTP Bank, the two Slovenian subsidiaries, OTP Bank Croatia, OTP Bank Serbia and OTP Bank Romania also used predominantly green electricity (green electricity procurement cannot be fully implemented for leased areas) 70 . 69 Direct and indirect energy consumption. 70 Green electricity procurement is not available in all countries where the Banking Group operates.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 174/200 GRI 305: 3-3, 302-1 Energy consumption within the organisation (GJ) – OTP Bank 2019 2020¹ 2021 2022 2023 Natural gas 65,594 63,827 71,219 62,539 50,066 Mineral vehicle fuels 31,829 29,444 31,741 34,651 37,253 Other non-renewable fuel 156 152 585 3,501 2,711 Total non-renewable fuel sources 97,579 93,423 103,54 5 100,691 90,030 Biogenic vehicle fuels - 1,360 2,247 2,615 2,821 Total renewable fuel sources 0 1,360 2,247 2,615 2,821 Electricity 129,442 127,537 126,112 139,205 4,614 Green electricity (GO) N/A N/A N/A N/A 128,181 District heating 21,584 24,244 25,970 22,371 18,597 Total indirect energy purchased 151,026 151,781 152,082 161,57 5 151,392 Self-generated renewable energ y 2,00 5 5,166 5,141 4,053 1,312 Total energy consumption 3 250,610 251,730 263,014 268,934 245,555 Total energy consumption per employee 4 28.14 26.75 26.73 26.17 23.19 Share of renewable energy N/A N/A N/A N/A 54% ¹ Also includes the consumption of the former Monicomp and eBIZ. 2 Purchases of green electricity certified by guarantee of origin (GO) will be indicated separately. 3 Deviates slightly from the figures in the Annual Report up to 2021 because the finalised consumption data were received at a later date. 4 In 2019 based on statistical headcount, from 2020 based on average full-time staff numbers. The energy consumption data are derived from metering; solar energy and part of the heat pump energy is estimated based on manufacturer information in the absence of a meter. Where necessary, we used the calorific values taken from the National Inventory Report (NIR) from 2022 onwards, and previously the EU regulation and DEFRA values, to convert the consumed quantities into energy. GRI 305: 3-3, 302-1 Energy consumption within the organisation (GJ) – OTP Group 2019 2020¹ 2021² 2022² 2023 Natural gas 143,139 134,738 308,237 272,624 243,745 Mineral vehicle fuels 99,801 79,248 113,153³ 132,183 140,895 Other non-renewable fuel 2,194 1,054 31,327 53,281 57,078 Total non-renewable fuel sources 245,134 215,040 452,717 458,088 441,719 Biogenic vehicle fuels - 1,949 5,583³ 7,576 6,290 Renewable fuel 134 134 0 0 0 Total renewable fuel sources 134 2,083 5,583 7,576 6,290 Electricity 404,040 438,810 507,376 525,411 317,182 Green electricity (GO) 4 N/A N/A N/A N/A 227,349 District heating 87,574 5 86,514 112,036³ 94,875 111,108 Total indirect energy purchased 491,614 525,034 619,411 620,286 655,639 Self-generated renewable energ y 6,563 6,85 5 5,923 5,056 3,39 5 Total energy consumption 743,445 749,302 1,083,635 1,091,006 1,107,043 Total energy consumption per employee 20.37 20.27 27.49 29.22 25.58 Share of renewable energy N/A N/A N/A N/A 21% ¹ Consumption of former Expressbank and OTP banka Srbija a.d. Beograd is reflected in the data from this date. ² Full consolidated corporate circle. ³ In 2022 corrected data owing to calculation error, the Banking Group’s total energy consumption is 0.7% higher than the figure published earlier. 4 Purchases of green electricity certified by guarantee of origin (GO) are reported separately from 2023. 5 The district heating figure of OTP Bank Russia is an actual measured figure, significantly above the estimated consumption of prior years. The energy consumption data originate primarily from metering, in the case of certain minor consumptions they come from calculations; some of the solar energy and the heat pump energy is estimated based on information from the manufacturer. Wherever necessary, the amounts consumed were converted into energy from the year 2022 on the basis of calorific values taken from the National Inventory Report (NIR) and on the basis of the EMEP/EEA guide. Earlier we used values from EU regulations and DEFRA. The table shows the consumption of companies acquired in 2023, during the year, for the full year 2023, in line with the recommendations of the GHG Protocol.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 175/200 GRI 305: 3-3, 305-1, 305-2, TCFD IV.b OTP Group’s Scope 1 and Scope 2 CO 2 e emission (t) OTP Bank OTP Group 2019 2020 1 2021 2022 2023 2018 2019 2020 2021 2022 2023 Direct (Scope 1) 6,779 6,078 6,548 6,670 6,005 1 4,564 18,594 15,282 29,583 29,680 31,270 b y vehicles 2,272 2,123 2,280 2,521 2,706 6,938 7,204 5,738 8,253 3 9,752 10,324 from natural g as consumption 3,686 3,587 4,003 3,515 2,814 6,053 8,044 7,572 17,323 15,269 13,627 from air conditioners 2 811 358 228 420 308 1,536 3,140 1,892 1,838 1,708 3,310 other non-renewable ener gy 10 10 37 214 177 37 206 80 2,170 2,951 4,009 Indirect (Scope 2) Indirect location-based 10,786 9,883 9,904 11,496 11,648 45,130 47,947 5 2,711 56,935 56,035 62,385 from electricit y 9,912 8,902 8,802 10,491 10,813 42,082 44,012 48,807 51,778 51,601 56,356 from district heatin g 874 981 1,102 1,004 835 3,048 3,935 3,904 5,158 3 4,434 6,029 Indirect market-based 8,640 8,350 8,369 1,005 1,110 N/A 47,334 53,196 58,562 3 44,021 39,379 from electricit y 7,766 7,369 7,286 166 410 N/A 43,399 49,292 53,103 39,442 33,356 from district heatin g 874 981 1,083 839 701 N/A 3,935 3,904 5,459 3 4,578 6,024 Total (Scope 1 + 2) location-based 17,565 15,961 16,452 18,165 17,653 59,694 66,541 67,993 86,519 3 85,715 93,655 Total (Scope 1 + 2) market-based 15,419 14,428 14,917 7,675 7,115 N/A 65,928 68,478 88,146 3 73,701 70,649 Total (Scope 1 + 2) with carbon offset 15,419 14,428 14,917 675 485 N/A 65,928 68,478 87,785 66,701 60,874 Per emplo y ee (regional) 1.97 1.7 1.67 1.77 1.67 1.7 2 1.8 2 1.84 2.19 2.30 2.16 Per emplo y ee (market-based) N/A 1.53 1.5 2 0.75 0.67 N/A N/A 1.85 2.24 1.97 1.63 Per emplo y ee (with offset) N/A 1.53 1.5 2 0.07 0.05 N/A N/A 1.85 2.24 1.79 1.41 Emissions intensity per turnover (per million HUF, market) N/A N/A N/A 0.014 0.012 N/A N/A N/A N/A 0.044 0.032 Bio g enic emissions 4 - 97 161 187 202 1 1 140 399 539 539 1 Also includes the consumption of the former Monicomp and eBIZ. 2 Headcount-proportionate estimate based on the figures from the OTP Group’s member companies that supplied accurate data. 3 Data corrected ex-post due to a calculation error, total issuance of the Banking Group is 0.4 percent higher than previously published. 4 From 2020 it includes renewable-based vehicle fuel emissions. The emissions intensity per turnover is reported from 2022. The figures shown are calculated from energy consumption, in all cases based on the applicable statutory regulations and the factors stipulated by authorities and industry organisations (National Inventory Reports (NIR), IPCC, DEFRA, EU Regulation, AIB, IFI, and data from suppliers for electricity and district heating). For Scope 1 emissions, country-specific factors are applied subject to availability from 2022. We calculate electricity-related emissions using country-specific factors. For district heating use, from 2020 onwards we use the Hungarian, Slovenian and Croatian factors, and for all other countries, we uniformly use the data published by DEFRA, while in previous years we used the Hungarian emission factors, except for Ukraine, Russia and Serbia, in the absence of other reliable data. Scope1 emissions and, in 2022 and 2023, even district heating cover all GHG emissions. For Scope 2 emissions, the previous years of district heating in Hungary and electricity factors only cover CO2. For the emission factors used, we do not have information on the GWP values considered in each and every case. To offset its 2023 Scope 1 and Scope 2 emissions, OTP Bank purchased carbon credits in 2023, thereby preventing the emission of 7,600 tonnes of carbon emissions during the year. The 2023 emission values were determined in advance, with offsets higher than emissions. The credits purchased are retired credits verified as per Verra (VER). The Bank considers it essential that the project supported through offsetting is located in the country of operation of the Banking Group, and has again opted for a project in Bulgaria, which was implemented at the Saint Nikola Wind Farm, the largest wind farm in the country, near the town of Kavarna. SI Slovenia’s SKB Bank has also offset its Scope 1-2 emissions, purchasing 2,175 tonnes of carbon credits in 2023, also in the Sant Nikola Wind Farm project. TCFD IV.b The OTP Group’s other indirect (Scope 3)CO 2 e emissions (t), 2023 1 OTP Bank OTP Group Business travel 991 1,963 Paper use 592 2,655 1 Includes only emissions arising from our operations; their presentation is partial only. Our goal is to expand the scope covered continuously. The values are calculated from factors stipulated by the authorities and industry organisations. As for the Banking Group’s Scope3 emissions the emissions linked to lending are the most significant. The calculation of further emissions under Scope3 is expanded subject to resource capacities. Travel GRI 305: 3-3 The level of business travel varied across the Banking Group, with car use increasing for some companies and decreasing significantly for some businesses. The total mileage increased by 9 percent and 13 percent year-on-year at the parent bank and across the group, respectively. The increase was partly due to new group members. While online meetings remain a dominant part of liaising, with the end of the coronavirus pandemic, face-to-face meetings have become more frequent again. The maximum carbon emission limits for car purchases at Banking Group level remained unchanged during the year. Among the cars to choose from there are hybrid or electric vehicles in all categories. At OTP Bank, 38 hybrid vehicles were purchased during the year, while the fleet of electric and hybrid cars at the subsidiary banks increased minimally. In addition to company cars, our employees also use their own personal cars for business travel in certain cases (not for commuting to work), and they also order taxi services. At OTP Bank, travelling by taxi and
BUSINESS REPORT OTP BANK (CONSOLIDATED) 176/200 personal vehicles amounted to about 2.4 million kilometres; at Group level this value was 7.8 million 71 kilometres. At Group level, there was again a significant increase in the number of trips by air. Our employees took around 9,800 trips 72 , nearly 30 percent of which were connected to OTP Bank. There were also a significant number of trips at DSK Bank and the Russian subsidiary. Since OTP Bank and its subsidiaries find it important to enable employees and customers to access the workplace by alternative transportation means, several head office buildings and branches are equipped with bicycle storage at Group level. The establishment of branches typically requires the approval of local governments, which makes implementation more difficult. Bicycle storages are available at 60 percent of the branches of OTP Bank for employees and for customers. During the year, the number of bicycle storage facilities at the Ukrainian subsidiary’s headquarters was increased and a shower facility was installed. The Serbian and Russian subsidiaries have also set up bicycle storage facilities. A shower was also installed at the Russian bank’s headquarters. Paper use We are constantly working on cutting our paper use. The steadily increasing range of electronically available services also reduces paper consumption. In addition, the digitalisation of the bank’s internal processes is ongoing. At the same time, the paper-based administration demanded by legal requirements inhibits in many cases the further reduction of printing in Hungary and in other countries. The share of electronic account statements also showed an increasing trend in 2023. We also encourage their use through the conditions and fees of the application. The majority of OTP Bank customers (83 percent of retail clients and almost half of large corporate customers) do not receive paper-based statements, which is a noticeable increase over the previous year. At the Bulgarian subsidiary nearly all of our customers are provided with electronic statements, while e-statements are used exclusively at the Moldavian and the Ukrainian subsidiary. Three quarters of customers now receive an e-statement at the Serbian subsidiary, and 40 percent at the Croatian bank. At both Slovenian banks, 98 percent of corporate customers receive electronic statements, compared to almost 70 percent of retail customers at NKBM and 80 percent at SKB Bank. At the Montenegrin subsidiary electronic account statements are used in more than 50% of the cases among corporate customers. The Albanian, Montenegrin, Russian and Romanian subsidiaries also have a significant number of e-statements, but the exact number by 2023 is not known. At the Group level, office paper use decreased minimally in 2023, which, taking acquisitions into account, represents an average decrease of 10 percent for the rest of the Group. The NKBM uses a minimum amount of paper for its size. At OTP Bank, we were able to reduce consumption by 11 percent. Further savings are expected from the electronic replacement of internal transport processes, with pilot operations launched at the end of 2023. The parent bank used 47 percent recycled paper in office paper use and 31 percent in total paper use. In Hungary, we use FSC-certified paper even in the case of account statements, marketing publications and envelopes, while we use recycled FSC paper for producing DM letters. The internal printing activity of OTP Bank is FSC-certified until 2025. All personal hygiene products used at OTP Bank are exclusively ECO Label products. Some smaller domestic subsidiaries use exclusively recycled paper. HR RO In 2023, our Croatian and Romanian subsidiary banks covered a small part of their office paper needs with recycled paper. The Croatian subsidiary uses FSC and PEFC certified paper. RS Our Serbian subsidiary uses FSC-certified and ECF (Elemental Chlorine Free) paper. SI Both NKBM and SKB Bank have been using PEFC certified products for several years. At group level, the share of recycled paper was the same as in the previous year, 13 percent for office and 9 percent for total use. Environmentally conscious use and waste management OTP Bank follows the principle of using all of its equipment, devices and machines for the longest time reasonably possible. Furniture is reused several times and we ensure the compatibility of replacements. BG RS UA RO At OTP Bank, DSK Bank, OTP Bank Serbia and OTP Bank Romania it is common practice to donate no longer used but still functional furniture and IT equipment (primarily computers and laptops). 71 The Russian subsidiary bank was unable to provide data on own car use, the Montenegrin, Uzbek and NKBM subsidiaries were unable to provide data on taxi use, and some Hungarian subsidiaries were unable to provide any of those data. 72 One-way trip.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 177/200 In 2023, OTP Bank Ukraine also donated nearly 300 assets. At group level, a total of 731 no longer used computers were donated to charity. BG SI HR RS ME RO MD Our subsidiaries in Bulgaria, Croatia, Serbia, Slovenia, Romania, Montenegro and Moldova have used toner refills for several years to reduce toner and ink cartridge waste. Jellemző adatok az OTP Csoport felhasznált anyagairól, beszerzéseiről OTP Bank OTP Group 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Number of computers (laptops + PCs) (thousand units) 18 19 19 19 18 51 1 57 1 65 1 65 1 71 Weight of ink cartridges and toners used (t) 8 6 4 5 4 35 1 34 1 37 1 35 1 32 Amount of office pape r (t) 699 478 398 397 354 2.350 3 1.795 1.751 1.552 1.517 Amount of paper used for document sorting and packaging (t) 58 75 90 98 26 117 153 829 1.105 842 Amount of indirectly used paper 4 (t) 7 584 5 491 558 313 631 903 732 897 704 1 Partly estimate: prorated based on actual data 2 Decrease presumably due to increased precision in data capture 3 In 2019 our Russian subsidiary also added the paper used in POS sales, which it did not include in prior years. This represented 320 tons of paper. 4 E.g. marketing publications, account statements 5 Predominantly the consumption of the former Monicomp. Waste collection remains unchanged in 2023. All members of OTP Group collect and treat hazardous waste and paper containing business secrets selectively, in compliance with the relevant legal requirements. The other than confidential paper waste, plastic and metal waste, are selectively collected by the group members to varying degrees. In Moldova, non-confidential paper waste is collected separately. In OTP Bank’s central office buildings and at the Croatian and the Romanian subsidiaries non-confidential paper waste, PET bottles, metal packaging materials and glass are selectively collected. The Serbian subsidiary collects its paper waste selectively, both in its head office building and at its branches. SKB Bank selects communal waste, including biodegradable food waste, as completely separately as possible. Our Albanian subsidiary collects paper waste comprehensively; this practice has been implemented at our Montenegrin subsidiary in the case of the head office building and the archives. There is selective waste collection in the head office building of our Ukrainian subsidiary and the Sofia and Varna sites of our Bulgarian subsidiary. Quantity of selectively collected waste OTP Bank OTP Group 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Separately collected waste paper (t) (t) 809 1,120 729 880 938 1,323 1,450 1,091 1,244 1,350 Separately collected PET bottles, plastic (kg) 7,929 2,203 4,607 8,807 6,142 12,613 5,810 10,685 29,426 13,187 Municipal waste (t) N/A 2,766 2,963 3,148 3,111 N/A N/A N/A 5,636 5,917 Attitude-shaping The members of the Banking Group have launched numerous programmes, awareness-raising campaigns and involved employees to promote environmental awareness and the protection of natural values. Green Challenge idea contest OTP Bank has launched the Green Challenge idea contest among its employees. To start the competition, we launched a series of articles on six topics on the intranet. We rewarded the employees who answered the quiz questions at the end of each article the fastest. For the idea contest, we were looking for applications that support the reduction of the Bank’s carbon footprint and can be easily implemented in everyday practice. The challenge was met with great interest, with 136 ideas submitted, four of which will be implemented: Installation of MOL-Bubi stations around OTP offices, Green Plate Programme to promote more sustainable dietary habits, the digitalisation of business travel settlements, special prize for the idea with the greatest impact: minimising standby power consumption. As a result of the popularity of the competition, we will be launching a permanent sustainability idea box starting from 2024.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 178/200 OTP Bank was also one of the partners of the Green Friday initiative, launched jointly by MasterCard and several organisations to raise awareness about conscious spending and lifestyle. Throughout the programme, dedicated microsites and social media platforms featured awareness-raising articles and tips to promote a greener Christmas. In 2023, the Bank continued its campaign with Mastercard in the Priceless Planet Coalition, which aims to mitigate the adverse effects of climate change by planting 100 million trees over five years. In 2023, OTP Bank enabled the planting of 75 thousand trees. BG DSK Bank, in partnership with Mastercard and the Sofia Zoo, launched a new interactive game that teaches young people about the importance of biodiversity and ways to protect natural habitats. In addition to the game, free downloadable educational materials are available for teachers, educational organisations and students. Together with Mastercard, the subsidiary bank supported the “Five Little Corners” initiative, a unique urban art installation and events that raise awareness of biodiversity and environmental protection. The series of events took place in Sofia for a month. The subsidiary bank supports the “Real Honey” initiative under the “Adopt a beehive” programme. The support is linked to the opening of a new corporate account, helping happy bee-keeping and Bulgarian bee- keepers. Customers will receive a certificate and Bulgarian honey for their contribution. The Bank’s employees also participated in a tree planting project in the Balchik Botanical Garden and in Sofia, planting more than 50 trees. SI The NKBM has also organised an ideas competition among its staff, inviting initatives on ESG issues. 18 ideas were received for the competition, several of which have started to be implemented. The Bank’s employees planted 250 trees in the Karst region to help repair damage caused by forest fires. SKB Bank has launched a challenge to clean its employees’ living environment on Earth Day. Both Slovenian banks participated in the European Mobility Week initiative, encouraging people to cycle to work. There is also a beehive on the roof of both banks’ headquarters, which is maintained by staff. HR The bank provided e-learning training on environmental awareness for its staff, which was completed by 69 percent of the employees. The Board of Directors of the subsidiary bank has approved the decision that all the Bank’s bank cards will be made of PLA (plant-derived biodegradable) material. The bank is involved in the “Migration in the Light” bird monitoring project, using equipment installed on the central building to record the sounds and movements of birds to detect the effects of light pollution. In 2023, the subsidiary bank also supported Ekotlon, Croatia’s largest plogging (litter picking) race. More than 300 runners participated in the event. The registration fees were used for sponsorship this year again, for sports associations of disabed persons. RS The Serbian subsidiary has established the so-called OTP Village as a venue for environmental programmes. Employees and their children had the opportunity to attend an event on bees, and workshops on ecological challenges and solutions were organised for the employees. The subsidiary bank also organised an environmental drawing competition for children. The employees also took part in voluntary waste collection and tree planting activities. AL At the Albanian bank, a “Green Hearts” team of volunteers was formed during 2023, with members taking part in litter picking and tree planting initiatives. The bank also donated 20 trees to the city of Tirana. ME Employees of a Montenegrin subsidiary bank planted trees in Podgorica and the bank is supporting an environmental project for students at one of the largest secondary schools in Podgorica. UK Our Ukrainian subsidiary continued the ‘Surrender your Batteries!’ campaign, in the framework of which used batteries and accumulators collected nationwide are shipped to a Romanian recycling plant. MD The Moldovan subsidiary bank supported the rehabilitation of trees in the Chisinau Botanical Garden through the inclusion of its employees. Tree planting in Uzbekistan The Uzbek subsidiary planted an outstanding number of trees (45,680 trees), helping to sequester carbon dioxide and clean the air. Trees neutralise an average of 502 tonnes of carbon dioxide emissions per year, as well as sequestering significant amounts of air pollutants, contributing to climate improvement, noise protection and soil conservation. The planting is equivalent to nearly 30 hectares of forest.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 179/200 SUPPLEMENTARY DATA
BUSINESS REPORT OTP BANK (CONSOLIDATED) 180/200 METHODOLOGICAL NOTE: CHANGE IN THE SEGMENTATION OF OTP CORE AND CORPORATE CENTRE According the decision of the management, starting from 2023 the segmentation of the Hungarian operation has been changed. The previously applied old methodology was outlined on page 53 of the Half-Year Financial Report for 2010, pursuant to which the core business activity in Hungary was segmented into OTP Core, whereas Corporate Centre was carved out of the sub-consolidated financial statements of entities making up OTP Core. Thus, Corporate Centre acted as a separate virtual entity established by the equity investment of OTP Core for managing the wholesale financing activity for all the subsidiaries within OTP Group but outside OTP Core. According to the new methodology, starting from 1Q 2023 Corporate Centre is no longer carved out of the OTP Core segment. One reason for this change was the simplification of the stock exchange reporting structure and the reduction of the segments. Secondly, as a result of this change the balance sheet and P&L impact of capital market instruments issued in the last few quarters will be captured in the OTP Core section, which includes a written analytical chapter. According to the old methodology those capital market instruments issued by OTP Bank were presented on the liability side of Corporate Centre, whereas the already executed and future expected transactions were required partly for regulatory reasons, i.e. in order to comply with the consolidated MREL minimum requirements. In line with the Single Point of Entry approach used by the Bank, the consolidated MREL requirement has to be met by instruments issued and held by OTP Bank (Hungary). Furthermore, with this change the stock exchange reports adopt the segmentation used in internal reports prepared for the management, as Corporate Center ceased to exist in those internal reports, too. Under the new methodology, certain intragroup loans and deposits that are recognised within loans and liabilities from accounting point of view, are shifted to financial assets and financial liabilities lines in the adjusted balance sheet of OTP Core. Thus, loan and deposit volumes presented under the OTP Core segment reflect the underlying business developments. For the sake of transparency, in the report’s affected tables the 2022 base periods are presented both under the old (grey columns marked ’as previously reported’) and new (’restated’) methodology. In the below tables we highlight the main financial data of OTP Core and Corporate Centre that were affected by this methodological change. OTP CORE Main components of the Statement of recognised income 2022 2022 2023 as previously reported HUF million restated HUF million HUF million After tax profit without received dividend 27,274 30,242 313,143 After tax profit 135,181 138,149 500,869 Adjusted profit after tax 253,232 256,200 302,935 Profit before tax 296,672 300,094 366,502 Operating profit 294,257 297,679 341,049 Total income 637,469 642,520 751,953 Net interest income 412,611 417,662 432,651 Operating expenses (343,212) (344,841) (410,904) Corporate income tax -(43,440) (43,894) (63,566) Indicators (adjusted) 2022 2022 2023 as previously reported %/pps restated %/pps %/pps ROE 12.6 12.7 14.2 ROA 1.6 1.5 1.6 Operating profit margin 1.83 1.70 1.79 Total income margin 3.97 3.68 3.94 Net interest margin 2.57 2.39 2.26 Net fee and commission margin 1.10 1.01 1.03 Net other non-interest income margin 0.30 0.27 0.64 Operating costs to total assets ratio 2.1 2.0 2.2 Cost/income ratio 53.8 53.7 54.6 Effective tax rate 14.6 14.6 17.3 Main components of balance sheet (closing balances) 2022 2022 2023 as previously reported HUF million restated HUF million HUF million Total Assets 15,758,292 17,596,229 18,459,423 Financial assets (net) 7,438,066 9,270,006 9,630,766 Liabilities to credit institutions 1,251,653 2,313,832 2,326,311 Issued securities 507,540 985,187 1,877,094 Issued securities without retail bonds 471,773 949,421 1,675,963 Subordinated bonds and loans 0 294,186 507,277
BUSINESS REPORT OTP BANK (CONSOLIDATED) 181/200 Corporate Centre Main components of the Statement of recognised income 2022 2022 2023 as previously reported HUF million restated HUF million HUF million Adjusted profit after tax 2,968 - - Profit before tax 3,423 - - Operating profit 3,423 - - Total income 5,051 - - Net interest income 5,051 - - Operating expenses (1,628) - - Corporate income tax (455) - - Main components of balance sheet (closing balances) 2022 2022 2023 as previously reported restated Total Assets 3,848,180 - - Interbank loans to subsidiaries 2,393,334 - - Investments in subsidiaries 1,448,849 - - Other assets 5,998 - - Intra group liabilities from subsidiaries 1,399,338 - - Intra group funding from OTP Core 522,960 - - Issued securities 477,648 - - Subordinated debt (Tier 2) 294,186 - - Shareholders' equity 1,448,849 - -
BUSINESS REPORT OTP BANK (CONSOLIDATED) 182/200 CHANGE IN THE SCOPE OF CONSOLIDATION FOR THE CONSOLIDATED CAPITAL ADEQUACY RATIOS PRESENTED IN THE STOCK EXCHANGE REPORTS According to the decision by the management, starting from 3Q 2023 the consolidated capital adequacy ratios for the actual period and retrospectively for the base periods presented in the Stock Exchange Reports will be based on the prudential scope of consolidation, i.e. in line with Capital Requirements Regulation (CRR). OTP Bank Plc. reports its consolidated capital adequacy ratios to the National Bank of Hungary in charge of financial supervision based on the prudential scope of consolidation. In previous periods the consolidated capital adequacy ratios based on the prudential scope of consolidation were disclosed after the release of the Stock Exchange Reports, in the document titled OTP Group Disclosure on consolidated basis. In the previous Stock Exchange Reports the presented consolidated capital adequacy ratios were calculated based on the accounting scope of consolidation, in line with IFRS standards. The below table shows the consolidated capital adequacy ratios (Basel 3, IFRS) from 1Q 2022 until 3Q 2023 according to both prudential and accounting scope of consolidation. According to PRUDENTIAL scope of consolidation (HUF million / %) 1Q 2022 2Q 2022 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 Capital adequac y ratio 18.4% 18.4% 18.1% 17.8% 17.2% 17.9% 18.8% Tier 1 ratio 16.9% 16.9% 16.7% 16.4% 14.8% 15.6% 16.4% Common Equit y Tier 1 ('CET1') capital ratio 16.9% 16.9% 16.7% 16.4% 14.8% 15.6% 16.4% Own funds 3,217,591 3,635,663 3,922,723 3,671,104 3,767,588 4,076,508 4,489,776 o/w Tier1 Capital 2,950,935 3,347,375 3,620,662 3,383,161 3,242,569 3,551,485 3,929,662 o/w Common Equit y Tier 1 capital 2,950,935 3,347,375 3,620,662 3,383,161 3,242,569 3,551,485 3,929,662 Consolidated risk weighted assets (RWA) (Credit & Market & Operational risk) 17,464,356 19,772,146 21,643,869 20,607,706 21,920,451 22,713,600 23,922,959 According to ACCOUNTING scope of consolidation (HUF million / %) 1Q 2022 2Q 2022 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 Capital adequac y ratio 17.8% 17.9% 17.8% 17.5% 16.8% 17.5% 18.4% Tier1 ratio 16.2% 16.4% 16.4% 16.1% 14.4% 15.2% 16.1% Common Equit y Tier 1 ('CET1') capital ratio 16.2% 16.4% 16.4% 16.1% 14.4% 15.2% 16.1% Own funds 3,078,173 3,515,020 3,828,083 3,565,932 3,661,078 3,951,088 4,366,482 o/w Tier1 Capital 2,811,517 3,226,731 3,526,063 3,277,984 3,136,729 3,426,218 3,806,368 o/w Common Equit y Tier 1 capital 2,811,517 3,226,731 3,526,063 3,277,984 3,136,729 3,426,218 3,806,368 Consolidated risk weighted assets (RWA) (Credit & Market & Operational risk) 17,324,682 19,629,309 21,497,011 20,405,328 21,795,586 22,551,166 23,714,042
BUSINESS REPORT OTP BANK (CONSOLIDATED) 183/200 CHANGE IN THE PRESENTATION OF ACCRUED INTEREST RECEIVABLES ON STAGE 3 LOANS – METHODOLOGICAL SUMMARY Starting from 2023 the presentation of accrued interest receivables on Stage 3 loans has been changed in the adjusted balance sheets and statements of recognised income. According to the old methodology in place until the end of 2022, in the adjusted balance sheets of the stock exchange report the total amount of accrued interest receivables on Stage 3 loans under IFRS 9 were netted with the provisions created in relation to the total exposure toward those particular clients. As a result of this, in the adjusted consolidated balance sheet, and also in the different segments, lower gross loan volumes and allowances for loan losses were shown compared to the IFRS reports. Furthermore, in the adjusted statement of recognised income of OTP Core and therefore on consolidated level, as well, the accrued interests on Stage 3 loans in the given period were netted with the related provision for impairment on loan losses. These items were not settled against each other in the case of foreign subsidiaries. From 2023, under the new methodology, these items are not netted against each other in the adjusted financial statements. This means that this change has not been retroactively applied for the base period in the tables of this report, but the numbers according to the new methodology were presented only for 2023. For the sake of comparability, in the below table we present the main financial data affected by this change for the 2022 base period under the new methodology, for the Group and OTP Core. 2022 in HUF million Consolidated Gross customer loans 19,690,287 Allowances for loan losses (1,049,663) Stage 3 loan volume under IFRS 9 1,015,899 Stage 3 loans under IFRS 9/gross customer loans 5.2% Own coverage of Stage 3 loans under IFRS 9 62.8% Net interest income 1,098,914 Net interest margin 3.52% Provision for impairment on loan losses (140,566) Provision for impairment on loan losses-to-average gross loans ratio 0.75% OTP Core Gross customer loans 6,551,991 Allowances for loan losses (273,371) Stage 3 loan volume under IFRS 9 346,947 Stage 3 loans under IFRS 9/gross customer loans 5.3% Own coverage of Stage 3 loans under IFRS 9 47.1% Net interest income 422,997 Net interest margin 2.42% Provision for impairment on loan losses 27,515 Provision for impairment on loan losses-to-average gross loans ratio (0.46%)
BUSINESS REPORT OTP BANK (CONSOLIDATED) 184/200 FOOTNOTES OF THE TABLE ‘CONSOLIDATED PROFIT AFTER TAX BREAKDOWN BY SUBSIDIARIES (IFRS)’ General note: regarding OTP Core and other subsidiaries, the adjusted profit after tax is calculated without the effect of adjustment items. (1) Aggregated adjusted profit after tax of OTP Core and foreign banks. (2) OTP Core is an economic unit for measuring the result of core business activity of OTP Group in Hungary. Financials of OTP Core are calculated from the partially consolidated IFRS financial statements of certain companies engaged in OTP Group’s operation in Hungary. These companies include OTP Bank Hungary Plc., OTP Mortgage Bank Ltd, OTP Building Society Ltd, OTP Factoring Ltd, OTP Financial Point Ltd., and companies providing intragroup financing; OTP Bank Employee Stock Ownership Plan Organization was included from 4Q 2016; OTP Card Factory Ltd., OTP Facility Management Llc., MONICOMP Ltd. and OTP Real Estate Leasing Ltd. were included from 1Q 2017 (from 1Q 2019 OTP Real Estate Lease Ltd. was eliminated from OTP Core); OTP Mobile Service Llc. and OTP Ingatlanpont Llc. were included from 1Q 2019; OTP Ecosystem Ltd. (previous name: OTP eBIZ Ltd., it was eliminated from 1Q 2023) was included from 1Q 2020; OTP OTP Home Solutions was included from 2Q 2021. The consolidated results of these companies were segmented into OTP Core and Corporate Centre until the end of 2022. According to the new methodology applied from 2023, Corporate Centre is no longer carved out of OTP Core. In the affected tables of this report, the 2022 base periods were presented both under the old and the new segment definitions. (3) The result and balance sheet of OTP Factoring Bulgaria EAD and DSK Leasing AD is included. (4) The statement of recognised income and balance sheet of SKB Banka d.d. Ljubljana, SKB Leasing d.o.o., SKB Leasing Select d.o.o. and from February 2023 Nova Kreditna Banka Maribor d.d. is included. (5) The statement of recognised income and balance sheet of OTP Leasing d.d. and SB Leasing d.o.o. was included. (6) The financial performance of OTP Factoring Serbia d.o.o, OTP Lizing d.o.o. and OTP Services d.o.o. is included. (7) The balance sheet of the newly acquired Alpha Bank Albania was included from July 2022, its statement of recognised income from August 2022. Alpha Bank Albania merged with OTP Bank Albania in December 2022. (8) The statement of recognised income and balance sheet of the acquired Podgoricka banka was included, which merged into the Montenegrin bank in 4Q 2020. (9) The balance sheet of Ipoteka Bank in Uzbekistan was consolidated from June 2023, whereas the adjusted profit of Ipoteka Bank was recognized in the consolidated P&L from 3Q 2023. (10) The statement of recognised income and balance sheet of LLC MFO “OTP Finance” is included. (11) Figures are based on the aggregated financial statements of OTP Bank JSC, LLC OTP Leasing, and OTP Factoring Ukraine LLC. (12) The statement of recognised income and balance sheet of OTP Faktoring SRL and OTP Leasing Romania IFN S.A. was included. (13) The subconsolidated adjusted profit after tax of Merkantil Group (Merkantil Bank Ltd., Merkantil Bérlet Ltd., OTP Real Estate Leasing Ltd., NIMO 2002 Ltd., SPLC-P Ltd., SPLC Ltd.) was presented. (14) LLC AMC OTP Capital, OTP Asset Management SAI S.A. (Romania), DSK Asset Management EAD (Bulgaria), ILIRIKA DZU a.d. Belgrade (Serbia). (15) Velvin Ventures Ltd. (Belize), SC Aloha Buzz SRL, SC Favo Consultanta SRL, SC Tezaur Cont SRL (Romania), OTP Solution Fund (Ukraine), Mendota Invest d.o.o. (Slovenia), R.E. Four d.o.o., Novi Sad (Serbia). (16) Until the end of 2022 Corporate Centre acted as a virtual entity established by the equity investment of OTP Core for managing the wholesale financing activity for all the subsidiaries within OTP Group but outside OTP Core. Therefore, the balance sheet of the Corporate Centre was funded by the equity and intragroup lending received from OTP Core, the intragroup lending received from other subsidiaries, and the subordinated debt and senior notes issued by OTP Bank. From this funding pool, the Corporate Centre was to provide intragroup lending to, and hold equity stakes in OTP subsidiaries outside OTP Core. Main subsidiaries financed by Corporate Centre were as follows: Hungarians: Merkantil Bank Ltd, OTP Flat Lease Ltd, OTP Fund Management Ltd, OTP Real Estate Fund Management Ltd, OTP Life Annuity Ltd; foreigners: banks, leasing companies, factoring companies. Starting from 2023 Corporate Centre is no longer carved out of OTP Core. In the affected tables of this report, the 2022 base periods were presented both under the old and the new segment definitions. (17) The profit after tax of the Hungarian operation lines include the profit after tax or adjusted profit after tax of the Hungarian subsidiaries and Corporate Centre, as well as the eliminations allocated onto these entities. (18) The profit after tax of the Foreign operation lines include the profit after tax or adjusted profit after tax of the Foreign subsidiaries, as well as the eliminations allocated onto these entities.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 185/200 CALCULATION OF THE ADJUSTED LINES OF IFRS PROFIT AND LOSS STATEMENTS, AS WELL AS THE ADJUSTED BALANCE SHEET LINES PRESENTED IN THE REPORT, AND THE METHODOLOGY FOR CALCULATING THE FX-ADJUSTED VOLUME CHANGES In order to present Group performance reflecting the underlying business trends, the presented consolidated and separate / sub-consolidated profit and loss statements of this report were adjusted in the following way, and the adjusted P&Ls are shown and analysed in the Report (unless otherwise stated). Consolidated financial statements of OTP Bank are disclosed in the Supplementary Data section. Adjustments affecting the income statement:  The after tax effect of adjustment items (certain, typically one-off items from banking operations’ point of view) are shown and analysed separately in the Statement of Recognised Income.  The components of the new Gain from derecognition of financial assets at amortized cost line in the P&L were shifted back in the adjusted P&L structure to the lines on which they were presented previously.  Due to the introduction of IFRS16, certain items previously presented on the Other non-interest expenses line (rental fees) were moved to the interest expenses and depreciation lines in the income statement. These items were shifted back to the Other non-interest expenses line in the adjusted P&L structure.  The expected one-off effect of the interest rate cap for certain loans in Hungary and Serbia line contains the expected effect of the Hungarian rate cap, and the expected effect of the Serbian rate cap effective from October 2023 until the end of 2024.  The effect of the winding up of Sberbank Hungary line represents the combined impact of the extraordinary contribution payable into the Deposit Protection Fund in relation to the compensation of depositors, and the recovery from the sale of Sberbank assets.  Performance indicators (such as cost/income ratio, net interest margin, risk cost to average gross loans as well as ROA and ROE ratios, etc.) presented in this report are calculated on the basis of the adjusted profit and loss statement excluding adjustment items (unless otherwise indicated). Starting from 2022, the Provision for impairment on loan losses line is in the numerator of the Provision for impairment on loan losses-to-average gross loans ratio, which, as opposed to previous periods, does not include the provision for impairment on placement losses.  In the Consolidated financial highlights and share data table the Book Value Per Share and the Tangible Book Value Per Share, as well as indicators derived from these are calculated based on the consolidated diluted share count used for EPS calculation.  Within the report, FX-adjusted statistics for business volume developments and their product breakdown, as well as the FX-adjusted stock of allowances for loan losses are disclosed, too. For FX-adjustment, the closing cross currency rates for the current period were used to calculate the HUF equivalent of loan and deposit volumes in the base periods. Thus the FX-adjusted volumes will be different from those published earlier.  The FX-adjusted changes of certain consolidated or sub-consolidated P&L lines in HUF terms may be presented in this Report. According to the applied methodology in the case of the P&L lines, the FX effect is filtered out only in relation to the currency of the given country, irrespective of the transactional currency mix in which the given P&L line materialized. Thus, for instance, as for the consolidated FX-adjusted operating cost development, the effect of the Hungarian Forint rate changes against the given currency is not eliminated in the case of the cost items arising in FX within the Hungarian cost base. Adjustments affecting the balance sheet:  On 9 February 2024 OTP Bank announced the signing of the share sale and purchase agreement to sell its Romanian operation. As a result of this, according to IFRS 5, as at the end of 2023 the Romanian operation was presented as an asset classified as held for salein the consolidated balance sheet, and as discontinued operation in the income statement. With regards to the consolidated balance sheet, all Romanian assets and liabilities were shown on a separate line in the 2023 closing balance sheet. As for the consolidated income statement, the Romanian contribution for both 2022 and 2023 was shown separately from the result of continuing operation, on the Net loss / gain from discontinued operation line, i.e. the particular P&L lines in the ‘continuing operations’ section of the P&L don’t incorporate the contribution from the Romanian subsidiaries. As opposed to this, in the adjusted financial statements presented in the Stock Exchange Report – in line with the structure of the financial statements monitored by the management – the Romanian operation was presented in a way as if it was still classified as continuing operation, i.e. its net interest income contribution was presented on the net interest income line in the consolidated adjusted income statement.  In the adjusted balance sheet, net customer loans include the stock of loans at amortized cost, loans mandatorily at fair value through profit or loss, and finance lease receivables.  In the adjusted balance sheets presented in the analytical section of the report, until the end of 2022 the total amount of accrued interest receivables related to Stage 3 loans under IFRS 9 were netted with the provisions created in relation to the total exposure toward those particular clients, in case of the affected Group members. Therefore, this adjustment made on the balance sheet had an impact on the consolidated gross customer loans and allowances for loan losses. Starting from 2023 this adjustment is no longer applied.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 186/200 Alternative performance measures pursuant to the National Bank of Hungary 5/2017. (V.24.) recommendation 73 Alternative performance measures name Description Calculation (data in HUF million) Measures value 2022 2023 Leverage, consolidated 74 The leverage ratio is calculated pursuant to Article 429 CRR. The calculation of the indicator is designed quarterly by the Bank for the prudential consolidation circle. The leverage ratio shall be calculated as an institution’s capital measure divided by that institution's total exposure measure and shall be expressed as a percenta g e. 9.6% 9.3% Example for 2023: 3,945,569.6 = 9.3% 42,426,769.2 Example for 2022: 3,383,160.8 = 9.6% 35,399,551.0 Liquidity Coverage Ratio (LCR) According to Article 412 (1) of CRR, the liquidity coverage ratio (LCR) is designed to promote short-term resilience of the Issuer’s / Group's liquidity risk profile and aims to ensure that the Issuer / Group has an adequate stock of unencumbered High Quality Liquid Assets (HQLA) to meet its liquidity needs for a 30 calendar day liquidity stress scenario. The LCR is expressed as: (stock of HQLA) / (total net cash outflows over the next 30 calendar days) ≥ 100%. The numerator of the LCR is the stock of HQLA (High Quality Liquid Assets). In order to qualify as HQLA, assets should be liquid in markets during a time of stress and, in most cases, be eligible for use in central bank operations. The denominator of the LCR is the total net cash outflows, defined as total expected cash outflows minus total expected cash inflow in the specified stress scenario for the subsequent 30 calendar days. Total cash inflows are subject to an aggregate cap of 75% of total expected cash outflows, thereb y ensurin g a minimum level of HQLA holdin g s at all times. 172.1% 246.1% Example for 2023: 11,062,683.8 = 246.1% 6,528,404.6 - 2,033,178.9 Example for 2022: 7,439,159.8 = 172.1% 6,175,742.4 - 1,852,865.4 ROE (accounting), consolidated The return on equity ratio shall be calculated the consolidated accounting after-tax profit for the given period divided by the average equity, thus shows the effectiveness of the use of equity. The numerator of the indicator is the consolidated accounting after-tax profit for the given period (annualized for periods less than one year), the denominator is the average consolidated equity. (The definition of average equity: calendar day-weighted average of the average balance sheet items in periods comprising the given period, where periods comprising the given period are defined as quarters (and within that months) in case of 1H, 9M and FY periods, and months in case of quarters. Furthermore, the average of the average balance sheet items is computed as the arithmetic average of closing balance sheet items for the previous period and the current period.) 11.0% 27.2% Example fo r 2023: 990,459.5 * 1.0 = 27.2% 3,639,782.4 Example for 2022: 347,081.1 * 1.0 = 11.0% 3,160,118.9 73 The NBH’s recommendation (5/2017, 24 May) on Alternative Performance Measures (APM) came into effect from 1 June 2017, in line with ESMA’s guidance (ESMA/2015/1415) on the same matter. The recommendation is aimed at – amongst other things – enhancing the transparency, reliability, clarity and comparability of those APMs within the framework of regulated information and thus facilitating the protection of existing and potential investors. 74 Based on the prudential consolidation scope, which is different from the consolidation scope used in this report.
BUSINESS REPORT OTP BANK (CONSOLIDATED) 187/200 Alternative performance measures name Description Calculation (data in HUF million) Measures value 2022 2023 ROE (adjusted), consolidated The return on equity ratio shall be calculated the consolidated adjusted after-tax profit for the given period divided by the average equity, thus shows the effectiveness of the use of equit y. The numerator of the indicator is the consolidated adjusted after-tax profit for the given period (annualized for periods less than one year), the denominator is the avera g e consolidated equit y. 18.8% 27.7% Example for 2023: 1,008,582.9 * 1.0 = 27.7% 3,639,782.4 Example for 2022: 592,547.0 * 1.0 = 18.8% 3,160,118.9 ROA (adjusted), consolidated The return on asset ratio shall be calculated the consolidated adjusted net profit for the given period divided by the average total asset, thus shows the effectiveness of the use of equity. The numerator of the indicator is the consolidated adjusted net profit for the given period, the denominator is the average consolidated total asset. (The definition of average asset: calendar day-weighted average of the average balance sheet items in periods comprising the given period, where periods comprising the given period are defined as quarters (and within that months) in case of 9M, 9M and FY periods, and months in case of quarters. Furthermore, the average of the average balance sheet items is computed as the arithmetic average of closing balance sheet items for the previous period and the current period.) 1.9% 2.7% Example for 2023: 1,008,582.9 * 1.0 = 2.7% 37,167,776.0 Example for 2022: 592,547.0 * 1.0 = 1.9% 31,190,136.9 Operating profit margin (adjusted, without one-off items), consolidated The operating profit margin shall be calculated the consolidated adjusted net operating profit without one-off items for the given period divided by the average total assets, thus shows the effectiveness of the operating profit generation on total assets. The numerator of the indicator is the consolidated adjusted net operating profit without one-off items for the given period, the denominator is the avera g e consolidated total assets. 2.78% 3.39% Example for 2023: 1,260,849.8 * 1.0 = 3.39% 37,167,776.0 Example for 2022: 868,486.7 * 1.0 = 2.78% 31,190,136.9 Total income margin (adjusted, without one-off items), consolidated The total income margin shall be calculated the consolidated adjusted total income without one-off items for the given period divided by the average total assets, thus shows the effectiveness of income generation on total assets. The numerator of the indicator is the consolidated adjusted total income without one-off items for the given period (annualized for periods less than one y ear), the denominator is the avera g e consolidated total assets. 5.31% 5.99% Example for 2023: 2,224,584.2 * 1.0 = 5.99% 37,167,776.0 Example for 2022: 1,656,571.0 * 1.0 = 5.31% 31,190,136.9 Net interest margin (adjusted), consolidated The net interest margin shall be calculated the consolidated adjusted net interest income for the given period divided by the average total assets, thus shows the effectiveness of net interest income generation on total assets. The numerator of the indicator is the consolidated adjusted net interest income for the given period (annualized for periods less than one year), the denominator is the avera g e consolidated total assets. 3.51% 3.93% Example for 2023: 1,459,693.5 * 1.0 = 3.93% 37,167,776.0 Example for 2022: 1,093,578.8 * 1.0 = 3.51% 31,190,136.9 Operating cost (adjusted)/ total assets, consolidated The indicator shows the operational efficiency. The numerator of the indicator is the consolidated adjusted operating cost for the given period (annualized for periods less than one year), the denominator is the avera g e consolidated total assets. 2.53% 2.59% Example for 2023: 963,734.3 * 1.0 = 2.59% 37,167,776.0 Example for 2022: 788,084.3 * 1.0 = 2.53% 31,190,136.9
BUSINESS REPORT OTP BANK (CONSOLIDATED) 188/200 Alternative performance measures name Description Calculation (data in HUF million) Measures value 2022 2023 Cost/income ratio (adjusted, without one-off items), consolidated The indicator is another measure of operational efficiency. The numerator of the indicator is the consolidated adjusted operating cost for the given period, the denominator is the adjusted operating income (without one-off items) for the g iven period. 47.6% 43.3% Example for 2023: 963,734.3 = 43.3% 2,224,584.2 Example for 2022: 788,084.3 = 47.6% 1,656,571.0 Provision for impairment on loan and placement losses (adjusted)/ average (adjusted) gross loans, consolidated The indicator provides information on the amount of impairment on loan and placement losses relative to gross customer loans. The numerator of the indicator is the consolidated adjusted provision for impairment on loan and placement losses for the given period (annualized for periods less than one year), the denominator is the adjusted consolidated gross customer loans for the given period. (The definition of average (adjusted) gross customer loans: calendar day-weighted average of the average balance sheet items in periods comprising the given period, where periods comprising the given period are defined as quarters (and within that months) in case of 1H, 9M and FY periods, and months in case of quarters. Furthermore, the average of the average balance sheet items is computed as the arithmetic average of closing balance sheet items for the previous period and the current period.) 0.73% 0.16% Example for 2023: 34,780.7 * 1.0 = 0.16% 21,377,407.9 Example for 2022: 135,231.1 * 1.0 = 0.73% 18,639,432.7 Total risk cost (adjusted)/ total asset ratio, consolidated The indicator shows the amount of total risk cost relative to the balance sheet total. The numerator of the indicator is consolidated adjusted total risk cost for the given period (annualized for periods less than one year), the denominator is the avera g e consolidated total assets for the g iven period. 0.57% 0.10% Example fo r 2023: 38,521.5 * 1.0 = 0.10% 37,167,776.0 Example for 2022: 178,464.7 * 1.0 = 0.57% 31,190,136.9 Effective tax rate (adjusted), consolidated The indicator shows the amount of corporate income tax accounted on pre-tax profit. The numerator of the indicator is consolidated adjusted corporate income tax for the given period, the denominator is the consolidated adjusted pre- tax profit for the g iven period. 14.1% 17.5% Example for 2023: 213,745.5 = 17.5% 1,222,328.4 Example for 2022: 97,475.0 = 14.1% 690,022.0 Net loan/(deposit+retail bonds) ratio (FX- adjusted), consolidated The net loan to deposit+retail bonds ratio is the indicator for assessing the bank's liquidity position. The numerator of the indicator is the consolidated net consumer loan volume (gross loan reduced the amount of provision), the denominator is the end of period consolidated consumer FX-adjusted deposit volume plus the end of period retail bond volume (issued b y OTP Bank). 74% 72% Example for 2023: 21,447,380.3 = 72% 29,428,283.5 + 201,130.6 Example for 2022: 17,929,314.2 = 74% 24,289,844.4 + 35,766.3
BUSINESS REPORT OTP BANK (CONSOLIDATED) 189/200 ADJUSTMENTS ON THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS (IFRS) 2022 HUF million 2023 HUF million Net interest income 1,026,868 1,383,014 (+) Presentation of the revaluation result of intra-group swaps on the net interest income line realized at the Romanian operation 2,034 0 (-) Netting of interest revenues on Stage 3 loans with the related provision (booked on the Provision for loan losses line) 5,335 - (-) Effect of acquisitions (3,179) (5,674) (-) Reclassification due to the introduction of IFRS16 (2,386) (2,970) (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines 64,446 68,151 Net interest income (adj.) 1,093,579 1,459,809 Net fees and commissions 584,491 691,525 (+) Financial Transaction Tax (89,751) (98,472) (-) Effect of acquisitions (2) (27) (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines 15,870 5,537 (-) Structural shift of income from currency exchange from net fees to the FX result 113,494 120,496 Net fees and commissions (adj.) 397,118 478,122 Foreign exchange result (16,302) 13,945 (-) Presentation of the revaluation result of intra-group swaps on the net interest income line realized at the Romanian operations 7,818 0 (-) Effect of acquisitions (4) (2) (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines 1,313 (11,397) (+) Structural shift of income from currency exchange from net fees to the FX result 113,494 120,496 Foreign exchange result (adj.) 90,691 123,046 Gain/loss on securities, net (4,505) 7,283 (-) Effect of acquisitions (556) (1,125) (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines 17 194 (-) Revaluation result of the treasury share swap agreement (10,002) (3,868) (+) Structural adjustment due to the Gain from derecognition of financial assets at amortized cost line (against Gain/loss on securities, net) (4,636) (18,716) (+) Shifting of the Gains and losses on non-trading securities mandatorily at fair value through profit or loss line from the Net other non-interest income to the Gains or losses from securities line 145 8,240 Gain/loss on securities, net (adj.) 1,579 1,994 Result of discontinued operation and gains from disposal of subsidiaries classified as held for sale 28,003 (21,246) (-) Profit of the sale of OTP Garancia Group (before tax) 0 0 (-) Effect of acquisitions 0 (55,913) Result of discontinued operation and gains from disposal of subsidiaries classified as held for sale (adj.) 28,003 34,667 Gains and losses on real estate transactions 5,232 7,195 Result of discontinued operation and gains from disposal of subsidiaries classified as held for sale (adjusted) 28,003 34,667 (+) Other non-interest income 118,329 331,425 (+) Net results on derivative instruments and hedge relationships 16,360 (12,760) (+) Net insurance result 1,369 1,921 (+) Losses on loans measured mandatorily at fair value through other comprehensive income and on securities at amortized cost (4,044 92,682 (-) Shifting of the Gains and losses on non-trading securities mandatorily at fair value through profit or loss line from the Net other non-interest income to the Gains or losses from securities line 145 8,240 (-) Received cash transfers 447 531 (+) Other other non-interest expenses (72,969) (54,855) (+) 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 840 2,738 (-) Effect of acquisitions 3,268 205,233 (-) Presentation of the revaluation result of intra-group swaps on the net interest income line realized at the Romanian operation (5,783) 0 (-) One-off impact of the CHF mortgage loan conversion programme and regulatory changes related to mortgage loans in Romania (591) 0 (-) 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 (275) 0 (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (21,994) (13,697) (-) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia (5) 0 (+) Shifting of the costs of mediated services at Merkantil Bérlet Ltd. to the net other non-interest result line (1,846) (2,119) (+) Structural adjustment due to the Gain from derecognition of financial assets at amortized cost line (against Net other non-interest result) (492) 191 (-) Expected one-off effect of the interest rate cap for certain loans in Hungary and Serbia (2,022) 0 (-) Effect of the winding up of Sberbank Hungary (recovery leg) 11,416 Net other non-interest result (adj.) 73,604 161,967
BUSINESS REPORT OTP BANK (CONSOLIDATED) 190/200 2022 HUF million 2023 HUF million Gain from derecognition of financial assets at amortized cost (1,573) (17,182) (-) Structural adjustment due to the Gain from derecognition of financial assets at amortized cost line (against Gain/loss on securities, net) (4,636) (18,716) (-) Structural adjustment due to the Gain from derecognition of financial assets at amortized cost line (against Provision for impairment on loan losses) 3,473) 1,343 (-) Structural adjustment due to the Gain from derecognition of financial assets at amortized cost line (against Net other non-interest result) (492) 191 (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (82) 0 Gain from derecognition of financial assets at amortized cost (adj.) 0 0 Provision for impairment on loan and placement losses (145,159) (126,415) (+) Modification gains or losses (39,997) (38,141) (+) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss 13,346 (91) (+) Loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost (60,761) 9,054 (+) Provision for commitments and guarantees given (5,917) 9,772 (+) Impairment of assets subject to operating lease and of investment properties (1,204) 1,333 (-) One-off impact of the CHF mortgage loan conversion programme and regulatory changes related to mortgage loans in Romania 138 0 (+) Netting of interest revenues on Stage 3 loans with the related provision (booked on the Provision for loan losses line) 5,335 - (-) Effect of acquisitions (3,493) (51,873) (-) Structural correction between Provision for loan losses and Other provisions (61,965) 10,387 (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (10,750) 2,758 (-) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia (4,816) 0 (+) Structural adjustment due to the Gain from derecognition of financial assets at amortized cos t line (against Provision for impairment on loan losses) 3,473 1,343 (-) Shifting of provision for impairment on placement losses to the other provisions line from 1Q 2022 (261) 2,945 (-) Expected one-off effect of the interest rate cap for certain loans in Hungary and Serbia (36,005) (36,909) Provision for impairment on loan losses (adj.) (135,231) (64,937) Profit from associates 14,618 15,299 (+) Received cash transfers 447 531 (+) Paid cash transfers (17,709) (15,360) (-) Sponsorships, subsidies and cash transfers to public benefit organisations (17,519) (15,067) (-) Dividend income of swap counterparty shares kept under the treasury share swap agreement 12,130 14,200 (-) 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 840 2,738 (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines 23 22 After tax dividends and net cash transfers 1,927 (1,378) Depreciation (168,840) (111,996) (-) Goodwill impairment charges (67,715) 0 (-) Effect of acquisitions (4,917) (4,897) (-) Reclassification due to the introduction of IFRS16 (18,008) (15,575) (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (6,463) (4,040) (+) Structural shift of right of use asset depreciation between other non-interest expenses and depreciation line 0 Depreciation (adj.) (84,663) (95,564) Personnel expenses (377,728) (478,695) (-) Effect of acquisitions (1,259) (2,507) (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (24,835) (26,571) (-) Shifting of the support granted to the Special Employee Partial Ownership Plan Organizations booked within the Personnel expenses to the Other non-interest expenses line (5,000) 0 Personnel expenses (adj.) (396,304) (502,759) Income taxes (58,600) (188,710) (-) Corporate tax impact of goodwill/investment impairment charges 8,461 (3,919) (-) Corporate tax impact of the special tax on financial institutions 5,456 6,079 (+) Tax deductible transfers to spectator sports (offset against corporate taxes) (14,479) (73) (-) Corporate tax impact of the effect of acquisitions 543 7,687 (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (652) (3,575) (-) Corporate tax impact of the expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia 244 0 (-) Corporate tax impact of the result of the treasury share swap agreement 900 348 (-) Corporate tax impact of the impairments on Russian government bonds booked at OTP Core and DSK Bank from 2022 3,494 311 (-) Corporate tax impact of the winding up of Sberbank Hungary (contribution to the Deposit Protection Fund) 1,027 (1,027) (-) Corporate tax impact of the expected one-off effect of the interest rate cap for certain loans in Hungary and Serbia 3,618 3,830
BUSINESS REPORT OTP BANK (CONSOLIDATED) 191/200 2022 HUF million 2023 HUF million (+) One-timer structural reclassification between Corporate income tax and Other non-interest expenses in 4Q 2023 (5,624) Corporate income tax (adj.) (97,475) (211,291) Other operating expense (125,742) (117,962) (-) Other costs and expenses (17,279) (10,143) (-) Other non-interest expenses (90,678) (69,850) (-) Effect of acquisitions (1,341) (10,271) (-) One-off impact of the CHF mortgage loan conversion programme and regulatory changes related to mortgage loans in Romania 453 0 (-) 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 275 0 (+) Structural correction between Provision for loan losses and Other provisions (61,965) 10,387 (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (3,057) (98) (-) Expected one-off negative effect of the debt repayment moratorium in Hungary and Serbia 2,104 0 (-) Impairments on Russian government bonds booked at OTP Core and DSK Bank from 2022 (38,268) (3,110) (+) Shifting of provision for impairment on placement losses to the other provisions line from 1Q 2022 (261) 2,945 (-) Shifting of certain expenses arising from mediated services from other provisions to the other non- interest expenses line (882) (1,252) (-) Expected one-off effect of the interest rate cap for certain loans in Hungary and Serbia (2,175) 181 Other provisions (adj.) (43,234) (10,285) Other general expenses (451,163) (483,283) (+) Other costs and expenses (17,279) (10,143) (+) Other non-interest expenses (90,678) (69,850) (-) Paid cash transfers (17,709) (15,360) (+) Film subsidies and cash transfers to public benefit organisations (17,519) (15,067) (-) Other other non-interest expenses (72,969) (54,490) (-) Special tax on financial institutions (recognised as other administrative expenses) (96,808) (68,630) (-) Tax deductible transfers (offset against corporate taxes) (14,479) (73) (-) Financial Transaction Tax (89,751) (98,472) (-) Effect of acquisitions (4,654) (8,366) (+) Reclassification due to the introduction of IFRS16 (20,395) (18,545) (+) Presentation of the contribution from discontinued operation and assets held for sale on the adjusted P&L lines (13,835) (17,284) (-) Expected one-off negative effect of the debt repayment moratorium in Hunga r y and Serbia 0 0 (-) Shifting of the costs of mediated services at Merkantil Bérlet Ltd. to the net other non-interest result line (1,846) (2,119) (+) Shifting of certain expenses arising from mediated services from other provisions to the other non- interest expenses line (882) (1,252) (-) Effect of the winding up of Sberbank Hungary (contribution to the Deposit Protection Fund) (11,416) 0 (+) Shifting of the support granted to the Special Employee Partial Ownership Plan Organizations booked within the Personnel expenses to the Other non-interest expenses line (5,000) 0 (-) Structural shift of right of use asset depreciation between other non-interest expenses and depreciation line 0 (-) One-timer structural reclassification between Corporate income tax and Other non-interest expenses in 4Q 2023 (5,624) Other non-interest expenses (adj.) (307,117) (362,289)
BUSINESS REPORT OTP BANK (CONSOLIDATED) 192/200 ADJUSTMENTS OF CONSOLIDATED IFRS BALANCE SHEET LINES 2022 HUF million 2023 HUF million Cash, amounts due from Banks and balances with the National Banks 4,221,392 7,125,050 (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 199,587 Cash, amounts due from Banks and balances with the National Banks (ad j usted) 4,221,392 7,324,636 Placements with other banks, net of allowance for placement losses 1,351,081 1,567,777 (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 8,147 Placements with other banks, net of allowance for placement losses (ad j usted) 1,351,081 1,575,924 Securities at fair value throu g h profit and loss 436,387 288,884 (+) Allocation of Assets classified as held for sale amon g balance sheet lines 0 2,091 Securities at fair value throu g h profit or loss (ad j usted) 436,387 290,975 Securities at fair value throu g h other comprehensive income 1,739,603 1,601,461 (+) Allocation of Assets classified as held for sale amon g balance sheet lines 0 39,430 Securities at fair value throu g h other comprehensive income (ad j usted) 1,739,603 1,640,891 Gross customer loans (incl. finance lease receivables and accrued interest receivables related to loans) 19,690,287 21,329,908 (-) Accrued interest receivables related to Sta g e 3 loans 46,730 - (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 1,136,507 Gross customer loans (ad j usted) 19,643,558 22,466,415 Allowances for loan losses (incl. impairment of finance lease receivables) (1,049,663) (963,179) (-) Allocated provision on accrued interest receivables related to Sta g e 3 loans (46,730) - (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 (55,856) Allowances for loan losses (ad j usted) (1,002,933) (1,019,035) Associates and other investments 73,849 96,110 (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 236 Associates and other investments (ad j usted) 73,849 96,346 Securities at amortized costs 4,891,938 5,249,490 (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 226,427 Securities at amortized costs (ad j usted) 4,891,938 5,475,917 Tan g ible and intan g ible assets, net 738,105 860,449 (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 18,500 Tan g ible and intan g ible assets, net (ad j usted) 738,105 878,949 Other assets 711,230 2,455,664 (+) Allocation of A ssets classified as held for sale amon g balance sheet lines 0 (1,575,068) Other assets (ad j usted) 711,230 880,596 Amounts due to banks, the National Governments, deposits from the National Banks and other banks, and Financial liabilities desi g nated at fair value throu g h profit or loss 1,517,349 2,011,569 (+) Allocation of Liabilities directl y associated with assets classified as held-for-sale amon g balance sheet lines 0 1,764 Amounts due to banks, the National Governments, deposits from the National Banks and other banks, and Financial liabilities desi g nated at fair value throu g h profit or loss (ad j usted) 1,517,349 2,013,333 Deposits from customers 25,188,805 28,332,431 (+) Allocation of Liabilities directl y associated with assets classified as held-for-sale amon g balance sheet lines 0 1,095,852 Deposits from customers (ad j usted) 25,188,805 29,428,284 Other liabilities 1,603,078 2,514,876 (+) Allocation of Liabilities directl y associated with assets classified as held-for-sale amon g balance sheet lines 0 (1,097,617) Other liabilities (ad j usted) 1,603,078 1,417,260
BUSINESS REPORT OTP BANK (CONSOLIDATED) 193/200 STATEMENT OF PROFIT OR LOSS OF OTP BANK PLC., ACCORDING TO IFRS STANDARDS AS ADOPTED BY THE EUROPEAN UNION (CONSOLIDATED) 1 2023 HUF million 2022 HUF million Change % CONTINUING OPERATIONS Interest income calculated using the effective interest method 2,314,677 1,425,859 62 Income similar to interest income 633,587 475,547 33 Interest incomes 2,948,264 1,901,406 55 Interest expenses (1,561,558) (874,538) 79 NET INTEREST INCOME 1,386,706 1,026,868 35 Risk cost total (79,281) (199,695) (60) Loss allowance / Release of loss allowance on loans, placements, amounts due from banks and repo receivables (109,223) (145,159) (25) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss (91) 13,346 Loss allowance / Release of loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost 8,831 (60,761) Provision for commitments and guarantees given 19,870 (5,917) Impairment / (Release of impairment) of assets subject to operating lease and of investment properties 1,332 (1,204) NET INTEREST INCOME AFTER RISK COST 1,307,425 827,173 58 Income from fees and commissions 861,309 716,866 20 Expense from fees and commissions (169,316) (132,375) 28 Net profit from fees and commissions 691,993 584,491 18 Modification gain or loss (38,141) (39,997) (5) Foreign exchange gains / losses, net 1,067 58 Foreign exchange gains / losses, net 13,827 (16,302) Net results on derivative instruments and hedge relationships (12,760) 16,360 Gains / Losses on securities, net 7,283 (4,505) Gains / Losses on financial assets /liabilities measured at fair value through profit or loss 94,613 (4,044) Gain from derecognition of financial assets at amortized cost (17,182) (1,573) 992 Profit from associates 14,766 14,618 1 Other operating income 324,266 124,930 160 Gains and losses on real estate transactions 7,195 5,232 38 Other non-interest income 315,155 118,329 166 Net insurance result 1,915 1,369 40 Other operating expense (110,570) (125,742) (12) Net operating income 314,243 3,742 8298 Personnel expenses (478,696) (377,728) 27 Depreciation and amortization (111,996) (168,840) (34) Other administrative expenses (483,645) (451,163) 7 Other administrative expenses (1,074,337) (997,731) 8 PROFIT BEFORE INCOME TAX 1,201,183 377,678 218 Income tax expense (189,478) (58,600) 223 PROFIT AFTER INCOME TAX FOR THE PERIOD FROM CONTINUING OPERATIONS 1,011,705 319,078 217 DISCONTINUED OPERATIONS Gains from disposal of subsidiary classified as held for sale 0 11,444 (100) Net loss / gain from discontinued operation (21,246) 16,559 PROFIT AFTER INCOME TAX FROM CONTINUING AND DISCOUNTINUED OPERATION 990,459 347,081 185 From this, attributable to: Non-controlling interest 1,801 727 148 Owners of the company 988,658 346,354 185 1 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).
BUSINESS REPORT OTP BANK (CONSOLIDATED) 194/200 STATEMENT OF FINANCIAL POSITION OF OTP BANK PLC., ACCORDING TO IFRS STANDARDS AS ADOPTED BY THE EUROPEAN UNION (CONSOLIDATED) 1 2023 HUF million 2022 HUF million Change % Cash, amounts due from banks and balances with the National Banks 7,125,049 4,221,392 69 Placements with other banks, net of loss allowance for placements 1,566,998 1,351,082 16 Repo receivables 223,884 41,009 446 Financial assets at fair value through profit or loss 288,885 436,387 (34) Securities at fair value through other comprehensive income 1,601,461 1,739,603 (8) Loans at amortized cost 17,676,533 16,094,458 10 Loans mandatorily at fair value through profit or loss 1,400,485 1,247,414 12 Finance lease receivables 1,289,712 1,298,752 (1) Associates and other investments 96,110 73,849 30 Loans at amortized cost 5,249,272 4,891,938 7 Property and equipment 523,124 464,469 13 Intangible assets and goodwill 291,358 237,031 23 Right-of-use assets 74,698 58,937 27 Investment properties 53,381 47,452 12 Derivative financial assets designated as hedge accounting 41,967 48,247 (13) Deferred tax assets 55,691 75,421 (26) Current income tax receivable 7,773 5,650 38 Other assets 509,430 471,119 8 Assets classified as held for sale 1,533,333 - TOTAL ASSETS 39,609,144 32,804,210 21 Amounts due to banks, the National Governments, deposits from the National Banks and other banks 1,940,862 1,463,158 33 Repo liabilities 126,237 217,369 (42) Financial liabilities designated at fair value through profit or loss 70,707 54,191 30 Deposits from customers 28,332,431 25,188,805 12 Liabilities from issued securities 2,095,548 870,682 141 Derivative financial liabilities held for trading 140,488 385,747 (64) Derivative financial liabilities designated as hedge accounting 63,899 27,949 129 Leasing liabilities 76,313 63,778 20 Deferred tax liabilities 28,663 40,094 (29) Current income tax payable 69,948 28,866 142 Provisions 121,119 131,621 (8) Other liabilities 745,820 707,654 5 Subordinated bonds and loans 562,396 301,984 86 Liabilities directly associated with assets classified as held for sale 1,139,920 - TOTAL LIABILITIES 35,514,351 29,481,898 20 Share capital 28,000 28,000 0 Retained earnings and reserves 4,179,322 3,395,215 23 Treasury shares (120,489) (106,862) 13 Total equity attributable to the parent 4,086,833 3,316,353 23 Total equity attributable to non-controlling interest 7,960 5,959 34 TOTAL SHARHOLDERS' EQUITY 4,094,793 3,322,312 23 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 39,609,144 32,804,210 21 1 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)
BUSINESS REPORT OTP BANK (CONSOLIDATED) 195/200 SECURITY LISTED ON THE BUDAPEST STOCK EXCHANGE BETWEEN 01/01/2014 AND 31/12/2023 Issue r Type of security Security name Date of issue Date of maturity Ccy OTP Bank Plc. Retail bond OTP_EURO_1 2015/II 17/01/2014 31/01/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/I 17/01/2014 17/01/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/III 31/01/2014 14/02/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/II 31/01/2014 31/01/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/IV 14/02/2014 28/02/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/III 14/02/2014 14/02/2016 EUR OTP Bank Plc. Retail bond OTP_ EURO_1 2015/V 28/02/2014 14/03/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/IV 28/02/2014 28/02/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/VI 14/03/2014 28/03/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/V 14/03/2014 14/03/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/VII 21/03/2014 04/04/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/VI 21/03/2014 21/03/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/VIII 11/04/2014 25/04/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/VII 11/04/2014 11/04/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/IX 18/04/2014 02/05/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/VIII 18/04/2014 18/04/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/X 09/05/2014 23/05/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/IX 09/05/2014 09/05/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XI 23/05/2014 06/06/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/X 23/05/2014 23/05/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XII 06/06/2014 20/06/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XI 06/06/2014 06/06/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XIII 20/06/2014 04/07/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XII 20/06/2014 20/06/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XIV 04/07/2014 18/07/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XIII 04/07/2014 04/07/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XV 18/07/2014 01/08/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XIV 18/07/2014 18/07/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XVI 30/07/2014 13/08/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XV 30/07/2014 30/07/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XVII 08/08/2014 22/08/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XVI 08/08/2014 08/08/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XVIII 29/08/2014 12/09/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XVII 29/08/2014 29/08/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XIX 12/09/2014 26/09/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XVIII 12/09/2014 12/09/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XX 03/10/2014 17/10/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_2 2016/XIX 03/10/2014 03/10/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XXI 22/10/2014 05/11/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XXII 31/10/2014 14/11/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XXIII 14/11/2014 28/11/2015 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XXIV 28/11/2014 12/12/2015 EUR OTP Bank Plc. Retail bond OTP_VK_USD_2 2016/I 28/11/2014 28/11/2016 USD OTP Bank Plc. Retail bond OTP_EURO_1 2015/XXV 19/12/2014 02/01/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2015/XXVI 09/01/2015 23/01/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/I 30/01/2015 13/02/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/II 20/02/2015 06/03/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/III 20/03/2015 03/04/2016 EUR OTP Bank Plc. Retail bond OTP_VK_USD_2 2017/I 10/04/2015 10/04/2017 USD OTP Bank Plc. Retail bond OTP_EURO_1 2016/IV 10/04/2015 24/04/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/V 24/04/2015 08/05/2016 EUR OTP Bank Plc. Retail bond OTP_VK_USD_1 2016/I 24/04/2015 24/04/2016 USD OTP Bank Plc. Retail bond OTP_EURO_1 2016/VI 29/05/2015 12/06/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/VII 30/06/2015 14/07/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/VIII 24/07/2015 07/08/2016 EUR OTP Bank Plc. Retail bond OTP_VK_USD_1 2016/II 24/07/2015 24/07/2016 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2016/III 25/09/2015 25/09/2016 USD OTP Bank Plc. Retail bond OTP_EURO_1 2016/IX 25/09/2015 09/10/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/X 30/10/2015 13/11/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/XI 11/11/2015 25/11/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/XII 27/11/2015 11/12/2016 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2016/XIII 30/12/2015 13/01/2017 EUR OTP Bank Plc. Retail bond OTP_VK_USD_1 2017/I 29/01/2016 29/01/2017 USD OTP Bank Plc. Retail bond OTP_EURO_1 2017/I 29/01/2016 12/02/2017 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2017/II 12/02/2016 26/02/2017 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2017/III 26/02/2016 12/03/2017 EUR OTP Bank Plc. Retail bond OTP_VK_USD_1 2017/II 18/03/2016 18/03/2017 USD OTP Bank Plc. Retail bond OTP_EURO_1 2017/IV 18/03/2016 01/04/2017 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2017/V 15/04/2016 29/04/2017 EUR OTP Bank Plc. Retail bond OTP_VK_USD_1 2017/III 27/05/2016 27/05/2017 USD OTP Bank Plc. Retail bond OTP_EURO_1 2017/VI 27/05/2016 10/06/2017 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2017/VII 10/06/2016 24/06/2017 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2017/VIII 01/07/2016 15/07/2017 EUR OTP Bank Plc. Retail bond OTP_EURO_1 2017/IX 10/08/2016 24/08/2017 EUR OTP Bank Plc. Retail bond OTP_VK_USD_1 2017/IV 16/09/2016 16/09/2017 USD OTP Bank Plc. Retail bond OTP_EURO_1 2017/X 16/09/2016 30/09/2017 EUR OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/I 20/01/2017 20/01/2018 USD OTP Mortgage Ban k Mortgage bond OJB2021/I 15/02/2017 27/10/2021 HUF OTP Mortgage Ban k Mortgage bond OJB2020/III 23/02/2017 20/05/2020 HUF OTP Mortgage Ban k Mortgage bond OJB2022/I 24/02/2017 24/05/2022 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/II 03/03/2017 03/03/2018 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/III 13/04/2017 13/04/2018 USD
BUSINESS REPORT OTP BANK (CONSOLIDATED) 196/200 Issue r Type of security Security name Date of issue Date of maturity Ccy OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/IV 02/06/2017 02/06/2018 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/V 14/07/2017 14/07/2018 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/VI 04/08/2017 04/08/2018 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/VII 29/09/2017 29/09/2018 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/VIII 17/11/2017 17/11/2018 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2018/IX 20/12/2017 20/12/2018 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/I 16/02/2018 16/02/2019 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/II 29/03/2018 29/03/2019 USD OTP Mortgage Ban k Mortgage bond OJB2023/I 05/04/2018 24/11/2023 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/III 18/05/2018 18/05/2019 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/IV 28/06/2018 28/06/2019 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/V 06/08/2018 06/08/2019 USD OTP Mortgage Ban k Mortgage bond OJB2024/A 17/09/2018 20/05/2024 HUF OTP Mortgage Ban k Mortgage bond OJB2024/B 18/09/2018 24/05/2024 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/VI 04/10/2018 04/10/2019 USD OTP Mortgage Ban k Mortgage bond OJB2024/II 10/10/2018 24/10/2024 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/VII 15/11/2018 15/11/2019 USD OTP Bank Plc. Corporate bond OTP_DK_HUF_2019/II 15/12/2018 31/05/2019 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2020/I 15/12/2018 31/05/2020 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2021/I 15/12/2018 31/05/2021 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2022/I 15/12/2018 31/05/2022 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2023/I 15/12/2018 31/05/2023 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2019/VIII 20/12/2018 20/12/2019 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/I 21/02/2019 21/02/2020 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/II 04/04/2019 04/04/2020 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/III 16/05/2019 16/05/2020 USD OTP Bank Plc. Corporate bond OTP_DK_HUF_2024/I 30/05/2019 31/05/2024 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2025/I 30/05/2019 31/05/2025 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/IV 27/06/2019 27/06/2020 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/V 15/08/2019 15/08/2020 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/VI 26/09/2019 26/09/2020 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/VII 07/11/2019 07/11/2020 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2020/VIII 19/12/2019 19/12/2020 USD OTP Mortgage Ban k Mortgage bond OJB2025/II 03/02/2020 26/11/2025 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2021/I 20/02/2020 20/02/2021 USD OTP Mortgage Ban k Mortgage bond OJB2024/C 24/02/2020 24/10/2024 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2021/II 02/04/2020 02/04/2021 USD OTP Bank Plc. Retail bond OTP_VK_USD_1 2021/III 14/05/2020 14/05/2021 USD OTP Bank Plc. Corporate bond OTP_DK_HUF_2022/II 29/05/2020 31/05/2022 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2023/II 29/05/2020 31/05/2023 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2024/II 29/05/2020 31/05/2024 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2025/II 29/05/2020 31/05/2025 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2026/I 29/05/2020 31/05/2026 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2027/I 29/05/2020 31/05/2027 HUF OTP Bank Plc. Retail bond OTP_VK_USD_1 2021/IV 18/06/2020 18/06/2021 USD OTP Mortgage Ban k Mortgage bond OJB2027/I 23/07/2020 27/10/2027 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2025/III 31/05/2021 31/05/2025 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2024/III 31/05/2021 31/05/2024 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2027/II 31/05/2021 31/05/2027 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2026/II 31/05/2021 31/05/2026 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2028/I 31/05/2021 31/05/2028 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2029/I 31/05/2021 31/05/2029 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2030/I 31/05/2021 31/05/2030 HUF OTP Mortgage Ban k Mortgage bond OJB2031/I 18/08/2021 22/10/2031 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2026/III 31/03/2022 31/05/2026 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2027/III 31/03/2022 31/05/2027 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2028/II 31/03/2022 31/05/2028 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2029/II 31/03/2022 31/05/2029 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2030/II 31/03/2022 31/05/2030 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2031/I 31/03/2022 31/05/2031 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2032/I 31/03/2022 31/05/2032 HUF OTP Mortgage Ban k Mortgage bond OJB2029/A 25/07/2022 24/05/2029 HUF OTP Bank Plc. Retail bond OTP_HUF_2025/1 18/11/2022 18/11/2025 HUF OTP Bank Plc. Retail bond OTP_HUF_2026/1 22/12/2022 05/01/2026 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/1 17/02/2023 17/02/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/2 10/03/2023 10/03/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/3 31/03/2023 31/03/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/4 21/04/2023 21/04/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/5 12/05/2023 12/05/2024 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2028/III 01/06/2023 31/05/2028 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2029/III 01/06/2023 31/05/2029 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2030/III 01/06/2023 31/05/2030 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2031/II 01/06/2023 31/05/2031 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2032/II 01/06/2023 31/05/2032 HUF OTP Bank Plc. Corporate bond OTP_DK_HUF_2033/I 01/06/2023 31/05/2033 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/6 02/06/2023 02/06/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/7 23/06/2023 23/06/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/8 30/06/2023 30/06/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2025/2 30/06/2023 30/06/2025 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/9 28/07/2023 28/07/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/10 07/08/2023 07/08/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/11 01/09/2023 01/09/2024 HUF OTP Mortgage Ban k Mortgage bond OJB2032/A 20/09/2023 24/11/2032 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/12 25/09/2023 25/09/2024 HUF
BUSINESS REPORT OTP BANK (CONSOLIDATED) 197/200 Issue r Type of security Security name Date of issue Date of maturity Ccy OTP Bank Plc. Retail bond OTP_TBSZ_HUF_2028/1 13/10/2023 15/12/2028 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/13 20/10/2023 20/10/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/14 17/11/2023 17/11/2024 HUF OTP Bank Plc. Retail bond OTP_HUF_2026/2 15/12/2023 15/12/2026 HUF OTP Bank Plc. Retail bond OTP_HUF_2024/15 20/12/2023 20/12/2024 HUF
BUSINESS REPORT OTP BANK (CONSOLIDATED) 198/200 COMPANIES INVOLVED IN THE SCOPE OF CONSOLIDATION (in IFRS consolidated accounts) Description Main activit y Countr y of tax residence 1. OTP Bank Plc. monetar y intermediation Hun g ar y 2. OTP In g atlan Zrt. bu y in g and sellin g of own real estate Hun g ar y 3. BANK CENTER No. 1. Beruházási és Fe j lesztési Kft. renting and operating real estate Hungary 4. OTP Alapkezelő Zrt. fund mana g ement activities Hun g ar y 5. OTP Faktorin g Követeléskezelő Zrt. other financial services Hun g ar y 6. OTP Lakástakarék Zrt. monetar y intermediation Hun g ar y 7. Merkantil Bank Zrt. monetar y intermediation Hun g ar y 8. OTP Faktorin g Va gy onkezelő Kft. bu y in g and sellin g of own real estate Hun g ar y 9. Merkantil Bérlet Kft. renting and operating real estate, leasing machines and equipment Hungary 10. OTP Jelzálo g bank Zrt. monetar y intermediation Hun g ar y 11. OTP Pénztárszol g áltató Zrt. activities auxiliar y to financial services Hun g ar y 12. NIMO 2002 Ker. és Szol g áltató Kft. rentin g and operatin g real estate Hun g ar y 13. OTP In g atlan Befektetési Alapkezelő Zrt. fund mana g ement activities Hun g ar y 14. OTP Kárt y a gy ártó és Szol g áltató Kft. manufacture of plastic products Hun g ar y 15. Ai r-Invest Va gy onkezelö Kft. passen g er air transport Hun g ar y 16. SPLC–P Ingatlanfejlesztő, In g atlanhasznosító Kft. renting and operating real estate Hungary 17. SPLC Vagyonkezelő Kft. trade of passenger vehicles, renting and operating real estate Hungary 18. OTP In g atlanlízin g Zrt. credit g rantin g, financial leasin g Hun g ar y 19. OTP É let j áradék In g atlanbefektető Zrt. bu y in g and sellin g of own real estate Hun g ar y 20. OTP In g atlanpont In g atlanközvetítő Kft. real estate brokera g e Hun g ar y 21. OTP Hun g aro-Pro j ekt Kft. business mana g ement consultanc y Hun g ar y 22. OTP Mérnöki Szol g áltató Kft. en g ineerin g activit y Hun g ar y 23. OTP In g atlanüzemeltető Kft. real estate operation Hun g ar y 24. PortfoLion Kockázati Tőkealap-kezelő Zrt. fund management activities Hungary 25. MONICOMP Zrt. repair of computers and computer peripherals Hun g ar y 26. CIL Babér Kft. renting and operating real estate, business mana g ement consultanc y Hungary 27. OTP Pénzü gy i Pont Zrt. activities auxiliar y to financial services Hun g ar y 28. Bajor-Polár Center Ingatlanhasznosító Zrt. renting and operating real estate Hungary 29. OTP Mobil Szol g áltató Kft. IT services Hun g ar y 30. OTP Travel Kft. travel a g enc y services Hun g ar y 31. OTP Ecosystem Korlátolt Felelősségű Társasá g other information technology services Hungary 32. OTP Bank Munkavállalói Résztulajdonosi Pro g ram Szervezet activities auxiliary to financial services Hungary 33. PortfoLion Di g ital Kft. business mana g ement consultanc y Hun g ar y 34. OTP Ingatlankezelő Korlátolt Felelőssé g ű Társasá g real estate management Hungary 35. MFM Projekt Beruházási és Fejlesztési Kft. renting and operating real estate Hungary 36. ShiwaForce.com Zártkörűen Működő Részvén y társasá g computer programming Hungary 37. EiSYS Kft. IT consultanc y Hun g ar y 38. OTP Otthonme g oldások Kft. data processin g Hun g ar y 39. OD Informatikai Fejlesztő és Szolgáltató Korlátolt Felelőssé g ű Társasá g computer programming Hungary 40. BALANSZ Zártkörű Nyíltvégű In g atlanalap investment fund Hungary 41. PortfoLion Zöld Ma g ántőkealap investment fund Hun g ar y 42. PortfoLion Di g itális Ma g ántőkealap I. investment fund Hun g ar y 43. PortfoLion Re g ionális Ma g ántőkealap investment fund Hun g ar y 44. PortfoLion Re g ionális Ma g ántőkelap II. investment fund Hun g ar y 45. PortfoLion Partner Ma g ántőke Alap investment fund Hun g ar y 46. PortfoLion Di g itális Ma g ántőkealap II. investment fund Hun g ar y 47. “Nemesszalóki Mezőgazdasági” Állattenyésztési, Növénytermesztési, Termelő és Szol g áltató Zrt. agricultural activity Hungary 48. ZA-Invest Béta Kft. a g ricultural activit y Hun g ar y 49. NAGISZ Mezőgazdasági Termelő és Szolgáltató Zártkörűen Működő Részvén y társasá g agricultural activity Hungary 50. Nádudvari Élelmiszer Feldolgozó és Kereskedelmi Korlátolt Felelősségű Társasá g agricultural activity Hungary 51. Ha g e Ha j dúsá g i A g ráripari Zrt. a g ricultural activit y Hun g ar y
BUSINESS REPORT OTP BANK (CONSOLIDATED) 199/200 Description Main activit y Countr y of tax residence 52. AFP Private Equity Invest Zártkörűen Működő Részvén y társasá g asset management (holding) Hungary 53. ZA-Invest Delta korlátolt Felelősségű Társasá g asset management (holding) Hungary 54. Foglaljorvost Online Korlátolt Felelőssé g ű Társasá g World Wide Web portal service Hungary 55. OTP Ecosystem Korlátolt Felelősségű Társasá g Other information technology services Hungary 56. JN Parkoló In g atlanhasznosító Kft. Services to buildin g s Hun g ar y 57. Szajki Mezőgazdasági Zártkörűen Működő Részvén y társasá g Growing of cereals (except rice), leguminous crops, oil seeds Hungary 58. Szekszárdi Mezőgazdasági Zártkörűűen Működő Részvén y társasá g Growing of cereals (except rice), leguminous crops, oil seeds Hungary 59. ARANYMEZŐ 2001. Mezőgazdasági Termékelőállító, Kereskedelmi és Szolgáltató Korlátolt Felelősségű Társasá g Growing of cereals (except rice), leguminous crops, oil seeds Hungary 60. AGROMAG-PLUSZ Mezőgazdasági Termékelőállító, Kereskedelmi és Szolgáltató Korlátolt Felelősségű Társasá g Growing of cereals (except rice), leguminous crops, oil seeds Hungary 61. Aranykalász 1955. Mezőgazdasági korlátolt felelőssé g ű társasá g Growing of cereals (except rice), leguminous crops, oil seeds Hungary 62. ZA Gamma HoldCo Korlátolt Felelősségű Társasá g Asset mana g ement (holdin g) Hungary 63. ZA Invest Gamma Korlátolt Felelősségű Társasá g Asset mana g ement (holdin g) Hungary 64. ZA-Invest Kappa Korlátolt Felelősségű Társasá g Asset mana g ement (holdin g) Hungary 65. Club Hotel Füred Szálloda Kft. Hotel services Hun g ar y 66. DSK Bank AD, monetar y intermediation Bul g aria 67. DSK Trans Securit y EAD securit y services Bul g aria 68. POK DSK-Rodina AD pension insurance Bul g aria 69. DSK Asset Mana g ement EAD fund mana g ement activities Bul g aria 70. DSK Leasin g AD, financial leasin g Bul g aria 71. OTP Insurance Broker EOOD activities of insurance a g ents and brokers Bul g aria 72. OTP Factorin g Bul g aria EAD; factorin g, trade credit Bul g aria 73. DSK Ventures EAD commercial mediation, marketin g, IT services Bul g aria 74. DSK DOM EAD credit intermediation Bul g aria 75. OTP Leasin g EOOD; financial leasin g Bul g aria 76. Re g ional Urban Development Fund AD financin g of urban development plans Bul g aria 77. OTP banka dioničko društvo monetar y intermediation Croatia 78. OTP Invest d.o.o. fund mana g ement activities Croatia 79. OTP Nekretnine d.o.o development of construction pro j ects Croatia 80. OTP Leasin g d.d. financial leasin g Croatia 81. CRESCO d.o.o. bu y in g and sellin g of own real estate Croatia 82. Geor g d.o.o business mana g ement consultanc y Croatia 83. SKB banka d.d. L j ubl j ana monetar y intermediation Slovenia 84. SKB Leasin g d.o.o. financial leasin g Slovenia 85. SKB Leasin g Select d.o.o. financial leasin g Slovenia 86. Mendota Invest, Nepremicninska druzba, d.o.o. property developer, manager Slovenia 87. Mendota Invest, Nepremicninska druzba, d.o.o. Real estate management Slovenia 88. Nova Kreditna Banka Maribor d.d. Other monetar y intermediation Slovenia 89. ALEJA FINANCE, FINANCNE IN DRUGE STORITVE, D.O.O. Other activities auxiliary to financial services, except insurance and pension fundin g Slovenia 90. OTP banka Srbija akcionarsko drustvo Novi Sad monetary intermediation Serbia 91. OTP Investments d.o.o. Novi Sad other financial services Serbia 92. OTP Factorin g Serbia d.o.o. other financial services Serbia 93. R.E. Four d.o.o. Novi Sad bu y in g and sellin g of own real estate Serbia 94. PEVEC d.o.o Beo g rad warehousin g Serbia 95. OTP Lizin g d.o.o. financial leasin g Serbia 96. OTP Services d. o. o. Beo g rad trade of passen g er vehicles Serbia 97. OTP Leasin g Srbi j a d.o.o Beo g rad financial leasin g Serbia 98. OTP Osi g uran j e A.D.O. Beo g rad insurance Serbia 99. Banka OTP Albania SHA monetar y intermediation Albania 100. Crno g orska Komerci j alna Banka a.d. monetar y intermediation Montene g ro 101. OTP Debt Collection d.o.o. Pod g orica other financial intermediation Montene g ro 102. JSCMB ‘IPOTEKA BANK’ Other monetar y intermediation Uzbekistan 103. JSC “OTP Bank” (Russia) monetar y intermediation Russia 104. Velvin Ventures Ltd. real estate brokera g e Russia 105. LLC MFO “OTP Finance” micro-financial operation Russia 106. OTP Bank JSC (Ukraine) monetar y intermediation Ukraine 107. LLC AMC OTP Capital fund mana g ement activities Ukraine 108. LLC OTP Leasin g financial leasin g Ukraine 109. OTP Factorin g Ukraine LLC receivable mana g ement, credit intermediation Ukraine 110. OTP Solution Fund investment fund Ukraine
BUSINESS REPORT OTP BANK (CONSOLIDATED) 200/200 Description Main activit y Countr y of tax residence 111. OTP Bank Romania S.A. monetar y intermediation Romania 112. OTP Leasin g Romania IFN S.A. financial leasin g Romania 113. OTP Asset Mana g ement SAI S.A. fund mana g ement activities Romania 114. OTP Factorin g SRL other financial services Romania 115. SC Aloha Buzz SRL other financial services Romania 116. SC Favo Consultanta SRL other financial services Romania 117. SC Tezaur Cont SRL other financial services Romania 118. OTP Bank S.A. monetar y intermediation Moldova 119. OTP Holdin g Ltd. other financial services C y prus 120. OTP Luxembour g S.à r.l. Asset mana g ement (holdin g) Luxembour g 121. OTP Financin g Solutions B.V. loan receivables Netherlands 122. OTP Holdin g Malta Ltd. financial holdin g s Malta 123. OTP Financin g Malta Ltd. lendin g Malta 124. Pro j ect 01 Consultin g, s. r. o. other financial services Slovakia
OTP BANK PLC. SEPARATE FINANCIAL STATEMENTS IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION FOR THE YEAR ENDED 31 DECEMBER 2023
2 OTP BANK PLC. CONTENTS sSEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 .................................. 5 SEPARATE STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) ........................................................................................................................................... 6 SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) ...................................................................................................... 7 SEPARATE STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) ................................................................................................. 8 SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) ........................................................................................................................................... 9 NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS ............................................. 11 1.1. General information ........................................................................................................................ 11 1.2. Basis of accounting ......................................................................................................................... 11 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ...................................................... 15 2.1. Basis of presentation ....................................................................................................................... 15 2.2. Foreign currency translation ........................................................................................................... 15 2.3. Consolidated financial statements ................................................................................................... 15 2.4. Investments in subsidiaries, associated companies and other investments ..................................... 15 2.5. Business model and SPPI test ......................................................................................................... 16 2.6. Securities at amortised cost ............................................................................................................. 17 2.7. Financial assets at fair value through profit or loss ......................................................................... 17 2.8. Hedge accounting............................................................................................................................ 18 2.9. Offsetting ........................................................................................................................................ 19 2.10. Embedded derivatives ..................................................................................................................... 19 2.11. Securities at fair value through other comprehensive income (“FVOCI securities”) ..................... 20 2.12. Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses ............................................................................................................. 20 2.13. Loss allowance ................................................................................................................................ 23 2.14. Option to designate a financial asset/liability measured at fair value through profit or loss (FVTPL option) .............................................................................................................................. 26 2.15. Sale and repurchase agreements, security lending .......................................................................... 26 2.16. Property, equipment and intangible assets ...................................................................................... 27 2.17. Inventories ...................................................................................................................................... 27 2.18. Investment properties ...................................................................................................................... 27 2.19. Financial liabilities .......................................................................................................................... 27 2.20. Leases ............................................................................................................................................. 28 2.21. Share capital .................................................................................................................................... 29 2.22. Treasury shares ............................................................................................................................... 29 2.23. Non-current assets held-for-sale and discontinued operations ........................................................ 29 2.24. Interest income, income similar to interest income and interest expense ....................................... 30 2.25. Fees and Commissions .................................................................................................................... 30 2.26. Dividend income ............................................................................................................................. 32 2.27. Income tax....................................................................................................................................... 32
3 2.28. Banking tax ..................................................................................................................................... 33 2.29. Off-balance sheet commitments and contingent liabilities, provisions ........................................... 34 2.30. Share-based payment ...................................................................................................................... 34 2.31. Employee benefits........................................................................................................................... 34 2.32. Separate statement of cash flows .................................................................................................... 35 2.33. Segment reporting ........................................................................................................................... 35 2.34. Comparative figures ........................................................................................................................ 35 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES...................................................................................................... 36 3.1. Loss allowance on financial instruments ........................................................................................ 36 3.2. Valuation of instruments without direct quotations ........................................................................ 36 3.3. Provisions........................................................................................................................................ 36 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK ............ 37 NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANK OF HUNGARY (in HUF mn) ............................................................................................ 44 NOTE 6: PLACEMENTS WITH OTHER BANKS (in HUF mn)................................................................. 45 NOTE 7: REPO RECEIVABLES (in HUF mn)............................................................................................. 46 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) ........... 47 NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) ......................................................................................................................................... 48 NOTE 10: SECURITIES AT AMORTISED COST (in HUF mn)................................................................... 50 NOTE 11: LOANS (in HUF mn) ..................................................................................................................... 51 NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn) ....................................................................................................... 53 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) ................................... 58 NOTE 14: INVESTMENT PROPERTIES (in HUF mn) ................................................................................. 59 NOTE 15: FAIR VALUE OF DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) ........................................................................................................ 59 NOTE 16: OTHER ASSETS (in HUF mn) ...................................................................................................... 60 NOTE 17: AMOUNTS DUE TO BANKS AND DEPOSITS FROM THE NATIONAL BANK OF HUNGARY AND OTHER BANKS (in HUF mn) ........................................................................ 61 NOTE 18: REPO LIABILITIES (in HUF mn) ................................................................................................. 61 NOTE 19: DEPOSITS FROM CUSTOMERS (in HUF mn) ........................................................................... 62 NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) ......................................................... 63 NOTE 21: FINANCIAL LIABILITIES DESIGNATED AS FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) ......................................................................................................................... 67 NOTE 22: HELD FOR TRADING DERIVATIVE FINANCIAL LIABILITIES (in HUF mn) ..................... 67 NOTE 23: FAIR VALUE OF DERIVATIVE FINANCIAL LIABLITIES DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) ........................................................................................................ 67 NOTE 24: OTHER LIABILITIES AND PROVISIONS (in HUF mn) ............................................................ 68 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) ............................................................. 69 NOTE 26: SHARE CAPITAL (in HUF mn) .................................................................................................... 71 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) ........................................................... 72 NOTE 28: TREASURY SHARES (in HUF mn) ............................................................................................. 76 NOTE 29: INTEREST INCOME AND EXPENSES (in HUF mn) ................................................................. 77 NOTE 30: RISK COST (in HUF mn) .............................................................................................................. 78 NOTE 31: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) ................................................ 79
4 NOTE 32: GAINS AND LOSSES BY TRANSACTIONS (in HUF mn) ........................................................ 80 NOTE 33: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn) ............................................................................................................... 82 NOTE 34: INCOME TAX (in HUF mn) .......................................................................................................... 83 NOTE 35: LEASE (in HUF mn) ...................................................................................................................... 86 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn)...................................................................... 87 36.1. Credit risk ....................................................................................................................................... 87 36.2. Maturity analysis of assets and liabilities and liquidity risk ......................................................... 107 36.3. Net foreign currency position and foreign currency risk .............................................................. 110 36.4. Interest rate risk management....................................................................................................... 110 36.5. Market risk .................................................................................................................................... 117 NOTE 37: TRANSFER OF FINANCIAL INSTRUMENTS (in HUF mn) ................................................... 121 NOTE 38: OFF-BALANCE SHEET ITEMS (in HUF mn) ........................................................................... 121 NOTE 39: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn) ................................ 123 NOTE 40: RELATED PARTY TRANSACTIONS (in HUF mn) ................................................................. 128 NOTE 41: TRUST ACTIVITIES (in HUF mn) ............................................................................................. 130 NOTE 42: CONCENTRATION OF ASSETS AND LIABILITIES .............................................................. 130 NOTE 43: EARNINGS PER SHARE ............................................................................................................ 131 NOTE 44: NET GAIN OR LOSS REALISED ON FINANCIAL INSTRUMENTS (in HUF mn) ............... 132 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) ................................................ 134 NOTE 46: ASSETS CLASSIFIED AS HELD-FOR-SALE (in HUF mn) ..................................................... 153 NOTE 47: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2023 ..................... 153 NOTE 48: SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD ................................................ 156
5 OTP BANK PLC. SEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 (in HUF mn) Note 31 December 2023 31 December 2022 Cash, amounts due from banks and balances with the National Bank of Hungary 5. 2,708,232 1,092,198 Placements with other banks 6. 2,702,433 2,899,829 Repo receivables 7. 201,658 246,529 Financial assets at fair value through profit or loss 8. 257,535 410,012 Financial assets at fair value through other comprehensive income 9. 559,527 797,175 Securities at amortised cost 10. 2,710,848 3,282,373 Loans at amortised cost 11. 4,681,359 4,825,040 Loans mandatorily measured at fair value through profit or loss 11. 934,848 793,242 Investments in subsidiaries 12. 2,001,952 1,596,717 Property and equipment 13. 107,306 94,564 Intangible assets 13. 98,115 69,480 Right of use assets 35. 66,222 39,882 Investment properties 14. 4,203 4,207 Deferred tax assets 34. 408 35,742 Current tax assets 34. - 1,569 Derivative financial assets designated as hedge accounting relationships 15. 21,628 47,220 Non-current assets held for sale 46. 130,718 - Other assets 16. 365,961 329,752 TOTAL ASSETS 17,552,953 16,565,531 Amounts due to banks and deposits from the National Bank of Hungary and other banks 17. 1,761,579 1,736,128 Repo liabilities 18. 443,694 408,366 Deposits from customers 19. 10,734,325 11,119,158 Leasing liabilities 35. 68,282 41,464 Liabilities from issued securities 20. 1,163,109 498,709 Financial liabilities designated at fair value through profit or loss 21. 19,786 16,576 Derivative financial liabilities designated as held for trading 22. 183,565 373,401 Derivative financial liabilities designated as hedge accounting relationships 23. 27,423 50,623 Current tax liabilities 34. 14,393 3,199 Provisions 24. 22,497 29,656 Other liabilities 24. 295,399 313,188 Subordinated bonds and loans 25. 520,296 294,186 TOTAL LIABILITIES 15,254,348 14,884,654 Share capital 26. 28,000 28,000 Retained earnings and reserves 27. 2,276,759 1,655,601 Treasury shares 28. (6,154) (2,724) TOTAL SHAREHOLDERS' EQUITY 2,298,605 1,680,877 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 17,552,953 16,565,531 Budapest, 20 March 2024 Dr. Sándor Csányi László Wolf Chairman and Chief Executive Officer Deputy Chief Executive Officer
6 OTP BANK PLC. SEPARATE STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) Note Year ended 31 December 2023 Year ended 31 December 2022 Interest Income: Interest income calculated using the effective interest method 29. 1,227,173 721,679 Income similar to interest income 29. 795,906 377,231 Interest income and similar to interest income total 2,023,079 1,098,910 Interest Expense: Interest expenses total 29. (1,556,361) (802,020) NET INTEREST INCOME 466,718 296,890 (Release of loss allowance) / Loss allowance on loan, placement and repo receivables losses 6., 7., 11., 30. 8,616 (47,687) (Release of loss allowance) / Loss allowance on securities at fair value through other comprehensive income and on securities at amortised cost 9., 10., 30. 11,879 (53,238) (Release of provision) / Provision for loan commitments and financial guarantees given 24., 30. 7,172 (5,541) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss 45.4. (980) 11,872 Risk cost total 26,687 (94,594) NET INTEREST INCOME AFTER RISK COST 493,405 202,296 LOSSES ARISING FROM DERECOGNITION OF FINANCIAL ASSETS MEASURED AT AMORTISED COST (19,707) (56,195) MODIFICATION LOSS 4. (9,017) (14,856) Income from fees and commissions 31. 402,885 362,444 Expenses from fees and commissions 31. (78,755) (66,087) NET PROFIT FROM FEES AND COMMISSIONS 324,130 296,357 Foreign exchange (losses) and gains 32. (12,269) 541 Gains and (losses) on securities, net 32. 7,073 (10,605) Gains / (losses) on financial instruments at fair value through profit or loss 32. 91,268 (18,790) Net results on derivative instruments and hedge relationships 32. 13,055 9,917 Dividend income 32. 275,705 194,526 Other operating income 33. 26,184 13,775 Other operating expenses 33. 63,590 (131,942) NET OPERATING INCOME 464,606 57,422 Personnel expenses 33. (195,404) (154,303) Depreciation and amortization 33. (50,814) (46,738) Other administrative expenses 33. (281,918) (290,989) OTHER ADMINISTRATIVE EXPENSES (528,136) (492,030) PROFIT BEFORE INCOME TAX 725,281 (7,006) Income tax 34. (70,293) 13,638 PROFIT AFTER INCOME TAX 654,988 6,632 Earnings per share (in HUF) Basic 43. 2,344 24 Diluted 43. 2,344 24
7 OTP BANK PLC. SEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) Note Year ended 31 December 2023 Year ended 31 December 2022 PROFIT AFTER INCOME TAX 654,988 6,632 Items that may be reclassified subsequently to profit or loss: Fair value adjustment of debt instruments at fair value through other comprehensive income 37,917 (55,804) Deferred tax related to fair value adjustment of debt instruments at fair value through other comprehensive income 34. (3,503) 5,186 Gains / (Losses) on separated currency spread of financial instruments designated as hedging instrument 3,752 (4,887) Deferred tax related to (losses) / gains on separated currency spread of financial instruments designated as hedging instrument 34. (338) 440 (Losses) / Gains on derivative financial instruments designated as cash flow hedge 5,700 (5,641) Items that will not be reclassified to profit or loss: Gains on equity instruments at fair value through other comprehensive income - 2,675 Fair value adjustment of equity instruments at fair value through other comprehensive income 3,308 61 Deferred tax related to equity instruments at fair value through other comprehensive income 34. (374) (41) Total 46,462 (58,011) TOTAL COMPREHENSIVE INCOME 701,450 (51,379)
8 OTP BANK PLC. SEPARATE STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) Note Share Capital Capital reserve Retained earnings and other reserves Treasury Shares Total Balance as at 1 January 2022 28,000 52 1,845,784 (58,872) 1,814,964 Net profit for the period - - 6,632 - 6,632 Other movement - - 2 - 2 Other comprehensive income - - (58,011) - (58,011) Total comprehensive income - - (51,377) - (51,377) Share-based payment 39. - - 2,948 - 2,948 Sale of treasury shares 28. - - - 72,416 72,416 Acquisition of treasury shares 28. - - - (16,268) (16,268) Loss on treasury shares 28. - - (21,558) - (21,558) Dividend for the year 2021 - - (120,248) - (120,248) Other transaction with owners - - (138,858) 56,148 (82,710) Balance as at 31 December 2022 28,000 52 1,655,549 (2,724) 1,680,877 Balance as at 1 January 2023 28,000 52 1,655,549 (2,724) 1,680,877 Net profit for the period - - 654,988 - 654,988 Other comprehensive income - - 46,462 - 46,462 Total comprehensive income - - 701,450 - 701,450 Share-based payment 39. - - 3,292 - 3,292 Sale of treasury shares 28. - - - 36,388 36,388 Acquisition of treasury shares 28. - - - (39,818) (39,818) Loss on sale of treasury shares 28. - - 416 - 416 Dividend for the year 2022 - - (84,000) - (84,000) Other transaction with owners - - (80,292) (3,430) (83,722) Balance as at 31 December 2023 28,000 52 2,276,707 (6,154) 2,298,605
9 OTP BANK PLC. SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) Note Year ended 31 December 2023 Year ended 31 December 2022 OPERATING ACTIVITIES Profit before income tax 725,281 (7,006) Net accrued interest 3,136 (11,196) Depreciation and amortization 13. 50,834 46,873 Loss allowance on loans and placements 30. 357 63,939 (Release of loss allowance) / Loss allowance on securities at fair value through other comprehensive income 9. (3,303) 25,615 (Reversal of impairment loss) / Impairment loss on investments in subsidiaries 12. (87,609) 93,513 (Release of loss allowance) / Loss allowance on securities at amortised cost 10. (8,576) 27,623 Loss allowance on other assets 16. 3,575 2,939 (Release of provision) / Provision on off-balance sheet commitments and contingent liabilities 24. (6,663) 7,598 Share-based payment 39. 3,292 2,948 Unrealised gains on fair value adjustment of financial instruments at fair value through profit or loss 45. (95,953) 11,870 Unrealised (gains)/losses on fair value adjustment of derivative financial instruments 45. (76,357) 52,840 Gains on securities 32. 18,890 62,354 Interest expense from leasing liabilities 35. (2,081) (1,186) Foreign exchange gain / (loss) 32. (20,842) 9,359 Proceeds from sale of tangible and intangible assets 33. (1,225) (267) Net changing in assets and liabilities in operating activities Net decrease / (increase) in placements with other banks and repo receivables before allowance for placement losses 6., 7. 291,024 (521,731) Changes in held for trading securities 8. 52,640 (44,181) Change in financial instruments mandatorily measured at fair value through profit or loss 8. (2,200) 1,925 Changes in derivative financial instruments at fair value through profit or loss 8. (32,338) 136 Net increase in loans 11. (35,369) (817,297) Increase in other assets, excluding advances for investments and before provisions for losses 16. (22,571) (99,813) Net increase in amounts due to banks and deposits from the National Bank of Hungary and other banks and repo liabilities 17., 18. 105,778 910,984 Financial liabilities designated as fair value through profit or loss 21. (1,332) (1,625) Net (decrease) / increase in deposits from customers 19. (237,889) 971,640 (Decrease) / Increase in other liabilities 24. (73,221) 77,424 Net increase in the compulsory reserve established by the National Bank of Hungary 5. (402,879) (641,125) Dividend income 12. (275,705) (194,526) Income tax paid (19,213) (19,953) Net cash (used in) / provided by operating activities (150,519) 9,674
10 OTP BANK PLC. SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) [continued] Note Year ended 31 December 2023 Year ended 31 December 2022 INVESTING ACTIVITIES Purchase securities at fair value through other comprehensive income 9. (342,984) (1,322,153) Proceeds from sale of securities at fair value through other comprehensive income 9. 628,817 1,074,212 Change in derivative financial instruments designated as hedge accounting 1,580 13,805 Increase in investments in subsidiaries 12. (445,637) (117,222) Dividend income 254,694 194,449 Increase in securities at amortised cost 10. (81,661) (624,476) Redemption of securities at amortised cost 10. 588,288 415,975 Additions to property, equipment and intangible assets 13. (86,251) (60,575) Disposal of property, equipment and intangible assets 13. 1,903 648 Net increase in investment properties 14. (134) (14) Net provided by / (used in) cash used in investing activities 518,615 (425,351) FINANCING ACTIVITIES Leasing payments (5,341) (6,189) Cash received from issuance of securities 20. 829,166 575,994 Cash used for redemption of issued securities 20. (140,736) (91,635) Cash received from issuance of subordinated bonds and loans 25. 293,590 6,781 Cash used for redemption of subordinated bonds and loans 25. (44,611) (7,523) Increase of Treasury shares 28. (39,818) (16,268) Decrease of Treasury shares 28. 36,804 50,858 Dividends paid 27. (83,995) (120,213) Net cash provided by financing activities 845,059 391,805 Net increase in cash and cash equivalents 1,213,155 (23,872) Cash and cash equivalents at the beginning of the year 351,770 375,642 Cash and cash equivalents at the end of the year 1,564,925 351,770 Interest received 1,848,542 941,406 Interest paid 1,320,920 511,635
OTP Bank Plc Separate Financial Statements 2023 11 NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS 1.1. General information OTP Bank Plc. ("Bank" or "OTP Bank") was established on 31 December 1990, when the previously State-owned company was transformed into a limited liability company. The Bank’s registered office address is 16, Nádor Street, Budapest 1051. Internet homepage: http://www.otpbank.hu/ Signatory of the separate financial statements is the Chief Executive Officer, dr. Sándor Csányi and Deputy Chief Executive Officer, László Wolf. The Bank’s owners have the power to amend the separate financial statement s after issue if applicable. Responsible person for the control and management of accounting services: Zoltán Tuboly (Budapest), Managing Director of Accounting and Financial Directorate, Registration Number: 177289, IFRS qualified chartered accountant. Due to Hungarian legislation audit services are statutory for OTP Bank. Disclosure information about the auditor: Ernst & Young Audit Ltd. (001165), 1132 Budapest Váci Street 20. Registered under 01-09-267553 by Budapest- Capital Regional Court, as registry court. Statutory registered auditor: Zsolt Kónya, registration number: 007383. Audit service fee agreed by the Annual General Meeting of the Bank for the year ended 2023 is an amount of EUR 458 thousand + VAT. All other fees charged by the Auditor for non-audit services during the financial year are disclosed in the consolidated financial statements of the Bank. In 1995, the shares of the Bank were introduced on the Budapest and the Luxembourg Stock Exchanges and were also traded on the SEAQ board on the London Stock Exchange and PORTAL in the USA. The structure of the Share capital by shareholders (%): 31 December 2023 31 December 2022 Domestic and foreign private and institutional investors 99% 99% Employees 1% 1% Total 100% 100% The Bank’s Registered Capital consists of 280.000.010 pieces of ordinary shares with the nominal value of HUF 100 each, representing the same rights to the shareholders. The Bank provides a full range of commercial banking services through a nationwide network of 342 branches in Hungary. 31 December 2023 31 December 2022 Number of employees 10,715 10,516 Average number of employees 10,591 10,252 NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS 1.2. Basis of accounting These Separate Financial Statements were prepared based on the assumption of the Management that the Bank will remain in business for the foreseeable future. The Bank will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices. The Bank maintains its accounting records and prepares their statutory accounts in accordance with the commercial, banking and fiscal regulations prevailing in Hungary. The presentation and functional currency of the Bank is the Hungarian Forint ("HUF"). The separate financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”).
OTP Bank Plc Separate Financial Statements 2023 12 NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS [continued] 1.2.1. The effect of adopting new and revised IFRS standards effective from 1 January 2023 The following amendments to the existing standards and new interpretation issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period: • Amendments to IAS 1 “Presentation of Financial Statements” and IFRS Practice Statement 2- Disclosure of Accounting policies – adopted by the EU on 2 March 2022 (effective for annual periods beginning on or after 1 January 2023 with earlier application permitted) o The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclos e ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures. • Amendments to IAS 8 “Accounting policies, Changes in Accounting Estimates and Errors” – Definition of Accounting Estimates – adopted in the EU on 2 March 2022 (effective for annual periods beginning on or after 1 January 2023 with earlier application permitted and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period) o The amendments introduce a new definition of accounting estimates, defined as monetary amounts in financial statements that are subject to measurement uncertainty, if they do not result from a correction of prior period error. Also, the amendments clarify what changes in accounting estimates are and how these differ from changes in accounting policies and corrections of errors. • Amendments to IFRS 17 “Insurance Contracts” – adopted by the EU on 19 November 2021 (effective for annual periods beginning on or after 1 January 2023). This is a comprehensive new accounting standard for insurance contracts, covering recognition and measurement, presentation and disclosure. IFRS 17 applies to all types of insurance contracts issued, as well as to certain guarantees and financial instruments with discretional participation contracts. – IFRS 17 is not relevant in case of these Separate Financial Statements • Amendments to IFRS 17 “Insurance Contracts” – Initial application of IFRS 17 and IFRS 9 – Comparative Information – adopted by the EU on 8 September 2022 (effective date for annual periods beginning on or after 1 January 2023 with earlier application permitted, provided the entity also applies IFRS 9 Financial Instruments on or before the date it first applies IFRS 17). This is a comprehensive new accounting standard for insurance contracts, covering recognition and measurement, presentation and disclosure. IFRS 17 applies to all types of insurance contracts issued, as well as to certain guarantees and financial instruments with discretional participation contracts. – IFRS 17 is not relevant in case of these Separate Financial Statements. • Amendments to IAS 12 “Income Taxes” – Deferred Tax related to Assets and Liabilities arising from a Single Transaction – adopted by the EU on 11 August 2022 (effective for annual periods beginning on or after 1 January 2023; earlier applicaton permitted) o The amendments narrow the scope of and provide further clarity on the initial recognition exception under IAS 12 and specify how companies should account for deferred tax related to assets and liabilities arising from a single transaction, such as leases and decommissioning obligations. The amendments clarify that where payments that settle a liability are deductible for tax purposes, it is a matter of judgement, having considered the applicable tax law, whether such deductions are attributable for tax purposes to the liability or to the related asset component. Under the amendments, the initial recognition exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. It only applies if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal.
OTP Bank Plc Separate Financial Statements 2023 13 NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS [continued] 1.2.1. The effect of adopting new and revised IFRS standards effective from 1 January 2023 [continued] • Amendments to IAS 12 “Income taxes” – International Tax Reform - Pillar Two Model Rules – The amendments are effective immediately upon issuance, but certain disclosure requirements are effective later. The Organisation for Economic Co-operation and Development’s (OECD) published the Pillar Tw o model rules in December 2021 to ensure that large multinational companies would be subject to a minimum 15% tax rate. On 23 May 2023, the IASB issued International Tax Reform—Pillar Two Model Rules – Amendments to IAS 12. o The amendments introduce a mandatory temporary exception to the accounting for deferred taxes arising from the jurisdictional implementation of the Pillar Two model rules and disclosure requirements for affected entities on the potential exposure to Pillar Two income taxes. The Amendments require, for periods in which Pillar Two legislation is (substantively) enacted but not yet effective, disclosure of known or reasonably estimable information that helps users of financial statements understand the entity’s exposure arising from Pillar Two income taxes. To comply with these requirements, an entity is required to disclose qualitative and quantitative information about its exposure to Pillar Two income taxes at the end of the reporting period. The disclosure of the current tax expense related to Pillar Two income taxes and the disclosures in relation to periods before the legislation is effective are required for annual reporting periods beginning on or after 1 January 2023, but are not required for any interim period ending on or before 31 December 2023. The adoption of these amendments to the existing standards has not led to any material changes in these Separate Financial Statements. 1.2.2. New and revised Standards and Interpretations issued by IASB and adopted by the EU but not yet effective • Amendments to IAS 1 “Presentation of Financial Statements” – Classification of Liabilities as Current or Non-current. – The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted, and will need to be applied retrospectively in accordance with IAS 8. o The objective of the amendments is to clarify the principles in IAS 1 for the classification of liabilities as either current or non-current. The amendments clarify the meaning of a right to defer settlement, the requirement for this right to exist at the end of the reporting period, that management intent does not affect current or non-current classification, that options by the counterparty that could result in settlement by the transfer of the entity’s own equity instruments do not affect current or non-current classification. Also, the amendments specify that only covenants with which an entity must comply on or before the reporting date will affect a liability’s classification. Additional disclosures are also required for non -current liabilities arising from loan arrangements that are subject to covenants to be complied with within twelve months after the reporting period. • Amendments to IFRS 16 “Leases” – Lease Liability in a Sale and Leaseback – The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted. o The amendments are intended to improve the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction in IFRS 16, while it does not change the accounting for leases unrelated to sale and leaseback transactions. In particular, the seller-lessee determines ‘lease payments’ or ‘revised lease payments’ in such a way that the seller-lessee would not recognise any amount of the gain or loss that relates to the right of use it retains. Applying these requirements does not prevent the seller-lessee from recognising, in profit or loss, any gain or loss relating to the partial or full termination of a lease. A seller-lessee applies the amendment retrospectively in accordance with IAS 8 to sale and leaseback transactions entered into after the date of initial application, being the beginning of the annual reporting period in which an entity first applied IFRS 16.
OTP Bank Plc Separate Financial Statements 2023 14 NOTE 1: ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS [continued] 1.2.3. Standards and Interpretations issued by IASB but not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the IASB except for the following new standards, amendments to the existing standards and new interpretation, which were not endorsed for use in EU as at date of publication of these financial statements: • Amendments to IAS 7 “Statement of Cash Flows” and IFRS 7 “Financial Instruments Disclosure - Supplier Finance Arrangements” – The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted. o The amendments supplement requirements already in IFRS and require an entity to disclose the terms and conditions of supplier finance arrangements. Additionally, entities are required to disclose at the beginning and end of reporting period the carrying amounts of supplier finance arrangement financial liabilities and the line items in which those liabilities are presented as well as the carrying amounts of financial liabilities and line items, for which the finance providers have already settled the corresponding trade payables. Entities should also disclose the type and effect of non-cash changes in the carrying amounts of supplier finance arrangement financial liabilities, which prevent the carrying amounts of the financial liabilities from being comparable. Furthermore, the amendments require an entity to disclose at the beginning and end of the reporting period the range of payment due dates for financial liabilities owed to the finance providers and for comparable trade payables that are not part of those arrangements. • Amendments to IAS 21 “The Effects of Changes in Foreign Exchange Rates” – Lack of Exchangeability – The amendments are effective for annual reporting periods beginning on or after January 1, 2025, with earlier application permitted. o The amendments specify how an entity should assess whether a currency is exchangeable and how it should determine a spot exchange rate when exchangeability is lacking. A currency is considered to be exchangeable into another currency when an entity is able to obtain the other currency within a time frame that allows for a normal administrative delay and through a market or exchange mechanism in which an exchange transaction would create enforceable rights and obligations. If a currency is not exchangeable into another currency, an entity is required to estimate the spot exchange rate at the measurement date. An entity’s objective in est imating the spot exchange rate is to reflect the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions. The amendments note that an entity can use an observable exchange rate without adjustment or another estimation technique. • Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred indefinitely until the research project on the equity method has been concluded). o The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The Bank anticipates that the adoption of these new standards, amendments to the existing standards and new interpretations will have no material impact on the financial statements of the Bank in the period of initial application.
OTP Bank Plc Separate Financial Statements 2023 15 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies applied in the preparation of the accompanying separate financial statements are summarized below: 2.1. Basis of presentation These separate financial statements have been prepared under the historical cost convention with the exception of certain financial instruments, which are recorded at fair value. Revenues and expenses are recorded in the period in which they are earned or incurred. The Bank does not offset assets and liabilities or income and expenses unless it is required or permitted by an IFRS standard. During the preparation of separate financial statements assets and liabilities, income and expenses are presented separately, except in certain cases, when one of the IFRS standards prescribes net presenting related to certain items. (See below 2.8.) The presentation of separate financial statements in conformity with IFRS requires the Management of the Bank to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Future changes in economic conditions, business strategies, regulatory requirements, accounting rules and other factors could result in a change in estimates that could have a material impact on future separate financial statements. 2.2. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated into HUF that is the presentation currency, at exchange rates quoted by the National Bank of Hungary ("NBH") as at the date of the separate financial statements. Income and expenses arising in foreign currencies are converted at the rate of exchange on the transaction date. Resulting foreign exchange gains or losses are recorded to the separate statement of profit or loss. 2.3. Consolidated financial statements These financial statements present the separate financial position and results of operations of the Bank. Consolidated financial statements are prepared by the Bank and consolidated net profit for the year and shareholders’ equity differs significantly from that presented in these separate financial statements. See Note 2.4 for the description of the method of accounting for investments in subsidiaries and associated companies in these separate financial statements. The consolidated financial statements and the separate financial statements will be published on the same date. 2.4. Investments in subsidiaries, associated companies and other investments Investments in subsidiaries comprise those investments where OTP Bank, through direct and indirect ownership interest, controls the investee. Control is achieved when the Bank has power over the investee, is exposed or has rights, to variable returns from its involvement with the investee and has the ability to use its power to affect its returns. Investments in subsidiaries are recorded at the cost of acquisition, less impairment for permanent diminution in value, when appropriate. After initial measurement investments in subsidiaries are measured at cost, in the case of foreign currency denominated investments for the measurement the Bank uses the exchange rate at the date of transaction. Impairment is determined based on the future economic benefits of the subsidiary and macroeconomic factors. OTP Bank calculates the fair value based on discounted cash flow model. The 3 year period explicit cash flow model serves as a basis 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 consideration the cautious recovery of global economic situation and outlook, the associated risks and their possible effect on the financial sector as well as the current and expected availability of wholesale funding.
OTP Bank Plc Separate Financial Statements 2023 16 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.5. Business model and SPPI test A business model refers how the Bank manages its financial instruments in order to generate cash flows. It is determined at a level that reflects how groups of financial instruments are managed rather than at an instrument level. The financial assets held by the Bank are classified into three categories depending on the business model within the financial assets are managed. • Business model whose objective is to hold financial assets in order to collect contractual cash flows. Some sales can be consistent with hold to collect business model and the Bank assesses the nature, frequency and significance of any sales occurring. The Bank does not consider the sale frequent when at least six months have elapsed between sales. The significant sales are those when the sales exceed 2% of the total hold to collect portfolio. Within this business model the Bank manages mainly loans and advances and long term securities and other financial assets. • Business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. Within this business model the Bank only manages securities. • Business model whose objective is to achieve gains in a short term period. Within this business model the Bank manages securities and derivative financial instrument. If cash flows are realised in a way that is different from the expectations at the date that the Bank assessed the business model, that does not give rise to a prior error in the Bank’s financial statements nor does it change the classification of the remaining financial assets held in that business model. When, and only when the Bank changes its business model for managing financial assets it reclassifies all affected assets. Such changes are determined by the Bank’s senior management as a result of external or internal changes and must be significant to the Bank’s operations and demonstrable to external partie s. The Bank shall not reclassify any financial liability. Classification of a financial asset is based on the characteristics of its contractual cash flows if the financial asset is held within a business model whose objective is to hold assets to collect contractual cash flows or within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. The Bank should determine whether the asset’s contractual cash flows are solely payments of principal and interest on the principal amount outstanding (SPPI test). Contractual cash flows that are solely payments of principal and interest on the principal amount outstanding are consistent with a basic lending arrangement. Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The Bank assesses whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding for the currency in which the financial asset is denominated. Time value of money is the element of interest that provides consideration for only the passage of time. However, in some cases, the time value of money element may be modified. In such cases, the Bank assesses the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. When assessing a modified time value of money element, the objective is to determine how different the undiscounted contractual cash flows could be from undiscounted cash flows that would arise if the time value of money element was not modified (the benchmark cash flows). The benchmark instrument can be an actual or a hypothetical financial asset. If the undiscounted contractual cash flows significantly – above 2% – differ from the undiscounted benchmark cash flows, the financial asset should be subsequently measured at fair value through profit or loss.
OTP Bank Plc Separate Financial Statements 2023 17 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.6. Securities at amortised cost The Bank 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 interest on the principal amount outstanding. The Bank initially recognises these securities at fair value. Securities at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. The amortisation of any discount or premium on the acquisition of a security at amortized cost is part of the amortized cost and is recognised as interest income so that the revenue recognized in each period represents a constant yield on the investment. Securities at amortized cost are accounted for on a trade date basis. Such securities comprise mainly securities issued by the Hungarian Government bonds and corporate bonds. 2.7. Financial assets at fair value through profit or loss 2.7.1. Securities held for trading Investments in securities are accounted for on a trade date basis and are initially measured at fair value. Securities held for trading are measured at subsequent reporting dates at fair value. Unrealised gains and losses on held for trading securities are recognized in profit or loss and are included in the separate statement of profit or loss for the period. The Bank holds held for trading securities within the business model to obtain short-term gains, consequently realised and unrealised gains and losses are recognized in the net operating income, while interest income is recognised in income similar to interest income. The Bank applies FIFO 1 inventory valuation method for securities held for trading. Such securities consist of discounted and interest bearing Treasury bills, Hungarian Government bonds, mortgage bonds, shares in non-financial commercial companies, shares in investment funds, shares in venture capital funds and shares in financial institutions. 2.7.2. Derivative financial instruments In the normal course of business, the Bank is a party to contracts for derivative financial instruments, which represent a low initial investment compared to the notional value of the contract and their value depends on value of underlying asset and are settled in the future. The derivative financial instruments used include interest rate forward or swap agreements and currency forward or swap agreements and options. These financial instruments are used by the Bank both for trading purposes and to hedge interest rate risk and currency exposures associated with its transactions in the financial markets. (It is the so-called economic hedge, accounting hedge is described later.) 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 are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. OTP Bank adopts multi curve valuation approach for calculating the net present value of future cash flows – based on different curves used for determining forward rates and used for discounting purposes. It shows the best estimation of such derivative deals that are collateralised as OTP Bank has almost its entire open derivative transactions collateralised. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in profit or loss and are included in the separate statement of profit or loss for the period. Each derivative deal is determined as asset when fair value is positive and as liability when fair value is negative. Certain derivative transactions, while providing effective economic hedges under risk management positions of the Bank, do not qualify for hedge accounting under 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 separate statement of profit or loss. Foreign currency contracts Foreign currency contracts are agreements to exchange specific amounts of currencies at a specified rate of exchange, at a spot date (settlement occurs two days after the trade date) or at a forward date (settlement occurs more than two days after the trade date). The notional amount of forward contracts does not represent the actual market or credit risk associated with these contracts. Foreign currency contracts are used by the Bank for risk management and trading purposes. The Bank’s risk management foreign currency contracts were used to hedge the exchange rate fluctuations of loans and deposits denominated in foreign currency. 1 First In First Out
OTP Bank Plc Separate Financial Statements 2023 18 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.7.2 Derivative financial instruments [continued] Foreign exchange swaps and interest rate swaps The Bank enters into foreign-exchange swap and interest rate swap (“IRS”) transactions. The swap transaction is a complex agreement concerning the swap of certain financial instruments, which usually consists of a spot and one or more forward contracts. Interest rate swaps obligate two parties to exchange one or more payments calculated with reference to fixed or periodically reset rates of interest applied to a specific notional principal amount (the base of the interest calculation). Notional principal is the amount upon which interest rates are applied to determine the payment streams under interest rate swaps. Such notional principal amounts are often used to express the volume of these transactions but are not actually exchanged between the counterparties. The Bank’s interest rate swap contracts can be hedging or held for trading contracts. Cross-currency interest rate swaps The Bank enters into cross-currency interest rate swap (“CCIRS”) transactions which have special attributes, i.e. the parties exchange the notional amount at the beginning and also at the maturity of the transaction. A special type of these deals is the mark-to-market CCIRS agreements. At this kind of deals the parties – in accordance with the foreign exchange prices – revalue the notional amount during lifetime of the transaction. Equity and commodity swaps Equity swaps obligate two parties to exchange more payments calculated with reference periodically reset rates of interest and performance of indices. A specific notional principal amount is the base of the interest calculation. The payment of index return is calculated on the basis of current market price compared to the previous market price. In case of commodity swaps payments are calculated on the basis of the strike price of a predefined commodity compared to its average market price in a period. Forward rate agreements (“FRA”) A forward rate agreement is an agreement to settle amounts at a specified future date based on the difference between an interest rate index and an agreed upon fixed rate. Market risk arises from changes in the market value of contractual positions caused by movements in interest rates. The Bank limits its exposure to market risk by entering into generally matching or offsetting positions and by establishing and monitoring limits on unmatched positions. Credit risk is managed through approval procedures that establish specific limits for individual counter-parties. The Bank’s forward rate agreements were transacted for management of interest rate exposures. Foreign exchange options A foreign exchange option is a derivative financial instrument that gives the owner the right to exchange money denominated in one currency into another currency at a pre-agreed exchange rate at a specified future date. The transaction, for a fee, guarantees a worst-case exchange rate for the futures purchase of one currency for another. These options protect against unfavourable currency movements while preserving the ability to participate in favourable movements. 2.8. Hedge accounting In the case of a financial instrument measured at amortised cost the Bank recognises the hedging gain or loss on the hedged item as the modification of its carrying amount and it is recognised in profit or loss. These adjustmets of the carrying amount are amortised to the profit or loss using the effective interest rate method. The Bank starts the amortisation when the hedged item is no longer adjusted by the hedging gains or losses. If the hedged item is derecognised, the Bank recognises the unamortised fair value in profit or loss immediately. Derivative financial instruments designated as fair value Changes in the fair value of derivatives that are designated and qualify as hedging instruments fair value hedges and that prove to be highly effective in relation to the hedged risk, are recorded in the separate statement of profit or loss along with the corresponding change in fair value of the hedged asset or liability that is attributable to the specific hedged risk. Changes in the fair value of the hedging instrument in fair value hedges are 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 relationship, proper hedge documentation is prepared, effectiveness test is performed and based on it the hedge is qualified as effective.
OTP Bank Plc Separate Financial Statements 2023 19 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.7. Hedge accounting [continued] Derivative financial instruments designated as fair value [continued] In the case of a financial instrument measured at amortised cost the Group recognises the hedging gain or loss on the hedged item as the modification of its carrying amount and it is recognised in profit or loss. These adjustments of the carrying amount are amortised to the profit or loss using the effective interest rate method. The Group starts the amortisation when the hedged item is no longer adjusted by the hedging gains or losses. If the hedged item is derecognised, the Group recognises the unamortised fair value in profit or loss immediately. For the fair value hedges inefficiencies and the net revaluation of hedged and hedging item are recognised in the Net result on derivative instruments and hedge relationships. Derivative financial instruments designated as cash flow hedge Changes in fair value of derivatives that are designated and qualify as hedging instrument in cash flow hedges and that prove to be highly effective in relation to hedged risk are recognized as reserve in other comprehensive income. Amounts deferred in other comprehensive income are transferred to the separate statement of profit or loss and classified as revenue or expense in the periods during which the hedged assets and liabilities effect the separate statement of recognized and comprehensive income for the period. The ineffective element of the hedge is charged directly to the separate statement of profit or loss. The Bank terminates the hedge accounting if the hedging instrument expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for hedge accounting. In case of cash flow hedges - in line with the standard – hedge accounting is still applied as long as the underlying asset is derecognised or terminated. When the Bank discontinues hedge accounting to a cash-flow hedge the amount in the cash flow hedge reserve is reclassified to the profit or loss if the hedged future cash flows are no longer expected to occur. If the hedged future cash flows are still expected to occur, the amount remains in the cashflow hedge reserve and reclassified to the profit and loss only when the future cash flows occur. 2.9. Offsetting Financial assets and liabilities may be offset and the net amount is reported in the statement of financial position when the Bank has a legally enforceable right to set off the recognised amounts and the transactions are intended to be reported in the statement of financial position on a net basis. In the case of the derivative financial instruments the Bank applies offsetting and net presentation 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. 2.10. Embedded derivatives Sometimes, a derivative may be a component of a combined or hybrid contract that includes a host contract and a derivative (the embedded derivative) affecting cash flows or otherwise modifying the characteristics of the host instrument. An embedded derivative must be separated from the host instrument and accounted for as a separate derivative if, and only if: - The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; - A separate financial instrument with the same terms as the embedded derivative would meet the definition of a derivative as a stand-alone instrument; and - The host instrument is not measured at fair or is measured at fair value but changes in fair value are recognised in other comprehensive income. As long as a hybrid contract contains a host that is a financial asset the general accounting rules for classification, recognition and measurement of financial assets are applicable for the whole contract and no embedded derivative is separated. Derivatives that are required to be separated are measured at fair value at initial recognition and subsequently. If the Bank is unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent financial reporting period, the Group shall designate the entire hybrid contract as at fair value through profit or loss. The Bank shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the Bank first becomes a party to the contract. The separation rules for embedded derivatives are only relevant for financial liabilities.
OTP Bank Plc Separate Financial Statements 2023 20 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.11. Securities at fair value through other comprehensive income (“FVOCI securities”) FVOCI securities are held within a business model whose objective is achieved by both collecting of contractual cash flows and selling securities. Furthermore contractual terms of FVOCI securities give rise on specified dates to cash flows that are solely payment of principal and interest on the principal amount outstanding. 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 at fair value. Unrealised gains and losses on FVOCI financial instruments are recognized in other comprehensive income, except for interest and foreign exchange gains/losses on monetary items, unless such FVOCI security is part of an effective hedge. Such gains and losses will be reported when realised in profit or loss for the applicable period. The Bank applies FIFO 2 inventory valuation method for FVOCI securities. For debt securities at fair value through other comprehensive income the loss allowance is calculated based on expected credit loss model. The expected credit loss is accounted for against Other Comprehensive Income. FVOCI securities are remeasured at fair value based on quoted prices or values derived from cash flow models. In circumstances where the quoted market prices are not readily available, the fair value of debt securities is estimated using the present value of the future cash flows and the fair value of any unquoted equity instruments are calculated using the EPS ratio. Fair value through other comprehensive income option for equity instruments In some cases the Bank made an irrevocable election at initial recognition for certain non-trading investments in an equity instrument to present subsequent changes in fair value of these securities in other comprehensive income instead of in profit or loss. The use of the fair value option is based only on direct decision of management of the Bank. 2.12. Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses The Bank measures Loans, placements with other banks and repo receivables at amortised cost, which are held to collect contractual cash flows, and contractual terms of these assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Bank recognises loans, which are not held for trading and do not give rise contractual cash flows that are solely payments of principal and interest on the principal amount outstanding as loans measured at fair value through profit or loss (“FVTPL loans”). Loans, placements with other banks and repo receivables are accounted at amortised cost, stated at the principal amounts outstanding including accrued interest, net of allowance for loan or placement losses, respectively. In case of the above mentioned financial assets measured at amortised cost transaction fees and charges adjust the carrying amount at initial recognition and are included in effective interest calculation. In case of FVTPL loans fees and charges are recognised when incurred in the separate statement of profit or loss. Loans, placements with other banks and repo receivables loans are derecognised when the contractual rights to the cash flows expire or they are transferred. When a financial asset is derecognised the difference of the carrying amount and the consideration received is recognised in the profit or loss. In case of the above mentioned financial assets at amortised cost gains or losses from derecognition are presented in “Gains/losses arising from derecognition of financial assets at amortised cost” line. In case of FVTPL loans gains or losses from derecogn ition are presented in “Net operating income”. Change in the fair value of FVTPL loans is broken down into two components and presented in the separate statement of profit or loss as follows: • Portion of the change in fair value arising from changes in cred it risk are presented within “Risk cost” as “Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss”. • The remaining component of the change is presented in fair value within “Net operating income” as “Gains/(Losses) on financial instruments at fair value through profit or loss”. 2 First In First Out
OTP Bank Plc Separate Financial Statements 2023 21 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.12. Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses [continued] Initially, financial assets shall be recognised at fair value which is usually equal to the transaction value in case of loans and placements. However, when the amounts are not equal, the initial fair value difference should be recognized. If the fair value of financial assets is based on a valuation technique using only inputs observable in market transactions, the Bank recognises the initial fair value difference in the Separate Statement of Profit or Loss. When the fair value of financial assets is based on models for which inputs are not observable, the difference between the transaction price and the fair value is deferred and only recognised in profit or loss when the instrument is derecognised or the inputs became observable. Initial fair value of loans lent at interest below market conditions is lower than their transaction price, the subsequent measurement of these loans is under IFRS 9. Allowance for losses on loans, placements with other banks and repo receivables represent management assessment for potential losses in relation to these activities. The Bank recognises a loss allowance for expected credit losses on a financial asset at each reporting date. The loss allowance for a financial asset equals to 12-month expected credit loss or equals to the lifetime expected credit losses. The maximum period over which expected credit losses shall be measured is the maximum contractual period over which the Bank is exposed to credit risk. If the credit risk on a financial asset has not increased significantly since initial recognition then 12-month expected credit losses, otherwise (in case of significant credit risk increase) lifetime expected credit losses should be calculated. The expected credit loss is the present value of the difference between the contractual cash flows that are due to the Bank under the contract and the cash flows that the Bank expects to receive. When the 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 future cash flows with the original effective interest rate of the asset. The difference between the carrying amount and the present value of the expected cash flows is recognised as a “Modification gain or loss” in the statement of profit or loss. Interest income and amortised cost are accounted for using the effective interest rate method. Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and the possibility of further recovery is considered to be remote. The loan is written off against the related account “Loss all owance on loan, placement and repo receivables losses” in the Statement of Profit or loss. OTP Bank applies partial or full write-off for loans based on the definitions and prescriptions of financial instruments in accordance with IFRS 9. If OTP Bank has no reasonable expectations regarding a financial asset (loan) to be recovered, it will be written off partially or fully at the time of emergence. The gross amount and loss allowance of the loans shall be written off in the same amount to the estimated maximum recovery amount while the net carrying value remains unchanged. If there are reasonable expectations of recovery for a financial asset that is written-off fully or partially, OTP Bank shall re-estimate cash flows of that financial asset and write-off reversal is applied in the financial statements.
OTP Bank Plc Separate Financial Statements 2023 22 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.12. Loans, placements with other banks, repo receivables and loss allowance for loan, placements and repo receivables losses [continued] Modification of contractual cash flows If the net present value of the contracted cash flows changes due to the modification of the contractual terms and it is not qualified as derecognition, modification gain or loss should be calculated and accounted for in the separate statement of profit or loss. Modification gain or loss is accounted in cases like restructuring – as defined in internal policies of the Bank – prolongation, renewal with unchanged terms, renewal with shorter terms and prescribing capital repayment rate, if it doesn’t exist or has not been earlier. The changes of net present value should be calculated on portfolio level in case of retail exposures. Each retail contract is restructured based on restructuring frameworks. The Bank has to evaluate these frameworks (and not individual contracts). The changes of net present value should be calculated individually on contract level in case of corporate portfolio. Among the possible contract amendments, the Group considers as a derecognition and a new recognition the followings: - merging several debts into a single debt, or one single debt splitting into several tranches, - change of currency, - change in counterparty, - failing SPPI test after modification, - interest rate change (fixed to floating or floating to fixed), when the discounted present value – discounted at the original effective interest rate – of the cash flows under the new terms is at least 10 per cent different from the discounted present value of the remaining cash flows. In case of derecognition and new recognition of a financial asset, the unamortized fees of the derecognized asset should be presented as Income similar to interest income. The newly recognized financial asset is initially measured at fair value and is placed in stage 1 if the derecognized financial asset was in stage 1 or stage 2 portfolio. The newly recognized financial asset will be purchased or originated credit impaired financial asset (“POCI”) if the derecognized financial asset was in stage 3 portfolio or it was POCI. The modification gain or loss shall be calculated at each contract amendments unless they are handled as a derecognition and new recognition. In case of modification the Bank recalculates the gross carrying amount of the financial asset. To do this, the new contractual cash flows should be discounted using the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for POCI financial asset). Any costs or fees incurred adjust the carrying amount of the modified financial asset are amortized over the remaining term of the modified financial asset. Purchased or originated credit impaired financial assets Purchased or originated financial assets are credit-impaired on initial recognition. A financial asset is credit- impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. A purchased credit-impaired asset is likely to be acquired at a deep discount. In unusual circumstances, it may be possible that an entity originates a credit-impaired asset, for example, following a substantial modification of a distressed financial asset that resulted in the derecognition of the original financial asset. In the case of POCI financial assets, interest income is always recognized by applying the credit-adjusted effective interest rate. For POCI financial assets, in subsequent reporting periods an entity is required to recognize: - the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance, - the impairment gain or loss which is the amount of any change in lifetime expected credit losses. An impairment gain is recognized (with the parallel increase of the net amortized cost of receivable) if due to the favourable changes after initial recognition the lifetime expected credit loss estimation is becoming lower than the original estimated credit losses at initial recognition. The POCI qualification remains from initial recognition to derecognition in the Bank’s books.
OTP Bank Plc Separate Financial Statements 2023 23 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.13. Loss allowance Loss Allowance for loans and placements with other banks and repo receivables are recognised by the Bank based on the expected credit loss model in accordance with IFRS 9. Based on the three stage model loss allowance is recognised in amount of 12 month expected credit loss from the initial recognition. Financial assets with significantly increased credit risk or credit impaired financial assets (based on objective evidences) loss allowance is recognised in amount of lifetime expected credit loss. In case of purchased or originated credit impaired financial assets loss allowance is recognised in amount of lifetime expected credit loss since initial recognition. Impairment gain is recognised if lifetime expected credit loss for purchased or originated credit impaired financial assets at measurement date are less than the estimated credit loss at initial recognition. A loss allowance for loa ns and placements with other banks and repo receivables represents Management’s assessment for potential losses in relation to these activities. The default occurs when either or both of the following events have taken place: • objective criterion meaning that the credit obligation of the client is overdue exceeding the materiality threshold for more than 90 consecutive days (90+ default DPD), or the obligor has breached the limit of the overdraft with an amount exceeding the materiality threshold for more than 90 consecutive days (90+ default DPD), or • probability criterion meaning the probability that the obligor will be unable to pay its credit obligations in full (UTP= Unlikely to Pay). The following conditions indicate the occurrence of the probability criterion: specific credit risk adjustment, sell of credit obligation with significant loss, distressed restructuring, termination of the contract on the initiative of the Bank, Bankruptcy, liquidation, personal bankruptcy, forced deleted status. Previously described conditions should result in default status mandatorily. Moreover, during the individual expert-based assessment the client’s default status shall be established if in the specific case the default can be justified on subjective basis. The default status should be terminated if in the last 3 months no other default criterion exists and the condition (either probability criterion or objective criterion) that resulted in the default status ceased at least 3 months ago. The expected loss calculation should be forward looking. Available forward-looking information has to be included in the parameter estimation by using different scenarios, including forecasts of future economic conditions. The determination of probability-weighted forward-looking s cenarios are based on the OTP Group’ macro model. In general, there are two crisis scenarios (4-5), and three non-crisis scenarios (1-3) but the calculation of impairment should be based on at least two scenarios in the OTP Group. The macro conditioning is performed by Vasicek-model, which captures the relationship between point-in-time (PiT) and through-the-cycle (TTC) PD. The Vasicek PD transformation can also be used to estimate the PIT PDs of the buckets. The required parameters (such as correlation c oefficient and macro condition parameter) can be derived from the OTP’s macro model. In the collective provisioning methodology credit risk and the change of credit risk can be correctly captured by understanding the risk characteristics of the portfolio. At portfolio segmentation, setting the segments is a key element of the provisioning calculation and requires the extensive knowledge of the portfolio. The segmentation is expected to stay stable from month to month. The segmentation must be performed separately for each parameter, since in each case different factors may have relevance. The estimation of one-year and lifetime probability of default (PD) of collectively assessed exposures is performed via transition matrices. The assets should be allocated to groups representing similar credit risk based on major credit risk characteristics and their capability to fulfil contractual obligations. The mandatory variables of the group level assessment procedure are payment delay, deal/client rating, the restructured flag, the default status and product type. Further segmentation is advisable in case significant differences are observed in probability of default. Transition matrices should be determined for each portfolio segment separately. The Group model handles healing (from default) rate in the PD parameter, thus the calculated probabilities should be reduced by this rate.
OTP Bank Plc Separate Financial Statements 2023 24 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.13. Loss allowance [continued] Two different methods are applied in OTP Group for LGD parameter calculation: Retail mortgage loans and non- retail portfolios (MSE and Wholesale) that are significantly secured by mortgage: modified LGD methodology based on the Asset Quality Review (AQR) – the primary source of the recovery the collateral itself but cash recovery is also taken into account. The calculation is performed for each exposure individually based on the estimated parameters (main parameters: FSR – foreclosure success rate, SR – sales ratio, TTS – time to sale, C – cost, REC – cash recovery) and the actual value of collaterals (e.g. property, guarantee, surety, bail). For Consumer loans and car finance: recovery based LGD methodology estimated from historical recoveries. The LGD calculation should not be automatically identified with historic actual data. The direction and degree of the shift in the factors impacting the LGD, also considering the macroeconomic effects, in addition to the anticipated developments in those, must always be analysed. The LGD – just like the PD – is not independent of the business cycles either; typically it increases in parallel with the economic downturn. Loss allowance for loan and placements are determined at a level that provides coverage for individually identified credit losses. Collective impairment loss is recognised for loans with similar credit risk characteristics when it is not possible to determine the amount of the individually identified credit loss in the absence of objective evidence. The expected cash flows for loan portfolios are estimated based on historical loss experience. At subsequent measurement the Bank recognises through “Loss allowance on loan, placement and repo receivables losses” in the Statement of Profit or Loss impairme nt gain or loss as an amount of expected credit losses or reversal that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised in accordance with IFRS 9. If a financial asset, which previously classified in the first stage, classified subsequently in the second or third stage than loss allowance is adjusted to lifetime expected credit loss. If a financial asset, which previously classified in the second or third stages, classified subsequently in the first stage than loss allowance is adjusted to level of 12 month expected credit loss. Classification into risk classes According to the requirements of the IFRS9 standard, the Bank classifies financial assets measured at amortised cost and fair value through other comprehensive income, and loan commitments and financial guarantees into the following categories in accordance with IFRS9: Stage 1 Performing Stage 2 Performing, but compared to the initial recognition it shows significant increase in credit risk Stage 3 Non-performing POCI Purchased or originated credit impaired In the case of trade receivables, contract assets and lease receivables the Group applies the simplified approach and calculates only lifetime expected credit loss. Simplified approach is the following: • for the past 3 years the average annual balance of receivables under simplified approach is calculated, • the written-off receivables under simplified approach are determined in the past 3 years, • the loss allowance ratio will be the sum of the written-off amounts divided by the sum of the average balances, • historical losses are adjusted to reflect information about current conditions and reasonable forecasts of future economic conditions, • the loss allowance is multiplied by the end-of-year balance and it will be the actual loss allowance on these receivables, • loss allowance should be recalculated annually.
OTP Bank Plc Separate Financial Statements 2023 25 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] Classification into risk classes [continued] The Bank assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the reporting date. This might occur if the financial asset has a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Bank considers souvereign exposures having low credit risk. Stage 1: financial instruments for which the events and conditions specified in respect of Stage 2 and Stage 3 do not exist on the reporting date. A financial instrument shows significant increase in credit risk, and is allocated to Stage 2, if in respect of which any of the following triggers exist on the reporting date, without fulfilling any of the conditions for the allocation to the non-performing stage (stage 3): • the payment delay exceeds 30 days, • it is classified as performing forborne, • based on individual decision, its currency suffered a significant "shock" since the disbursement of the loan, • the transaction/client rating exceeds a predefined value or falls into a determined range, or compared to the historic value it deteriorates to a predefined degree, • in the case retail mortgage loans, the loan-to-value ratio exceeds a predefined rate, • default on another loan of the retail client, if no cross-default exists, • monitoring classification of corporate and municipal clients above different thresholds defined on group - financial difficulties at the debtor (capital adequacy, liquidity, deterioration of the instrument quality), - significant decrease of the liquidity or the activity on the active market of the financial instrument can be observed, - the rating of the client reflects high risk, but it is better than the default one, - significantly decrease in the value of the recovery from which the debtor would disburse the loan, - clients under liquidation. A financial instrument is non-performing and it is allocated to Stage 3 when any of the following events or conditions exists on the reporting date: • default (based on the group level default definition), • classified as non-performing forborne (based on the group level forborne definition), • the monitoring classification of corporate and municipal clients above different thresholds defined on group level (including but not limited to): - breaching of contracts, - significant financial difficulties of the debtor (like capital adequacy, liquidity, deterioration of the instrument quality), - bankruptcy, liquidation, debt settlement processes against debtor, - forced strike-off started against debtor, - termination of loan contract by the Bank, - occurrence of fraud event, - termination of the active market of the financial instrument. If the exposure is no longer considered as credit impaired, the Bank allocates this exposure to Stage 2. When loss allowance is calculated at exposures categorized into stages the following process is needed by stages: • Stage 1 (performing): loss allowance at an amount equal to 12-month expected credit loss should be recognized, • Stage 2 (significant increase in credit risk): loss allowance at an amount equal to lifetime expected credit loss should be recognized, • Stage 3 (non-performing): loss allowance at an amount equal to lifetime expected credit loss should be recognized.
OTP Bank Plc Separate Financial Statements 2023 26 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] Classification into risk classes [continued] For lifetime expected credit losses, the Bank shall estimate the risk of a default occurring on the financial instrument during its expected 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 expected life of the financial instrument is less than 12 months), weighted by the probability of that default occurring. An entity shall measure expected credit losses of a financial instrument in a way that reflects: • an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, • the time value of money, and reasonable and supportable information that is available without undue cost of effort at the reporting date about past events, current conditions and forecasts of future economic conditions. 2.14. Option to designate a financial asset/liability measured at fair value through profit or loss (FVTPL option) The Bank may, at initial recognition, irrevocably 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: - if doing so eliminates or significantly reduces a measurement or recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases - if the group of financial liabilities or assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the Bank’s key management personnel. The use of the fair value option is limited only to special situations, and it can be based only on direct decision of management of the Bank. 2.15. Sale and repurchase agreements, security lending Where debt or equity securities are sold under a commitment to repurchase them at a pre-determined price, they remain on the statement of financial position and the consideration received is recorded in Other liabilities or Amounts due to banks and deposits from the National Bank of Hungary and other banks, or Deposits from customers. Conversely, debt or equity securities purchased under a commitment to resell are not recognized in the statement of financial position and the consideration paid is recorded either in Placements with other banks or Deposits from customers. Interest is accrued evenly over the life of the repurchase agreement. In the case of security lending transactions the 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 recognized for the consideration amount.
OTP Bank Plc Separate Financial Statements 2023 27 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.16. Property, equipment and intangible assets Property, equipment and intangible assets are stated at cost, less accumulated depreciation and amortization and impairment, if any. The depreciable amount (book value less residual value) of the non-current assets must be allocated over their useful lives. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets based on the following annual percentages: Depreciation key Useful lifetime (years) Intangible assets Software 20%-33% 3-5 Property rights 17%-50% 2-6 Property 1%-7% 15-100 Office equipment and vehicles 7%-50% 2-15 Depreciation and amortization on properties, equipment and intangible assets starts on the day when such assets are placed into service. At each balance sheet date, the Bank reviews the carrying value of its tangible and intangible assets to determine if there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of the asset is estimated to determine the extent (if any) of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Bank estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where the carrying value of property, equipment, other tangible fixed assets and intangible assets is greater than the estimated recoverable amount, it is impaired immediately to the estimated recoverable amount. 2.17. Inventories The inventories shall be measured at the lower of cost and net realisable value. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The Bank uses generally FIFO formulas to the measurement of inventories. Inventories shall be removed from books when they are sold, unusable or destroyed. When inventories are sold, the carrying amount of those inventories shall be recognized as an expense in the period in which the related revenue is recognized. Repossessed assets are classified as inventories. The Bank's policy is to sell repossessed assets and not to use them for its internal operations. 2.18. Investment properties Investment properties of the Bank are land, buildings, part of buildings which are held (as the owner or as the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for use in the production or supply of services or for administrative purposes or sale in the ordinary course of business. The Bank measures the investment properties at cost less accumulated depreciation and impairment, if any. The depreciable amount (book value less residual value) of the investment properties must be allocated over their useful lives. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. The fair value of the investment properties is established mainly by external experts. According to the opinion of the Management there is no significant difference between the fair value and the carrying value of these properties. 2.19. Financial liabilities The financial liabilities are presented within these lines in the Separate Financial Statements: • Amount 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 • Other financial liabilities At initial recognition, the Bank measures financial liabilities at fair value plus or minus – in the case of a financial liability not at fair value through profit or loss – transaction costs that are directly attributable to the acquisition or issue of the financial liability.
OTP Bank Plc Separate Financial Statements 2023 28 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.19. Financial liabilities [continued] Usually, the initial fair value of financial liabilities equals to transaction value. However, when the amounts are not equal, the initial fair value difference should be recognized. If the fair value of financial liabilities is based on a valuation technique using only inputs observable in market transactions, the Bank recognizes the initial fair value difference in the Separate Statement of Profit or Loss. When the fair value of financial liabilities is based on models for which inputs are not observable, the difference between the transaction price and the fair value is deferred and only recognized in profit or loss when the instrument is derecognized or the inputs became observable. The financial liabilities are presented within financial liabilities at fair value through profit or loss or financial liabilities measured at amortised cost. In connection to the financial liabilities at fair value through profit or loss, the Bank presents the amount of change in their fair value originated from the changes of market conditions and business environment. Financial liabilities at fair value through profit or loss are either financial liabilities held for trading or they are designated upon initial recognition as at fair value through profit or loss. In the case of financial liabilities measured at amortised cost, fees and commissions related to the origination of the financial liability are recognised through profit or loss during the maturity of the instrument. In certain cases the Bank repurchases a part of financial liabilities (mainly issued securities or subordinated bonds) and the difference between the carrying amount of the financial liability and the amount paid for it is recognised in the statement of profit or loss and included in other operating income. 2.20. Leases An agreement is a lease or contains a lease if it transfers the rights to control the use of an identified asset for a given period in exchange for compensation. Expenses related to the use of lease assets, the majority of which were previously recognised in external services costs, will be currently classified as depreciation/amortisation and interest costs. Usufruct rights are depreciated using a straight line method, while lease liabilities are settled using an effective discount rate. Recognition of lease liabilities The Bank will recognise lease liabilities related to leases which were previously classified as "operating leases" in accordance with IAS 17 Leases. These liabilities will be measured at the present value of lease payments receivable as at the date of commencement of the application of IFRS 16. Lease payments shall be discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. At their date of initial recognition, lease payments contained in the measurement of lease liabilities comprise the following types of payments for the right to use the underlying asset for the life of the lease: - fixed lease payments less any lease incentives, - variable lease payments which are dependent on market indices, - amounts expected to be payable by the lessee under residual value guarantees, - the strike price of a purchase option, if it is reasonably certain that the option will be exercised, and - payment of contractual penalties for terminating the lease, if the lease period reflects that the lessee used the option of terminating the lease. The Bank makes use of expedients with respect to short-term leases (less than 12 months) as well as in the case of leases in respect of which the underlying asset has a low value (less than HUF 1.4 million) and for which agreements it will not recognise financial liabilities nor any respective right-of-use assets. These types of lease payments will be recognised as costs using the straight-line method during the life of the lease.
OTP Bank Plc Separate Financial Statements 2023 29 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.20. Leases [continued] Recognition of right-of-use assets Right-of-use assets are initially measured at cost. The cost of a right-of-use asset comprises: - the amount of the initial measurement of lease liabilities, - any lease payments made at or before the commencement date, less any lease incentives received, - any initial direct costs incurred by the lessee, - estimates of costs to be incurred by the lessee as a result of an obligation to disassemble and remove an underlying asset or to carry out renovation/restoration. Right-of-use assets are presented separately in the financial statements. 2.21. Share capital Share capital is the capital determined in the Articles of Association and registered by the Budapest-Capital Regional Court. Share 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 changed over the current period. 2.22. Treasury shares Treasury shares are shares which are purchased on the stock exchange and the over-the-counter market by the Bank and are presented in the separate statement of financial position at acquisition cost as a deduction from shareholders’ equity. Gains and losses on the sale of treasury shares are recognised directly to shareholder’s equity. Derecognition of treasury shares is based on the FIFO method. 2.23. Non-current assets held-for-sale and discontinued operations A discontinued operation is a component of an entity that either has been disposed of or is classified as held-for- sale. Hereinafter non-current assets classified as held-for-sale, disposal group and discontinued operations are referred to as assets in accordance with IFRS 5. The Bank classifies assets under IFRS 5 if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. The Bank does not account for an asset under IFRS 5 that has been temporarily taken out of use as if it had been abandoned. The Bank measures an asset under IFRS 5 at the lower of its carrying amount and fair value less costs to sell. When the sale is expected to occur beyond one year, the Bank measures the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss. Immediately before the initial classification of the asset under IFRS 5, the carrying amounts of the asset (or all the assets and liabilities in the group) are measured in accordance with applicable IFRS. The Bank does not depreciate (or amortize) an asset under IFRS 5 while it is classified as asset in accordance with IFRS 5. Interest and other expenses attributable to the liabilities of the asset under IFRS 5 shall continue to be recognized. If the Bank has classified an asset under IFRS 5, but the criteria for that are no longer met, the Bank ceases to classify the asset under IFRS 5. The Bank measures these assets which cease to be classified as asset under IFRS 5 at the lower of: - its carrying amount before the asset was classified as asset under IFRS 5, adjusted for any depreciation, amortisation or revaluations that would have been recognized had the asset not been classified as asset under IFRS 5, and - its recoverable amount at the date of the subsequent decision not to sell. The Bank presents an asset classified as asset under IFRS 5 separately from other assets in the Separate Statement of Financial Position. The liabilities of the asset under IFRS 5 are presented separately from other liabilities in the Separate Statement of Financial Position. Those assets and liabilities shall not be offset and presented as a single amount. The major classes of assets and liabilities classified as held for sale or discontinued operations are separately disclosed in the Notes.
OTP Bank Plc Separate Financial Statements 2023 30 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.23. Non-current assets held-for-sale and discontinued operations [continued] The Bank presents separately any cumulative income or expense recognized in other comprehensive income relating to a non-current asset (or disposal group) classified as held for sale. Results from discontinued operations are reported separately in the Consolidated Statement of Profit or Loss as result from discontinued operations. 2.24. Interest income, income similar to interest income and interest expense Interest income and expenses are recognised in profit or loss in the period to which they relate, using the effective interest rate method. For exposures categorized into stage 1 and stage 2 the interest income is recognized on a gross basis. For exposures categorized into stage 3 (using effective interest rate) and for POCI (using credit-adjusted effective interest rate) the interest income is recognized on a net basis. The time-proportional income similar to interest income of derivative financial instruments calculated without using the effective interest method and the positive fair value adjustment of interest rate swaps are also included in income similar to interest income. Interest income of FVTPL loans is calculated based on interest fixed in the contract and presented in “Income similar to interest income” line. Interest from loans and deposits are accrued on a daily basis. Interest income and expense include certain transaction cost and the amortisation of any discount and premium between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest rate basis. All interest income and expense recognised are arising from loans, placements with other banks, repo receivables, securities at fair value through other comprehensive income, securities at amortised cost, and amounts due to banks, repo liabilities, deposits from customers, liabilities from issued securities, subordinated bonds and loans are presented under these lines of financial statements 2.25. Fees and Commissions Fees and commissions that are not involved in the amortised cost model are recognised in the Separate Statement of Profit or Loss on an accrual basis according to IFRS 15. These fees are related to deposits, cash withdrawal, security trading, bank card, etc. The Bank earns fee and commission income from a diverse range of financial services it provides to its customers. Fee and commission income is recognised at an amount that reflects the consideration to which the Bank expects to be entitled in exchange for providing the services. The performance obligations, as well as the timing of their satisfaction, are identified, and determined, at the inception of the contract. When the Bank provides a service to its customers, consideration is invoiced and generally due immediately because it typically controls the services before transferring them to the customer. The Bank provides foreign exchange trading services to its customers, the profit margin achieved on these transactions is presented as Net profit from fees and commissions in the Separate Statement of Profit or Loss.
OTP Bank Plc Separate Financial Statements 2023 31 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.25 Fees and Commisions [continued] Performance obligations satisfied over time include asset management, deposit and account maintenance services, where the customer simultaneously receives and consumes the benefits provided by the Bank’s performance as the Bank performs. The Bank’s fee an d commission income from services where performance obligations are satisfied over time are followings: Deposit and account maintenance fees and commissions and fees related to cash withdrawal 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. 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 cus tomer’s account on a monthly basis. The fees are commonly fixed 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 the case of other transaction-based fees (e.g. SMS fee), the fee is settled monthly. In the 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. These 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 and commission related to the issued bank cards 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. These 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 and commissions related to security account management services The Bank 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. These 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 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. These 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.
OTP Bank Plc Separate Financial Statements 2023 32 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.25 Fees and Commisions [continued] Net insurance fee income Due to the fact that the Bank 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 for ongoing services are charged on a monthly basis during the period when they are provided. Other fees Fees that are not significant in the Bank 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. These 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. 2.26. Dividend income Dividend income refers to any distribution of entity’s earnings to shareholders from stocks or mutual fu nds that is owned by the Bank. The Bank recognizes dividend income in the separate financial statements when its right to receive the payment is established. 2.27. Income tax The Bank considers corporate income tax and local business tax and the innovation contribution as income tax in Hungary. The annual taxation charge is based on the tax payable under Hungarian fiscal law, adjusted for deferred taxation. Deferred 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 at the tax rates that are expected to apply when the asset is realised or the liability is settled. Current tax asset or current tax liability is presented related to income tax and innovation contribution separately in the Consolidated Statement of Financial Position. Pillar Two – Global Anti-base Erosion Model Rules (“GloBE), global minimum tax – introduces a minimum effective tax rate of at least 15%, calculated based on a specific rule set. Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions the Group operates. The legislation will be effective for the Group’s financial year beginning 1 January 2024. The Group considers this top-up tax as an income tax according to IAS 12. Deferred tax assets and liabilities are presented in a net way in the statement of financial position. Current tax asset or current tax liability is presented related to income tax and innovation contribution separately in the statement of financial position. Deferred tax assets are recognized by the Bank for the amounts of income tax that are recoverable in future periods in respect of deductible temporary differences as well as the carry forward of unused tax losses and the carryforward of unused tax credits. The Bank recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint arrangements, to the extent that, and only to the extent that, it is probable that: - the temporary difference will reverse in the foreseeable future; and - taxable profit will be available against which the temporary difference can be utilised.
OTP Bank Plc Separate Financial Statements 2023 33 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.27. Income tax [continued] The Bank considers the availability of qualifying taxable temporary differences and the probability of other future taxable profits to determine whether future taxable profits will be available. The Bank recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied: - the Bank is able to control the timing of the reversal of the temporary difference, and - it is probable that the temporary difference will not reverse in the foreseeable future. The Bank only offsets its deferred tax liabilities against deferred tax assets when: - there is a legally enforceable right to set-off current tax liabilities against current tax assets, and - the taxes are levied by the same taxation authorities on either • the same taxable entity or • different taxable entities which intend to settle current tax liabilities and assets on a net basis. 2.28. Banking tax The Bank is obliged to pay banking tax based on Act LIX of 2006. As the calculation 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 tax year), banking tax is not considered as income tax. Therefore, the banking tax is considered as an other administrative expense, not as income tax. Pursuant to Government Decree No. 197/2022 published on 4 June 2022, the Hungarian Government decided to impose a windfall tax on credit institutions and financial enterprises temporarily, that is for 2022 and 2023. As for 2022, the base of the windfall tax is the net revenues based on the 2021 financial statements, calculated according to local tax law, whereas the tax rate is 10%.
OTP Bank Plc Separate Financial Statements 2023 34 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.29. Off-balance sheet commitments and contingent liabilities, provisions In the ordinary course of its business, the Bank has entered into off-balance sheet commitments such as guarantees, commitments to extend credit, letters of credit and transactions with financial instruments. The provision on off- balance sheet commitments and contingent liabilities is maintained at a level adequate to absorb probable future losses which are probable and relate to present obligations. Those commitments and contingent liabilities Management determines the adequacy of the provision based upon reviews of individual items, recent loss experience, current economic conditions, the risk characteristics of the various categories of transactions and other pertinent factors. The Bank recognizes a provision for off-balance sheet commitment and contingent liabilities in accordance with IAS 37 when it has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation. Expected credit loss model is applied for given financial guarantees and loan commitments which are under IFRS 9 the, when the provision is calculated (see more details in Note 2.12.). After initial recognition the Group subsequently measures those contracts at a higher of the amount of the loss allowance or of the amount initially recognised less the cumulative amount of income recognized in accordance with IFRS 15. 2.30. Share-based payment The Bank has applied the requirements of IFRS 2 Share-based Payment. The Bank issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the grant date. The fair value determined at the grant date of the equity-settled share- based payments is expensed on a straight-line basis over the year, based on the Bank’s estimate of shares that will eventually vest. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on Management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. 2.31. Employee benefits The Bank has applied the requirement of IAS 19 Employee Benefits. The Bank’s short -term employee benefits are wages, salaries and bonuses, premium, paid annual leave and paid sick leave and other free services (health care, reward holiday). Short-term employee benefits are expected to pay by the Bank within 12 month. These benefits are recognised as an expense and liability undiscounted in the separate financial statements. Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. These can be wages, salaries and bonuses, premium, paid annual leave and paid sick leave and other free services (health care, reward holiday). Long-term employee benefits are mostly the jubilee reward. Post-employment benefits are employee benefits (other than termination and short-term employee benefits) that are payable after the completion of employment. Post-employment benefit plans are formal or informal arrangements under which an entity provides post-employment benefits for one or more employees. Post- employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either: an entity’s decision to terminate an employee’s employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. Other long-term employee benefits are all employee benefits other than short-term employee benefits, postemployment benefits and termination benefits.
OTP Bank Plc Separate Financial Statements 2023 35 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.32. Separate statement of cash flows Cash flows arising from the operating, investing or financing activities are reported in the Statement of Cash- Flows of the Bank primarily on a gross basis. Net basis reporting are applied by the Bank in the following cases: ▪ when the cash flows reflect the activities of the customer rather than those of the Bank, and ▪ for items in which the turnover is quick, the amounts are large, and the maturities are short. For the purposes of reporting cash flows “Cash, due from banks and balances with the NBH” line item excluding compulsory reserve are considered as cash and cash equivalents by the Bank. This line item shows balances of HUF and foreign currency cash amounts, and sight depos from NBH and from other banks, furthermore balances of current accounts. Cash flows from hedging activities are classified in the same category as the item being hedged. The unrealised gains and losses from the translation of monetary items to the closing foreign exchange rates and the unrealised gains and losses from derivative financial instruments are presented separately net in the statement of cash flows for the monetary items which have been revaluated. 2.33. Segment reporting IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Bank that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. At separate level, the Management does not separate and makes decisions based on different segments; the segments are identified by the Bank only at consolidated level in line with IFRS 8 paragraph 4. At Group level the segments identified by the Bank are the business and geographical segments. The Group’s operating segments under IFRS 8 are therefore as fol lows: OTP Core Hungary, Russia, Ukraine, Bulgaria, Romania, Serbia, Croatia, Montenegro, Albania, Moldova, Slovenia, Uzbekistan, Merkantil Group, Asset Management subsidiaries, other subsidiaries, Corporate Centre. 2.34. Comparative figures These separate financial statements are prepared in accordance with the same accounting policies in all respects as the Financial Statements prepared in accordance with IFRS as adopted by the EU for the year ended 31 December 2022
OTP Bank Plc Separate Financial Statements 2023 36 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES The presentation of separate financial statements in conformity with IFRS requires the Management of the Bank to make judgements about estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on expected loss and other factors that are considered to be relevant. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period. Actual results could differ from those estimates. Significant areas of subjective judgements include: 3.1. Loss allowance on financial instruments The Bank regularly assesses its financial instruments for impairment. Management determines the adequacy of the allowances based upon reviews of individual loans and placements, recent loss experience, current economic conditions, the risk characteristics of the various categories of loans and other pertinent factors. The use of a new, three stage model was implemented for IFRS 9 purposes. The new impairment methodology is used to classify financial instruments in order to determine whether credit risk has significantly increased since initial recognition and able to identify credit-impaired assets. For instruments with credit-impairment or significant increase of credit risk lifetime expected losses will be recognized. (For details see note 36.1.1.) 3.2. Valuation of instruments without direct quotations Financial instruments without direct quotations in an active market are valued using the valuation model technique. The models are regularly reviewed and each model is calibrated for the most recent available market data. While the models are built only on available data, their use is subject to certain assumptions and estimates (e.g. for correlations, volatilities, etc). Changes in the model assumptions may affect the reported fair value of the relevant financial instruments. IFRS 13 Fair Value Measurement seeks to increase consistency and comparability in fair value measurements and related disclosures through a 'fair value hierarchy'. The hierarchy categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Bank evaluates the levelling at each reporting period on an instrument-by-instrument basis and reclassifies instruments when necessary, based on the facts at the beginning of the reporting period. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. 3.3. Provisions Provision is recognised and measured for commitments to extend credit and for warranties arising from banking activities based on IFRS 9 Financial Instruments. Provision for these instruments is recognised based on the credit conversion factor, which shows the proportion of the undrawn credit line that will be probably drawn. Other provision is recognised and measured based on IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Bank is involved in a number of ongoing legal disputes. Based upon historical experience and expert reports, the Bank assesses the developments in these cases, and the likelihood and the amount of potential financial losses which are appropriately provided for. (See Note 24.) Other provision for off-balance sheet items includes provision for litigation, provision for retirement and expected liabilities and provision for Confirmed letter of credit. A provision is recognised by the Bank when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
OTP Bank Plc Separate Financial Statements 2023 37 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK Macro economy and financial situation in Hungary Having elevated after the rapid recovery that followed the Covid crisis and the outbreak of the Russian-Ukrainian war, inflation in advanced economies started to slow in 20 23, but the developed world’s central banks had to raise interest rates aggressively until the end of the year. It was not before the year was nearing its end that the tightening cycle stopped and the debate on the possible timing of an interest rate cut began. Meanwhile, the labour market remained tight, with low unemployment and strong wage dynamics. Developed markets’ long -term yields hit multi-decade highs in the autumn, before a sharp fall began at the end of 2023. Economic growth printed different pa tterns on the two sides of the Atlantic. The USA’s economic expansion accelerated in 2023, as opposed to the expected slowing, and growth shifted into higher gear in the second half of the year. The robust figures were driven by supportive fiscal policy, the large stocks of savings household had accumulated during the pandemic, and the low effective lending rates caused by the high share of loans with fixed interest rates. Headline inflation peaked in June 2022 (+8.9%), but the subsequent decline briefly stalled in the middle of 2023. However, core inflation continued to drop, easing to 3.9% YoY by the end of the year. The very loose fiscal policy, which raised the budget deficit from around 5% to 8% of GDP, required tight monetary policy to bring inflation down. The Fed has aggressively raised its base rate to 5.25–5.5% and began to reduce its balance sheet. The energy crisis brought the euro area to its knees, and the economy has been unable to recover amid high inflation and high interest rates, thus output has been practically stagnant since the third quarter of 2022. Countries with industries that used to rely heavily on Russian energy (e.g. Germany) were hit particularly hard. Elevated interest rates have led to a slowdown in lending, which has also hindered kick-starting growth in Europe. Disinflation was strong in the euro area in 2023: headline and core inflation fell to 2.8% and 3.3%, respectively by the end of the year. The biggest concern in this context is services inflation, which has been stagnating at 4.0% YoY since November 2023. Despite all the weakness in the economy and strong disinflation, the ECB has not yet considered cutting interest rates, thus the euro area ended last year with a deposit rate of 4% and a lending rate of 4.5%. Hungary’s economy fell into a longer and deeper recession than the rest of the CEE region in 2023 (GDP YoY: Q1: -0.9%; Q2: -2.4%; Q3: -0.4%; Q4 (flash): 0,0). However, the recession ended in the third quarter, and growth started to pick up on quarterly basis, helped by the base effect of an unprecedented poor agriculture season in 2022. Overall, regarding the Hungarian economy’s underlying processes, activity fell sharply in Q4 2022 and in Q1 2023, and it has been stagnating or trivially rising since then. The structure of growth is unfavourable, as the sharp fall in domestic use was moderated by an increase in net exports, but it was caused by the decline in imports owing to the sluggish domestic demand, rather than by exports’ strong expansion. Inflation peaked at 25.7%, ten percentage points higher than the average of the CEE region, before disinflation started in the spring. As disinflation accelerated starting from mid-2023, the pace of price increases accelerated, bringing down CPI to 5.5% YoY by December; the annual average rate of inflation was 17.6% in 2023. From the middle of the year, real wages started to rise again month-on-month, but this passed on to consumer spending only modestly. After running 8% current account deficit in 2022, Hungary’s external bala nce turned into surplus last year, as gas prices collapsed and imports fell due to a drop in domestic demand. The rapid rise in debt ratios between 2020 and 2023 has stopped. The original budget deficit target of 3.9% of GDP proved to be unsustainable, so it was raised to 5.2% in October, but the accrual-based deficit probably exceeded 6% of GDP last year, even with the dividend payment by MVM and with the savings of the ‘utility protection fund’. Having raised the effective rate to 18% in autumn 2022, the MNB cut it in several steps by a total of 725 basis points, to 10.75% by the end of the year. The base rate regained its role in September, when the former overnight deposit facility was phased out. The EUR/HUF fell from around 400 at the beginning of the year to below 370 at one point in the summer, but stabilized around 380 by the end of 2023. Hungary made headway in accessing EU funds at the end of last year as the European Commission approved the so-called horizontal enabling conditions for the judicial reform in December. The government unblocked about EUR 11 billion worth of EU funds, thanks to the measures implemented last year. Starting from autumn 2022, the credit market froze in the CEE region, including Hungary, and similarly to Western Europe. There was a slight pick up at the end of 2023, particularly in retail lending, within that in ‘baby loans’ and housing loans; demand for cash loans also jumped at the end of the year. In full year 2023, the volume of housing loans rose by 1.3% (2022: 7.6%), that of cash loans grew by 6.9% (2022: 9.3%), and corporate loan volumes increased by an FX-adjusted 6% (2022: 15.5%).
OTP Bank Plc Separate Financial Statements 2023 38 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK [continued] Summary of economic policy measures made and other relevant regulatory changes in the period under review Windfall tax [continued] o On 24 April 2023 Government Decree No. 144/2023 was published amending the previously laid down methodology of windfall tax calculation for the second half of 2023. According to the new rules, the gross amount of the windfall tax for the year 2023 changed to HUF 41 billion in the case of OTP Group. Government decree No. 206/2023 (V.31.) published on 31 May 2023 outlined the details of the extra profit tax payable by credit institutions in 2024. The basis of the tax is the 2022 profit before tax (adjusted for several items). The tax rate is 13% for the part of the tax base that does not exceed HUF 20 billion, and 30% for the amount above HUF 20 billion. According to the decree, if the average amount of Hungarian government bonds owned by the financial institution increases over a certain period, the windfall tax payable by the credit institution will be reduced. The reduction cannot be more than 10% of the increase in government bond holdings and cannot exceed 50% of the windfall tax payment obligation calculated without the reduction. The gross amount of the windfall tax for the year 2024 will be HUF 13 billion in the case of the Hungarian Group members, which can be reduced to HUF 6.5 billion subject to the increase in government bond holdings. As for timing, the HUF 13 billion gross annual tax obligation was recognized in one sum in January 2024, whereas the pro-rated part of the reduction will be booked on a monthly basis, evenly split through 2024. Interest rate cap: o Government decree No. 175/2023. (V. 12.) published on 12 May 2023 further extended the interest rate cap scheme by 6 months, until the end of 2023, in the case of the affected floating and fixed rate residential mortgages, as well as floating rate micro and small enterprises loan and leasing contracts. o Pursuant to Government Decree No. 522/2023. (XI. 30.): ▪ The interest rate cap for the outstanding volume of certain residential mortgage loans was extended by six months, until 30 June 2024. ▪ The rate cap for the existing volume of certain MSE loans was extended until 1 April 2024. ▪ Furthermore, Government Decree No. 471/2022 (XI. 21.) was amended, thus the provision that the interest rate on HUF-denominated demand deposits and time deposits with a maximum term of one year shall not exceed the average auction yield of the most recently issued three-month discount Treasury Bill was extended by three months, until 1 April 2024. In another amendment, starting from 1 December 2023, the scope of this cap was extended for entities who qualif y as business customers in Hungary’s Civil Code. These provisions shall be applied to deposit contracts concluded after 1 December 2023, as well as to demand deposit contracts existing on 1 December 2023. Voluntary interest rate cap on newly granted loans At the beginning of October 2023, the Ministry of Economic Development proposed that banks impose voluntary interest rate caps on newly granted HUF-denominated working capital loans for businesses, and on residential housing loans. OTP Bank has joined the initiative. Effective from October 2023, the Government set the voluntary interest rate cap on new housing loans at 8.5% and that on working capital loans to businesses at 12%. From 2 November the latter was reduced to 11.5%. From January 2024, the Government reduced the voluntary interest rate cap on housing loans to 7.3% and that on corporate loans to 9.9%. In addition, the Government and the Hungarian Banking Association agreed that the voluntary interest rate cap scheme will be abolished simultaneously with the withdrawal of the interest rate cap for certain outstanding MSE volumes from 1 April 2024, i.e. in the future, interest rates will be determined by market competition.
OTP Bank Plc Separate Financial Statements 2023 39 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK [continued] Summary of economic policy measures made and other relevant regulatory changes in the period under review [continued] Savings, government bond market: o Pursuant to Government decree No. 205/2023. (V. 31.), effective from 1 July 2023, on top of the existing 15% interest tax, an additional 13% social contribution tax was introduced temporarily for certain savings forms. The tax base is the interest income as defined by the PIT law, earned by natural persons after 1 July 2023 on bank deposits placed or certain securities (except for real estate investment fund investment certificates) purchased after 1 July. o Pursuant to Government decree No. 208/2023. (V. 31.), effective from 1 July 2023 the weight of securities in the portfolio of bond funds, equity funds and mixed funds must be at least 60%. Furthermore, from 1 August no more than 5% of the assets of these securities funds can be invested in debt securities other than HUF denominated government securities. o According to Government decree No. 209/2023. (V. 31.), between 1 October 2023 and 31 December 2023 credit institutions shall send a warning notice to their natural person clients with bank account contracts about how much more interest they could have earned in a specific period with an investment of HUF 100,000, HUF 500,000 and HUF 1,000,000 if they had invested in retail government securities instead of bank deposits. Family support schemes o Baby loan: in line with Government decree No. 303/2023. (VII. 11.), from 1 January 2024 the maximum amount of baby loan will increase from HUF 10 to 11 million, and those families will be eligible where the wife is below the age of 30 years. Also, the clause that baby loan contracts can be entered into by the end of this year lost effect, so the scheme will remain in place indefinitely. As for the interest rate fixation periods, in contrast to the current situation that the baby loans reprice in every 5 years, from 2024 the interest rate of newly contracted baby loans will be fixed for 1 year during the first 2 years, then the baby loans will have a 3-year rate fixation period. o Housing Subsidy for Families (CSOK), village CSOK: from 1 January 2024 the village CSOK non-refundable amounts will increase, but in towns and settlements with more than 5,000 inhabitants the CSOK subsidy will no longer be available. Mandatory minimum reserve requirements Pursuant to NBH decree No. 6/2023. (III. 8.) and NBH decree No. 11/2023. (III. 31.), from April the minimum reserve requirement was increased to 10%, and the effective rate paid on the reserves was reduced to 9.75% from the previous 13%, since the national bank doesn’t pay any interest for the first 2.5% res erve requirement, and for the remaining amount the national bank pays the base rate. NBH decree No. 25/2023. (VI. 14.) amended the reserve requirement rules: among others, from 1 July 2023 up to 15% of the minimum reserve requirement can be met by central bank deposits with at least 14 days original maturity. Also, from July until further notice (by the end of the year according to plans) the reserve requirement will be based on the volumes in the statistical balance sheet as at 31 March 2023. Capital regulation o On 22 June 2023 the national bank announced that it postpones the activation of the Countercyclical Capital Buffer rate of 0.5% planned from 1 July 2023 by one year to 1 July 2024. In addition, it preventively reactivates the Systemic Risk Buffer aimed at risks related to commercial real estate loans (especially non-performing loans). o MREL minimum requirement: effective from 1 January 2024, the consolidated MREL minimum requirement for OTP Bank is 18.94%, while the minimum requirement including combined buffer requirements is 23.95% in % of the total RWA of the resolution group. o Pillar 2 capital requirement: effective from 1 January 2024, the National Bank of Hungary imposed the below additional capital requirements for OTP Group, on consolidated level: ▪ 0.9%-point in case of the Common Equity Tier1 (CET1) capital, accordingly the minimum requirement for the consolidated CET1 ratio is 5.4% (without regulatory capital buffers); ▪ 1.2%-points in case of the Tier1 capital, accordingly the minimum requirement for the consolidated Tier1 ratio is 7.2% (without regulatory capital buffers); ▪ 1.6%-points in case of the Total SREP Capital Requirement (TSCR), accordingly the minimum requirement for the consolidated capital adequacy ratio is 9.6% (without regulatory capital buffers).
OTP Bank Plc Separate Financial Statements 2023 40 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK [continued] The principles used in the preparation of the Separate Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures Going concern principle In the case of Ukraine and Russia OTP management applies a „going concern” approach, however in Russia the management is still considering all strategic options, bearing in mind that any future solution should be strictly within the framework and in accordance with applicable local and international regulations. In February 2022 a military conflict started between Russia and Ukraine. OTP Group’s Ukrainian o peration incorporates the Ukrainian bank, as well as the leasing and factoring companies. The country-consolidated Ukrainian total assets represented HUF 1,037 billion at the end of 2023 (2.6% of total consolidated assets), while net loans comprised HUF 309 billion (1.4% of consolidated net loans) and shareholders’ equity amounted to HUF 157 billion (3.8% of the consolidated total equity). At the end of 2023 the gross intragroup funding towards the Ukrainian operation represented HUF 83 billion, while taking into account the Ukrainian deposits placed with the Headquarters, i.e. the net group funding stood at HUF 22 billion equivalent deposit placed by the Ukrainian operation (i.e. Ukraine funded the Group). In 2023 the Ukrainian operation posted an adjusted profit after tax of HUF 45.2 billion, against the HUF 15.9 billion loss suffered in the corresponding period of last year. The total assets of the Group’s Russian operation represented HUF 1,471 billion at the end of 2023 (3.7% of consolidated total assets), while net loans comprised HUF 588 billion (2.7% of consolidated net loans) and shareholders’ equity HUF 275 billion (6.7% of consolidated total equity). As the Russian subsidiary repaid its maturing intragroup loans in 4Q 2022, the gross intragroup funding towards the Russian operation declined to zero and remained nil throughout 2023. At the end of 2023 the intragroup subordinated loan exposure toward the Russian operation amounted to HUF 9 billion equivalent. The Russian operation posted HUF 95.7 billion adjusted profit in 2023, after the HUF 42.5 billion profit reached in full-year 2022. In 2H 2023 the Russian Central Bank approved twice a dividend payment by OTP’s Russian subsidiary with a total amount of RUB 13.4 billion. If the Russian entity was deconsolidated and the outstanding gross intragroup exposures were written off as well, the effect for the consolidated CET1 ratio would be -11 bps, whereas in the Ukraine the negative effect would be 2 bps.
OTP Bank Plc Separate Financial Statements 2023 41 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK [continued] The principles used in the preparation of the Separate Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures [continued] Significant estimates affected by the Russian-Ukrainian conflict during the preparation of these Separate Financial Statements During the preparation of these Separate Financial Statements, the Bank identified the following estimates, which were significantly affected by the Russian-Ukrainian conflict: 1) Evaluation of Russian sovereign exposures (government securities) and related reserves for expected credit losses at OTP Bank (as parent company) 2) Evaluation of Ukrainian sovereign exposures (government securities) and related reserves for expected credit losses at OTP Bank (as parent company) 3) Evaluation of derivative transactions denominated in Russian rubles 4) Evaluation of derivative transactions denominated in the Ukrainian hryvnia 5) Provisions for expected credit losses related to Russian and Ukrainian interbank claims and customer loans (following direct exposure to the Russian and Ukrainian markets, non-Russian and Ukrainian bank exposures) 6) Evaluation of investments Reference Gross value Impairment Securities at amortized cost 1 33,681 (11,507) Securities at fair value through other comprehensive income 1 30,873 (22,920) Other financial assets 6,721 (2,570) Investments 6 462,646 (299,339) TOTAL ASSETS 533,921 (336,336) References 1. Evaluation of Russian sovereign exposures and related reserves for expected credit losses - other exposures of the group Outside of Russia, the marketability of Russian government securities is significantly limited due to sanctions and capital market participants turning away from Russian securities. The credit rating of the Russian state was withdrawn in 2022, the Group classifies the Russian state as non-performing, and in accordance with this, it assigned the affected exposures to the Stage 3 category. The Russian state not only recognizes its obligation and has the necessary financial reserves, but would also be willing to pay, so the increased loss potential is caused by non-traditional credit risks. In the case of a portfolio valued at fair value against other comprehensive income, the book value is determined based on the level 3 prices of IFRS13. Cash-flow estimation, current market benchmarks (provided by Bloomberg), liquidity and non-credit risk considerations were taken into account in fair value calculation. 2. Valuation of Ukrainian sovereign exposures and related reserves for expected credit losses - other exposures of the group Ukrainian government securities are exclusively in the books of the Ukrainian subsidiary. 3. Valuation of Russian derivative transactions In the case of futures contracts concluded with local partners on the Russian market, the evaluation is carried out using yield curves available and observable on the local market. In cases where one of the partners is not Russian, the evaluation is done using yield curves available and observable on the international market.
OTP Bank Plc Separate Financial Statements 2023 42 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK [continued] The principles used in the preparation of the Separate Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures [continued] References [continued] 4. Valuation of Ukrainian derivatives The Treasury turnover of the Ukrainian bank is low, and a significant part of the derivative transactions are related to the bank's risk management and concluded with the parent company. During the actual evaluation, the expected cash-flow is discounted using yield curves observed based on current market benchmarks (published by the National Bank of Ukraine). 5. Provisions for expected credit losses related to Russian and Ukrainian interbank claims and customer loans (following direct exposure to the Russian and Ukrainian markets, non-Russian and Ukrainian bank exposures) As part of the quarterly monitoring activity, the Bank has identified and analysed the secondary and tertiary negative effects of the war in the corporate segment. Changes related to the meanwhile imposed sanctions – which should have been taken into consideration at analysis - have been followed up. As part of the individual monitoring activity separate monitoring methodology and assessment were prepared for exposures above HUF 250 million as follows: i) sectors vulnerable to the risk arising from changes of energy / interest / foreign exchange ii) customers from sectors with high risks according to the loan policy, especially the hotel industry and real estate utilisation industry iii) municipalities, customers owned by municipalities Customers identified during monitoring activity were classified into Stage 2, expected credit losses were recognised at the corresponding level and amount. As at 31 December 2022 the concerning exposures (HUF 92.7 billion) had HUF 4 billion of expected credit loss, from which impairment loss was recognised in amount of HUF 3 billion. As at 31 December 2023 the concerning exposures (HUF 72 billion) had HUF 2.7 billion of expected credit loss. When technical or objective default occured due to sanctions the affected exposures were classified into Stage 3. In these cases at least two scenarios were taken into consideration as the estimation of expected cash flows for impairment calculation. At least one scenario represents that case when significant differences occur between the expected and the contractual cash flows. Probabilities shall be allocated to represent the occurence of credit loss, even in that case when most likely there is no need to recognise impairment loss. 6. Evaluation of investments The Bank has evaluated its investments in 3 countries concerning the Russian-Ukrainian conflict based on discounted cash flows, and as a result reversal of impairment loss was recognised for the year ended 31 December 2023 as follows: by Country Reversal of impairment loss for the year ended 31 December 2023 Ukraine - Russia - Moldova (3,163) Total (3,163)
OTP Bank Plc Separate Financial Statements 2023 43 NOTE 4: MACRO-ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE BANK [continued] Financial assets modified during the year ended 31 December 2023 Modification due to prolongation of existing interest rate cap till 31 December 2023 Gross carrying amount before modification 179,970 Modification loss (6,952) Gross carrying amount after modification 173,018 Loss allowance before modification (9,376) Net amortised cost after modification 163,642 Modification due to prolongation of existing interest rate cap till 30 June 2024 (in case of SME loans till 1 April 2024) Gross carrying amount before modification 124,456 Modification loss (2,065) Gross carrying amount after modification 122,391 Loss allowance before modification (7,938) Net amortised cost after modification 114,453 Financial assets modified during the year ended 31 December 2022 Modification due to prolongation of deadline of covid moratoria till 31 July 2022 (opt in) Gross carrying amount before modification 79,253 Modification loss (301) Gross carrying amount after modification 78,952 Loss allowance before modification (23,965) Net amortised cost after modification 54,987 Modification due to prolongation of interest rate cap (30 June 2022) Gross carrying amount before modification 66,133 Modification loss (2,405) Gross carrying amount after modification 63,728 Loss allowance before modification (1,580) Net amortised cost after modification 62,148 Modification due to moratoria related to agriculture and prolongation of the existing moratoria ( 30 September 2022) Gross carrying amount before modification 95,560 Modification loss (1,562) Gross carrying amount after modification 93,998 Loss allowance before modification (19,404) Net amortised cost after modification 74,594 Modification due to prolongation of interest rate cap (30 November 2022) Gross carrying amount before modification 151,318 Modification loss (531) Gross carrying amount after modification 150,787 Loss allowance before modification (6,094) Net amortised cost after modification 144,693 Modification due to scope extension (mortgage loans with 5 year fixing without subsidy) and prolongation of the existing interest rate cap (31 December 2022) Gross carrying amount before modification 205,891 Modification loss (10,058) Gross carrying amount after modification 195,833 Loss allowance before modification (6,915) Net amortised cost after modification 188,918
OTP Bank Plc Separate Financial Statements 2023 44 NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANK OF HUNGARY (in HUF mn) 31 December 2023 31 December 2022 Cash on hand: In HUF 86,317 80,809 In foreign currency 15,412 20,506 101,729 101,315 Amounts due from banks and balances with National Bank of Hungary: Within one year: In HUF 2,272,840 739,382 In foreign currency 334,058 252,854 2,606,898 992,236 Subtotal 2,708,627 1,093,551 Loss allowance (395) (1,353) Subtotal 2,708,232 1,092,198 Average amount of compulsory reserve 1,143,307 740,428 Total 1,564,925 351,770 Rate of the compulsory reserve 10% 6% The Bank shall deposit compulsory reserve in a determined percent of its liabilities at NBH. Liabilities considered in compulsory reserve calculation are as follows: a) deposits and loans, b) debt instruments, c) repo transactions. The amount of the compulsory reserve is the multiplication of the daily average of the liabilities considered in the compulsory reserve calculation and compulsory reserve rate, which are determined by the NBH in a specific decree. The Bank is required to complete compulsory reserve requirements in average in the second month after the reserve calculation period, requirements shall be completed once a month on the last calendar day. The Bank complies with the compulsory reserve requirements by the deposit of the adequate amount of cash as the calculated compulsory reserve on the bank account at NBH in monthly average. An analysis of the change in the loss allowance on placement losses is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 1,353 185 Loss allowance 3,588 5,023 Release of loss allowance (4,399) (3,813) FX movement (147) (42) Closing balance 395 1,353
OTP Bank Plc Separate Financial Statements 2023 45 NOTE 6: PLACEMENTS WITH OTHER BANKS (in HUF mn) 31 December 2023 31 December 2022 Within one year: In HUF 563,752 825,820 In foreign currency 134,346 366,574 698,098 1,192,394 Over one year In HUF 1,196,419 1,215,114 In foreign currency 814,791 511,103 2,011,210 1,726,217 Total placements 2,709,308 2,918,611 Loss allowance on placement losses (6,875) (18,782) Total 2,702,433 2,899,829 An analysis of the change in the loss allowance on placement losses is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 18,782 7,490 Loss allowance 8,178 27,571 Release of loss allowance (19,727) (17,026) Use of loss allowance - - FX movement (358) 747 Closing balance 6,875 18,782 Interest conditions of placements with other banks (%): 31 December 2023 31 December 2022 Placements with other banks in HUF 0%-25% 0%-25.7% Placements with other banks in foreign currency 0%-11.6% 0%-13.29% Average interest of placements with other banks 7.55% 7.51%
OTP Bank Plc Separate Financial Statements 2023 46 NOTE 7: REPO RECEIVABLES (in HUF mn) 31 December 2023 31 December 2022 Within one year: In HUF 202,025 248,696 202,025 248,696 Total gross amount 202,025 248,696 Loss allowance on repo receivables (367) (2,167) Total repo receivables 201,658 246,529 An analysis of the change in the loss allowance on repo receivables is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 2,167 72 Loss allowance 11,755 4,480 Release of loss allowance (13,555) (2,385) Closing balance 367 2,167 Interest conditions of repo receivables (%): 31 December 2023 31 December 2022 Repo receivables in HUF 7.49%-11.4% 10.7%-18% Average interest of repo receivables denominated in HUF 13.85% 7.31% Average interest of repo receivables denominated in foreign currency 3.86% - Securities as collaterals underlying repo receivable contracts is as follows: As at 31 December 2023 Type Currency Notional Fair value Government bonds HUF 233,408 219,270 Hungarian government discounted Treasury Bills HUF 1,439 1,384 Total 234,847 220,654 As at 31 December 2022 Type Currency Notional Fair value Government bonds HUF 321,794 259,268 Hungarian government discounted Treasury Bills HUF 3,949 3,784 Total 325,743 263,052
OTP Bank Plc Separate Financial Statements 2023 47 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) 31 December 2023 31 December 2022 Held for trading securities: Government bonds 22,352 67,521 Other non-interest bearing securities 320 274 Hungarian government discounted Treasury Bills 71 4,785 Corporate shares and investments 513 385 Mortgage bonds 111 82 Other securities 4,437 1,748 Subtotal 27,804 74,795 Securities mandatorily measured at fair value through profit or loss Shares in investment funds 31,124 29,029 Shares 1,808 1,469 Subtotal 32,932 30,498 Held for trading derivative financial instruments: Foreign currency swaps 66,324 121,854 Interest rate swaps 65,434 121,506 CCIRS and mark-to-market CCIRS swaps 23,221 14,847 Other derivative transactions 41,820 46,512 Subtotal 196,799 304,719 Total 257,535 410,012 Interest conditions and the remaining maturities of securities held for trading are as follows: 31 December 2023 31 December 2022 Within one year: variable interest 103 3,041 fixed interest 12,881 10,467 12,984 13,508 Over one year: variable interest 975 9,535 fixed interest 13,012 51,093 13,987 60,628 Non-interest bearing securities 833 659 Total 27,804 74,795 Securities held for trading denominated in HUF 28% 89% Securities held for trading denominated in foreign currency 72% 11% Securities held for trading total 100% 100% Government bonds denominated in HUF 18% 90% Government bonds denominated in foreign currency 82% 10% Government securities total 100% 100% Interest rates on securities held for trading in HUF 1%-16.25% 0%-16.69% Interest rates on securities held for trading in foreign currency 0%-7.63% 0%-7.63% Average interest on securities held for trading 11.58% 6.44%
OTP Bank Plc Separate Financial Statements 2023 48 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) [continued] Interest conditions and the remaining maturities of securities mandatorily measured at fair value through profit or loss are as follows: 31 December 2023 31 December 2022 Non-interest bearing securities 32,932 30,498 Total 32,932 30,498 Securities mandatorily measured at fair value through profit or loss denominated in HUF 73% 69% Securities mandatorily measured at fair value through profit or loss denominated in foreign currency 27% 31% Securities mandatorily measured at fair value through profit or loss total 100% 100% NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) 31 December 2023 31 December 2022 Securities at fair value through other comprehensive income Government bonds 189,385 177,393 Mortgage bonds 300,569 356,540 Interest bearing treasury bills 236 182,726 Other securities 48,160 62,594 Listed securities 11,622 7,290 in foreign currency 11,622 7,290 Non-listed securities 36,538 55,304 in HUF 12,115 14,304 in foreign currency 24,423 41,000 Subtotal 538,350 779,253 Non-trading equity instruments -non-listed securities 21,177 17,922 in HUF 528 528 in foreign currency 20,649 17,394 21,177 17,922 Securities at fair value through other comprehensive income total 559,527 797,175
OTP Bank Plc Separate Financial Statements 2023 49 NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) [continued] Detailed information of the non-trading equity instruments to be measured at fair value through other comprehensive income: Name Currency 31 December 2023 31 December 2022 Garantiqa HUF 392 392 Hage / Közvil / Pénzügykut HUF 136 136 OBS EUR 14,318 11,915 VISA A Preferred USD 6,331 5,479 21,177 17,922 Interest conditions and the remaining maturities of FVOCI securities can be analysed as follows: 31 December 2023 31 December 2022 Within one year: variable interest 30,130 - fixed interest 13,235 261,529 43,365 261,529 Over one year: variable interest 120,268 235,661 fixed interest 374,717 282,063 494,985 517,724 Non-interest bearing securities 21,177 17,922 Total 559,527 797,175 FVOCI securities denominated in HUF 71% 83% FVOCI securities denominated in foreign currency 29% 17% FVOCI securities total 100% 100% Interest rates on FVOCI securities denominated in HUF 1.25%-13.8% 1.25%-17.36% Interest rates on FVOCI securities denominated in foreign currency 0.74%-16% 0.74%-16% Average interest on FVOCI securities 8.16% 5.78% Certain fixed-rate mortgage bonds and other securities are hedged against interest rate risk. (See Note 45.4.) 31 December 2023 31 December 2022 Net gain / (loss) reclassified from other comprehensive income to statement of profit or loss 25,363 (22,816) Fair value of the hedged securities: Government bonds 118,405 118,979 Other bonds 3,625 43,870 122,030 162,849 During the year ended 31 December 2023 the Bank didn’t sell any of equity instruments designated to measure at fair value through other comprehensive income. During the year ended 31 December 2022 equity instruments designated to measure at fair value through other comprehensive income was sold. Fair value related to the transactions were EUR 12.8 million.
OTP Bank Plc Separate Financial Statements 2023 50 NOTE 10: SECURITIES AT AMORTISED COST (in HUF mn) 31 December 2023 31 December 2022 Government bonds 2,396,803 2,979,400 Other bonds 315,532 314,237 Mortgage bonds 24,738 24,586 Subtotal 2,737,073 3,318,223 Loss allowance (26,225) (35,850) Total 2,710,848 3,282,373 Interest conditions and the remaining maturities of securities at amortised cost can be analysed as follows: 31 December 2023 31 December 2022 Within one year: fixed interest 63,775 321,879 63,775 321,879 Over one year: variable interest 4,845 24,601 fixed interest 2,668,453 2,971,743 2,673,298 2,996,344 Total 2,737,073 3,318,223 The distribution of the securities at amortised cost by currency (%): 31 December 2023 31 December 2022 Securities at amortised cost denominated in HUF 72% 72% Securities at amortised cost denominated in foreign currency 28% 28% Securities at amortised cost total 100% 100% Interest rates on securities at amortised cost 0,1%-13.2% 0.1%-17.74% Average interest on securities at amortised cost denominated in HUF 3.95% 2.93% An analysis of change in the loss allowance on securities at amortised cost: 31 December 2023 31 December 2022 Balance as at 1 January 35,850 6,685 Loss allowance 2,287 31,696 Release of loss allowance (10,863) (4,073) FX movement (1,049) 1,542 Closing balance 26,225 35,850
OTP Bank Plc Separate Financial Statements 2023 51 NOTE 11: LOANS (in HUF mn) Loans measured at fair value through profit or loss 31 December 2023 31 December 2022 Within one year 46,131 39,694 Over one year 888,717 753,548 Loans measured at fair value through profit or loss total 934,848 793,242 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 31 December 2023 31 December 2022 Within one year 2,245,979 2,481,249 Over one year 2,582,795 2,518,671 Loans at amortised cost gross total 4,828,774 4,999,920 Loss allowance on loan losses (147,415) (174,880) Loans at amortised cost total 4,681,359 4,825,040 An analysis of the loan portfolio by currency (%): 31 December 2023 31 December 2022 In HUF 61% 58% In foreign currency 39% 42% Total 100% 100% Interest rates of the loan portfolio mandatorily measured at fair value through profit or loss are as follows (%): 31 December 2023 31 December 2022 Loans denominated in HUF 3.1%-21.08% 2,89%-18,26% Average interest on loans denominated in HUF 5.96% 4.77% Interest rates of the loan portfolio measured at amortised cost are as follows (%): 31 December 2023 31 December 2022 Loans denominated in HUF 0%-43.11% 0%-43.7% Loans denominated in foreign currency 0%-21.21% (0.1%)-20.1% Average interest on loans denominated in HUF 11.32% 9.77% Average interest on loans denominated in foreign currency 5.42% 2.74%
OTP Bank Plc Separate Financial Statements 2023 52 NOTE 11: LOANS (in HUF mn) [continued] For an analysis of the loan portfolio by stages, countries and rating categories please see Note 36.1. An analysis of the change in the loss allowance on loans at amortised cost is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 174,880 155,557 Loss allowance 257,173 252,002 Release of loss allowance (241,580) (210,342) Use of loss allowance (35,043) (21,274) Partial write-off (5,263) (7,348) FX movement (2,752) 6,285 Closing balance 147,415 174,880 The Bank sells non-performing loans without recourse at estimated fair value to a wholly owned subsidiary, OTP Factoring Ltd.
OTP Bank Plc Separate Financial Statements 2023 53 NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn) 31 December 2023 31 December 2022 Investments in subsidiaries: Controlling interest 2,390,718 2,116,059 Other 29,349 23,427 Subtotal 2,420,067 2,139,486 Impairment loss (418,115) (542,769) Total 2,001,952 1,596,717 Other investments contain certain securities accounted at cost. 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: 31 December 2023 31 December 2022 % Held (direct/indirect) Gross book value % Held (direct/indirect) Gross book value OTP Bank JSC (Ukraine) 100% 311,390 100% 311,390 OTP Luxembourg S.à r.l. 100% 301,470 100% - DSK Bank EAD (Bulgaria) 100% 280,722 100% 280,722 OTP banka Srbija akcionarsko drustvo Novi Sad (Serbia) 100% 262,759 100% 262,759 OTP banka Hrvatska d.d. (Croatia) 100% 204,243 100% 205,349 OTP Bank Romania S.A. (Romania) 100% - 100% 167,764 OTP Mortgage Bank Ltd. 100% 199,294 100% 199,294 SKB Banka d.d. Ljubljana (Slovenia) 100% 107,689 100% 107,689 Ipoteka Bank (Uzbekistan) 80% 110,015 - - JSC "OTP Bank" (Russia) 98% 74,337 98% 74,337 Crnogorska komercijalna banka a.d. (Montenegro) 100% 72,784 100% 72,784 OOO AlyansReserv (Russia) 100% 50,074 100% 50,074 Air-Invest Llc. 100% 49,248 100% 39,248 OTP Holding Malta Ltd. 100% 32,359 100% 32,359 Balansz Private Open-end Investment Fund 100% 60,629 100% 60,630 Bank Center No. 1. Ltd. 100% 43,955 100% 26,063 OTP Factoring Ltd. 100% 25,411 100% 25,411 Other 204,339 200,186 Total 2,390,718 2,116,059 An analysis of the change in the impairment loss is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 542,769 449,256 Impairment loss for the period 348 147,712 Reversal of impairment loss (87,345) (54,199) Use of impairment loss (37,657) - Closing balance 418,115 542,769
OTP Bank Plc Separate Financial Statements 2023 54 NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn) [continued] The Bank decided that the recoverable amount is determined based on fair value less cost of disposal. The Bank prepared impairment tests of the subsidiaries based on two different net present value calculation methods that show the same result; however they represent different economical logics. On one hand is the discount cash flow method (“DCF”) that calculates the value of the subsidiaries by discounting their expected cash flow; on the other hand the economic value ad ded (“EVA”) method estimates the value of the subsidiaries from the initial invested capital and the present value of the economic profit that the companies are expected to generate in the future. Applying the EVA method was more practically than DCF method because it gives a more realistic picture about how the explicit period and the residual value can contribute to the value of the company. The Bank, in its strategic plan, has taken into consideration the effects of the present global economic situation, the cautious recovery of economic situation and outlook, the associated risks and their possible effect on the financial sector as well as the current and expected availability of wholesale funding. An analysis of the impairment loss by significant subsidiaries is as follows: 31 December 2023 31 December 2022 OTP Bank JSC (Ukraine) 280,763 280,763 OTP Mortgage Bank Ltd. 84,707 84,707 LLC Alliance Reserve (Russia) 15,801 15,801 Air-Invest Ltd. 10,965 10,965 Monicomp Ltd. 8,632 8,632 OTP Real Estate Ltd. 4,395 5,557 R.E. Four d.o.o. (Serbia) 3,763 3,763 JSC "OTP Bank" (Russia) 2,775 2,775 OTP Life Annuity Ltd. 2,281 10,969 OTP Bank Romania S.A. (Romania) - 77,962 OTP banka Srbija akcionarsko drustvo Novi Sad (Serbia) - 23,452 Crnogorska komercijalna banka a.d. (Montenegro) - 4,495 Balansz Private Open-end Investment Fund - 5,110 Total 414,082 534,951 Dividend income from significant subsidiaries and shares held-for-trading and shares measured at fair value through other comprehensive income is as follows: 31 December 2023 31 December 2022 OTP Factoring Ltd. 70,000 45,000 DSK Bank EAD (Bulgaria) 48,658 74,314 JSC "OTP Bank" (Russia) 33,961 - OTP banka Srbija akcionarsko drustvo Novi Sad (Serbia) 30,873 - OTP banka dioničko društvo (Croatia) 28,574 14,637 OTP Luxembourg S.à r.l. 21,131 - OTP Bank S.A. (Moldova) 5,513 - Merkantil Bank Ltd. 3,800 8,000 Crnogorska komercijalna banka a.d. (Montenegro) 3,511 - OTP Holding Ltd. (Cyprus) 3,000 7,800 OTP Mortgage Bank Ltd. - 18,000 Other 12,201 14,403 Subtotal 261,222 182,154 Dividend from shares held-for-trading 14,229 12,166 Dividend from shares fair value through other comprehensive income 254 207 Total 275,705 194,527
OTP Bank Plc Separate Financial Statements 2023 55 NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn) [continued] Significant associates and joint ventures The main figures of the Bank’s indirectly owned associates and joint ventures at cost as at 31 December 2023: List of associated entities Carrying amount Ownership of OTP Bank Profit after tax Country / Headquarter Activity Edrone spółka z ograniczoną odpowiedzialnością 848 23.54% (342) Poland / Krakow Computer programming activities NovaKid Inc. 2,009 4.07% (231) USA / San Francisco Online kids English learning platform operator Banzai Cloud Closed Co. Plc 4 17.42% 267 Hungary /Budapest Computer programming activities CodeCool Ltd 1,310 7.26% (731) Hungary /Budapest Other education Pepita.hu Closed Co. Plc 2,679 38.75% (580) Hungary / Szeghalom Retail sale via mail order houses or via Internet Seon Holdings Ltd 8,070 19.26% (1,210) UK / London Computer programming activities VCC Live Group Closed Co. Plc 1,632 24.72% (220) Hungary /Budapest Computer programming activities Cursor Insight Ltd 73 6.75% (51) UK / London Computer programming activities OneSoil Ag. 6 3.72% (819) Switzerland / Zurich Computer programming activities Packhelp Spółka Akcyjna 899 3.14% (2,725) Poland / Warsaw Manufacture of corrugated paper and paperboard and of containers of paper and paperboard Phoenix Play Invest Closed Co. Plc 6,368 21.68% 151 Hungary /Budapest Activities of holding companies Algorithmiq Invest Closed Co. Plc 5,185 21.68% (8,907) Hungary /Budapest Activities of holding companies Deligo Vision Technologies Ltd 302 8.70% (215) Hungary /Budapest Other information service activities Shopper Park Plus Closed Co. Plc. 1 5,237 2.80% 3,175 Hungary /Budapest Sale and purchase of own real estate New Frontier Technology Invest SARL 3,624 14.00% 103 Luxemburg / Luxembourg Activities of holding companies Mindgram sp. z.o.o 206 2.38% (1,083) Poland / Warsaw Other human health activities Tine Limited - 0.00% (1,086) Great Britain / London Child day-care services Renewabl Ltd. 102 5.01% (269) Great Britain / London Other information technology services Giganci Programowania sp. z.o.o. 514 5.03% (149) Poland / Warsaw Other education FlowX.Ai., Inc 2,252 9.50% (1,786) USA / Camano Park Computer programming activities Commsignia Inc. 1,763 3.17% (1,438) USA / Santa Clara Retail sale of computers, peripheral units and software in specialized stores Deskbird AG 1,079 8.46% (1,944) St. Gallen / Switzerland Computer programming activities Subtotal (Investments through funds) 44,162 (20,090) OTP Risk Fund I. 611 44.12% 158 Hungary /Budapest Trusts, funds and similar financial entities OTP-DayOne Magvető Fund 280 22.00% 308 Hungary /Budapest Trusts, funds and similar financial entities D-ÉG Thermoset Ltd 'u.l.' - 46.99% n.a. Hungary / Dunaújváros Wholesale of hardware, plumbing and heating equipment and supplies Company for Cash Services AD 392 25.00% 337 Bulgaria / Sofia Other financial service activities, except insurance and pension funding Fabetker Ltd 3 20.00% 119 Hungary / Nádudvar Manufacture of concrete products for construction purposes NGY Propertiers Investment SRL 11,637 14.54% 6,903 Romania / Bucharest Renting and operating of own or leased real estate Fintech CEE Software Invest Ltd 408 20.04% (7) Hungary /Budapest Activities of holding companies Bankart Procesiranje Placilnih Instrumentov d.o.o. 7,219 43.06% (1,733) Ljubjana / Slovenia Data processing, web hosting services Mortgage refinancing Company of Uzbekistan 1,030 20.00% (615) Tashkent / Uzbekistan Refinancing mortgage loans Dél-borsodi Gazdák Ltd. 4 40.92% (4) Hungary / Mezőkeresztes Wholesale of grain, tobacco, seeds and animal feeds. "Egertej"Ltd. 8 28.12% 78 Hungary / Eger Manufacture of dairy products. Orbánhegyi Szőlőbirtok - 25.00% 28 Hungary / Budapest Viticulture Subtotal 21,592 5,572 Total 65,754 (14,518) 1 Previously known as: GRADUW Invest Closed Co. Plc
OTP Bank Plc Separate Financial Statements 2023 56 NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn) [continued] Significant associates and joint ventures [continued] The main figures of the Bank’s indirectly owned associates and joint ventures at cost 1 as at 31 December 2022: List of associated entities Carrying amount Ownership of OTP Bank Profit after tax Country / Headquarter Activity Edrone spółka z ograniczoną odpowiedzialnością 822 23.54% (516) Poland / Krakow Computer programming activities NovaKid Inc. 1,723 4.07% (5,409) USA / San Francisco Online kids English learning platform operator Banzai Cloud Closed Co. Plc 216 17.42% 267 Hungary /Budapest Computer programming activities CodeCool Ltd 1,323 20.15% 1 Hungary /Budapest Other education Pepita.hu Closed Co. Plc 1,323 40.00% (157) Hungary / Szeghalom Retail sale via mail order houses or via Internet Seon Holdings Ltd 8,689 19.26% (3) UK / London Computer programming activities VCC Live Group Closed Co. Plc 1,308 24.75% (226) Hungary /Budapest Computer programming activities Cursor Insight Ltd 75 6.75% n.a. UK / London Computer programming activities OneSoil Ag. 362 3.72% (514) Switzerland / Zurich Computer programming activities Packhelp Spółka Akcyjna 1,168 3.15% (3,385) Poland / Warsaw Manufacture of corrugated paper and paperboard and of containers of paper and paperboard Phoenix Play Invest closed Co. Plc 2,350 21.69% (1) Hungary /Budapest Activities of holding companies Algorithmiq Invest Closed Co. Plc 8,195 21.69% 792 Hungary /Budapest Activities of holding companies Deligo Vision Technologies Ltd 205 2.50% (15) Hungary /Budapest Other information service activities GRADUW Invest Closed Co. Plc 4,803 3.81% 131 Hungary /Budapest Sale and purchase of own real estate SEH-Partner Ltd 6,403 30.56% n.a. Hungary /Budapest Activities of holding companies New Frontier Technology Invest SARL 3,393 14.01% n.a. Luxemburg / Luxembourg Activities of holding companies Mindgram sp. z.o.o 200 2.38% (328) Poland / Warsaw Other human health activities Subtotal (Investments through funds) 42,558 (9,363) OTP Risk Fund I. 520 44.12% (52) Hungary /Budapest Trusts, funds and similar financial entities OTP-DayOne Magvető Fund 683 22.00% 13 Hungary /Budapest Trusts, funds and similar financial entities D-ÉG Thermoset Ltd 'u.l.' - 46.99% - Hungary / Dunaújváros Wholesale of hardware, plumbing and heating equipment and supplies Company for Cash Services AD 392 25.00% 183 Bulgaria / Sofia Other financial service activities, except insurance and pension funding Fabetker Ltd 1 20.48% 135 Hungary / Nádudvar Manufacture of concrete products for construction purposes NGY Propertiers Investment SRL 11,735 14.54% (22,567) Romania / Bucharest Renting and operating of own or leased real estate Simonyi út 20. Ingatlanhasznosító Ltd 90 47.62% - Hungary /Debrecen Renting and operating of own or leased real estate Fintech CEE Software Invest Ltd 127 20.04% n.a. Hungary /Budapest Activities of holding companies Subtotal 13,548 (22,288) Total 56,106 (31,651) 1 Based on unaudited financial statements.
OTP Bank Plc Separate Financial Statements 2023 57 NOTE 12: INVESTMENTS IN SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND OTHER INVESTMENTS (in HUF mn) [continued] Significant events related to investments The Metropolitan Court of Registration has registered a capital increase at OTP Mortgage Bank Ltd. The registered capital of OTP Mortgage Bank Ltd. was increased to HUF 57,000,000,000 from HUF 37,000,000,000. The Bank signed a purchase and sale contract for the purchase of the majority stake of Ipoteka Bank and its subsidiaries with the Ministry of Finance of the Republic of Uzbekistan. OTP Bank will purchase 100% of the shares held by the Ministry of Finance of the Republic of Uzbekistan (nearly 97% total shareholding) in two steps: 75% of the shares now and the remaining 25% three years after the financial closing of the first transaction. Based on the share sale and purchase agreement concluded on 12 December 2022 between OTP Bank and the Ministry of Economy and Finance of the Republic of Uzbekistan the first step of the transaction was completed on 13 June 2023. Consequently, OTP Bank became the majority shareholder of Ipoteka Bank by acquiring a 73.71% share holding, and became indirect shareholder of Ipoteka Bank’s wholly-owned subsidiaries. As a result of the acquisition, OTP Group entered the Central Asian region, and is the first foreign bank to participate in the privatization of the Uzbek banking sector. Holding a market share of 7.6% in terms of total assets as of May 2023 and a retail clientele of about 1.5 million, Ipoteka Bank is the fifth largest bank of Uzbekistan. It is active both in the retail and corporate segments, whereas over the past three years the average annual growth rate of its customer loan and deposit portfolio reached 20% and 24%, respectively. As the second step of the transaction, the remaining shares held by the Ministry will be purchased in three years from now. The financial completion of the transaction to purchase 100% shareholding of Nova KBM d.d. and its subsidiary – after obtaining all necessary regulatory approvals – has been completed on 6 February 2023, based on the share sale and purchase agreement concluded between OTP Bank, funds managed by affiliates of Apollo Global Management, Inc. and EBRD, on 31 May 2021. The acquisition of the bank is the most significant acquisition in the history of OTP Group. With a market share of 20.7% in terms of total assets as of September 2022 and more than 1,500 employees as of the end of 2022, Nova KBM d.d. is the 2nd largest bank in the Slovenian banking market. As a universal bank, it has been active in the retail and corporate segments as well. With the transaction closing of Nova KBM, OTP Group has around 30% share in the Slovenian banking market on a pro-forma basis. The Metropolitan Court of Registration hasregistered a capital increase at OTP Real Estate Ltd. Accordingly, the registered capital of OTP Real Estate Ltd. was increased to HUF 1,050,000,000 from HUF 1,000,000,000. On 4 January 2024 the Metropolitan Court of Registration has registered a capital increase at Merkantil Bank Ltd. The registered capital of Merkantil Bank Ltd. was increased to HUF 3,000,000,000 from HUF 2,000,000,000. On 8 January 2024 the Metropolitan Court of Registration has registered a capital increase at Monicomp Ltd. The registered capital of Monicomp Ltd. was increased to HUF 226,500,000 from HUF 203,000,000. On 2 February 2024 the Uzbek Court of Registration has registered a capital increase at JSCMB 'IPOTEKA BANK’. the registered capital of JSCMB 'IPOTEKA BANK’ was increased to UZS 3,834,217,638,941 from UZS 2,989,584,338,941. As a consequence of the capital increase the ownership ratio of OTP Bank Plc. increased to 79.58%.
OTP Bank Plc Separate Financial Statements 2023 58 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) For the year ended 31 December 2023 Intangible assets Property Office equipment and vehicles Vehicles Construction in progress Right of use assets Total Cost Balance as at 1 January 213,085 78,595 112,924 197 15,650 59,349 479,800 Additions 55,533 10,550 15,662 200 30,718 68,060 180,723 Disposals (6,764) (3,227) (12,772) (59) (26,739) (40,755) (90,316) Closing balance 261,854 85,918 115,814 338 19,629 86,654 570,207 Depreciation and Amortization Balance as at 1 January 143,605 30,148 82,577 77 - 19,467 275,874 Charge for the year 25,902 3,900 12,290 39 - 8,927 50,814 Disposals (5,768) (2,070) (12,548) (20) - (7,962) (28,124) Closing balance 163,739 31,978 82,319 96 - 20,432 298,564 Net book value Balance as at 1 January 69,480 48,447 30,347 120 15,650 39,882 203,926 Closing balance 98,115 53,940 33,495 242 19,629 66,222 271,643 For the year ended 31 December 2022 Intangible assets Property Office equipment and vehicles Vehicles Construction in progress Right of use assets Total Cost Balance as at 1 January 188,853 74,506 103,469 199 9,425 31,118 407,570 Additions 59,839 5,979 15,804 12 28,117 29,156 138,907 Disposals (35,607) (1,890) (6,349) (14) (21,892) (925) (66,677) Balance as at 31 December 213,085 78,595 112,924 197 15,650 59,349 479,800 Depreciation and Amortization Balance as at 1 January 126,692 28,316 77,404 62 - 13,887 246,361 Charge for the year 24,768 4,347 10,211 29 - 7,383 46,738 Disposals (7,855) (2,515) (5,038) (14) - (1,803) (17,225) Balance as at 31 December 143,605 30,148 82,577 77 - 19,467 275,874 Net book value Balance as at 1 January 62,161 46,190 26,065 137 9,425 17,231 161,209 Balance as at 31 December 69,480 48,447 30,347 120 15,650 39,882 203,926 The Bank has no intangible assets with indefinite useful life.
OTP Bank Plc Separate Financial Statements 2023 59 NOTE 14: INVESTMENT PROPERTIES (in HUF mn) For the year ended 31 December 2023 and for the year ended 31 December 2022, respectively 31 December 2023 31 December 2022 Property Cost Balance as at 1 January 5,027 5,013 Additions result from subsequent expenditure 138 14 Closing balance 5,165 5,027 Depreciation and Amortization Balance as at 1 January 820 685 Charge for the period 142 135 Closing balance 962 820 Net book value Balance as at 1 January 4,207 4,328 Closing balance 4,203 4,207 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 31 December 2023 31 December 2022 Rental income 9 8 Depreciation 138 135 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: 31 December 2023 31 December 2022 Interest rate swaps designated as fair value hedge 12,521 29,139 CCIRS designated as fair value hedge 10,173 20,732 Interest rate swaps designated as cash flow hedge (1,066) (2,651) Total 21,628 47,220
OTP Bank Plc Separate Financial Statements 2023 60 NOTE 16: OTHER ASSETS 1 (in HUF mn) 31 December 2023 31 December 2022 Other financial assets Receivables from OTP Employee Stock Ownership Program (OTP ESOP) 133,347 119,123 Prepayments and accrued income 23,785 15,674 Receivables from investment services 29,597 34,828 Stock exchange deposit 19,630 30,939 Trade receivables 13,960 11,053 Receivables from card operations 51,938 34,783 Receivables from suppliers 9,367 6,621 Other 25,089 9,130 306,713 262,151 Loss allowance (7,875) (7,026) Other financial assets total 298,838 255,125 Other non-financial assets Accrued expenses 42,574 44,106 Receivable related to Hungarian Government subsidies 15,996 19,076 Other 9,160 12,144 67,730 75,326 Provision for impairment on other assets (607) (699) Other non-financial assets total 67,123 74,627 Total 365,961 329,752 An analysis of the movement in the loss allowance on other financial assets is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 7,026 5,148 Charge for the period 6,686 10,572 Release of loss allowance (4,479) (7,715) Use of loss allowance (1,227) (982) FX movement (131) 3 Closing balance 7,875 7,026 An analysis of the movement in the loss allowance on other non-financial assets is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 699 514 Charge for the period 266 255 Release of provision (336) (106) FX movement (22) 36 Closing balance 607 699 1 Other assets are expected to be recovered or settled no more than twelve months after the reporting period.
OTP Bank Plc Separate Financial Statements 2023 61 NOTE 17: AMOUNTS DUE TO BANKS AND DEPOSITS FROM THE NATIONAL BANK OF HUNGARY AND OTHER BANKS (in HUF mn) 31 December 2023 31 December 2022 Within one year: In HUF 328,641 554,794 In foreign currency 337,184 448,935 665,825 1,003,729 Over one year: In HUF 615,167 392,947 In foreign currency 480,587 339,452 1,095,754 732,399 Subtotal 1,761,579 1,736,128 Total 1,761,579 1,736,128 Interest rates on amounts due to banks and deposits from the NBH and other banks are as follows (%): 31 December 2023 31 December 2022 Within one year: In HUF (2.4%)-8.75% (2.4%) - 18% In foreign currency (2.31%)-4.2% (2.31%) - 5.9% Over one year: In HUF (1.7%)-11.4% (2.4%) - 9.23% In foreign currency (2.02%)-7.18% (2.4%) - 6.84% Average interest on amounts due to banks in HUF 6.02% 3.24% Average interest on amounts due to banks in foreign currency 3.55% 1.50% NOTE 18: REPO LIABILITIES (in HUF mn) 31 December 2023 31 December 2022 Within one year: In HUF 100,296 122,676 In foreign currency 101,862 15,561 202,158 138,237 Over one year: In HUF 190,255 82,200 In foreign currency 51,281 187,929 241,536 270,129 Subtotal 443,694 408,366 Total 443,694 408,366 Interest rates on repo liabilities are as follows (%): 31 December 2023 31 December 2022 Within one year: In HUF 9.25%-10.63% 11.5% - 15.47% In foreign currency 1.67% 2.47%-5.2% Over one year: In HUF 9.25%-10.63% 15% In foreign currency 1.67%-5.92% 3.58%-3.69% Average interest on repo liabilities in HUF 15.22% 9.31% Average interest on repo liabilities in foreign currency 4.51% 0.30%
OTP Bank Plc Separate Financial Statements 2023 62 NOTE 19: DEPOSITS FROM CUSTOMERS (in HUF mn) 31 December 2023 31 December 2022 Within one year: In HUF 7,747,906 7,982,882 In foreign currency 2,962,206 3,112,937 10,710,112 11,095,819 Over one year: In HUF 24,213 23,339 24,213 23,339 Total 10,734,325 11,119,158 Interest rates on deposits from customers are as follows (%): 31 December 2023 31 December 2022 Within one year: In HUF 0%-15.4% 0%-17.95% In foreign currency (0.36%)-11.77% (0.4%)-45.1% Over one year: In HUF 0%-10.75% 0%-13% In foreign currency 0%-9,73% - Average interest on deposits from customers in HUF 3.75% 2.32% Average interest on deposits from customers in foreign currency 1.36% 0.12% An analysis of deposits from customers by type, not including accrued interest, is as follows: 31 December 2023 31 December 2022 Retail deposits 4,422,120 41% 4,756,881 43% Household deposits 4,422,120 41% 4,756,881 43% Corporate deposits 6,312,205 59% 6,362,277 57% Deposits to medium and large corporates 5,402,710 51% 5,570,866 50% Municipality deposits 909,495 8% 791,411 7% Total 10,734,325 100% 11,119,158 100%
OTP Bank Plc Separate Financial Statements 2023 63 NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) 31 December 2023 31 December 2022 Within one year: In HUF 161,217 4,311 In foreign currency 26,670 6,351 187,887 10,662 Over one year: In HUF 43,025 46,192 In foreign currency 932,197 441,855 975,222 488,047 Total 1,163,109 498,709 Interest rates on liabilities from issued securities are as follows (%): 31 December 2023 31 December 2022 Issued securities denominated in HUF 0,6%-15% 0,6%-15% Issued securities denominated in foreign currency 5,5%-8,1% 5,5%-7,35% Average interest on issued securities denominated in HUF 11.42% 2.63% Average interest on issued securities denominated in foreign currency 6.88% 2.95% Term Note Program in the value of HUF 200 billion for the year of 2022/2023 On 10 May 2022 the Bank initiated term note program in the value of HUF 200 billion with the intention of issuing registered dematerialized bonds in public. The NBH approved on 10 August 2022 the prospectus of Term Note Program. The prospectus is valid for 12 months following the disclosure. Term Note Program in the value of HUF 800 billion for the year of 2023/2024 On 18 April 2023 the Bank initiated term note program in the value of HUF 800 billion with the intention of issuing registered dematerialized bonds in public. The NBH approved on 7 August 2023 the prospectus of Term Note Program. The prospectus is valid for 12 months following the disclosure. Notes issued in amount of USD 650 million On 15 February 2023 as a value date the Bank issued Notes in the aggregate nominal amount of USD 650 million. The original maturity of the Tier 2 Notes is 10.25 years, redeemable at par any time during the 3-month period prior to the Reset Date at 5.25 years. The notes are rated ’Ba2’ by Moody’s Investor Services Cyprus Ltd., ’BB’ by S&P Ratings Europe Limited and ’BB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Notes issued in amount of USD 500 million Notes (ISIN: XS2626773381) have been issued on 25 May 2023 as value date in the aggregate nominal amount of USD 500 million. The notes are rated ’Baa3’ by Moody’s Investor Services Cyprus Ltd., ’BBB -’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Notes issued in amount of EUR 110 million OTP Bank issued notes (ISIN: XS2642536671) on 27 June 2023 as value date in the aggregate nominal amount of EUR 110 million. The notes are listed on the Luxembourg Stock Exchange. Notes issued in amount of EUR 650 million Notes (ISIN: XS2698603326) have been issued on 5 October 2023 as value date in the aggregate nominal amount of EUR 650 million. The notes are rated ’Baa3’ by Moody’s Investor Services Cyprus Ltd. and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange.
OTP Bank Plc Separate Financial Statements 2023 64 NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Notes issued in amount of RON 170 million The Bank issued notes (ISIN: XS2703264635) on 13 October 2023 as value date in the aggregate nominal amount of RON 170 million. The notes are rated ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Notes issued in amount of EUR 75 million The Bank issued notes (ISIN: XS2737630314) on 22 December 2023 as value date in the aggregate nominal amount of EUR 75 million. The notes are listed on the Luxembourg Stock Exchange. Hedge accounting Certain issued structured securities are hedged by the Bank with interest rate swaps (“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 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 interest payments are swapped to floating interest rate. This hedging relationship meets all of the following hedge effectiveness requirements: • there is an economic relationship between the hedged item and the hedging instrument • the effect of credit risk does not dominate the value changes that result from that economic relationship • 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 uses to hedge that quantity of hedged item The cash-flows of the fixed rate securities issued by the Bank are exposed to the changes in the HUF/EUR foreign exchange rate and the volatility of the quoted interest rates of EUR and HUF. The interest rate risk and foreign exchange risk related to these securities are hedged with EUR and HUF IRS transactions, where the fixed interests were swapped to payments linked to 3 month HUF BUBOR and EURIBOR, resulting in a decrease in the interest rate and foreign exchange exposure of issued securities. Issued securities denominated in foreign currency as at 31 December 2023 Name Date of issuance Maturity Currency Nominal value in FX million Nominal value in HUF million Amortised cost in FX million Amortised cost in HUF million Interest conditions (in % actual) 1 XS2560693181 01/12/2022 04/03/2026 EUR 649 248,497 689 263,732 fixed 7.35 2 XS2698603326 05/10/2023 05/10/2027 EUR 650 248,725 674 258,006 fixed 6.13 3 XS2626773381 25/05/2023 25/05/2027 USD 500 173,152 499 173,011 fixed 7.50 4 XS2499691330 13/07/2022 13/07/2025 EUR 400 153,111 410 157,095 fixed 5.50 5 XS2642536671 27/06/2023 27/06/2026 EUR 110 42,106 114 43,745 fixed 7.50 6 XS2737630314 22/12/2023 22/06/2026 EUR 75 28,709 75 28,778 fixed 6.10 7 XS2536446649 29/09/2022 29/09/2026 USD 60 20,786 61 21,180 fixed 7.25 8 XS2703264635 13/10/2023 13/10/2026 RON 170 13,082 173 13,320 variable 8.10 Subtotal issued securities in foreign currency 928,168 958,867 Issued securities denominated in foreign currency as at 31 December 2022 Name Date of issuance Maturity Currency Nominal value in FX million Nominal value in HUF million Amortised cost in FX million Amortised cost in HUF million Interest conditions (in % actual) 1 XS2560693181 01/12/2022 04/03/2026 EUR 650 260,136 653 261,341 fixed 7.35 2 XS2499691330 13/07/2022 13/07/2025 EUR 399 159,859 409 163,893 fixed 5.50 3 XS2536446649 29/09/2022 29/09/2026 USD 60 22,541 61 22,972 fixed 7.25 Subtotal issued securities in foreign currency 442,536 448,206
OTP Bank Plc Separate Financial Statements 2023 65 NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Issued securities denominated in HUF as at 31 December 2023 Name Date of issuance Maturity Nominal value in HUF million Amortised cost in HUF million Interest conditions Hedged 1 OTP_HUF_2024/1 17/02/2023 17/02/2024 26,079 28,593 fix 11.00 2 OTP_HUF_2025/1 18/11/2022 18/11/2025 25,563 27,042 fix 15.00 hedged 3 OTP_HUF_2024/2 10/03/2023 10/03/2024 22,977 25,048 fix 11.00 4 OTP_HUF_2024/3 31/03/2023 31/03/2024 17,015 18,441 fix 11.00 5 OTP_HUF_2024/6 02/06/2023 02/06/2024 16,722 17,806 fix 11.00 6 OTP_HUF_2024/4 21/04/2023 21/04/2024 14,698 15,837 fix 11.00 7 OTP_HUF_2024/5 12/05/2023 12/05/2024 13,946 14,937 fix 11.00 8 OTP_HUF_2024/7 23/06/2023 23/06/2024 11,232 11,859 fix 10.50 9 OTP_HUF_2026/1 22/12/2022 05/01/2026 10,228 11,856 fix 12.00 hedged 10 OTP_HUF_2025/2 30/06/2023 30/06/2025 5,116 5,431 fix 12.00 11 OTP_HUF_2024/9 28/07/2023 28/07/2024 4,173 4,364 fix 10.50 12 OTP_HUF_2024/8 30/06/2023 30/06/2024 3,730 3,931 fix 10.50 13 OTP_HUF_2024/13 20/10/2023 20/10/2024 3,494 3,557 fix 8.75 14 OTP_HUF_2024/14 17/11/2023 17/11/2024 3,509 3,547 fix 8.50 15 OTP_HUF_2024/15 20/12/2023 20/12/2024 2,994 3,004 fix 8.00 16 OTP_HUF_2024/12 25/09/2023 25/09/2024 2,777 2,845 fix 9.00 17 OTP_HUF_2024/11 01/09/2023 01/09/2024 2,655 2,743 fix 9.75 18 OTP_HUF_2024/10 07/08/2023 07/08/2024 1,431 1,490 fix 10.00 19 OTP_HUF_2026/2 15/12/2023 15/12/2026 647 649 fix 7.40 20 OTPX2024B 10/10/2014 16/10/2024 295 339 indexed 0.70 hedged 21 OTPX2024A 18/06/2014 21/06/2024 241 283 indexed 1.30 hedged 22 OTPX2024C 15/12/2014 20/12/2024 242 275 indexed 0.60 hedged 23 OTP_TBSZ_HUF_2028/1 13/10/2023 15/12/2028 155 159 fix 12.00 Other 206 206 Subtotal issued securities in HUF 190,125 204,242 Total 1,118,293 1,163,109
OTP Bank Plc Separate Financial Statements 2023 66 NOTE 20: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Issued securities denominated in HUF as at 31 December 2022 Name Date of issuance Maturity Nominal value in HUF million Amortised cost in HUF million Interest conditions Hedged 1 OTP_HUF_25/1 11/18/2022 11/18/2025 25,562 26,046 fix 15.00 2 OTP_HUF_26/1 12/22/2022 1/5/2026 10,229 10,270 fix 12.00 3 OTPRF2023A 3/22/2013 3/24/2023 1,010 1,215 indexed 1.70 hedged 4 OTP_DK_25/3 5/31/2021 5/31/2025 1,215 1,160 discount 5 OTP_DK_23/II 5/29/2020 5/31/2023 997 992 discount 6 OTP_DK_24/3 5/31/2021 5/31/2024 883 862 discount 7 OTP_DK_27/3 3/31/2022 5/31/2027 1,092 826 discount 8 OTP_DK_27/II 5/31/2021 5/31/2027 795 719 discount 9 OTP_DK_23/I 12/15/2018 5/31/2023 717 710 discount 10 OTP_DK_26/II 5/31/2021 5/31/2026 707 658 discount 11 OTP_DK_26/3 3/31/2022 5/31/2026 783 631 discount 12 OTP_DK_28/I 5/31/2021 5/31/2028 669 586 discount 13 OTP_DK_24/II 5/29/2020 5/31/2024 592 581 discount 14 OTP_DK_25/II 5/29/2020 5/31/2025 592 572 discount 15 OTP_DK_24/I 5/30/2019 5/31/2024 426 411 discount 16 OTPX2023A 3/22/2013 3/24/2023 312 410 indexed hedged 17 OTP_DK_28/II 3/31/2022 5/31/2028 554 394 discount 18 OTP_DK_26/I 5/29/2020 5/31/2026 392 372 discount 19 OTP_DK_29/II 3/31/2022 5/31/2029 554 372 discount 20 OTP_DK_30/II 3/31/2022 5/31/2030 554 350 discount 21 OTP_DK_29/I 5/31/2021 5/31/2029 403 341 discount 22 OTPX2024B 10/10/2014 10/16/2024 295 378 indexed 0.70 hedged 23 OTPX2024A 6/18/2014 6/21/2024 241 310 indexed 1.30 hedged 24 OTPX2024C 12/15/2014 12/20/2024 242 309 indexed 0.60 hedged 25 OTPX2023B 6/28/2013 6/26/2023 198 260 indexed 0.60 hedged 26 OTP_DK_31/I 3/31/2022 5/31/2031 384 228 discount 27 OTP_DK_25/I 5/30/2019 5/31/2025 104 97 discount 28 OTP_DK_27/I 5/29/2020 5/31/2027 95 88 discount 29 OTP_DK_30/I 5/31/2021 5/31/2030 104 85 discount 30 OTP_DK_32/I 3/31/2022 5/31/2032 105 59 discount Other 211 211 Subtotal issued securities in HUF 51,017 50,503 Total 493,553 498,709
OTP Bank Plc Separate Financial Statements 2023 67 NOTE 21: FINANCIAL LIABILITIES DESIGNATED AS FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) 31 December 2023 31 December 2022 Within one year: In HUF 1,816 1,716 1,816 1,716 Over one year: In HUF 17,970 14,860 17,970 14,860 Total 19,786 16,576 Contractual amount outstanding 17,747 19,853 Interest rates on financial liabilities designated as fair value through profit or loss are as follows (%): 31 December 2023 31 December 2022 Within one year: In HUF 4.97%-9.97% 2,19-3.96% Over one year: In HUF 4.83% 0,01%-4.63% Average interest on amounts due to banks in HUF 7.88% 3.06% Certain MFB refinanced loan receivables are categorised as fair value through profit or loss based on SPPI test. Related refinancing loans at the liability side are categorised as fair value through profit or loss based on fair value option due to accounting mismatch as provided by the IFRS 9 standard. NOTE 22: HELD FOR TRADING DERIVATIVE FINANCIAL LIABILITIES (in HUF mn) Negative fair value of held for trading derivative financial liabilities by deal types: 31 December 2023 31 December 2022 Interest rate swaps 72,200 221,647 Foreign currency swaps 53,102 87,988 CCIRS and mark-to-market CCIRS 9,161 15,711 Other derivative contracts 49,102 48,055 Total 183,565 373,401 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: 31 December 2023 31 December 2022 IRS designated as fair value hedge 7,875 22,551 CCIRS designated as fair value hedge 10,679 5,398 IRS designated as cash flow hedge 8,869 22,674 Total 27,423 50,623
OTP Bank Plc Separate Financial Statements 2023 68 NOTE 24: OTHER LIABILITIES 1 AND PROVISIONS (in HUF mn) 31 December 2023 31 December 2022 Other financial liabilities Liabilities from investment services 50,321 108,284 Accrued expenses 27,673 21,183 Accounts payable 33,508 27,127 Liabilities due to short positions 19,107 24,596 Liabilities from customer's credit card payments 84,184 52,274 Other 28,526 25,007 Other financial liabilities total 243,319 258,471 Other non-financial liabilities Technical accounts 25,321 32,338 Current income tax payable 13,770 12,371 Social contribution 8,475 5,275 Accrued expenses 2,940 2,829 Other 1,574 1,904 Other non-financial liabilities total 52,080 54,717 Other liabilities total 295,399 313,188 The provision on other liabilities, off-balance sheet commitments and contingent liabilities are detailed as follows: 31 December 2023 31 December 2022 Provision for losses on other off-balance sheet commitments and contingent liabilities 16,092 23,632 Provisions in accordance with IFRS 9 16,092 23,632 Provision for litigation 1,931 1,917 Provision for retirement pension and severance pay 2,000 1,527 Provision on other liabilities 2,474 2,580 Provisions in accordance with IAS 37 6,405 6,024 Total 22,497 29,656 Movements in the provision for losses on commitments and contingent liabilities in accordance with IFRS 9 can be summarized as follows: 31 December 2023 31 December 2022 Opening balance 23,632 17,768 Provision for the period 62,662 49,698 Release of provision for the period (50,882) (28,772) Use of provision (18,952) (15,385) FX revaluation (368) 323 Closing balance 16,092 23,632 Movements in the provision for losses on commitments and contingent liabilities in accordance with IAS 37 can be summarized as follows: 31 December 2023 31 December 2022 Opening balance 6,024 3,759 Provision for the period 11,563 8,128 Release of provision (8,633) (933) Use of provision (2,420) (5,138) FX revaluation (129) 208 Closing balance 6,405 6,024 1 Other liabilities are expected to be recovered or settled no more than twelve months after the reporting period.
OTP Bank Plc Separate Financial Statements 2023 69 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) 31 December 2023 31 December 2022 Within one year In HUF 1,886 - In foreign currency 6,174 3,395 8,060 3,395 Over one year: In HUF 11,133 - In foreign currency 501,103 290,791 512,236 290,791 Total 520,296 294,186 Interest rates on subordinated bonds and loans are as follows (%): 31 December 2023 31 December 2022 Subordinated bonds and loans denominated in foreign currency 2.9%-8.8% 2.9%-4.7% Average interest on subordinated bonds and loans denominated in HUF 5.51% - Average interest on subordinated bonds and loans denominated in foreign currency 6.04% 3.06%
OTP Bank Plc Separate Financial Statements 2023 70 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) [continued] Subordinated loans and bonds are detailed as follows as at 31 December 2023: Type Name Date of issuance Date of maturity Issue price Currency Nominal value in FX million Nominal value in HUF million Amortised cost in Fx million Amortised cost in HUF million Interest conditions Current interest rate Subordinated bond XS0274147296 07/11/2006 Perpetual 99.38% EUR 231 88,409 234 89,381 Three-month EURIBOR + 3%, variable (payable quarterly) 6.966% Subordinated bond XS2022388586 15/07/2019 15/07/2029 99.74% EUR 497 190,399 501 191,894 Fixed 2.875% (payable annual) 2.875% Subordinated bond XS2586007036 15/02/2023 15/05/2033 99.42% USD 650 225,104 653 226,001 Fixed 8.75% (payable annual) 8.750% Discount bond HU0000358924 30/05/2019 31/05/2024 87.85% HUF 426 426 421 421 N.a. Discount bond HU0000359724 29/05/2020 31/05/2024 94.79% HUF 592 592 589 589 N.a. Discount bond HU0000360508 31/05/2021 31/05/2024 95.12% HUF 883 883 876 876 N.a. Discount bond HU0000358932 30/05/2019 31/05/2025 83.86% HUF 104 104 100 100 N.a. Discount bond HU0000359732 29/05/2020 31/05/2025 92.99% HUF 592 592 580 580 N.a. Discount bond HU0000360516 31/05/2021 31/05/2025 92.54% HUF 1,216 1,216 1,183 1,180 N.a. Discount bond HU0000359740 29/05/2020 31/05/2026 91.10% HUF 392 392 378 378 N.a. Discount bond HU0000360524 31/05/2021 31/05/2026 90.02% HUF 707 707 672 672 N.a. Discount bond HU0000361597 31/03/2022 31/05/2026 76.86% HUF 783 783 672 672 N.a. Discount bond HU0000359757 29/05/2020 31/05/2027 89.05% HUF 95 95 90 90 N.a. Discount bond HU0000360532 31/05/2021 31/05/2027 87.27% HUF 795 795 735 735 N.a. Discount bond HU0000361605 31/03/2022 31/05/2027 72.13% HUF 1,092 1,092 879 879 N.a. Discount bond HU0000360540 31/05/2021 31/05/2028 84.31% HUF 669 669 601 601 N.a. Discount bond HU0000361613 31/03/2022 31/05/2028 67.89% HUF 554 554 420 420 N.a. Discount bond HU0000362553 01/06/2023 31/05/2028 66.68% HUF 1,959 1,959 1,369 1,369 N.a. Discount bond HU0000360557 31/05/2021 31/05/2029 81.23% HUF 403 403 350 350 N.a. Discount bond HU0000361621 31/03/2022 31/05/2029 64.03% HUF 554 554 396 396 N.a. Discount bond HU0000362561 01/06/2023 31/05/2029 63.21% HUF 684 684 452 452 N.a. Discount bond HU0000360565 31/05/2021 31/05/2030 78.09% HUF 104 104 87 87 N.a. Discount bond HU0000361639 31/03/2022 31/05/2030 60.38% HUF 554 554 373 373 N.a. Discount bond HU0000362579 01/06/2023 31/05/2030 60.08% HUF 719 719 451 451 N.a. Discount bond HU0000361647 31/03/2022 31/05/2031 56.88% HUF 384 384 243 243 N.a. Discount bond HU0000362587 01/06/2023 31/05/2031 56.64% HUF 762 762 450 450 N.a. Discount bond HU0000361654 31/03/2022 31/05/2032 53.52% HUF 105 105 62 62 N.a. Discount bond HU0000362595 01/06/2023 31/05/2032 52.82% HUF 817 817 450 450 N.a. Discount bond HU0000362603 01/06/2023 31/05/2033 49.02% HUF 282 282 144 144 N.a. Total 520,139 520,296
OTP Bank Plc Separate Financial Statements 2023 71 NOTE 26: SHARE CAPITAL (in HUF mn) 31 December 2023 31 December 2022 Authorized, issued and fully paid: Ordinary shares 28,000 28,000 The nominal value of the shares is HUF 100 per shares. All of the shares are ordinary shares representing the same rights to the shareholders. Furthermore there are no restrictions on the distribution of dividends and the repayment of capital.
OTP Bank Plc Separate Financial Statements 2023 72 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) Based o n the instructions of Act C of 2000 on accounting (“Act on Accounting”) financial statements of the Bank are prepared in accordance with IFRS as issued by the IASB as adopted by the EU. In 2023 dividend of HUF 84,000 million was paid out from the profit of the year 2022, which meant HUF 300 dividend per share payable to the shareholders. In 2024 dividend of HUF 150,000 million are expected to be proposed by the Management from the profit of the year 2023, which means HUF 535.71 dividend per share payable to the shareholders. Based on paragraph 114/B of Act on Accounting Equity Correlation Table is prepared and disclosed as a part of the explanatory notes for the reporting date by the Bank. Equity correlation table shall cont ain the opening and closing balances of the shareholder’s equity in accordance with IFRS, furthermore deducted from this the opening and closing balances of the specified equity elements. Equity correlation table shall contain also untied retained earnings available for the payment of dividends, covering retained earnings from the last financial year for which accounts have been adopted comprising net profit for the period of that financial year minus cumulative unrealized gains claimed in connection with any increase in the fair value of investment properties, as provided in IAS 40 - Investment Property, reduced by the cumulative income tax accounted for under IAS 12 - Income Taxes. Share capital Share capital is the portion of the Bank’s equity that has been obtained by the issue of shares in the corporation to a shareholder, usually for cash. Share-based payment reserve Share-based payment reserve represents the increase in the equity due to the goods or services were received by the Bank in an equity-settled share-based payment transaction, valued at the fair value of the goods or services received. Retained earnings Profit of previous years generated by the Bank that are not distributed to shareholders as dividends. Put option reserve OTP Bank Plc. and MOL Plc. entered into a share swap agreement in 16 April 2009, whereby OTP has changed 24,000,000 OTP ordinary shares for 5,010,501 „A series” MOL shares. The amended final maturity of the share swap agreement is 11 July 2027, until which any party can initiate cash or physical settlement of the transaction. Put option reserve represents the written put option over OTP ordinary shares were accounted as a deduction from equity at the date of OTP-MOL share swap transaction. Other comprehensive income Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs. General 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 Credit Institutions and Financial Enterprises. The Bank is allowed to use general reserves only to cover operating losses arising from their activities. Tied-up reserve The tied-up reserve shall consist of sums tied up from the capital reserve and from the retained earnings.
OTP Bank Plc Separate Financial Statements 2023 73 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued] The equity correlation table of the Bank based on paragraph 114/B of Act on Accounting as at 31 December 2023: 31 December 2023 Closing balance 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 28,000 52 52,402 2,279,773 (55,468) (6,154) - - - 2,298,605 Other comprehensive income - - - 9,148 - - (9,148) - - - Option reserve - (55,468) - - 55,468 - - - - - Treasury shares - (6,154) - - - 6,154 - - - - Share based payments - 52,402 (52,402) - - - - - - - Net profit for the year - - - (654,988) - - - - 654,988 - General reserve and tied-up reserve - - - (192,937) - - - 192,937 - - Components of Shareholder’s equity in accordance with paragraph 114/B of Act on Accounting 28,000 (9,168) - 1,440,996 - - (9,148) 192,937 654,988 2,298,605
OTP Bank Plc Separate Financial Statements 2023 74 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued] The equity correlation table of the Bank based on paragraph 114/B of Act on Accounting as at 1 January 2023: 1 January 2023 Opening balance 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 28,000 52 49,110 1,661,907 (55,468) (2,724) - - - 1,680,877 Other comprehensive income - - - 52,933 - - (52,933) - - - Option reserve - (55,468) - - 55,468 - - - - - Treasury shares - (2,724) - - - 2,724 - - - - Share based payments - 49,110 (49,110) - - - - - - - Net profit for the year - - - (6,632) - - - - 6,632 - General reserve - - - (118,568) - - - 118,568 - - Components of Shareholder’s equity in accordance with paragraph 114/B of Act on Accounting 28,000 (9,030) - 1,589,640 - - (52,933) 118,568 6,632 1,680,877
OTP Bank Plc Separate Financial Statements 2023 75 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued] Calculated untied retained earnings in accordance with paragraph 114/B of Act on Accounting 31 December 2023 31 December 2022 Retained earnings 1,440,996 1,580,770 Net profit for the year 654,988 6,632 Untied retained earnings 2,095,984 1,587,402 Items of retained earnings and other reserves 31 December 2023 31 December 2022 Retained earnings 1,440,996 1,580,770 Capital reserve 52 52 Option reserve (55,468) (55,468) Other reserves 192,937 127,438 Fair value of financial instruments measured at fair value through other comprehensive income (5,639) (43,723) Share-based payment reserve 52,402 49,110 Fair value of derivative financial instruments designated as cash- flow hedge (3,509) (9,210) Net profit for the period 654,988 6,632 Retained earnings and other reserves 2,276,759 1,655,601 Fair value adjustment of securities at fair value through other comprehensive income 31 December 2023 31 December 2022 Balance as at 1 January (82,906) 145 Change of fair value correction 46,485 (88,350) Deferred tax related to change of fair value correction (3,841) 5,299 Closing balance (40,262) (82,906) Expected credit loss on securities at fair value through other comprehensive income 31 December 2023 31 December 2022 Balance as at 1 January 29,161 1,174 Increase of loss allowance 3,401 33,946 Release of loss allowance (6,704) (8,331) Fx movement (1,513) 2,372 Closing balance 24,345 29,161 Fair value changes of equity instruments as at fair value through other comprehensive income 31 December 2023 31 December 2022 Balance as at 1 January 10,022 7,327 Change of fair value correction 3,307 3,631 Deferred tax related to change of fair value correction (374) (936) Transfer to retained earnings (2,677) - Closing balance 10,278 10,022
OTP Bank Plc Separate Financial Statements 2023 76 NOTE 28: TREASURY SHARES (in HUF mn) 31 December 2023 31 December 2022 Nominal value (ordinary shares) 57 35 Carrying value at acquisition cost 6,154 2,724 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: 31 December 2023 31 December 2022 Number of shares as at 1 January 352,344 3,249,984 Additions 3,948,338 1,801,256 Disposals (3,729,436) (4,698,896) Number of shares at the end of the period 571,246 352,344 Change in carrying value: 31 December 2023 31 December 2022 Balance as at 1 January 2,724 58,872 Additions 39,818 16,268 Disposals (36,388) (72,416) Closing Balance 6,154 2,724 31 December 2023 31 December 2022 Face value of treasury shares held by OTP Group members 1,210 1,097
OTP Bank Plc Separate Financial Statements 2023 77 NOTE 29: INTEREST INCOME AND EXPENSES (in HUF mn) Year ended 31 December 2023 Year ended 31 December 2022 Interest income accounted for using the effective interest rate method from / on Loans at amortised cost 457,472 297,727 FVOCI securities 50,838 39,988 Securities at amortised cost 129,054 92,948 Placements with other banks 206,280 204,479 Financial liabilities 398 20,098 Amounts due from banks and balances with National Bank of Hungary 345,696 56,204 Repo receivables 37,435 10,235 Subtotal 1,227,173 721,679 Income similar to interest income Loans mandatorily measured at fair value through profit or loss 51,132 35,927 Swap and forward deals related to Placements with other banks 600,959 273,322 Swap and forward deals related to Loans at amortised cost 125,151 60,744 Swap and forward deals related to FVOCI securities 18,655 7,230 Investment properties 9 8 Subtotal 795,906 377,231 Interest income total 2,023,079 1,098,910 Interest expense due to / from / on Amounts due to banks and deposits from the National Bank of Hungary and other banks 641,908 408,865 Deposits from customers 608,340 301,657 Leasing liabilities 2,314 1,186 Liabilities from issued securities 64,774 7,742 Subordinated bonds and loans 29,893 8,646 Investment properties (depreciation) 138 135 Financial assets 6,857 6,369 Repo liabilities 202,137 66,049 Swap transaction related to acquisitions - 1,371 Interest expense total 1,556,361 802,020
OTP Bank Plc Separate Financial Statements 2023 78 NOTE 30: RISK COST (in HUF mn) Year ended 31 December 2023 Year ended 31 December 2022 Loss allowance of loans at amortised cost Loss allowance 249,194 245,183 Release of loss allowance (243,652) (211,345) 5,542 33,838 Loss allowance of sight deposits and placements with other banks Loss allowance 11,767 32,592 Release of loss allowance (24,125) (20,838) (12,358) 11,754 Loss allowance of placements with other banks Loss allowance 11,755 4,480 Release of loss allowance (13,555) (2,385) (1,800) 2,095 Loss allowance of FVOCI debt instruments Loss allowance 3,401 33,946 Release of loss allowance (6,704) (8,331) (3,303) 25,615 Loss allowance of securities at amortised cost Loss allowance 2,287 31,695 Release of loss allowance (10,863) (4,072) (8,576) 27,623 Provision on loan commitments and financial guarantees Provision for the period 62,662 49,698 Release of provision (69,834) (44,157) (7,172) 5,541 Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss 980 (11,872) Risk cost total (26,687) 94,594
OTP Bank Plc Separate Financial Statements 2023 79 NOTE 31: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) Income from fees and commissions: Year ended 31 December 2023 Year ended 31 December 2022 Fees and commissions related to lending 12,040 12,711 Deposit and account maintenance fees and commissions 162,872 146,817 Fees and commission related to the issued bank cards 137,162 122,138 Fees and commissions related to security trading 33,899 27,867 Fx margin 21,828 26,032 Fees and commissions paid by OTP Mortgage Bank Ltd. 8,379 8,819 Net insurance fee income 13,558 10,981 Other 13,147 7,079 Fees and commissions from contracts with customers 390,845 349,733 Total Income from fees and commissions: 402,885 362,444 Contract balances Year ended 31 December 2023 Year ended 31 December 2022 Receivables, which are included in ‘other assets’ 24,012 15,674 Loss allowance (616) (512) Fee and commission expense Year ended 31 December 2023 Year ended 31 December 2022 Other fees and commissions related to issued bank cards 63,941 53,179 Insurance fees 715 783 Fees and commissions related to lending 5,320 5,267 Fees and commissions related to security trading 2,497 789 Fees and commissions relating to deposits 2,850 2,417 Trust activities related to securities 2,324 2,096 Postal fees 223 223 Money market transaction fees and commissions 205 166 Other 680 1,167 Total 78,755 66,087 Net profit from fees and commissions 324,130 296,357
OTP Bank Plc Separate Financial Statements 2023 80 NOTE 32: GAINS AND LOSSES BY TRANSACTIONS (in HUF mn) Year ended 31 December 2023 Year ended 31 December 2022 Losses arising from derecognition of financial assets measured at amortised cost Gain from loans 2,760 485 Loss from loans (2,716) (1,881) Gain from securities 152 - Loss from securities (19,552) (54,402) Other (351) (397) Total (19,707) (56,195) Additional information to Gains or losses from operating income: Year ended 31 December 2023 Year ended 31 December 2022 Foreign exchange (losses) and gains Gains from foreign exchange - 6,857 Loss from foreign exchange (6,116) - Margin gains 8,157 8,400 Margin losses (14,310) (14,716) Total (12,269) 541 Year ended 31 December 2023 Year ended 31 December 2022 Net results on derivative instruments and hedge relationships Gains on FX spot, swap and option deals 59,675 76,709 Losses from FX spot, swap and option deals (52,428) (67,882) Fees received related to option deals 6,569 4,111 Fees paid related to option deals (6,554) (5,073) Gains on commodity deals 87,062 134,949 Losses from commodity deals (83,504) (132,288) Gains on futures transactions 212 687 Losses from futures transactions (230) (402) Losses from credit valuation adjustment related to FX spot, swap and option deals held for trading 2,232 (1,059) Losses from credit valuation adjustment related to commodity deals held for trading 21 165 Total 13,055 9,917 Year ended 31 December 2023 Year ended 31 December 2022 Gains / (losses) on financial instruments at fair value through profit or loss Gains on securities mandatorily measured at fair value through profit or loss 2,570 2,688 Gains on loans mandatorily measured at fair value through profit or loss 100,436 21,205 Losses on loans mandatorily measured at fair value through profit or loss (7,196) (44,614) Gains on financial liabilities designated at fair value through profit or loss 766 4,509 Losses on financial liabilities designated at fair value through profit or loss (5,308) (2,578) Total 91,268 (18,790)
OTP Bank Plc Separate Financial Statements 2023 81 NOTE 32: GAINS AND LOSSES BY TRANSACTIONS (in HUF mn) [continued] Additional information to Gains or losses from operating income: [continued] Year ended 31 December 2023 Year ended 31 December 2022 Gains and (losses) on securities, net Interest income from held for trading securities 1,168 3,556 Gains on held for trading securities 14,529 11,599 Losses on held for trading securities (6,588) (7,806) Gains on FVOCI securities 999 8 Losses on FVOCI securities (489) (7,960) Gains on derecognition of investments in subsidiaries 1,322 - Losses on derecognition of investments in subsidiaries - - Gains/losses from other securities (3,868) (10,002) Total 7,073 (10,605) Year ended 31 December 2023 Year ended 31 December 2022 Dividend income Distribution from investments in subsidiaries 261,222 182,153 Distribution from held for trading securities 14,229 12,166 Distribution from FVOCI equity instruments 254 207 Total 275,705 194,526 Total gains and losses from operating income (without other operating income) 374,832 175,589 For the year ended 31 December 2023 gains and losses attributable to the hedged risk on the hedged item and on the hedging instruments and also ineffectiveness in case of fair value hedge on amortised cost line items as follows Hedged items Hedging instrument Hedge ineffectiveness Fair value hedge (15,433) 2,855 (12,578) For the year ended 31 December 2022 gains and losses attributable to the hedged risk on the hedged item and on the hedging instruments and also ineffectiveness in case of fair value hedge on amortised cost line items as follows Hedged items Hedging instrument Hedge ineffectiveness Fair value hedge 6,750 (9,352) 2,602
OTP Bank Plc Separate Financial Statements 2023 82 NOTE 33: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn) Other operating income Year ended 31 December 2023 Year ended 31 December 2022 Repayment of extraordinary payments made to NDIF in previous years 10,738 - Other operating income from OTP Employee Stock Ownership Program (OTP ESOP) 4,739 4,429 Intermediary and other services 2,547 2,716 Income from lease of tangible assets 1,223 1,186 Gains on IT services provided to subsidiaries 1,155 1,021 Derecognition of financial liabilities at amortised cost 716 985 Non-repayable assets received 423 443 Gains on sale of tangible assets 1,225 267 Income from written off receivables 257 249 Gains on transactions related to property activities 113 237 Gains on sale of receivables - - Other 3,048 2,242 Total 26,184 13,775 Other operating expenses Year ended 31 December 2023 Year ended 31 December 2022 Release of loss allowance/(Loss allowance) on investments in subsidiaries 87,609 (93,513) Release of provision for off-balance sheet commitments and contingent liabilities (471) (2,057) Non-repayable assets contributed (1,056) (1,397) Release of loss allowance on other assets (3,576) (2,939) Financial support for sport association and organization of public utility (11,893) (16,344) Other (7,023) (15,692) Total 63,590 (131,942) Other administrative expenses: Year ended 31 December 2023 Year ended 31 December 2022 Personnel expenses: Wages 141,650 110,646 Taxes related to personnel expenses 20,172 16,460 Other personnel expenses 33,582 27,197 Subtotal 195,404 154,303 Depreciation and amortization 50,814 46,738 Other administrative expenses: Taxes, other than income tax 139,629 167,834 Services 86,272 74,383 Fees payable to authorities and other fees 25,384 21,674 Administration expenses, including rental fees 7,813 7,477 Professional fees 11,382 9,320 Advertising 11,438 10,301 Subtotal 281,918 290,989 Total 528,136 492,030
OTP Bank Plc Separate Financial Statements 2023 83 NOTE 34: INCOME TAX (in HUF mn) The Bank is presently liable for income tax at a rate of 9% of taxable income, local taxes at a rate of 2.3% of taxable revenue. A breakdown of the income tax expense is: 31 December 2023 31 December 2022 Current tax expense 39,174 18,026 Deferred tax (benefit)/expense 31,119 (31,664) Total 70,293 (13,638) A reconciliation of the deferred tax liability is as follows: 31 December 2023 31 December 2022 Balance as at 1 January 35,742 (1,507) Deferred tax (expense)/ benefit (31,119) 31,664 Tax effect of fair value adjustment of FVOCI securities and ICES recognised in comprehensive income (4,215) 5,585 Closing balance 408 35,742 A breakdown of the deferred tax liability is as follows: 31 December 2023 31 December 2022 Provision for untaken leave 399 323 Provision for termination benefits and jubilee 1,325 900 Amounts relate to negative tax base - 19,424 Unused tax allowance - 12,103 Fair value adjustment of held for trading and securities at fair value through other comprehensive income - 4,230 Deferred tax asset 1,724 36,980 Fair value adjustment of held for trading and securities at fair value through other comprehensive income (55) - Difference in depreciation and amortization (1,261) (1,193) Provision for developments - (45) Deferred tax liabilities (1,316) (1,238) Net deferred tax assets/(liabilities) 408 35,742
OTP Bank Plc Separate Financial Statements 2023 84 NOTE 34: INCOME TAX (in HUF mn) [continued] A reconciliation of the income tax (income) / expense is as follows: 31 December 2023 31 December 2022 Profit before income tax 725,281 (7,006) Income tax at statutory tax rate (9%) 65,275 - Income tax adjustments due to permanent differences are as follows: Share-based payment 296 265 Deferred use of tax allowance 69 43 Dividend income (24,449) (17,298) Use of tax allowance in the current year 777 - Amounts unenforceable by tax law 23 (182) Change due to accounting policy (Visa) 1,068 - Carryforward of unused tax losses - (1,234) Deferred tax asset due to unused tax allowance - (12,102) Correction due to local taxes classified as income taxes 7,196 - Local taxes 21,545 16,793 Other (1,507) 77 Income tax 70,293 (13,638) Effective tax rate 9.7% 194.7% 31 December 2023 31 December 2022 Current tax assets - 1,569 Current tax liabilities (14,393) (3,199) Net tax liabilities (14,393) (1,630)
OTP Bank Plc Separate Financial Statements 2023 85 NOTE 34: INCOME TAX (in HUF mn) [continued] Global minimum tax The global minimum tax legislation has been enacted, or substantively enacted, in certain jurisdictions the OTP Group operates, mainly in the EU Member States. OTP Group is in scope of the enacted global minimum tax legislation. The legislation will be eff ective for the Group’s financial year beginning 1 January 2024 and introduces a minimum rate of effective taxation of 15%. The global minimum tax legislation has been adopted in Hungary in Act No. LXXXIV of 2023 on the top-up taxes ensuring a global minimum level of taxation and the amendment of related acts. From an accounting perspective, it is unclear if the global minimum tax rules create additional temporary differences, whether to remeasure deferred taxes for the global minimum tax rules and which tax rate to use to measure deferred taxes. In response to this uncertainty, IAS 12 ‘Income taxes’ has been amended to introduce a mandatory temporary exception to the requirements of IAS 12. Under the mandatory temporary exception, a company does not recognize or disclose information about deferred tax assets and liabilities related to the global minimum tax rules. The Bank applied the temporary exception for the year ended 31 December 2023. The Bank has performed an assessment of the Group’s potential expo sure to top-up taxes under the global minimum tax rules. The assessment of the potential exposure to top-up taxes is based on the most recent information available regarding the financial performance of the group entities in the OTP Group. Based on the assessment, the Group has identified potential exposure to top-up taxes in respect of profits earned in Bulgaria, Hungary, Moldova and Serbia. The potential exposure comes from the constituent entities in these jurisdictions where the expected global minimum tax effective tax rate may be below 15% based on the currently available information. The global minimum tax effective tax rate may be lower in these jurisdictions generally due to the low nominal domestic tax rate. As for Hungary, it is difficult to reasonably estimate the global minimum tax effective tax for the following reasons. In Hungary, the most relevant taxes determining the global minimum tax effective tax rate are corporate income tax, local business tax and innovation contribution. Local business tax and innovation contribution (with a combined statutory rate of 2.3%) apply to profit categories significantly different from those considered for corporate income tax purposes (statutory rate of 9%). Therefore, the taxable income for corporate income tax purposes is significantly different and usually significantly lower than the taxable income for local business tax and innovation contribution purposes. The proportion of the different profit categories considered for corporate income tax and local business tax and innovation contribution purposes, respectively, in the total profit may vary year by year to a great extent raising difficulties with respect to the estimation of the global minimum tax effective tax rate with a reasonable certainty. The variation of the proportion of the various profit categories in the total profits may result in the global minimum tax effective tax rate being above 15% in one year and slightly below 15% in another. Furthermore, profits not subject to taxation can also impact on the global minimum tax effective tax rate. Had the global minimum tax legislation been effective for the current year, the estimated global minimum tax income taxes would be approximately HUF 11,100 million in respect of Bulgaria, HUF 2,000 million in respect of Hungary, HUF 450 million in respect of Moldova and HUF 300 million in respect of Serbia. In respect of Hungary, the one-off income from the changes in the fair value of the OTP Bank Plc shares held by the Employee Stock Ownership Program was excluded from the global minimum tax calculation. Based on the current status of the enactment of global minimum tax legislation, if top-up taxes arose in the jurisdictions potentially exposed to top-up taxes (Bulgaria, Hungary, Moldova and Serbia), OTP Bank Plc., being an ultimate parent entity, would be obliged to pay top-up taxes in respect of Moldova and Serbia. Any top-up taxes arising in respect of Bulgaria would be payable by the local entities in Bulgaria. As for Hungary, the Hungarian global minimum tax legislation provides for various options as to who is obliged to pay the Hungarian top-up (i.e., the Hungarian Group entities based on certain allocation ratios or OTP Bank Plc.). OTP group plans to choose the option where OTP Bank Plc pays the Hungarian top-up tax (if any). This decision may be revisited every year per the Hungarian global minimum legislation.
OTP Bank Plc Separate Financial Statements 2023 86 NOTE 35: LEASE (in HUF mn) The Bank as a lessee: Amounts recognised in profit and loss 31 December 2023 31 December 2022 Interest expense on lease liabilities 2,314 1,186 Expense relating to short-term leases 2,065 1,945 Expense relating to variable lease payments not included in the measurement of lease liabilities 1,662 1,386 Leasing liabilities by maturities: 31 December 2023 31 December 2022 Within one year 7,595 5,944 Over one year 60,687 35,520 Total 68,282 41,464 An analysis of movement in the carrying amount of right-of-use assets by category is as follows: Gross carrying amount Right-of-use of real estate Right-of-use of machinery and equipment Total Balance as at 1 January 2022 31,081 37 31,118 Additions due to new contracts 27,206 1,950 29,156 Derecognition due to matured contracts (3,731) - (3,731) Change due to revaluation and modification 2,806 - 2,806 Balance as at 31 December 2022 57,362 1,987 59,349 Additions due to new contracts 26,426 3,012 29,438 Derecognition due to matured contracts (7,957) (218) (8,175) Change due to revaluation and modification 4,293 1,749 6,042 Balance as at 31 December 2023 80,124 6,530 86,654 Depreciation Balance as at 1 January 2022 13,869 18 13,887 Depreciation charge 7,315 69 7,384 Derecognition due to matured contracts (1,804) - (1,804) Balance as at 31 December 2022 19,380 87 19,467 Depreciation charge 7,991 936 8,927 Derecognition due to matured contracts (7,943) (19) (7,962) Balance as at 31 December 2023 19,428 1,004 20,432 Net carrying amount Balance as at 31 December 2022 37,982 1,900 39,882 Balance as at 31 December 2023 60,696 5,526 66,222
OTP Bank Plc Separate Financial Statements 2023 87 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments may result in certain risks to the Bank. The most significant risks the Bank faces include: 36.1. Credit risk The Bank takes on exposure to credit risk which is the risk that a counter-party will be unable to pay amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or banks of borrowers, and to geographical areas and loan types. Such risks are monitored on a periodical basis and subject to an annual or more frequent review. The exposure to any borrower including banks and brokers is further restricted by sublimit covering on- and off-balance sheet exposures and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits when appropriate. Exposure to credit risk is partly managed obtaining collateral, corporate and personal guarantees. 36.1.1. Financial instruments by stages Defining the expected credit loss on individual and collective basis On individual basis: Individually assessed are the non-retail or micro- and small enterprise exposure of significant amount on a stand- alone basis: • exposure in stage 3, • exposure in workout management • purchased or originated credit-impaired instruments which are in accordance with the conditions mentioned above The calculation of impairment must be prepared and approved by the risk management functional areas. The calculation, all relevant factors (amortised cost, original and current EIR, contracted and expected cash flows (from business and/or collateral) for the individual periods of the entire lifecycle, other essential information enforced during the valuation) and the criteria thereof (including the factors underlying the classification as stage 3) must be documented individually. The expected credit loss of the exposure equals the difference of the receivable's AC (gross book value) on the valuation date and the present value of the receivable's expected cash flows discounted to the valuation date by the exposure's original effective interest rate (EIR) (calculated at the initial recognition, or in the case of variable rate, recalculated due to the last interest rate change). The estimation of the expected future cash flows should be forward looking, it must also contain the effects of the possible change of macroeconomic outlook. At least two scenarios must be used for the estimation of the expected cash flow. At least one scenarios should anticipate that realised cash flows will be significantly different from the contractual cash flows. Probability weights must be allocated to the individual scenarios. The estimation must reflect the probability of the occurrence and non-occurrence of the credit loss, even if the most probable result is the non-occurrence of the loss. On collective basis: The following exposures are subject to collective assessment: • retail exposure irrespective of the amount, • micro and small enterprise exposures irrespective of the amount, • all other exposure which are insignificant on a stand-alone basis and not part of the workout management, • exposure which are not in stage 3, significant on a stand-alone basis, • purchased or originated credit-impaired instruments which are in accordance with the conditions mentioned above.
OTP Bank Plc Separate Financial Statements 2023 88 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.1. Financial instruments by stages [continued] In the collective impairment methodology credit risk and the change of credit risk can be correctly captured by understanding the risk characteristics of the portfolio. In order to achieve this the main risk drivers shall be identified and used to form homogeneous segments having similar risk characteristics. The segmentation is expected to stay stable from month to month however a regular (at least yearly) revision of the segmentation process should be set up to capture the change of risk characteristics. The segmentation must be performed separately for each parameter, since in each case different factors may have relevance. The Bank's Headquarters Group Reserve Committee stipulates the guidelines related to the collective impairment methodology at group level. In addition, it has right of agreement in respect of the risk parameters (PD -probability of default, LGD - loss given default, EAD – exposure at default) and segmentation criteria proposed by the group members. The review of the parameters must be performed at least annually and the results should be approved by the Group Reserve Committee. Local Risk Managements is responsible for parameter estimations and updates, macroeconomic scenarios are calculated by OTP Bank Headquarters for each subsidiary and each parameter. Based on the consensus proposal of Local Risk Management and OTP Bank Headquarters, the Group Reserve Committee decides on the modification of parameters (all parameters for impairment calculation). The impairment parameters should be backtested at least annually. The expected loss calculation should be forward looking, including forecasts of future economic conditions. This may be achieved by applying 3-5 different macroeconomic scenarios, which may be integrated in the PD, LGD and EAD parameters.
OTP Bank Plc Separate Financial Statements 2023 89 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.1. Financial instruments by stages [continued] 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 2023: Carrying amount/ Exposure Gross carrying amount / Notional amount Loss allowance Write-off Stage 1 Stage 2 Stage 3 Purchased or originated credit impaired Total Stage 1 Stage 2 Stage 3 Purchased or originated credit impaired Total Cash, amounts due from banks and balances with the National Bank of Hungary 2,708,232 2,701,675 6,952 - - 2,708,627 267 128 - - 395 - Placements with other banks 2,702,433 2,697,572 9,421 2,315 - 2,709,308 3,465 1,095 2,315 - 6,875 - Repo receivables 201,658 202,025 - - - 202,025 367 - - - 367 - Retail consumer loans 572,912 488,231 128,101 19,811 1 636,144 15,471 33,192 14,568 1 63,232 - Mortgage loans 53,996 41,172 7,232 4,823 1,988 55,215 38 189 813 179 1,219 - Municipal loans 102,003 103,152 320 - - 103,472 1,417 52 - - 1,469 - Corporate loans 3,952,448 3,213,155 746,233 65,434 9,121 4,033,943 16,783 36,390 27,544 778 81,495 22,637 Loans at amortised cost 4,681,359 3,845,710 881,886 90,068 11,110 4,828,774 33,709 69,823 42,925 958 147,415 22,637 FVOCI debt instruments 538,350 507,477 - 30,873 - 538,350 1,425 - 22,920 - 24,345 - Securities at amortised cost 2,710,848 2,696,310 5,961 34,802 - 2,737,073 13,350 273 12,602 - 26,225 - Other financial assets 115,499 114,982 792 7,560 15 123,349 1,442 3,039 3,357 12 7,850 - Total 13,658,379 12,765,751 905,012 165,618 11,125 13,847,506 54,025 74,358 84,119 970 213,472 22,637 Loan commitments 1,976,476 1,854,533 130,879 2,127 - 1,987,539 6,153 4,206 704 - 11,063 - Financial guarantees 1,995,500 1,946,951 46,977 5,819 - 1,999,747 2,020 412 1,815 - 4,247 - Factoring loan commitments 365,440 348,659 12,386 5,136 - 366,181 482 53 206 - 741 - Bill of credit 8,586 8,626 - - - 8,626 40 - - - 40 - Loan commitments and financial guarantees total 4,346,002 4,158,769 190,242 13,082 - 4,362,093 8,695 4,671 2,725 - 16,091 -
OTP Bank Plc Separate Financial Statements 2023 90 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.1. Financial instruments by stages [continued] 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 2022: Carrying amount/ Exposure Gross carrying amount / Notional amount Loss allowance Write-off Stage 1 Stage 2 Stage 3 Purchased or originated credit impaired Total Stage 1 Stage 2 Stage 3 Purchased or originated credit impaired Total Cash, amounts due from banks and balances with the National Bank of Hungary 1,092,198 1,062,246 31,305 - - 1,093,551 481 872 - - 1,353 - Placements with other banks 2,899,829 2,906,852 10,247 1,512 - 2,918,611 16,037 1,233 1,512 - 18,782 - Repo receivables 246,529 248,696 - - - 248,696 2,167 - - - 2,167 - Retail consumer loans 556,062 507,517 65,853 52,913 2 626,285 15,229 17,670 37,323 1 70,223 - Mortgage loans 62,587 45,912 8,895 7,039 2,279 64,125 57 179 1,116 186 1,538 - Municipal loans 81,083 81,856 286 - - 82,142 1,010 49 - - 1,059 - Corporate loans 4,125,308 3,541,098 589,153 86,401 10,716 4,227,368 22,068 39,153 39,334 1,505 102,060 25,879 Loans at amortised cost 4,825,040 4,176,383 664,187 146,353 12,997 4,999,920 38,364 57,051 77,773 1,692 174,880 25,879 FVOCI debt instruments 779,253 751,838 - 27,415 - 779,253 4,762 - 24,399 - 29,161 - Securities at amortised cost 3,282,373 3,273,240 6,713 38,270 - 3,318,223 21,746 300 13,804 - 35,850 - Other financial assets 86,438 85,277 486 4,561 18 90,342 1,435 369 2,088 12 3,904 - Total 13,211,660 12,504,532 712,938 218,111 13,015 13,448,596 84,992 59,825 119,576 1,704 266,097 25,879 Loan commitments 1,840,521 1,745,003 101,644 5,517 - 1,852,164 6,694 3,581 1,368 - 11,643 - Financial guarantees 1,863,476 1,848,783 24,868 173 - 1,873,824 9,502 800 46 - 10,348 - Factoring loan commitments 371,866 327,903 14,705 30,809 - 373,417 361 87 1,103 - 1,551 - Bill of credit 12,285 12,128 247 - - 12,375 85 5 - - 90 - Loan commitments and financial guarantees total 4,088,148 3,933,817 141,464 36,499 - 4,111,780 16,642 4,473 2,517 - 23,632 -
OTP Bank Plc Separate Financial Statements 2023 91 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.2. Financial instruments under simplified approach by day-past-due categories As at 31 December 2023 Without delay < 30 days 31 - 60 days 61 - 90 days > 91 days Closing balance Expected credit loss rate 0.72% 0.69% 5.17% 9.39% 21.06% 2.02% Gross value 161,963 8,459 968 309 11,307 183,006 Loss allowance 1,173 58 50 29 2,381 3,691 Net carrying value 163,136 8,517 1,018 338 13,688 186,697 As at 31 December 2022 Without delay < 30 days 31 - 60 days 61 - 90 days > 91 days Closing balance Expected credit loss rate 0.27% 0.77% 2.09% 5.75% 26.11% 1.82% Gross value 144,046 15,620 1,912 487 9,744 171,809 Loss allowance 389 121 40 28 2,544 3,122 Net carrying value 144,435 15,741 1,952 515 12,288 174,931
OTP Bank Plc Separate Financial Statements 2023 92 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.3. Changes in the Gross carrying amount and in the Loss allowance of financial assets at amortised cost and fair value through other comprehensive income by IFRS 9 stages Movement of gross carrying amount of loans at amortised cost Stage 1 Stage 2 Stage 3 POCI Total Gross amount as at 1 January 2022 3,501,643 563,982 108,979 13,418 4,188,022 Transfer to Stage 1 128,623 (125,232) (3,391) - - Transfer to Stage 2 (195,786) 205,613 (9,827) - - Transfer to Stage 3 (34,487) (41,649) 76,136 - - New financial assets originated or purchased 2,684,856 249,182 44,325 291 2,978,654 Financial assets derecognised (other than write-offs) (1,899,139) (184,121) (60,292) (672) (2,144,224) Write-offs (70) (354) (7,211) (40) (7,675) Modification loss (9,257) (3,234) (2,366) - (14,857) Gross amount as at 31 December 2022 4,176,383 664,187 146,353 12,997 4,999,920 Transfer to Stage 1 125,054 (105,061) (19,993) - - Transfer to Stage 2 (448,120) 461,067 (12,947) - - Transfer to Stage 3 (24,935) (29,379) 54,314 - - New financial assets originated or purchased 2,227,406 200,034 28,678 1,163 2,457,281 Financial assets derecognised (other than write-offs) (2,203,558) (306,780) (100,045) (2,970) (2,613,353) Write-offs (61) (578) (5,338) (80) (6,057) Modification loss (6,459) (1,604) (954) - (9,017) Gross amount as at 31 December 2023 3,845,710 881,886 90,068 11,110 4,828,774 Movement of loss allowance of loans at amortised cost Stage 1 Stage 2 Stage 3 POCI Total Loss allowance as at 1 January 2022 29,361 67,272 57,087 1,837 155,557 Transfer to Stage 1 13,705 (12,361) (1,344) - - Transfer to Stage 2 (2,058) 6,779 (4,721) - - Transfer to Stage 3 (738) (6,414) 7,152 - - Net remeasurement of loss allowance (14,906) 5,886 23,898 (69) 14,809 New financial assets originated or purchased 22,665 7,284 6,955 14 36,918 Financial assets derecognised (other than write-offs) (9,595) (11,041) (8,942) (90) (29,668) Unwind of discount - - 4,899 40 4,939 Write-offs (70) (354) (7,211) (40) (7,675) Loss allowance as at 31 December 2022 38,364 57,051 77,773 1,692 174,880 Transfer to Stage 1 21,673 (9,755) (11,918) - - Transfer to Stage 2 (5,037) 12,425 (7,388) - - Transfer to Stage 3 (497) (3,906) 4,403 - - Net remeasurement of loss allowance (21,553) 13,435 1,920 (701) (6,899) New financial assets originated or purchased 14,620 8,468 4,717 14 27,819 Financial assets derecognised (other than write-offs) (13,800) (7,317) (26,425) (47) (47,589) Unwind of discount - - 5,181 80 5,261 Write-offs (61) (578) (5,338) (80) (6,057) Loss allowance as at 31 December 2023 33,709 69,823 42,925 958 147,415
OTP Bank Plc Separate Financial Statements 2023 93 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.3. Changes in the Gross carrying amount and in the Loss allowance of financial assets at amortised cost and fair value through other comprehensive income by IFRS 9 stages [continued] Movement of gross carrying amount of loan commitments and financial guarantees Stage 1 Stage 2 Stage 3 Total Gross amount as at 1 January 2022 3,549,739 77,568 10,373 3,637,680 Transfer to Stage 1 27,955 (27,324) (631) - Transfer to Stage 2 (114,601) 114,978 (377) - Transfer to Stage 3 (17,137) (1,704) 18,841 - New financial assets originated or purchased 1,344,993 55,461 15,484 1,415,938 Decrease (857,132) (77,515) (7,191) (941,838) Gross amount as at 31 December 2022 3,933,817 141,464 36,499 4,111,780 Transfer to Stage 1 60,083 (58,857) (1,225) - Transfer to Stage 2 (158,404) 159,071 (667) - Transfer to Stage 3 (9,460) (2,028) 11,488 - New financial assets originated or purchased 1,195,949 64,939 1,451 1,262,339 Decrease (863,217) (114,347) (34,464) (1,012,027) Gross amount as at 31 December 2023 4,158,768 190,242 13,082 4,362,092 Movement of loss allowance of loan commitments and financial guarantees Stage 1 Stage 2 Stage 3 Total Loss allowance as at 1 January 2022 10,669 4,749 2,350 17,768 Transfer to Stage 1 2,095 (1,929) (166) - Transfer to Stage 2 (442) 542 (100) - Transfer to Stage 3 (21) (124) 145 - Net remeasurement of loss allowance 2,148 1,020 1,052 4,220 New financial assets originated or purchased 3,933 602 78 4,613 Decrease (1,740) (387) (842) (2,969) Loss allowance as at 31 December 2022 16,642 4,473 2,517 23,632 Transfer to Stage 1 2,410 (1,888) (522) - Transfer to Stage 2 (787) 1,022 (235) - Transfer to Stage 3 (26) (242) 268 - Net remeasurement of loss allowance (10,128) 1,584 1,669 (6,875) New financial assets originated or purchased 2,985 514 212 3,711 Decrease (2,406) (792) (1,178) (4,376) Loss allowance as at 31 December 2023 8,690 4,671 2,731 16,092
OTP Bank Plc Separate Financial Statements 2023 94 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.3. Changes in the Gross carrying amount and in the Loss allowance of financial assets at amortised cost and fair value through other comprehensive income by IFRS 9 stages [continued] Movement of gross carrying amount of cash, amounts due from banks and balances with the National Bank of Hungary Stage 1 Stage 2 Total Gross amount as at 1 January 2022 475,130 - 475,130 Transfer to Stage 2 (13) 13 - New financial assets originated or purchased 2,881,995 31,292 2,913,287 Financial assets derecognised (other than write-offs) (2,294,866) - (2,294,866) Gross amount as at 31 December 2022 1,062,246 31,305 1,093,551 New financial assets originated or purchased 14,858,652 137 14,858,788 Financial assets derecognised (other than write-offs) (13,219,223) (24,490) (13,243,712) Gross amount as at 31 December 2023 2,701,675 6,952 2,708,627 Movement of loss allowance of cash, amounts due from banks and balances with the National Bank of Hungary Stage 1 Stage 2 Total Loss allowance as at 1 January 2022 185 - 185 Net remeasurement of loss allowance 104 621 725 New financial assets originated or purchased 291 251 542 Financial assets derecognised (other than write- offs) (99) - (99) Loss allowance as at 31 December 2022 481 872 1,353 Transfer to Stage 2 - - - Net remeasurement of loss allowance 46 (744) (698) New financial assets originated or purchased 30 - 30 Financial assets derecognised (other than write- offs) (290) - (290) Loss allowance as at 31 December 2023 267 128 395 Movement of gross carrying amount of placements with other banks Stage 1 Stage 2 Stage 3 Total Gross amount as at 1 January 2022 2,573,226 - 1,476 2,574,702 Transfer to Stage 2 (8,855) 8,855 - - New financial assets originated or purchased 2,894,611 2,006 36 2,896,653 Financial assets derecognised (other than write- offs) (2,552,130) (614) - (2,552,744) Gross amount as at 31 December 2022 2,906,852 10,247 1,512 2,918,611 New financial assets originated or purchased 1,441,924 9,986 887 1,452,797 Financial assets derecognised (other than write- offs) (1,651,204) (10,813) (84) (1,662,100) Gross amount as at 31 December 2023 2,697,572 9,421 2,315 2,709,308
OTP Bank Plc Separate Financial Statements 2023 95 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.3. Changes in the Gross carrying amount and in the Loss allowance of financial assets at amortised cost and fair value through other comprehensive income by IFRS 9 stages [continued] Movement of loss allowance of placements with other banks Stage 1 Stage 2 Stage 3 Total Loss allowance as at 1 January 2022 6,014 - 1,476 7,490 Transfer to Stage 2 (71) 71 - - Net remeasurement of loss allowance 1,261 1,149 36 2,446 New financial assets originated or purchased 14,166 13 - 14,179 Financial assets derecognised (other than write- offs) (5,333) - - (5,333) Loss allowance as at 31 December 2022 16,037 1,233 1,512 18,782 Net remeasurement of loss allowance (9,159) 3 (84) (9,240) New financial assets originated or purchased 1,418 1,091 887 3,396 Financial assets derecognised (other than write- offs) (4,831) (1,232) - (6,063) Loss allowance as at 31 December 2023 3,465 1,095 2,315 6,875 Movement of gross carrying amount of repo receivables Stage 1 Total Loss allowance as at 1 January 2022 33,710 33,710 New financial assets originated or purchased 769,374 769,374 Financial assets derecognised (other than write-offs) (554,388) (554,388) Loss allowance as at 31 December 2022 248,696 248,696 New financial assets originated or purchased 1,808,640 1,808,640 Financial assets derecognised (other than write-offs) (1,855,311) (1,855,311) Loss allowance as at 31 December 2023 202,025 202,025 Movement of loss allowance of repo receivables Stage 1 Total Loss allowance as at 1 January 2022 72 72 New financial assets originated or purchased 4,480 4,480 Financial assets derecognised (other than write-offs) (2,385) (2,385) Loss allowance as at 31 December 2022 2,167 2,167 New financial assets originated or purchased 1,825 1,825 Financial assets derecognised (other than write-offs) (2,167) (2,167) Loss allowance as at 31 December 2023 367 367 Movement of gross carrying amount of securities at amortised cost Stage 1 Stage 2 Stage 3 Total Gross amount as at 1 January 2022 3,064,500 13,223 - 3,077,723 Transfer to Stage 3 (34,057) - 34,057 - New financial assets originated or purchased 717,463 1,591 4,213 723,267 Financial assets derecognised (other than write- offs) (474,666) (8,101) - (482,767) Gross amount as at 31 December 2022 3,273,240 6,713 38,270 3,318,223 Transfer to Stage 1 1,403 (1,403) - - Transfer to Stage 2 (1,203) 1,203 - - New financial assets originated or purchased 199,101 3 - 199,104 Financial assets derecognised (other than write- offs) (776,230) (554) (3,468) (780,253) Loss allowance as at 31 December 2023 2,696,311 5,961 34,802 2,737,074
OTP Bank Plc Separate Financial Statements 2023 96 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.3. Changes in the Gross carrying amount and in the Loss allowance of financial assets at amortised cost and fair value through other comprehensive income by IFRS 9 stages [continued] Movement of loss allowance of securities at amortised cost Stage 1 Stage 2 Stage 3 Total Loss allowance as at 1 January 2022 5,882 803 - 6,685 Transfer to Stage 3 (48) - 48 - Net remeasurement of loss allowance 13,564 (18) 13,756 27,302 New financial assets originated or purchased 2,972 7 - 2,979 Financial assets derecognised (other than write- offs) (624) (492) - (1,116) Loss allowance as at 31 December 2022 21,746 300 13,804 35,850 Net remeasurement of loss allowance (5,424) (27) (1,202) (6,653) New financial assets originated or purchased 163 - - 163 Financial assets derecognised (other than write- offs) (3,135) - - (3,135) Loss allowance as at 31 December 2023 13,350 273 12,602 26,225 Movement of gross carrying amount of FVOCI debt instruments Stage 1 Stage 3 Total Loss allowance as at 1 January 2022 624,801 - 624,801 Transfer to Stage 3 (27,415) 27,415 - New financial assets originated or purchased 423,279 - 423,279 Financial assets derecognised (other than write-offs) (268,827) - (268,827) Loss allowance as at 31 December 2022 751,838 27,415 779,253 New financial assets originated or purchased 164,182 3,480 167,662 Financial assets derecognised (other than write-offs) (408,543) (21) (408,564) Loss allowance as at 31 December 2023 507,477 30,873 538,350 Movement of loss allowance of FVOCI debt instruments Stage 1 Stage 3 Total Loss allowance as at 1 January 2022 1,174 - 1,174 Transfer to Stage 3 (49) 49 - Net remeasurement of loss allowance 1,741 24,350 26,091 New financial assets originated or purchased 2,144 - 2,144 Financial assets derecognised (other than write-offs) (248) - (248) Loss allowance as at 31 December 2022 4,762 24,399 29,161 Net remeasurement of loss allowance (1,741) (1,479) (3,220) New financial assets originated or purchased 172 - 172 Financial assets derecognised (other than write-offs) (1,768) - (1,768) Loss allowance as at 31 December 2023 1,425 22,920 24,345
OTP Bank Plc Separate Financial Statements 2023 97 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.4. Loan portfolio by internal ratings 31 December 2023 Gross carrying amount Internal rating grade Stage1 Stage2 Stage3 POCI Total High grade (1-4) 1,748,019 155,527 - 275 1,903,821 Medium grade (5-7) 2,030,681 572,339 - 9,136 2,612,156 Low grade (8-9) 67,010 154,020 - 195 221,225 Non performing - - 90,068 1,504 91,572 Total 3,845,710 881,886 90,068 11,110 4,828,774 Accumulated loss allowance Internal rating grade Stage1 Stage2 Stage3 POCI Total High grade (1-4) 9,485 8,791 - 3 18,279 Medium grade (5-7) 19,488 39,153 - 462 59,103 Low grade (8-9) 4,736 21,879 - 6 26,621 Non performing - - 42,925 487 43,412 Total 33,709 69,823 42,925 958 147,415 31 December 2022 Gross carrying amount Internal rating grade Stage1 Stage2 Stage3 POCI Total High grade (1-4) 1,891,381 180,426 - 214 2,072,021 Medium grade (5-7) 2,229,142 384,237 - 10,664 2,624,043 Low grade (8-9) 55,863 99,521 - 308 155,692 Non performing - - 146,353 1,811 148,164 Total 4,176,386 664,184 146,353 12,997 4,999,920 Accumulated loss allowance Internal rating grade Stage1 Stage2 Stage3 POCI Total High grade (1-4) 6,965 17,509 - 3 24,477 Medium grade (5-7) 28,937 25,419 - 1,115 55,471 Low grade (8-9) 2,462 14,123 - 18 16,603 Non performing - - 77,773 556 78,329 Total 38,364 57,051 77,773 1,692 174,880
OTP Bank Plc Separate Financial Statements 2023 98 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.5. Loan portfolio by countries An analysis of carrying amount of the non-qualified and qualified gross loan portfolio by country is as follows: 31 December 2023 31 December 2022 Country Gross loan and placements with other banks portfolio Loss allowance Gross loan and placements with other banks portfolio Loss allowance Hungary 5,406,144 (126,770) 5,651,445 (147,446) Malta 647,521 (1,220) 772,898 (3,857) Bulgaria 351,368 (3,123) 272,449 (10,736) Slovenia 245,018 (1,520) 101,842 (261) Serbia 243,010 (3,697) 251,812 (6,204) Croatia 195,198 (433) 149,993 (1,424) Romania 149,356 (3,206) 197,255 (3,741) France 123,582 (84) 255,918 (969) Ukraine 83,328 (1,579) 86,329 (2,393) Belgium 55,535 (154) 38,227 (107) Other 240,047 (12,871) 389,059 (18,691) Loans, placements with other banks and repo receivables at amortised cost total 7,740,107 (154,657) 8,167,227 (195,829) Hungary 934,824 - 793,228 - Other 24 - 14 - Loans at fair value total 934,848 - 793,242 - Loans, placements with other banks and repo receivables total 8,674,955 (154,657) 8,960,469 (195,829) 36.1.6. Loan portfolio classification by economic activities Loans at amortised cost by economic activities 31 December 2023 31 December 2022 Gross amount Loss allowance Gross amount Loss allowance Retail 758,426 66,372 645,496 71,024 Agriculture, forestry and fishing 215,325 5,649 211,875 6,025 Manufacturing, mining and quarrying and other industry 492,620 14,746 587,190 18,211 Construction 202,542 8,896 231,015 5,580 Wholesale and retail trade, transportation and storage accommodation and food service activities 733,631 17,259 833,618 18,674 Information and communication 24,086 618 25,404 1,027 Financial and insurance activities 1,215,215 7,965 1,183,848 14,903 Real estate activities 503,510 17,113 471,772 10,995 Professional, scientific, technical, administration 242,818 4,106 231,335 3,864 Public administration, defence, education, human health and social work activities 119,196 1,704 99,593 1,592 Other services 321,405 2,987 478,774 22,985 Total 4,828,774 147,415 4,999,920 174,880
OTP Bank Plc Separate Financial Statements 2023 99 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.7. 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 31 December 2023 31 December 2022 Mortgages 1,977,401 1,859,713 Guarantees and warranties 1,961,382 2,082,418 Deposit 214,085 174,247 from this: Cash 94,486 95,836 Securities 119,599 78,411 Other 147 254 Total 4,153,015 4,116,632 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 31 December 2023 31 December 2022 Mortgage 1,523,976 1,445,244 Guarantees and warranties 1,662,645 1,755,474 Deposit 145,591 133,000 from this: Cash 89,211 84,225 Securities 56,380 48,775 Other 90 254 Total 3,332,302 3,333,972 The coverage level of loan portfolio to the extent of the exposures increased from 42,1% to 44,21% as at 31 December 2023, while the coverage to the total collateral value decreased from 51,99% to 55,09%. The collateral value (total collateral value) held by the Bank related to impaired loan portfolio (Stage 3 and POCI loans) is as follows: For the year ended 31 December 2023 Gross carrying amount Loss allowance Carrying amount Collateral value Retail consumer loans 19,812 (14,569) 5,243 644 Mortgage loans 6,811 (992) 5,819 33,515 Corporate loans 74,555 (28,322) 46,233 82,595 Total 101,178 (43,883) 57,295 116,754 For the year ended 31 December 2022 Gross carrying amount Loss allowance Carrying amount Collateral value Retail consumer loans 52,915 (37,324) 15,591 30 Mortgage loans 9,318 (1,302) 8,016 40,796 Corporate loans 97,117 (40,839) 56,278 93,399 Total 159,350 (79,465) 79,885 134,225
OTP Bank Plc Separate Financial Statements 2023 100 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.7. Collaterals [continued] Maximum exposure to credit risk as at 31 December 2023 31 December 2023 Maximum exposure to credit risk Fair value of collateral Net exposure Coverage ECL Cash Securities Guarantees Property Other Offsetting arrangements Surplus Collateral total Cash, amounts due from banks and balances with the National Bank of Hungary 2,708,627 - - - - - - - - 2,708,627 0% 395 Placements with other banks 2,709,308 - - - - - - - - 2,709,308 0% 6,875 Repo receivables 202,025 - 220,654 - - - - (21,868) 198,786 3,239 98% 367 Retail consumer loans 636,144 1,621 204 1,941 16,620 - - (7,128) 13,258 622,886 2% 63,232 Mortgage loans 55,215 - - 2,515 386,730 - - (334,122) 55,123 92 100% 1,219 Municipal loans 103,472 1 - 9,191 11,913 - - (5,990) 15,115 88,357 15% 1,469 Corporate loans 6,387,663 42,390 255,404 903,666 2,599,109 242 - (1,704,294) 2,096,517 4,291,146 33% 93,299 Loans at amortised cost 7,182,494 44,012 255,608 917,313 3,014,372 242 - (2,051,534) 2,180,013 5,002,481 30% 159,219 Securities at amortised cost 2,737,073 - - - - - - - - 2,737,073 0% 26,225 Financial assets at amortised cost total 15,539,527 44,012 476,262 917,313 3,014,372 242 - (2,073,402) 2,378,799 13,160,728 15% 193,081 Derivative financial assets 218,427 76,853 - - - - 60,721 - 137,574 80,853 63% - Held-for-trading financial assets 27,804 - - - - - - - - 27,804 0% - mFVTPL securities 32,932 - - - - - - - - 32,932 0% - mFVTPL loans 934,848 - - 865,054 - - - (44,555) 820,499 114,349 88% - Financial assets at fair value through profit or loss total 1,214,011 76,853 - 865,054 - - 60,721 (44,555) 958,073 255,938 79% - FVOCI debt instruments 538,350 - - - - - - - - 538,350 0% 24,345 FVOCI debt instruments total 538,350 - - - - - - - - 538,350 0% 24,345 Financial assets total 17,291,888 120,865 476,262 1,782,367 3,014,372 242 60,721 (2,117,957) 3,336,872 13,955,016 19% 217,426 Financial guarantees 1,999,747 47,241 1,801 19,442 157,085 - - (44,554) 181,015 1,818,732 9% 4,247 Accreditive 8,626 - - - - - - - - 8,626 0% 40 Off-balance sheet items total 2,008,373 47,241 1,801 19,442 157,085 - - (44,554) 181,015 1,827,358 9% 4,287 Total 19,300,261 168,106 478,063 1,801,809 3,171,457 242 60,721 (2,162,511) 3,517,887 15,782,374 18% 221,713
OTP Bank Plc Separate Financial Statements 2023 101 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.7. Collaterals [continued] Maximum exposure to credit risk as at 31 December 2022 31 December 2022 Maximum exposure to credit risk Fair value of collateral Net exposure Coverage ECL Cash Securities Guarantees Property Other Offsetting arrangements Surplus Collateral total Cash, amounts due from banks and balances with the National Bank of Hungary 1,093,551 - - - - - - - - 1,093,551 0% 1,353 Placements with other banks 2,918,611 - - - - - - - - 2,918,611 0% 18,782 Repo receivables 248,696 - 263,052 - - - - (22,355) 240,697 7,999 97% 2,167 Retail consumer loans 626,285 3,256 3,521 4,639 17,514 - - (20,839) 8,091 618,194 1% 70,223 Mortgage loans 64,125 - - 2,788 378,794 - - (317,578) 64,004 121 100% 1,538 Municipal loans 82,142 1 - 11,234 9,813 - - (4,713) 16,335 65,807 20% 1,059 Corporate loans 6,452,949 32,658 224,172 1,047,739 2,415,367 13 - (1,649,512) 2,070,437 4,382,512 32% 115,254 Loans at amortised cost 7,225,501 35,915 227,693 1,066,400 2,821,488 13 - (1,992,642) 2,158,867 5,066,634 30% 188,074 Securities at amortised cost 3,318,223 - - - - - - - - 3,318,223 0% 35,850 Financial assets at amortised cost total 14,804,582 35,915 490,745 1,066,400 2,821,488 13 - (2,014,997) 2,399,564 12,405,018 16% 246,226 Derivative financial assets 351,939 90,551 - - - - 103,014 - 193,565 158,374 55% - Held-for-trading financial assets 74,795 - - - - - - - - 74,795 0% - mFVTPL securities 30,498 - - - - - - - - 30,498 0% - mFVTPL loans 793,242 - - 814,544 - - - (80,161) 734,383 58,859 93% - Financial assets at fair value through profit or loss total 1,250,474 90,551 - 814,544 - - 103,014 (80,161) 927,948 322,526 74% - FVOCI debt instruments 779,253 - - - - - - - - 779,253 0% 29,161 FVOCI debt instruments total 779,253 - - - - - - - - 779,253 0% 29,161 Financial assets total 16,834,309 126,466 490,745 1,880,944 2,821,488 13 103,014 (2,095,158) 3,327,512 13,506,797 20% 275,387 Financial guarantees 1,873,824 47,628 1,392 19,595 50,382 - - (63,330) 55,667 1,818,157 3% 10,348 Accreditive 12,375 - - - - - - - - 12,375 0% 90 Off-balance sheet items total 1,886,199 47,628 1,392 19,595 50,382 - - (63,330) 55,667 1,830,532 3% 10,438 Total 18,720,508 174,094 492,137 1,900,539 2,871,870 13 103,014 (2,158,488) 3,383,179 15,337,329 18% 285,825
OTP Bank Plc Separate Financial Statements 2023 102 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.7. Collaterals Returns from realization of collaterals taken into possession by types of collateral Types of collateral 31 December 2023 31 December 2022 Real estate 178 203 Guarantee 25,509 30,863 Bail - 140 Other 80 236 Proceeds from enforcement of collaterals 25,767 31,442 36.1.8. Restructured loans 31 December 2023 31 December 2022 Gross portfolio Loss allowance Gross portfolio Loss allowance Consumer loans 12,757 (7,064) 22,947 (6,279) Mortgage loans 1,829 (65) 6,342 (114) Corporate loans 103,897 (5,312) 181,496 (21,820) SME loans 21,555 (1,508) 40,422 (2,951) Municipal loans 75 (1) - - Total 140,114 (13,949) 251,208 (31,165) Restructured portfolio definition The forborne definition used by the Bank is based on EU 2015/227 regulation. Restructuring (forbearance) is a modification of the contract – initiated by either the client or the bank – that provides a concession or allowance towards the client in respect to the client’s current or future financial difficulties. The table of restructured loans contains exposures classified as performing forborne. An exposure is considered performing forborne if the conditions of the non-performing status are not met at the time of the restructuring, or the exposure fulfilled the requirements of the minimum one-year cure period as non-performing forborne. The loan volume of Hungarian entities classified as performing forborne exclusively due to moratoria participation decreased significantly due the expiration of the probation period for retail exposures.
OTP Bank Plc Separate Financial Statements 2023 103 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.9. Financial instruments by rating categories 1 Held-for-trading securities as at 31 December 2023 A2 A3 Aa2 Aa3 Aaa B1 Ba1 Ba2 Ba3 Baa1 Baa2 Baa3 N/A Total Government bonds 532 - 23 - 27 625 - 540 - - 19,695 910 - 22,352 Other bonds - - - - - - - - - - 2,212 40 2,185 4,437 Investment fund units - - - - - - - - - - - - 320 320 Hungarian government discounted Treasury Bills - - - - - - - - - - 71 - - 71 Shares 56 33 23 52 - - 39 - 4 17 20 2 267 513 Mortgage bonds - - - - - - - - - - - 16 95 111 Total 588 33 46 52 27 625 39 540 4 17 21,998 968 2,867 27,804 Held-for-trading securities as at 31 December 2022 A1 A2 A3 Aa2 Aa3 Aaa Ba1 Ba2 Ba3 Baa1 Baa2 Baa3 N/A Total Government bonds - 197 - - - 346 - 3,669 - - 62,947 362 - 67,521 Other bonds - - - 1 - - - - - - 1,627 117 3 1,748 Investment fund units - - - - - - - - - - - - 274 274 Hungarian government discounted Treasury Bills - - - - - - - - - - 4,785 - - 4,785 Shares 42 47 29 - 20 - 39 2 4 15 24 - 163 385 Mortgage bonds - - - - - - - - - - 11 - 71 82 Total 42 244 29 1 20 346 39 3,671 4 15 69,394 479 511 74,795 Securities mandatorily measured at fair value through profit or loss as at 31 December 2023 N/A Total Government bonds 31,124 31,124 Mortgage bonds 1,808 1,808 Total 32,932 32,932 1 Moody’s ratings
OTP Bank Plc Separate Financial Statements 2023 104 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.9. Financial instruments by rating categories 1 Securities mandatorily measured at fair value through profit or loss as at 31 December 2022 N/A Total Government bonds 29,029 29,029 Mortgage bonds 1,469 1,469 Total 30,498 30,498 FVOCI securities as at 31 December 2023 A1 Ba1 Ba2 Baa1 Baa2 Baa3 N/A WR Total Government bonds 660 - 6,259 4,082 144,857 2,654 - 30,873 189,385 Mortgage bonds 59,793 - - - - 231,895 8,881 - 300,569 Other bonds - 3,840 24,424 - - - 19,896 - 48,160 Hungarian Treasury Bills - - - - 235 - 1 - 236 Non-treading equity instruments - - - - - - 21,177 - 21,177 Total 60,453 3,840 30,683 4,082 145,092 234,549 49,955 30,873 559,527 FVOCI securities as at 31 December 2022 A1 A3 Ba1 Ba2 Baa1 Baa2 Baa3 N/A WR Total Government bonds 734 - - 5,971 3,941 136,671 2,661 - 27,415 177,393 Mortgage bonds 42,407 - - - - 301,987 - 12,146 - 356,540 Other bonds - 1,691 3,820 - - - 39,309 17,774 - 62,594 Hungarian Treasury Bills - - - - - 182,726 - - - 182,726 Non-treading equity instruments - - - - - - - 17,922 - 17,922 Total 43,141 1,691 3,820 5,971 3,941 621,384 41,970 47,842 27,415 797,175 1 Moody’s ratings
OTP Bank Plc Separate Financial Statements 2023 105 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.9. Financial instruments by rating categories 1 Securities at amortised cost as at 31 December 2023 A1 A2 A3 Aaa Ba1 Ba2 Baa1 Baa2 Baa3 N/A WR Total Government bonds 1,196 33,032 36,307 260,116 - 19,695 50,205 1,911,133 39,052 1 22,175 2,372,912 Corporate bonds 1,847 8,983 8,039 - 1,912 - 11,444 3,822 28,324 248,857 - 313,228 Mortgage bonds 13,020 - - - - - - - - 11,688 - 24,708 Total 16,063 42,015 44,346 260,116 1,912 19,695 61,649 1,914,955 67,376 260,546 22,175 2,710,848 Securities at amortised cost as at 31 December 2022 A1 A2 A3 Aaa Ba1 Ba2 Baa1 Baa2 Baa3 N/A WR Total Government bonds 1,301 26,341 - 281,824 - 160,048 44,691 2,374,565 33,248 - 24,427 2,946,445 Corporate bonds 1,911 9,357 403 - - 1,968 11,874 3,971 29,022 252,938 - 311,444 Mortgage bonds 12,966 - - - - - - - - 11,518 - 24,484 Total 16,178 35,698 403 281,824 - 162,016 56,565 2,378,536 62,270 264,456 24,427 3,282,373 1 Moody’s ratings
OTP Bank Plc Separate Financial Statements 2023 106 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.1. Credit risk [continued] 36.1.10. Securities (held for trading, mandatorily FVTPL, FVOCI and amortised cost) in a country breakdown Country 31 December 2023 31 December 2022 Gross carrying amount Loss allowance Gross carrying amount Loss allowance Hungary 1,975,451 (12,904) 2,412,543 (19,158) United States of America 370,997 (672) 418,900 (1,234) Luxembourg 265,082 (3,968) 223,256 (4,804) Spain 53,209 (82) 56,375 (365) Russia 24,978 (8,533) 27,064 (9,246) Portugal 16,284 (21) 16,979 (101) Serbia - - 140,116 (867) Other 31,072 (45) 22,990 (75) Securities at amortised cost total 2,737,073 (26,225) 3,318,223 (35,850) Hungary 395,183 - 664,813 - Luxembourg 93,077 - 62,549 - Other 50,090 - 51,891 - FVOCI debt instruments total 538,350 - 779,253 - United States of America 6,332 - 5,479 - Austria 14,317 - 11,914 - Other 528 - 529 - Non-trading equity instruments designated to measure at fair value through other comprehensive income 21,177 - 17,922 - Luxembourg 10,167 - 1,248 - United States of America 7,633 - 1,894 - Hungary 8,849 - 67,448 - Serbia 147 - 3,668 - Other 1,008 - 537 - Held for trading securities total 27,804 - 74,795 - Hungary 23,916 - 21,124 - Luxembourg 6,058 - 6,885 - United States of America 1,808 - 1,469 - Portugal 1,150 - 1,020 - Securities mandatorily measured at fair value through profit or loss 32,932 - 30,498 - Securities total 3,357,336 (26,225) 4,220,691 (35,850)
OTP Bank Plc Separate Financial Statements 2023 107 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.2. Maturity analysis of assets and liabilities and liquidity risk Liquidity risk is a measure of the extent to which the Bank may be required to raise funds to meet its commitments associated with financial instruments. The Bank maintains its liquidity profiles in accordance with regulations laid down by the NBH. The essential aspect of the liquidity risk management strategy is to identify all relevant systemic and idiosyncratic sources of liquidity risk and to measure the probability and severity of such events. During liquidity risk management the Bank considers the effect of liquidity risk events caused by reasons arising in the bank business line (deposit withdrawal), the national economy (exchange rate shock, yield curve shock) and the global financial system (capital market shock). In line with the Bank’s risk man agement policy liquidity risks are measured and managed on multiply hierarchy levels and applying integrated unified VaR based methodology. The basic requirement is that the Bank must keep high quality liquidity reserves by means it can fulfil all liabilities when they fall due without material additional costs. The liquidity reserves can be divided into two parts. There are separate decentralized liquid asset portfolios at subsidiary level and a centralized flexible liquidity pool at Group level. The reserves at subsidiary levels are held to cover the relevant shocks of the subsidiaries which may arise in local currencies (deposit withdrawal, local capital market shock, unexpected business expansion), while the centralized liquidity pool is held to cover the OTP Bank’s separate shocks (deposit-, yield curve- and exchange rate shocks) and all group member’s potential shocks that may arise in foreign currencies (deposit withdrawal, capital market shock). The recalculation of shocks is made at least quarterly while the recalibration of shock measurement models and review of the risk management methodology is an annual process. The monitoring of liquidity reserves for both centralized and decentralized liquid asset portfolio has been built into the daily reporting process. Due to the balance sheet adjustment process (deleveraging) experienced in the last few years, the liquidity reserves of the Bank increased significantly while the liquidity risk exposure has decreased considerably. Currently the (over)coverage of risk liquidity risk exposure by high quality liquid assets is at all-time record highs. There were no material changes in the liquidity risk management process for the year ended 31 December 2023. The following tables provide an analysis of assets and liabilities about the non-discounted cash flow into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. It is presented under the most prudent consideration of maturity dates where options or repayment schedules allow for early repayment possibilities. The contractual amounts disclosed in the maturity analyses are the contractual undiscounted cash flows like gross finance lease obligations (before deducting finance charges); prices specified in forward agreements to purchase financial assets for cash; net amounts for pay-floating/receive-fixed interest rate swaps for which net cash flows are exchanged; contractual amounts to be exchanged in a derivative financial instrument for which gross cash flows are exchanged; gross loan commitments. Such undiscounted cash flows differ from the amount included in the statement of financial position because the amount in that statement is based on discounted cash flows. When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the end of the reporting period. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the end of the period.
OTP Bank Plc Separate Financial Statements 2023 108 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.2. Maturity analysis of assets and liabilities and liquidity risk [continued] As at 31 December 2023 Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total Cash, amounts due from banks and balances with the National Bank of Hungary 2,708,628 - - - - 2,708,628 Placements with other banks 577,692 120,424 1,294,775 716,538 - 2,709,429 Repo receivables 202,024 - - - - 202,024 Financial assets at fair value through profit or loss 12,055 1,142 10,053 3,754 19,341 46,345 Securities at fair value through other comprehensive income 5,891 43,109 310,370 231,586 111,159 702,115 Securities at amortised cost 31,807 61,118 1,730,399 974,048 - 2,797,372 Loans at amortised cost 1,187,849 1,084,559 1,632,019 1,049,524 - 4,953,951 Loans mandatorily measured at fair value through profit or loss 22,541 23,591 144,052 706,726 - 896,910 Investment properties - - - - 4,203 4,203 Investments in subsidiaries, associates and other investments - - - - 2,001,951 2,001,951 Other financial assets 304,197 2,517 - - - 306,714 TOTAL ASSETS 5,052,684 1,336,460 5,121,668 3,682,176 2,136,654 17,329,642 Amounts due to banks and deposits from the National Bank of Hungary and other banks 517,908 147,923 846,764 283,882 - 1,796,477 Deposits from customers 10,578,617 131,343 15,091 9,274 - 10,734,325 Repo liabilities 196,811 5,347 241,536 - - 443,694 Liabilities from issued securities 105,747 82,140 969,875 - - 1,157,762 Subordinated bonds and loans 6,174 1,901 8,956 509,277 - 526,308 Financial liabilities at fair value through profit or loss 740 1,077 5,387 11,318 - 18,522 Leasing liabilities 1,794 5,716 41,884 18,888 - 68,282 Other financial liabilities 239,293 22,807 1,578 - - 263,678 TOTAL LIABILITIES 11,647,084 398,254 2,131,071 832,639 - 15,009,048 NET POSITION (6,594,400) 938,206 2,990,597 2,849,537 2,136,654 2,320,594 Receivables from derivative financial instruments classified as held for trading 8,329,035 1,398,729 972,506 250,098 - 10,950,368 Liabilities from derivative financial instruments classified as held for trading (8,172,061) (1,388,901) (1,008,090) (247,029) - (10,816,081) Net position of derivative financial instruments classified as held for trading 156,974 9,828 (35,584) 3,069 - 134,287 Receivables from derivative financial instruments designated as hedge accounting 86,989 283,374 759,903 211,105 - 1,341,371 Liabilities from derivative financial instruments designated as hedge accounting (84,445) (297,109) (1,810,394) (204,953) - (2,396,901) Net position of derivative financial instruments designated as hedging accounting 2,544 (13,735) (1,050,491) 6,152 - (1,055,530) Net position of derivative financial instruments total 159,518 (3,907) (1,086,075) 9,221 - (921,243) Commitments to extend credit 1,987,539 - - - - 1,987,539 Confirmed letters of credit 8,626 - - - - 8,626 Factoring loan commitment 366,181 - - - - 366,181 Bank guarantees 268,861 210,113 265,867 1,254,906 - 1,999,747 Off-balance sheet commitments 2,631,207 210,113 265,867 1,254,906 - 4,362,093 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.
OTP Bank Plc Separate Financial Statements 2023 109 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.2. Maturity analysis of assets and liabilities and liquidity risk [continued] As at 31 December 2022 Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total Cash, amounts due from banks and balances with the National Bank of Hungary 1,093,551 - - - - 1,093,551 Placements with other banks 993,586 198,808 1,090,007 636,267 - 2,918,668 Repo receivables 248,696 - - - - 248,696 Financial assets at fair value through profit or loss 4,380 11,013 58,638 9,357 20,787 104,175 Securities at fair value through other comprehensive income 118,490 157,390 398,959 223,210 122,241 1,020,290 Securities at amortised cost 32,817 318,757 1,874,608 1,139,867 - 3,366,049 Loans at amortised cost 1,413,038 1,040,150 1,436,743 975,208 - 4,865,139 Loans mandatorily measured at fair value through profit or loss 18,927 20,768 140,776 667,279 - 847,750 Investment properties - - - - 4,207 4,207 Investments in subsidiaries, associates and other investments - - - - 1,596,717 1,596,717 Other financial assets 260,924 1,228 - - - 262,152 TOTAL ASSETS 4,184,409 1,748,114 4,999,731 3,651,188 1,743,952 16,327,394 Amounts due to banks and deposits from the National Bank of Hungary and other banks 839,590 164,140 654,843 111,406 - 1,769,979 Deposits from customers 10,903,401 192,419 12,091 11,272 - 11,119,183 Repo liabilities 134,894 3,343 270,129 - - 408,366 Liabilities from issued securities 8,762 1,912 486,782 3,326 - 500,782 Subordinated bonds and loans 3,395 - - 291,801 - 295,196 Financial liabilities at fair value through profit or loss 583 1,133 5,535 12,602 - 19,853 Leasing liabilities 1,049 4,895 25,857 9,663 - 41,464 Other financial liabilities 258,771 17,377 1,706 - - 277,854 TOTAL LIABILITIES 12,150,445 385,219 1,456,943 440,070 - 14,432,677 NET POSITION (7,966,036) 1,362,895 3,542,788 3,211,118 1,743,952 1,894,717 Receivables from derivative financial instruments classified as held for trading 8,478,109 1,788,941 511,637 179,092 - 10,957,779 Liabilities from derivative financial instruments classified as held for trading (8,693,889) (1,814,992) (524,167) (176,944) - (11,209,992) Net position of derivative financial instruments classified as held for trading (215,780) (26,051) (12,530) 2,148 - (252,213) Receivables from derivative financial instruments designated as hedge accounting 316,440 186,838 784,159 15,859 - 1,303,296 Liabilities from derivative financial instruments designated as hedge accounting (297,714) (217,102) (2,031,727) (13,425) - (2,559,968) Net position of derivative financial instruments designated as hedging accounting 18,726 (30,264) (1,247,568) 2,434 - (1,256,672) Net position of derivative financial instruments total (197,054) (56,315) (1,260,098) 4,582 - (1,508,885) Commitments to extend credit 1,852,164 - - - - 1,852,164 Confirmed letters of credit 12,376 - - - - 12,376 Factoring loan commitment 373,417 - - - - 373,417 Bank guarantees 84,327 216,572 405,546 1,167,378 - 1,873,823 Off-balance sheet commitments 2,322,284 216,572 405,546 1,167,378 - 4,111,780 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.
OTP Bank Plc Separate Financial Statements 2023 110 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.3. Net foreign currency position and foreign currency risk As at 31 December 2023 USD EUR CHF Others Total Assets 648,226 3,613,710 7,769 232,728 4,502,433 Liabilities (956,648) (4,373,571) (62,142) (92,143) (5,484,504) Derivative financial instruments 299,135 433,387 54,576 (137,542) 649,556 Net position (9,287) (326,474) 203 3,043 (332,515) As at 31 December 2022 USD EUR CHF Others Total Assets 583,984 3,681,519 8,956 369,969 4,644,428 Liabilities (741,173) (3,992,404) (65,565) (82,488) (4,881,630) Derivative financial instruments 154,902 615,822 56,690 (285,615) 541,799 Net position (2,287) 304,937 81 1,866 304,597 The table above provides an analysis of the Bank’s main foreign currency exposures. The remaining foreign currencies are shown within ‘Others’. The Bank monitors its foreign exchange position for compliance with the regulatory requirements of the NBH and its own limit system established in respect of limits on open positions. The measurement of the Bank’s open its currency position involves monitoring the VaR limit on the foreign exchange exposure of the Bank. In the table Derivative financial instruments are stated at fair value. 36.4. Interest rate risk management Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The length of time for which the rate of interest is fixed on a financial instrument, therefore, indicates to what extent it is exposed to interest rate risk. The majority of the Bank's interest bearing assets and liabilities are structured to match either short-term assets and short-term liabilities, or long-term assets and liabilities with repricing opportunities within one year, or long- term assets and corresponding liabilities where repricing is performed simultaneously. In addition, the significant spread existing between the different types of interest bearing assets and liabilities enables the Bank to 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 repricing dates of the Bank. Variable yield assets and liabilities have been reported in accordance with their next repricing date. Fixed income assets and liabilities have been reported in accordance with their maturity.
OTP Bank Plc Separate Financial Statements 2023 111 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.4. Interest rate risk management [continued] 31 December 2023 within 1 month within 3 months over 1 month within 1 year over 3 months within 2 years over 1 year over 2 years Non-interest -bearing Total Total ASSETS HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency Cash, amounts due from banks and balances with the National Bank of Hungary 2,180,950 332,909 - - - - - - - - 178,193 16,180 2,359,143 349,089 2,708,232 fixed interest 13,951 332,909 - - - - - - - - - - 13,951 332,909 346,860 variable interest 2,166,999 - - - - - - - - - - - 2,166,999 - 2,166,999 non-interest-bearing - - - - - - - - - - 178,193 16,180 178,193 16,180 194,373 Placements with other banks 338,152 78,034 123,031 624,268 43,151 143,091 147,777 9,564 1,036,999 73,162 68,897 16,306 1,758,007 944,425 2,702,432 fixed interest 11,436 4,556 63,267 1,928 29,036 15,785 147,777 9,564 1,036,999 73,162 - - 1,288,515 104,995 1,393,510 variable interest 326,716 73,478 59,764 622,340 14,115 127,306 - - - - - - 400,595 823,124 1,223,719 non-interest-bearing - - - - - - - - - - 68,897 16,306 68,897 16,306 85,203 Repo receivables 201,658 - - - - - - - - - - - 201,658 - 201,658 fixed interest 129,541 - - - - - - - - - - - 129,541 - 129,541 variable interest 72,117 - - - - - - - - - - - 72,117 - 72,117 Securities held for trading 225 5,515 625 6,253 1,240 95 2,293 844 3,112 6,769 217 616 7,712 20,092 27,804 fixed interest - 5,515 71 6,253 948 95 2,287 844 3,112 6,769 - - 6,418 19,476 25,894 variable interest 225 - 554 - 292 - 6 - - - - - 1,077 - 1,077 non-interest-bearing - - - - - - - - - - 217 616 217 616 833 Securities mandatorily measured at fair value through profit or loss - - - - - - - - - - 23,917 9,015 23,917 9,015 32,932 non-interest-bearing - - - - - - - - - - 23,917 9,015 23,917 9,015 32,932 Securities at fair value through other comprehensive income 150,415 - 46 351 9,781 3,040 78,451 16,710 156,490 123,066 528 20,649 395,711 163,816 559,527 fixed interest 19 - 44 351 9,781 3,040 78,451 16,710 156,490 123,066 - - 244,785 143,167 387,952 variable interest 150,396 - 2 - - - - - - - - - 150,398 - 150,398 non-interest-bearing - - - - - - - - - - 528 20,649 528 20,649 21,177
OTP Bank Plc Separate Financial Statements 2023 112 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.4. Interest rate risk management [continued] 31 December 2023 within 1 month within 3 months over 1 month within 1 year over 3 months within 2 years over 1 year over 2 years Non-interest -bearing Total Total ASSETS [continued] HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency Loans measured at amortised cost 768,234 493,557 327,609 1,390,931 71,453 110,398 216,734 23,518 988,290 132,552 116,716 41,367 2,489,036 2,192,323 4,681,359 fixed interest 26,634 1,520 14,684 304 62,798 4,198 215,943 23,518 981,880 132,552 - - 1,301,939 162,092 1,464,031 variable interest 741,600 492,037 312,925 1,390,627 8,655 106,200 791 - 6,410 - - - 1,070,381 1,988,864 3,059,245 non-interest-bearing - - - - - - - - - - 116,716 41,367 116,716 41,367 158,083 Loans mandatorily measured at fair value through profit or loss 21,569 - 19 - 181,484 - 221,779 - 509,997 - - - 934,848 - 934,848 variable interest 21,569 - 19 - 181,484 - 221,779 - 509,997 - - - 934,848 - 934,848 Securities at amortised cost 517 2,137 - 4,623 60,738 - 415,720 31,462 1,478,085 717,567 - - 1,955,060 755,789 2,710,849 fixed interest 517 2,137 - - 60,738 - 415,720 31,462 1,478,085 717,567 - - 1,955,060 751,166 2,706,226 variable interest - - - 4,623 - - - - - - - - - 4,623 4,623 Other financial assets - - - - - - - - - - 233,545 64,940 233,545 64,940 298,485 non-interest-bearing - - - - - - - - - - 233,545 64,940 233,545 64,940 298,485 Derivative financial instruments 751,222 2,070,427 961,287 1,413,811 481,235 724,587 54,251 107,615 297,986 230,493 581,836 165,708 3,127,817 4,712,641 7,840,458 fixed interest 643,342 2,008,291 364,434 1,025,182 321,153 444,680 54,251 107,375 297,986 228,099 - - 1,681,166 3,813,627 5,494,793 variable interest 107,880 62,136 596,853 388,629 160,082 279,907 - 240 - 2,394 - - 864,815 733,306 1,598,121 non-interest-bearing - - - - - - - - - - 581,836 165,708 581,836 165,708 747,544
OTP Bank Plc Separate Financial Statements 2023 113 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.4. Interest rate risk management [continued] 31 December 2023 within 1 month within 3 months over 1 month within 1 year over 3 months within 2 years over 1 year over 2 years Non-interest -bearing Total Total LIABILITIES HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency Amounts due to banks and deposits with the National Bank of Hungary and other banks 211,121 241,637 15,233 125,710 30,529 78,404 223,700 301,093 431,599 60,060 31,626 10,867 943,808 817,771 1,761,579 fixed interest 170,042 11,432 15,232 268 30,481 78,399 223,700 301,093 431,599 60,060 - - 871,054 451,252 1,322,306 variable interest 41,079 230,205 1 125,442 48 5 - - - - - - 41,128 355,652 396,780 non-interest-bearing - - - - - - - - - - 31,626 10,867 31,626 10,867 42,493 Financial liabilities designated to measure at fair value through profit or loss 19,761 - - - - - - - 25 - - - 19,786 - 19,786 fixed interest - - - - - - - - 25 - - - 25 - 25 variable interest 19,761 - - - - - - - - - - - 19,761 - 19,761 Repo liabilities 95,146 101,665 - - - - 195,405 19,825 - 31,653 - - 290,551 153,143 443,694 fixed interest 24,572 101,665 - - - - 195,405 19,825 - 31,653 - - 219,977 153,143 373,120 variable interest 70,574 - - - - - - - - - - - 70,574 - 70,574 Deposits from customers 7,520,231 2,875,160 156,216 34,561 75,793 37,149 - - 7 - 19,872 15,336 7,772,119 2,962,206 10,734,325 fixed interest 1,068,482 935,571 156,216 34,561 75,793 37,149 - - 7 - - - 1,300,498 1,007,281 2,307,779 variable interest 6,451,749 1,939,589 - - - - - - - - - - 6,451,749 1,939,589 8,391,338 non-interest-bearing - - - - - - - - - - 19,872 15,336 19,872 15,336 35,208 Liabilities from issued securities 545 - 72,641 - 85,919 13,320 32,473 157,095 12,664 788,452 - - 204,242 958,867 1,163,109 fixed interest 206 - 72,083 - 85,919 - 32,473 157,095 12,664 788,452 - - 203,345 945,547 1,148,892 variable interest 339 - 558 - - 13,320 - - - - - - 897 13,320 14,217 Subordinated bonds and loans - - - 89,381 1,886 191,894 1,863 - 9,270 226,002 - - 13,019 507,277 520,296 fixed interest - - - - 1,886 - 1,863 - 9,270 226,002 - - 13,019 226,002 239,021 variable interest - - - 89,381 - 191,894 - - - - - - - 281,275 281,275 Leasing liabilities 240 275 545 704 2,477 3,484 6,579 8,424 21,198 24,356 - - 31,039 37,243 68,282 fixed interest 186 108 378 219 1,725 1,001 4,695 2,410 12,574 863 - - 19,558 4,601 24,159 variable interest 54 167 167 485 752 2,483 1,884 6,014 8,624 23,493 - - 11,481 32,642 44,123 Other financial liabilities - - - - - - - - - - 71,790 170,431 71,790 170,431 242,221 non-interest-bearing - - - - - - - - - - 71,790 170,431 71,790 170,431 242,221 Derivative financial instruments 1,858,423 981,110 524,302 1,863,222 442,891 872,793 59,172 111,527 197,826 167,354 491,972 262,427 3,574,586 4,258,433 7,833,019 fixed interest 1,809,109 846,948 373,167 1,019,044 226,755 499,824 59,172 111,527 197,826 167,354 - - 2,666,029 2,644,697 5,310,726 variable interest 49,314 134,162 151,135 844,178 216,136 372,969 - - - - - - 416,585 1,351,309 1,767,894 non-interest-bearing - - - - - - - - - - 491,972 262,427 491,972 262,427 754,399 NET POSITION (5,292,525) (1,217,268) 643,680 1,326,659 209,587 (215,833) 617,813 (408,251) 3,798,370 (14,268) 588,589 (124,280) 565,514 (653,241) (87,727)
OTP Bank Plc Separate Financial Statements 2023 114 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.4. Interest rate risk management [continued] As at 31 December 2022 within 1 month within 3 months over 1 month within 1 year over 3 months within 2 years over 1 year over 2 years Non-interest -bearing Total Total ASSETS HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency Cash, amounts due from banks and balances with the National Bank of Hungary 637,040 251,192 - - - - - - - - 183,139 20,827 820,179 272,019 1,092,198 fixed interest 637,040 251,192 - - - - - - - - - - 637,040 251,192 888,232 non-interest-bearing - - - - - - - - - - 183,139 20,827 183,139 20,827 203,966 Placements with other banks 665,056 153,142 130,299 461,042 74,287 208,087 98,606 - 1,012,903 36,780 48,754 10,873 2,029,905 869,924 2,899,829 fixed interest 5,118 50,475 19,408 105,266 57,053 86,207 98,606 - 1,012,903 36,780 - - 1,193,088 278,728 1,471,816 variable interest 659,938 102,667 110,891 355,776 17,234 121,880 - - - - - - 788,063 580,323 1,368,386 non-interest-bearing - - - - - - - - - - 48,754 10,873 48,754 10,873 59,627 Repo receivables 246,529 - - - - - - - - - - - 246,529 - 246,529 fixed interest 155,711 - - - - - - - - - - - 155,711 - 155,711 variable interest 90,818 - - - - - - - - - - - 90,818 - 90,818 Securities held for trading 16 1,203 5,199 229 12,146 4,250 21,882 1,049 26,857 1,305 123 536 66,223 8,572 74,795 fixed interest 1 1,203 1,009 229 3,775 4,250 21,882 1,049 26,857 1,305 - - 53,524 8,036 61,560 variable interest 15 - 4,190 - 8,371 - - - - - - - 12,576 - 12,576 non-interest-bearing - - - - - - - - - - 123 536 123 536 659 Securities mandatorily measured at fair value through profit or loss - - - - - - - - - - 21,124 9,374 21,124 9,374 30,498 non-interest-bearing - - - - - - - - - - 21,124 9,374 21,124 9,374 30,498 Securities at fair value through other comprehensive income 281,342 - 62,611 - 112,239 41,000 13,691 3,850 194,931 69,589 528 17,394 665,342 131,833 797,175 fixed interest 45,688 - 62,610 - 112,232 41,000 13,691 3,850 194,931 69,589 - - 429,152 114,439 543,591 variable interest 235,654 - 1 - 7 - - - - - - - 235,662 - 235,662 non-interest-bearing - - - - - - - - - - 528 17,394 528 17,394 17,922
OTP Bank Plc Separate Financial Statements 2023 115 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.4. Interest rate risk management [continued] As at 31 December 2022 within 1 month within 3 months over 1 month within 1 year over 3 months within 2 years over 1 year over 2 years Non-interest -bearing Total Total ASSETS [continued] HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency Loans measured at amortised cost 766,348 661,415 298,189 1,468,489 126,438 89,257 142,052 7,052 958,858 129,401 133,290 44,249 2,425,175 2,399,863 4,825,038 fixed interest 12,400 2,313 10,673 2,338 114,941 8,718 141,272 7,052 951,725 129,401 - - 1,231,011 149,822 1,380,833 variable interest 753,948 659,102 287,516 1,466,151 11,497 80,539 780 - 7,133 - - - 1,060,874 2,205,792 3,266,666 non-interest-bearing - - - - - - - - - - 133,290 44,249 133,290 44,249 177,539 Loans mandatorily measured at fair value through profit or loss 18,432 - 110 - 515 - 181,763 - 592,422 - - - 793,242 - 793,242 variable interest 18,432 - 110 - 515 - 181,763 - 592,422 - - - 793,242 - 793,242 Securities at amortised cost 19,142 - - 5,072 179,968 139,632 271,024 2,422 1,914,570 750,543 - - 2,384,704 897,669 3,282,373 fixed interest - - - - 179,968 139,632 271,024 2,422 1,914,570 750,543 - - 2,365,562 892,597 3,258,159 variable interest 19,142 - - 5,072 - - - - - - - - 19,142 5,072 24,214 Other financial assets - - - - - - - - - - 200,781 54,344 200,781 54,344 255,125 non-interest-bearing - - - - - - - - - - 200,781 54,344 200,781 54,344 255,125 Derivative financial instruments 2,112,146 2,789,859 906,446 1,424,063 469,337 545,207 36,682 35,935 183,664 98,147 194,741 604,648 3,903,016 5,497,859 9,400,875 fixed interest 1,991,112 2,722,206 428,080 878,305 262,461 518,338 36,682 35,935 183,664 98,147 - - 2,901,999 4,252,931 7,154,930 variable interest 121,034 67,653 478,366 545,758 206,876 26,869 - - - - - - 806,276 640,280 1,446,556 non-interest-bearing - - - - - - - - - - 194,741 604,648 194,741 604,648 799,389
OTP Bank Plc Separate Financial Statements 2023 116 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.4. Interest rate risk management [continued] As at 31 December 2022 within 1 month within 3 months over 1 month within 1 year over 3 months within 2 years over 1 year over 2 years Non-interest -bearing Total Total LIABILITIES HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency HUF foreign currency Amounts due to banks and deposits with the National Bank of Hungary and other banks 229,856 385,369 37,293 40,697 129,475 8,214 71,538 315,766 397,820 32,570 81,759 5,771 947,741 788,387 1,736,128 fixed interest 200,719 106,264 37,293 40,697 129,475 8,214 71,538 315,766 397,820 32,570 - - 836,845 503,511 1,340,356 variable interest 29,137 279,105 - - - - - - - - - - 29,137 279,105 308,242 non-interest-bearing - - - - - - - - - - 81,759 5,771 81,759 5,771 87,530 Financial liabilities designated to measure at fair value through profit or loss 16,576 - - - - - - - - - - - 16,576 - 16,576 fixed interest 26 - - - - - - - - - - - 26 - 26 variable interest 16,550 - - - - - - - - - - - 16,550 - 16,550 Repo liabilities 119,520 188,121 85,356 15,369 - - - - - - - - 204,876 203,490 408,366 fixed interest 29,144 4 85,356 15,369 - - - - - - - - 114,500 15,373 129,873 variable interest 90,376 188,117 - - - - - - - - - - 90,376 188,117 278,493 Deposits from customers 7,563,627 2,887,850 302,491 190,393 127,940 23,147 - - 16 - 12,147 11,547 8,006,221 3,112,937 11,119,158 fixed interest 1,008,247 552,561 302,491 190,393 127,940 23,147 - - 16 - - - 1,438,694 766,101 2,204,795 variable interest 6,555,380 2,335,289 - - - - - - - - - - 6,555,380 2,335,289 8,890,669 non-interest-bearing - - - - - - - - - - 12,147 11,547 12,147 11,547 23,694 Liabilities from issued securities 1,878 - 1,215 - 1,702 - 1,854 - 43,854 448,206 - - 50,503 448,206 498,709 fixed interest 211 - - - 1,702 - 1,854 - 43,854 448,206 - - 47,621 448,206 495,827 variable interest 1,667 - 1,215 - - - - - - - - - 2,882 - 2,882 Subordinated bonds and loans - - - 93,110 - 201,076 - - - - - - - 294,186 294,186 variable interest - - - 93,110 - 201,076 - - - - - - - 294,186 294,186 Leasing liabilities 282 431 430 815 1,990 2,781 5,436 4,966 15,365 8,968 - - 23,503 17,961 41,464 fixed interest 229 41 326 83 1,567 379 4,688 1,004 14,798 267 - - 21,608 1,774 23,382 variable interest 53 390 104 732 423 2,402 748 3,962 567 8,701 - - 1,895 16,187 18,082 Other financial liabilities - - - - - - - - - - 220,129 38,344 220,129 38,344 258,473 non-interest-bearing - - - - - - - - - - 220,129 38,344 220,129 38,344 258,473 Derivative financial instruments 3,097,710 1,854,159 478,930 1,819,835 574,661 554,788 22,780 36,706 118,071 114,115 245,955 555,251 4,538,107 4,934,854 9,472,961 fixed interest 3,012,679 1,709,457 331,253 972,597 216,895 532,485 22,758 36,706 118,071 114,115 - - 3,701,656 3,365,360 7,067,016 variable interest 85,031 144,702 147,677 847,238 357,766 22,303 22 - - - - - 590,496 1,014,243 1,604,739 non-interest-bearing - - - - - - - - - - 245,955 555,251 245,955 555,251 801,206 NET POSITION (6,283,398) (1,459,119) 497,139 1,198,676 139,162 237,427 664,092 (307,130) 4,309,079 481,906 222,490 151,332 (451,436) 303,092 (148,343)
OTP Bank Plc Separate Financial Statements 2023 117 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.5. Market risk The Bank takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Bank applies a Value- at-Risk ("VaR") methodology to estimate the market risk of positions held and the maximum losses expected, based upon a number of assumptions for various changes in market conditions. The Management Board sets limits on the value of risk that may be accepted, which is monitored on a daily basis. (Analysis of liquidity risk, foreign currency risk and interest rate risk is detailed in Notes 36.2, 36.3 and 36.4 respectively.) 36.5.1. Market risk sensitivity analysis The VaR risk measure estimates the potential loss in pre-tax profit over a given holding period for a specified confidence level. The VaR methodology is a statistically defined, probability-based approach that takes into account market volatilities as well as risk diversification by recognizing offsetting positions and correlations between products and markets. Risks can be measured consistently across all markets and products, and risk measures can be aggregated to arrive at a single risk number. The one-day 99% VaR number used by the Group reflects the 99% probability that the daily loss will not exceed the reported VaR. VaR methodologies are employed to calculate daily risk numbers include the historical and variance-covariance approach. The diversification effect has not been validated among the various market risk types when capital calculation happens. In addition to these two methodologies, Monte Carlo simulations are applied to the various portfolios on a monthly basis to determine potential future exposure. The VaR of the trading portfolio can be summarized as follows (in HUF mn): Historical VaR (99%, one-day) by risk type Average Var 2023 2022 Foreign exchange 11,181 6,820 Interest rate 489 327 Equity instruments 18 42 Total VaR exposure 11,688 7,189 The table above shows the VaR figures by asset classes. Since processes driving the value of the major asset classes are not independent (for example the depreciation of HUF against the EUR mostly coincide with the increase of the yields of Hungarian Government Bonds), a diversification impact emerges, so the overall VaR is less than the sum of the VaR of each individual asset class. While VaR captures the OTP’s daily exposure to currency and interest rate risk, sensitivity analysis evaluates the impact of a reasonably possible change in interest or foreign currency rates over a year. The longer time frame of sensitivity analysis complements VaR and helps the OTP to assess its market risk exposures. Details of sensitivity analysis for foreign currency risk are set out in Note 36.5.2., for interest rate risk in Note 36.5.3., and for equity price sensitivity analysis in Note 36.5.4.
OTP Bank Plc Separate Financial Statements 2023 118 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.5. Market risk [continued] 36.5.2. Foreign currency sensitivity analysis The following table shows the result of the foreign currency sensitivity analysis. The Group uses VaR calculation with 1 day holding period and a 99% confidence level. The VaR methodology is a statistically defined, probability- based approach that takes into account market volatilities as well as risk diversification by recognizing offsetting positions and correlations between products and markets. The daily loss will not exceed the reported VaR number with 99% of probability. Probability Effects to the P&L in 3 months period 2023 2022 In HUF billion In HUF billion 1% (8,943) (4,582) 5% (4,784) (2,470) 25% (1,332) (786) 50% 360 14 25% 1,790 999 5% 4,527 2,700 1% 6,321 4,233 Notes: (1) Historical VaR simulation is based on the empirical distribution of the historical exchange rate movements between 31 December 2023 and 31 December 2022.
OTP Bank Plc Separate Financial Statements 2023 119 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.5. Market risk [continued] 36.5.3. Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. The analysis is prepared assuming the amount of assets and liabilities outstanding at the balance sheet date was outstanding for the whole year. The analysis was prepared by assuming only adverse interest rate changes. The main assumptions were as follows: ● Floating rate assets and liabilities were repriced to the modelled benchmark yields at the repricing dates assuming the unchanged margin compared to the last repricing. ● Fixed rate assets and liabilities were repriced at the contractual maturity date. ● As for liabilities with discretionary repricing feature by the Bank were assumed to be repriced with two - weeks delay, assuming no change in the margin compared to the last repricing date. ● Deposits with an interest rate lower than 0.3% even at high market rates were assumed to be unchanged for the whole period. The sensitivity of interest income to changes in BUBOR was analysed by assuming two interest rate path scenarios: (1) (1) HUF base rate and BUBOR increases gradually by 500 bps over the next year (probable scenario) (2) (2) HUF base rate and BUBOR increases gradually by 100 bps over the next year (alternative scenario) The net interest income in a one year period after 1 January 2024 would be decreased by HUF 6.355 million (probable scenario) and increased by HUF 999 million (alternative scenario) as a result of these simulation.The same simulation indicated HUF 6.304 million decrease (probable scenario) and HUF 3.058 million increase (alternative scenario) in the Net interest income in a one year period after 1 January 2023. Besides the effect is further increased by capital gains HUF +429 million (for probable scenario), HUF -104 million (for alternative scenario) as at 31 December 2023 and (HUF -350 million for scenario 1, HUF +181 million for scenario 2 as at 31 December 2022) on the government bond portfolio held for hedging (economic). Furthermore, the effects of an instant 10bps parallel shift of the HUF, EUR and USD yield-curves on net interest income over a one-year period and on the market value of the hedge government bond portfolio booked against capital was analysed. The results can be summarized as follows (in HUF million): Description 2023 2022 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) HUF (0.1%) parallel shift (426) 14 1,105 36 HUF 0.1% parallel shift 425 (14) (1,105) (36) EUR (0.1%) parallel shift 1,065 - (383) - EUR 0.1% parallel shift (1,564) - 1,121 - USD (0.1%) parallel shift 500 - 935 - USD 0.1% parallel shift (517) - (1,106) - Total (941) - (120) - 36.5.4. Equity price sensitivity analysis The following table shows the effect of the equity price sensitivity. The Bank uses VaR calculation with 1 day holding period and a 99% confidence level. The VaR methodology is a statistically defined, probability-based approach that takes into account market volatilities as well as risk diversification by recognizing offsetting positions and correlations between products and markets. The daily loss will not exceed the reported VaR number with 99% of probability. The stress test assumes the largest price movement of the last year and calculates with it as the adverse direction. These scenarios show the loss of the portfolio when all prices change with the maximum amount of the last year. Description 2023 2022 VaR (99%, one day, million HUF) 10 15 Stress test (million HUF) (103) (26)
OTP Bank Plc Separate Financial Statements 2023 120 NOTE 36: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 36.6 Capital management Capital management The primary objective of the capital management of the Bank is to ensure the prudent operation, the entire compliance with the prescriptions of the regulator for a persistent business operation and maximising the shareholder value, accompanied by an optimal financing structure. The capital management of the Bank includes the management and evaluation of the shareholders` equity available for hedging risks, other types of funds to be recorded in the equity and all material risks to be covered by the capital. The basis of the capital management of the Bank in the short run is the continuous monitoring of its capital position, in the long run the strategic and the business planning, which includes the monitoring and forecast of the capital position of the Bank. The Bank maintains the capital adequacy required by the regulatory bodies and the planned risk taking mainly by means of ensuring and developing its profitability. In case the planned risk level of the Bank exceeded its Core and Supplementary capital, the Bank ensures the prudent operation by occasional measures. A further tool in the capital management of the Bank is the dividend policy, and the transactions performed with the treasury shares. Capital adequacy 9 The Capital Requirements Directive package (CRDIV/CRR) transposes the global standards on banking regulation (commonly known as the Basel III agreement) into the EU legal framework. The rules are applied from 1 January 2014. They set stronger prudential requirements for institutions, requiring them to keep sufficient capital reserves and liquidity. This framework makes institutions in the EU more solid and strengthens their capacity to adequately manage the risks linked to their activities, and absorb any losses they may incur in doing business. The Bank has entirely complied with the regulatory capital requirements in 2023 as well as in 2022. The Bank’s capital adequacy calculation is in line with IFRS and based on Basel III as at 31 December 2023 and 31 December 2022. The Bank uses the standard method for determining the regulatory capital requirements of the credit risk and market risk while in case of the operational risk the Advanced Measurement Approach (AMA). 31 December 2023 31 December 2022 Basel III Basel III Core capital (Tier 1) 2,186,422 1,632,037 Primary core capital (CET1) 2,186,422 1,632,037 Supplementary capital (Tier 2) 500,555 286,181 Regulatory capital 2,686,977 1,918,218 Credit risk capital requirement 719,575 742,536 Market risk capital requirement 27,799 26,530 Operational risk capital requirement 30,324 31,440 Total eligible regulatory capital 777,698 800,506 Surplus capital 1,909,279 1,117,712 CET 1 ratio 22.49% 16.31% Capital adequacy ratio 27.64% 19.17% Basel III: Common equity Tier 1 capital (CET1): Issued capital, Capital reserve, useable part of Tied-up reserve, General reserve, Profit reserve, Profit for the year, Treasury shares, Intangible assets, deductions due to investments, adjustments due to temporary disposals Tier 2 capital: Subsidiary loan capital, Subordinated loan capital, deductions due to repurchased loan capital and Subordinated loan capital issued by the OTP Bank, adjustments due to temporary disposals. 9 The dividend amount planned to pay out / paid out is deducted from reserves.
OTP Bank Plc Separate Financial Statements 2023 121 NOTE 37: TRANSFER OF FINANCIAL INSTRUMENTS (in HUF mn) Financial assets transferred but not derecognised 31 December 2023 31 December 2022 Transferred assets Associated liabilities Transferred assets Associated liabilities Carrying amount Financial assets at fair value through other comprehensive income Debt securities 77,030 75,812 95,493 95,900 Total 77,030 75,812 95,493 95,900 Financial assets at amortised cost Debt securities 408,632 367,883 381,356 312,466 Total 408,632 367,883 381,356 312,466 Total 485,662 443,695 476,849 408,366 As at 31 December 2023 and 31 December 2022, the Bank had obligation from repurchase agreements about HUF 444 billion and HUF 408 billion respectively. Securities sold temporarily under repurchase agreements will continue to be recognized in the Statement of Financial Position of the Bank in the appropriate securities category. The related liability is measured at amortized cost in the Statement of Financial Position as ’Amounts due to banks and deposits from the National Bank of Hungary and other banks’. Under these repurchase agreements only Hungarian and foreign government bonds were transferred. NOTE 38: OFF-BALANCE SHEET ITEMS (in HUF mn) In the normal course of business, the Bank becomes a party to various financial transactions that are not reflected on the statement of financial position and are referred to as off-balance sheet financial instruments. The following represents notional amounts of these off-balance sheet financial instruments, unless stated otherwise. Contingent liabilities and commitments 31 December 2023 31 December 2022 Loan commitments 1,987,539 1,852,164 Guarantees arising from banking activities 1,999,747 1,873,824 from this: Payment undertaking liabilities (related to issue of mortgage bonds) of OTP Mortgage Bank 1,177,213 955,480 Factoring loan commitments 366,181 373,417 Confirmed letters of credit 8,626 12,376 Contingent liabilities and commitments total in accordance with IFRS 9 4,362,093 4,111,781 Legal disputes (disputed value) 4,586 3,678 Contingent liabilities related to payments from shares in venture capital fund 20,803 28,614 Other 19 7 Contingent liabilities and commitments total in accordance with IAS 37 25,408 32,299 Total 4,387,501 4,144,080
OTP Bank Plc Separate Financial Statements 2023 122 NOTE 38: OFF-BALANCE SHEET ITEMS (in HUF mn) [continued] Legal disputes At the balance sheet date the Bank was involved in various claims and legal proceedings of a nature considered normal to its business. The level of these claims and legal proceedings corresponds to the level of claims and legal proceedings in previous years. The Bank believes that the various asserted claims and litigations in which it is involved will not materially affect its financial position, future operating results or cash flows, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation. Provision due to legal disputes was HUF 1.931 million and HUF 1.917 million as at 31 December 2023 and 31 December 2022, respectively. (See Note 24.) Commitments to extend credit, guarantees and letter of credit The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. Guarantees, irrevocable letters of credit and undrawn loan commitments are subject to similar credit risk monitoring and credit policies as utilised in the extension of loans. The Management of the Bank believes the market risk associated with guarantees, irrevocable letters of credit and undrawn loan commitments are minimal. Guarantees, payment undertakings arising from banking activities Payment undertaking is a promise by the Bank to assume responsibility for the debt obligation of a borrower if that borrower defaults until a determined amount and until a determined date, in case of fulfilling conditions, without checking the underlying transactions. The guarantee’s liability is joint and primary with the principal, in case of payment undertaking, while the Bank assumes the obligation derived from guarantee independently by the conditions established by the Bank. A guarantee is most typically required when the ability of the primary obligor or principal to perform its obligations under a contract is in question, or when there is some public or private interest which requires protection from the consequences of the principal's default or delinquency. Contingent liabilities related to OTP Mortgage Bank Ltd. Under a syndication agreement with its wholly owned subsidiary, OTP Mortgage Bank Ltd., the Bank had guaranteed, in return for an annual fee, to purchase all mortgage loans held by OTP Mortgage Bank Ltd. that become non-performing. According to the arrangement the repurchase guarantee was cancelled and OTP Bank Plc. gives bail to the loans originated or purchased by the Bank.
OTP Bank Plc Separate Financial Statements 2023 123 NOTE 39: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn) Previously approved option program required a modification thanks to the introduction of the Bank Group Policy on Payments accepted in resolution of Annual General Meeting regarding to the amendment of CRD III. Directives and Act on Credit Institutions and Financial Enterprises. Key management personnel affected by the Bank Group Policy receive compensation based on performance assessment generally in the form of cash bonus and equity shares in a ratio of 50-50%. Assignment is based on OTP shares, furthermore performance based payments are deferred in accordance with the rules of Credit Institutions Act. OTP Bank ensures the share-based payment part for the management personnel of OTP Group members. During implementation of the Remuneration Policy of the Group it became apparent that in case of certain foreign subsidiaries it is not possible to ensure the originally determined share-based payment because of legal reasons – incompatible with relevant EU-directives –, therefore a decision was made to cancel the share-based payment in affected countries, and virtual share based payment – cash payment fixed to share price - was made from 2017. In case of foreign subsidiaries virtual share based payment was made uniformly from 2021 (in case of payments related to 2021). The quantity of usable shares for individuals calculated for settlement of share-based payment shall be determined as the ratio of the amount of share-based payment and share price determined by Supervisory Board. The value of the share-based payment at the performance assessment is determined within 10 days by Supervisory Board based on the average of the three previous trade day’s middle rate of OTP Bank’s equi ty shares fixed on the Budapest Stock Exchange. At the same time the conditions of discounted share-based payment are determined, and share-based payment shall contain maximum HUF 6,000 discount at the assessment date, and earnings for the shares at the payment date is maximum HUF 12,000. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. IAS 19 Employee Benefits shall be applied in accounting for all employee benefits, except those to which IFRS 2 Share-based Payment applies. Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Post-employment benefits are employee benefits (other than termination and short-term employee benefits) that are payable after the completion of employment. Post-employment benefit plans are formal or informal arrangements under which an entity provides post-employment benefits for one or more employees. Post- employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either: an entity’s decision to terminate an employee’s employment bef ore the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. Other long-term employee benefits are all employee benefits other than short-term employee benefits, postemployment benefits and termination benefits.
OTP Bank Plc Separate Financial Statements 2023 124 NOTE 39: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn) [continued] The parameters for the share-based payment relating to ongoing years 2018-2022 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 Exercise price Maximum earnings per share HUF per share for the year 2018 for the year 2019 for the year 2020 2019 10,413 4,000 12,413 - - - - - - 2020 10,413 4,000 12,413 9,553 4,000 11,553 - - - 2021 10,413 4,000 12,413 9,553 4,000 11,553 12,644 9,000 16,644 2022 10,913 4,000 12,413 9,553 4,000 11,553 12,644 8,000 16,644 2023 10,913 4,000 12,413 9,553 4,000 11,553 13,644 8,000 16,644 2024 10,913 4,000 12,413 9,553 4,000 11,553 13,644 8,000 16,644 2025 10,913 4,000 12,413 9,553 4,000 11,553 13,644 8,000 16,644 2026 - - - 9,553 4,000 11,553 13,644 8,000 16,644 2027 - - - - - - 13,644 8,000 16,644 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 Exercise price Maximum earnings per share Exercise price Maximum earnings per share HUF per share for the year 2021 for the year 2022 2022 5,912 6,000 8,912 - - - 2023 6,912 7,000 8,912 7,773 6,000 10,773 2024 6,912 8,000 8,912 8,773 7,000 10,773 2025 6,912 9,000 8,912 8,773 8,000 10,773 2026 6,912 10,000 8,912 8,773 9,000 10,773 2027 6,912 10,000 8,912 8,773 10,000 10,773 2028 6,912 10,000 8,912 8,773 10,000 10,773 2029 - - - 8,773 10,000 10,773 Relevant factors considered during measurement of fair value related to share-based payment as follows: Year Reference price Assumed volatility Risk-free interest rate (HUF) 1Y 2Y 3Y 4Y 5Y 6Y 7Y 2017 9,200 21.3% 0.1% 0.5% 0.7% 1.0% 1.3% 1.3% 1.3% 2018 10,064 26.0% 0.2% 0.6% 1.0% 1.3% 1.6% 1.9% 2.1% 2019 12,413 19.2% 0.2% 0.7% 0.9% 1.1% 1.3% 1.4% 1.6% 2020 11,553 33.6% 0.6% 0.4% 0.5% 0.6% 0.8% 0.9% 1.0% 2021 16,644 28.6% 1.0% 1.6% 1.8% 1.9% 2.0% 2.1% 2.1% 2022 8,912 42.6% 7.1% 7.9% 7.6% 7.3% 7.1% 7.0% 6.9% 2023 10,773 33.3% 13.2% 9.2% 8.2% 7.7% 7.3% 7.1% 6.9%
OTP Bank Plc Separate Financial Statements 2023 125 NOTE 39: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn) [continued] Relevant factors considered during measurement of fair value related to share-based payment as follows: [continued] Év Expected dividends (HUF/Share) Pricing model 1Y 2Y 3Y 4Y 5Y 6Y 7Y 2017 219 219 252 290 334 384 442 Binomial 2018 219 219 219 219 219 219 219 Binomial 2019 252 290 333 383 440 507 583 Binomial 2020 219 252 290 333 383 440 507 Binomial 2021 371 321 357 393 432 475 523 Binomial 2022 452 497 547 601 661 728 800 Binomial 2023 300 330 363 399 439 483 531 Binomial Based on parameters accepted by Supervisory Board, relating to the year 2018 effective pieces are follows As at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable at 31 December 2023 Share-purchasing period started in 2019 82,854 82,854 13,843 - - Remuneration exchanged to share provided in 2019 17,017 17,017 11,829 - - Share-purchasing period starting in 2020 150,230 150,230 14,294 - - Remuneration exchanged to share applying in 2020 33,024 33,024 11,897 - - Share-purchasing period starting in 2021 73,799 73,799 16,314 - - Remuneration exchanged to share applying in 2021 14,618 14,618 16,468 - - Share-purchasing period starting in 2022 86,456 77,425 14,605 9,031 - Remuneration exchanged to share applying in 2022 13,858 13,858 8,529 - - Share-purchasing period starting in 2023 45,155 45,155 14,736 - - Remuneration exchanged to share applying in 2023 3,217 3,217 11,820 - - Remuneration exchanged to share applying in 2024 - - - - 864 Remuneration exchanged to share applying in 2025 - - - - 432 Based on parameters accepted by Supervisory Board, relating to the year 2019 effective pieces are follows As at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable at 31 December 2023 Share-purchasing period started in 2020 91,403 91,403 12,218 - - Remuneration exchanged to share provided in 2020 22,806 22,806 11,897 - - Share-purchasing period starting in 2021 201,273 201,273 16,298 - - Remuneration exchanged to share applying in 2021 30,834 30,834 17,618 - - Share-purchasing period starting in 2022 107,760 101,897 13,771 1,344 4,519 Remuneration exchanged to share applying in 2022 10,564 10,564 8,529 - - Share-purchasing period starting in 2023 117,437 114,063 13,893 - 3,374 Remuneration exchanged to share applying in 2023 13,427 13,427 11,674 - - Share-purchasing period starting in 2024 - - - - 44,421 Remuneration exchanged to share applying in 2024 - - - - 6,279 Remuneration exchanged to share applying in 2025 - - - - 1,000 Remuneration exchanged to share applying in 2026 - - - - 500
OTP Bank Plc Separate Financial Statements 2023 126 NOTE 39: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn) [continued] Based on parameters accepted by Supervisory Board, relating to the year 2020 effective pieces are follows As at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable at 31 December 2023 Share-purchasing period started in 2021 41,098 14,142 17,997 26,956 - Remuneration exchanged to share provided in 2021 17,881 17,881 17,498 - - Share-purchasing period starting in 2022 83,688 3,536 14,193 1,288 78,864 Remuneration exchanged to share applying in 2022 15,232 15,111 8,529 121 - Share-purchasing period starting in 2023 47,275 - - - 47,275 Remuneration exchanged to share applying in 2023 8,562 8,562 11,659 - - Share-purchasing period starting in 2024 - - - - 51,002 Remuneration exchanged to share applying in 2024 - - - - 9,518 Share-purchasing period starting in 2025 - - - - 13,080 Remuneration exchanged to share applying in 2025 - - - - 3,443 Remuneration exchanged to share applying in 2026 - - - - 680 Remuneration exchanged to share applying in 2027 - - - - 680 Based on parameters accepted by Supervisory Board, relating to the year 2021 effective pieces are follows As at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable at 31 December 2023 Share-purchasing period started in 2022 60,018 59,776 10,122 242 - Remuneration exchanged to share provided in 2022 11,028 11,028 8,691 - - Share-purchasing period starting in 2023 117,276 117,276 13,672 - - Remuneration exchanged to share applying in 2023 10,824 10,824 11,534 - - Share-purchasing period starting in 2024 - - - - 50,771 Remuneration exchanged to share applying in 2024 - - - - 4,942 Share-purchasing period starting in 2025 - - - - 54,262 Remuneration exchanged to share applying in 2025 - - - - 4,942 Share-purchasing period starting in 2026 - - - - 58,155 Remuneration exchanged to share applying in 2026 - - - - 4,942 Share-purchasing period starting in 2027 - - - - 25,305 Remuneration exchanged to share applying in 2027 - - - - 631
OTP Bank Plc Separate Financial Statements 2023 127 NOTE 39: SHARE-BASED PAYMENT AND EMPLOYEE BENEFIT (in HUF mn) [continued] Based on parameters accepted by Supervisory Board, relating to the year 2022 effective pieces are follows As at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable at 31 December 2023 Share-purchasing period started in 2023 57,412 57,364 13,484 - 48 Remuneration exchanged to share provided in 2023 8,726 8,590 11,629 - 136 Share-purchasing period starting in 2024 - - - - 103,450 Remuneration exchanged to share applying in 2024 - - - - 8,494 Share-purchasing period starting in 2025 - - - - 42,814 Remuneration exchanged to share applying in 2025 - - - - 3,993 Share-purchasing period starting in 2026 - - - - 43,714 Remuneration exchanged to share applying in 2026 - - - - 3,993 Share-purchasing period starting in 2027 - - - - 44,701 Remuneration exchanged to share applying in 2027 - - - - 3,993 Share-purchasing period starting in 2028 - - - - 19,756 Remuneration exchanged to share applying in 2028 - - - - - Effective pieces relating to the periods starting in 2024-2028 settled during valuation of performance of year 2019- 2022, can be modified based on risk assessment and personal changes. In connection with the share-based compensation for Board of Directors and connecting compensation, shares given as a part of payments detailed above and for the year 2023 based on performance assessment accounted as equity-settled share based transactions HUF 3,292 million was recognized as expense for the year ended 31 December 2023.
OTP Bank Plc Separate Financial Statements 2023 128 NOTE 40: RELATED PARTY TRANSACTIONS (in HUF mn) Outstanding balances and transactions with related parties are summarized below in aggregate: Statement of financial position 31 December 2023 31 December 2022 Associated companies and other companies Other related parties Associated companies and other companies Other related parties Cash, amounts due from banks and balances with the National Bank of Hungary 11,568 - 83,713 - Placements with other banks 2,202,179 - 2,019,597 - Repo receivables 183,394 - 205,520 - Held for trading securities 16 - 11 - Held for trading derivative financial instruments: 43,808 - 55,989 - Financial assets at fair value through other comprehensive income 273,400 - 302,121 - Securities at amortised cost - 609 - 601 Loans at amortised cost 979,319 56,353 997,027 65,767 Loans mandatorily measured at fair value through profit or loss - 42 - 44 Right of use assets 25,972 - 21,615 - Derivative financial assets designated as hedge accounting relationships 1,345 - 1,625 - Other assets 173,687 280 136,361 375 Total Assets 3,894,688 57,284 3,823,579 66,787 Amounts due to banks and deposits from the National Bank of Hungary and other banks (998,512) - (863,748) - Repo liabilities (317,457) - (191,102) - Deposits from customers (300,557) (78,840) (271,214) (58,217) Leasing liabilities (26,948) - (22,129) - Liabilities from issued securities (11,133) - (11,093) - Derivative financial liabilities designated as held for trading (24,137) - (40,225) - Derivative financial liabilities designated as hedge accounting relationships (898) - - - Other liabilities (14,681) - (14,836) (491) Total Liabilities (1,694,323) (78,840) (1,414,347) (58,708) Off balance sheet items Guarantees (1,324,353) (10,209) (1,208,669) (7,824) Loan commitments (59,569) (49,294) (72,161) (43,324) Factoring loan commitments (1,094) (2,977) (1,085) (8,763) Total (1,385,016) (62,480) (1,281,915) (59,911)
OTP Bank Plc Separate Financial Statements 2023 129 NOTE 40: RELATED PARTY TRANSACTIONS (in HUF mn) [continued] Outstanding balances and transactions with related parties are summarized below in aggregate: [continued] Statement of Profit or Loss Year ended 31 December 2023 Year ended 31 December 2022 Interest Income 419,368 181,369 Interest Expense (291,054) (93,185) Risk cost 20,067 70,147 (Losses)/Gains arising from derecognition of financial assets measured at amortised cost 968 (49,745) Income from fees and commissions 35,577 18,742 Expenses from fees and commissions (3,599) (3,038) Other administrative expenses (11,778) (9,761) Related party transactions with key management The compensation of key management, such as the members of the Board of Directors, the members of the Supervisory Board and the employees involved in the decision-making process in accordance with the compensation categories defined in IAS 24 Related Party Disclosures, is summarised below: 31 December 2023 31 December 2022 Short-term employee benefits 3,379 2,986 Share-based payment 1,732 2,225 Long-term employee benefits (on the basis of IAS 19) 320 239 Total 5,431 5,450 31 December 2023 31 December 2022 Loans provided to companies owned by the Management (in the normal course of business) 56,353 65,767 Commitments to extend credit and bank guarantees 62,480 59,911 An analysis of payment to Executives related to their activity in Board of Directors and Supervisory Board is as follows (in HUF mn): 31 December 2023 31 December 2022 Members of Board of Directors 1,283 1,180 Members of Supervisory Board 225 198 Total 1,508 1,378 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.
OTP Bank Plc Separate Financial Statements 2023 130 NOTE 41: TRUST ACTIVITIES (in HUF mn) The Bank acts as a trustee for certain loans granted by companies or employers to their employees, mainly for housing purposes. The ultimate risk for these loans rests with the party advancing the funds. As these loans and related funds are not considered to be assets or liabilities of the Bank, they have been excluded from the accompanying separate statement of financial position. 31 December 2023 31 December 2022 Loans managed by the Bank as a trustee 26,851 27,914 NOTE 42: CONCENTRATION OF ASSETS AND LIABILITIES 31 December 2023 31 December 2022 In the percentage of the total assets Receivables from, or securities issued by the Hungarian Government or the NBH 27.39% 23.58% Securities issued by the OTP Mortgage Bank Ltd. 1.54% 2.30% Loans at amortised cost 5.29% 5.26% There were no other significant concentrations of the assets or liabilities of the Bank as at 31 December 2023 or 31 December 2022. OTP Bank continuously provides the Authority with reports on the extent of dependency on large depositors as well as the exposure of the largest 50 depositors towards OTP Bank. Further to this obligatory reporting to the Authority. OTP Bank pays particular attention on the exposure of its largest partners and cares for maintaining a closer relationship with these partners in order to secure the stability of the level of deposits. The organisational unit of OTP Bank in charge of partner-risk management analyses the largest partners on a constant basis and sets limits on OTP Bank’s and the Group’s exposure separately partner -by-partner. If necessary, it modifies partner-limits in due course thereby reducing the room for manoeuvring of the Treasury and other business areas. The Bank’s internal regulation (L imit-management regulation) controls risk management which related to exposures of clients. Bank makes a difference between clients or clients who are economically connected with each other, partners, partners operating in the same geographical region or in the same economic sector, exposures from customers. Limit-management regulation includes a specific range provisions system used by Bank to control risk exposures. This regulation has to be used by the Bank for its business (lending) risk-taking activity in both the retail and corporate sector. To specify credit risk limits, the Bank strives their clients get an acceptable margin of risk based on their financial situation. In the Bank limit system a lower level decision-making delegation has to be provided. If an OTP group member takes risk against a client or group of clients (either inside the local economy or outside), the client will be qualified as a group level risk and these limits will be specified at group level. The validity period of this policy is 12 months. The limit shall be reviewed prior to the expiry date but at least once a year based on the relevant information required to limit calculations. The maximum credit exposure to any client or counterparty among Loans at amortised cost was HUF 813 billion and HUF 929 billion as at 31 December 2023 and 31 December 2022 respectively, before taking into account collateral or other credit enhancements.
OTP Bank Plc Separate Financial Statements 2023 131 NOTE 43: EARNINGS PER SHARE Earnings per share attributable to the Bank’s ordinary shares are determined by dividing Net profit for the year attributable to ordinary shareholders, after the deduction of declared preference dividends, by the weighted average number of ordinary shares outstanding during the year. Dilutive potential ordinary shares are deemed to have been converted into ordinary shares. 31 December 2023 31 December 2022 Net profit for the year attributable to ordinary shareholders (in HUF mn) 654,988 6,632 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) 279,485,921 278,795,018 Basic Earnings per share (in HUF) 2,344 24 Separate net profit for the year attributable to ordinary shareholders (in HUF mn) 654,988 6,632 Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) 279,490,541 278,797,915 Diluted Earnings per share (in HUF) 2,344 24 2023 2022 Weighted average number of ordinary shares 280,000,010 280,000,010 Average number of Treasury shares (514,089) (1,204,992) Weighted average number of ordinary shares outstanding during the year for calculating basic EPS 279,485,921 278,795,018 Dilutive effect of options issued in accordance with the Remuneration Policy / Management Option Program and convertible into ordinary shares 4,620 2,896 The modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS 279,490,541 278,797,914
OTP Bank Plc Separate Financial Statements 2023 132 NOTE 44: NET GAIN OR LOSS REALISED ON FINANCIAL INSTRUMENTS (in HUF mn) Year ended 31 December 2023 Net interest income and expense Net non- interest gain and loss Loss allowance Other comprehensive income Financial assets measured at amortised cost Cash, amounts due from banks and balances with the National Bank of Hungary 338,840 - - - Placements with other banks 206,280 - (12,358) - Repo receivables 37,435 - (1,800) - Loans 457,471 12,668 5,542 - Securities at amortised cost 129,054 (19,400) (8,576) - Financial assets measured at amortised cost total 1,169,080 (6,732) (17,192) - Financial assets measured at fair value Securities held for trading 1,168 10,511 - - Debt instruments at fair value through other comprehensive income 50,838 510 (3,303) 37,917 Equity instruments at fair value through other comprehensive income - 254 - 3,308 Loans mandatorily measured at fair value through profit or loss 51,132 95,711 980 - Financial assets measured at fair value total 103,138 106,986 (2,323) 41,225 Financial liabilities measured at amortised cost Amounts due to banks and deposits from the National Bank of Hungary and other banks (94,942) - - - Repo liabilities (202,137) - - - Deposits from customers (336,118) 233,243 - - Leasing liabilities (2,314) - - - Liabilities from issued securities (58,495) - - - Subordinated bonds and loans (29,893) - - - Financial liabilities measured at amortised cost total (723,899) 233,243 - - Financial liabilities designated to measure at fair value through profit or loss (1,433) (4,542) - - Derivative financial instruments (78,871) 13,055 - - Total 468,015 342,010 (19,515) 41,225 Current year change of derivative financial assets and liabilities held-for-trading and designated as hedge accounting by types of results in the profit or loss for the year ended 31 December 2023 Held-for- trading Hedge accounting Balance as at 1 January (68,682) (3,403) Change in current period on interest income/interest expense 88,973 (1,161) on net results on derivative instruments and hedge relationships 4,524 (27,167) on revaluation difference (4,263) 15,273 Realized result on closed deals /matured deals (7,318) 10,663 Closing balance 13,234 (5,795)
OTP Bank Plc Separate Financial Statements 2023 133 NOTE 44: NET GAIN OR LOSS REALISED ON FINANCIAL INSTRUMENTS (in HUF mn) [continued] Year ended 31 December 2022 Net interest income and expense Net non- interest gain and loss Loss allowance Other comprehensive income Financial assets measured at amortised cost Cash, amounts due from banks and balances with the National Bank of Hungary 50,964 - - - Placements with other banks 203,618 - 11,754 - Repo receivables 10,234 - 2,095 - Loans 297,460 11,643 33,838 - Securities at amortised cost 92,948 (54,402) 27,623 - Financial assets measured at amortised cost total 655,224 (42,759) 75,310 - Financial assets measured at fair value Securities held for trading 3,556 6,480 - - Debt instruments at fair value through other comprehensive income 39,988 (7,952) 25,615 (55,804) Equity instruments at fair value through other comprehensive income - 207 - 2,736 Loans mandatorily measured at fair value through profit or loss 35,927 (20,188) (11,872) - Financial assets measured at fair value total 79,471 (21,453) 13,743 (53,068) Financial liabilities measured at amortised cost Amounts due to banks and deposits from the National Bank of Hungary and other banks (19,806) - - - Repo liabilities (65,575) - - - Deposits from customers (184,713) 213,359 - - Leasing liabilities (1,186) - - - Liabilities from issued securities (7,442) - - - Subordinated bonds and loans (8,646) - - - Financial liabilities measured at amortised cost total (287,368) 213,359 - - Financial liabilities designated to measure at fair value through profit or loss (562) 1,932 - - Derivative financial instruments (146,192) 9,917 - - Total 300,573 160,996 89,053 (53,068) Current year change of derivative financial assets and liabilities held-for-trading and designated as hedge accounting by types of results in the profit or loss for the year ended 31 December 2022 Held-for- trading Hedge accounting Balance as at 1 January (9,493) (963) Change in current period on interest income/interest expense (73,781) 492 on net results on derivative instruments and hedge relationships (80,525) 62,140 on revaluation difference 103,665 (59,604) Realized result on closed deals /matured deals (8,548) (5,468) Closing balance (68,682) (3,403)
OTP Bank Plc Separate Financial Statements 2023 134 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) In determining the fair value of a financial asset or liability the Bank in the case of instruments that are quoted on an active market uses the market price. In most cases market price is not publicly available so the Bank has to make assumptions or use valuation techniques to determine the fair value of a financial instrument. See Note 45. d) for more information about fair value classes applied for financial assets and liabilities measured at fair value in these financial statements. To provide a reliable estimate of the fair value of those financial instrument that are originally measured at amortised cost, the Bank used the discounted cash flow analysis (loans, placements with other banks, amounts due to banks, deposits from customers). The fair value of issued securities and subordinated bonds is based on quoted prices (e,g, Reuters), Cash and amounts due from banks and balances with the National Bank of Hungary represent amounts available immediately thus the fair value equals to the cost. The assumptions used when calculating the fair value of financial assets and liabilities when using valuation technique are the following: • the discount rates are the risk free rates related to the denomination currency adjusted by the appropriate risk premium as of the end of the reporting period, • the contractual cash flows are considered for the performing loans and for the non-performing loans, the amortised cost less impairment is considered as fair value, • the future cash flows for floating interest rate instruments are estimated from the yield curves as of the end of the reporting period, • the fair value of the deposit which can be due in demand cannot be lower than the amount payable on demand. For classes of assets and liabilities not measured at fair value in the statement of financial position, the income approach was used to convert future cash flows to a single current amount. Fair value of current assets is equal to carrying amount, fair value of liabilities from issued securities and other bond-type classes of assets and liabilities not measured at fair value measured based on Reuters market rates and, fair value of other classes not measured at fair value of the statement of financial position are measured using the discounted cash flow method. Fair value of loans, net of allowance for loan losses measured using discount rate adjustment technique, the discount rate is derived from observed rates of return for comparable assets or liabilities that are traded in the market. Methods and significant assumptions used to determine fair value of the different classes of financial instruments: - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; - Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly; - Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Use of modified yield curve During the year ended 31 December 2023 and 2022 yield curves derived from hungarian government bonds (“ÁKK curve”) have become distorted due to certain market events, which means that real liquidity has concentrated on certain part of the yield curve. Therefore a modified yield curve - which is not observable on the market - has been used at the concerning fair value calculations. This yield curve is based on the relevant yield curve points of the original ÁKK curve. Based on Management’s discretion fair value calculated with modified yield curves can represent the perspective of market participants reliable at current market conditions. For the year ended 31 December 2023 and 2022 modified yield curve was used for calculating fair value in case of subsidised personal loans represented in “Loans mandatorily measured at fair value through profit or loss” line.
OTP Bank Plc Separate Financial Statements 2023 135 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] a) Fair value of financial assets and liabilities at amortised cost 31 December 2023 31 December 2022 Carrying amount Fair value Level 1 Level 2 Level 3 Carrying amount Fair value Level 1 Level 2 Level 3 Cash, amounts due from banks and balances with the National Bank of Hungary 2,708,232 2,708,232 2,708,232 - - 1,092,198 1,092,198 1,092,198 - - Placements with other banks 2,702,433 2,933,781 1,509,113 1,424,668 - 2,899,829 2,871,307 1,300,188 1,571,119 - Repo receivables 201,658 201,742 - 201,742 - 246,529 248,513 - 248,513 - Securities at amortised cost 2,710,848 2,494,227 2,236,994 238,837 18,396 3,282,373 2,654,685 2,301,512 337,789 15,384 Loans at amortised cost 4,681,359 4,824,169 - - 4,824,169 4,825,040 4,856,352 - - 4,856,352 Other financial assets 298,838 298,838 - - 298,838 255,125 255,125 - - 255,125 Total assets measured at amortised cost 13,303,368 13,460,989 6,454,339 1,865,247 5,141,403 12,601,094 11,978,180 4,693,898 2,157,421 5,126,861 Amounts due to banks, deposits from the National Bank of Hungary and other banks 1,761,579 1,709,710 609,288 1,100,422 - 1,736,128 1,559,492 389,779 1,169,713 - Repo liabilities 443,694 457,508 - 457,508 - 408,366 415,703 - 415,703 - Deposits from customers 10,734,325 10,741,597 - 10,741,597 - 11,119,158 11,122,775 - 11,122,775 - Leasing liabilities 68,282 68,328 - - 68,328 41,464 41,477 - - 41,477 Liabilities from issued securities 1,163,109 1,201,901 1,201,901 - - 498,709 493,440 493,440 - - Subordinated bonds and loans 520,296 421,030 421,030 - - 294,186 261,113 261,113 - - Other financial liabilities 243,319 243,319 - - 243,319 282,103 282,103 - - 282,103 Total liabilities measured at amortised cost 14,934,604 14,843,393 2,232,219 12,299,527 311,647 14,380,114 14,176,104 1,144,332 12,708,191 323,580 b) Derivative financial instruments OTP Bank regularly enters into hedging transactions in order to decrease its financial risks. However some economically hedging transaction do not meet the criteria to account for hedge accounting, therefore these transactions were accounted as derivatives held for trading. Net investment hedge in foreign operations is not applicable in separate financial statements.
OTP Bank Plc Separate Financial Statements 2023 136 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] b) Derivative financial instruments [continued] The assessment of the hedge effectiveness (both for fair value hedges and cash flow hedges) to determine the economic relationship between the hedged item and the hedging instrument is accomplished with prospective scenario analysis via different rate shift scenarios of the relevant risk factor(s) of the hedged risk component(s). The fair value change of the hedged item and the hedging instrument is compared in the different scenarios. Economic relationship is justified if the change of the fair value of the hedged item and the hedging instrument are in the opposite direction and the absolute changes are similar amounts. The hedge ratio is determined as the ratio of the notional of the hedged item and the notional of the hedging instrument. The sources of hedge ineffectiveness are the not hedged risk components (e.g. change of cross currency basis spreads in case of interest rate risk hedges), slight differences in maturity dates and interest payment dates in case of fair value hedges, and differences between the carrying amount of the hedged item and the carrying amount of the hedging instrument in case of FX hedges (e.g. caused by interest rate risk components in the fair value of the hedging instrument). Fair value of derivative financial instruments 1 The Bank has the following held for trading derivatives and derivatives designated as hedge accounting: 31 December 2023 31 December 2022 Before netting Netting After netting Before netting Netting After netting Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Held for trading derivative financial instruments Interest rate derivatives Interest rate swaps 130,230 (113,742) 110,939 19,291 (2,803) 162,519 (170,144) 155,468 7,051 (14,676) Cross currency interest rate swaps 8,644 (6,532) - 8,644 (6,532) 11,332 (12,139) - 11,332 (12,139) OTC options 818 (818) - 818 (818) 1,000 (1,000) - 1,000 (1,000) Forward rate agreement - (214) - - (214) 505 (3) 505 - 502 Total interest rate derivatives (OTC derivatives) 139,692 (121,306) 110,939 28,753 (10,367) 175,356 (183,286) 155,973 19,383 (27,313) From this: Interest rate derivatives cleared by NBH 1,132 - - 1,132 - 2,702 - - 2,702 - Foreign exchange derivatives Foreign exchange swaps 54,528 (32,818) - 54,528 (32,818) 109,167 (76,037) - 109,167 (76,037) Foreign exchange forward 6,551 (10,129) - 6,551 (10,129) 9,909 (11,936) - 9,909 (11,936) OTC options 1,016 (871) - 1,016 (871) 1,048 (822) - 1,048 (822) Foreign exchange spot conversion 347 (303) - 347 (303) 162 (162) - 162 (162) Total foreign exchange derivatives (OTC derivatives) 62,442 (44,121) - 62,442 (44,121) 120,286 (88,957) - 120,286 (88,957) From this: Foreign exchange derivatives cleared by NBH - - - - - 22,214 - - 22,214 - 1 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.
OTP Bank Plc Separate Financial Statements 2023 137 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] b) Derivative financial instruments [continued] 1 Fair value of derivative financial instruments [continued] 31 December 2023 31 December 2022 Before netting Netting After netting Before netting Netting After netting Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Equity stock and index derivatives Commodity Swaps 32,402 (32,490) - 32,402 (32,490) 34,058 (32,048) - 34,058 (32,048) Equity swaps 126 (3,826) - 126 (3,826) 54 (702) - 54 (702) OTC derivatives 32,528 (36,316) - 32,528 (36,316) 34,112 (32,750) - 34,112 (32,750) Exchange traded futures and options 433 (451) - 433 (451) 214 (1,887) - 214 (1,887) Total equity stock and index derivatives 32,961 (36,767) - 32,961 (36,767) 34,326 (34,637) - 34,326 (34,637) Derivatives held for risk management not designated in hedges Interest rate swaps 68,380 (91,634) 22,237 46,143 (69,397) 133,399 (225,915) 18,944 114,455 (206,971) Foreign exchange swaps 11,796 (20,284) - 11,796 (20,284) 12,687 (11,908) - 12,687 (11,908) Foreign exchange spot conversion - - - - - - (43) - - (43) Forward 127 - - 127 - 67 - - 67 - Cross currency interest rate swaps 14,577 (2,629) - 14,577 (2,629) 3,515 (3,572) - 3,515 (3,572) Total derivatives held for risk management not designated in hedges 94,880 (114,547) 22,237 72,643 (92,310) 149,668 (241,438) 18,944 130,724 (222,494) From this: Total derivatives cleared by NBH held for risk management 33,042 - - 33,042 - 78,916 (1,879) - 78,916 (1,879) Total Held for trading derivative financial instruments 329,975 (316,741) 133,176 196,799 (183,565) 479,636 (548,318) 174,917 304,719 (373,401) Derivative financial instruments designated as hedge accounting relationships Derivatives designated in cash flow hedges Interest rate swaps - (9,935) 1,066 (1,066) (8,869) - (25,325) 2,651 (2,651) (22,674) Total derivatives designated in cash flow hedges - (9,935) 1,066 (1,066) (8,869) - (25,325) 2,651 (2,651) (22,674) Derivatives designated in fair value hedges Interest rate swaps 37,651 (33,054) 25,130 12,521 (7,924) 58,381 (37,290) 30,938 27,443 (6,352) Cross currency interest rate swaps 10,173 (10,679) - 10,173 (10,679) 20,732 (5,398) - 20,732 (5,398) Foreign exchange swaps - - - - - 1,696 (16,199) - 1,696 (16,199) Total derivatives designated in fair value hedges 47,824 (43,733) 25,130 22,694 (18,603) 80,809 (58,887) 30,938 49,871 (27,949) Interest rate swaps 168 (119) 168 - 49 - - - - - Total other derivatives designated in fair value hedges 168 (119) 168 - 49 - - - - - From this: Total derivatives cleared by NBH held for hedging - (1,418) - - (1,418) - (5,485) - - (5,485) Total derivatives held for risk management (OTC derivatives) 47,992 (53,787) 26,364 21,628 (27,423) 80,809 (84,212) 33,589 47,220 (50,623) 1 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.
OTP Bank Plc Separate Financial Statements 2023 138 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] b) Derivative financial instruments [continued] 1 Fair value of derivative financial instruments [continued] Financial assets subject to offsetting, netting arrangement as at 31 December 2023 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Assets not subject to netting arrangements Total assets Maximum exposure to risk Gross assets before offset Offsetting with gross liabilities Net assets recognised on the statement of financial position Financial liabilities Collateral received Assets after consideration of netting potential Assets recognised on the statement os financial position Recognised in the statement of financial position After consideration of netting potential Derivative financial instruments 324.446 (158.844) 165.602 (60.721) (76.853) 28.028 52.825 218.427 80.853 Financial liabilities subject to offsetting, netting arrangement as at 31 December 2023 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Liabilities not subject to netting arrangements Total liabilities Maximum exposure to risk Gross liabilities before offset Offsetting with gross assets Net liabilities recognised on the statement of financial position Financial assets Collateral pledged Liabilities after consideration of netting potential Liabilities recognised on the statement os financial position Recognised in the statement of financial position After consideration of netting potential Derivative financial instruments 347.414 (158.844) 188.570 (60.721) (103.563) 24.286 22.418 210.988 46.704 1 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.
OTP Bank Plc Separate Financial Statements 2023 139 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] b) Derivative financial instruments [continued] 1 Fair value of derivative financial instruments [continued] Financial assets subject to offsetting, netting arrangement as at 31 December 2022 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Assets not subject to netting arrangements Total assets Maximum exposure to risk Gross assets before offset Offsetting with gross liabilities Net assets recognised on the statement of financial position Financial liabilities Collateral received Assets after consideration of netting potential Assets recognised on the statement os financial position Recognised in the statement of financial position After consideration of netting potential Derivative financial instruments 441,412 (208,505) 232,907 (90,551) (103,014) 39,342 119,032 351,939 158,374 Financial liabilities subject to offsetting, netting arrangement as at 31 December 2022 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Liabilities not subject to netting arrangements Total liabilities Maximum exposure to risk Gross liabilities before offset Offsetting with gross assets Net liabilities recognised on the statement of financial position Financial assets Collateral pledged Liabilities after consideration of netting potential Liabilities recognised on the statement os financial position Recognised in the statement of financial position After consideration of netting potential Derivative financial instruments 580,572 -208,505 372,067 -90,551 -240,661 40,855 51,957 424,024 92,812 1 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.
OTP Bank Plc Separate Financial Statements 2023 140 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] c) Hedge accounting Interest rate risk management is centralized at OTP Bank. Interest rate risk exposures in major currencies are managed at HQ on consolidated level. Although risk exposures in local currencies are managed at subsidiary level, the respective decisions are subject to HQ approval. Interest rate risk is measured by simulating NII and EVE under different stress and plan scenarios, the established risk limits are described in „OTP Bank’s Group-Level Regulations on the Management of Liquidity Risk and In terest Rate Risk of Banking Book”. The interest rate risk management activity aims to stabilize NII within the approved risk limits. The risk management objective of these hedge relationships is to mitigate the risk of clean fair value (i.e. excluding accrued interest) change of MIRS loans due to the change of interest rate reference indexes (BUBOR, EURIBOR, LIBOR, etc.) of the respective currency. Amount, timing and uncertainty of future cash flows - hedging instruments as at 31 December 2023 (amounts in million currency) 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 - - (24,975) 102,049 28,300 105,374 Average Interest Rate (%) - - 15.66% 15.25% 1.38% EUR Notional - - - (590) - (590) Average Interest Rate (%) - - - 3.92% - USD Notional - - - (1,106) 47 (1,059) Average Interest Rate (%) - - - 3.65% 4.18% JPY Notional - - - 4,500 - 4,500 Average Interest Rate (%) - - - 0.22% - Fair Value Hedge FX & IR risk Cross currency interest rate swap EUR/HUF Notional - 1 2 8 10 21 Average Interest Rate (%) - (1.69%) (1.68%) (1.73%) (1.82%) Average FX Rate - 310.02 310.10 309.36 307.71
OTP Bank Plc Separate Financial Statements 2023 141 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] c) Hedge accounting [continued] Amount, timing and uncertainty of future cash flows - hedging instruments as at 31 December 2023 (amounts in million currency) [continued] 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 FX risk Cross currency interest rate swap EUR/HUF Notional - 175 250 1,167 - 1,592 Average FX Rate - 356.12 359.11 383.36 - RON/HUF Notional - - 575 1,250 - 1,825 Average FX Rate - - 73.75 74.94 - JPY/HUF Notional - - - 4,500 - 4,500 Average FX Rate - - - 2.43 - USD/HUF Notional - - 143 - - 143 Average FX Rate - 357.16 357.16 - - Fair Value Hedge Other Interest rate swap HUF Notional - - 778 - - 778 Cash flow Hedge Interest rate risk Interest rate swap HUF Notional - - - 28,027 - 28,027 Average Interest Rate - - - 2.46 - Other fair Value Hedge Interest rate risk Interest rate swap EUR Notional - - (60) (240) (120) (420) Average Interest Rate - - 3.54 2.61 2.42
OTP Bank Plc Separate Financial Statements 2023 142 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] c) Hedge accounting [continued] Amount, timing and uncertainty of future cash flows - hedging instruments as at 31 December 2022 (amounts in million currency) 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 - - - (64,875) 30,300 (34,575) Average Interest Rate (%) - - - 7.15% 1.40% EUR Notional - - 101 10 50 161 Average Interest Rate (%) - - 0.24% 0.22% 0.05% USD Notional - 90 - 29 47 166 Average Interest Rate (%) - 2.60% - 2.35% 4.18% JPY Notional - - - 4,500 - 4,500 Average Interest Rate (%) - - - 0.22% - Fair Value Hedge FX & IR risk Cross currency interest rate swap EUR/HUF Notional - 1 2 10 11 24 Average Interest Rate (%) (1.64%) (1.68%) (1.68%) (1.71%) (1.82%) Average FX Rate 310.41 310.17 310.20 309.74 307.71 Fair Value Hedge FX risk Cross currency interest rate swap EUR/HUF Notional - (10) 125 878 - 993 Average FX Rate 363.88 407.57 362.11 373.88 - RON/HUF Notional - - 400 3,121 - 3,521 Average FX Rate - - 72.92 75.08 - JPY/HUF Notional - - - 4,500 - 4,500 Average FX Rate - - - 2.79 - USD/HUF Notional - -7 144 146 - 283 Average FX Rate - 323.77 323.77 323.77 - Fair Value Hedge Other Interest rate swap HUF Notional - 1,323 198 778 - 2,299 Cash flow Hedge Interest rate risk Interest rate swap HUF Notional - 794 3,203 - 28,027 32,024 Average Interest Rate - 1.13 1.93 - 2.46
OTP Bank Plc Separate Financial Statements 2023 143 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] c) Hedge accounting [continued] Derivative financial instruments designated as hedge accounting as follows: Type of instrument Type of risk Nominal amount of the hedging instrument Carrying amount of the hedging instrument for the year ended 31 Decembe 2023 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 2023 Before netting Netting After netting Assets Liabilities Assets Liabilities Fair value hedge Interest rate swap Interest rate risk 1,167,195 37,543 (33,055) 25,130 12,413 (7,925) Derivative assets (liabilities) held for risk management 648 Cross-currency swap FX & IR risk 6,394 - (1,418) - - (1,418) Derivative assets (liabilities) held for risk management (893) Cross-currency swap FX risk 997,565 10,173 (9,260) - 10,173 (9,260) Derivative assets (liabilities) held for risk management 6,699 Interest rate swap Other 778 108 - - 108 - Derivative assets (liabilities) held for risk management 1 Cash flow hedge Interest rate swap Interest rate risk 66,899 - (9,935) 1,066 (1,066) (8,869) Derivative assets (liabilities) held for risk management (84) Other fair value hedge Interest rate swap Interest rate risk 160,768 168 (119) 168 - 49 Derivative assets (liabilities) held for risk management 32
OTP Bank Plc Separate Financial Statements 2023 144 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] c) Hedge accounting [continued] Derivative financial instruments designated as hedge accounting as follows: 31 December 2023 Type of risk Carrying amount of the hedged item Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item Line item in the statement of financial position in which the hedged item is included Assets Liabilities Assets Liabilities Fair value hedge - micro - Loans Interest rate risk 26,839 - (3,178) - Loans - Loans Interest rate risk - 143,857 - (11,249) Amounts due to banks and deposits from the National Bank of Hungary and other banks - Government bonds Interest rate risk 164,229 - 7,808 - Securities at amortised cost - Government bonds Interest rate risk 148,843 - 20,391 - Securities at fair value through other comprehensive income - Government bonds Interest rate risk - - - - Financial assets at fair value through profit or loss - Other securities Interest rate risk 3,828 - 203 - Securities at fair value through other comprehensive income - Other securities Interest rate risk - 457,027 - 6,539 Liabilities from issued securities - Other securities Interest rate risk - 219,989 - (157) Subordinated debts - Loans FX & IR risk 3,266 - (96) - Loans - Loans FX risk 949,447 - - - Loans - Government bonds FX risk 10,986 - - - Securities at amortised cost - Government bonds FX risk 49,378 - - - Securities at fair value through other comprehensive income - Other securities Other risk - 897 - (39) Liabilities from issued securities - Customer deposits Other risk - 157,543 - 84 Customer deposits Fair value hedge total 1,356,816 979,313 25,128 (4,822)
OTP Bank Plc Separate Financial Statements 2023 145 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] c) Hedge accounting [continued] Derivative financial instruments designated as hedge accounting as follows: Type of instrument Type of risk Nominal amount of the hedging instrument Carrying amount of the hedging instrument for the year ended 31 December 2022 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 2022 Before netting Netting After netting Assets Liabilities Assets Liabilities Fair value hedge Interest rate swap Interest rate risk 444,627 58,260 (37,258) 30,938 27,322 (6,320) Derivative assets (liabilities) held for risk management 12,873 Cross-currency swap FX & IR risk 7,292 - (2,679) - - (2,679) Derivative assets (liabilities) held for risk management 3 Cross-currency swap FX risk 813,430 21,685 (2,719) - 21,685 (2,719) Derivative assets (liabilities) held for risk management (6,087) FX swap FX risk 290,982 743 (16,199) - 743 (16,199) Derivative assets (liabilities) held for risk management - Interest rate swap Other 2,299 121 (32) - 121 (32) Derivative assets (liabilities) held for risk management 1 Cash flow hedge Interest rate swap Interest rate risk 92,203 - (25,325) 2,651 (2,651) (22,674) Derivative assets (liabilities) held for risk management (101) 31 December 2022 Type of risk Carrying amount of the hedged item Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item Line item in the statement of financial position in which the hedged item is included Assets Liabilities Assets Liabilities Fair value hedges - Loans Interest rate risk 64,596 - (5,033) - Loans - Loans Interest rate risk - 143,208 - (34,149) Amounts due to banks and deposits from the National Bank of Hungary and other banks - Government bonds Interest rate risk 14,814 - (4,601) - Securities at amortised cost - Government bonds Interest rate risk 151,501 - (45,319) - Securities at fair value through other comprehensive income - Other securities Interest rate risk 44,508 - (638) - Securities at fair value through other comprehensive income - Other securities - 25,563 - 448 Liabilities from issued securities - Loans FX & IR risk 9,099 - 503 - Loans - Loans FX risk 716,841 - - - Loans - Government bonds FX risk 12,797 - - - Securities at amortised cost - Government bonds FX risk 113,806 - - - Securities at fair value through other comprehensive income - Other securities Other risk - 2,299 - (218) Liabilities from issued securities Fair value hedges total 1,127,962 171,070 (55,088) (33,919)
OTP Bank Plc Separate Financial Statements 2023 146 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] c) Hedge accounting [continued] For the year ended 31 December 2023 OCI related to cash flow hedges as follows: Type of risk Carrying amount of the hedged item Cash flow hedge reserve Line item in the statement of financial position in which the hedged item is included Assets Liabilities Interest rate risk 28,027 - 3,509 Loans at amortised cost For the year ended 31 December 2022 OCI related to cash flow hedges as follows: Type of risk Carrying amount of the hedged item Cash flow hedge reserve Line item in the statement of financial position in which the hedged item is included Assets Liabilities Interest rate risk 32,024 - 9,210 Loans at amortised cost For the year ended 31 December 2023 change in basis swap spread recognised in OCI related to fair value hedges as follows: Type of risk Carrying amount of the hedged item Items recognised in other comprehensive income Change in the items recognized in other comprehensive income Line item in the statement of financial position in which the hedged item is included Assets Liabilities FX risk 949,447 - 167 530 Loans at amortised cost FX risk 10,986 - (69) - FVOCI securities 960,433 - 98 530 For the year ended 31 December 2022 change in basis swap spread recognised in OCI related to fair value hedges as follows: Type of risk Carrying amount of the hedged item Items recognised in other comprehensive income Change in the items recognized in other comprehensive income Line item in the statement of financial position in which the hedged item is included Assets Liabilities FX risk 716,841 - (363) 605 Loans at amortised cost FX risk 12,797 - (52) - FVOCI securities 729,638 - (415) 605 Change in the fair value of the hedging instrument related to cash flow hedge 31 December 2023 Type of instrument Type of risk Change in the value of the hedging instrument recognised in cash flow hedge reserve Hedge ineffectiveness recognised in profit or loss Line item in profit or loss that includes hedge ineffectiveness Interest rate swap Interest rate risk (5,701) (85) Interest Income from Placements with other banks, net of allowance for placement losses For the year ended 31 December 2023 there were no reclassification from cash flow hedge reserve to profit or loss due to termination of hedging relationship. 31 December 2022 Type of instrument Type of risk Change in the value of the hedging instrument recognised in cash flow hedge reserve Hedge ineffectiveness recognised in profit or loss Line item in profit or loss that includes hedge ineffectiveness Interest rate swap Interest rate risk 5,642 (101) Interest Income from Placements with other banks, net of allowance for placement losses For the year ended 31 December 2022 an amount HUF 227 million reclassified from cash flow hedge reserve to profit or loss due to termination of hedging relationship.
OTP Bank Plc Separate Financial Statements 2023 147 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] d) Fair value classes Methods and significant assumptions used to determine fair value of the different classes of financial instruments: - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; - Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, - Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: 31 December 2023 Total Level 1 Level 2 Level 3 Loans mandatorily at fair value through profit or loss 934,848 - - 934,848 Financial assets at fair value through profit or loss 257,535 44,106 204,414 9,015 from this: securities held for trading 27,804 19,756 8,048 - from this: positive FVA of derivative financial instruments designated as held for trading 196,799 433 196,366 - from this: securities mandatorily measured at fair value through profit or loss 32,932 23,917 - 9,015 Equity instruments at fair value through other comprehensive income 21,177 21,177 - - Securities at fair value through other comprehensive income 538,350 229,331 278,146 30,873 Positive fair value of derivative financial instruments designated as hedge accounting 21,628 - 21,628 - Financial assets measured at fair value total 1,773,538 294,614 504,188 974,736 Financial liabilities at fair value through profit or loss 19,786 - - 19,786 Negative fair value of derivative financial instruments classified as held for trading 183,565 451 179,414 3,700 Short position 19,107 19,107 - - Negative fair value of derivative financial instruments designated as hedge accounting 27,423 - 27,423 - Financial liabilities measured at fair value total 249,881 19,558 206,837 23,486
OTP Bank Plc Separate Financial Statements 2023 148 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] d) Fair value classes [continued] As at 31 December 2022 Total Level 1 Level 2 Level 3 Loans mandatorily at fair value through profit or loss 793,242 - - 793,242 Financial assets at fair value through profit or loss 410,012 41,534 359,104 9,374 from this: securities held for trading 74,795 20,197 54,598 - from this: positive FVA of derivative financial instruments designated as held for trading 304,719 213 304,506 - from this: securities mandatorily measured at fair value through profit or loss 30,498 21,124 - 9,374 Equity instruments at fair value through other comprehensive income 17,922 17,922 - - Securities at fair value through other comprehensive income 779,253 194,756 557,082 27,415 Positive fair value of derivative financial instruments designated as hedge accounting 47,220 - 47,220 - Financial assets measured at fair value total 2,047,649 254,212 963,406 830,031 Financial liabilities at fair value through profit or loss 16,576 - - 16,576 Negative fair value of derivative financial instruments classified as held for trading 373,401 1,886 370,865 650 Short position 24,596 24,596 - - Negative fair value of derivative financial instruments designated as hedge accounting 50,623 - 50,623 - Financial liabilities measured at fair value total 465,196 26,482 421,488 17,226 The fair value of investment properties is presented in Note 14 and they are categorized in level 3. The fair value of investment in subsidiaries is presented in Note 12 and they are categorized in level 3. Valuation techniques and sensitivity analysis on Level 2 instruments The fair value of Level 2 instruments is calculated by discounting their expected interest and capital cash flows. Discounting is done with the respective swap curve of each currency. Valuation techniques and sensitivity analysis on Level 3 instruments Sensitivity analysis is performed on products with significant unobservable inputs (Level 3) to generate a range of reasonably possible alternative valuations. The sensitivity methodologies applied take account of the nature of the valuation techniques used, 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 data of reliable reference source or a scenario based on relevant market analysis alongside the impact of using alternative models. Sensitivities are calculated without reflecting the impact of any diversification in the portfolio.
OTP Bank Plc Separate Financial Statements 2023 149 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] d) Fair value classes [continued] Unobservable inputs used in measuring fair value Class of financial instrument Type of financial instrument Valuation technique Significant unobservable input Range of estimates for unobservable input Financial assets at fair value through profit or loss VISA C shares Market approach combined with expert judgement Discount applied due to illiquidity and litigation +/-12% Loans mandatorily at fair value through profit or loss MFB refinancing loans Discounted cash flow model Probability of default +/- 20% Loans mandatorily at fair value through profit or loss Subsidised personal loans Discounted cash flow model Probability of default +/- 20% Loans mandatorily at fair value through profit or loss Subsidised personal loans Discounted cash flow model Operational costs +/- 20% Loans mandatorily at fair value through profit or loss Subsidised personal loans Discounted cash flow model Demography Change in the cash flow estimation +/- 5% Securities at fair value through other comprehensive income FVOCI debt securities Market approach combined with expert judgement Credit risk +/-15%
OTP Bank Plc Separate Financial Statements 2023 150 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] d) Fair value classes [continued] The effect of unobservable inputs on fair value measurement Although the Bank believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3 changing the assumptions used to reasonably possible alternative assumptions would have the following effects. 31 December 2023 Class of financial instrument Unobservable inputs Carrying amount Fair values Effect on profit and loss Favourable Unfavourable Favourable Unfavourable VISA C shares Financial assets at fair value through profit or loss Illiquidity 1,808 2,024 1,590 217 (217) MFB refinanced loans (asset) Loans mandatorily at fair value through profit or loss Probability of default 19,154 19,499 18,809 345 (345) Subsidised personal loans Loans mandatorily at fair value through profit or loss Probability of default 911,190 913,292 909,097 2,102 (2,093) Subsidised personal loans Loans mandatorily at fair value through profit or loss Operational costs 911,190 916,712 905,728 5,522 (5,462) Subsidised personal loans Loans mandatorily at fair value through profit or loss Demography 911,190 911,939 910,577 749 (613) Russian government bonds Securities at fair value through other comprehensive income Probability of default 30,873 40,248 21,498 9,375 (9,375) 31 December 2022 Class of financial instrument Unobservable inputs Carrying amount Fair values Effect on profit and loss Favourable Unfavourable Favourable Unfavourable VISA C shares Financial assets at fair value through profit or loss Illiquidity 1,469 1,707 1,231 238 (238) MFB refinanced loans (asset) Loans mandatorily at fair value through profit or loss Probability of default 15,483 15,602 15,364 119 (119) Subsidised personal loans Loans mandatorily at fair value through profit or loss Probability of default 772,094 773,281 770,911 1,187 (1,183) Subsidised personal loans Loans mandatorily at fair value through profit or loss Operational costs 772,094 777,898 769,012 5,804 (3,082) Subsidised personal loans Loans mandatorily at fair value through profit or loss Demography 772,094 774,528 769,544 2,434 (2,550) Russian government bonds Securities at fair value through other comprehensive income Probability of default 27,415 34,586 20,244 7,171 (7,171)
OTP Bank Plc Separate Financial Statements 2023 151 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] d) Fair value classes [continued] The effect of unobservable inputs on fair value measurement [continued] The favourable and unfavourable effects of using reasonably possible alternative assumptions for the valuation of Visa C shares have been calculated by modifying the discount rate used for the valuation by +/-12% as being the best estimates of the management as at 31 December 2023 and 31 December 2022 respectively. In the case of MFB refinancing loans and subsidised personal loans the Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modifying the rates of probability of default by +/- 20% as one of the most significant unobservable input. In case of subsidised personal loans operational cost and factors related to demography are considered as unobservable inputs to the applied fair value calculation model in addition to credit risk. The Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modifying the rates of operational costs by +/- 20% as one of the most significant unobservable input. In case of subsidised personal loans cash flow estimation are based on assumption related to the future number of childbirths performed by the debtors both in the current and the comparative period. According to the assumptions used in comparative period 15% of the debtors will not fulfill the conditions of the subsidy determined by the government after 5 years (“breach of conditions”), thereby debtors will be obliged t o pay back advanced interest subsidy given in advance. Furthermore, in this case subsidised loans are converted to loans provided based on market conditions. Loans are prepaid by the government as part of the subsidy after the second and the third childbirth following the signatory of the loan contract. The Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modifying the demographical assumption of breach of conditions by +/- 5% as one of the most significant unobservable input in the cash flow estimation. For the year ended 31 December 2022 the Bank used a new and more complex model for cash flow calculations of the subsidised personal loans. The new model uses more scenarios compared to the previous one. These scenarios based on the above mentioned events (first second and third child births after signatory and breach of conditions) and also the event of divorce. The model uses public statistical information to estimate the outcome of these possible future events. The Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modiying the demographical assumption of future child births by +/-5% as one of the most significant unobservable input in the cash flow estimation. The favourable and unfavourable effects of using reasonably possible alternative assumptions for the valuation of FVOCI debt securities have been calculated by modifying the credit risk rate used for the valuation by +/-15% as being the best estimates of the management as at 31 December 2023 and 31 December 2022 respectively.
OTP Bank Plc Separate Financial Statements 2023 152 NOTE 45: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] d) Fair value classes [continued] The effect of unobservable inputs on fair value measurement [continued] Reconciliation of the opening and closing balances of Level 3 instruments for the year ended 31 December 2023 Opening balance Transfer to Level 3 Change in FVA due to credit risk Change in FVA due to market factors Purchases/ Disbursement Settlement/Sales Closing balance Loans mandatorily measured at fair value through profit or loss 793,242 - (980) 93,257 103,725 (54,396) 934,848 Securities mandatorily measured at fair value through profit or loss 9,374 - - (359) - - 9,015 Derivative financial instruments designated as held for trading (650) - - (3,050) - - (3,700) Securities at fair value through other comprehensive income 27,415 - 1,423 2,035 - - 30,873 Financial liabilities at fair value through profit or loss (16,576) - (4,542) - 1,332 (19,786) Total 812,805 - 443 87,341 103,725 (53,064) 951,250 Reconciliation of the opening and closing balances of Level 3 instruments for the year ended 31 December 2022 Opening balance Transfer to Level 3 Change in FVA due to credit risk Change in FVA due to market factors Purchases/ Disbursement Settlement/Sales Closing balance Loans mandatorily measured at fair value through profit or loss 662,012 - 11,872 (23,330) 182,259 (39,571) 793,242 Securities mandatorily measured at fair value through profit or loss 9,254 - - (1,052) 1,172 - 9,374 Derivative financial instruments designated as held for trading 10,170 - - (10,820) - - (650) Securities at fair value through other comprehensive income - 12,105 - 15,310 - - 27,415 Financial liabilities at fair value through profit or loss (20,133) - - 1,934 - 1,623 (16,576) Total 661,303 - 11,872 (17,958) 183,431 (37,948) 812,805
OTP Bank Plc Separate Financial Statements 2023 153 NOTE 46: ASSETS CLASSIFIED AS HELD-FOR-SALE (in HUF mn) The Bank has concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. (hereinafter referred to as: BT). OTP Group is also selling its 100%shareholdings in its other Romanian subsidiaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to BT under the transaction. The total selling price is EUR 347.5 million from which EUR 335 million is related to OTP Bank Romania S.A. Therefore impairment gain was recoreded in amount of HUF 41 billion in the Separate Statement of Profit or Loss related to investment of OTP Bank Rom ania S.A., after that the carrying amount was reclassified to „Non-current asset held for sale” in the Separate Statement of Financial Position. The financial closing of the transaction is expected in 2024 subject to the necessary regulatory approvals. NOTE 47: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2023 1) Term Note Program See details about the event in Note 20. 2) Purchase of the majority stake in the Uzbek Ipoteka Bank See details about the event in Note 12. 3) Termination of financial closing of Nova KBM See details about the event in Note 12. 4) Capital increase at OTP Mortgage Bank Ltd. See details about the event in Note 12. 5) Capital increase at OTP Real Estate Ltd. See details about the event in Note 12. 6) Significant regulatory changes in Hungary About the prolongation of deadline of interest rate cap, amending the previously laid down methodology of windfall tax calculation, the changes in savings and government bond markets, family support schemes, capital regulation and mandatory minimum reserve requirements please see details in Note 4.
OTP Bank Plc Separate Financial Statements 2023 154 NOTE 47: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2023 [continued] 7) Interest benchmark reform During the IBOR reform the Bank identified several risks at the beginning of 2021, which the project had to manage and monitor closely. These risks include but are not limited to the following: ▪ The abolution of LIBOR affected several transactions that may require automated IT solutions, ▪ The new reference rates are different in nature from LIBOR that cause difficulties to settle the value differences with the customers, ▪ It was necessary to implement new processes not to develop LIBOR based products, and to develop a strategy for removing or modifying the affected products handled by the Bank, ▪ After termination of LIBOR, the Bank has to act under the "Fallback clauses", the clauses that regulate the replacement of the reference interest rates in the contract and the use of an alternative interest as a reference. The content of these clauses needs to be clearly defined and checked from a business point of view, ie which reference interest rate will be applied instead of LIBOR for the given contract and whether it is commercially appropriate. In defining the fallback clauses, efforts had to be made to provide a viable alternative to the termination of LIBOR that would not result in a business loss for the Bank. ▪ Legal risks related to the termination of LIBOR. Such risks can arise when Fallback clauses are not included in the contracts, or the law governing the contract doesn’t contain a statutory reference rate. In these cases the contracts can be cancelled due to impossibility or the termination by either party. ▪ Missing of contractual interest rates can result in settlement disputes, compensation cases or litigation. ▪ Business risks of the termination of LIBOR. The most significant of these are o the law governing the contract can set the applicable interest rate that can be result in a business loss for the Bank, o business loss due to negative customer experience, o operational risk, when several unique contracts must be handled in a short time Terminating interest rates () Alternative Reference Rates LIBOR USD* (1 week and 2 months settings), FedFund Rate SOFR LIBOR GBP SONIA LIBOR JPY TONA LIBOR EUR EURIBOR LIBOR CHF** SARON EONIA €STR * The following USD LIBOR settings will be terminated after December 31, 2023: overnight and 1, 3, 6 and 12 Months. The affected USD LIBOR contracts will be handled on an ongoing basis until the remaining USD LIBOR settings’ cessation date. **In the case of CHF LIBOR, OTP Bank acts in accordance with the implementing regulation of the European Commission (https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=PI_COM:C(2021)7488&from=EN) . Amounts effected by IBOR reform as at 31 December 2023 Reference rate Type of the contract Nominal value of the contract Pieces of contracts USD LIBOR Loan 14,592 255 Other LIBOR Bonds (assets) 4,853 1 Total 19,445 256 The above LIBOR-based amounts outstanding as at 31 December 2023 will be managed at the first interest period therefore they do not cause a risk to the Bank or to the customers.
OTP Bank Plc Separate Financial Statements 2023 155 NOTE 47: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2023 [continued] 8) Risk relating to the Russian-Ukrainian armed conflict On 24 February 2022 Russia launched a military operation against Ukraine which is still ongoing at the date of this Report. Until now many countries, as well as the European Union imposed sanctions due to the armed conflict on Russia and Russian businesses and citizens. Russia responded to these sanctions with similar measures. The armed conflict and the international sanctions influence the business and economic activities significantly all around the world. There are a number of factors associated with the Russian-Ukrainian armed conflict and the international sanctions as well as their impact on global economies that could have a material adverse effect on (among other things) the profitability, capital and liquidity of financial institutions such as the OTP Group. The armed conflict and the international sanctions cause significant economic damage to the affected parties and in addition they cause disruptions in the global economic processes, of which the precise consequences (inter alia the effects on energy and grain markets, the global transport routes and international trade as well as tourism) are difficult to be estimated at the moment. It remains unclear how this will evolve through 2022 and the OTP Group continues to monitor the situation closely. However, the OTP Group's ability to conduct business may be adversely affected by disruptions to its infrastructure, business processes and technology services. This may cause significant customer detriment, costs to reimburse losses incurred by the OTP Group’s customers, and reputational damage. Furthermore, the OTP Group relies on models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures, conducting stress testing and assessing capital adequacy. Models are, by their nature, imperfect and incomplete representations of reality because they rely on assumptions and inputs, and as such assumptions may later potentially prove to be incorrect, this can affect the accuracy of their outputs. This may be exacerbated when dealing with unprecedented scenarios, such as the Russian-Ukrainian armed conflict and the international sanctions, due to the lack of reliable historical reference points and data. Any and all such events mentioned above could have a material adverse effect on the OTP Group’s business, financial condition, results of operations, prospects, liquidity, capital position and credit ratings, as well as on the OTP Group’s customers, employees and suppliers.
OTP Bank Plc Separate Financial Statements 2023 156 NOTE 48: SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD 1) Summary of economic policy measures made and other relevant regulatory changes as post-balance sheet events Post-balance sheet events cover the period until 20 February 2024. Hungary On 23 January 2024 OTP Bank announced that notes were issued with a value date of 31 January 2024, in the aggregate nominal amount of EUR 600 million. The 5 years, Non-Call 4 years Senior Preferred Notes were priced on 23 January 2024. • On 26 January 2024 Scope Ratings affirmed Hungary's long-term local- and foreign-currency issuer and senior unsecured debt ratings at ‘BBB’ with stable outlook. • On 29 January 2024 the Ministry for National Economy announced that following discussions between the Government and the Banking Association, based on the banks' voluntary commitment, from 1 February to 1 May 2024, the interest margin above BUBOR rate for newly contracted Hungarian Forint-based, variable- rate corporate loan contracts (regardless of the purpose of the loan) will be 0%, and the margin will remain at 0% for 6 months from the date of disbursement of the loan, after which it may return to the normal level. At the same time, the Government indicated that the rate cap on outstanding variable rate MSE loans, which expires on 1 April 2024 according to the current legislation, will not be further extended. • On 30 January 2024 the National Bank of Hungary cut its key policy rate by 75 bps to 10.0%. • On 2 February 2024 OTP Bank announced that it decided to terminate the project aiming at establishing a consumer finance joint venture company with its partners in China with a 15%shareholding, as the condition precedents were not fulfilled until the pertaining contractual deadlines. • On 9 February 2024 OTP Bank announced that it concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. (‘BT’). OTP Group is also selling its 100% shareholdings in its other Romanian subsi diaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to BT under the transaction. The financial closing of the transaction is expected in 2024 subject to the necessary regulatory approvals. • On 12 February 2024 OTP Bank received a single permission from the Hungarian National Bank for the repurchase of treasury shares, accordingly the Bank is entitled to repurchase its own shares in the amount of HUF 60 billion until 31 December 2024. The total amount specified in the permission shall immediately be deducted from the own funds in accordance with the law. • Capital increase at Merkantil Bank Ltd. See details about the event in Note 12. • Capital increase at Monicomp Ltd. See details about the event in Note 12. • Capital increase at Ipotek Bank. See details about the event in Note 12.
OTP BANK PLC CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION FOR THE YEAR ENDED 31 DECEMBER 2023
2 Table of Contents CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 ......................... 5 CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2023 ... 6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 ............................................................................................................................................... 8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023...................................................................................................................................................................... 9 CONSOLIDATED STATEMENT OF CASH-FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023....... 10 NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS ............. 12 1.1. General information ..................................................................................................................... 12 1.2. Basis of Accounting..................................................................................................................... 13 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES .......................................................... 17 2.1. Basis of Presentation.................................................................................................................... 17 2.2. Foreign currency translation ........................................................................................................ 17 2.3. Principles of consolidation........................................................................................................... 18 2.4. Accounting for acquisitions ......................................................................................................... 18 2.5. Financial assets ............................................................................................................................ 19 2.5.1. Business model and SPPI test ...................................................................................................... 19 2.5.2. Securities at amortized cost ......................................................................................................... 20 2.5.3. Financial assets at fair value through profit or loss ..................................................................... 20 2.5.3.1. Securities held for trading ............................................................................................................ 20 2.5.3.2. Financial assets designated as fair value through profit or loss ................................................... 20 2.5.3.3. Derivative financial instruments .................................................................................................. 21 2.5.4. Hedge accounting ........................................................................................................................ 22 2.5.5. Offsetting ..................................................................................................................................... 23 2.5.6. Embedded derivatives .................................................................................................................. 23 2.5.7. Securities at fair value through other comprehensive income ..................................................... 24 2.5.8. Loans, placements with other banks, repo receivables and loss allowance for loan and placements and repo receivable losses............................................................................................................ 24 2.5.9. Modified assets ............................................................................................................................ 26 2.5.10. Purchased or originated credit impaired financial assets ............................................................. 26 2.6. Loss allowance ............................................................................................................................ 27 2.7. Sale and repurchase agreements, security lending ....................................................................... 30 2.8. Associates and other investments ................................................................................................ 30 2.9. Property and equipment, Intangible assets ................................................................................... 31 2.10. Inventories ................................................................................................................................... 32 2.11. Government grants and government assistance ........................................................................... 32 2.12. Financial liabilities....................................................................................................................... 32 2.13. Leases .......................................................................................................................................... 33 2.14. Investment properties................................................................................................................... 34 2.15. Share capital ................................................................................................................................ 34 2.16. Treasury shares ............................................................................................................................ 34 2.17. Non-current assets held-for-sale and discontinued operations..................................................... 35
3 2.18. Interest income and income similar to interest income and interest expense .............................. 35 2.19. Revenue recognition .................................................................................................................... 36 2.19.1. Fees and commissions ................................................................................................................. 36 2.19.2. Other revenue from customers ..................................................................................................... 37 2.20. Profit from associates .................................................................................................................. 38 2.21. Income tax ................................................................................................................................... 38 2.22. Banking tax .................................................................................................................................. 39 2.23. Off-balance sheet commitments and contingent liabilities .......................................................... 39 2.24. Share-based payment ................................................................................................................... 39 2.25. Employee benefits ....................................................................................................................... 40 2.26. Biological assets and agricultural produce .................................................................................. 40 2.27. Consolidated Statement of Cash-flows ........................................................................................ 40 2.28. Segment reporting........................................................................................................................ 41 2.29. Comparative balances .................................................................................................................. 41 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES ........................................................................................................... 42 3.1. Loss allowances on financial instruments exposed to credit risk ................................................. 42 3.2. Valuation of instruments without direct quotations ..................................................................... 42 3.3. Provisions .................................................................................................................................... 42 3.4. Impairment on goodwill .............................................................................................................. 42 3.5. Contingent consideration ............................................................................................................. 43 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP .......... 44 NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANKS (in HUF mn) ................................................................................................................................... 53 NOTE 6: PLACEMENTS WITH OTHER BANKS (in HUF mn) ................................................................ 54 NOTE 7: REPO RECEIVABLES (in HUF mn) ............................................................................................ 55 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) .......... 56 NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn).................................................................................................................................................. 59 NOTE 10: SECURITIES AT AMORTIZED COST (in HUF mn) .................................................................. 62 NOTE 11: LOANS AT AMORTIZED COST AND AT FAIR VALUE (in HUF mn) ................................... 64 NOTE 12: ASSOCIATES AND OTHER INVESTMENTS (in HUF mn) ...................................................... 67 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) ................................... 68 NOTE 14: INVESTMENT PROPERTIES (in HUF mn) ................................................................................ 75 NOTE 15: DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) ........................................................................................................................................................ 77 NOTE 16: OTHER ASSETS (in HUF mn) ...................................................................................................... 78 NOTE 17: AMOUNTS DUE TO BANKS, THE NATIONAL GOVERNMENTS, DEPOSITS FROM THE NATIONAL BANKS AND OTHER BANKS (in HUF mn) ......................................................... 80 NOTE 18: REPO LIABILITIES (in HUF mn) ................................................................................................ 81 NOTE 19: FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) ................................................................................................................................... 82 NOTE 20: DEPOSITS FROM CUSTOMERS (in HUF mn) ........................................................................... 83 NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) ......................................................... 84 NOTE 22: DERIVATIVE FINANCIAL LIABILITIES HELD-FOR-TRADING (in HUF mn) .................... 89 NOTE 23: DERIVATIVE FINANCIAL LIABILITIES DESIGNATED AS HEDGE ACCOUNTING (in HUF mn).................................................................................................................................................. 90
4 NOTE 24: PROVISIONS AND OTHER LIABILITIES (in HUF mn) ........................................................... 91 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) ............................................................. 93 NOTE 26: SHARE CAPITAL (in HUF mn) ................................................................................................... 95 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) ........................................................... 96 NOTE 28: TREASURY SHARES (in HUF mn) ............................................................................................. 99 NOTE 29: NON-CONTROLLING INTEREST (in HUF mn) ...................................................................... 100 NOTE 30: INTEREST INCOME, INCOME SIMILAR TO INTEREST INCOME AND EXPENSE (in HUF mn)................................................................................................................................................ 101 NOTE 31: LOSS ALLOWANCES / IMPAIRMENT / PROVISIONS (in HUF mn) ................................... 102 NOTE 32: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) ............................................. 103 NOTE 33: GAINS AND LOSSES BY TRANSACTIONS (in HUF mn) ..................................................... 104 NOTE 34: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn)............................................................................................................. 106 NOTE 35: INCOME TAXES (in HUF mn) ................................................................................................... 108 NOTE 36: LEASES (in HUF mn) .................................................................................................................. 112 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) ................................................................... 115 37.1. Credit risk .................................................................................................................................. 115 37.2. Maturity analysis of financial assets and liabilities ................................................................... 139 37.3. Net foreign currency position and foreign currency risk ........................................................... 144 37.4. Interest rate risk management .................................................................................................... 145 37.5. Market risk................................................................................................................................. 154 37.6. Capital management .................................................................................................................. 158 NOTE 38: TRANSFER OF FINANCIAL INSTRUMENTS (in HUF mn) ................................................... 161 NOTE 39: OFF-BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL INSTRUMENTS (in HUF mn)................................................................................................................................................ 162 NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) ........................... 164 NOTE 41: RELATED PARTY TRANSACTIONS (in HUF mn) ................................................................. 170 NOTE 42: ACQUISITION (in HUF mn) ....................................................................................................... 173 NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) ......................................... 178 NOTE 44: TRUST ACTIVITIES (in HUF mn) ............................................................................................. 181 NOTE 45: CONCENTRATION OF ASSETS AND LIABILITIES.............................................................. 182 NOTE 46: EARNINGS PER SHARE............................................................................................................ 183 NOTE 47: NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS (in HUF mn) .............. 185 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn)................................................ 187 48.1. Fair value of financial assets and liabilities at amortized cost by level of the fair value hierarchy and their carrying amount .......................................................................................................... 188 48.2. Fair value of derivative instruments .......................................................................................... 189 48.3. Types of hedge accounting ........................................................................................................ 193 48.4. Fair value levels ......................................................................................................................... 204 NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) ...................................................................................................................................................... 212 NOTE 50: ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (in HUF mn)................................................................................................................................................ 224 NOTE 51: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2023 ..................... 227 NOTE 52: POST BALANCE SHEET EVENTS ........................................................................................... 229
OTP Bank Plc Consolidated Financial Statements 2023 5 OTP BANK PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 (in HUF mn) Note 31/12/2023 31/12/2022 Cash, amounts due from banks and balances with the National Banks 5. 7,125,049 4,221,392 Placements with other banks 6. 1,566,998 1,351,082 Repo receivables 7. 223,884 41,009 Financial assets at fair value through profit or loss 8. 288,885 436,387 Securities at fair value through other comprehensive income 9. 1,601,461 1,739,603 Securities at amortized cost 10. 5,249,272 4,891,938 Loans at amortized cost 11. 17,676,533 16,094,458 Loans mandatorily at fair value through profit or loss 11. 1,400,485 1,247,414 Finance lease receivables 36. 1,289,712 1,298,752 Associates and other investments 12. 96,110 73,849 Property and equipment 13. 523,124 464,469 Intangible assets and goodwill 13. 291,358 237,031 Right-of-use assets 36. 74,698 58,937 Investment properties 14. 53,381 47,452 Derivative financial assets designated as hedge accounting 15. 41,967 48,247 Deferred tax assets 35. 55,691 75,421 Current income tax receivables 35. 7,773 5,650 Other assets 16. 509,430 471,119 Assets classified as held for sale 50. 1,533,333 - TOTAL ASSETS 39,609,144 32,804,210 Amounts due to banks, the National Governments, deposits from the National Banks and other banks 17. 1,940,862 1,463,158 Repo liabilities 18. 126,237 217,369 Financial liabilities designated at fair value through profit or loss 19. 70,707 54,191 Deposits from customers 20. 28,332,431 25,188,805 Liabilities from issued securities 21. 2,095,548 870,682 Derivative financial liabilities held for trading 22. 140,488 385,747 Derivative financial liabilities designated as hedge accounting 23. 63,899 27,949 Leasing liabilities 36. 76,313 63,778 Deferred tax liabilities 35. 28,663 40,094 Current income tax payable 35. 69,948 28,866 Provisions 24. 121,119 131,621 Other liabilities 24. 745,820 707,654 Subordinated bonds and loans 25. 562,396 301,984 Liabilities directly associated with assets classified as held for sale 50. 1,139,920 - TOTAL LIABILITIES 35,514,351 29,481,898 Share capital 26. 28,000 28,000 Retained earnings and reserves 27. 4,179,322 3,395,215 Treasury shares 28. (120,489) (106,862) Total equity attributable to the parent 4,086,833 3,316,353 Total equity attributable to non-controlling interest 29. 7,960 5,959 TOTAL SHAREHOLDERS' EQUITY 4,094,793 3,322,312 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 39,609,144 32,804,210 Budapest, 20 March, 2024 Dr. Sándor Csányi László Wolf Chairman and Chief Executive Officer Deputy Chief Executive Officer
OTP Bank Plc Consolidated Financial Statements 2023 6 OTP BANK PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) Note Year ended 31 December 2023 Year ended 31 December 2022 CONTINUING OPERATIONS Interest income calculated using the effective interest method 30. 2,314,677 1,425,859 Income similar to interest income 30. 633,587 475,547 Interest income and income similar to interest income 2,948,264 1,901,406 Interest expense (1,561,558) (874,538) NET INTEREST INCOME 1,386,706 1,026,868 Loss allowance on loans, placements, amounts due from banks and on repo receivables 31. (109,223) (145,159) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss 31. (91) 13,346 Release of loss allowance / (Loss allowance) on securities at fair value through other comprehensive income and on securities at amortized cost 31. 8,831 (60,761) Release of provision / (Provision) for commitments and guarantees given 31. 19,870 (5,917) Release of impairment / (Impairment) of assets subject to operating lease and of investment properties 31. 1,332 (1,204) Risk cost total (79,281) (199,695) NET INTEREST INCOME AFTER RISK COST 1,307,425 827,173 Loss from derecognition of financial assets at amortized cost 33. (17,182) (1,573) Modification loss 4. (38,141) (39,997) Income from fees and commissions 32. 861,309 716,866 Expense from fees and commissions 32. (169,316) (132,375) Net profit from fees and commissions 691,993 584,491 Foreign exchange result, net 33. 13,827 (16,302) Gain / (Loss) on securities, net 33. 7,283 (4,505) Fair value adjustment on financial instruments measured at fair value through profit or loss 33. 94,613 (4,044) Net results on derivative instruments and hedge relationships 33. (12,760) 16,360 Profit from associates 8., 9. 14,766 14,618 Goodwill impairment 13. - (67,715) Other operating income 34. 324,266 124,930 Other operating expenses 34. (110,570) (125,742) Net operating income / (expense) 331,425 (62,400) Personnel expenses 34. (478,696) (377,728) Depreciation and amortization 13. (111,996) (101,125) Other general expenses 34. (483,645) (451,163) Other administrative expenses (1,074,337) (930,016) PROFIT BEFORE INCOME TAX 1,201,183 377,678 Income tax expense 35. (189,478) (58,600) PROFIT AFTER INCOME TAX FOR THE PERIOD FROM CONTINUING OPERATIONS 1,011,705 319,078
OTP Bank Plc Consolidated Financial Statements 2023 7 OTP BANK PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2023 [continued] (in HUF mn) Note Year ended 31 December 2023 Year ended 31 December 2022 PROFIT AFTER INCOME TAX FOR THE PERIOD FROM CONTINUING OPERATIONS 1,011,705 319,078 DISCOUNTINUED OPERATIONS Gains from disposal of subsidiary classified as held for sale 50. - 11,444 Net (Loss) / Gain from discontinued operations 50. (21,246) 16,559 PROFIT AFTER INCOME TAX FROM CONTINUING AND DISCOUNTINUED OPERATION 990,459 347,081 From this, attributable to: Non-controlling interest 29. 1,801 727 Owners of the company 988,658 346,354 Earnings per share (in HUF) From continuing operations Basic 46. 3,774 1,184 Diluted 46. 3,772 1,184 From continuing and discontinued operations Basic 46. 3,695 1,289 Diluted 46. 3,693 1,288
OTP Bank Plc Consolidated Financial Statements 2023 8 OTP BANK PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) Note Year ended 31 December 2023 Year ended 31 December 2022 PROFIT AFTER INCOME TAX FOR THE YEAR 990,459 347,081 Items that may be reclassified subsequently to profit or loss: Fair value adjustment of securities at fair value through other comprehensive income 27. 89,734 (134,692) Deferred tax related to fair value adjustment of securities at fair value through other comprehensive income 27. (12,779) 10,816 Net investment hedge in foreign operations 27. (2,707) - Foreign currency translation difference 27. (200,928) 179,623 Items that will not be reclassified subsequently to profit or loss: Fair value changes of equity instruments at fair value through other comprehensive income 27. 2,411 5,780 Deferred tax related to equity instruments at fair value through other comprehensive income 27. (947) (1,282) Change of actuarial gain related to employee benefits 27. (392) 1,059 Deferred tax related to change of actuarial gain related to employee benefits 27. (8) (43) Other comprehensive income (125,616) 61,261 TOTAL COMPREHENSIVE INCOME 864,843 408,342 From this, attributable to: Non-controlling interest 1,129 647 Owners of the company 863,714 407,695
OTP Bank Plc Consolidated Financial Statements 2023 9 OTP BANK PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) Note Share capital Capital reserve Retained earnings and other reserves 1 Treasury shares Total equity attributable to shareholders Non-controlling interest Total equity Balance as at 1 January 2022 28,000 52 3,109,457 (106,941) 3,030,568 6,198 3,036,766 Profit after income tax for the period - - 346,354 - 346,354 727 347,081 Other Comprehensive Income - - 61,341 - 61,341 (80) 61,261 Total comprehensive income - - 407,695 - 407,695 647 408,342 Purchasing of non-controlling interest - - - - - (886) (886) Decrease due to business combination - - (1,321) - (1,321) - (1,321) Share-based payment 40. - - 2,948 - 2,948 - 2,948 Paid dividends for years 2019, 2020, 2021 27. - - (120,248) - (120,248) - (120,248) Adjustment related to share-based payment - - 4,066 - 4,066 - 4,066 Sale of Treasury shares 28. - - - 16,347 16,347 - 16,347 Treasury shares - loss on sale 28. - - (7,434) - (7,434) - (7,434) Treasury shares - acquisition 28. - - - (16,268) (16,268) - (16,268) Balance as at 31 December 2022 28,000 52 3,395,163 (106,862) 3,316,353 5,959 3,322,312 Note Share capital Capital reserve Retained earnings and other reserves 1 Treasury shares Total equity attributable to shareholders Non-controlling interest Total equity Balance as at 1 January 2023 28,000 52 3,395,163 (106,862) 3,316,353 5,959 3,322,312 Profit after income tax for the period - - 988,658 - 988,658 1,801 990,459 Other Comprehensive Income - - (124,944) - (124,944) (672) (125,616) Total comprehensive income - - 863,714 - 863,714 1,129 864,843 Purchasing of non-controlling interest - - - - - (159) (159) Increase due to business combination - - - - - 3,149 3,149 Dividend paid to non-controlling interest 29. - (2,118) (2,118) Share-based payment 40. - - 3,292 - 3,292 - 3,292 Paid dividends for year 2022 27. - - (84,000) - (84,000) - (84,000) Adjustment related to share-based payment - - 3,836 - 3,836 - 3,836 Sale of Treasury shares 28. - - - 26,191 26,191 - 26,191 Treasury shares - loss on sale 28. - - (2,735) - (2,735) - (2,735) Treasury shares - acquisition 28. - - - (39,818) (39,818) - (39,818) Balance as at 31 December 2023 28,000 52 4,179,270 (120,489) 4,086,833 7,960 4,094,793 1 See details in Note 27.
OTP Bank Plc Consolidated Financial Statements 2023 10 OTP BANK PLC CONSOLIDATED STATEMENT OF CASH-FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) OPERATING ACTIVITIES Note Year ended 31 December 2023 Year ended 31 December 2022 Profit after income tax for the period (attributable to the owners of the company) 988,658 346,354 Net accrued interest 4,360 45,499 Dividend income 27. (14,787) (13,800) Depreciation and amortization 13. 123,327 112,749 Goodwill impairment 13. - 67,715 (Release of loss allowance) / Loss allowance on securities 9.,10. (9,066) 60,774 Loss allowance on loans and placements, amounts due from banks and on repo receivables 5-7., 11. 116,002 155,681 Loss allowance on investments 12. 22 901 (Release of loss allowance) / Loss allowance on investment properties 14. (1,362) 1,326 Impairment on tangible and intangible assets 13. 5,824 468 Loss allowance on other assets 16. 11,120 15,973 (Release of provision) / Provision on off-balance sheet commitments and contingent liabilities 24. (10,052) 8,589 Share-based payment 40. 3,292 2,948 Unrealized gains on fair value change of financial instrument at fair value through profit or loss 33. (89,577) (84,641) Non-realized foreign exchange loss / (gain) 33. 6,945 (296,986) Loss / (Gain) from sale of tangible and intangible assets 13. 595 (1,281) Unrealized (gains) / losses on fair value change of derivative financial instruments 33. (81,451) 81,440 Negative goodwill 42. (198,361) (3,784) Net changes in assets and liabilities in operating activities Net decrease / (increase) in securities at fair value through profit or loss 8. 120,890 (133,548) Net increase in compulsory reserves at the National Banks 5. (797,695) (769,233) (Increase) / Decrease in placement with other banks, before loss allowance for placements 6. (326,379) 412,510 Net increase in loans at amortized cost before loss allowance for loans and in loans at fair value 11. (28,934) (2,733,463) Net decrease / (increase) in other assets before loss allowance 16. 95,512 (205,916) Net decrease in amounts due to banks, the National Governments, deposits from the National Banks and other banks and repo liabilities 17., 18. (205,101) (43,747) Net increase in financial liabilities designated at fair value through profit or loss 19. 11,974 11,073 Net increase in deposits from customers 20. 846,428 3,787,573 Cash payments for the interest portion of the lease liability 36. (3,099) (2,386) Net increase in other liabilities 24. 40,695 400,077 Income tax paid 35. (152,201) (74,411) Net Cash Provided by Operating Activities 457,579 1,148,454
OTP Bank Plc Consolidated Financial Statements 2023 11 OTP BANK PLC CONSOLIDATED STATEMENT OF CASH-FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 (in HUF mn) [continued] Note Year ended 31 December 2023 Year ended 31 December 2022 INVESTING ACTIVITIES Purchase of securities at fair value through other comprehensive income 9. (871,512) (1,129,729) Proceeds from sale of securities at fair value through other comprehensive income 9. 1,176,467 1,529,538 Purchase of investments 12. (13,910) (38,053) Proceeds from sale of investments 12. - 30,525 Dividends received 27. 15,642 13,800 Purchase of securities at amortized cost 10. (1,037,889) (32,573,247) Redemption of securities at amortized cost 10. 1,329,137 31,625,182 Purchase of property, equipment and intangible assets 13. (300,002) (275,017) Proceeds from disposals of property, equipment and intangible assets 13. 139,155 76,136 Purchase of investment properties 14. (10,363) (20,935) Proceeds from sale of investment properties 14. 14,782 1,127 Net cash paid for acquisition 42. 577,464 38,889 Net Cash Provided by / (Used in) Investing Activities 1,018,971 (721,784) FINANCING ACTIVITIES Cash received from issuance of securities 21. 1,090,039 569,839 Cash used for redemption of issued securities 21. (172,413) (133,712) Cash payments for the principal portion of the lease liability 36. (32,567) (24,632) Cash received from issuance of subordinated bonds and loans 25. 290,159 6,418 Cash used for redemption of subordinated bonds and loans 25. (49,445) (4,646) Sale of Treasury shares 28. 23,456 8,913 Purchase of Treasury shares 28. (39,818) (16,268) Dividends paid 27. (80,159) (116,147) Net Cash Provided by Financing Activities 1,029,252 289,765 TOTAL NET CASH PROVIDED BY 2,505,802 716,435 Cash and cash equivalents at the beginning of the period 5. 2,597,688 1,701,564 Foreign currency translation (200,253) 179,689 Net change in cash and cash equivalent 2,505,802 716,435 Adjustment due to discontinued operation (43,895) - Cash and cash equivalents at the end of the period 5. 4,859,342 2,597,688
OTP Bank Plc Consolidated Financial Statements 2023 12
NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS 1.1. General information OTP Bank Plc (the “Bank” or “OTP Bank”) was established on 31 December 1990, when the previously State - owned company was transformed into a limited liability company. Th e Bank’s registered office address is 16, Nador Street, Budapest 1051, Hungary. Due to Hungarian legislation audit services are a statutory requirement for OTP Bank. Disclosure information about the auditor: Ernst & Young Audit Ltd. (001165), 1132 Budape st Váci Street 20. Registered under 01-09- 267553 by Budapest-Capital Regional Court, as registry court. Statutory registered auditor: Zsolt Kónya, registration number: 007383.
These Consolidated Financial Statements were approved by the Board of Directors and authorised for issue on 20
March 2024. The Bank’s owners have the power to amend the Consolidated Financial Statements after issue if applicable. In 1995, the shares of the Bank were introduced on the Budapest and the Luxembourg Stock Exchanges and were also traded on the SEAQ board on the London Stock Exchange and on PORTAL in the USA. The structure of the Share capital by shareholders (%): 31/12/2023 31/12/2022 Domestic and foreign private and institutional investors 99% 99% Employees 1% 1% Treasury shares - - Total 100% 100% The Bank’s Registered Capital consists of 280.000.010 pieces of ordinary shares with the nominal value of HUF 100 each, representing the same rights to the shareholders. The Bank and its subsidiaries (“Entities of the Group“, together the “Group” or “OTP Group”) provide a full
range
of commercial banking services through a wide network of 1,439 branches in the following countries Hungary, Bulgaria, Romania (classified as discontinued operation), Serbia, Croatia, Russia, Ukraine, Albania, Montenegro, Moldova, Slovenia and Uzbekistan, as well as provides other services in the Netherlands and Malta.
The number of the active employees without long-term breaks, and with part-time employees taken into account proportionately, and the average number of active employees on monthly basis at the Group (with employed agents): 31/12/2023 31/12/2022 The number of employees at the Group 41,547 35,976 The average number of employees at the Group 40,237 36,168
OTP Bank Plc Consolidated Financial Statements 2023 13 NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS [continued]
1.2. Basis of Accounting
These Consolidated Financial Statements were prepared based on the assumptions of the Management that the Bank will remain in business for the foreseeable future and that the Bank will not be forced to halt operations and liquidate its assets in the near term at what may be very low fire-sale prices.
The Entities of the Group maintain their accounting records and prepare their statutory accounts in accordance with the commercial, banking and fiscal regulations prevailing in Hungary and in case of foreign subsidiaries in accordance with the commercial, banking and fiscal regulations of the country in which they are domiciled. The Bank’s functional currency is the Hungarian Forint (“HUF”). It is also presentation currency for the Group. The financial statements of the subsidiaries used during the preparation of Consolidated Financial Statements of the Group have the same reporting period – starting from 1 January ending as at 31 December – like the reporting period of the Group. Due to the fact that the Bank is listed on international and national stock exchanges, the Bank is obliged to present its financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (the “EU”). Certain adjustments have been made to the Entities’ statutory accounts in order to present the Consolidated Financial Statements of the Group in accordance with all standards and interpretations approved by the International Accounting Standards Board (“IASB”).
These Consolidated Financial Statements have been prepared in accordance with IFRS as adopted by the EU. The accompanying Notes to these Consolidated Financial Statements form an integral part of these Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as adopted by EU.
1.2.1. The effect of adopting new and revised International Financial Reporting Standards effective from 1 January 2023 The following amendments to the existing standards and new interpretation issued by the International Accounting Standards Board (IASB) and adopted by the EU are effective for the current reporting period: • Amendments to IAS 1 “Presentation of Financial Statements” and IFRS Practice Statement 2 – Disclosure of Accounting policies – adopted by the EU on 2 March 2022 (effective for annual periods beginning on or after 1 January 2023; earlier application permitted): o The amendments provide guidance on the application of materiality judgements to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies. Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of the materiality concept when making judgements about accounting policy disclosures. • Amendments to IAS 8 “Accounting policies, Changes in Accounting Estimates and Errors” – Definition of Accounting Estimates – adopted in the EU on 2 March 2022 (effective for annual periods beginning on or after 1 January 2023 with earlier application permitted and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period): o The amendments introduce a new definition of accounting estimates, defined as monetary amounts in financial statements that are subject to measurement uncertainty, if they do not result from a correction of prior period error. Also, the amendments clarify what changes in accounting estimates are and how these differ from changes in accounting policies and corrections of errors. • Amendments to IFRS 17 “Insurance Contracts” – adopted by the EU on 19 November 2021 (effective for annual periods beginning on or after 1 January 2023). IFRS 17 is not material in case of these Consolidated Financial Statements. This is a comprehensive new accounting standard for insurance contracts, covering recognition and measurement, presentation and disclosure. IFRS 17 applies to all types of insurance contracts issued, as well as to certain guarantees and financial instruments with discretional participation contracts.
OTP Bank Plc Consolidated Financial Statements 2023 14 NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS [continued] 1.2. Basis of Accounting [continued]
1.2.1. The effect of adopting new and revised International Financial Reporting Standards effective from 1 January 2023 [continued] • Amendments to IFRS 17 “Insurance Contracts” – Initial application of IFRS 17 and IFRS 9 – Comparative Information – adopted by the EU on 8 September 2022 (effective date for annual periods beginning on or after 1 January 2023 with earlier application permitted, provided the entity also applies IFRS 9 Financial Instruments on or before the date it first applies IFRS 17). This is a comprehensive new accounting standard for insurance contracts, covering recognition and measurement, presentation and disclosure. IFRS 17 applies to all types of insurance contracts issued, as well as to certain guarantees and financial instruments with discretional participation contracts. IFRS 17 is not material in case of these Consolidated Financial Statements. • Amendm ents to IAS 12 “Income Taxes” – Deferred Tax related to Assets and Liabilities arising from a Single Transaction – adopted by the EU on 11 August 2022 (effective for annual periods beginning on or after 1 January 2023; earlier application permitted): o The amendments narrow the scope of and provide further clarity on the initial recognition exception under IAS 12 and specify how companies should account for deferred tax related to assets and liabilities arising from a single transaction, such as leases and decommissioning obligations. The amendments clarify that where payments that settle a liability are deductible for tax purposes, it is a matter of judgement, having considered the applicable tax law, whether such deductions are attributable for tax purposes to the liability or to the related asset component. Under the amendments, the initial recognition exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. It only applies if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal. • Amendments to IAS 12 “Income taxes” – International Tax Reform - Pillar Two Model Rules (effective immediately upon issuance, but certain disclosure requirements are effective later). The Organization for Economic Co-operation and Development’s (OECD) published the Pillar Two model rules in December 2021 to ensure that large multinational companies would be subject to a minimum 15% tax rate. On 23 May 2023, the IASB issued International Tax Reform—Pillar Two Model Rules – Amendments to IAS 12. o The amendments introduce a mandatory temporary exception to the accounting for deferred taxes arising from the jurisdictional implementation of the Pillar Two model rules and disclosure requirements for affected entities on the potential exposure to Pillar Two income taxes. The Amendments require, for periods in which Pillar Two legislation is (substantively) enacted but not yet effective, disclosure of known or reasonably estimable information that helps users of financial statements understand the entity’s exposure arising from Pillar Two income taxes. To comply with these requirements, an entity is required to disclose qualitative and quantitative information about its exposure to Pillar Two income taxes at the end of the reporting period. The disclosure of the current tax expense related to Pillar Two income taxes and the disclosures in relation to periods before the legislation is effective are required for annual reporting periods beginning on or after 1 January 2023, but are not required for any interim period ending on or before 31 December 2023. The adoption of these amendments to the existing standards has not led to any material changes in these Consolidated Financial Statements.
OTP Bank Plc Consolidated Financial Statements 2023 15 NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS [continued] 1.2. Basis of Accounting [continued] 1.2.2. New and revised Standards and Interpretations issued by IASB and adopted by the EU but not yet effective • Amendments to IAS 1 “Presentation of Financial Statements” - Classification of Liabilities as Current or Non-Current (effective for annual periods beginning on or after 1 January 2024; earlier application permitted and will need to be applied retrospectively in accordance with IAS 8): o The objective of the amendments is to clarify the principles in IAS 1 for the classification of liabilities as either current or non-current. The amendments clarify the meaning of a right to defer settlement, the requirement for this right to exist at the end of the reporting period, that management intent does not affect current or non-current classification, that options by the counterparty that could result in settlement by the transfer of the entity’s own equity instruments do not affect current or non -current classification. Also, the amendments specify that only covenants with which an entity must comply on or before the reporting date will affect a liability’s classification. Additional disclosures are also required for non-current liabilities arising from loan arrangements that are subject to covenants to be complied with within twelve months after the reporting period. • Amendments to IFRS 16 “Leases” – Lease Liability in a Sale and Leaseback (effective for annual periods beginning on or after 1 January 2024; earlier application permitted): o The amendments are intended to improve the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction in IFRS 16, while it does not change the accounting for leases unrelated to sale and leaseback transactions. In particular, the seller-lessee d etermines ‘lease payments’ or ‘revised lease payments’ in such a way that the seller -lessee would not recognize any amount of the gain or loss that relates to the right of use it retains. Applying these requirements does not prevent the seller-lessee from recognizing, in profit or loss, any gain or loss relating to the partial or full termination of a lease. A seller-lessee applies the amendment retrospectively in accordance with IAS 8 to sale and leaseback transactions entered into after the date of initial application, being the beginning of the annual reporting period in which an entity first applied IFRS 16. 1.2.3. Standards and Interpretations issued by IASB, but not yet adopted by the EU At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards, amendments to the existing standards and new interpretation, which were not endorsed for use in EU as at the date of publication of these Consolidated Financial Statements: • Amendments to IAS 7 “Statement of Cash Flows” and IFRS 7 “Financial Instruments Disclosure - Supplier Finance Arrangements” (effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted): o The amendments supplement requirements already in IFRS and require an entity to disclose the terms and conditions of supplier finance arrangements. Additionally, entities are required to disclose at the beginning and end of reporting period the carrying amounts of supplier finance arrangement financial liabilities and the line items in which those liabilities are presented as well as the carrying amounts of financial liabilities and line items, for which the finance providers have already settled the corresponding trade payables. Entities should also disclose the type and effect of non-cash changes in the carrying amounts of supplier finance arrangement financial liabilities, which prevent the carrying amounts of the financial liabilities from being comparable. Furthermore, the amendments require an entity to disclose at the beginning and end of the reporting period the range of payment due dates for financial liabilities owed to the finance providers and for comparable trade payables that are not part of those arrangements.
OTP Bank Plc Consolidated Financial Statements 2023 16 NOTE 1: ORGANIZATION AND BASIS OF CONSOLIDATED FINANCIAL STATEMENTS [continued] 1.2. Basis of Accounting [continued] 1.2.3. Standards and Interpretations issued by IASB, but not yet adopted by the EU [continued] • Amendments to IAS 21 “The Effects of Changes in Foreign Exchange Rates” – Lack of Exchangeability (effective for annual reporting periods beginning on or after January 1, 2025, with earlier application permitted): o The amendments specify how an entity should assess whether a currency is exchangeable and how it should determine a spot exchange rate when exchangeability is lacking. A currency is considered to be exchangeable into another currency when an entity is able to obtain the other currency within a time frame that allows for a normal administrative delay and through a market or exchange mechanism in which an exchange transaction would create enforceable rights and obligations. If a currency is not exchangeable into another currency, an entity is required to estimate the spot exchange rate at the measurement date. An entity’s objective in estimating the spot exchange rate is to reflect the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions. The amendments note that an entity can use an observable exchange rate without adjustment or another estimation technique. • Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred indefinitely until the research project on the equity method has been concluded): o The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The Group anticipates that the adoption of these new standards, amendments to the existing Standards and new interpretations will have no significant impact on the Consolidated Financial Statements of the Group in the period of initial application.
OTP Bank Plc Consolidated Financial Statements 2023 17
NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES Material accounting policies applied in the preparation of the accompanying Consolidated Financial Statements are summarized below:
2.1. Basis of Presentation These Consolidated Financial Statements have been prepared under the historical cost convention with the exception of certain financial instruments, which are recorded at fair value. Revenues and expenses are recorded in the period in which they are earned or incurred. The Group does not offset assets and liabilities or income and expenses unless it is required or permitted by an IFRS standard. During the preparation of Consolidated Financial Statements assets and liabilities, income and expenses are presented separately, except in certain cases, when one of the IFRS standards prescribes net presenting related to certain items (see note 2.5.5. below). The presentation of Consolidated Financial Statements in conformity with IFRS as adopted by the EU requires the Management of the Group to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Future changes in economic conditions, business strategies, regulatory requirements, accounting rules and other factors could result in a change in estimates that could have a material impact on future financial statements.
2.2. Foreign currency translation In preparing the financial statements of each individual group entity, transactions in currencies other than the entity's functional currencies are translated into functional currencies at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the exchange rates quoted by the National Bank of Hungary (“NBH”), or if there is no official rate, at exchange rates quoted by OTP Bank as at the date of the Consolidated Financial Statements. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise except for:
- exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
- exchange differences on transactions entered into in order to hedge certain foreign currency risks (see note 2.5.4. below for hedging accounting policies); and - exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in Other Comprehensive Income and reclassified from equity to profit or loss on repayment of the monetary items. For the purposes of presenting Consolidated Financial Statements, the assets and liabilities of the Group's foreign operations are translated into HUF using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in Other Comprehensive Income and accumulated in equity (attributed to non-controlling interests as appropriate).
OTP Bank Plc Consolidated Financial Statements 2023 18 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.2. Foreign currency translation [continued] On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Group are reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss.
Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in Other Comprehensive Income and accumulated in equity.
2.3. Principles of consolidation As the ultimate parent, OTP Bank is preparing Consolidated Financial Statements of the Group. These Consolidated Financial Statements combine the assets, liabilities, equity, income, expenses and cash flows of the Bank and of those subsidiaries of the Bank in which the Bank exercises control. All intra-group transactions are consolidated fully on a line-by-line basis while under equity method other consolidation rules are applied. Determination of the entities which are involved into the consolidation procedures based on the determination of the Group’s Control over another entity. Control exists when the Bank has power over the investee, is able to use this power and is exposed or has right to variable returns. Consolidation of a subsidiary should begin from the date when the Group obtains control and cease when the Group loses control. Therefore, income and expenses of a subsidiary should be included in the Consolidated Financial Statements from the date the Group gains control of the subsidiary until the date when the Group ceases to have control of the subsidiary. The list of the major fully consolidated subsidiaries, the percentage of issued capital owned by the Bank and the description of their activities is provided in Note 43.
2.4. Accounting for acquisitions Business combinations are accounted for using the acquisition method. Any goodwill arising on acquisition is recognized in the Consolidated Statement of Financial Position and accounted for as indicated below. The acquisition date is the date on which the acquirer effectively obtains control over the acquiree. Before this date, it should be presented as Advance for investments within Other assets. Goodwill, which represents the residual cost of the acquisition after obtaining the control over the acquiree in the fair value of the identifiable assets acquired and liabilities assumed is held as an intangible asset and recorded at cost less any accumulated impairment losses in the Consolidated Financial Statements. The Group tests goodwill for impairment by comparing its recoverable amount with its carrying amount, and recognising any excess of the carrying amount over the recoverable amount an impairment loss. The recoverable amount of goodwill is the higher of its fair value less costs of disposal and its value in use. If the Group loses control of a subsidiary, derecognizes the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost and recognizes any difference as a gain or loss on the sale attributable to the parent in the Consolidated Statement of Profit or Loss on Net income from discontinued operations. Goodwill acquired in a business combination is tested for impairment annually or more frequently if events or changes in circumstances indicate. The goodwill is allocated to the cash-generating units that are expected to benefit from the synergies of the combinations.
OTP Bank Plc Consolidated Financial Statements 2023 19 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.4. Accounting for acquisition [continued] 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 the impairment need on goodwill based on the strategic factors and financial data of its cash-generating units. The Group, in its strategic plan, has taken into consideration the effects of the present global economic situation, the present economic growth and outlook, the associated risks and their possible effect on the financial sector as well as the current and expected availability of wholesale funding. Negative goodwill (gain from bargain purchase), when the interest of the acquirer in the net fair value of the acquired identifiable net assets exceeds the cost of the business combination, is recognized immediately in the Consolidated Statement of Profit or Loss as “Other income”. The Group measures non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the subsidiaries’ net assets in the event of liquidation at cost and are disclosed among equ ity. In case of equity investments measured at fair value through profit or loss in line with IFRS 9, non-controlling interests are measured at fair value to avoid any accounting mismatch. These types of non-controlling interests are disclosed as financial liabilities designated at fair value through profit or loss.
2.5. Financial assets
2.5.1. Business model and SPPI test A business model refers to how the Group manages its financial instruments in order to generate cash flows. It is determined at a level that reflects how groups of financial instruments are managed rather than at an instrument level. The financial assets held by the Group are classified into three categories depending on the business model within the financial assets are managed. • Business model whose objective is to hold financial assets in order to collect contractual cash flows. Some sales can be consistent with hold to collect business model and the Group assesses the nature, frequency and significance of any sales occurring. The Group does not consider the sale frequent when at least six months have elapsed between sales. The significant sales are those when the sales exceed 2% of the total hold to collect portfolio. Within this business model the Group manages mainly loans and advances and long-term securities and other financial assets. • Business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. Within this business model the Group only manages securities. • Business model whose objective is to achieve gains in a short-term period. Within this business model the Group manages securities and derivative financial instrument. If cash flows are realised in a way that is different from the expectations at the date that the Bank/Group assessed the business model, that does not give rise to a prior error in the Group’s financial statements nor does it change the classification of the remaining financial assets held in that business model. When, and only when the Group changes its business model for managing financial assets it reclassifies all affected assets. Such changes are determined by the Group’s senior management as a result of external or internal changes and must be significant to the Group’s operations and demonstrable to external parties. The Group shall not reclassify any financial liability. Classification of a financial asset is based on the characteristics of its contractual cash flows if the financial asset is held within a business model whose objective is to hold assets to collect contractual cash flows or within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. The Group should determine whether the asset’s contractual cash flows are solely payments of principal and interest on the principal amount outstanding (SPPI test). Contractual cash flows that are solely payments of principal and interest on the principal amount outstanding are consistent with a basic lending arrangement.
OTP Bank Plc Consolidated Financial Statements 2023 20 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.5. Financial assets [continued]
2.5.1. Business model and SPPI test [continued] Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The Group assesses whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding for the currency in which the financial asset is denominated. The time value of money is the element of interest that provides consideration for only the passage of time. However, in some cases, the time value of money element may be modified. In such cases, the Group assesses the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. When assessing a modified time value of money element, the objective is to determine how different the undiscounted contractual cash flows could be from undiscounted cash flows that would arise if the time value of money element was not modified (the benchmark cash flows). The benchmark instrument can be an actual or a hypothetical financial asset. If the undiscounted contractual cash flows significantly – above 2% – differ from the undiscounted benchmark cash flows, the financial asset should be subsequently measured at fair value through profit or loss.
2.5.2. Securities at amortized cost 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 interest on the principal amount outstanding. The Group initially recognizes these securities at fair value. Securities at amortized cost are subsequently measured usi ng the effective interest (“EIR”) method and are subject to impairment. The amortisation of any discount or premium on the acquisition of a security at amortized cost is part of the amortized cost and is recognized as interest income so that the revenue recognized in each period represents a constant yield on the investment. Securities at amortized cost are accounted for on a trade date basis. Such securities comprise mainly securities issued by the Hungarian and foreign Governments, corporate bonds, mortgage bonds, interest-bearing and discounted treasury bills.
2.5.3. Financial assets at fair value through profit or loss 2.5.3.1. Securities held for trading Investments in securities are accounted for on a trade date basis and are initially measured at fair value. Securities held for trading are measured at subsequent reporting dates at fair value, so unrealized gains and losses on held for trading securities are recognized in profit or loss and included in the Consolidated Statement of Profit or Loss for the period. The Group holds held for trading securities within the business model to obtain short-term gains, consequently realized and unrealized gains and losses are recognized in the net operating income, while interest income is recognized in income similar to interest income. Such securities consist of equity instruments, shares in investment funds, Hungarian and foreign government bonds, corporate bonds, discounted treasury bills, mortgage bonds and other securities. 2.5.3.2. Financial assets designated as fair value through profit or loss The Group may - at initial recognition - irrevocable designate a financial asset as measured at fair value through profit or loss that would otherwise be measured at fair value through other comprehensive income or at amortized cost. The Group uses fair value designation if the classification eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (‘accounting mismatch’). The use of the fair value designation is based only on direct decision of management of the Group. The Group currently doesn’t apply this method.
OTP Bank Plc Consolidated Financial Statements 2023 21 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.5. Financial assets [continued]
2.5.3. Financial assets at fair value through profit or loss [continued]
2.5.3.3. Derivative financial instruments In the normal course of business, the Group is a party to contracts for derivative financial instruments, which represent a low initial investment compared to the notional value of the contract and their value depends on value of underlying asset and are settled in the future. The derivative financial instruments used include interest rate forward or swap agreements and currency forward or swap agreements and options. These financial instruments are used by the Group both for trading purposes and to hedge interest rate risk and currency exposures associated with its transactions in the financial markets (it is the so-called economic hedge, accounting hedge is described later). 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 are obtained from quoted market prices, discounted cash-flow models and option pricing models as appropriate. The Group adopts a multi curve valuation approach for calculating the net present value of future cash-flows – based on different curves used for determining forward rates and used for discounting purposes. It shows the best estimation of such derivative deals that are collateralised as the Group has almost all of its open derivative transactions collateralised. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognized in profit or loss and are included in the Consolidated Statement of Profit or Loss for the period. Each derivative deal is determined as asset when fair value is positive and as liability when fair value is negative. Certain derivative transactions, while providing effective economic hedges under the risk management policy of the Group, do not qualify for hedge accounting under 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. Foreign currency contracts Foreign currency contracts are agreements to exchange specific amounts of currencies at a specified rate of exchange, at a spot date (settlement occurs two days after the trade date) or at a forward date (settlement occurs more than two days after the trade date). The notional amount of these forward contracts does not represent the actual market or credit risk associated with these contracts. Foreign currency contracts are used by the Group for risk management and trading purposes. The risk management foreign currency contracts of the Group were used to hedge the exchange rate fluctuations of loans and deposits to credit institutions denominated in foreign currency. Foreign exchange swaps and interest rate swaps The Group enters into foreign exchange swap and interest rate swap (“IRS”) transactions. The swap transaction is an agreement concerning the swap of certain financial instruments, which usually consists of spot and one or more forward contracts. IRS transactions oblige two parties to exchange one or more payments calculated with reference to fixed or periodically reset rates of interest applied to a specific notional principal amount (the base of the interest calculation). Notional principal is the amount upon which interest rates are applied to determine the payment streams under IRS transactions. Such notional principal amounts often are used to express the volume of these transactions but are not actually exchanged between the counterparties. IRS transactions are used by the Group for risk management and trading purposes. Cross-currency interest rate swaps The Group enters into cross-currency interest rate swap (CCIRS) transactions which have special attributes, i.e. the parties exchange the notional amount at the beginning and also at the maturity of the transaction. A special type of these deals is the mark-to-market CCIRS agreements. For these kind of transactions the parties – in accordance with the foreign exchange prices – revalue the notional amount during lifetime of the transaction.
OTP Bank Plc Consolidated Financial Statements 2023 22 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.5. Financial assets [continued]
2.5.3. Financial assets at fair value through profit or loss [continued]
2.5.3.3. Derivative financial instruments [continued] Equity and commodity swaps Equity swaps obligate two parties to exchange more payments calculated with reference to periodically reset rates of interest and performance of indices. A specific notional principal amount is the base of the interest calculation. The payment of index return is calculated on the basis of current market price compared to the previous market price. In case of commodity swaps payments are calculated on the basis of the strike price of a predefined commodity compared to its average market price in a period. Forward rate agreements (FRA) A forward rate agreement is an agreement to settle amounts at a specified future date based on the difference between an interest rate index and an agreed upon fixed rate. Market risk arises from changes in the market value of contractual positions caused by movements in interest rates. The Group limits its exposure to market risk by entering into generally matching or offsetting positions and by establishing and monitoring limits on unmatched positions. Credit risk is managed through approval procedures that establish specific limits for individual counterparties. The Group’s forward rate agreements were transacted for management of interest rate exposures and have been accounted for at mark-to-market fair value. Foreign exchange options A foreign exchange option is a derivative financial instrument that gives the owner the right to exchange money denominated in one currency into another currency at a pre-agreed exchange rate at a specified future date. The transaction, for a fee, guarantees a worst-case exchange rate for the futures purchase of one currency for another. These options protect against unfavourable currency movements while preserving the ability to participate in favourable movements.
2.5.4. Hedge accounting Derivative financial instruments designated as a fair-value hedge Changes in the fair value of derivatives that are designated and qualify as hedging instruments in fair value hedges and that prove to be highly effective in relation to the hedged risk, are recorded in the Consolidated Statement of Profit or Loss along with the corresponding change in fair value of the hedged asset or liability that is attributable to the specific hedged risk. Changes in the fair value of hedging instrument in fair value hedges is charged directly to the Consolidated Statement of Profit or Loss. The conditions of hedge accounting applied by the Bank are the following: formally designated as hedge relationship, proper hedge documentation is prepared, effectiveness test is performed and based on it the hedge is qualified as effective. In the case of a financial instrument measured at amortised cost the Group recognises the hedging gain or loss on the hedged item as the modification of its carrying amount and it is recognised in profit or loss. These adjustments of the carrying amount are amortised to the profit or loss using the effective interest rate method. The Group starts the amortisation when the hedged item is no longer adjusted by the hedging gains or losses. If the hedged item is derecognised, the Group recognises the unamortised fair value in profit or loss immediately. For fair value hedges inefficiencies and the net revaluation of hedged and hedging item are recognized in the Net results on derivative instruments and hedge relationships. The Group implemented hedge accounting rules prescribed by IFRS 9 in 2018. For further details please see Note 48.3. Derivative financial instruments designated as cash-flow hedge Changes in the fair value of derivatives that are designated and qualify as hedging instrument in cash-flow hedges and that prove to be highly effective in relation to the hedged risk are recognized in their effective portion as reserve in Other Comprehensive Income. The ineffective element of the changes in fair value of hedging instrument is charged directly to the Consolidated Statement of Profit or Loss.
OTP Bank Plc Consolidated Financial Statements 2023 23 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.5. Financial assets [continued]
2.5.4. Hedge accounting [continued] Derivative financial instruments designated as cash-flow hedge [continued] The Group terminates the hedge relationship if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting. In the case of cash-flow hedges – in line with the standard - hedge accounting is still applied by the Group as long as the underlying asset is derecognized or terminated. When the Group discontinues hedge accounting to a cash-flow hedge the amount in the cash flow hedge reserve is reclassified to the profit or loss if the hedged future cash flows are no longer expected to occur. If the hedged future cash flows are still expected to occur, the amount remains in the cashflow hedge reserve and reclassified to the profit and loss only when the future cash flows occur. Net investment hedge in foreign operations Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, shall be accounted for similarly to cash flow hedges. On the disposal of a foreign operation, the cumulative value of any gains and losses recognized in Other Comprehensive Income is transferred to the Consolidated Statement of Profit or Loss. For the purposes of presenting Consolidated Financial Statements, the assets and liabilities of the Group's foreign operations are translated into HUF using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in Other Comprehensive Income and accumulated in equity. The Group does not intend to take foreign currency risks from open foreign currency position therefore the Group uses net investment hedge in foreign operations to hedge the foreign currency risk arising from the net assets of subsidiaries with EUR functional currency.
2.5.5. Offsetting Financial assets and liabilities are offset and the net amount is reported in the Consolidated Statement of Financial Position 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. In case of the derivative financial instruments the Group applies offsetting and net presentation in the Consolidated Statement of Financial Position when the Group has the right and the ability to settle these assets and liabilities on a net basis.
2.5.6. Embedded derivatives Sometimes, a derivative may be a component of a combined or hybrid contract that includes a host contract and a derivative (the embedded derivative) affecting cash-flows or otherwise modifying the characteristics of the host instrument. An embedded derivative must be separated from the host instrument and accounted for as a separate derivative if, and only if: • The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; • A separate financial instrument with the same terms as the embedded derivative would meet the definition of a derivative as a stand-alone instrument; and • The host instrument is not measured at 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 is a financial asset the general accounting rules for classification, recognition and measurement of financial assets are applicable for the whole contract and no embedded derivative is separated. Derivatives that are required to be separated are measured at fair value at initial recognition and subsequently. If the Group is unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent 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 is required to be separated from the host contract and accounted for as a derivative when the Bank first becomes a party to the contract. The separation rules for embedded derivatives are only relevant for financial liabilities.
OTP Bank Plc Consolidated Financial Statements 2023 24 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.5. Financial assets [continued] 2.5.7. Securities at fair value through other comprehensive income Securities at fair value through other comprehensive income are held within a business model whose objective is achieved by both collecting of contractual cash flows and selling securities. Furthermore, the contractual terms of these securities give rise on specified dates to cash flows that are solely payment of principal and interest on the principal amount outstanding. 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 at fair value. Unrealized gains and losses on securities at fair value through other comprehensive income are recognized directly 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 the applicable period. For debt securities at fair value through other comprehensive income the loss allowance is calculated based on expected credit loss model. The expected credit loss is accounted for against Other Comprehensive Income. Securities at fair value through other comprehensive income are remeasured at fair value based on quoted prices or amounts derived from cash-flow models. In circumstances where the quoted market prices are not readily available, the fair value of debt securities is estimated using the present value of future cash-flows and the fair value of any unquoted equity instruments are calculated using the EPS ratio. Such securities consist of Hungarian and foreign government bonds, corporate bonds, mortgage bonds, interest- bearing Treasury bills, securities issued by the NBH and other securities. Fair value through other comprehensive income option for equity instruments The Group has elected to present in the Statement of Other Comprehensive Income changes of fair value of those equity instruments which are neither held for trading nor recognized as contingent consideration under IFRS 3. In some cases, the Group made an irrevocable election at initial recognition for certain equity instruments to present subsequent changes in fair value of these securities in the consolidated other comprehensive income instead of in profit or loss. The use of the “fair value through other comprehensive income” option is based only on direct decision of management of the Group.
2.5.8. Loans, placements with other banks, repo receivables and loss allowance for loan and placements and repo receivable losses The Group measures at amortized cost those Loans and placements with other banks and repo receivables, which are held to collect contractual cash flows, and contractual terms of these assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These loans are recognized as Loans at amortized cost in the Consolidated Statement of Financial Position. The Group recognizes those financial assets which are not held for trading and do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding as loans measured at fair value through profit or loss. These loans are recognized as Loans mandatorily at fair value through profit or loss in the Consolidated Statement of Financial Position. Those Loans and placements with other banks and repo receivables that are accounted at amortized cost, stated at the principal amounts outstanding (including accrued interest), net of allowance for loan or placement losses, respectively. In case of the above mentioned financial assets measured at amortised cost transaction fees and charges adjust the carrying amount at initial recognition and are included in effective interest calculation. In case of loans at fair value through profit or loss fees and charges are recognised when incurred in the Consolidated Statement of Profit or Loss.
OTP Bank Plc Consolidated Financial Statements 2023 25 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.5. Financial assets [continued]
2.5.8. Loans, placements with other banks, repo receivables and loss allowance for loan and placements and repo receivable losses [continued] Loans and placements with other banks and repo receivables are derecognized when the contractual rights to the cash-flows expire or they are transferred. When a financial asset is derecognized the difference of the carrying
amount and the consideration received is recognized in the profit or loss in case of financial assets at amortised cost the gains or losses from derecognition are presented in “Gains/losse s from derecognition of financial assets at amortised cost” line while in case of loans at fair value through profit or loss the gains or losses from derecognition are presented in “Net operating income”.
Change in the fair value of loans at fair value through profit or loss is broken down into two components and presented in the Consolidated Statement of Profit or Loss as follows: • Portion of the change in fair value arising from changes in credit risk are presented within “Risk cost” as “Change in the fa ir value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss”. • The remaining component of the change is presented in fair value within “Net operating income” as “Fair value adjustment on financial instruments measured at fair value through profit or loss”.
Initially financial assets shall be recognized at fair value which is usually equal to transaction value in case of loans and placements. However, when the amounts are not equal, the initial fair value difference should be recognized. If the fair value of financial assets is based on a valuation technique using only inputs observable in market transactions, the Group recognizes the initial fair value difference in the Consolidated Statement of Profit or Loss. When the fair value of financial assets is based on models for which inputs are not observable, the difference between the transaction price and the fair value is deferred and only recognized in profit or loss when the instrument is derecognized or the inputs became observable.
Initial fair value of loans lent at interest below market conditions is lower than their transaction price, the subsequent measurement of these loans is under IFRS 9. The Group recognizes a loss allowance for expected credit losses on a financial asset at each reporting date. The loss allowance for a financial asset equals to 12-month expected credit loss or equals to the lifetime expected credit losses. The maximum period over which expected credit losses shall be measured is the maximum contractual period over which the Group is exposed to credit risk. If the credit risk on a financial asset has not increased significantly since initial recognition then 12-month expected credit losses, otherwise (in case of significant credit risk increase) lifetime expected credit losses should be calculated. The expected credit loss is the present value of the difference between the contractual cash flows that are due to the Group under the contract and the cash flows that the Group expects to receive.
When the contractual cash flows of a financial asset are modified and the modification does not result in the derecognition of the financial asset the Group recalculates the gross carrying amount of the financial asset by discounting the expected future cash flows with the original effective interest rate of the asset. The difference between the carrying amount and the present value of the expected cash flows is recognized as a modification gain or loss in the profit or loss. Interest and amortized cost are accounted using effective interest rate method. Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and the possibility of further recovery is considered to be rem ote. The loan is written off against the related account “Gain / (Loss) from derecognition of financial assets at amortized cost” in the Consolidated Statement of Profit or Loss.
The Group applies partial or full write-off for loans based on the definitions and prescriptions of financial instruments in accordance with IFRS 9. If the Group has no reasonable expectations regarding a financial asset (loan) to be recovered, it will be written off partially or fully at the time of emergence. The gross amount and loss allowance of the loans shall be written off in the same amount to the estimated maximum recovery amount while the net carrying value remains unchanged. Subsequent recoveries for loans previously written-off partially or fully, which may have been derecognized from the books with no reasonable expectations for the recovery will be booked in the Consolidated Statement of Profit or Loss on “Income from recoveries of written-off, but legally existing loan” line in Risk cost.
OTP Bank Plc Consolidated Financial Statements 2023 26 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.5. Financial assets [continued]
2.5.9. Modified assets If the net present value of the contracted cash flows changes due to the modification of the contractual terms and it is not qualified as derecognition, modification gain or loss should be calculated and accounted for in the Consolidated Statement of Profit or Loss. Modification gain or loss is accounted in cases like restructuring – as defined in guidelines of the Group – prolongation, renewal with unchanged terms, renewal with shorter terms and prescribing capital repayment rate, if it doesn’t exist or has not been earlier. The changes of net present value should be calculated on portfolio level in case of retail exposures. Each retail contract is restructured based on restructuring frameworks. The Group has to evaluate these frameworks (and not individual contracts). The changes of net present value should be calculated individually on contract level in case of corporate portfolio. Among the possible contract amendments, the Group considers as a derecognition and a new recognition the followings: - merging several debts into a single debt, or one single debt splitting into several tranches, - change of currency, - change in counterparty, - failing SPPI test after modification, - interest rate change (fixed to floating or floating to fixed), when the discounted present value – discounted at the original effective interest rate – of the cash flows under the new terms is at least 10 per cent different from the discounted present value of the remaining cash flows.
In case of derecognition and new recognition of a financial asset, the unamortized fees of the derecognized asset should be presented as Income similar to interest income. The newly recognized financial asset is initially measured at fair value and is placed in stage 1 if the derecognized financial asset was in stage 1 or stage 2 portfolio. The newly recognized financial asset will be purchased or originated credit impaired financial asset (“POCI”) if the derecognized financial asset was in stage 3 portfolio or it was POCI.
The modification gain or loss shall be calculated at each contract amendments unless they are handled as a derecognition and new recognition. In case of modification the Group recalculates the gross carrying amount of the financial asset. To do this, the new contractual cash flows should be discounted using the financia l asset’s original effective interest rate (or credit-adjusted effective interest rate for POCI financial asset). Any costs or fees incurred adjust the carrying amount of the modified financial asset are amortized over the remaining term of the modified financial asset. 2.5.10. Purchased or originated credit impaired financial assets Purchased or originated financial assets are credit-impaired on initial recognition. A financial asset is credit- impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. A purchased credit-impaired asset is likely to be acquired at a deep discount. In unusual circumstances, it may be possible that an entity originates a credit-impaired asset, for example, following a substantial modification of a distressed financial asset that resulted in the derecognition of the original financial asset. In the case of POCI financial assets, interest income is always recognized by applying the credit-adjusted effective interest rate. For POCI financial assets, in subsequent reporting periods an entity is required to recognize: - the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance, - the impairment gain or loss which is the amount of any change in lifetime expected credit losses. An impairment gain is recognized (with the parallel increase of the net amortized cost of receivable) if due to the favourable changes after initial recognition the lifetime expected credit loss estimation is becoming lower than the original estimated credit losses at initial recognition. The POCI qualification remains from initia l recognition to derecognition in the Group’s books.
OTP Bank Plc Consolidated Financial Statements 2023 27 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.6. Loss allowance A loss allowance for loans and placements with other banks and repo receivables is recognized by the Group based on the expected credit loss model in accordance with IFRS 9. Based on the three-stage model the recognized loss allowance equals to 12-month expected credit loss from the initial recognition. On financial assets with significantly increased credit risk or credit impaired financial assets (based on objective evidence) the recognized loss allowance is the lifetime expected credit loss. In the case of purchased or originated credit impaired financial assets, a loss allowance is recognized in the amount of the lifetime expected credit loss since initial recognition. The impairment gain in the Consolidated Statement of Profit or Loss is recognized if lifetime expected credit loss for purchased or originated credit impaired financial assets at measurement date is less than the estimated credit loss at initial recognition. A loss allowance for loans and placements with other banks and repo receivables represents Management’s assessment for potential losses in relation to these activities. The default occurs when either or both of the following events have taken place: • objective criterion meaning that the credit obligation of the client is overdue exceeding the materiality threshold for more than 90 consecutive days (90+ default DPD), or the obligor has breached the limit of the overdraft with an amount exceeding the materiality threshold for more than 90 consecutive days (90+ default DPD), or • probability criterion meaning the probability that the obligor will be unable to pay its credit obligations in full (UTP= Unlikely to Pay). The following conditions indicate the occurrence of the probability criterion: specific credit risk adjustment, sell of credit obligation with significant loss, distressed restructuring, termination of the contract on the initiative of the Bank, Bankruptcy, liquidation, personal bankruptcy, forced deleted status. Previously described conditions should result in default status mandatorily. Moreover, during the individual expert-based assessment t he client’s default status shall be established if in the specific case the default can be justified on subjective basis. The default status should be terminated if in the last 3 months no other default criterion exists and the condition (either probability criterion or objective criterion) that resulted in the default status ceased at least 3 months ago. The expected loss calculation should be forward looking. Available forward-looking information has to be included in the parameter estimation by using different scenarios, including forecasts of future economic conditions. The determination of probability-weighted forward-looking scenarios are based on the OTP Group’ macro model. In general, there are two crisis scenarios (4-5), and three non-crisis scenarios (1-3) but the calculation of impairment should be based on at least two scenarios in the OTP Group. The macro conditioning is performed by Vasicek-model, which captures the relationship between point-in-time (PiT) and through-the-cycle (TTC) PD. The Vasicek PD transformation can also be used to estimate the PIT PDs of the buckets. The required parameters (such as correlation coefficient and macro condition parameter) can be derived from the OTP’s macro model. In the collective provisioning methodology credit risk and the change of credit risk can be correctly captured by understanding the risk characteristics of the portfolio. At portfolio segmentation, setting the segments is a key element of the provisioning calculation and requires the extensive knowledge of the portfolio. The segmentation is expected to stay stable from month to month. The segmentation must be performed separately for each parameter, since in each case different factors may have relevance. The estimation of one-year and lifetime probability of default (PD) of collectively assessed exposures is performed via transition matrices. The assets should be allocated to groups representing similar credit risk based on major credit risk characteristics and their capability to fulfil contractual obligations. The mandatory variables of the group level assessment procedure are payment delay, deal/client rating, the restructured flag, the default status and product type. Further segmentation is advisable in case significant differences are observed in probability of default. Transition matrices should be determined for each portfolio segment separately. The Group model handles healing (from default) rate in the PD parameter, thus the calculated probabilities should be reduced by this rate.
OTP Bank Plc Consolidated Financial Statements 2023 28 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.6. Loss allowance [continued] Two different methods are applied in OTP Group for LGD parameter calculation: Retail mortgage loans and non- retail portfolios (MSE and Wholesale) that are significantly secured by mortgage: modified LGD methodology based on the Asset Quality Review (AQR) – the primary source of the recovery the collateral itself but cash recovery is also taken into account. The calculation is performed for each exposure individually based on the estimated parameters (main parameters: FSR – foreclosure success rate, SR – sales ratio, TTS – time to sale, C – cost, REC – cash recovery) and the actual value of collaterals (e.g. property, guarantee, surety, bail). For Consumer loans and car finance: recovery based LGD methodology estimated from historical recoveries. The LGD calculation should not be automatically identified with historic actual data. The direction and degree of the shift in the factors impacting the LGD, also considering the macroeconomic effects, in addition to the anticipated developments in those, must always be analysed. The LGD – just like the PD – is not independent of the business cycles either; typically it increases in parallel with the economic downturn. Loss allowance for loan and placements are determined at a level that provides coverage for individually identified credit losses. For loans for which it is not possible to determine the amount of the individually identified credit loss in the absence of objective evidence, a collective impairment loss is recognized. With this, the Group reduces the carrying amount of financial asset portfolios with similar credit risk characteristics to the amount expected to be recovered based on historical loss experience. At subsequent measurement the Group recognizes an impairment gain or loss through “Impai rment gain on POCI loans” in the Consolidated Statement of Profit or Loss as part of “Risk cost” line as an amount of expected credit losses or reversal which is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized in accordance with IFRS 9. If the reason for the impairment no longer exist the impairment is released in the Consolidated Statement of Profit or Loss for the current period. If a financial asset, for which previously there were no indicators of significant increase in credit risk (i.e. classified in Stage 1) is subsequently classified in Stage 2 or Stage 3 then loss allowance is adjusted to lifetime expected credit loss. If a financial asset, which was previously classified in Stage 2 or Stage 3 is subsequently classified in Stage 1 then the loss allowance is adjusted to the level of 12 month expected credit loss. Classification into risk classes
According to the requirements of the IFRS9 the Group classifies the financial assets measured at amortized cost, at fair value through other comprehensive income and loan commitments and financial guarantees into the following stages: • Stage 1 – performing financial instruments without significant increase in credit risk since initial recognition • Stage 2 – performing financial instruments with significant increase in credit risk since initial recognition but not credit-impaired • Stage 3 – non-performing, credit-impaired financial instruments • POCI – purchased or originated credit impaired
In the case of trade receivables the Group applies the simplified approach and calculates only lifetime expected credit loss. The simplified approach is the following: - for the past 3 years the average annual balance of receivables under simplified approach is calculated, - the written-off receivables under simplified approach are determined in the past 3 years, - historical losses are adjusted to reflect information about current conditions and reasonable forecasts of future economic conditions, - the loss allowance ratio is the sum of the written-off amounts divided by the sum of the average balances, - the loss allowance is multiplied by the end-of-year balance, it is the actual loss allowance on these receivables, - loss allowance should be recalculated annually.
OTP Bank Plc Consolidated Financial Statements 2023 29 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.6. Loss allowance [continued] Classification into risk classes [continued] The Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the reporting date. This might occur if the financial asset has a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Group considers sovereign exposures as having low credit risk. Stage 1: financial instruments for which the events and conditions specified in respect of Stage 2 and Stage 3 do not exist on the reporting date. A client or loan must be qualified as default if one or both the following two conditions occur: • The client delays more than 90 days. This is considered a hard trigger. • There is reasonable probability that the client will not pay all of its obligation. This condition is examined on the basis of probability criteria of default. The subject of default qualification is that exposure (on-balance and off-balance) which originates credit risk (so originated from loan commitments, risk-taking contracts). A financial instrument shows significant increase in credit risk, and is allocated to Stage 2, if in respect of which any of the following triggers exist on the reporting date, without fulfilling any of the conditions for the allocation to the non-performing stage (stage 3): • the payment delay exceeds 30 days, • it is classified as performing forborne, • based on individual decision, its currency suffered a significant "shock" since the disbursement of the loan, • the transaction/client rating exceeds a predefined value or falls into a determined range, or compared to the historic value it deteriorates to a predefined degree, • in the case retail mortgage loans, the loan-to-value ratio exceeds a predefined rate, • default on another loan of the retail client, if no cross-default exists, • monitoring classification of corporate and municipal clients above different thresholds defined on group - financial difficulties at the debtor (capital adequacy, liquidity, deterioration of the instrument quality), - significant decrease of the liquidity or the activity on the active market of the financial instrument can be observed, - the rating of the client reflects high risk, but it is better than the default one, - significantly decrease in the value of the recovery from which the debtor would disburse the loan, - clients under liquidation. A financial instrument is non-performing and it is allocated to Stage 3 when any of the following events or conditions exists on the reporting date: • default (based on the group level default definition), • classified as non-performing forborne (based on the group level forborne definition), • the monitoring classification of corporate and municipal clients above different thresholds defined on group level (including but not limited to): - breaching of contracts, - significant financial difficulties of the debtor (like capital adequacy, liquidity, deterioration of the instrument quality), - bankruptcy, liquidation, debt settlement processes against debtor, - forced strike-off started against debtor, - termination of loan contract by the Bank, - occurrence of fraud event, - termination of the active market of the financial instrument.
OTP Bank Plc Consolidated Financial Statements 2023 30 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.6. Loss allowance [continued] Classification into risk classes [continued] If the exposure is no longer considered as credit impaired, the Group allocates this exposure to Stage 2. When loss allowance is calculated at exposures categorized into stages the following process is needed by stages: • Stage 1 (performing): loss allowance at an amount equal to 12-month expected credit loss should be recognized, • Stage 2 (significant increase in credit risk): loss allowance at an amount equal to lifetime expected credit loss should be recognized, • Stage 3 (non-performing): loss allowance at an amount equal to lifetime expected credit loss should be recognized. For lifetime expected credit losses, an entity shall estimate the risk of a default occurring on the financial instrument during its expected life. 12-month expected credit losses are a portion of the lifetime expected credit losses and represent the lifetime cash shortfalls that will result if a default occurs in the 12 months after the reporting date (or a shorter period if the expected life of a financial instrument is less than 12 months), weighted by the probability of that default occurring. An entity shall measure expected credit losses of a financial instrument in a way that reflects: - an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes - the time value of money and - reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
2.7. Sale and repurchase agreements, security lending Where debt or equity securities are sold under a commitment to repurchase them at a pre-determined price, they remain on the Consolidated Statement of Financial Position and the consideration received is recorded in Other liabilities or Amounts due to banks, the National Governments, deposits from the 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 either in Placements with other banks or Deposits from customers. Interest is accrued based on the effective interest method evenly over the life of the repurchase agreement. In the case of security lending transactions, the Group does not recognize or derecognize the securities because believes that the transferor retains substantially all the risks and rewards of the ownership of the securities. Only a financial liability or financial receivable is recognized for the consideration amount.
2.8. Associates and other investments The control is established when the Group has the right and exposure over the variable positive yield of the investee but the same time put up with the consequences of the negative returns and the Group by its decisions is able to influence the extent of the yields. The Group primarily considering the following factors in the process of determining the existing of the control: - investigation of the decision-making mechanism of the entity, - authority of the Board of Directors, Supervisory Board and General meeting based on the deed of association, - existence of investments with preferential voting rights. If the control can’t be obviously determined, then it should be supposed that the control does not exist. Significant influence is presumed by the Group to exist – unless the contrary case is proven – when the Group holds 20% or more of the voting power of an investee but does not have a control. The Group considers a subsidiary significant when it is a financial institution or when the subsidiary contributes to the Groups’ total balance sheet with higher amount. The Bank considers the subsidiaries as cash generating units. Companies where the Bank has the ability to exercise significant influence are accounted for using the equity method. Subsidiaries and associated companies that were not accounted for using the equity method and other investments where the Bank does not hold a significant interest are recorded according to IFRS 9. When an investment in an associate is held indirectly through an entity that is a venture capital fund, the Group elects to measure these investments in the associate at fair value through profit or loss in accordance with IFRS 9.
OTP Bank Plc Consolidated Financial Statements 2023 31 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.8. Associates and other investments [continued] Under the equity method, the investment is initially recognized at cost, and the carrying amount is adjusted subsequently for: - the Group’s share of the post-acquisition profits or losses of the investee, which are recognized in the Group’s Consolidated Statement of Profit or Loss; and - the distributions received from the investee, which reduce the carrying amount of the investment. 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 recognizes its share of the investee’s income and losses based on the percentage of the equity interest owned by the Group. Gains and losses on the sale of investments are determined based on the specific identification of the cost of each investment.
2.9. Property and equipment, Intangible assets Property and equipment and Intangible assets are measured at cost, less accumulated depreciation and amortization and impairment, if any. Internally generated intangibles, excluding capitalized development costs, are not capitalized – the related expenditures are accounted as cost in the period in which they are incurred. Development costs are capitalized only when the technical and commercial feasibility of the asset has been clearly demonstrated, the Group has the intent and ability to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits. Amortization of these type of assets begins when development is completed, and the asset is available for use. During the period of development, the asset is tested for impairment annually. The Group lists mainly self-developed software among internally generated intangible assets. The depreciable amount (book value less residual value) of the non-current assets must be allocated over the useful lives. Depreciation and amortization are computed usually by using the straight-line method over the estimated useful lives of the assets based on the following annual percentages: Depreciation and amortization on Property and equipment and Intangible assets commence on the day such assets are ready to use. At each balance sheet date, the Group reviews the carrying value of its Property and equipment and Intangible assets to determine if there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent (if any) of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where the carrying value of Property and equipment and Intangible assets is greater than the estimated recoverable amount, it is impaired immediately to the estimated recoverable amount. The Group may conclude contracts for purchasing property, equipment and intangible assets, where the purchase price is settled in foreign currency. By entering into such agreements, firm commitment in foreign currency due on a specified future date arises at the Group. Reducing the foreign currency risk caused by firm commitment, forward foreign currency contracts may be concluded to ensure the amount payable in foreign currency on a specified future date on one hand and to eliminate the foreign currency risk arising until settlement date of the contract on the other hand. In the case of an effective hedge the realized profit or loss of the hedging instrument is stated as the part of the cost of the hedged asset as it has arisen until recognizing the asset. Annual percentages Useful life period (years) Intangible assets Software 8.3% - 100.0% 1 – 12 Property right 16.7% - 50.0% 2 – 6 Property 1.0% - 33.3% 3 – 100 Machinery and office equipment 2.0% - 50.0% 2 – 50 Vehicle 3.0% - 50.0% 2 – 33
OTP Bank Plc Consolidated Financial Statements 2023 32 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.10. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The Group uses generally FIFO formulas to the measurement of inventories. Inventories are removed from books when they are sold, unusable or destroyed. When inventories are sold, the carrying amount of those inventories are recognized as an expense in the period in which the related revenue is recognized. Repossessed assets are classified as inventories. The Group's policy is to sell repossessed assets and not to use them for its internal operations.
2.11. Government grants and government assistance The Group recognise government grants only when there is a reasonable assurance that the grant will be received, and all attached conditions will be complied with. The Group presents grants relating to assets as deferred income in the Consolidated Statement of Financial Position, which is recognized in profit or loss on a systematic basis over the useful life of the asset. Grants related to an expense item are recorded as another operating income in those periods when the related costs were recognized.
2.12. Financial liabilities The financial liabilities are presented within these lines in the Consolidated Financial Statements: - Amount 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 - Other financial liabilities At initial recognition, the Group measures financial liabilities at fair value plus or minus – in the case of a financial liability not at fair value through profit or loss – transaction costs that are directly attributable to the acquisition or issue of the financial liability. Usually, the initial fair value of financial liabilities equals to transaction value. However, when the amounts are not equal, the initial fair value difference should be recognized.
If the fair value of financial liabilities is based on a valuation technique using only inputs observable in market transactions, the Group recognizes the initial fair value difference in the Consolidated Statement of Profit or Loss. When the fair value of financial liabilities is based on models for which inputs are not observable, the difference between the transaction price and the fair value is deferred and only recognized in profit or loss when the instrument is derecognized or the inputs became observable.
Financial liabilities at fair value through profit or loss are either financial liabilities held for trading or they are designated upon initial recognition as at fair value through profit or loss. In connection to the derivative financial liabilities measured at fair value through profit or loss, the Group presents the amount of change in their fair value originated from the changes of market conditions and business environment. The Group designated some financial liabilities upon initial recognition to measure at fair value through profit or loss. This classification eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (“accounting mismatch”). The changes in fair value of these liabilities are recognized in profit or loss, except the fair value changes attributable to credit risk which are recognized among other comprehensive income.
OTP Bank Plc Consolidated Financial Statements 2023 33 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.12. Financial liabilities [continued] In the case of financial liabilities measured at amortized cost fees and commissions related to the origination of the financial liability are recognized through profit or loss during the maturity of the instrument using effective interest method. In certain cases, the Group repurchases a part of financial liabilities (mainly issued securities or subordinated bonds) and the difference between the carrying amount of the financial liability and the amount paid for it is recognized in the net profit or loss for the period and included in other operating income.
2.13. Leases The Group as a lessor Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Lease classification is made at the inception date and is reassessed only if there is a lease modification. Finance leases At the commencement date, a lessor derecognizes the assets held under a finance lease in the Consolidated Statement of Financial Position and present them as a receivable at an amount equal to the net investment in the lease. The lessor shall use the interest rate implicit in the lease to measure the net investment in the lease. Direct costs such as commissions are included in the initial measurement of the finance lease receivables. The Group as a lessor recognizes finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the Group’s net investment in t he lease. The Group applies the lease payments relating to the period against the gross investment in the lease to reduce both the principal and the unearned finance income.
The Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease (for more details, see Note 2.6.).
Operating leases The Group as a lessor recognizes lease payments from operating leases as income on either a straight-line basis or another systematic basis. Costs, including depreciation, incurred in earning the lease income are recognized as an expense. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognized as an expense over the lease term on the same basis as the lease income. The depreciation policy for depreciable underlying assets subject to operating leases is consistent with the Group’s normal depreciation policy for similar assets. The Group accounts for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease. The Group as a lessee The Group recognizes a right-of-use asset and a lease liability at the commencement of the lease term except for short-term leases and leases, where the underlying asset is of low value (less than USD 5,000). For these leases, the Group recognizes the lease payments as an expense on either a straight-line basis over the lease term or another systematic basis if that basis is more representative of the pattern of the lessee’s benefit. Deferred tax implication if the Group is lessee: At the inception of the lease, there is no net lease asset or liability, no tax base and, therefore, no temporary difference. Subsequently, as depreciation on the right-of-use asset initially exceeds the rate at which the debt reduces, a net liability arises resulting in a deductible temporary difference on which a deferred tax asset should be recognized if recoverable. Assuming that the lease liability is not repaid in advance, the total discounted cash outflows should equal the total rental payments deductible for income tax purposes.
OTP Bank Plc Consolidated Financial Statements 2023 34 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.13. Leases [continued] Right-of-use asset The right-of-use assets are presented separately in the Consolidated Statement of Financial Position and initially measured at cost, subsequently the Group applies the cost model and these assets are depreciated on a straight line basis from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. If the lease transfers ownership of the underlying asset to the Group by the end of the lease term or if the cost of the right-of-use asset reflects that the Group will exercise a purchase option, the right-of-use asset are depreciated from the commencement date to the end of the useful life of the underlying asset. Lease liability At the commencement date, the lease liability is measured at the present value of the lease 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 the incremental borrowing rate of the Group.Variable lease payments that do not depend on an index or a rate but e.g. on revenues or usage are recognized as an expense. The Group always separates the non-lease components of the lease contracts and accounts them as an expense. Lease payments must be included in the measurement of the lease liability without value added taxes. Non-deductible VAT is recognized as other expense. The lease liability is remeasured in the event of a reassessment of the lease liability or lease modification
2.14. Investment properties Investment properties of the Group are land, buildings, part of buildings which held (as the owner or as the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for use in the production or supply of services or for administrative purposes or sale in the ordinary course of business. The Group measures the investment properties at cost less accumulated depreciation and impairment, if any. The depreciable amount (book value less residual value) of the investment properties must be allocated over their useful lives. The depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. The Group discloses the fair value of the investment properties in Note 14 established mainly by external experts.
2.15. Share capital Share capital is the capital determined in the Articles of Association and registered by the Budapest-Capital Regional Court. Share 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 changed over the current period.
2.16. Treasury shares Treasury shares are shares which are purchased on the stock exchange and the over-the-counter market by the Bank and its subsidiaries and are presented in the Consolidated Statement of Financial Position at cost as a deduction from Consolidated Shareholders’ Equity. Gains and lo sses on the sale of treasury shares are credited or charged directly to shareholder’s equity.
OTP Bank Plc Consolidated Financial Statements 2023 35 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.17. Non-current assets held-for-sale and discontinued operations A discontinued operation is a component of an entity that either has been disposed of or is classified as held-for- sale. Hereinafter non-current assets classified as held-for-sale, disposal group and discontinued operations are referred to as assets in accordance with IFRS 5. The Group classifies assets under IFRS 5 if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. The Group does not account for an asset under IFRS 5 that has been temporarily taken out of use as if it had been abandoned. The Group measures an asset under IFRS 5 at the lower of its carrying amount and fair value less costs to sell. When the sale is expected to occur beyond one year, the Group measures the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss. Immediately before the initial classification of the asset under IFRS 5, the carrying amounts of the asset (or all the assets and liabilities in the group) are measured in accordance with applicable IFRS. The Group does not depreciate (or amortize) an asset under IFRS 5 while it is classified as asset in accordance with IFRS 5. Interest and other expenses attributable to the liabilities of the asset under IFRS 5 shall continue to be recognized. If the Group has classified an asset under IFRS 5, but the criteria for that are no longer met, the Group ceases to classify the asset under IFRS 5. The Group measures these assets which cease to be classified as asset under IFRS 5 at the lower of: - its carrying amount before the asset was classified as asset under IFRS 5, adjusted for any depreciation, amortisation or revaluations that would have been recognized had the asset not been classified as asset under IFRS 5, and - its recoverable amount at the date of the subsequent decision not to sell. The Group presents an asset classified as asset under IFRS 5 separately from other assets in the Consolidated Statement of Financial Position. The liabilities of the asset under IFRS 5 are presented separately from other liabilities in the Consolidated Statement of Financial Position. Those assets and liabilities shall not be offset and presented as a single amount. The major classes of assets and liabilities classified as held for sale or discontinued operations are separately disclosed in the Notes. The Group presents separately any cumulative income or expense recognized in other comprehensive income relating to a non-current asset (or disposal group) classified as held for sale. Results from discontinued operations are reported separately in the Consolidated Statement of Profit or Loss as result from discontinued operations.
2.18. Interest income and income similar to interest income and interest expense Interest income and expense are recognized in profit or loss in the period to which they relate, using the effective interest rate method. For exposures categorized into Stage 1 and Stage 2 the interest income is recognized on a gross basis. For exposures categorized into Stage 3 (using effective interest rate) and for POCI (using credit-adjusted effective interest rate) the interest income is recognized on a net basis. The time-proportional income similar to interest income of derivative financial instruments is calculated without using the effective interest method and the positive fair value adjustment of interest rate swaps are included in income similar to interest income. Interest income of loans at fair value through profit or loss is calculated based on interest fixed in the contract and presented in “Income similar to interest income” line. Interest from loans and deposits are accrued on a daily basis. Interest income and expense include certain transaction costs and the amortisation of any discount or premium between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest rate basis. All interest income and expense recognized are arising from loans, placements with other banks, repo receivables, securities at fair value through other comprehensive income, securities at amortized cost and amounts due to banks, repo liabilities, deposits from customers, liabilities from issued securities, subordinated bonds and loans are presented under these lines of Consolidated Financial Statements.
OTP Bank Plc Consolidated Financial Statements 2023 36 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.19. Revenue recognition The Group recognizes revenue from the following major sources: - fee and commission income from financial services - other revenue from customers.
2.19.1. Fees and commissions Fees and commissions that are not involved in the amortized cost model are recognized in the Consolidated Statement of Profit or Loss on an accrual basis according to IFRS 15 Revenue from contracts with customers. These fees are related to deposits, cash withdrawals, security trading, bank card etc. The Group earns fee and commission income from a diverse range of financial services it provides to its customers. Fee and commission income is recognised at an amount that reflects the consideration to which the Group expects to be entitled in exchange for providing the services. The performance obligations, as well as the timing of their satisfaction, are identified, and determined, at the inception of the contract. When the Group provides a service to its customers, consideration is invoiced and generally due immediately because it typically controls the services before transferring them to the customer. The Group provides foreign exchange trading services to its customers, the profit margin achieved on these transactions is presented as Net profit from fees and commissions in the Consolidated Statement of Profit or Loss. Performance obligations satisfied over time include asset management, deposit and account maintenance services, where the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs. The Group’s fee and commission income from services where performance obligations are satisfied over time are followings: Deposit and account maintenance fees and commissions and fees related to cash withdrawal 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 fixed 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 the case of other transaction-based fees (e.g. SMS fee), the fee is settled monthly. In the 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. These 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 and commission related to the issued bank cards 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. These 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.
OTP Bank Plc Consolidated Financial Statements 2023 37 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.19. Revenue recognition [continued]
2.19.1. Fees and commissions [continued] Fees and commissions related to security account management services 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. These 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 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. These 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. Net insurance fee income 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 for ongoing services are charged on a monthly basis during the period when they are provided. Other fees 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. These 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.
2.19.2. Other revenue from customers Other revenue from customers contains revenues from: - sale of agricultural produce, - tourism activity, - gain on transactions related to property activities, - rental income, - income from computer programming. Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with customers and excludes amount collected on behalf of third parties. The Group recognizes revenue when it transfers control of a product or service to customers. The Group has generally concluded that it is the principal in its revenue arrangements, because it typically controls the goods and services before transferring them to the customer.
OTP Bank Plc Consolidated Financial Statements 2023 38 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued] 2.19. Revenue recognition [continued]
2.19.2. Other revenue from customers [continued] Typically, the Group’s other revenue from customers is recognized at the point in time when control of the goods or services is transferred to the customer. Exceptions are revenues services provided to customers – for example rental income – where the customer simultaneously receives and consumes the benefits as the Group performs. The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price, the Group considers the effects of variable consideration, existence of a significant financing component, and a consideration payable to the customer, if any.
2.20. Profit from associates Profit from associates refers to any distribution of an entity earnings to shareholders from stocks or mutual funds that is owned by the Group. The Group recognizes profit from associates in the Consolidated Financial Statements when its right to receive payment is established.
2.21. Income tax The Group considers corporate income tax as current tax according to IAS 12. The Group also considers local business tax and the innovation contribution as income tax in Hungary. The annual taxation charge is based on the tax payable under fiscal regulations prevailing in the country where the company is incorporated, adjusted for deferred taxation. Deferred taxation is accounted for using the balance sheet liability method in respect of temporary 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. Current tax asset or current tax liability is presented related to income tax and innovation contribution separately in the Consolidated Statement of Financial Position. Pillar Two – Global Anti-base Erosion Model Rules (“GloBE), global minimum tax – introduces a minimum effective tax rate of at least 15%, calculated based on a specific rule set. Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions the Group operates. The legislation will be effective for the Group’s financial year beginning 1 January 2024, but in year 2023 no income tax results obtained from Pillar Two rules. The Group considers this top-up tax as an income tax according to IAS 12. Deferred tax assets are recognized by the Group for the amounts of income taxes that are recoverable in future periods in respect of deductible temporary differences as well as the carryforward of unused tax losses and the carryforward of unused tax credits. The Group recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint arrangements, to the extent that, and only to the extent that, it is probable that: - the temporary difference will reverse in the foreseeable future; and - taxable profit will be available against which the temporary difference can be utilised. The Group considers the availability of qualifying taxable temporary differences and the probability of other future taxable profits to determine whether future taxable profits will be available according to IAS 12. The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied: - the Bank is able to control the timing of the reversal of the temporary difference, and - it is probable that the temporary difference will not reverse in the foreseeable future.
OTP Bank Plc Consolidated Financial Statements 2023 39 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.21. Income tax [continued] The Group only offsets its deferred tax liabilities against deferred tax assets when: - there is a legally enforceable right to set-off current tax liabilities against current tax assets, and - the taxes are levied by the same taxation authorities on either • the same taxable entity or • different taxable entities which intend to settle current tax liabilities and assets on a net basis.
2.22. Banking tax The Bank and some of its subsidiaries are obliged to pay banking tax based on Act LIX of 2006 in Hungary. As the calculation is not based on the taxable profit but on the adjusted total assets as reported in the Separate Financial Statements of the Bank and its entities for the second period preceding the current tax year, therefore, the banking tax is considered as another administrative expense, not as income tax. Pursuant to Government Decree No. 197/2022 published on 4 June 2022, the Hungarian Government decided to impose a windfall tax on credit institutions and financial enterprises temporarily, that is for 2022 and 2023. As for 2022, the base of the windfall tax is the net revenues based on the 2021 financial statements, calculated according to local tax law, whereas the tax rate is 10%. These taxes are classified as levies according to IFRS rules.
2.23. Off-balance sheet commitments and contingent liabilities In the ordinary course of its business, the Group enters into off-balance sheet commitments such as guarantees, letters of credit, commitments to extend credit and transactions with financial instruments. The provision for off- balance sheet commitments and contingent liabilities is maintained at a level adequate to absorb future cash outflows which are probable and relate to present obligations. In the case of commitments and contingent liabilities, the Management determines the adequacy of the loss allowance based upon reviews of individual items, recent loss experience, current economic conditions, the risk characteristics of the various categories of transactions and other pertinent factors. The Group recognizes provision for off-balance sheet commitment and contingent liabilities in accordance with IAS 37 when it has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation. For financial guarantees and loan commitments given which are under IFRS 9 the expected credit loss model is applied when the provision is calculated (see more details in Note 2.6.). After initial recognition the Group subsequently measures those contracts at a higher of the amount of the loss allowance or of the amount initially recognised less the cumulative amount of income recognized in accordance with IFRS 15.
2.24. Share-based payment The Group has applied the requirements of IFRS 2 Share-based Payment. The Group issues equity-settled share-based payment to certain employees. Equity-settled share-based payment is measured at fair value at the grant date. The fair value determined at the grant date of the equity-settled share- based payment is expensed on a straight-line basis over the year, based on the Group’s estimate of shares that will eventually vest. Share-based payment is recorded in Consolidated Statement of Profit or Loss as Personnel expenses. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on Management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
OTP Bank Plc Consolidated Financial Statements 2023 40 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.25. Employee benefits The Group has applied the requirement of IAS 19 Employee Benefits. These benefits are recognised as an expense and liability undiscounted in the Consolidated Financial Statements. Liabilities are regularly remeasured. Gains or losses due to the remeasurement are recognised in the Consolidated Other Comprehensive Income. Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. These can be wages, salaries and bonuses, premium, paid annual leave and paid sick leave and other free services (health care, reward holiday). Long-term employee benefits are mostly the jubilee reward. Post-employment benefits are employee benefits (other than termination and short-term employee benefits) that are payable after the completion of employment. Post-employment benefit plans are formal or informal arrangements under which an entity provides post-employment benefits for one or more employees. Post- employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. Defined benefit plan is post‑employment benefit plans other than defined contribution plan. The Group's net obligation is calculated by estimating the amount of employee's future benefit based on their services for the current and prior periods. The future value of benefit is being discounted to present value.
Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either: an entity’s decision to terminate an employee’s employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. Other long-term employee benefits are all employee benefits other than short-term employee benefits, postemployment benefits and termination benefits.
2.26. Biological assets and agricultural produce The Group recognises a biological asset or agricultural produce according to IAS 41 only when it controls the asset as a result of past events, it is probable that future economic benefits will flow and the fair value or the cost can be measured reliably. Biological assets are measured on initial recognition and at subsequent periods at fair value less estimated costs to sell unless fair value cannot be reliably measured. Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest. The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value less costs to sell of biological assets during a period are included in profit or loss for the period in which it arises as other operating income.
2.27. Consolidated Statement of Cash-flows Cash flows arising from the operating, investing or financing activities are reported in the Statement of Cash- Flows of the Group primarily on a gross basis. Net basis reporting are applied by the Group in the following cases: - when the cash flows reflect the activities of the customer rather than those of the Group, and - for items in which the turnover is quick, the amounts are large, and the maturities are short. For the purposes of reporting Consolidated Statement of Cash-flows, cash and cash equivalents include cash, due from banks and balances with the National Banks, excluding the compulsory reserve established by the National Banks. This line item shows balances of HUF and foreign currency cash amounts, and sight deposit from NBH and from other banks, furthermore, balances of current accounts. Consolidated cash-flows from hedging activities are classified in the same category as the item being hedged. The unrealized gains and losses from the translation of monetary items to the closing foreign exchange rates and unrealized gains and losses from derivative financial instruments are presented net as operating activity separately in the Consolidated Statement of Cash-flows for the monetary items which have been revaluated.
OTP Bank Plc Consolidated Financial Statements 2023 41 NOTE 2: SUMMARY OF MATERIAL ACCOUNTING POLICIES [continued]
2.28. Segment reporting IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. Based on the above, the segments identified by the Group are the business and geographical segments. The Group’s operating segments under IFRS 8 are therefore as follows: OTP Core Hungary, Russia, Ukraine, Bulgaria, Serbia, Croatia, Montenegro, Albania, Moldova, Slovenia, Uzbekistan, Merkantil Group, Asset Management subsidiaries, Other subsidiaries. Romanian segment is classified as discontinued operation from 2023 but in line with management report it is still presented in Segment reporting as separate segment.
2.29. Comparative balances These Consolidated Financial Statements are prepared in accordance with the same accounting policies in all respects as the Consolidated Financial Statements prepared in accordance with IFRS as adopted by the European Union for the year ended 31 December 2022, however results in the Consolidated Statement of Profit or Loss for the comparative period changed due to IFRS 5 disclosure requirement. As the Romanian operation was classified as discontinued operation in year 2023, in the comparative period related results were presented as they would have been classified as discontinued operation for year 2022 in the Consolidated Statement of Profit or Loss. The income and expenses of Romanian operation were separated from continuing operation and presented separately after “Profit after income tax for the period” on line “(Loss) /Gain from discontinued operations” so both for year 2023 and 2022 the results in the Consolidated Profit or Loss showing the result of continuing operation which do not include the Romanian contribution. Additional disclosures or extension of existing disclosures have been made throughout the Consolidated Financial Statements, where relevant.
OTP Bank Plc Consolidated Financial Statements 2023 42
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 make judgement about estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on the expected loss and other factors that are considered to be relevant. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period. Actual results could differ from those estimates. Significant areas of subjective judgement include:
3.1. Loss allowances on financial instruments exposed to credit risk The Group regularly assesses its financial instruments portfolio for loss allowance. Management determines the adequacy of the loss allowances based upon reviews of individual loans and placements, recent loss experience, current economic conditions, the risk characteristics of the various categories of loans and other pertinent factors. The use of the three-stage model was implemented for IFRS 9 purposes. The impairment methodology is used to classify financial instruments in order to determine whether credit risk has significantly increased since initial recognition and to identify the credit-impaired assets. For instruments with credit-impairment or significant increase of credit risk lifetime expected losses are recognized (see more details in Note 37.1.)
3.2. Valuation of instruments without direct quotations Financial instruments without direct quotations in an active market are valued using the valuation model technique. The models are regularly reviewed and each model is calibrated for the most recent available market data. While the models are built only on available data, their use is subject to certain assumptions and estimates (e.g. correlations, volatilities, etc.). Changes in the model assumptions may affect the reported fair value of the relevant financial instruments. IFRS 13 Fair Value Measurement seeks to increase the consistency and comparability in fair value measurements and related disclosures through a 'fair value hierarchy'. The hierarchy categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Group evaluates the levelling at each reporting period on an instrument-by-instrument basis and reclassifies instruments when necessary, based on the facts at the beginning of the reporting period. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions.
3.3. Provisions Provision is recognized and measured for commitments to extend credit and for warranties arising from banking activities based on IFRS 9 Financial Instruments. Provision for these instruments is recognized based on the credit conversion factor, which shows the proportion of the undrawn credit line that will probably be drawn. Other provisions are recognized and measured based on IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Group is involved in a number of ongoing legal disputes. Based upon historical experience and expert reports, the Group assesses the developments in these cases, and the likelihood and the amount of potential financial losses which are appropriately provided for. (See Note 24.) Other provision includes provision for litigation, provision for retirement and expected liabilities and provision for confirmed letter of credit. A provision is recognized by the Group when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
3.4. Impairment on goodwill Goodwill acquired in a business combination is tested for impairment annually or more frequently when there is an indication that the unit might be impaired, in accordance with IAS 36 “Impairment of assets”. The Group calculates the fair value based on discounted cash-flow model. The 3-year period explicit cash-flow model serves as a basis for the impairment test by which the Group defines the impairment need on goodwill based on the strategic factors and financial data of its cash-generating units. In the calculation of the goodwill impairment, also the expectations about possible variations in the amount or timing of those future cash-flows, the time value of money, represented by the current market risk-free rate of interest and other factors are reflected.
OTP Bank Plc Consolidated Financial Statements 2023 43 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES [continued]
3.5. Contingent consideration Contingent consideration generally arises where the acquirer agrees to transfer additional consideration to the former owners of the acquired business after the acquisition date if certain specified events occur or conditions are met in the future. These future payments may be in cash or other assets and may be contingent upon the achievement of specified events, and/or may be linked to future financial performance over a specified period of time. Some changes in the fair value of contingent consideration may be the result of additional information that the acquirer obtained after the acquisition date about fact and circumstances that existed at that date. Such changes are measurement period adjustments and have impact of goodwill/negative goodwill. Changes resulting from events after the acquisition date are not measurement period adjustments. Contingent considerations should be recorded on the date of acquisition in consolidated financial statement at fair value. The Group so far settled the contingent considerations in cash. The fair value estimation is made by the “Merger & A cquisition” team based on the sale and purchase agreement (“SPA”) and other available information. OTP concluded the contract including two instalments: first for 73.71% of the shares in 2023 (in December 2023 it increased to 79.58% after capital increase), then second for 24.57% (in December 2023 it decreased to 19.16% after capital increase) of the shares 3 years later. The price of 24.57% of the shares is variable, but within a predefined range and can be adjusted only with factors that have not direct connection with the profit of Ipoteka Bank. The purchase of the second stock cannot be avoided by the parties since the execution of the SPA. Considering the elements of the shares retained by Ministry of Finance of the Republic of Uzbekistan for the given period are treated as financial liability. The recognized liability includes the estimate of the adjustments to the second purchase price and does not include the items that are considered as indemnity. Indemnification related expected cash-inflow is recognized as indemnification asset (measured consistently with the measurement of underlying assets).
OTP Bank Plc Consolidated Financial Statements 2023 44 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP Macro economy and financial situation in Hungary Having elevated after the rapid recovery that followed the Covid crisis and the outbreak of the Russian-Ukrainian war, inflation in advanced economies started to slow in 2023, but the developed world’s central banks had to raise interest rates aggressively until the end of the year. It was not before the year was nearing its end that the tightening cycle stopped and the debate on the possible timing of an interest rate cut began. Meanwhile, the labour market remained tight, with low unemployment and strong wage dynamics. Developed markets’ long-term yields hit multi-decade highs in the autumn, before a sharp fall began at the end of 2023. Economic growth printed different patterns on the two sides of the Atlantic. The USA’s economic expansion accelerated in 2023, as opposed to the expected slowing, and growth shifted into higher gear in the second half of the year. The robust figures were driven by supportive fiscal policy, the large stocks of savings household had accumulated during the pandemic, and the low effective lending rates caused by the high share of loans with fixed interest rates. Headline inflation peaked in June 2022 (+8.9%), but the subsequent decline briefly stalled in the middle of 2023. However, core inflation continued to drop, easing to 3.9% YoY by the end of the year. The very loose fiscal policy, which raised the budget deficit from around 5% to 8% of GDP, required tight monetary policy to bring inflation down. The Fed has aggressively raised its base rate to 5.25–5.5% and began to reduce its balance sheet. The energy crisis brought the euro area to its knees, and the economy has been unable to recover amid high inflation and high interest rates, thus output has been practically stagnant since the third quarter of 2022. Countries with industries that used to rely heavily on Russian energy (e.g. Germany) were hit particularly hard. Elevated interest rates have led to a slowdown in lending, which has also hindered kick-starting growth in Europe. Disinflation was strong in the euro area in 2023: headline and core inflation fell to 2.8% and 3.3%, respectively by the end of the year. The biggest concern in this context is services inflation, which has been stagnating at 4.0% YoY since November 2023. Despite all the weakness in the economy and strong disinflation, the ECB has not yet considered cutting interest rates, thus the euro area ended last year with a deposit rate of 4% and a lending rate of 4.5%. Hungary’s economy fell into a longer and deeper recession than the rest of the CEE region in 2023 (GDP YoY: Q1: -0.9%; Q2: -2.4%; Q3: -0.4%; Q4 (flash): 0,0). However, the recession ended in the third quarter, and growth started to pick up on quarterly basis, helped by the base effect of an unprecedented poor agriculture season in 2022. Overall, regarding the Hungarian economy’s underlying processes, activity fell sharply in Q4 2022 and in Q1 2023, and it has been stagnating or trivially rising since then. The structure of growth is unfavourable, as the sharp fall in domestic use was moderated by an increase in net exports, but it was caused by the decline in imports owing to the sluggish domestic demand, rather than by exports’ strong expansion. Inflation peaked at 25.7%, ten percentage points higher than the average of the CEE region, before disinflation started in the spring. As disinflation accelerated starting from mid-2023, the pace of price increases accelerated, bringing down CPI to 5.5% YoY by December; the annual average rate of inflation was 17.6% in 2023. From the middle of the year, real wages started to rise again month-on-month, but this passed on to consumer spending only modestly. After running 8% current account deficit in 2022, Hungary’s external balance turned into surplus last year, as gas prices collapsed and imports fell due to a drop in domestic demand. The rapid rise in debt ratios between 2020 and 2023 has stopped. The original budget deficit target of 3.9% of GDP proved to be unsustainable, so it was raised to 5.2% in October, but the accrual-based deficit probably exceeded 6% of GDP last year, even with the dividend payment by MVM and with the savings of the ‘utility protection fund’. Having raised the effective rate to 18% in autumn 2022, the MNB cut it in several steps by a total of 725 basis points, to 10.75% by the end of the year. The base rate regained its role in September, when the former overnight deposit facility was phased out. The EUR/HUF fell from around 400 at the beginning of the year to below 370 at one point in the summer, but stabilized around 380 by the end of 2023. Hungary made headway in accessing EU funds at the end of last year as the European Commission approved the so-called horizontal enabling conditions for the judicial reform in December. The government unblocked about EUR 11 billion worth of EU funds, thanks to the measures implemented last year. Starting from autumn 2022, the credit market froze in the CEE region, including Hungary, and similarly to Western Europe. There was a slight pick up at the end of 2023, particularly in retail len ding, within that in ‘baby loans’ and housing loans; demand for cash loans also jumped at the end of the year. In full year 2023, the volume of housing loans rose by 1.3% (2022: 7.6%), that of cash loans grew by 6.9% (2022: 9.3%), and corporate loan volumes increased by an FX-adjusted 6% (2022: 15.5%).
OTP Bank Plc Consolidated Financial Statements 2023 45 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] Summary of economic policy measures made and other relevant regulatory changes in the period under review Windfall tax o On 24 April 2023 Government Decree No. 144/2023 was published amending the previously laid down methodology of windfall tax calculation for the second half of 2023. According to the new rules, the gross amount of the windfall tax for the year 2023 changed to HUF 41 billion from HUF 74.6 billion in the case of OTP Group. o Government decree No. 206/2023 (V.31.) published on 31 May 2023 outlined the details of the extra profit tax payable by credit institutions in 2024. The basis of the tax is the 2022 profit before tax (adjusted for several items). The tax rate is 13% for the part of the tax base that does not exceed HUF 20 billion, and 30% for the amount above HUF 20 billion. According to the decree, if the average amount of Hungarian government bonds owned by the financial institution increases over a certain period, the windfall tax payable by the credit institution will be reduced. The reduction cannot be more than 10% of the increase in government bond holdings and cannot exceed 50% of the windfall tax payment obligation calculated without the reduction. The gross amount of the windfall tax for the year 2024 will be HUF 13 billion in the case of the Hungarian Group members, which can be reduced to HUF 6.5 billion subject to the increase in government bond holdings. As for timing, the HUF 13 billion gross annual tax obligation was recognized in one sum in January 2024, whereas the pro-rated part of the reduction will be booked on a monthly basis, evenly split through 2024. Interest rate cap o Government decree No. 175/2023. (V. 12.) published on 12 May 2023 further extended the interest rate cap scheme by 6 months, until the end of 2023, in the case of the affected floating and fixed rate residential mortgages, as well as floating rate micro and small enterprises loan and leasing contracts. o Pursuant to Government Decree No. 522/2023. (XI. 30.): ▪ The interest rate cap for the outstanding volume of certain residential mortgage loans was extended by six months, until 30 June 2024. ▪ The rate cap for the existing volume of certain MSE loans was extended until 1 April 2024. ▪ Furthermore, Government Decree No. 471/2022 (XI. 21.) was amended, thus the provision that the interest rate on HUF-denominated demand deposits and time deposits with a maximum term of one year shall not exceed the average auction yield of the most recently issued three-month discount Treasury Bill was extended by three months, until 1 April 2024. In another amendment, starting from 1 December 2023, the scope of this cap was extended for entities who qualify as business customers in Hungary’s Civil Code. These provisions shall be applied to deposit contracts concluded after 1 December 2023, as well as to demand deposit contracts existing on 1 December 2023. Voluntary interest rate cap on newly granted loans At the beginning of October 2023, the Ministry of Economic Development proposed that banks impose voluntary interest rate caps on newly granted HUF-denominated working capital loans for businesses, and on residential housing loans. OTP Bank has joined the initiative. Effective from October 2023, the Government set the voluntary interest rate cap on new housing loans at 8.5% and that on working capital loans to businesses at 12%. From 2 November the latter was reduced to 11.5%. From January 2024, the Government reduced the voluntary interest rate cap on housing loans to 7.3% and that on corporate loans to 9.9%. In addition, the Government and the Hungarian Banking Association agreed that the voluntary interest rate cap scheme will be abolished simultaneously with the withdrawal of the interest rate cap for certain outstanding MSE volumes from 1 April 2024, i.e. in the future, interest rates will be determined by market competition.
OTP Bank Plc Consolidated Financial Statements 2023 46 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] Summary of economic policy measures made and other relevant regulatory changes in the period under review [continued] Savings, government bond market o Pursuant to Government decree No. 205/2023. (V. 31.), effective from 1 July 2023, on top of the existing 15% interest tax, an additional 13% social contribution tax was introduced temporarily for certain savings forms. The tax base is the interest income as defined by the PIT law, earned by natural persons after 1 July 2023 on bank deposits placed or certain securities (except for real estate investment fund investment certificates) purchased after 1 July. o Pursuant to Government decree No. 208/2023. (V. 31.), effective from 1 July 2023 the weight of securities in the portfolio of bond funds, equity funds and mixed funds must be at least 60%. Furthermore, from 1 August no more than 5% of the assets of these securities funds can be invested in debt securities other than HUF denominated government securities. o According to Government decree No. 209/2023. (V. 31.), between 1 October 2023 and 31 December 2023 credit institutions shall send a warning notice to their natural person clients with bank account contracts about how much more interest they could have earned in a specific period with an investment of HUF 100,000, HUF 500,000 and HUF 1,000,000 if they had invested in retail government securities instead of bank deposits. Family support schemes o Baby loan: in line with Government decree No. 303/2023. (VII. 11.), from 1 January 2024 the maximum amount of baby loan will increase from HUF 10 to 11 million, and those families will be eligible where the wife is below the age of 30 years. Also, the clause that baby loan contracts can be entered into by the end of this year lost effect, so the scheme will remain in place indefinitely. As for the interest rate fixation periods, in contrast to the current situation that the baby loans reprice in every 5 years, from 2024 the interest rate of newly contracted baby loans will be fixed for 1 year during the first 2 years, then the baby loans will have a 3-year rate fixation period. o Housing Subsidy for Families (CSOK), village CSOK: from 1 January 2024 the village CSOK non-refundable amounts will increase, but in towns and settlements with more than 5,000 inhabitants the CSOK subsidy will no longer be available. Mandatory minimum reserve requirements Pursuant to NBH decree No. 6/2023. (III. 8.) and NBH decree No. 11/2023. (III. 31.), from April the minimum reserve requirement was increased to 10%, and the effective rate paid on the reserves was reduced to 9.75% from the previous 13%, since the national bank doesn’t pay any interest for 25% of the minimum reserve requirement, and for the remaining amount the national bank pays the base rate. NBH decree No. 25/2023. (VI. 14.) amended the reserve requirement rules: among others, from 1 July 2023 up to 15% of the minimum reserve requirement can be met by central bank deposits with at least 14 days original maturity. Also, from July until further notice (by the end of the year according to plans) the reserve requirement will be based on the volumes in the statistical balance sheet as at 31 March 2023. Capital regulation o On 22 June 2023 the national bank announced that it postpones the activation of the Countercyclical Capital Buffer rate of 0.5% planned from 1 July 2023 by one year to 1 July 2024. In addition, it preventively reactivates the Systemic Risk Buffer aimed at risks related to commercial real estate loans (especially non-performing loans). o MREL minimum requirement: effective from 1 January 2024, the consolidated MREL minimum requirement for OTP Bank is 18.94%, while the minimum requirement including combined buffer requirements is 23.95% in % of the total RWA of the resolution group. o Pillar 2 capital requirement: effective from 1 January 2024, the National Bank of Hungary imposed the below additional capital requirements for OTP Group, on consolidated level: ▪ 0.9%-point in case of the Common Equity Tier1 (CET1) capital, accordingly the minimum requirement for the consolidated CET1 ratio is 5.4% (without regulatory capital buffers); ▪ 1.2%-points in case of the Tier1 capital, accordingly the minimum requirement for the consolidated Tier1 ratio is 7.2% (without regulatory capital buffers); ▪ 1.6%-points in case of the Total SREP Capital Requirement (TSCR), accordingly the minimum requirement for the consolidated capital adequacy ratio is 9.6% (without regulatory capital buffers).
OTP Bank Plc Consolidated Financial Statements 2023 47 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] The principles used in the preparation of the Consolidated Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures Going concern principle In the case of Ukraine and Russia OTP management applies a „going concern” approach, however in Russia the management is still considering all strategic options, bearing in mind that any future solution should be strictly within the framework and in accordance with applicable local and international regulations. In February 2022 a military conflict started between Russia and Ukraine. OTP Group’s Ukrainian operat ion incorporates the Ukrainian bank, as well as the leasing and factoring companies. The country-consolidated Ukrainian total assets represented HUF 1,037 billion at the end of 2023 (2.6% of total consolidated assets), while net loans comprised HUF 309 billion (1.4% of consolidated net loans) and shareholders’ equity amounted to HUF 157 billion (3.8% of the consolidated total equity). At the end of 2023 the gross intragroup funding towards the Ukrainian operation represented HUF 83 billion, while taking into account the Ukrainian deposits placed with the Headquarters, i.e. the net group funding stood at HUF 22 billion equivalent deposit placed by the Ukrainian operation (i.e. Ukraine funded the Group). In 2023 the Ukrainian operation posted an adjusted profit after tax of HUF 45.2 billion, against the HUF 15.9 billion loss suffered in the corresponding period of last year. The total assets of the Group’s Russian operation represented HUF 1,471 billion at the end of 2023 (3.7% of consolidated total assets), while net loans comprised HUF 588 billion (2.7% of consolidated net loans) and shareholders’ equity HUF 275 billion (6.7% of consolidated total equity). As the Russian subsidiary repaid its maturing intragroup loans in 4Q 2022, the gross intragroup funding towards the Russian operation declined to zero and remained nil throughout 2023. At the end of 2023 the intragroup subordinated loan exposure toward the Russian operation amounted to HUF 9 billion equivalent. The Russian operation posted HUF 95.7 billion adjusted profit in 2023, after the HUF 42.5 billion profit reached in full-year 2022. In 2H 2023 the Russian Central Bank approved a dividend payment by OTP’s Russian subsidiary with a total amount of HUF 51.3 billion. If the Russian entity was deconsolidated and the outstanding gross intragroup exposures were written off as well, the effect for the consolidated CET1 ratio would be -11 bps, whereas in the Ukraine the negative effect would be 2 bps.
Significant estimates affected by the Russian-Ukrainian conflict during the preparation of these Consolidated Financial Statements During the preparation of these Consolidated Financial Statements, the Group identified the following estimates, which were significantly affected by the Russian-Ukrainian conflict: 1) Evaluation of Russian sovereign exposures (government securities) and related reserves for expected credit losses a) exposures of the Russian subsidiary bank b) exposures of other members of the group (parent company and subsidiaries) 2) Evaluation of Ukrainian sovereign exposures (government securities) and related reserves for expected credit losses a) exposures of the Ukrainian subsidiary bank b) exposures of other members of the group (parent company and subsidiaries) 3) evaluation of derivative transactions denominated in Russian rubles 4) evaluation of derivative transactions denominated in the Ukrainian hryvnia 5) claims against Russian and Ukrainian central banks, provisions for expected credit losses related to Russian and Ukrainian interbank claims and customer loans a) the impact of the deterioration of the Russian and Ukrainian macro-environment b) following direct exposure to the Russian and Ukrainian markets, non-Russian and Ukrainian bank exposures c) exposures of Russian and Ukrainian subsidiary banks 6) evaluation of goodwill 7) deferred tax assets
OTP Bank Plc Consolidated Financial Statements 2023 48
NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] The principles used in the preparation of the Consolidated Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures [continued] Significant estimates affected by the Russian-Ukrainian conflict during the preparation of these Consolidated Financial Statements [continued] Russia Ukraine Other countries Reference Gross value Impairment / Depreciation Reference Gross value Impairment / Depreciation Reference Gross value Impairment / Depreciation Cash, amounts due from banks and balances with the National Banks 76,494 - 98,864 (12) 47 (6) Placements with other banks 5 702,097 - 5 96,070 (147) - - Repo receivables - - 9,726 (516) - - Financial assets at fair value through profit or loss - derivatives 3 207 - 4 3 - - - Securities at fair value through other comprehensive income 1a 21,284 - 2a 85,431 - 36,230 (24,582) Securities at amortized cost 2a 310,617 (204) 33,075 (11,299) Loans at amortized cost 5 721,212 (133,255) 5 274,472 (58,450) 5 79,953 (4,487) Finance lease receivables 113,203 (20,156) - - Property and equipment 30,567 (19,190) 19,392 (6,938) - - Intangible assets and goodwill 31,387 (14,851) 11,275 (6,701) 6 - - Right-of-use assets 13,994 (8,380) 5,682 (3,480) - - Investment properties - - 225 - - - Deferred tax assets 7 15,448 - 7 - - - - Current income tax receivables 2,885 - - - - - Other assets 31,820 (4,910) 7,289 (857) 15,537 (7,884) TOTAL ASSETS 1,647,395 (180,586) 1,032,249 (97,461) 164,842 (48,258) Amounts due to banks, the National Governments, deposits from the National Banks and other banks 8,970 - 7,418 - - - Deposits from customers 1,086,708 - 747,337 - 56,280 - TOTAL LIABILITIES 1,095,678 - 754,755 - 56,280 -
OTP Bank Plc Consolidated Financial Statements 2023 49
NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] The principles used in the preparation of the Consolidated Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures [continued] Significant estimates affected by the Russian-Ukrainian conflict during the preparation of these Consolidated Financial Statements [continued] During the evaluation of these assets, the Group applied the evaluation principles detailed below, which evaluation contains significant estimates on the part of the Management. The results of the estimates may vary significantly depending on the development of the situation in the Russian-Ukrainian conflict. References 1a. Evaluation of Russian sovereign exposures and related reserves for expected credit losses - exposures of the Russian subsidiary bank Within Russia, Russian government securities are marketable, and their repayment is expected to take place in accordance with the original conditions. The fair value calculation of securities is based on market prices available and observable on local trading platforms. 1b. Evaluation of Russian sovereign exposures and related reserves for expected credit losses - other exposures of the group Outside of Russia, the marketability of Russian government securities is significantly limited due to sanctions and capital market participants turning away from Russian securities. The credit rating of the Russian state was withdrawn in 2022, the Group classifies the Russian state as non-performing, and in accordance with this, it assigned the affected exposures to the Stage 3 category. The Russian state not only recognizes its obligation and has the necessary financial reserves, but would also be willing to pay, so the increased loss potential is caused by non-traditional credit risks. In the case of a portfolio valued at fair value through other comprehensive income, the book value is determined based on the level 3 prices of IFRS13. Cash-flow estimation, current market benchmarks (provided by Bloomberg), liquidity and non-credit risk considerations were taken into account in fair value calculation. In the case of overdue receivables, the Group determines the impairment based on its expectations regarding the probability and time frame of recovery. Basically, a higher probability of return and a shorter time frame can be assigned to those items for which, as a result of the legal steps taken by the Group, the claim has been paid in RUB by the competent Russian clearing house (NSD) and access to the relevant amounts is subject to Hungarian authority approvals. On the other hand, a lower probability of return and a longer time period were determined for those items where the payment is expected in EUR or USD with the help of European clearing houses (Euroclear, Clearstream) requiring a complex legal process. Regarding the future, the Group expects that it will be able to ask for the above-described, more favorable payment in RUB with respect to claims that become due. The claims from the overdue Russian government bonds are classified to Other financial asset line and in the above table presented within Other countries in the amount of HUF 8.9 billion with the impairment of HUF 5.4 billion. 2a. Valuation of Ukrainian sovereign exposures and related reserves for expected credit losses - exposures of the Ukrainian subsidiary bank The marketability of local government securities and the liquidity of the market are limited in Ukraine. Ukrainian government securities can only be found in the books of the Ukrainian subsidiary, due to the increased credit risk, these exposures acquired before 2023 are classified as Stage2 and exposures acquired in 2023 are classified as Stage 1. In the case of a portfolio valued at fair value through other comprehensive results, the book value is determined based on the level 3 prices of IFRS13. During the actual evaluation, the expected cash flow is discounted using yield curves observed based on current market benchmarks (published by the National Bank of Ukraine). 2b. Valuation of Ukrainian sovereign exposures and related reserves for expected credit losses - other exposures of the group Ukrainian government securities are exclusively in the books of the Ukrainian subsidiary.
OTP Bank Plc Consolidated Financial Statements 2023 50
NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] The principles used in the preparation of the Consolidated Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures [continued] Significant estimates affected by the Russian-Ukrainian conflict during the preparation of these Consolidated Financial Statements [continued] References [continued] 3. Valuation of Russian derivative transactions In the case of futures contracts concluded with local partners on the Russian market, the evaluation is carried out using yield curves available and observable on the local market. In cases where one of the partners is not Russian, the evaluation is done using yield curves available and observable on the international market. 4. Valuation of Ukrainian derivatives The Treasury turnover of the Ukrainian bank is low, and a significant part of the derivative transactions are related to the bank's risk management and concluded with the parent company. During the actual evaluation, the expected cash-flow is discounted using yield curves observed based on current market benchmarks (published by the National Bank of Ukraine). 5. Claims against Russian and Ukrainian central banks, provisions for expected credit losses related to Russian and Ukrainian interbank claims and customer loans As part of the continuous monitoring activity, OTP Group has explored and analyzed the secondary and tertiary negative effects of the war in the corporate segment for Group members outside of Russia and Ukraine, including the effects of the current sanctions policy. In the case of the affected customers, if the increased risk was substantiated, they were classified in the Stage 2 category, while in the case of non-performance, the Group classified the given exposures in the Stage 3 rating category. In the case of Group members in Russia, the impact of the current and forward-looking economic environment was taken into account when determining the expected loss, however, the Bank does not expect any further substantial deterioration of the economic environment. In the case of Ukrainian Group members, the proportion of customers with increased risk (Stage2) decreased while non-performing (Stage3) category stabilized in 2023, but further deterioration is not expected in 2024. The impact of the current and forward-looking economic environment was taken into account when determining the expected loss, however, the Bank does not expect any further substantial deterioration of the economic environment. The identification of the increased risk – given the special situation – extends to regionally different war activity. In addition, the territorial distribution of exposures was also taken into account when evaluating the expected loss, in the areas directly and indirectly affected by the war, the Bank does not expect a significant return for non- performing customers, regardless of economic trends. 6. Evaluation of goodwill In connection with the involvement in the Russian-Ukrainian conflict, as a result of the company value review, the Group considered it necessary to fully write off the existing goodwill in the case of the Russian subsidiary bank in the first quarter of 2022, the value of which as at 31 December 2021 was HUF 40.9 billion. The effect of goodwill write-off on the result was HUF 67.7 billion, and a HUF 26.8 billion loss was accounted for against equity. In the case of Ukraine, there was no goodwill write-off. Based on current experience, the Group takes into account the macroeconomic effects of the current geopolitical situation in the mid- to long-term when determining the impairment of investments in the case of countries affected by the conflict. In the case of Russian and Ukrainian operations, we currently do not consider it likely that the estimated investment value before the conflict (2021) will be reached during the 3-year explicit period.
OTP Bank Plc Consolidated Financial Statements 2023 51 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued]
The principles used in the preparation of the Consolidated Statement of Financial Position as at 31 December 2023 in connection with the evaluation of Russian and Ukrainian exposures [continued] Significant estimates affected by the Russian-Ukrainian conflict during the preparation of these Consolidated Financial Statements [continued] References [continued] 7. Deferred tax Due to the uncertainty of the expected return, the Group did not recognize deferred tax assets in Ukraine, while in Russia, the Group recognized HUF 15,45 billion in deferred tax assets. There is no limit to unused tax credits in Russia. In addition, if the bank's taxable loss were to increase (if the impairment calculated according to local rules approached the higher level of impairment according to IFRS), the difference between the settlement and the tax loss would decrease, thus reducing the deferred tax asset. As a result, the bank was able to utilize the temporary deferred tax asset both in the expected profitable operation and in a possible loss scenario.
Financial assets modified in the Group for the year ended 31 December 2023 (in HUF million) Modification losses from changes other than Hungarian interest rate cap resulted in HUF 1,631 million loss and HUF 2,859 million as at 31 December 2023 and 2022, respectively. In the following tables the modification gains and losses resulting from the prolongation of interest rate caps is presented. The newly granted loans have fixed interest throughout the lifetime and the voluntary interest rate cap does not affect the previously disbursed loans. Modification due to prolongation of the existing interest rate cap till 30 June 2024 Group Gross carrying amount before modification 351,776 Loss allowance before modification (12,702) Net amortised cost before modification 339,074 Modification loss (8,738) Net amortised cost after modification 330,336 Modification due to prolongation of the existing interest rate cap till 31 December 2023 Group Gross carrying amount before modification 709,771 Loss allowance before modification (18,640) Net amortised cost before modification 691,131 Modification loss (27,772) Net amortised cost after modification 663,359 Financial assets modified during the period related to moratorium in the Group for the year ended 31 December 2022 (in HUF mn) Modification due to prolongation of deadline of moratorium from 30 June until 31 July 2022 Group Gross carrying amount before modification 159,850 Loss allowance before modification (31,718) Net amortised cost before modification 128,132 Modification loss (471) Net amortised cost after modification 127,661
OTP Bank Plc Consolidated Financial Statements 2023 52 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] Financial assets modified during the period related to moratorium in the Group for the year ended 31 December 2022 (in HUF mn) [continued] Modification due to prolongation of interest rate cap till 30 June 2022 Group Gross carrying amount before modification 289,630 Loss allowance before modification (7,771) Net amortised cost before modification 281,859 Modification loss (11,144) Net amortised cost after modification 270,715 Modification due to prolongation of deadline of moratorium till 30 September 2022 Group Gross carrying amount before modification 1,053 Loss allowance before modification (108) Net amortised cost before modification 945 Modification loss (5) Net amortised cost after modification 940 Modification due to moratorium related to agriculture and prolongation of deadline of existing moratorium till 30 September 2022 Group Gross carrying amount before modification 152,051 Loss allowance before modification (24,910) Net amortised cost before modification 127,141 Modification loss (2,122) Net amortised cost after modification 125,019 Modification due to prolongation of interest rate cap till 30 November 2022 Group Gross carrying amount before modification 154,421 Loss allowance before modification (6,184) Net amortised cost before modification 148,237 Modification loss (536) Net amortised cost after modification 147,701 Modification due to scope extension (mortgage loans with 5-year fixing without subsidy) and prolongation of the existing interest rate cap till 31 December 2022 Group Gross carrying amount before modification 422,201 Loss allowance before modification (12,604) Net amortised cost before modification 409,597 Modification loss (22,860) Net amortised cost after modification 386,737
OTP Bank Plc Consolidated Financial Statements 2023 53
NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANKS (in HUF mn) 31/12/2023 31/12/2022 Cash on hand In HUF 86,498 92,526 In foreign currency 519,333 582,950 605,831 675,476 Amounts due from banks and balances with the National Banks 31/12/2023 31/12/2022 Within one year In HUF 2,275,719 732,956 In foreign currency 4,244,007 2,814,663 6,519,726 3,547,619 Over one year In HUF - - In foreign currency - - - - Loss allowance on amounts due from bank and balances with the National Banks (508) (1,703) Total 7,125,049 4,221,392 Compulsory reserve set by the National Banks (2,265,707) (1,623,704) Cash and cash equivalents 4,859,342 2,597,688 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 those banks are obliged to place compulsory reserve at their National Bank in a specified percentage of their liabilities considered in compulsory reserve calculation. An analysis of the change in the loss allowance on amounts from banks and balances with the National Banks is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 1,703 1,108 Loss allowance for the period 11,859 8,072 Release of loss allowance for the period (12,919) (7,697) Use of loss allowance for the period (3) - Foreign currency translation difference (132) 220 Closing balance 508 1,703
OTP Bank Plc Consolidated Financial Statements 2023 54
NOTE 6: PLACEMENTS WITH OTHER BANKS (in HUF mn) 31/12/2023 31/12/2022 Within one year In HUF 343,022 681,892 In foreign currency 961,554 447,648 1,304,576 1,129,540 Over one year In HUF 184,696 199,056 In foreign currency 79,973 26,323 264,669 225,379 Loss allowance on placements (2,247) (3,837) Total 1,566,998 1,351,082 An analysis of the change in the loss allowance on placements with other banks is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 3,837 2,994 Loss allowance for the period 3,425 38,314 Release of loss allowance for the period (4,880) (38,378) Use of loss allowance for the period - (100) Assets held for sale (12) - Foreign currency translation difference (123) 1,007 Closing balance 2,247 3,837 Interest conditions of placements with other banks: 31/12/2023 31/12/2022 Interest rates on placements with other banks denominated in HUF 0.00% - 25.00% 0.00% - 25.70% Interest rates on placements with other banks denominated in foreign currency 0.00% - 22.00% (1.5)% - 13.29% 31/12/2023 31/12/2022 Average interest rates on placements with other banks (%) 13.89% 11.02%
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NOTE 7: REPO RECEIVABLES (in HUF mn) 31/12/2023 31/12/2022 Within one year In HUF 18,341 41,250 In foreign currency 206,077 - 224,418 41,250 Over one year In HUF 37 - In foreign currency 22 - 59 - Loss allowance on repo receivables (593) (241) Total 223,884 41,009 An analysis of the change in the loss allowance on repo receivables is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 241 290 Loss allowance for the period 5,002 4,744 Release of loss allowance for the period (4,631) (4,794) Use of loss allowance - - Foreign currency translation difference (19) 1 Closing balance 593 241 Interest conditions of repo receivables (%): 31/12/2023 31/12/2022 Interest rates on repo receivables denominated in HUF 0.00% - 11.00% 10.70% - 18.00% Interest rates on repo receivables denominated in foreign currency 0.00% - 17.96% - 31/12/2023 31/12/2022 Average interest rates on repo receivables denominated in HUF (%) 11.83% 9.93% Average interest rates on repo receivables denominated in foreign currency (%) 6.92% - Securities as collaterals underlying repo receivable contracts: Types of securities 31/12/2023 31/12/2022 Government bonds 31,333 46,081 Treasury bills 197,639 3,949 Total 228,972 50,030
OTP Bank Plc Consolidated Financial Statements 2023 56
NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) 31/12/2023 31/12/2022 Trading securities at fair value through profit or loss Government bonds 58,232 78,897 Equity instruments and fund units 513 385 Corporate bonds 584 119 Discounted Treasury bills 3,959 22,896 Mortgage bonds 97 72 Other interest-bearing securities 3,852 1,628 Other non-interest-bearing securities 331 753 67,568 104,750 Non-trading instruments mandatorily at fair value through profit or loss Equity instruments, shares and open-ended fund units 64,002 49,746 Bonds 3,686 5,409 67,688 55,155 Financial assets designated at fair value through profit or loss - - Total 135,256 159,905
Positive fair value of derivative financial assets held for trading 31/12/2023 31/12/2022 Foreign exchange swaps held for trading 36,068 79,395 Interest rate swaps held for trading 65,711 127,230 Commodity swaps 32,336 33,693 CCIRS and mark-to-market CCIRS held-for-trading 1 8,644 20,512 Foreign exchange forward contracts held for trading 7,101 13,085 Held-for-trading option contracts 3,040 2,122 Held-for-trading forward security agreement 3 13 Other derivative transactions held for trading 2 726 432 Total 153,629 276,482 Total 288,885 436,387 1 CCIRS: Cross Currency Interest Rate Swaps (See Note 2.5.3.3.) 2 Other category includes: fx spot, equity swaps, option and index futures.
An analysis of securities held for trading portfolio by currency (%): 31/12/2023 31/12/2022 Denominated in HUF 30.73% 81.47% Denominated in foreign currency 69.27% 18.53% Total 100.00% 100.00%
OTP Bank Plc Consolidated Financial Statements 2023 57
NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) [continued] An analysis of government bond portfolio by currency (%): 31/12/2023 31/12/2022 Denominated in HUF 22.71% 78.42% Denominated in foreign currency 77.29% 21.58% Total 100.00% 100.00% Interest conditions of held for trading securities (%): 31/12/2023 31/12/2022 Interest rates on securities held for trading denominated in HUF 1.90% - 16.66% 0.00% - 16.69% Interest rates on securities held for trading denominated in foreign currency 0.00% - 18.00% 0.00% - 7.63% Interest conditions and the remaining maturities of securities held for trading can be analysed as follows: 31/12/2023 31/12/2022 Within one year With variable interest 135 3,041 With fixed interest 40,689 29,025 40,824 32,066 Over one year With variable interest 1,154 9,535 With fixed interest 24,746 62,011 25,900 71,546 Non-interest-bearing securities 844 1,138 Total 67,568 104,750
Interest conditions and the remaining maturities of non-trading securities mandatorily at fair value through profit or loss are as follows: 31/12/2023 31/12/2022 Within one year With variable interest - - With fixed interest - - - - Over one year With variable interest - - With fixed interest 57 - 57 - Non-interest-bearing securities 67,631 55,155 Total 67,688 55,155
OTP Bank Plc Consolidated Financial Statements 2023 58
NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) [continued] 31/12/2023 31/12/2022 Profit from associates from shares measured at fair value through profit or loss 14,297 12,216 An analysis of non-trading securities mandatorily at fair value through profit or loss portfolio by currency (%): 31/12/2023 31/12/2022 Denominated in HUF 60.76% 60.69% Denominated in foreign currency 39.24% 39.31% Total 100.00% 100.00% Interest conditions of non-trading instruments mandatorily at fair value through profit or loss (%): 31/12/2023 31/12/2022 Interest rates on non-trading instruments mandatorily at fair value through profit or loss denominated in foreign currency (%) 2.00% - 3.00% -
OTP Bank Plc Consolidated Financial Statements 2023 59
NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) 31/12/2023 31/12/2022 Securities at fair value through other comprehensive income Government bonds 1,288,230 1,301,179 Corporate bonds 34,996 82,651 Listed securities: In HUF - - In foreign currency 16,989 13,626 16,989 13,626 Non-listed securities: In HUF 12,115 14,304 In foreign currency 5,892 54,721 18,007 69,025 Mortgage bonds 30,344 54,553 Interest bearing treasury bills 235 182,726 Securities issued by the National Bank of Hungary 114,746 74,867 Other securities 72,429 3,470 Total 1,540,980 1,699,446 31/12/2023 31/12/2022 Non-interest-bearing instruments at fair value through other comprehensive income Listed securities: In HUF - - In foreign currency 9,472 11,233 9,472 11,233 Non-listed securities: In HUF 403 403 In foreign currency 50,606 28,521 51,009 28,924 60,481 40,157 Total 1,601,461 1,739,603 Movement table of loss allowance of securities at fair value through other comprehensive income is presented in Note 27. An analysis of securities at fair value through other comprehensive income by currency (%): 31/12/2023 31/12/2022 Denominated in HUF 33.85% 36.47% Denominated in foreign currency 66.15% 63.53% Total 100.00% 100.00%
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NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) [continued] Detailed information of the non-interest-bearing instruments at fair value through other comprehensive income: 31/12/2023 31/12/2022 Strategic investments closely related to banking activity Fair value 51,131 31,873 Dividend income from instruments held at the reporting date 369 1,120 Derecognition Fair value of disposed, reclassified equity instrument, fund units 2,277 4,906 Cumulative gain / loss on disposal, reclassification transferred to retained earnings 3,978 - Other strategic investments Fair value 9,350 8,284 Dividend income from instruments held at the reporting date 61 59 Total Total fair values 60,481 40,157 Dividend income from instruments held at the reporting date 430 1,179 Fair value of derecognized equity instrument, fund units 2,277 4,906 Cumulative gain / loss on disposal transferred to retained earnings 3,978 - Since the joining of NKBM into OTP Group on the 6th of February 2023, investment in Bankart d.o.o. became an associated company and the Group reclassified the investment in Bankart from Securities at fair value through other comprehensive income to Associates and other investments. The amount of this reclassification transferred to retained earnings was HUF 1,301 million and the fair value of the investment was HUF 2,277 million as at the reclassification. During the year ended 31 December 2022 HUF 2,677 million equity instruments measured at fair value through other comprehensive income was sold but the realized income only in 2023 was transferred to retained earnings. An analysis of government bonds by currency (%): 31/12/2023 31/12/2022 Denominated in HUF 29.83% 23.64% Denominated in foreign currency 70.17% 76.36% Total 100.00% 100.00% Interest conditions of the security portfolio at fair value through other comprehensive income are as follows (%): 31/12/2023 31/12/2022 Interest rates on securities at fair value through other comprehensive income denominated in HUF 2.00% - 13.80% 1.50% - 15.11% Interest rates on securities at fair value through other comprehensive income denominated in foreign currency 0.01% - 19.75% 0.00% - 18.24% 31/12/2023 31/12/2022 Average interest rates on securities at fair value through other comprehensive income denominated in HUF (%) 3.51% 3.31% Average interest rates on securities at fair value through other comprehensive income denominated in foreign currency (%) 3.60% 2.55%
OTP Bank Plc Consolidated Financial Statements 2023 61
NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) [continued] Interest conditions and the remaining maturities of securities at fair value through other comprehensive income can be analysed as follows: 31/12/2023 31/12/2022 Within one year With variable interest 456 15,124 With fixed interest 373,618 507,888 374,074 523,012 Over one year With variable interest 18,136 28,523 With fixed interest 1,148,770 1,147,911 1,166,906 1,176,434 Non-interest-bearing securities 60,481 40,157 Total 1,601,461 1,739,603 Certain securities are hedged against interest rate risk. See Note 37.4.
OTP Bank Plc Consolidated Financial Statements 2023 62
NOTE 10: SECURITIES AT AMORTIZED COST (in HUF mn) 31/12/2023 31/12/2022 Government bonds 4,468,813 4,375,085 Corporate bonds 310,514 250,538 Bonds of Hungarian National Bank - 177,679 Discounted Treasury bills 67,653 19,539 Mortgage bonds 24,738 24,586 Interest bearing Treasury bills 6,480 4,977 Other securities 403,722 82,583 5,281,920 4,934,987 Loss allowance on securities at amortized cost (32,648) (43,049) Total 5,249,272 4,891,938 Interest conditions and the remaining maturities of securities at amortized cost can be analysed as follows: 31/12/2023 31/12/2022 Within one year With variable interest - 159 With fixed interest 700,735 951,773 700,735 951,932 Over one year With variable interest 6,005 25,753 With fixed interest 4,575,180 3,957,302 4,581,185 3,983,055 Total 5,281,920 4,934,987 An analysis of securities at amortized cost by currency (%): 31/12/2023 31/12/2022 Denominated in HUF 46.81% 63.50% Denominated in foreign currency 53.19% 36.50% Total 100.00% 100.00% Interest conditions of securities at amortized cost (%): 31/12/2023 31/12/2022 Interest rates of securities at amortized cost with variable interest 0.75% - 2.91% 0.75% - 17.74% Interest rates of securities at amortized cost with fixed interest 0.00% - 26.00% 0.00% - 23.00% 31/12/2023 31/12/2022 Average interest rates on securities at amortized cost denominated in HUF (%) 4.48% 3.31%
OTP Bank Plc Consolidated Financial Statements 2023 63
NOTE 10: SECURITIES AT AMORTIZED COST (in HUF mn) [continued] An analysis of the change in the loss allowance on securities at amortized cost is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 43,049 9,113 Loss allowance for the period 10,875 37,104 Release of loss allowance (20,060) (5,603) Use of loss allowance - - Assets held for sale (637) - Foreign currency translation difference (579) 2,435 Closing balance 32,648 43,049
OTP Bank Plc Consolidated Financial Statements 2023 64
NOTE 11: LOANS AT AMORTIZED COST AND AT FAIR VALUE (in HUF mn) Loans at amortized cost 31/12/2023 31/12/2022 Within one year In HUF 1,340,659 1,422,663 In foreign currency 3,714,471 3,672,023 5,055,130 5,094,686 Over one year In HUF 2,516,270 2,425,793 In foreign currency 10,999,164 9,540,339 13,515,434 11,966,132 18,570,564 17,060,818 Loss allowance on loans (894,031) (966,360) Total 17,676,533 16,094,458 An analysis of the gross loan portfolio at amortized cost by currency (%): 31/12/2023 31/12/2022 In HUF 20.77% 22.56% In foreign currency 79.23% 77.44% Total 100.00% 100.00% Interest rates of the loan portfolio at amortized cost are as follows: 31/12/2023 31/12/2022 Loans at amortized cost denominated in HUF 1 0.00% - 59.99% 0.00% - 43.70% Loans at amortized cost denominated in foreign currency 2 (0.50)% - 90.00% (0.10)% - 90.00% 1 The highest interest rate relates to HUF loan is car loan in the current year and overdraft loan in the previous year. 2 The highest interest rate relates to loan in foreign currency is multi personal loan for the current year and POS services in the previous year. 31/12/2023 31/12/2022 Average interest rates on loans at amortized cost denominated in HUF (%) 11.36% 8.65% Average interest rates on loans at amortized cost denominated in foreign currency (%) 6.12% 5.47% The amount of those loans which were written-off in the current year but they are still subject to enforcement activity to be collected is still going on were HUF 64,487 million and HUF 117,357 million as at 31 December 2023 and 2022, respectively.
OTP Bank Plc Consolidated Financial Statements 2023 65
NOTE 11: LOANS AT AMORTIZED COST AND AT FAIR VALUE (in HUF mn) [continued] An analysis of the change in the loss allowance on loans is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 966,360 851,994 Loss allowance for the period 714,784 676,389 Release of loss allowance (551,477) (469,929) Loss allowance in the current period 163,307 206,460 from this: effect of change in parameters used for loss allowance calculation (22,784) 10,276 Use of loss allowance (61,078) (92,004) Partial write-off 1 (37,169) (67,651) Assets held for sale (61,355) - Foreign currency translation difference (76,034) 67,561 Closing balance 894,031 966,360 1 See details in Note 2.5.8. Movement in loss allowance on loans and placements is summarized as below: 31/12/2023 31/12/2022 Release of loss allowance on placements and loss from derecognition of placements (1,455) (39) Loss allowance on loans and gain from derecognition of loans 111,771 114,163 Total 2 110,316 114,124 2 See details in Note 31.
Loans mandatorily at fair value through profit or loss 31/12/2023 31/12/2022 Within one year In HUF 77,886 70,883 In foreign currency 131 - 78,017 70,883 Over one year In HUF 1,320,889 1,176,531 In foreign currency 1,579 - 1,322,468 1,176,531 Total 1,400,485 1,247,414
OTP Bank Plc Consolidated Financial Statements 2023 66
NOTE 11: LOANS AT AMORTIZED COST AND AT FAIR VALUE (in HUF mn) [continued]
An analysis of the loan portfolio mandatorily at fair value through profit or loss by currency (%): 31/12/2023 31/12/2022 In HUF 99.88% 100.00% In foreign currency 0.12% 0.00% Total 100.00% 100.00% Interest rates of the loan portfolio mandatorily at fair value through profit or loss are as follows (%): 31/12/2023 31/12/2022 Interest rates on loans denominated in HUF 1.31% - 25.36% 1.12% - 18.26% Interest rates on loans denominated in foreign currency 5.00% - 30.00% - 31/12/2023 31/12/2022 Average interest rates on loan portfolio at fair value through profit or loss denominated in HUF (%) 6.96% 4.55% Average interest rates on loan portfolio at fair value through profit or loss denominated in foreign currency (%) 4.68% 0.04%
OTP Bank Plc Consolidated Financial Statements 2023 67
NOTE 12: ASSOCIATES AND OTHER INVESTMENTS (in HUF mn) 31/12/2023 31/12/2022 Investments Investments in associates (non-listed) 66,805 56,835 Other investments (non-listed) 39,019 29,094 105,824 85,929 Impairment on investments (9,714) (12,080) Total 96,110 73,849
An analysis of the change in the impairment on investments is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 12,080 12,514 Impairment for the period 44 1,312 Release of impairment for the period (65) (411) Modification due to merge (2,344) (1,238) Use of impairment - - Foreign currency translation difference (1) (97) Closing balance 9,714 12,080
OTP Bank Plc Consolidated Financial Statements 2023 68
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) There are different kinds of tangible and intangible assets held by the Group. In the followings there are presented reasons of the changes from opening values to closing ones in the gross values, the accumulated depreciation and amortization and in the impairment of the tangible and intangible assets in the Group. Here can be found information about the fair values of the tangible assets and gross amounts of those assets which were fully depreciated but which are still in use. Carrying amount of the temporarily idle properties was HUF 3,334 million and HUF 3,466 million as at 31 December 2023 and 2022, respectively. There was HUF 330 million restrictions on title and properties, plants or equipment pledged as security for liabilities as at 31 December 2023 and there was no restriction as at 31 December 2022. As at 31 December 2023 and 31 December 2022 the amount of contractual commitments for the acquisition of tangible and intangible assets was HUF 29,980 million and HUF 21,116 million, respectively. Impairment for the properties in the current period was needed as a result of the valuation performed by using the comparative value method (market analogy method) with direct comparison to the market price of other similar properties. Actual market transactions were used based on the 6-month period prior to the valuation date where the market price of the analogous property is adjusted by an expert coefficient for market adaptation (“ECMA”). Usually this range is from -25% to +25% and reflects the availability of sufficient market information for similar items but at these properties ECMA exceeded this range where the circumstances were exceptional although by decision of the appraiser it was used only for unique properties with characteristics similar to the appraised ones, for which no sufficient market analogues are available. The price was adjusted by coefficients reflecting the area, location, size and structure of the property, as well as a weighing factor reflecting the weight of the selected market analogies in the determined fair value. The Bank decided that the recoverable amount of goodwill is determined based on fair value less cost of disposal. When the Bank prepares goodwill impairment tests of the subsidiaries, the two methods which are used based on discounted cash-flow calculation that shows the same result; however, they represent different economical logics. Based on the internal regulation of the Bank as at 31 December 2023 impairment test was prepared where a three- year cash-flow model was applied with an explicit period between 2024-2026. The basis for the estimation was the actual data of November 2023 and based on the prepared medium-term (2024-2026) forecasts. When the Bank prepared the calculations for the period 2024-2026, it considered the actual worldwide economic situations, the expected economic growth for the following years, their possible effects on the financial sector, the plans for growing which result from these, and the expected changes of the mentioned factors. Present value calculation with the Free Cash-Flow method The Bank calculated the expected cash-flow for the given period based on the expected after-tax profit of the companies. The calculation is highly sensitive to the level of discount rate and growth rate used. As discount factor the Bank uses a zero coupon yield curve derived by the Headquarter Asse-Liability Management department. This zero coupon curve is estimated for each related countries, based on the countries’ issued b onds and segmented by the issuances’ currencies. By subsidiaries where the yield curves were not available (Ukraine) the daily Overnight deposit yield was used as a benchmark, provided by National Bank of Ukraine as currently the only available proxy for the hryvnia rate. The Bank calculated risk premiums on the basis of information from the country risk premiums that are published by Aswath Damodaran – New York STERN University, according to the Bank’s assumption the risk-free interest rate includes the country-dependent risks in an implicit way. When the subsidiary owns subordinated debt, the discount rate is calculated as a weighted average of the expected return on equity presented previously and the subordinated debt’s interest rate. At the end of the calculation, the value of subordinated debt is being subtracted from the valuations’ result. The growth rate in the explicit period is the growth rate of the profit after tax adjusted by the interest rate of the cash and subordinated loans. The supposed growth rates for the periods of residual values reflect the long-term economic expectations in case of every country. The values of the subsidiaries in the FCF method were then calculated as the sum of the discounted cash-flows of the explicit period, the present value of the terminal values and the initial free capital assuming an effective capital structure. Summary of the impairment test for the year ended 31 December 2023 and 2022 Based on the valuations of the subsidiaries for the year ended 31 December 2023 no goodwill impairment while for the year ended 31 December 2022 67,715 million HUF goodwill impairment was needed to be recorded by the Group for JSC “OTP Bank” (Russia).
OTP Bank Plc Consolidated Financial Statements 2023 69
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2023 Cost Intangible assets Goodwill Property Machinery and office equipment Vehicle Construction in progress Tangible assets subject to operating lease Total Balance as at 1 January 471,420 109,185 375,765 271,879 43,288 53,544 31,206 1,356,287 Increase due to acquisition 18,484 - 41,770 9,085 207 339 272 70,157 Additions 131,153 328 34,384 42,538 1,744 71,211 18,644 300,002 Foreign currency translation differences (16,618) (1,715) (11,158) (10,447) (419) 110 (1,482) (41,729) Disposals (45,342) (40,866) (8,075) (22,041) (1,460) (78,421) (12,016) (208,221) Assets held for sale (16,362) - (11,079) (14,472) (1,429) (886) - (44,228) Closing balance 542,735 66,932 421,607 276,542 41,931 45,897 36,624 1,432,268
Depreciation and amortization Intangible assets Property Machinery and office equipment Vehicle Tangible assets subject to operating lease Total Balance as at 1 January 299,912 93,288 195,614 9,140 8,855 606,809 Charge for the period 53,259 11,599 28,516 2,302 4,447 100,123 Foreign currency translation differences (9,862) (3,455) (8,392) (265) (447) (22,421) Disposals (19,459) (4,067) (19,375) (2,131) (5,004) (50,036) Assets held for sale (11,765) (5,675) (9,139) (899) - (27,478) Closing balance 312,085 91,690 187,224 8,147 7,851 606,997
OTP Bank Plc Consolidated Financial Statements 2023 70
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2023 [continued] Impairment Intangible assets Goodwill Property Machinery and office equipment Tangible assets subject to operating lease Total Balance as at 1 January 2,796 40,866 4,251 46 19 47,978 Impairment for the period 4,361 - 441 820 30 5,652 Release of impairment for the period - - - (2) - (2) Foreign currency translation differences 37 - (215) 2 (1) (177) Use of impairment (970) (40,866) (1) (820) (5) (42,662) Closing balance 6,224 - 4,476 46 43 10,789 Intangible assets Goodwill Property Machinery and office equipment Vehicle Construction in progress Tangible assets subject to operating lease Total Carrying value Balance as at 1 January 168,712 68,319 278,226 76,219 34,148 53,544 22,332 701,500 Closing balance 224,426 66,932 325,441 89,272 33,784 45,897 28,730 814,482 Fair values - - 350,867 89,318 33,779 - 28,730 502,694 Gross amount of the fully depreciated assets that are still in use 164,201 - 27,950 136,683 1,612 - 582 331,028 An analysis of the intangible assets for the year ended 31 December 2023 is as follows: Intangible assets Self-developed Purchased Total Gross values 22,230 520,505 542,735 Accumulated amortization (10,220) (301,865) (312,085) Impairment - (6,224) (6,224) Carrying value 12,010 212,416 224,426
OTP Bank Plc Consolidated Financial Statements 2023 71
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2023 [continued] Carrying value of the investment and goodwill allocated to the appropriate cash generating units Subsidiaries Carrying amounts of the subsidiary in HUF million Goodwill values in HUF million Goodwill values in million functional currency Type of functional currency Consolidated ownership interest With ownership adjusted company value in HUF million Applied long term grow rate Applied long term discount rate DSK Bank EAD 280,722 43,684 28,541 HUF 99.92% 1,072,672 3.00% 12.28% (Bulgaria) 77 BGN OTP banka d.d. (Croatia) 205,349 22,221 58 EUR 100.00% 465,038 3.00% 10.75% POK-DSK Rodina a.d. (Bulgaria) 1,680 11 11 HUF 99.85% 18,880 3.00% 12.28% George Consult (Croatia) 225 212 4 HRK 76.00% 171 3.00% 10.75% OTP Home Solutions Llc. (Hungary) 3,870 478 478 HUF 100.00% 3,870 3.00% 14.25% OTP Invest Drustvo AD (Serbia) 304 326 100 RSD 100.00% 304 3.00% 12.69% 492,150 66,932
OTP Bank Plc Consolidated Financial Statements 2023 72
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2022 Cost Intangible assets Goodwill Property Machinery and office equipment Vehicle Construction in progress Tangible assets subject to operating lease Total Balance as at 1 January 408,003 105,640 304,922 243,731 41,252 67,657 30,833 1,202,038 Increase due to acquisition 706 478 933 522 - - - 2,639 Additions 111,397 - 66,034 29,709 2,728 79,638 12,892 302,398 Foreign currency translation differences 16,350 3,067 15,936 10,951 408 316 1,952 48,980 Disposals (65,036) - (12,060) (13,034) (1,100) (94,067) (14,471) (199,768) Closing balance 471,420 109,185 375,765 271,879 43,288 53,544 31,206 1,356,287
Depreciation and amortization Intangible assets Property Machinery and office equipment Vehicle Tangible assets subject to operating lease Total Balance as at 1 January 262,307 83,707 173,138 7,188 9,493 535,833 Charge for the period 49,750 10,627 26,770 2,433 4,249 93,829 Foreign currency translation differences 9,482 4,145 8,081 257 718 22,683 Disposals (21,627) (5,191) (12,375) (738) (5,605) (45,536) Closing balance 299,912 93,288 195,614 9,140 8,855 606,809
OTP Bank Plc Consolidated Financial Statements 2023 73
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2022 [continued] Impairment Intangible assets Goodwill Property Machinery and office equipment Tangible assets subject to operating lease Total Balance as at 1 January 2,705 - 3,553 43 137 6,438 Impairment for the period 37 67,715 590 - - 68,342 Release of impairment for the period - - - - (122) (122) Foreign currency translation differences 54 (26,849) 258 3 7 (26,527) Use of impairment - - (150) - (3) (153) Closing balance 2,796 40,866 4,251 46 19 47,978 Intangible assets Goodwill Property Machinery and office equipment Vehicle Construction in progress Tangible assets subject to operating lease Total Carrying value Balance as at 1 January 142,991 105,640 217,662 70,550 34,064 67,657 21,203 659,767 Closing balance 168,712 68,319 278,226 76,219 34,148 53,544 22,332 701,500 Fair values - - 308,375 76,230 34,122 - 22,351 441,078 Gross amount of the fully depreciated assets that are still in use 152,718 - 26,007 144,310 1,504 - - 324,539 An analysis of the intangible assets for the year ended 31 December 2022 is as follows: Intangible assets Self-developed Purchased Total Gross values 14,704 456,716 471,420 Accumulated amortization (5,508) (294,404) (299,912) Impairment - (2,796) (2,796) Carrying value 9,196 159,516 168,712
OTP Bank Plc Consolidated Financial Statements 2023 74
NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2022 [continued] Carrying value of the investment and goodwill allocated to the appropriate cash generating units Subsidiaries Carrying amounts of the subsidiary in HUF million Goodwill values in HUF million Goodwill values in million functional currency Type of functional currency Consolidated ownership interest With ownership adjusted company value in HUF million Applied long term grow rate Applied long term discount rate DSK Bank EAD 280,722 44,375 28,541 HUF 99.92% 840,031 3.00% 12.54% (Bulgaria) 77 BGN OTP banka d.d. (Croatia) 205,349 23,235 58 EUR 100.00% 410,711 2.69% 10.69% POK-DSK Rodina a.d. (Bulgaria) 1,680 11 11 HUF 99.85% 16,564 3.00% 12.54% George Consult (Croatia) 225 220 4 HRK 76.00% 171 2.69% 10.69% OTP Home Solutions Llc. (Hungary) 2,570 478 478 HUF 100.00% 2,570 3.00% 16.26% 490,546 68,319
OTP Bank Plc Consolidated Financial Statements 2023 75
NOTE 14: INVESTMENT PROPERTIES (in HUF mn) An analysis of the change in gross values of investment properties is as follows: Gross values 31/12/2023 31/12/2022 Balance as at 1 January 61,346 40,241 Increase due to transfer from inventories or owner-occupied properties - 1,830 Increase from purchase 10,363 20,935 Increase from acquisition 9,910 - Transfer to held-for-sale properties (34) (321) Transfer to inventories or owner-occupied properties (4,985) (1,442) Disposal due to sale (10,652) (1,798) Assets held for sale (182) - Foreign currency translation difference (2,214) 1,901 Closing balance 63,552 61,346 The applied depreciation and amortization rates were as follows: 31/12/2023 31/12/2022 Depreciation and amortization rates 2.00% - 15.00% 2.00% - 20.00% An analysis of the movement in the depreciation and amortization on investment properties is as follows: Depreciation and amortization 31/12/2023 31/12/2022 Balance as at 1 January 11,273 9,111 Additions due to transfer from inventories or owner-occupied properties - 1,513 Charge for the period 866 912 Assets held for sale (86) - Transfer to inventories or owner-occupied properties (2,178) (126) Disposal due to sale (420) (780) Transfer to held-for-sale properties (5) (17) Foreign currency translation difference (442) 660 Closing balance 9,008 11,273 An analysis of the movement in the impairment on investment properties is as follows: Impairment 31/12/2023 31/12/2022 Balance as at 1 January 2,621 1,248 Impairment for the period 32 1,389 Release of impairment for the period (1,394) (63) Use of impairment - (40) Assets held for sale (34) - Decrease due to transfer to inventories or owner-occupied properties (11) (8) Foreign currency translation difference (51) 95 Closing balance 1,163 2,621
OTP Bank Plc Consolidated Financial Statements 2023 76
NOTE 14: INVESTMENT PROPERTIES (in HUF mn) [continued]
Carrying values 31/12/2023 31/12/2022 Balance as at 1 January 47,452 29,882 Closing balance 53,381 47,452 Fair values 72,647 61,198 The amount of restrictions on the realisability of investment property is HUF 781 million as at 31 December 2023 while there wasn’t any restriction as at 31 December 2022. The Group chose the cost model for measuring investment properties but estimates and reviews the fair value of the investment properties by external experts, these investment properties would have been presented on level 3 in the fair value hierarchy if the Group didn’t apply cost method for this recognition.
Income and expenses 31/12/2023 31/12/2022 Rental income 3,029 2,511 Direct operating expenses of investment properties – income generating 451 426 Direct operating expenses of investment properties – non income generating 307 82
OTP Bank Plc Consolidated Financial Statements 2023 77
NOTE 15: DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) Positive fair value of derivative financial assets designated as fair value hedge 31/12/2023 31/12/2022 CCIRS and mark-to-market CCIRS designated as fair value hedge 24,750 20,732 Foreign exchange swap designated as fair value hedge - 1,696 Interest rate swaps designated as fair value hedge 17,217 25,819 Total 41,967 48,247
OTP Bank Plc Consolidated Financial Statements 2023 78
NOTE 16: OTHER ASSETS (in HUF mn) Other assets are expected to be recovered or settled no more than twelve months after the reporting period.
31/12/2023 31/12/2022 Other financial assets Receivables from card operations 71,385 67,981 Prepayments and accrued income on other financial assets 34,369 29,284 Trade receivables 53,010 37,777 Receivables from investment services 56,855 57,189 Other advances 24,612 19,652 Stock exchange deals 20,451 31,234 Giro clearing accounts 31,022 12,593 Receivables due from pension funds and investment funds 8,507 6,478 Receivables from leasing activities 1,634 1,778 Advances for securities and investments 82 358 Other financial assets 15,075 30,490 Loss allowance on other financial assets (34,602) (31,833) Total 282,400 262,981
Other financial assets contain claims from overdue Russian government bonds, for further information please see details in Note 4. 1b.
Other non-financial assets 31/12/2023 31/12/2022 Prepayments and accrued income on other non-financial assets 59,311 62,878 Receivables, subsidies from the State, Government 21,085 23,383 Settlement and suspense accounts 26,409 40,066 Biological assets and agricultural produce 10,672 8,366 Other non-financial assets 45,294 27,963 Impairment on other non-financial assets (4,437) (7,041) Total 158,334 155,615
Other assets (under IAS 2) 31/12/2023 31/12/2022 Inventories 56,552 48,210 Repossessed real estate 14,832 6,985 Repossessed other non-financial assets 2,289 1,192 Write-down of the assets measured under IAS 2 (4,977) (3,864) Total 68,696 52,523 Total other assets 509,430 471,119
OTP Bank Plc Consolidated Financial Statements 2023 79
NOTE 16: OTHER ASSETS (in HUF mn) [continued] An analysis of the movement in the loss allowance on other financial assets is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 31,833 16,800 Loss allowance for the period 16,278 22,472 Release of allowance for the period (7,016) (8,917) Use of loss allowance (3,505) (2,083) Reclassification - 253 Assets held for sale (371) - Foreign currency translation difference (2,617) 3,308 Closing balance 34,602 31,833 An analysis of the movement in the impairment on other non-financial assets is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 7,041 4,413 Impairment for the period 778 3,304 Release of impairment for the period (1,161) (647) Use of impairment (583) (324) Reclassification - (253) Assets held for sale (1,576) - Foreign currency translation difference (62) 548 Closing balance 4,437 7,041
OTP Bank Plc Consolidated Financial Statements 2023 80
NOTE 17: AMOUNTS DUE TO BANKS, THE NATIONAL GOVERNMENTS, DEPOSITS FROM THE NATIONAL BANKS AND OTHER BANKS (in HUF mn) 31/12/2023 31/12/2022 Within one year In HUF 179,321 369,015 In foreign currency 244,011 218,611 423,332 587,626 Over one year In HUF 737,892 689,579 In foreign currency 779,638 185,953 1,517,530 875,532 Total 1,940,862 1,463,158 Interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks are as follows: 31/12/2023 31/12/2022 Within one year In HUF (2.40)% - 8.75% (2.40)% - 18.00% In foreign currency 1 (2.31)% - 18.00% (2.32)% - 12.00% Over one year In HUF (1.70)% - 11.40% (2.40)% - 9.23% In foreign currency 1 (2.12)% - 16.81% (2.40)% - 13.76% 31/12/2023 31/12/2022 Average interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks denominated in HUF 3.25% 2.28% Average interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks denominated in in foreign currency 5.65% 2.40%
OTP Bank Plc Consolidated Financial Statements 2023 81
NOTE 18: REPO LIABILITIES (in HUF mn) 31/12/2023 31/12/2022 Within one year In HUF 24,572 29,147 In foreign currency 101,665 197 126,237 29,344 Over one year In HUF - 96 In foreign currency - 187,929 - 188,025 Total 126,237 217,369 Interest conditions on repo liabilities are as follows (%): 31/12/2023 31/12/2022 Interest rates on repo liabilities denominated in HUF 0.00% - 0.00% 4.75% - 15.47% Interest rates on repo liabilities denominated in foreign currency 0.00% - 3.65% 2.47% - 5.20% 31/12/2023 31/12/2022 Average interest rates on repo liabilities denominated in HUF 12.85% 9.06% Average interest rates on repo liabilities denominated in foreign currency 4.22% 1.51%
OTP Bank Plc Consolidated Financial Statements 2023 82
NOTE 19: FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) 31/12/2023 31/12/2022 Within one year In HUF 1,816 1,716 In foreign currency - - 1,816 1,716 Over one year In HUF 68,891 52,475 In foreign currency - - 68,891 52,475 Total 70,707 54,191 Contractual amount outstanding 17,747 19,853 Result from associated entity's measured at fair value attributable to the Group 50,921 37,616 Interest conditions of financial liabilities designated at fair value through profit or loss can be analysed as follows: 31/12/2023 31/12/2022 Interest rates on financial liabilities designated at fair value denominated in HUF within one year 4.97% - 9,97% 2.19% - 3.96% Interest rates on financial liabilities designated at fair value denominated in HUF over one year 4.83% 0.01% - 4.63% Certain MFB (“Hungarian Development Bank”) refinanced loan receivables are categorised as fair value through profit or loss based on SPPI test. Related refinancing loans at the liability side are categorised as fair value through profit or loss based on fair value option due to accounting mismatch as provided by the IFRS 9 standard. The Group controls capital funds where it does not hold the 100% of the owner rights. The related non-controlling interest is treated as financial liability designated at fair value through profit or loss as it is not considered equity under IAS 32.
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NOTE 20: DEPOSITS FROM CUSTOMERS (in HUF mn) 31/12/2023 31/12/2022 Within one year In HUF 7,584,728 7,910,448 In foreign currency 20,332,448 16,757,984 27,917,176 24,668,432 Over one year In HUF 244,965 274,217 In foreign currency 170,290 246,156 415,255 520,373 Total 28,332,431 25,188,805 Interest rates on deposits from customers are as follows: 31/12/2023 31/12/2022 Within one year In HUF 0.00% - 15.40% 0.00% - 17.95% In foreign currency 1 0.00% - 23.00% (0.40)% - 45.10% Over one year In HUF (0.36)% - 17.50% 0.00%- 13.00% In foreign currency 0.00% - 22.10% 0.00% - 18.00% 1 The highest interest rate regarding within-one-year deposits in foreign currency for the previous year relate to treasury deposit in Turkish lira in Hungary. 31/12/2023 31/12/2022 Average interest rates on deposits from customers denominated in HUF 3.69% 2.21% Average interest rates on deposits from customers denominated in foreign currency 0.98% 0.68% An analysis of deposits from customers by type is as follows: 31/12/2023 31/12/2022 Retail deposits 16,093,360 56.80% 13,739,669 54.56% Corporate deposits 10,965,159 38.70% 10,408,982 41.32% Municipality deposits 1,273,912 4.50% 1,040,154 4.13% Total 28,332,431 100.00% 25,188,805 100.00%
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NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) 31/12/2023 31/12/2022 With original maturity Within one year In HUF 399,897 48,755 In foreign currency 153,264 6,427 553,161 55,182 Over one year In HUF 283,165 373,645 In foreign currency 1,259,222 441,855 1,542,387 815,500 Total 2,095,548 870,682 Interest rates on liabilities from issued securities are as follows: 31/12/2023 31/12/2022 Issued securities denominated in HUF 0.60% - 15.00% 0.60% - 15.00% Issued securities denominated in foreign currency 1.63% - 16.00% 0.74% - 7.35% 31/12/2023 31/12/2022 Average interest rates on issued securities denominated in HUF 8.83% 5.00% Average interest rates on issued securities denominated in foreign currency 7.14% 2.95% Issued securities denominated in HUF as at 31 December 2023 (in HUF mn) Name Date of issue Maturity Nominal value Amortized cost Interest conditions Hedged (in HUF mn) (in HUF mn) (actual interest rate in % p.a.) 1 OTPX2024A 18/06/2014 21/06/2024 241 283 indexed 1.30 hedged 2 OTPX2024B 10/10/2014 16/10/2024 295 339 indexed 0.70 hedged 3 OTPX2024C 15/12/2014 20/12/2024 242 275 indexed 0.60 hedged 4 OTP_HUF_24/1 17/02/2023 17/02/2024 26,079 28,593 fix 11.00 5 OTP_HUF_24/2 10/03/2023 10/03/2024 22,977 25,048 fix 11.00 6 OTP_HUF_24/3 31/03/2023 31/03/2024 17,015 18,441 fix 11.00 7 OTP_HUF_24/4 21/04/2023 21/04/2024 14,698 15,837 fix 11.00 8 OTP_HUF_24/5 12/05/2023 12/05/2024 13,946 14,937 fix 11.00 9 OTP_HUF_24/6 02/06/2023 02/06/2024 16,722 17,806 fix 11.00 10 OTP_HUF_24/7 23/06/2023 23/06/2024 11,232 11,859 fix 10.50 11 OTP_HUF_24/8 30/06/2023 30/06/2024 3,730 3,931 fix 10.50 Subtotal 127,177 137,349
OTP Bank Plc Consolidated Financial Statements 2023 85
NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Issued securities denominated in HUF as at 31 December 2023 (in HUF mn) [continued] Name Date of issue Maturity Nominal value Amortized cost Interest conditions Hedged (in HUF mn) (in HUF mn) (actual interest rate in % p.a.) 12 OTP_HUF_24/9 28/07/2023 28/07/2024 4,173 4,364 fix 10.50 13 OTP_HUF_24/10 07/08/2023 07/08/2024 1,431 1,490 fix 10.00 14 OTP_HUF_24/11 01/09/2023 01/09/2024 2,655 2,743 fix 9.75 15 OTP_HUF_24/12 25/09/2023 25/09/2024 2,777 2,845 fix 9.00 16 OTP_HUF_24/13 20/10/2023 20/10/2024 3,494 3,557 fix 8.75 17 OTP_HUF_24/14 17/11/2023 17/11/2024 3,509 3,547 fix 8.50 18 OTP_HUF_24/15 20/12/2023 20/12/2024 2,994 3,004 fix 8.00 19 OTP_HUF_25/1 18/11/2022 18/11/2025 25,563 27,042 fix 15.00 hedged 20 OTP_HUF_25/2 30/06/2023 30/06/2025 5,116 5,431 fix 12.00 21 OTP_HUF_26/1 22/12/2022 05/01/2026 10,228 11,856 fix 12.00 hedged 22 OTP_HUF_26/2 15/12/2023 15/12/2026 647 649 fix 7.40 23 OTP_TBSZ_HUF_2028/1 13/10/2023 15/12/2028 155 159 fix 12.00 24 OJB2024_A 17/09/2018 20/05/2024 59,999 59,999 floating 11.32 25 OJB2024_C 24/02/2020 24/10/2024 80,000 79,818 floating 10.90 26 OJB2024_II 10/10/2018 24/10/2024 96,800 92,101 fix 2.50 27 OJB2025_II 03/02/2020 26/11/2025 22,550 21,140 fix 1.50 hedged 28 OJB2027_I 23/07/2020 27/10/2027 76,850 67,619 fix 1.25 29 OJB2029_A 25/07/2022 24/05/2029 66,520 66,360 floating 10.85 30 OJB2031_I 18/08/2021 22/10/2031 82,000 66,867 fix 2.50 31 OJB2032_A 20/09/2023 24/11/2032 25,000 24,916 floating 10.85 32 Other 206 206 Total issued securities in HUF 699,844 683,062 Issued securities denominated in foreign currency as at 31 December 2023 Name Date of issue Maturity Type of FX Nominal value Amortized cost Interest conditions (FX mn) (HUF mn) (FX mn) (HUF mn) (actual interest rate in % p.a.) 1 XS2560693181 01/12/2022 04/03/2026 EUR 649 248,497 689 263,732 fix 7.35 2 XS2626773381 25/05/2023 25/05/2027 USD 500 173,152 499 173,011 fix 7.50 3 XS2499691330 13/07/2022 13/07/2025 EUR 400 153,111 410 157,095 fix 5.50 4 XS2642536671 27/06/2023 27/06/2026 EUR 110 42,106 114 43,745 fix 7.50 5 XS2536446649 29/09/2022 29/09/2026 USD 60 20,786 61 21,180 fix 7.25 6 XS2698603326 05/10/2023 05/10/2027 EUR 650 248,725 674 258,006 fix 6.13 7 XS2737630314 22/12/2023 22/06/2026 EUR 75 28,709 75 28,778 fix 6.10 8 XS2703264635 13/10/2023 13/10/2026 RON 170 13,082 173 13,320 floating 8.10 9 SI0022104176 25/05/2021 25/05/2027 EUR 176 67,254 156 59,728 fix 1.63 10 XS2430442868 27/01/2022 27/01/2024 EUR 300 114,834 304 116,407 fix 1.88 11 XS2639027346 29/06/2023 29/06/2026 EUR 400 153,112 416 159,266 fix 7.38 12 XS2260457754 19/11/2020 19/11/2025 USD 300 103,932 285 98,589 fix 5.50 13 XS2331929963 16/04/2021 16/04/2024 UZS 685,065 19,250 698,553 19,629 fix 16.00 Total issued securities in FX 1,386,550 1,412,486 Total issued securities 2,095,548
OTP Bank Plc Consolidated Financial Statements 2023 86
NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Issued securities denominated in HUF as at 31 December 2022 (in HUF mn) Name Date of issue Maturity Nominal value Amortized cost Interest conditions Hedged (in HUF mn) (in HUF mn) (actual interest rate in % p.a.) 1 OTPX2023A 22/03/2013 24/03/2023 312 410 indexed 1.7 hedged 2 OTPX2023B 28/06/2013 26/06/2023 198 260 indexed 0.60 hedged 3 OTPX2024A 18/06/2014 21/06/2024 241 310 indexed 1.30 hedged 4 OTPX2024B 10/10/2014 16/10/2024 295 378 indexed 0.70 hedged 5 OTPX2024C 15/12/2014 20/12/2024 242 309 indexed 0.60 hedged 6 OTP_HUF_25/1 18/11/2022 18/11/2025 25,562 26,046 fix 15.00 7 OTP_HUF_26/1 22/12/2022 05/01/2026 10,229 10,270 fix 12.00 8 OTPRF2023A 22/03/2013 24/03/2023 1,010 1,215 indexed 1.70 hedged 9 OJB2023_I 05/04/2018 24/11/2023 44,120 39,968 fix 1.75 hedged 10 OJB2024_A 17/09/2018 20/05/2024 53,732 53,933 floating 17.36 11 OJB2024_II 10/10/2018 24/10/2024 96,800 79,228 fix 2.50 hedged 12 OJB2025_II 03/02/2020 26/11/2025 22,550 16,193 fix 1.50 hedged 13 OJB2027_I 23/07/2020 27/10/2027 76,850 52,608 fix 1.25 hedged 14 OJB2029_A 25/07/2022 24/05/2029 91,510 91,488 floating 17.13 15 OJB2031_I 18/08/2021 22/10/2031 82,000 49,515 fix 2.50 hedged 16 Other 269 269 Total issued securities in HUF 505,920 422,400 Issued securities denominated in foreign currency as at 31 December 2022 Name Date of issue Maturity Type of FX Nominal value Amortized cost Interest conditions (FX mn) (HUF mn) (FX mn) (HUF mn) (actual interest rate in % p.a.) 1 XS2560693181 01/12/2022 04/03/2026 EUR 650 260,136 653 261,341 fix 7.35 2 XS2499691330 13/07/2022 13/07/2025 EUR 399 159,859 409 163,893 fix 5.5 3 XS2536446649 29/09/2022 29/09/2026 USD 60 22,541 61 22,972 fix 7.25 4 Other 12 60 15 76 Total issued securities in FX 442,596 448,282 Total issued securities 870,682 Issued securities denominated in foreign currency in “Other” category are promissory notes issued by JSC “OTP Bank” (Russia) in the amount of HUF 6 0 million as at 31 December 2022.
OTP Bank Plc Consolidated Financial Statements 2023 87
NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Hedge accounting of issued bonds Certain issued structured securities are hedged by the Bank with interest rate swaps (“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 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 interest payments are swapped to floating interest rate. This hedging relationship meets all of the following hedge effectiveness requirements: • there is an economic relationship between the hedged item and the hedging instrument • the effect of credit risk does not dominate the value changes that result from that economic relationship • 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 uses to hedge that quantity of hedged item The cash-flows of the fixed rate securities issued by the Bank are exposed to the changes in the HUF/EUR foreign exchange rate and the volatility of the quoted interest rates of EUR and HUF. The interest rate risk and foreign exchange risk related to these securities are hedged with EUR and HUF IRS transactions, where the fixed interests were swapped to payments linked to 3-month HUF BUBOR and EURIBOR, resulting in a decrease in the interest rate and foreign exchange exposure of issued securities. Term Note Program in the value of HUF 800 billion for the year of 2023/2024 The Bank initiated term note program in the value of HUF 800 billion with the intention of issuing registered dematerialized bonds in public. On 7 August 2023, the National Bank of Hungary approved the prospectus of Term Note Program. The prospectus is valid for 12 months following the disclosure. The Issuer can initiate to introduce the bonds issued under the program to the Hungarian and to other stock exchanges without any obligations. Term Note Program in the value of HUF 200 billion for the year of 2022/2023 On 10 May 2022 the Bank initiated term note program in the value of HUF 200 billion with the intention of issuing registered dematerialized bonds in public. On 10 August the National Bank of Hungary approved the prospectus of Term Note Program. The prospectus is valid for 12 months following the disclosure. The Issuer can initiate to introduce the bonds issued under the program to the Hungarian and to other stock exchanges without any obligations. On 28 June 2023 the National Bank of Hungary approved the extension of the value of the originally HUF 200 billion Term Note Program to HUF 500 billion. Issuance of Green Senior Preferred Notes in the aggregate nominal amount of EUR 400 million OTP Bank Plc have been issued “green” notes (ISIN: XS2499691330) on 13 July 2022 as value date in the aggregate nominal amount of EUR 400 million. The non-call 2 years senior preferred notes have a three-year term and carry an annually paid fixed coupon of 5.500% in the first two years. With respect to the third year, the quarterly coupon is calculated as the sum of the initial margin (of 426.5 basis points) and the 3-month EURIBOR rate. The notes are rated ’BBB’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Issuance of Green Senior Preferred Notes in the aggregate nominal amount of USD 60 million OTP Bank Plc issued “green” notes (ISIN: XS2536446649) on 29 September 2022 as value date in the aggregate nominal amount of USD 60 million. The notes are rated ’BBB’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange.
OTP Bank Plc Consolidated Financial Statements 2023 88
NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Issuance of Senior Preferred Notes in the aggregate nominal amount of EUR 650 million OTP Bank Plc have been issued the notes (ISIN: XS2560693181) on 1 December 2022 as value date in the aggregate nominal amount of EUR 650 million. The 3.25 Non-Call 2.25 years Senior Preferred Notes were priced on 23 November 2022. The notes are rated ’BBB’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Issuance of Senior Preferred Notes in the aggregate nominal amount of USD 500 million OTP Bank Plc. have been issued notes (ISIN: XS2626773381) on 25 May 2023 as value date in the aggregate nominal amount of USD 500 million. The notes are rated ’Baa3’ by Moody’s Investor Services Cyprus Ltd., ’BBB- ’ by S&P Ratings Europe Limited and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Issuance of Senior Non-Preferred Notes in the aggregate nominal amount of EUR 110 million OTP Bank Plc. have been issued notes (ISIN: XS2642536671) on 27 June 2023 as value date in the aggregate nominal amount of EUR 110 million. The notes are listed on the Luxembourg Stock Exchange. Issuance of Senior Preferred Notes in the aggregate nominal amount of EUR 650 million OTP Bank Plc have been issued the notes (ISIN: XS2698603326) on 5 October 2023 as value date in the aggregate nominal amount of EUR 650 million. The notes are rated ’Baa3’ by Moody’s Investor Services Cyprus Ltd. and ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Issuance of Senior Preferred Notes in the aggregate nominal amount of RON 170 million OTP Bank Plc have been issued the notes (ISIN: XS2703264635) on 13 October 2023 as value date in the aggregate nominal amount of RON 170 million. The notes are rated ’BBB+’ by Scope Ratings GmbH. The notes are listed on the Luxembourg Stock Exchange. Issuance of Senior Non-Preferred Notes in the aggregate nominal amount of EUR 75 million OTP Bank Plc have been issued the notes (ISIN: XS2737630314) on 22 December 2023 as value date in the aggregate nominal amount of EUR 75 million. The notes are listed on the Luxembourg Stock Exchange. Issuance of Senior Non-Preferred and Preferred bonds by Nova KBM On 25 May 2021, Nova KBM issued senior non-preferred bonds KBM12 in the nominal amount of EUR 176 million with maturity on 25 May 2027. They are not listed on the stock exchange. On 27 January 2022, Nova KBM issued senior non-preferred bonds NOVAKR 0 01/27/25 in the total nominal amount of EUR 300 million, which were early repaid on 27 January 2024. The bonds were rated Ba1 by Moody's and BBB- by Fitch. The bonds were listed on the Luxembourg Stock Exchange. On 29 June 2023, Nova KBM issued senior preferred bonds NOVAKR 7 06/29/26 in the total nominal amount of EUR 400 million. The bonds are rated Baa2 by Moody's. The bonds are listed on the Luxembourg Stock Exchange.
OTP Bank Plc Consolidated Financial Statements 2023 89
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 31/12/2023 31/12/2022 Foreign exchange swaps held for trading 51,928 83,149 Commodity swaps 31,661 31,632 Interest rate swaps held for trading 29,179 237,269 Foreign exchange forward contracts held-for-trading 11,061 13,740 CCIRS and mark-to-market CCIRS held for trading 8,945 15,759 Held for trading option contracts 2,904 1,891 Held-for-trading forward rate agreements 214 - Held-for-trading forward security agreement 1 - Other derivative transactions held for trading 1 4,595 2,307 Total 140,488 385,747 1 Other category includes: fx spot, equity swaps, forward rate agreement, options and index futures.
OTP Bank Plc Consolidated Financial Statements 2023 90
NOTE 23: DERIVATIVE FINANCIAL LIABILITIES DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) Negative fair value of derivative financial liabilities designated as hedge accounting by type of contracts 31/12/2023 31/12/2022 CCIRS and mark-to-market CCIRS designated as fair value hedge 10,009 5,398 Foreign exchange swap designated as fair value hedge - 16,199 Interest rate swaps designated as fair value hedge 53,939 6,352 Other hedge of interest rate risk designated as fair value hedge (49) - Total 63,899 27,949
OTP Bank Plc Consolidated Financial Statements 2023 91
NOTE 24: PROVISIONS AND OTHER LIABILITIES (in HUF mn) Other liabilities are expected to be recovered or settled no more than twelve months after the reporting period. 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.
31/12/2023 31/12/2022 Other financial liabilities Liabilities connected to Cafeteria benefits 92,409 91,001 Liabilities from investment services 47,647 108,513 Accrued expenses on other financial liabilities 66,816 55,898 Liabilities from card transactions 119,984 75,544 Accounts payable 73,350 56,828 Liabilities due to short positions 19,107 24,596 Giro clearing accounts 42,172 32,133 Advances received from customers 15,061 12,540 Liabilities from wages and other salary related payments 40,631 34,672 Loans from government 7,473 7,961 Dividend payable 570 207 Other financial liabilities 85,507 82,387 Subtotal 610,727 582,280
Other non-financial liabilities 31/12/2023 31/12/2022 Clearing, settlement and pending accounts 31,143 46,800 Liabilities from social security contributions 16,204 11,749 Accrued expenses on other non-financial liabilities 17,577 13,647 Clearing account for advances on housing subsidies 10,824 12,868 Other non-financial liabilities 59,345 40,310 Subtotal 135,093 125,374 Total 745,820 707,654
OTP Bank Plc Consolidated Financial Statements 2023 92
NOTE 24: PROVISIONS AND OTHER LIABILITIES (in HUF mn) [continued] The provisions are detailed as follows: 31/12/2023 31/12/2022 Commitments and guarantees given 46,137 63,372 Total provision according to IFRS 9 46,137 63,372 Pending legal issues and tax litigation 39,351 37,043 Pensions and other retirement benefit obligations 9,336 8,225 Other long-term employee benefits 2,510 1,331 Restructuring 6,206 1,256 Provision due to CHF loans conversion at foreign subsidiaries 363 900 Other provision 17,216 19,494 Total provision according to IAS 37 74,982 68,249 Total 121,119 131,621
The movements of provisions according to IFRS 9 can be summarized as follows: 31/12/2023 31/12/2022 Balance as at 1 January 63,372 51,990 Provision for the period 104,871 102,928 Release of provision for the period (124,741) (96,783) Use of provision (59) (293) Change due to acquisition 11,439 21 Liabilities held for sale (4,728) - Foreign currency translation differences (4,017) 5,509 Closing balance 46,137 63,372
The movements of provisions according to IAS 37 can be summarized as follows: 31/12/2023 31/12/2022 Balance as at 1 January 68,249 67,809 Provision for the period 30,927 27,290 Release of provision for the period (17,433) (24,846) Use of provision (7,354) (6,878) Change due to actuarial gains or losses related to employee benefits 350 (1,098) Change due to acquisition 11,626 57 Unwinding of the discounted amount 88 16 Liabilities held for sale (8,430) - Foreign currency translation differences (3,041) 5,899 Closing balance 74,982 68,249
OTP Bank Plc Consolidated Financial Statements 2023 93
NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) 31/12/2023 31/12/2022 Within one year In HUF - - In foreign currency 19,727 3,395 19,727 3,395 Over one year In HUF - - In foreign currency 542,669 298,589 542,669 298,589 Total 562,396 301,984 Types of subordinated bonds and loans are as follows: 31/12/2023 31/12/2022 Debt securities issued 19,727 7,798 Loan received 542,669 294,186 Total 562,396 301,984 Interest rates on subordinated bonds and loans are as follows: 31/12/2023 31/12/2022 Denominated in HUF - - Denominated in foreign currency 2.90% - 8.75% 2.90% - 5.00% 31/12/2023 31/12/2022 Average interest rates on subordinated bonds and loans denominated in foreign currency 6.17% 3.10% 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 2023 Subordinated bond EUR 231 million 07/11/2006 Perpetual 99.375% Three-month EURIBOR + 3%, variable after year 10 (payable quarterly) 6.97% Subordinated bond EUR 497 million 15/07/2019 15/07/2029 99.738% Fixed 2.875%, annually 2.88% Subordinated bond USD 650 million 15/02/2023 15/05/2033 99.417% Fix 8.75%, annually 8.75% Subordinated loan USD 17 million 05/06/2018 30/06/2025 100.00% Bullet repayment, once at the end of the loan agreement 5.00% Subordinated bond EUR 7.46 million 26/12/2023 26/12/2030 100.00% Fix 4.50%, semi-annually 4.50% Subordinated bond EUR 90.4 million 09/10/2019 09/10/2029 100.00% Fix 4.00%, annually 4.00%
OTP Bank Plc Consolidated Financial Statements 2023 94
NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) [continued] Subordinated bonds and loans can be detailed as follows [continued]: Type Nominal value Date of issuance Date of maturity Issue price Interest conditions Interest rate as at 31 December 2023 Subordinated loan UZS 104,007 million 30/04/2019 10/11/2028 100.00% Fix 3.00%, quarterly 3.00% Subordinated loan UZS 26,857 million 30/04/2019 10/11/2029 100.00% Fix 3.00%, quarterly 3.00% Subordinated loan UZS 118,397 million 30/04/2019 10/11/2030 100.00% Fix 3.00%, quarterly 3.00% Subordinated loan USD 11.89 million 30/03/2023 31/03/2030 100.00% Fix 0.00%, quarterly 0.00%
OTP Bank Plc Consolidated Financial Statements 2023 95
NOTE 26: SHARE CAPITAL (in HUF mn) 31/12/2023 31/12/2022 Authorized, issued and fully paid: Ordinary shares 28,000 28,000 Share capital is the portion of the Bank’s equity that has been obtained by the issue of shares in the corporation to a shareholder, usually for cash. The nominal value of the shares is HUF 100 per shares. All of the shares are ordinary shares representing the same rights to the shareholders. Furthermore, there are no restrictions on the distribution of dividends and the repayment of capital.
OTP Bank Plc Consolidated Financial Statements 2023 96
NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn)
In 2023 dividend of HUF 84,000 million was paid out from the profit of the year 2022, which meant HUF 300 dividend per share payable to the shareholders. In 2024 dividend of HUF 150,000 million are expected to be proposed by the Management from the profit of the year 2023, which means HUF 535.71 dividend per share payable to the shareholders.
The retained earnings and reserves according to IFRS contains the retained earnings (HUF 459,037 million and HUF 774,151 million) and reserves (HUF 3,720,285 million and HUF 2,621,064 million) as at 31 December 2023 and 2022, respectively. The reserves include mainly the option reserve, other reserves, the fair value adjustment of financial instruments at fair value through other comprehensive income, share-based payment reserve, fair value of hedge transactions, changes in equity accumulated in the previous years at the subsidiaries and due to consolidation as well as translation of foreign exchange differences. In the Consolidated Financial Statements, the Group recognizes the non-monetary items at historical cost. The difference between the historical cost of the non-monetary items in HUF amount and the translated foreign currencies into the presentation currency using the exchange rate at the balance sheet date, is presented in the shareholders’ equity as a translation difference. The accumulated amounts of exchange differences were HUF 37,600 million and HUF 237,853 million as at 31 December 2023 and 2022, respectively. Retained earnings Profit of previous years generated by the Group that are not distributed to shareholders as dividends. Other reserves The other reserves contain separated reserves due to statutory provisions. Option reserve OTP Bank Plc and MOL Plc entered into a share swap agreement in 16 April 2009, whereby OTP has changed 24,000,000 OTP ordinary shares for 5,010,501 „A series” MOL shares. The amended final maturity of the share swap agreement is 11 July 2027, until which any party can initiate cash or physical settlement of the transaction. Option reserve represents the written put option over OTP ordinary shares that are deducted from equity at the date of OTP-MOL share swap transaction. Share-based payment reserve Share-based payment reserve represents the increase in the equity due to the goods or services were received by the Bank in an equity-settled share-based payment transaction, valued at the fair value of the goods or services received (see details in Note 40). Other comprehensive income Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognized in profit or loss as required or permitted by other IFRSs. Net investment hedge in foreign operations Reserve presented as net investment hedge in foreign operations in the share holders’ equity is related to SKB Bank, OTP Luxembourg S.à r.l., OTP banka d.d. and Crnogorska komercijalna banka a.d.
OTP Bank Plc Consolidated Financial Statements 2023 97
NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued] Changes in equity accumulated in the previous year at the subsidiaries and due to consolidation
The accumulated changes at the subsidiaries contain the accumulated gains and losses of the subsidiaries from the first day when they were included in the consolidation process. The changes due to consolidation contain the effect on the result of the eliminations in the consolidation process of the previous years. 31/12/2023 31/12/2022 Retained earnings 459,037 774,151 Capital reserve 52 52 Option reserve (55,468) (55,468) Other reserves 197,294 129,902 Actuarial loss related to employee defined benefits 144 544 Fair value of financial instruments measured at fair value through other comprehensive income (33,229) (107,676) Share-based payment reserve 52,402 49,110 Net investment hedge in foreign operations (30,113) (27,405) Profit after income tax 988,658 346,354 Changes in equity accumulated in the previous year at the subsidiaries and due to consolidation 2,562,945 2,047,798 Foreign currency translation differences 37,600 237,853 Retained earnings and other reserves 1 4,179,322 3,395,215 1 See more details in the Consolidated Statement of Comprehensive Income and in the Consolidated statement of Changes in equity on page 8 and 9.
Fair value adjustment of securities at fair value through other comprehensive income 31/12/2023 31/12/2022 Balance as at 1 January (164,432) (7,653) Change of fair value 89,047 (180,981) Deferred tax related to change of fair value (12,725) 22,401 Transfer to profit or loss due to derecognition 368 1,040 Deferred tax related to transfer to proft or loss (54) (194) Foreign currency translation difference 1,399 955 Closing balance (86,397) (164,432) Expected credit loss on securities at fair value through other comprehensive income 31/12/2023 31/12/2022 Balance as at 1 January 39,625 6,710 Increase of loss allowance 8,491 40,664 Release of loss allowance (8,137) (11,391) Decrease due to sale, derecognition (2,527) (43) Foreign currency translation difference (2,879) 3,685 Closing balance 34,573 39,625
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NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued] Fair value changes of equity instruments at fair value through other comprehensive income 31/12/2023 31/12/2022 Balance as at 1 January 17,131 12,633 Change of fair value 6,672 5,394 Deferred tax related to change of fair value (947) (1,282) Transfer to retained earnings due to derecognition (3,978) - Foreign currency translation difference (283) 386 Closing balance 18,595 17,131 Net investment hedge in foreign operations 31/12/2023 31/12/2022 Balance as at 1 January (27,405) (27,405) Change of fair value on hedging item (2,708) - Closing balance (30,113) (27,405) Actuarial loss related to defined employee benefits 31/12/2023 31/12/2022 Balance as at 1 January 544 (471) Change of actuarial loss related to employee benefits (350) 1,097 Deferred tax related to change of actuarial loss related to employee benefits (8) (43) Foreign currency translation difference (42) (39) Closing balance 144 544
Foreign currency translation difference 31/12/2023 31/12/2022 Balance as at 1 January 237,853 58,164 Change of foreign currency translation (200,253) 179,689 Closing balance 37,600 237,853
OTP Bank Plc Consolidated Financial Statements 2023 99
NOTE 28: TREASURY SHARES (in HUF mn) 31/12/2023 31/12/2022 Nominal value (Ordinary shares) 1,267 1,132 Carrying value at acquisition cost 120,489 106,862 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: 31/12/2023 31/12/2022 Number of shares as at 1 January 11,318,096 10,906,881 Additions 3,948,338 1,801,256 Disposals (2,599,664) (1,390,041) Closing number of shares 12,666,770 11,318,096 Change in carrying value: 31/12/2023 31/12/2022 Balance as at 1 January 106,862 106,941 Additions 39,818 16,268 Disposals (26,191) (16,347) Closing balance 120,489 106,862
OTP Bank Plc Consolidated Financial Statements 2023 100
NOTE 29: NON-CONTROLLING INTEREST (in HUF mn) 31/12/2023 31/12/2022 Balance as at 1 January 5,959 6,198 Increase due to business combination 3,149 - Non-controlling interest included in net profit for the period 1,801 727 Dividend paid to non-controlling interest (2,118) - Purchase of non-controlling interest (159) (886) Foreign currency translation difference (672) (80) Closing balance 7,960 5,959 The non-controlling interest is not significant in respect of the whole OTP Group.
OTP Bank Plc Consolidated Financial Statements 2023 101
NOTE 30: INTEREST INCOME, INCOME SIMILAR TO INTEREST INCOME AND EXPENSE (in HUF mn)
Year ended 31 December 2023 Year ended 31 December 2022 Interest income calculated using the effective interest method from / on loans 1,348,528 909,540 securities at amortized cost 242,256 139,445 finance lease receivables 100,749 74,994 securities at fair value through other comprehensive income 55,320 53,078 banks and balances with the National Banks 354,208 62,120 placements with other banks 195,921 161,938 liabilities (negative interest expense) 684 20,483 repo receivables 17,011 4,261 Subtotal 2,314,677 1,425,859 Income similar to interest income from swap deals related to credit institutions 390,648 344,070 loans mandatorily at fair value through profit or loss 92,117 54,036 swap deals related to clients 138,567 68,123 rental income 12,255 9,264 non-trading instruments mandatorily at fair value through profit or loss - 54 Subtotal 633,587 475,547 Total interest income and incomes similar to interest income 2,948,264 1,901,406
Year ended 31 December 2023 Year ended 31 December 2022
Interest expense due to / from / on swaps related to banks, National Governments and to deposits from the National Banks 512,481 369,804 deposits from customers 481,807 254,424 swaps related to deposits from customers 278,907 128,153 banks, National Governments and on deposits from the National Banks 76,465 33,682 issued securities 116,628 27,838 subordinated and supplementary bonds and loans 32,565 8,986 financial assets (negative interest income) 11,443 11,775 depreciation of assets subject to operating lease and investment properties 5,313 5,141 leases 2,970 2,296 repo liabilities 40,398 31,006 other 2,581 1,433 Total interest expense 1,561,558 874,538
OTP Bank Plc Consolidated Financial Statements 2023 102
NOTE 31: LOSS ALLOWANCES / IMPAIRMENT / PROVISIONS (in HUF mn) Year ended 31 December 2023 Year ended 31 December 2022 Loss allowance on loans Loss allowance for the period 714,784 644,137 Release of loss allowance (561,813) (457,361) from this: impairment gain 10,336 9,517 Income from loan recoveries (39,948) (65,514) Income from recoveries exceeding the gross loans (11,015) (6,899) Impairment gain (20,022) (50,202) Income from provisions on loans before OTP acquisition (816) (1,581) Income from recoveries of written-off, but legally existing loans (8,095) (6,832) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss 91 (13,346) Loss allowance on finance lease 35,494 48,533 Release of loss allowance on finance lease (37,150) (25,020) 111,458 131,429 (Release of loss allowance ) / Loss allowance on due from banks, balances with National Banks, on placements and on repo receivables Allowance for the period 20,286 46,811 Release of allowance (22,430) (46,427) (2,144) 384 (Release of loss allowance) / Loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost Allowance for the period 19,366 77,027 Release of allowance (28,197) (16,266) (8,831) 60,761 (Release of impairment) / Provision for impairment of intangible , tangible assets subject to operating lease and of investment properties Impairment for the period 62 1,389 Release of impairment (1,394) (185) (1,332) 1,204 (Release of) / Provision for commitments and guarantees given Provision for the period 104,871 97,221 Release of provision (124,741) (91,304) (19,870) 5,917 Loss allowances / Impairment and provisions 79,281 199,695
OTP Bank Plc Consolidated Financial Statements 2023 103
NOTE 32: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) Income from fees and commissions Year ended 31 December 2023 Year ended 31 December 2022 Fees and commissions related to lending 1 45,741 41,452 Deposit and account maintenance fees and commissions 291,530 247,625 Fees and commissions related to the issued bank cards 164,161 132,710 Currency exchange gains and losses 120,693 102,936 Fees related to cash withdrawal 68,826 61,272 Fees and commissions related to security trading 35,545 32,172 Fees and commissions related to fund management 47,445 29,906 Insurance fee income 21,727 19,196 Other 65,641 49,597 Fees and commissions from contracts with customers 815,568 675,414 Total 861,309 716,866 1 F ees and commissions related to lending aren’t included in the effective interest rate calculation due to their nature. Expense from fees and commissions Year ended 31 December 2023 Year ended 31 December 2022 Fees and commissions related to issued bank cards 66,747 53,983 Interchange fees 36,386 28,385 Fees and commissions paid on loans 9,638 8,865 Fees and commissions related to deposits 10,501 9,445 Cash withdrawal transaction fees 7,824 5,292 Fees and commissions related to security trading 7,004 4,230 Insurance fees 1,737 1,576 Fees and commissions related to collection of loans 705 985 Postal fees 4,965 576 Money market transaction fees and commissions 739 333 Other agent fee 1,684 1,912 Other 21,386 16,793 Total 169,316 132,375 Net profit from fees and commissions 691,993 584,491
OTP Bank Plc Consolidated Financial Statements 2023 104
NOTE 33: GAINS AND LOSSES BY TRANSACTIONS (in HUF mn) Gains and losses by transactions Year ended 31 December 2023 Year ended 31 December 2022 Gain by transactions 4,972 6,809 Loss by transactions (3,629) (3,254) Gain from derecognition of loans, finance lease 1,343 3,555 Gain by transactions 1,110 41 Loss by transactions (19,635) (5,169) Loss from derecognition of securities and other receivables at amortized cost (18,525) (5,128) Loss from derecognition of financial assets at amortized cost (17,182) (1,573) Derecognition of financial assets is mainly related to sale transactions both in case of securities and loans due to better investment options related to short-term opportunities on the market.
Foreign exchange result consists of revaluation difference from converting assets and liabilities in foreign currencies into the presentation currency of the consolidation financial statements.
Gains and losses by transactions Year ended 31 December 2023 Year ended 31 December 2022 Gain by transactions 18,497 16,477 Loss by transactions (10,784) (19,645) Fx gain / (loss) on securities at fair value through profit or loss 7,713 (3,168) Gain by transactions 1,478 - Loss by transactions (687) (323) Fx gain / (loss) on derecognition of investment in subsidiaries, associates 791 (323) Gain by transactions 1,175 4,502 Loss by transactions (2,396) (5,516) Fx loss on securities at fair value through other comprehensive income (1,221) (1,014) Gain / (Loss) on securities, net 7,283 (4,505)
Gains and losses by transactions Year ended 31 December 2023 Year ended 31 December 2022 Gain by transactions 8,875 4,033 Loss by transactions (635) (3,768) Gain on non-trading securities mandatorily at fair value through profit or loss 8,240 265 Gain by transactions 115,152 50,693 Loss by transactions (21,571) (60,234) Gain / (Loss) on loans mandatorily at fair value through profit or loss (adjustment resulting from change in market factors) 93,581 (9,541) Gain by transactions 766 7,809 Loss by transactions (7,974) (2,577) (Loss) / Gain on financial assets and liabilities designated at fair value through profit or loss (7,208) 5,232 Fair value adjustment on financial instruments measured at fair value through profit or loss 94,613 (4,044)
OTP Bank Plc Consolidated Financial Statements 2023 105
NOTE 33: GAINS AND LOSSES BY TRANSACTIONS (in HUF mn) [continued]
Gains and losses by transactions Year ended 31 December 2023 Year ended 31 December 2022 Gain by transactions 85,387 138,675 Loss by transactions (104,061) (136,366) (Loss) / Gain from fx swap, swap and option deals (18,674) 2,309 Gain by transactions 6,569 4,156 Loss by transactions (6,554) (5,082) Gain / (Loss) from option deals 15 (926) Gain by transactions 501,377 148,699 Loss by transactions (497,715) (132,968) Gain from commodities deals 3,662 15,731 Gain by transactions 2,633 752 Loss by transactions (396) (1,506) Gain / (Loss) from futures deals 2,237 (754) Net results on derivative instruments and hedge relationships (12,760) 16,360
Gains and losses attributable to the hedged risk on the hedged item and on the hedging instruments and ineffectiveness in case of fair value hedge on amortised cost line items are as follows: Fair value hedge 31/12/2023 31/12/2022 Hedged items (15,433) 6,750 Hedging instrument 2,855 (9,352) Hedge effectiveness (12,578) (2,602)
OTP Bank Plc Consolidated Financial Statements 2023 106
NOTE 34: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn)
Other operating income Year ended 31 December 2023 Year ended 31 December 2022 Income from agricultural activity 72,323 62,809 Income from tourism activity 3,911 23,197 Gains on transactions related to property activities 7,195 5,232 Rental income 2,780 2,175 Income from computer programming 1,563 1,250 Fair value adjustment of biological assets and agricultural produce (4,874) (1,939) Income from written-of receivable 4,163 3,727 Income from air passenger transport 1,958 1,863 Gains on transactions related to insurance activity 1,915 1,369 Non-repayable assets received 531 447 Negative goodwill due to acquisition 198,361 3,784 Other income from non-financial activities 34,441 21,016 Total 324,267 124,930
Other operating expenses Year ended 31 December 2023 Year ended 31 December 2022 Expense related to agricultural activity 47,780 45,612 Provision for off-balance sheet commitments and contingent liabilities 13,494 1,421 Financial support for sport association and organization of public utility 14,475 16,370 Expenses related to tourism activity - 20,868 Loss allowance and loan losses on other financial assets 8,919 13,065 (Release of impairment) / Impairment on investments 1 (21) 898 Non-repayable assets contributed 885 1,339 Impairment on tangible and intangible assets 5,620 627 Impairment and loan losses on other non-financial assets and assets measured under IAS 2 1,312 2,001 Operating expenses of assets subject to operating lease and investment property 1,252 883 Other 16,854 22,658 Other expenses from non-financial activities 6,711 5,379 Other costs 10,143 17,279 Total 110,570 125,742 1 See details in Note 12.
OTP Bank Plc Consolidated Financial Statements 2023 107
NOTE 34: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn) [continued]
Other administrative expenses Year ended 31 December 2023 Year ended 31 December 2022 Personnel expenses Wages 367,910 288,286 Taxes related to personnel expenses 58,267 48,334 Other personnel expenses 52,519 41,108 Subtotal 478,696 377,728 Depreciation, amortization of tangible, intangible assets, right-of-use assets 2 111,996 101,125 Other administrative expenses Taxes, other than income tax 3 165,632 193,543 Services 182,393 142,259 Professional fees 27,935 21,807 Fees payable to authorities and other fees 58,949 52,631 Advertising 26,067 19,084 Administration expenses 16,685 16,721 Rental fees 5,984 5,118 Subtotal 483,645 451,163 Total 1,074,337 930,016 2 See details in Note 13 and Note 36. 3 Special tax of financial institutions was paid by the Group in the amount of HUF 56,572 million for the year ended 31 December 2023 and HUF 99,974 million for the year ended 31 December 2022, recognized as an expense thus decreased the corporate tax base. For the year ended 31 December 2023 financial transaction duty was paid by the Bank in the amount of HUF 97,704 million while for the year ended 31 December 2022 the same duty was HUF 88,642 million.
Ernst & Young Audit Ltd. Year ended 31 December 2023 Year ended 31 December 2022 In thousand EUR OTP – annual audit – separate financial statements 573 458 OTP – annual audit – consolidated financial statements 923 738 Other audit services based on statutory provisions to OTP Group members 1,184 1,120 Other services providing assurance 1,088 1,805 Other non-audit services 550 426 Total 4,318 4,547 Ernst & Young Network Year ended 31 December 2023 Year ended 31 December 2022 In thousand EUR Audit based on statutory provisions 3,648 2,354 Other services providing assurance - - Tax consulting services 88 209 Other non-audit services 945 1,015 Total 4,681 3,578
OTP Bank Plc Consolidated Financial Statements 2023 108
NOTE 35: INCOME TAXES (in HUF mn) The Group is presently liable for income tax at rates between 9% and 35% of taxable income. Deferred tax is calculated at the income tax rate of 9% in Hungary and Montenegro, 10% in Bulgaria, 12% in Moldova, 15% in Serbia and Albania, 16% in Romania, 18% in Ukraine and Croatia, 19% in Slovenia, 20% in Russia and Uzbekistan, 25.5% in the Netherlands and 35% in Malta. The breakdown of the income tax expense is: 31/12/2023 31/12/2022 Current tax expense 185,055 90,931 Deferred tax income 4,423 (32,331) Total 189,478 58,600 A reconciliation of the net deferred tax asset/liability is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 35,327 (8,936) Deferred tax (expense) / income in profit or loss (4,423) 32,286 Deferred tax (liability) / receivable related to items recognized directly in equity and in Comprehensive Income (10,072) 14,591 Due to acquisition of subsidiary 12,034 - Assets held for sale (394) - Foreign currency translation difference (5,444) (2,614) Closing balance 27,028 35,327 A breakdown of the deferred tax assets are as follows: 31/12/2023 31/12/2022 Loss allowance on granted loans 46,155 13,244 Provision for off-balance sheet commitments and contingent liabilities, derivative financial instruments 5,145 7,668 Securities at amortized cost 589 8 Difference in depreciation of tangible assets 1,377 1,304 Fair value adjustment of non-trading instruments mandatorily at fair value though profit or loss 92 214 Fair value adjustment of derivative financial instruments 6,904 7,227 Provision on other financial, non-financial liabilities 1,574 564 Difference in accounting for leases 12 430 Fair value adjustment of securities at fair value through other comprehensive income 2,824 7,563 Unused tax allowance - 12,103 Loss allowance / impairment on other financial, non-financial assets 2,457 159 Tax accrual caused by negative taxable income 24,511 19,744 Difference in depreciation of right-of-use assets 189 564 Loss allowance on investment 74 84 Interbank placements and receivables 90 - Fair value adjustment of securities at fair value through profit or loss 2,630 4,023 Difference in accounting for investment properties 7 51 Issued securities 38 - Amounts unenforceable by tax law 43 32 Other 1,204 477 Deferred tax asset 95,915 75,459
OTP Bank Plc Consolidated Financial Statements 2023 109
NOTE 35: INCOME TAXES (in HUF mn) [continued] A breakdown of the deferred tax liabilities are as follows: 31/12/2023 31/12/2022 Difference in depreciation of tangible assets (10,873) (10,944) Fair value adjustment of securities at fair value through other comprehensive income (5,189) (4,586) Fair value adjustment of securities at fair value through profit or loss (2) - Loss allowance on investment (1,673) (1,293) Fair value adjustment of non-trading instruments mandatorily at fair value though profit or loss (312) (25) Securities at amortized cost (3,580) (959) Provision for off-balance sheet commitments and contingent liabilities, derivative financial instruments (649) (639) Loss allowance on granted loans (1,487) (4,383) Interbank placements and receivables (1,196) (1,269) Unused tax allowance (1) - Loss allowance / impairment on other financial, non-financial assets (11,011) (91) Repurchase agreement and security lending (36) (265) Provision on other financial, non-financial liabilities (917) - Difference in accounting for investment properties (748) (204) Issued securities (298) - Difference in accounting for leases (1,330) - Difference in depreciation of right-of-use assets (5) (272) Other (29,580) (15,202) Deferred tax liabilities (68,887) (40,132) 31/12/2023 31/12/2022 Net deferred tax asset 27,028 35,327 (amount presented in the consolidated statement of financial position) Deferred tax assets 55,691 75,421 Deferred tax liabilities (28,663) (40,094) Among deferred tax assets the tax accruals are included the following accruals by entities: Tax accrual caused by negative 31/12/2023 31/12/2022 Date until taxable income it can be used OTP Bank - 19,424 31 December 2027 OTP Real Estate Leasing Ltd. 102 142 31 December 2030 Nagisz Ltd. - 55 31 December 2025 Nagisz Ltd. - 56 31 December 2026 Nagisz Ltd. 56 67 31 December 2030 Nova KBM 24,353 - no time limit 24,511 19,744 Residual tax loss for which the Nova KBM has not made deferred tax assets amounts to HUF 409,628 million, so the unrecognized deferred tax assets amount to HUF 90,118 million as at 31 December 2023. Tax losses can be carried forward indefinitely in accordance with the Slovenian Corporate Income Tax Act.
OTP Bank Plc Consolidated Financial Statements 2023 110
NOTE 35: INCOME TAXES (in HUF mn) [continued] A reconciliation of the income tax income / expense is as follows: 31/12/2023 31/12/2022 Profit before income tax 1,201,183 377,678 Income tax expense at statutory tax rates 174,872 53,933 Income tax adjustments due to permanent differences are as follows: Deferred use of tax allowance - (12,102) Tax effect of transaction costs related to share-based payment recognized directly in shareholders' equity 312 267 Reversal of statutory general provision (9) (5) Foreign withholding tax 7,218 - Permanent differences from unused tax losses (9,073) (1,894) Amounts unenforceable by tax law 55 61 Use of tax allowance in the current year 989 (23) Other (12,304) (3,455) Income tax expense 162,060 36,782 Effective tax rate 15.77% 15.52% Business tax and innovation contribution 27,418 21,818 Total income tax expense 189,478 58,600
31/12/2023 31/12/2022 Net current tax liability (62,175) (23,216) (amount presented in the consolidated statement of financial position) Current income tax receivables 7,773 5,650 Current income tax payable (69,948) (28,866)
Global minimum tax The global minimum tax legislation has been enacted, or substantively enacted, in certain jurisdictions the Group operates, mainly in the EU Member States. The Group is in scope of the global minimum tax legislation. The legislation will be ef fective for the Group’s financial year beginning 1 January 2024 and introduces a minimum rate of effective taxation of 15%. From an accounting perspective, it is unclear if the global minimum tax rules create additional temporary differences, whether to remeasure deferred taxes for the global minimum tax rules and which tax rate to use to measure deferred taxes. In response to this uncertainty, IAS 12 ‘Income taxes’ has been amended to introduce a mandatory temporary exception to the requirements of IAS 12. Under the mandatory temporary exception, a company does not recognize or disclose information about deferred tax assets and liabilities related to the global minimum tax rules. The Group applied the temporary exception for the year-ended 31 December 2023. The Group has performed an assessment of the Group’s potential exposure to top -up tax payable under the global minimum tax rules.
OTP Bank Plc Consolidated Financial Statements 2023 111
NOTE 35: INCOME TAXES (in HUF mn) [continued] Global minimum tax [continued] The assessment of the potential exposure to top-up tax is based on the most recent information available regarding the financial performance of the group entities in the Group. Based on the assessment, the Group has identified potential exposure to top-up tax in respect of profits earned in Bulgaria, Hungary, Moldova and Serbia. The potential exposure comes from the constituent entities in these jurisdictions where the expected global minimum tax effective tax rate might be below 15% based on the currently available information. The global minimum tax rate might be lower in these jurisdictions mainly due to the low statutory domestic tax rate. As for Hungary, the estimation of the global minimum tax effective tax rate is complex for the following reasons. In Hungary, the most relevant taxes determining the global minimum tax effective tax rate are corporate income tax, local business tax and innovation contribution. The taxable income for local business tax and innovation contribution (with a combined statutory tax rate of 2.3%) purposes is significantly higher than the taxable income for corporate income tax purposes due to the scope (and hence, the amount) of deductible expenses under local business tax and innovation contribution being more limited than under corporate income tax. The proportion of taxable income for local business tax and innovation contribution and corporate income tax, respectively, may vary year by year to a significant extent making the estimation of the global minimum tax effective tax rate complex. The global minimum tax rate in Hungary is expected to fluctuate around 15%, in some years potentially being under 15%. Had the global minimum tax legislation been effective for the current year ending 31 December 2023, the Group’s IFRS effective tax rate adjusted to include the estimated top-up taxes would have been approximately 16.93%, 1.16 percentage point higher than the reported effective tax rate under IFRS of 15.77%. The increase in the effective tax rate under IFRS for the Group is driven by top up taxes arising on profits earned in Bulgaria, Hungary, Moldova and Serbia (estimated top-up tax for Bulgaria: HUF 11,100 million, Hungary: HUF 2,000 million, Moldova: HUF 450 million and Serbia: HUF 300 million). In respect of Hungary, the one-off income from the changes in the fair value of the OTP Bank Plc shares held by the OTP Bank Employee Partial Ownership Plan Organization was excluded from the global minimum tax calculation.
OTP Bank Plc Consolidated Financial Statements 2023 112
NOTE 36: LEASES (in HUF mn) The Group as a lessee: Right-of-use assets by class of underlying assets as at 31 December 2023: 31/12/2023 Property Office equipment and vehicles Total Depreciation expense of right-of-use assets 15,094 1,226 16,320 Additions to right-of-use assets 33,091 2,656 35,747 Carrying amount of right-of-use assets at the end of the reporting period 69,603 5,095 74,698 Right-of-use assets by class of underlying assets as at 31 December 2022: 31/12/2022 Property Office equipment and vehicles Total Depreciation expense of right-of-use assets 17,680 328 18,008 Additions to right-of-use assets 19,416 1,931 21,347 Carrying amount of right-of-use assets at the end of the reporting period 56,842 2,095 58,937 The total cash outflow for leases was HUF 40,746 million as at 31 December 2023 and HUF 31,872 million as at 31 December 2022. The Group mainly leases real estates, a significant part of its right-of-use assets are related to branch offices, a smaller part to office buildings and office space. Leasing liabilities by maturities: 31/12/2023 31/12/2022 Within one year 12,425 13,757 Over one year 63,888 50,021 Total 76,313 63,778 Lease liabilities by payments: 31/12/2023 31/12/2022 Arising from fixed lease payments 32,119 38,636 Arising from variable lease payments 44,194 25,142 Total 76,313 63,778 On 31 December 2023 and 2022 HUF 335 million and HUF 44 million is the lease payment respectively to be paid in the future due to leases not yet commenced to which the Group is committed. The future lease payment not taken into account would be HUF 2,868 million as at 31 December 2023 and would have been HUF 4,220 million as at 31 December 2022 arising from extension options if they had been taken into account. The most typical indexes/rates on which the variable lease payments depend are: Consumer Price Index, Inflation Rate, BUBOR, EURIBOR.
OTP Bank Plc Consolidated Financial Statements 2023 113
NOTE 36: LEASES (in HUF mn) [continued] The Group as a lessee [continued]: Amounts recognized in profit and loss 31/12/2023 31/12/2022 Interest expense on lease liabilities 2,970 2,296 Expense relating to short-term leases 3,753 3,872 Expense relating to leases of low value assets 1,323 919 Expense relating to variable lease payments not included in the measurement of lease liabilities 4 - Income from subleasing right-of-use assets - 6 Gains or losses arising from sale and leaseback transactions - - The Group as a lessor: The Group’s leasing activities are most significant in Hungary, Bulgaria, Slovenia, Croatia and Ukraine. The main activity of the leasing companies is finance leasing. About half of the underlying assets are passenger cars, besides this the Group leases mainly agricultural machinery, commercial vehicles, vessels and construction machinery. The Group manages the risk associated with the rights held in the underlying assets by, inter alia, buy-back agreements, determining the residual values on level lower than future market values and registering pledge on the underlying asset. The Group as a lessor, finance lease: Amounts receivable under finance leases 31/12/2023 31/12/2022 In less than 1 year 527,875 438,205 Between 1 and 2 years 379,355 391,229 Between 2 and 3 years 280,865 265,744 Between 3 and 4 years 186,890 175,723 Between 4 and 5 years 117,878 175,420 More than 5 years 65,018 69,877 Total receivables from undiscounted lease payments 1,557,881 1,516,198 Unguaranteed residual values 68 395 Gross investment in the lease 1,557,949 1,516,593 Less: unearned finance income (223,217) (164,710) Present value of minimum lease payments receivable 1,334,732 1,351,883 Loss allowance (45,020) (53,131) Net investment in the lease 1,289,712 1,298,752 An analysis of the change in the gross values on finance receivables is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 1,351,883 1,212,631 Additions due to new contracts 678,107 662,694 Additions due to interest income and amortized fees 103,223 82,181 Decrease due to write-off (115) (484) Decrease due to repossession of the asset (11,259) (3,616) Decrease due to sale (2,456) (1,697) Assets held for sale (66,511) - Decrease due to early repayment (78,856) (77,500) Decrease due to regular lease payment (589,498) (572,293) Foreign currency translation difference (49,786) 49,967 Closing balance 1,334,732 1,351,883
OTP Bank Plc Consolidated Financial Statements 2023 114
NOTE 36: LEASES (in HUF mn) [continued] The Group as a lessor [continued]: The Group as a lessor, finance lease [continued]: An analysis of the change in the loss allowance on finance receivables is as follows: 31/12/2023 31/12/2022 Balance as at 1 January 53,131 30,003 Loss allowance for the period 35,494 49,433 Release of loss allowance (37,150) (25,020) Use of loss allowance (98) (319) Partial write-off (7) (516) Decrease due to sale (545) (61) Assets held for sale (2,906) - Foreign currency translation difference (2,899) (389) Closing balance 45,020 53,131 Result from finance leases 31/12/2023 31/12/2022 Selling profit or loss - - Finance income on the net investment in the lease 100,749 78,262 Income relating to variable lease payments not included in the measurement of the net investment in the lease - - The Group as a lessor, operating lease: Amounts receivable under operating leases 31/12/2023 31/12/2022 In less than 1 year 13,464 6,636 Between 1 and 2 years 8,540 6,177 Between 2 and 3 years 7,500 4,782 Between 3 and 4 years 6,187 3,481 Between 4 and 5 years 3,703 2,644 More than 5 years 1,786 2,173 Total receivables from undiscounted lease payments 41,180 25,893 Result from operating leases 31/12/2023 31/12/2022 Lease income 15,035 11,439 Therein lease income relating to variable lease payments that do not depend on an index or a rate
- -
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NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments may result in certain risks to the Group. The most significant risks the Group faces include: 37.1. Credit risk The Group takes on exposure to credit risk which is the risk that a counter-party will be unable to pay amounts in full when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or banks of borrowers, and to geographical areas and loan types. Such risks are monitored on a periodical basis and are subject to an annual or more frequent review. The exposure to any borrower including banks and brokers is further restricted by sub-limits covering on and off-balance sheet exposures and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and principal repayment obligations and by changing these lending limits when appropriate. Exposure to credit risk is managed by obtaining collateral, corporate and personal guarantees. Defining the expected credit loss on individual and collective basis On individual basis: Individually assessed are the non-retail or non- micro- and small enterprise exposure of significant amount on a stand-alone basis: • exposure in stage 3, • exposure in workout management, • purchased or originated credit-impaired instruments which are in accordance with the conditions mentioned above. The calculation of impairment must be prepared and approved by the risk management functional areas. The calculation, all relevant factors (amortized cost, original and current EIR, contracted and expected cash flows (from business and/or collateral) for the individual periods of the entire lifecycle, other essential information enforced during the valuation) and the criteria thereof (including the factors underlying the classification as stage 3) must be documented individually. The expected credit loss of th e exposure equals the difference of the items’ AC (gross book value) on the valuation date and the present value of the receivable's expected cash flows discounted to the valuation date by the exposure's original effective interest rate (EIR) (calculated at the initial recognition, or in the case of variable rate, recalculated due to the last interest rate change). The estimation of the expected future cash flows should be forward looking, it must also contain the effects of the possible change of macroeconomic outlook. At least two scenarios must be used for the estimation of the expected cash flow. It should be at least one scenario in which the entity anticipates that realized cash flows will be significantly different from the contractual cash flows. Probability weights must be allocated to the individual scenarios. The estimation must reflect the probability of the occurrence and non-occurrence of the credit loss, even if the most probable result is the non-occurrence of the loss.
OTP Bank Plc Consolidated Financial Statements 2023 116
NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.1. Credit risk [continued] Defining the expected credit loss on individual and collective basis [continued] On collective basis: The following exposures are subject to collective assessment: • retail exposure irrespective of the amount, • micro and small enterprise exposures irrespective of the amount, • all other exposure which are insignificant on a stand-alone basis and not part of the workout management, • exposure which are not in stage 3, significant on a stand-alone basis, • purchased or originated credit-impaired instruments which are in accordance with the conditions mentioned above. In the collective impairment methodology credit risk and the change of credit risk can be correctly captured by understanding the risk characteristics of the portfolio. In order to achieve this, the main risk drivers shall be identified and used to form homogeneous segments having similar risk characteristics. The segmentation is expected to stay stable from month to month, however a regular (at least yearly) revision of the segmentation process should be set up to capture the change of risk characteristics. The segmentation must be performed separately for each parameter, since in each case different factors may have relevance. The Bank's Headquarter Group Reserve Committee stipulates the guidelines related to the collective impairment methodology at group level. In addition, it has right of agreement in respect of the risk parameters (PD -probability of default, LGD - loss given default, EAD – exposure at default) and segmentation criteria proposed by the group members.
The review of the parameters must be performed at least annually, and the results should be approved by the Group Reserve Committee. Local Risk Managements are responsible for parameter estimations / updates, macroeconomic scenarios are calculated by OTP Bank Headquarter for each subsidiary and each parameter. Based on the consensus proposal of Local Risk Management and OTP Bank Headquarter, the Group Reserve Committee decides on the modification of parameters (all parameters for impairment calculation). At least on a yearly basis the impairment parameters should be back tested as well. The expected loss calculation should be forward looking, including forecasts of future economic conditions. This may be achieved by applying 3-5 different macroeconomic scenarios, which may be integrated in the PD, LGD and EAD parameters. In 2022 in Slovenia and Romania the PD parameter estimation was extended to estimate parameters based on rating categories only. The more granular estimation resulted HUF 4,211 million less impairment in Slovenia, while in Romania the HUF 7,310 million impairment release outcome of the review was netted with a post model adjustment resulting neutral overall effect. During 2023 there were ECL SICR methodological changes in Hungary. The previously used methodology – which was based on rating category changes – was replaced by the advanced, lifetime-based methodology to identify the significant increase in credit risk. The changes resulted HUF 2.8 billion more impairment in 2023. The impact of the SICR methodology changes and parameter updates are presented under Note 11 as part of effect of change in parameters used for loss allowance calculation line item.
OTP Bank Plc Consolidated Financial Statements 2023 117 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.1. Gross values and loss allowance / provision of 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 2023: Gross carrying amount / Notional value Accumulated loss allowance / Provision 31/12/2023 Carrying amount / Exposure Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Placements with other banks 1,566,998 1,569,167 63 15 - 1,569,245 2,182 55 10 - 2,247 Repo receivables 223,884 224,477 - - - 224,477 593 - - - 593 Mortgage loans 4,083,763 3,620,661 432,031 93,436 54,751 4,200,879 18,097 27,882 46,945 24,192 117,116 Loans to medium and large corporates 7,186,610 6,052,951 1,157,654 206,352 39,638 7,456,595 50,361 82,517 127,352 9,755 269,985 Consumer loans 4,533,639 4,073,601 524,459 299,390 11,637 4,909,087 52,181 89,813 227,238 6,216 375,448 Loans to micro and small enterprises 753,268 483,993 245,532 93,106 36,449 859,080 8,035 30,768 55,620 11,389 105,812 Car-finance loans 641,777 573,379 71,559 14,946 596 660,480 5,050 4,891 8,287 475 18,703 Municipal loans 477,476 459,343 24,409 691 - 484,443 4,068 2,273 626 - 6,967 Loans at amortized cost 17,676,533 15,263,928 2,455,644 707,921 143,071 18,570,564 137,792 238,144 466,068 52,027 894,031 Finance lease receivable 1,289,712 1,095,039 176,856 62,799 38 1,334,732 5,331 8,342 31,309 38 45,020 Interest-bearing securities at fair value through other comprehensive income 1 1,540,980 1,423,021 87,085 30,874 - 1,540,980 11,395 258 22,920 - 34,573 Securities at amortized cost 5,249,272 5,228,599 12,224 41,097 - 5,281,920 17,141 755 14,752 - 32,648 Financial assets total 27,547,379 24,804,231 2,731,872 842,706 143,109 28,521,918 174,434 247,554 535,059 52,065 1,009,112 Loan commitments given 4,755,009 4,495,101 277,346 11,673 823 4,784,943 19,890 7,772 2,007 265 29,934 Financial guarantees given 1,474,285 1,381,657 92,012 10,222 64 1,483,955 6,392 2,012 1,206 60 9,670 Other commitments given 864,718 829,611 34,112 5,909 1,619 871,251 1,860 1,388 2,354 931 6,533 Financial liabilities total 7,094,012 6,706,369 403,470 27,804 2,506 7,140,149 28,142 11,172 5,567 1,256 46,137 1 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 9). 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.
OTP Bank Plc Consolidated Financial Statements 2023 118 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.1. Gross values and loss allowance / provision of financial instruments by stages [continued] 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 2022: Gross carrying amount / Notional value Accumulated loss allowance / Provision 31/12/2022 Carrying amount / Exposure Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Placements with other banks 1,351,082 1,354,832 63 24 - 1,354,919 3,801 12 24 - 3,837 Repo receivables 41,009 41,250 - - - 41,250 241 - - - 241 Mortgage loans 4,433,192 3,975,636 373,433 161,684 53,844 4,564,597 12,638 23,738 78,932 16,097 131,405 Loans to medium and large corporates 6,824,520 5,912,383 996,292 202,188 25,350 7,136,213 64,479 100,793 138,877 7,544 311,693 Consumer loans 3,199,520 2,879,094 363,047 388,258 13,495 3,643,894 61,424 81,256 294,251 7,443 444,374 Loans to micro and small enterprises 594,427 460,940 114,173 64,383 3,079 642,575 4,710 9,136 32,558 1,744 48,148 Car-finance loans 512,580 433,316 82,146 20,705 1,098 537,265 5,751 6,830 11,199 905 24,685 Municipal loans 530,219 515,299 20,229 746 - 536,274 3,187 2,212 656 - 6,055 Loans at amortized cost 16,094,458 14,176,668 1,949,320 837,964 96,866 17,060,818 152,189 223,965 556,473 33,733 966,360 Finance lease receivable 1,298,752 1,045,688 235,817 70,050 328 1,351,883 4,797 15,241 32,875 218 53,131 Interest-bearing securities at fair value through other comprehensive income 1 1,699,446 1,642,481 28,285 28,680 - 1,699,446 13,754 1,040 24,831 - 39,625 Securities at amortized cost 4,891,938 4,867,061 15,141 52,785 - 4,934,987 23,675 611 18,763 - 43,049 Financial assets total 25,376,685 23,127,980 2,228,626 989,503 97,194 26,443,303 198,457 240,869 632,966 33,951 1,106,243 Loan commitments given 4,191,766 3,954,773 258,655 16,660 201 4,230,289 24,124 11,285 3,085 29 38,523 Financial guarantees given 1,447,014 1,378,871 80,187 7,515 1 1,466,574 14,678 2,932 1,950 - 19,560 Other commitments given 559,224 509,314 20,394 34,805 - 564,513 2,755 904 1,630 - 5,289 Financial liabilities total 6,198,004 5,842,958 359,236 58,980 202 6,261,376 41,557 15,121 6,665 29 63,372 1 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 9). 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.
OTP Bank Plc Consolidated Financial Statements 2023 119 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.2. Financial instruments under simplified approach by day-past-due categories 31/12/2023 Without delay < 30 days 31 - 60 days 61 - 90 days > 91 days Closing balance Expected credit loss rate 2.69% 2.69% 3.80% 6.03% 44.49% Gross value 114,764 26,136 2,340 1,029 67,177 211,446 Loss allowance 3,082 703 89 62 29,890 33,826 Net carrying amount 117,846 26,839 2,429 1,091 97,067 245,272 31/12/2022 Without delay < 30 days 31 - 60 days 61 - 90 days > 91 days Closing balance Expected credit loss rate 1.83% 2.16% 2.43% 3.05% 47.32% Gross value 110,040 26,052 2,713 1,674 55,258 195,737 Loss allowance 2,011 562 66 51 26,149 28,839 Net carrying amount 112,051 26,614 2,779 1,725 81,407 224,576
OTP Bank Plc Consolidated Financial Statements 2023 120 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.3. Movement table of gross values on financial instruments Movement of gross values of 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 2023: 31/12/2023 Opening balance Increases due to origination and acquisition Increase on opening balance Decreases due to payments and derecognition Transfers between stages (net) Changes due to modifications without derecognition (net) Decrease due to write-offs Assets held for sale Foreign exchange and other adjustment Closing balance Stage 1 23,127,980 23,356,461 3,416,632 (22,203,492) (508,278) (306,140) (245) (1,320,012) (758,675) 24,804,231 Placements with other banks 1,354,832 7,416,490 381,963 (7,453,395) - - - (4,529) (126,194) 1,569,167 Repo receivables 41,250 4,458,449 53,911 (4,337,597) - - - - 8,464 224,477 Loans at amortized cost 14,176,668 8,774,565 2,081,887 (7,499,976) (496,301) (306,192) (245) (938,176) (528,302) 15,263,928 Finance lease receivables 1,045,688 527,738 214,240 (597,894) (10,997) - - (52,206) (31,530) 1,095,039 Interest-bearing securities at fair value through other comprehensive income 1,642,481 798,838 55,751 (1,006,842) - 52 - (39,100) (28,159) 1,423,021 Securities at amortized cost 4,867,061 1,380,381 628,880 (1,307,788) (980) - - (286,001) (52,954) 5,228,599 Stage 2 2,228,626 714,891 212,807 (638,272) 441,295 34,021 (2,212) (172,079) (87,205) 2,731,872 Placements with other banks 63 - - - - - - - - 63 Repo receivables - - - - - - - - - - Loans at amortized cost 1,949,320 554,572 176,241 (459,903) 436,755 34,021 (2,212) (161,009) (72,141) 2,455,644 Finance lease receivables 235,817 72,482 36,313 (148,456) 3,560 - - (11,070) (11,790) 176,856 Interest-bearing securities at fair value through other comprehensive income 28,285 83,167 - (21,461) - - - - (2,906) 87,085 Securities at amortized cost 15,141 4,670 253 (8,452) 980 - - - (368) 12,224 Stage 3 989,503 190,604 27,942 (252,740) 66,975 16,888 (73,726) (63,427) (59,313) 842,706 Placements with other banks 24 - 75 (84) - - - - - 15 Repo receivables - - - - - - - - - - Loans at amortized cost 837,964 171,781 24,518 (214,793) 59,541 16,888 (73,594) (60,193) (54,191) 707,921 Finance lease receivables 70,050 15,286 3,349 (25,520) 7,434 - (132) (3,234) (4,434) 62,799 Interest-bearing securities at fair value through other comprehensive income 28,680 3,480 - (1,231) - - - - (55) 30,874 Securities at amortized cost 52,785 57 - (11,112) - - - - (633) 41,097 Financial assets subtotal 26,346,109 24,261,956 3,657,381 (23,094,504) (8) (255,231) (76,183) (1,555,518) (905,193) 28,378,809
OTP Bank Plc Consolidated Financial Statements 2023 121 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.3. Movement table of gross values on financial instruments [continued] Movement of gross values of 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 2023 [continued]: 31/12/2023 Opening balance Increases due to origination and acquisition Increase on opening balance Decreases due to payments and derecognition Transfers between stages (net) Changes due to modifications without derecognition (net) Decrease due to write-offs Assets held for sale Foreign exchange and other adjustment Closing balance POCI 97,194 19,386 41,718 (2,872) 8 - (6,616) (4,185) (1,524) 143,109 Placements with other banks - - - - - - - - - - Repo receivables - - - - - - - - - - Loans at amortized cost 96,866 19,386 41,366 (2,302) 5 - (6,553) (4,185) (1,512) 143,071 Finance lease receivables 328 - 352 (570) 3 - (63) (12) 38 Interest-bearing securities at fair value through other comprehensive income - - - - - - - - - - Securities at amortized cost - - - - - - - - - - Financial assets total 26,443,303 24,281,342 3,699,099 (23,097,376) - (255,231) (82,799) (1,559,703) (906,717) 28,521,918 Loan commitments and financial guarantees given - stage 1 5,842,958 3,472,892 53,896,979 (56,158,534) (152,848) 3,465 - - (198,543) 6,706,369 Loan commitments and financial guarantees given - stage 2 359,236 178,252 127,132 (382,733) 138,545 1,149 - - (18,111) 403,470 Loan commitments and financial guarantees given - stage 3 58,980 4,908 910 (48,833) 14,304 14 - - (2,479) 27,804 Loan commitments and financial guarantees given - poci 202 2,719 566 (972) (1) - - - (8) 2,506 Financial liabilities total 6,261,376 3,658,771 54,025,587 (56,591,072) - 4,628 - - (219,141) 7,140,149
OTP Bank Plc Consolidated Financial Statements 2023 122 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.3. Movement table of gross values on financial instruments [continued] Movement of gross values of 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 2022: 31/12/2022 Opening balance Increases due to origination and acquisition Increase on opening balance Decreases due to payments and derecognition Transfers between stages (net) Changes due to modifications without derecognition (net) Decrease due to write-offs Foreign exchange and other adjustment Closing balance Stage 1 20,342,780 14,852,553 2,438,184 (14,606,560) (459,086) (316,164) (1,565) 877,838 23,127,980 Placements with other banks 1,587,827 5,090,200 77,646 (5,427,424) (56) - - 26,639 1,354,832 Repo receivables 61,342 739,740 10,235 (772,484) - - - 2,417 41,250 Loans at amortized cost 11,666,666 6,965,634 1,639,278 (6,165,767) (315,064) (316,164) (1,565) 703,650 14,176,668 Finance lease receivables 959,361 647,071 279,937 (821,075) (40,685) - - 21,079 1,045,688 Interest-bearing securities at fair value through other comprehensive income 2,187,835 330,078 (108,639) (795,353) (54,819) - - 83,379 1,642,481 Securities at amortized cost 3,879,749 1,079,830 539,727 (624,457) (48,462) - - 40,674 4,867,061 Stage 2 2,053,839 839,840 220,448 (1,133,030) 191,126 (31,007) (2,921) 90,331 2,228,626 Placements with other banks - - - - 63 - - - 63 Repo receivables - - - - - - - - - Loans at amortized cost 1,820,486 706,756 135,633 (895,423) 133,003 (31,007) (2,921) 82,793 1,949,320 Finance lease receivables 210,955 130,936 84,815 (229,505) 31,836 - - 6,780 235,817 Interest-bearing securities at fair value through other comprehensive income 1,699 557 - (1) 25,896 - - 134 28,285 Securities at amortized cost 20,699 1,591 - (8,101) 328 - - 624 15,141 Stage 3 800,245 99,966 104,996 (195,411) 267,514 11,053 (126,429) 27,569 989,503 Placements with other banks 28 11 - (14) (7) - (4) 10 24 Repo receivables - - - - - - - - - Loans at amortized cost 758,273 86,193 73,473 (173,540) 181,635 11,053 (125,059) 25,936 837,964 Finance lease receivables 41,944 9,549 31,085 (21,614) 8,829 - (1,366) 1,623 70,050 Interest-bearing securities at fair value through other comprehensive income - - - (243) 28,923 - - - 28,680 Securities at amortized cost - 4,213 438 - 48,134 - - - 52,785 Financial assets subtotal 23,196,864 15,792,359 2,763,628 (15,935,001) (446) (336,118) (130,915) 995,738 26,346,109
OTP Bank Plc Consolidated Financial Statements 2023 123 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.3. Movement table of gross values on financial instruments [continued] Movement of gross values of 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 2022 [continued]: 31/12/2022 Opening balance Increases due to origination and acquisition Increase on opening balance Decreases due to payments and derecognition Transfers between stages (net) Changes due to modifications without derecognition (net) Decrease due to write-offs Foreign exchange and other adjustment Closing balance POCI 100,123 5,230 2,697 (7,353) 446 22 (6,646) 2,675 97,194 Placements with other banks - - - - - - - - - Repo receivables - - - - - - - - - Loans at amortized cost 99,752 5,184 2,325 (6,865) 426 22 (6,608) 2,630 96,866 Finance lease receivables 371 46 372 (488) 20 - (38) 45 328 Interest-bearing securities at fair value through other comprehensive income - - - - - - - - - Securities at amortized cost - - - - - - - - - Financial assets total 23,296,987 15,797,589 2,766,325 (15,942,354) - (336,096) (137,561) 998,413 26,443,303 Loan commitments and financial guarantees given - stage 1 5,680,638 2,790,609 14,020,246 (16,759,280) (164,405) 49,279 - 225,871 5,842,958 Loan commitments and financial guarantees given - stage 2 207,874 178,600 106,136 (288,999) 138,354 5,335 (11) 11,947 359,236 Loan commitments and financial guarantees given - stage 3 27,528 20,161 7,797 (23,934) 26,044 (178) (1) 1,563 58,980 Loan commitments and financial guarantees given - poci 218 3 9 (67) 7 - - 32 202 Financial liabilities total 5,916,258 2,989,373 14,134,188 (17,072,280) - 54,436 (12) 239,413 6,261,376
OTP Bank Plc Consolidated Financial Statements 2023 124 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.4. 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 2023: 31/12/2023 Opening balance Increases due to origination and acquisition Decreases due to derecognition 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 Assets held for sale Foreign exchange and other adjustment Closing balance Stage 1 198,457 182,142 (50,688) (120,176) (7,185) (3,832) (137) (11,421) (12,726) 174,434 Placements with other banks 3,801 21,893 (10,716) - (13,863) - - (12) 1,079 2,182 Repo receivables 241 28,013 (12,536) - (15,120) - - - (5) 593 Loans at amortized cost 152,189 120,934 (24,021) (118,838) 34,649 (3,832) (137) (10,089) (13,063) 137,792 Finance lease receivables 4,797 2,665 (760) (1,255) 838 - - (683) (271) 5,331 Interest-bearing securities at fair value through other comprehensive income 13,754 5,346 (2,384) - (5,302) - - - (19) 11,395 Securities at amortized cost 23,675 3,291 (271) (83) (8,387) - - (637) (447) 17,141 Stage 2 240,869 63,850 (26,201) 59,380 (65,542) 6,335 (1,131) (16,538) (13,468) 247,554 Placements with other banks 12 - - - 147 - - - (104) 55 Repo receivables - - - - - - - - - - Loans at amortized cost 223,965 56,062 (20,246) 59,297 (57,563) 6,335 (1,131) (15,806) (12,769) 238,144 Finance lease receivables 15,241 2,774 (404) - (8,052) - - (732) (485) 8,342 Interest-bearing securities at fair value through other comprehensive income 1,040 4,603 (5,266) - (19) - - - (100) 258 Securities at amortized cost 611 411 (285) 83 (55) - - - (10) 755 Stage 3 632,966 62,579 (65,642) 60,796 5,297 2,207 (67,994) (35,475) (59,675) 535,059 Placements with other banks 24 1 - - 50 - - - (65) 10 Repo receivables - - - - - - - - - - Loans at amortized cost 556,473 52,104 (61,111) 59,541 13,856 2,207 (67,862) (33,984) (55,156) 466,068 Finance lease receivables 32,875 10,474 (1,507) 1,255 (8,268) - (132) (1,491) (1,897) 31,309 Interest-bearing securities at fair value through other comprehensive income 24,831 - (413) - (1) - - - (1,497) 22,920 Securities at amortized cost 18,763 - (2,611) - (340) - - - (1,060) 14,752 Loss allowance on financial assets subtotal 1,072,292 308,571 (142,531) - (67,430) 4,710 (69,262) (63,434) (85,869) 957,047
OTP Bank Plc Consolidated Financial Statements 2023 125 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.4. Movement table of loss allowance / provision on financial instruments [continued] 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 2023 [continued]: 31/12/2023 Opening balance Increases due to origination and acquisition Decreases due to derecognition 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 Assets held for sale Foreign exchange and other adjustment Closing balance POCI 33,951 - (2,603) - 17,029 - (3,702) (1,476) 8,866 52,065 Placements with other banks - - - - - - - - - - Repo receivables - - - - - - - - - - Loans at amortized cost 33,733 - (2,302) - 16,825 - (3,639) (1,476) 8,886 52,027 Finance lease receivables 218 - (301) - 204 - (63) - (20) 38 Interest-bearing securities at fair value through other comprehensive income - - - - - - - - - - Securities at amortized cost - - - - - - - - - - Loss allowance on financial assets total 1,106,243 308,571 (145,134) - (50,401) 4,710 (72,964) (64,910) (77,003) 1,009,112 Loan commitments and financial guarantees given - stage 1 41,557 16,878 (8,107) (12,482) (4,418) 4 - - (5,290) 28,142 Loan commitments and financial guarantees given - stage 2 15,121 2,686 (4,336) 9,186 (11,278) 307 - - (514) 11,172 Loan commitments and financial guarantees given - stage 3 6,665 852 (1,499) 3,296 (3,388) 9 - - (368) 5,567 Loan commitments and financial guarantees given - poci 29 832 (34) - 430 - - - (1) 1,256 Provision on financial liabilities total 63,372 21,248 (13,976) - (18,654) 320 - - (6,173) 46,137
OTP Bank Plc Consolidated Financial Statements 2023 126 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.4. Movement table of loss allowance / provision on financial instruments [continued] 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 2022: 31/12/2022 Opening balance Increases due to origination and acquisition Decreases due to derecognition 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 Foreign exchange and other adjustment Closing balance Stage 1 142,432 138,017 (43,066) (120,475) 71,441 (4,547) (88) 14,743 198,457 Placements with other banks 2,966 34,558 (11,574) (1,345) (20,902) - - 98 3,801 Repo receivables 290 4,457 (389) - (1,044) - - (3,073) 241 Loans at amortized cost 120,389 93,238 (28,281) (101,521) 56,228 (4,576) (88) 16,800 152,189 Finance lease receivables 4,432 2,647 (1,105) 1,668 (3,384) 29 - 510 4,797 Interest-bearing securities at fair value through other comprehensive income and securities at amortized cost 14,355 3,117 (1,717) (19,277) 40,543 - 408 37,429 Stage 2 208,240 52,749 (24,038) 9,927 (26,352) 6,158 (959) 15,144 240,869 Placements with other banks - - - 1,345 (1,518) - - 185 12 Repo receivables - - - - - - - - - Loans at amortized cost 195,632 42,790 (22,408) 12,796 (23,558) 6,174 (959) 13,498 223,965 Finance lease receivables 11,140 6,646 (1,630) (4,296) 2,102 (16) - 1,295 15,241 Interest-bearing securities at fair value through other comprehensive income and securities at amortized cost 1,468 3,313 - 82 (3,378) - - 166 1,651 Stage 3 506,842 72,119 (52,134) 110,548 69,855 743 (124,057) 49,050 632,966 Placements with other banks 28 11 (14) - (121) - (4) 124 24 Repo receivables - - - - - - - - - Loans at amortized cost 492,571 34,977 (49,466) 88,725 67,932 743 (122,687) 43,678 556,473 Finance lease receivables 14,243 12,732 (2,654) 2,628 3,374 - (1,366) 3,918 32,875 Interest-bearing securities at fair value through other comprehensive income and securities at amortized cost - 24,399 - 19,195 (1,330) - - 1,330 43,594 Loss allowance on financial assets subtotal 857,514 262,885 (119,238) - 114,944 2,354 (125,104) 78,937 1,072,292
OTP Bank Plc Consolidated Financial Statements 2023 127 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.4. Movement table of loss allowance / provision on financial instruments [continued] 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 2022 [continued]: 31/12/2022 Opening balance Increases due to origination and acquisition Decreases due to derecognition 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 Foreign exchange and other adjustment Closing balance POCI 43,590 - (3,534) - 6,116 (138) (6,610) (5,473) 33,951 Placements with other banks - - - - - - - - - Repo receivables - - - - - - - - - Loans at amortized cost 43,402 (3,434) - 6,098 (138) (6,572) (5,623) 33,733 Finance lease receivables 188 - (100) - 18 - (38) 150 218 Interest-bearing securities at fair value through other comprehensive income and securities at amortized cost - - - - - - - - - Loss allowance on financial assets total 901,104 262,885 (122,772) - 121,060 2,216 (131,714) 73,464 1,106,243 Loan commitments and financial guarantees given - stage 1 35,523 22,118 (6,033) (10,309) 708 (1,368) - 918 41,557 Loan commitments and financial guarantees given - stage 2 10,030 4,024 (2,236) 6,939 (6,070) 302 (11) 2,143 15,121 Loan commitments and financial guarantees given - stage 3 6,409 1,975 (619) 3,370 (4,728) (156) (1) 415 6,665 Loan commitments and financial guarantees given - poci 28 5 (9) - 5 - - - 29 Provision on financial liabilities total 51,990 28,122 (8,897) - (10,085) (1,222) (12) 3,476 63,372
OTP Bank Plc Consolidated Financial Statements 2023 128 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.5. Loan portfolio by internal ratings 31/12/2023 Gross carrying amount Internal rating grade Stage 1 Stage 2 Stage 3 POCI Total Low risk grade (1-4) 10,537,131 886,493 - 4,209 11,427,833 Medium risk grade (5-7) 5,633,057 1,283,637 - 53,680 6,970,374 High risk grade (8-9) 172,435 466,658 - 5,247 644,340 Non-performing - - 805,560 57,189 862,749 Total loans at amortized cost and finance lease receivable 16,342,623 2,636,788 805,560 120,325 19,905,296 31/12/2023 Accumulated loss allowance Internal rating grade Stage 1 Stage 2 Stage 3 POCI Total Low risk grade (1-4) 57,516 67,598 - 257 125,371 Medium risk grade (5-7) 58,691 128,311 - 9,585 196,587 High risk grade (8-9) 7,074 54,521 - 396 61,991 Non-performing - - 516,126 38,976 555,102 Total loans at amortized cost and finance lease receivable 123,281 250,430 516,126 49,214 939,051 31/12/2022 Gross carrying amount Internal rating grade Stage 1 Stage 2 Stage 3 POCI Total Low risk grade (1-4) 9,947,741 569,504 - 3,703 10,520,948 Medium risk grade (5-7) 5,073,919 1,033,413 - 36,259 6,143,591 High risk grade (8-9) 200,696 582,220 - 2,913 785,829 Non-performing - - 908,014 54,319 962,333 Total loans at amortized cost and finance lease receivable 15,222,356 2,185,137 908,014 97,194 18,412,701 31/12/2022 Accumulated loss allowance Internal rating grade Stage 1 Stage 2 Stage 3 POCI Total Low risk grade (1-4) 66,621 51,998 - 172 118,791 Medium risk grade (5-7) 82,554 121,985 - 6,235 210,774 High risk grade (8-9) 7,811 65,223 - 250 73,284 Non-performing - - 589,348 27,294 616,642 Total loans at amortized cost and finance lease receivable 156,986 239,206 589,348 33,951 1,019,491
OTP Bank Plc Consolidated Financial Statements 2023 129 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.6. Geographical analysis of the loan portfolio The geographical analysis of the non-qualified and qualified gross loan portfolio at amortized cost, finance lease receivables, placements with other banks and repo receivables and their loss allowances is as follows: 31/12/2023 31/12/2022 Country Gross amount of exposure Loss allowance Gross amount of exposure Loss allowance Hungary 5,626,438 242,888 5,955,212 235,946 Bulgaria 3,816,273 121,488 3,537,330 159,412 Croatia 2,345,342 97,746 2,279,085 102,039 Serbia 2,324,130 70,973 2,127,646 70,779 Slovenia 2,774,813 30,370 1,200,735 14,627 Russia 1,435,654 137,714 1,053,208 187,610 Ukraine 408,142 85,631 543,159 124,859 Montenegro 446,091 17,541 454,567 22,421 Uzbekistan 995,010 97,557 - - Albania 392,333 18,059 390,856 16,660 Moldova 153,566 7,171 171,616 11,181 Romania 65,234 1,168 1,326,510 65,646 France 167,441 543 272,848 1,171 Germany 128,158 2,849 39,631 525 Belgium 64,906 240 38,855 134 Austria 34,095 104 3,182 31 Slovakia 40,899 930 121,591 545 The Netherlands 153,202 2,787 101,078 1,864 Gibraltar 9,384 57 - - Switzerland 5,668 76 63,843 3,138 United Kingdom 29,879 1,794 13,833 1,336 United States of America 146,703 485 45,232 205 Luxembourg 33,109 1,210 3,477 1,085 Poland 27,022 857 34,012 987 Italy 32,403 587 9,330 235 Ireland 4,155 30 5,966 116 Cyprus 36 15 5,311 217 Denmark 127 2 46 7 Subtotal 21,660,213 940,872 19,798,159 1,022,776
OTP Bank Plc Consolidated Financial Statements 2023 130 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.6. Geographical analysis of the loan portfolio [continued] 31/12/2023 31/12/2022 Country Gross amount of exposure Loss allowance Gross amount of exposure Loss allowance Czech Republic 1,153 14 739 10 Canada 164 3 74 4 Australia 76 - 58 13 Greece 1,440 123 999 122 Turkey 1,953 51 1,418 63 Spain 20,137 338 1,164 35 Israel 1,080 13 937 13 Bosnia and Herzegovina 1,401 155 673 97 Sweden 374 25 542 30 Norway 4,808 54 107 9 Saudi Arabia - - 87 70 United Arab Emirates 28 12 36 26 Egypt 693 11 726 14 Kazakhstan 218 8 224 9 Latvia 44 33 50 30 Other 1 5,236 179 2,877 248 Subtotal 38,805 1,019 10,711 793 Total 21,699,018 941,891 19,808,870 1,023,569 1 Other category as at 31 December 2023 mainly includes e.g.: Japan, North-Macedonia, Portugal, China, Brazil, Lithuania, Republic of South-Africa, Armenia, South Korea, India, Iran, Finland, Syria, Kosovo and other countries. The geographical analysis of the non-qualified and qualified loan portfolio mandatorily at fair value through profit or loss is as follows: Country 31/12/2023 31/12/2022 Hungary 1,399,463 1,247,401 United Kingdom 998 - Slovakia 11 - Romania 2 - Others 11 13 Total loans at fair value 1,400,485 1,247,414
OTP Bank Plc Consolidated Financial Statements 2023 131 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.7. Loan portfolio classification by economic activities Gross loan at amortized cost and finance lease 31/12/2023 31/12/2022 receivable portfolio by economic activities Retail 7,735,508 8,575,020 Agriculture, forestry and fishing 796,687 752,497 Manufacturing, mining and quarrying and other industry 2,963,753 2,338,129 Construction 882,237 734,908 Wholesale and retail trade, transportation and storage accommodation and food service activities 3,641,475 2,948,392 Information and communication 276,945 241,809 Financial and insurance activities 825,663 354,235 Real estate activities 1,006,429 841,069 Professional, scientific, technical, administration and support service activities 810,498 657,055 Public administration, defence, education, human health and social work activities 550,186 494,955 Other services 415,915 474,632 Total gross loans and finance lease receivable 19,905,296 18,412,701 Loss allowance on loans at amortized cost and 31/12/2023 31/12/2022 finance lease receivable by economic activities Retail 427,342 633,253 Agriculture, forestry and fishing 41,221 39,200 Manufacturing, mining and quarrying and other industry 110,915 94,324 Construction 42,661 26,040 Wholesale and retail trade, transportation and storage accommodation and food service activities 217,283 141,799 Information and communication 8,628 6,293 Financial and insurance activities 10,523 12,373 Real estate activities 36,600 29,500 Professional, scientific, technical, administration and support service activities 26,433 18,079 Public administration, defence, education, human health and social work activities 8,810 7,783 Other services 8,635 10,847 Total loss allowance on loans and finance lease receivable 939,051 1,019,491
OTP Bank Plc Consolidated Financial Statements 2023 132 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.8. Collateral The values of collateral received and held by the Group by types are as follows (total value of the collaterals). The collateral covers loans as well as off-balance sheet exposures. Held collaterals on book value by type of collateral 31/12/2023 31/12/2022 Mortgages 21,549,776 16,332,892 Guarantees and warranties 1,436,170 1,630,318 Guarantees of state or organizations owned by state 1,786,112 1,635,382 Assignments (revenue or other receivables) 263,292 423,098 Securities 235,213 168,941 Cash deposits 285,722 208,487 Other 2,973,138 1,758,802 Total 28,529,423 22,157,920 Held collaterals on fair value by type of collateral 31/12/2023 31/12/2022 Mortgages 25,222,164 19,714,476 Guarantees and warranties 1,411,444 1,624,748 Guarantees of state or organizations owned by state 1,659,146 1,373,763 Assignments (revenue or other receivables) 410,643 574,044 Securities 394,575 373,777 Cash deposits 359,261 287,558 Other 3,471,916 2,201,530 Total 32,929,149 26,149,896 The values of collateral received and held by the Group by types are as follows (to the extent of the exposures). The collaterals cover loans as well as off-balance sheet exposures. Held collaterals on book value by type of collateral 31/12/2023 31/12/2022 Mortgages 9,155,801 8,044,836 Guarantees of state or organizations owned by state 1,466,444 1,241,702 Guarantees and warranties 996,758 1,016,672 Assignments (revenue or other receivables) 148,043 220,062 Securities 79,742 99,345 Cash deposits 103,650 80,313 Other 1,286,908 752,241 Total 13,237,346 11,455,171 The coverage level of the loan portfolio to the total collateral increased from 97.59% to 115.14% and the coverage level to the extent of the exposures increased from 50.45% to 53.42% as at 31 December 2023 comparing with the previous period.
OTP Bank Plc Consolidated Financial Statements 2023 133 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.8. Collateral [continued] The values of collateral received and held by the Group by the positions of the related exposures are as follows: 31/12/2023 Maximum exposure to credit risk, book value Fair value of collaterals Surplus collateral Net exposure Associated expected credit loss On balance items Cash, due from banks and balances with the National Banks 7,321,496 1,528 - 7,319,968 (514) Placements with other banks 1,576,344 10,801 (1,090) 1,566,633 (2,257) Cash collateral on securities borrowed and reversed repurchase agreements 224,418 17,711 - 206,707 (593) Financial assets at fair value through profit or loss 1,500,875 918,520 (44,555) 626,910 - Financial assets at fair value through other comprehensive income 1,416,133 13,646 (597) 1,403,084 - Securities at amortized cost 5,705,754 45,954 (844) 5,660,644 (36,549) Loans and undrawn line of credit 24,730,993 30,948,896 (9,314,169) 3,096,266 (902,092) Derivative financial instruments 195,312 - - 195,312 - Total on balance sheet items 42,671,325 31,957,056 (9,361,255) 20,075,524 (942,005) Off-balance items Financial guarantees 1,421,958 809,462 (253,697) 866,193 (7,923) Letter of credit 61,997 1,078 (421) 61,340 (335) Other off-balance sheet commitments 532,165 161,553 (80,478) 451,090 (1,781) Total off-balance sheet items 2,016,120 972,093 (334,596) 1,378,623 (10,039) 31/12/2022 Maximum exposure to credit risk, book value Fair value of collaterals Surplus collateral Net exposure Associated expected credit loss On balance items Cash, due from banks and balances with the National Banks 4,222,158 - - 4,222,158 (1,701) Placements with other banks 1,354,390 3,384 1,343 1,349,663 (3,837) Cash collateral on securities borrowed and reversed repurchase agreements 41,250 43,632 (22,355) 19,973 (241) Financial assets at fair value through profit or loss 1,374,287 814,544 (80,161) 639,904 - Financial assets at fair value through other comprehensive income 1,509,880 - - 1,509,880 - Securities at amortized cost 5,161,194 - - 5,161,194 (49,903) Loans and undrawn line of credit 21,490,677 24,412,642 (7,189,841) 4,267,876 (887,603) Derivative financial instruments 323,211 90,551 - 232,660 - Total on balance sheet items 35,477,047 25,364,753 (7,291,014) 17,403,308 (943,285) Off-balance items Financial guarantees 1,413,014 598,724 (228,574) 1,042,864 (267) Letter of credit 53,557 1,178 (716) 53,095 (144) Other off-balance sheet commitments 119,890 185,241 (90,773) 25,422 (1,558) Total off-balance sheet items 1,586,461 785,143 (320,063) 1,121,381 (1,969)
OTP Bank Plc Consolidated Financial Statements 2023 134 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.8. Collateral [continued] Returns from realization of collaterals taken into possession by types of collateral Types of collateral 31/12/2023 31/12/2022 Real estate 13,944 19,414 from this: real estate taken into possession by OTP group member 2,597 2,025 Guarantee 28,062 32,481 Bail 407 201 Movable property 3,576 3,411 Other 1,138 1,323 Proceeds from enforcement of collaterals 47,127 56,830
37.1.9. Restructured loans 31/12/2023 31/12/2022 Gross portfolio Loss allowance Gross portfolio Loss allowance Retail mortgage loans 31,828 (2,570) 89,167 (5,803) Loans to medium and large corporations 212,158 (24,634) 403,643 (59,453) Retail consumer loans 45,587 (17,525) 64,268 (21,346) Loans to micro and small enterprises 33,102 (2,991) 59,096 (4,750) Municipal 1,134 (52) - - Other loans 1,752 (791) 3,417 (1,361) Total 325,561 (48,563) 619,591 (92,713) The forborne definition used by the Group is based on EU 2015/227 regulation. Restructuring (forbearance) is a modification of the contract – initiated by either the client or the bank – that provides a concession or allowance towards the client in respect to the client’s current or future financial difficulties. The table of restructured loans contains exposures classified as performing forborne. An exposure is considered performing forborne if the conditions of the non-performing status are not met at the time of the restructuring, or the exposure fulfilled the requirements of the minimum one-year cure period as non-performing forborne. The sharp decrease of performing forborne exposures can be explained by two main factors. In Hungary the volume of retail and corporate exposures classified as performing forborne exclusively due to moratoria participation decreased significantly due to the expiration of the probation period. A smaller part of the decrease was the result of exposures exiting performing forborne status (mostly in the medium and large corporate segment) in Ukraine.
OTP Bank Plc Consolidated Financial Statements 2023 135 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.10. Financial instruments by Moody’s rating categories Trading securities as at fair value through profit or loss 31/12/2023 Aaa Aa2 Aa3 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 Not rated Total Government bonds 2,122 14,925 - 532 - 9,531 28,869 910 - 718 - 625 - 58,232 Equity instruments and fund units - 23 52 56 33 17 20 2 39 - 4 - 267 513 Corporate bonds - - - - - - - 40 - - - - 544 584 Discounted Treasury bills - - - - 8 - 3,918 - - - - - 33 3,959 Mortgage bonds - - - - - - - - - - - - 97 97 Other interest bearing securities - - - - - - 2,211 - - - - - 1,641 3,852 Other non-interest bearing securities - - - - - - - - - - - - 331 331 Total 2,122 14,948 52 588 41 9,548 35,018 952 39 718 4 625 2,913 67,568 31/12/2022 Aaa Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 Not rated Total Government bonds 346 - - - 197 - 9,850 63,992 843 - 3,669 - - 78,897 Equity instruments and fund units - - 20 42 47 29 15 24 - 39 2 4 163 385 Corporate bonds - - - - - - - - 116 - - - 3 119 Discounted Treasury bills - - - - - - - 22,865 - - - - 31 22,896 Mortgage bonds - - - - - - - - - - - - 72 72 Other interest bearing securities - 1 - - - - - 1,627 - - - - - 1,628 Other non-interest bearing securities 479 - - - - - - - - - - - 274 753 Total 825 1 20 42 244 29 9,865 88,508 959 39 3,671 4 543 104,750
OTP Bank Plc Consolidated Financial Statements 2023 136 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.10. Financial instruments by Moody’s rating categories [continued] Non-trading instruments mandatorily at fair value through profit or loss 31/12/2023 Aaa Aa2 Aa3 A3 Baa2 Not rated Total Non-trading equity instruments mandatorily at fair value through profit or loss 11,196 - - 471 - 52,335 64,002 Non-trading debt instruments mandatorily at fair value through profit or loss 1,166 655 6 - 45 1,814 3,686 Total 12,362 655 6 471 45 54,149 67,688 31/12/2022 Aaa Aa3 A3 Baa2 Baa3 Not rated Total Non-trading equity instruments mandatorily at fair value through profit or loss - - - 8,152 - 41,594 49,746 Non-trading debt instruments mandatorily at fair value through profit or loss 949 797 6 1,182 1,006 1,469 5,409 Total 949 797 6 9,334 1,006 43,063 55,155
OTP Bank Plc Consolidated Financial Statements 2023 137 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.10. Financial instruments by Moody’s rating categories [continued] Securities at fair value through other comprehensive income 31/12/2023 Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 B2 Ca Not rated N/A Total Government bonds 17,862 2,480 9,863 1,852 15,740 18,033 96,741 107,428 572,598 72,542 - 135,873 95,481 85,428 25,436 30,873 1,288,230 Corporate bonds - 1,526 751 - - - 4,336 - - - 3,840 5,504 6,924 - 12,115 - 34,996 Mortgage bonds - - - - 21,463 - - - - - - - - - 8,881 - 30,344 National Bank of Hungary bonds - - - - - - - - 114,746 - - - - - - - 114,746 Interest bearing treasury bills - - - - - - - - 235 - - - - - - - 235 Other securities 28,404 - 1,541 734 553 2,632 9,171 - - - - 24,424 - - 4,970 - 72,429 Non-trading equity instruments 8,984 - - 160 - - 19,056 3,219 278 - - - - - 28,784 - 60,481 Total 55,250 4,006 12,155 2,746 37,756 20,665 129,304 110,647 687,857 72,542 3,840 165,801 102,405 85,428 80,186 30,873 1,601,461 31/12/2022 Aaa Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 B1 Caa1 Caa3 Not rated N/A Total Government bonds 19,775 6,773 - 17,544 24,234 80,968 138,811 534,476 120,053 10,198 157,469 105,049 145 26,597 31,672 27,415 1,301,179 Corporate bonds - - - - - 1,691 - - 39,309 3,820 13,721 9,262 - - 14,848 - 82,651 Mortgage bonds - - - 42,407 - - - - - - - - - - 12,146 - 54,553 National Bank of Hungary bonds - - - - - - - 74,867 - - - - - - - - 74,867 Interest bearing treasury bills - - - - - - - 182,726 - - - - - - - - 182,726 Other securities - - - - - - - - - - - - - - 3,470 - 3,470 Non-trading equity instruments 5,767 - 3,036 388 - - - 323 30 - - - - - 30,613 - 40,157 Total 25,542 6,773 3,036 60,339 24,234 82,659 138,811 792,392 159,392 14,018 171,190 114,311 145 26,597 92,749 27,415 1,739,603
OTP Bank Plc Consolidated Financial Statements 2023 138 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued]
37.1.10. Financial instruments by Moody’s rating categories [continued] Securities at amortized cost 31/12/2023 Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Ca Not rated N/A Total Government bonds 464,270 75,313 54,311 38,405 11,767 149,424 219,773 295,442 2,558,935 72,024 - 19,625 68,071 35,377 29,321 57,801 - 268,207 - 22,174 4,440,240 Corporate bonds 1,802 1,414 13,396 4,471 2,991 5,182 16,084 14,592 17,371 16,064 - - - - 6,427 - - - 207,836 - 307,630 Bonds of Hungarian National Bank - Discounted Treasury bills 6,454 7,234 12,497 10,245 - - 1,120 - - - - - - - - 29,407 - - 54 - 67,011 Mortgage bonds 13,019 11,689 24,708 Interest bearing Treasury bills - - - - - - - - - - - - - - 6,462 - - - - - 6,462 Other securities 26,494 - 14,868 61,393 66,831 35,813 50,775 50,481 24,007 17,747 4,244 - - - - - 1,491 - 49,077 - 403,221 Total 499,020 83,961 95,072 114,514 94,608 190,419 287,752 360,515 2,600,313 105,835 4,244 19,625 68,071 35,377 42,210 87,208 1,491 268,207 268,656 22,174 5,249,272 31/12/2022 Aaa Aa2 A1 A2 A3 Baa1 Baa2 Baa3 Ba2 B1 B3 Caa3 Not rated N/A Total Government bonds 285,285 27,551 12,382 26,341 33,154 218,408 3,019,422 154,043 163,104 39,470 23,623 308,798 - 24,427 4,336,008 Corporate bonds - - - - - - - 15,800 - 2,839 - - 229,322 - 247,961 Bonds of Hungarian National Bank - - - - - - - 177,679 - - - - - - 177,679 Discounted Treasury bills - - - - - - - - - - 18,871 - - - 18,871 Mortgage bonds - - 12,966 - - - - - - - - - 11,518 - 24,484 Interest bearing Treasury bills - - - - - - - - - 4,954 - - - - 4,954 Other securities - - 1,911 9,357 403 11,874 3,971 13,223 1,968 - - - 39,274 - 81,981 Total 285,285 27,551 27,259 35,698 33,557 230,282 3,023,393 360,745 165,072 47,263 42,494 308,798 280,114 24,427 4,891,938
OTP Bank Plc Consolidated Financial Statements 2023 139 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.2. Maturity analysis of financial assets and liabilities Liquidity risk is a measure of the extent to which the Group may be required to raise funds to meet its commitments associated with financial instruments. The Group maintains its liquidity position in accordance with regulations prescribed by the NBH. The essential aspect of the liquidity risk management strategy is to identify all relevant systemic and idiosyncratic sources of liquidity risk and to measure the probability and severity of such events. During liquidity risk management the Group considers the effect of liquidity risk events caused by reasons arising in the bank business line (deposit withdrawal), the national economy (exchange rate shock yield curve shock) and the global financial system (capital market shock). In line with the Group’s risk management policy liquidity risks are measured and managed on m ultiply hierarchy levels and applying integrated unified VaR based methodology. The basic requirement is that the Group must keep high quality liquidity reserves which means it can fulfill all liabilities when they fall due without material additional costs. The liquidity reserves can be divided in two parts. There are separate decentralized liquid asset portfolios at subsidiary level and a centralized flexible liquidity pool at a Group level. The reserves at subsidiary levels are held to cover the relevant shocks of the subsidiaries which may arise in local currencies (deposit withdrawal, local capital market shock, unexpected business expansion), while the centralized liquidity pool is held to cover the Bank’s separate shocks (deposit-, yield curve- an d exchange rate shocks) and all group member’s potential shocks that may arise in foreign currencies (deposit withdrawal, capital market shock). The recalculation of shocks is made at least quarterly while the recalibration of shock measurement models and review of the risk management methodology is an annual process. The monitoring of liquidity reserves for both centralized and decentralized liquid asset portfolio has been built into the daily reporting process. Due to the balance sheet adjustment process (deleveraging) experienced in the last few years, the liquidity reserves of the Group increased significantly while the liquidity risk exposure has decreased considerably. Currently the (over)coverage of potential liquidity risk exposure by high quality liquid assets is high. There were no material changes in the liquidity risk management process for the year ended 31 December 2023. The contractual amounts disclosed in the maturity analyses are the contractual undiscounted cash-flows like gross finance lease obligations (before deducting finance charges); prices specified in forward agreements to purchase financial assets for cash; net amounts for pay-floating/receive-fixed interest rate swaps for which net cash-flows are exchanged; contractual amounts to be exchanged in a derivative financial instrument for which gross cash- flows are exchanged; gross loan commitments. Such undiscounted cash-flows differ from the amount included in the Consolidated Statement of Financial Position because the amount in that statement is based on discounted cash-flows. When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the end of the reporting period. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the end of the period. The following tables provide an analysis of assets and liabilities about the non-discounted cash-flow into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. It is presented under the most prudent consideration of maturity dates where options or repayment schedules allow for early repayment possibilities.
OTP Bank Plc Consolidated Financial Statements 2023 140 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.2. Maturity analysis of financial assets and liabilities [continued] 31/12/2023 Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total Cash, amounts due from banks and balances with the National Banks 7,125,535 120 - - - 7,125,655 Placements with other banks 1,293,027 14,893 173,595 91,787 1,098 1,574,400 Repo receivables 224,555 - 65 - - 224,620 Trading securities at fair value through profit or loss 39,807 2,531 17,808 6,673 52 66,871 Non-trading instruments mandatorily at fair value through profit or loss 4,752 - 58 21 49,216 54,047 Securities at fair value through other comprehensive income 216,151 163,292 1,030,583 244,023 117,626 1,771,675 Securities at amortized cost 506,405 281,883 3,028,531 1,622,705 - 5,439,524 Loans at amortized cost 2,184,372 3,423,492 7,381,337 7,325,898 40,988 20,356,087 Finance lease receivable 138,144 326,395 878,914 112,276 - 1,455,729 Loans mandatorily at fair value through profit or loss 38,389 40,227 238,792 1,026,918 - 1,344,326 Associates and other investments - - - - 105,824 105,824 Other financial assets 1 273,035 25,755 3,513 10,521 4,179 317,003 TOTAL ASSETS 12,044,172 4,278,588 12,753,196 10,440,822 318,983 39,835,761 Amounts due to banks, the National Governments, deposits from the National Banks and other banks 276,875 164,640 1,133,668 518,712 - 2,093,895 Repo liabilities 126,237 - - - - 126,237 Financial liabilities designated at fair value through profit or loss 739 1,077 5,387 62,240 - 69,443 Deposits from customers 26,566,638 1,362,729 391,470 26,550 - 28,347,387 Liabilities from issued securities 143,613 424,469 1,253,504 330,306 - 2,151,892 Leasing liabilities 3,100 10,046 50,179 18,270 - 81,595 Other financial liabilities 1 562,576 34,753 28,200 2 5,555 631,086 Subordinated bonds and loans 7,273 1,844 14,234 546,893 - 570,244 TOTAL LIABILITIES 27,687,051 1,999,558 2,876,642 1,502,973 5,555 34,071,779 NET POSITION 2 (15,642,879) 2,279,030 9,876,554 8,937,849 313,428 5,763,982 1 Without derivative financial instruments. 2 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 r eserves as maintenance and management of liquidity risk.
OTP Bank Plc Consolidated Financial Statements 2023 141 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.2. Maturity analysis of financial assets and liabilities [continued] 31/12/2023 Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total Receivables from derivative financial instruments held for trading 7,408,699 1,198,261 827,516 21,685 - 9,456,161 Liabilities from derivative financial instruments held for trading (7,308,301) (1,210,824) (886,862) (24,149) - (9,430,136) Net position of financial instruments held for trading 100,398 (12,563) (59,346) (2,464) - 26,025 Receivables from derivative financial instruments designated as hedge accounting 86,989 283,147 765,793 211,390 - 1,347,319 Liabilities from derivative financial instruments designated as hedge accounting (84,445) (296,781) (1,810,723) (204,952) - (2,396,901) Net position of financial instruments designated as hedge accounting 2,544 (13,634) (1,044,930) 6,438 - (1,049,582) Net position of derivative financial instruments total 102,942 (26,197) (1,104,276) 3,974 - (1,023,557) Commitments to extend credit 4,148,938 461,161 156,921 39,707 - 4,806,727 Bank guarantees 644,440 313,978 305,642 157,898 - 1,421,958 Confirmed letters of credit 42,990 11,403 7,604 - - 61,997 Factoring loan commitment 456,411 4,044 - - - 460,455 Other commitments 89,821 152,175 128,559 40,241 - 410,796 Off-balance sheet commitments 5,382,600 942,761 598,726 237,846 - 7,161,933
OTP Bank Plc Consolidated Financial Statements 2023 142 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.2. Maturity analysis of financial assets and liabilities [continued] 31/12/2022 Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total Cash, amounts due from banks and balances with the National Banks 4,223,091 4 - - - 4,223,095 Placements with other banks 1,062,238 67,317 221,803 2,969 806 1,355,133 Repo receivables 41,250 - - - - 41,250 Trading securities at fair value through profit or loss 5,350 29,118 67,117 11,794 50 113,429 Non-trading instruments mandatorily at fair value through profit or loss 594 1,127 9,163 20 34,490 45,394 Securities at fair value through other comprehensive income 254,204 301,798 996,103 286,950 131,680 1,970,735 Securities at amortized cost 534,388 439,296 2,423,815 1,585,672 - 4,983,171 Loans at amortized cost 2,013,234 3,287,432 6,141,665 6,441,001 30,584 17,913,916 Finance lease receivable 87,867 215,640 1,007,512 83,753 - 1,394,772 Loans mandatorily at fair value through profit or loss 40,151 38,038 239,627 973,060 - 1,290,876 Associates and other investments - - - - 85,929 85,929 Other financial assets 1 271,648 4,039 3,917 8,485 6,726 294,815 TOTAL ASSETS 8,534,015 4,383,809 11,110,722 9,393,704 290,265 33,712,515 Amounts due to banks, the National Governments, deposits from the National Banks and other banks 387,564 213,599 665,930 296,766 - 1,563,859 Repo liabilities 29,153 191 188,025 - - 217,369 Financial liabilities designated at fair value through profit or loss 583 1,133 5,535 50,218 - 57,469 Deposits from customers 23,399,285 1,275,142 398,900 123,290 - 25,196,617 Liabilities from issued securities 10,644 44,375 730,703 173,510 - 959,232 Leasing liabilities 4,720 9,616 33,534 18,397 72 66,339 Other financial liabilities 1 550,802 34,748 11,065 817 4,231 601,663 Subordinated bonds and loans 3,395 - 8,603 291,801 - 303,799 TOTAL LIABILITIES 24,386,146 1,578,804 2,042,295 954,799 4,303 28,966,347 NET POSITION 2 (15,852,131) 2,805,005 9,068,427 8,438,905 285,962 4,746,168 1 Without derivative financial instruments 2 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 r eserves as maintenance and management of liquidity risk.
OTP Bank Plc Consolidated Financial Statements 2023 143 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.2. Maturity analysis of financial assets and liabilities [continued] 31/12/2022 Within 3 months Within one year and over 3 months Within 5 years and over one year Over 5 years Without maturity Total Receivables from derivative financial instruments held for trading 7,242,836 1,270,841 476,343 186,089 - 9,176,109 Liabilities from derivative financial instruments held for trading (7,885,403) (1,623,033) (499,998) (192,979) - (10,201,413) Net position of financial instruments held for trading (642,567) (352,192) (23,655) (6,890) - (1,025,304) Receivables from derivative financial instruments designated as hedge accounting 316,440 186,839 784,159 15,859 - 1,303,297 Liabilities from derivative financial instruments designated as hedge accounting (297,714) (217,102) (2,031,727) (13,425) - (2,559,968) Net position of financial instruments designated as hedge accounting 18,726 (30,263) (1,247,568) 2,434 - (1,256,671) Net position of derivative financial instruments total (623,841) (382,455) (1,271,223) (4,456) - (2,281,975) Commitments to extend credit 3,937,023 236,103 54,355 2,808 - 4,230,289 Bank guarantees 602,335 308,787 337,105 164,790 - 1,413,017 Confirmed letters of credit 47,631 5,733 193 - - 53,557 Factoring loan commitment 414,585 5,035 - - - 419,620 Other commitments 70,952 48,831 19,596 5,514 - 144,893 Off-balance sheet commitments 5,072,526 604,489 411,249 173,112 - 6,261,376
OTP Bank Plc Consolidated Financial Statements 2023 144 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.3. Net foreign currency position and foreign currency risk 31/12/2023 USD EUR CHF Other Total Assets 1,425,785 15,568,497 67,915 10,112,894 27,175,091 Liabilities (1,958,951) (14,622,216) (170,709) (8,299,337) (25,051,213) Derivative financial instruments 691,178 1,038,718 156,360 5,047 1,891,303 Net position 158,012 1,984,999 53,566 1,818,604 4,015,181 31/12/2022 USD EUR CHF Other Total Assets 1,092,435 9,990,818 50,641 9,646,119 20,780,013 Liabilities (1,523,947) (9,320,156) (148,570) (7,646,515) (18,639,188) Derivative financial instruments 499,444 1,014,423 161,697 (355,391) 1,320,173 Net position 67,932 1,685,085 63,768 1,644,213 3,460,998 The table above provides an analysis of the main foreign currency exposures of the Group that arise in the non- functional currency of the entities constituting the Group. The remaining foreign currencies are shown within ‘Others’. ‘Others’ category contains mainly foreign currencies in RON, RSD, HRK, UAH, RUB, BGN, ALL, MDL and UZS. The Group monitors its foreign exchange position for compliance with the regulatory requirements of the National Banks and its own limit system established in respect of limits on open positions. The measurement of the open foreign currency position of the Group involves monitoring the “VaR” limit on the foreign exchange exposure of the Group. The derivative financial instruments detailed in the table above are presented at fair value.
OTP Bank Plc Consolidated Financial Statements 2023 145 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The length of time for which the rate of interest is fixed on a financial instrument, therefore, indicates to what extent it is exposed to interest rate risk. The majority of the interest-bearing assets and liabilities of the Group are structured to match either short-term assets and short-term liabilities, or long-term assets and liabilities with repricing opportunities within one year, or long-term assets and corresponding liabilities where repricing is performed simultaneously. In addition, the significant spread existing between the different types of interest-bearing assets and liabilities enables the Group to 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 repricing periods of the assets and liabilities. Variable yield assets and liabilities have been reported in accordance with their next repricing date. Fixed income assets and liabilities have been reported in accordance with their maturity.
OTP Bank Plc Consolidated Financial Statements 2023 146 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2023 ASSETS Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest- bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Cash, amounts due from banks and balances with the National Banks 2,183,603 3,080,965 - 19,565 - 20,837 - 8,464 - 13,708 178,600 1,619,307 2,362,203 4,762,846 7,125,049 fixed rate 15,209 2,935,907 - - - 86 - - - 2 - - 15,209 2,935,995 2,951,204 variable rate 2,168,394 145,058 - 19,565 - 20,751 - 8,464 - 13,706 - - 2,168,394 207,544 2,375,938 non-interest-bearing - - - - - - - - - - 178,600 1,619,307 178,600 1,619,307 1,797,907 Placements with other banks 349,710 746,451 94,487 46,167 14,115 31,926 - 26,306 - 77,964 68,900 110,972 527,212 1,039,786 1,566,998 fixed rate 12,841 728,857 34,723 21,302 - 28,799 - 26,306 - 75,866 - - 47,564 881,130 928,694 variable rate 336,869 17,594 59,764 24,865 14,115 3,127 - - - 2,098 - - 410,748 47,684 458,432 non-interest-bearing - - - - - - - - - - 68,900 110,972 68,900 110,972 179,872 Repo receivables 18,263 202,272 - 3,248 - - 37 - - 6 - 58 18,300 205,584 223,884 fixed rate 18,263 202,272 - 3,248 - - 37 - - 6 - - 18,300 205,526 223,826 variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - - 58 - 58 58 Trading instruments at fair value through profit or loss 11,732 5,548 625 10,605 1,240 13,334 2,293 7,454 4,653 9,240 217 627 20,760 46,808 67,568 fixed rate 11,507 5,515 71 10,605 948 13,155 2,287 7,454 4,653 9,240 - - 19,466 45,969 65,435 variable rate 225 33 554 - 292 179 6 - - - - - 1,077 212 1,289 non-interest-bearing - - - - - - - - - - 217 627 217 627 844 Non-trading instruments mandatorily at fair value through profit or loss - - - - - - - - - - 41,130 26,558 41,130 26,558 67,688 fixed rate - - - - - - - - - - 57 - 57 - 57 variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - 41,073 26,558 41,073 26,558 67,631
OTP Bank Plc Consolidated Financial Statements 2023 147 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2023 [continued] ASSETS [continued] Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest- bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Securities at fair value through other comprehensive income 222,862 711 46 50,498 13,145 151,935 96,740 153,331 208,914 642,798 403 60,078 542,110 1,059,351 1,601,461 fixed rate 210,231 709 44 50,498 13,145 151,481 96,740 149,484 208,914 641,142 - - 529,074 993,314 1,522,388 variable rate 12,631 2 2 - - 454 - 3,847 - 1,656 - - 12,633 5,959 18,592 non-interest-bearing - - - - - - - - - - 403 60,078 403 60,078 60,481 Securities at amortized cost 1,268 329,278 - 119,709 129,361 199,108 636,997 326,501 1,689,717 1,817,333 - - 2,457,343 2,791,929 5,249,272 fixed rate 1,268 329,278 - 114,865 129,361 197,947 636,997 326,501 1,689,717 1,817,333 - - 2,457,343 2,785,924 5,243,267 variable rate - - - 4,844 - 1,161 - - - - - - - 6,005 6,005 non-interest-bearing - - - - - - - - - - - - - - - Loans at amortized cost, net of allowance for loan losses 886,690 7,262,799 427,155 1,870,582 127,122 1,776,768 153,043 594,725 1,929,709 2,418,583 116,419 112,938 3,640,138 14,036,395 17,676,533 fixed rate 43,777 1,077,919 16,415 220,298 68,967 732,988 123,176 557,721 1,316,067 2,354,992 - - 1,568,402 4,943,918 6,512,320 variable rate 842,913 6,184,880 410,740 1,650,284 58,155 1,043,780 29,867 37,004 613,642 63,591 - - 1,955,317 8,979,539 10,934,856 non-interest-bearing - - - - - - - - - - 116,419 112,938 116,419 112,938 229,357 Finance lease receivables 41,807 293,789 5,628 136,318 24,443 151,241 43,716 109,584 260,094 218,359 231 4,502 375,919 913,793 1,289,712 fixed rate 6,926 175,117 3,360 7,847 24,172 32,945 43,396 40,115 242,904 97,957 - - 320,758 353,981 674,739 variable rate 34,881 118,672 2,268 128,471 271 118,296 320 69,469 17,190 120,402 - - 54,930 555,310 610,240 non-interest-bearing - - - - - - - - - - 231 4,502 231 4,502 4,733 Loans mandatorily at fair value through profit or loss 28,046 - 9,571 - 264,085 1,711 304,546 - 792,526 - - - 1,398,774 1,711 1,400,485 fixed rate - - - - - 1,711 - - - - - - - 1,711 1,711 variable rate 28,046 - 9,571 - 264,085 - 304,546 - 792,526 - - - 1,398,774 - 1,398,774 non-interest-bearing - - - - - - - - - - - - - - - Fair value adjustment of derivative financial instruments 718,070 2,088,017 961,287 1,413,898 487,263 725,487 54,251 111,275 297,986 233,911 580,115 148,516 3,098,972 4,721,104 7,820,076 fixed rate 610,190 2,025,881 364,434 1,025,262 323,861 444,688 54,251 111,035 297,986 231,517 - - 1,650,722 3,838,383 5,489,105 variable rate 107,880 62,136 596,853 388,636 163,402 280,799 - 240 - 2,394 - - 868,135 734,205 1,602,340 non-interest-bearing - - - - - - - - - - 580,115 148,516 580,115 148,516 728,631 Other financial assets 300 22,255 2,464 7,820 38 13 - 683 - 9,551 95,864 143,412 98,666 183,734 282,400 fixed rate 19 19,301 973 7,508 38 5 - 683 - 9,530 - - 1,030 37,027 38,057 variable rate 281 2,954 1,491 312 - 8 - - - 21 - - 1,772 3,295 5,067 non-interest-bearing - - - - - - - - - - 95,864 143,412 95,864 143,412 239,276
OTP Bank Plc Consolidated Financial Statements 2023 148 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2023 [continued] LIABILITIES Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest- bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Amounts due to banks, the Hungarian Government, deposits from the National Bank of Hungary and other banks 76,208 156,143 25,234 132,265 147,542 151,010 371,329 88,629 241,628 434,069 55,272 61,533 917,213 1,023,649 1,940,862 fixed rate 18,526 50,694 25,233 28,872 118,910 66,941 371,329 73,820 241,628 395,989 - - 775,626 616,316 1,391,942 variable rate 57,682 105,449 1 103,393 28,632 84,069 - 14,809 - 38,080 - - 86,315 345,800 432,115 non-interest-bearing - - - - - - - - - - 55,272 61,533 55,272 61,533 116,805 Repo liabilities 24,572 101,665 - - - - - - - - - - 24,572 101,665 126,237 fixed rate 24,572 101,665 - - - - - - - - - - 24,572 101,665 126,237 variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - - - - - - Financial liabilities designated at fair value through profit or loss 19,761 - - - - - - - 1,481 - 49,465 - 70,707 - 70,707 fixed rate - - - - - - - - 25 - - - 25 - 25 variable rate 19,761 - - - - - - - 1,456 - - - 21,217 - 21,217 non-interest-bearing - - - - - - - - - - 49,465 - 49,465 - 49,465 Deposits from customers 7,317,642 17,837,998 163,141 553,995 107,810 1,023,858 31,774 173,344 189,371 258,705 19,955 654,838 7,829,693 20,502,738 28,332,431 fixed rate 1,109,775 9,060,538 163,141 552,607 107,810 1,015,265 31,774 172,913 189,371 258,705 - - 1,601,871 11,060,028 12,661,899 variable rate 6,207,867 8,777,460 - 1,388 - 8,593 - 431 - - - - 6,207,867 8,787,872 14,995,739 non-interest-bearing - - - - - - - - - - 19,955 654,838 19,955 654,838 674,793 Liabilities from issued securities 249,008 - 72,641 19,182 178,027 112,356 32,371 268,667 151,014 1,004,515 1 7,766 683,062 1,412,486 2,095,548 fixed rate 206 - 72,083 19,182 178,027 99,036 32,371 268,667 151,014 1,004,515 - - 433,701 1,391,400 1,825,101 variable rate 248,802 - 558 - - 13,320 - - - - - - 249,360 13,320 262,680 non-interest-bearing - - - - - - - - - - 1 7,766 1 7,766 7,767
OTP Bank Plc Consolidated Financial Statements 2023 149 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2023 [continued] LIABILITIES [continued] Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest-bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Fair value adjustment of derivative financial instruments 1,822,128 1,016,999 524,302 1,865,964 445,921 874,989 59,172 111,700 197,826 173,012 693,221 43,633 3,742,570 4,086,297 7,828,867 fixed rate 1,772,814 881,895 373,167 1,019,236 280,907 500,307 59,172 111,700 197,826 173,012 - - 2,683,886 2,686,150 5,370,036 variable rate 49,314 135,104 151,135 846,728 165,014 374,682 - - - - - - 365,463 1,356,514 1,721,977 non-interest-bearing - - - - - - - - - - 693,221 43,633 693,221 43,633 736,854 Leasing liabilities 368 596 1,733 3,030 523 6,284 1,208 16,417 1,758 36,875 - 7,521 5,590 70,723 76,313 fixed rate 359 465 60 2,074 163 2,226 12 8,345 1,290 8,503 - - 1,884 21,613 23,497 variable rate 9 131 1,673 956 360 4,058 1,196 8,072 468 28,372 - - 3,706 41,589 45,295 non-interest-bearing - - - - - - - - - - - 7,521 - 7,521 7,521 Other financial liabilities 2,442 61,562 678 292 51 1,078 - 179 4 46 349,062 241,470 352,237 304,627 656,864 fixed rate 2,170 61,551 - 272 51 744 - 86 4 46 - - 2,225 62,699 64,924 variable rate 272 11 678 20 - 334 - 93 - - - - 950 458 1,408 non-interest-bearing - - - - - - - - - - 349,062 241,470 349,062 241,470 590,532 Subordinated bonds and loans - 30 - 89,415 - 192,337 - 10,019 - 270,280 - 315 - 562,396 562,396 fixed rate - 30 - - - 443 - 10,019 - 270,280 - - - 280,772 280,772 variable rate - - - 89,415 - 191,894 - - - - - - - 281,309 281,309 non-interest-bearing - - - - - - - - - - - 315 - 315 315 Net position (5,049,778) (5,142,908) 713,534 1,014,267 180,938 710,448 795,769 669,368 4,400,517 3,263,951 (85,097) 1,209,892 955,883 1,725,018 2,680,901
OTP Bank Plc Consolidated Financial Statements 2023 150 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2022 ASSETS Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest- bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Cash, amounts due from banks and balances with the National Banks 641,960 1,166,289 309 14,649 - 28,967 - 20,323 - 14,550 183,201 2,151,144 825,470 3,395,922 4,221,392 fixed rate 641,503 1,085,631 - - - 4,941 - - - - - - 641,503 1,090,572 1,732,075 variable rate 457 80,658 309 14,649 - 24,026 - 20,323 - 14,550 - - 766 154,206 154,972 non-interest-bearing - - - - - - - - - - 183,201 2,151,144 183,201 2,151,144 2,334,345 Placements with other banks 682,568 345,915 46,805 37,222 100,744 2,007 - 28 - 22,016 48,754 65,023 878,871 472,211 1,351,082 fixed rate 2,151 239,634 6,542 37,222 352 - - 28 - 22,016 - - 9,045 298,900 307,945 variable rate 680,417 106,281 40,263 - 100,392 2,007 - - - - - - 821,072 108,288 929,360 non-interest-bearing - - - - - - - - - - 48,754 65,023 48,754 65,023 113,777 Repo receivables 41,009 - - - - - - - - - - - 41,009 - 41,009 fixed rate 41,009 - - - - - - - - - - - 41,009 - 41,009 variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - - - - - - Trading instruments at fair value through profit or loss 7,171 1,234 16,157 661 12,146 4,265 21,882 2,436 27,900 9,760 124 1,014 85,380 19,370 104,750 fixed rate 7,156 1,234 11,967 661 3,775 4,265 21,882 2,436 27,900 9,760 - - 72,680 18,356 91,036 variable rate 15 - 4,190 - 8,371 - - - - - - - 12,576 - 12,576 non-interest-bearing - - - - - - - - - - 124 1,014 124 1,014 1,138 Non-trading instruments mandatorily at fair value through profit or loss - - - - - - - - - - 30,057 25,098 30,057 25,098 55,155 fixed rate - - - - - - - - - - - - - - - variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - 30,057 25,098 30,057 25,098 55,155
OTP Bank Plc Consolidated Financial Statements 2023 151 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2022 [continued] ASSETS [continued] Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest- bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Securities at fair value through other comprehensive income 150,015 194,093 62,611 57,998 127,352 134,675 15,327 101,052 278,680 577,643 265 39,892 634,250 1,105,353 1,739,603 fixed rate 120,553 194,092 62,610 44,277 127,345 134,675 15,327 100,597 278,680 577,643 - - 604,515 1,051,284 1,655,799 variable rate 29,462 1 1 13,721 7 - - 455 - - - - 29,470 14,177 43,647 non-interest-bearing - - - - - - - - - - 265 39,892 265 39,892 40,157 Securities at amortized cost 197,317 364,928 - 61,623 375,979 216,496 288,026 48,565 2,247,457 1,091,547 - - 3,108,779 1,783,159 4,891,938 fixed rate 177,967 364,928 - 56,550 375,979 216,496 288,026 48,565 2,247,457 1,090,235 - - 3,089,429 1,776,774 4,866,203 variable rate 19,350 - - 5,073 - - - - - 1,312 - - 19,350 6,385 25,735 non-interest-bearing - - - - - - - - - - - - - - - Loans at amortized cost, net of allowance for loan losses 186,499 6,653,388 2,251,999 2,762,858 77,681 1,428,579 38,430 403,633 961,205 1,116,179 129,999 84,008 3,645,813 12,448,645 16,094,458 fixed rate 20,139 1,643,455 1,160,027 324,583 14,300 565,806 11,987 344,884 290,461 1,016,774 - - 1,496,914 3,895,502 5,392,416 variable rate 166,360 5,009,933 1,091,972 2,438,275 63,381 862,773 26,443 58,749 670,744 99,405 - - 2,018,900 8,469,135 10,488,035 non-interest-bearing - - - - - - - - - - 129,999 84,008 129,999 84,008 214,007 Finance lease receivables 70,923 326,963 10,843 147,623 21,539 183,361 30,106 94,727 217,805 182,904 194 11,764 351,410 947,342 1,298,752 fixed rate 5,969 144,070 818 8,234 8,971 36,041 29,796 34,165 207,861 75,332 - - 253,415 297,842 551,257 variable rate 64,954 182,893 10,025 139,389 12,568 147,320 310 60,562 9,944 107,572 - - 97,801 637,736 735,537 non-interest-bearing - - - - - - - - - - 194 11,764 194 11,764 11,958 Loans mandatorily at fair value through profit or loss 26,449 - 10,992 - 70,371 - 231,141 - 908,461 - - - 1,247,414 - 1,247,414 fixed rate - - - - - - - - - - - - - - - variable rate 26,449 - 10,992 - 70,371 - 231,141 - 908,461 - - - 1,247,414 - 1,247,414 non-interest-bearing - - - - - - - - - - - - - - - Fair value adjustment of derivative financial instruments 1,808,603 3,091,633 906,446 1,424,864 485,449 545,738 36,682 35,986 183,664 98,654 28,204 730,436 3,449,048 5,927,311 9,376,359 fixed rate 1,687,569 3,023,972 428,080 879,090 271,921 518,869 36,682 35,986 183,664 98,654 - - 2,607,916 4,556,571 7,164,487 variable rate 121,034 67,661 478,366 545,774 213,528 26,869 - - - - - - 812,928 640,304 1,453,232 non-interest-bearing - - - - - - - - - - 28,204 730,436 28,204 730,436 758,640 Other financial assets 2,217 25,400 2,703 1,316 - 712 - - - 143 93,577 136,913 98,497 164,484 262,981 fixed rate 2,217 14,552 2,504 1,018 - 712 - - - 123 - - 4,721 16,405 21,126 variable rate - 10,848 199 298 - - - - - 20 - - 199 11,166 11,365 non-interest-bearing - - - - - - - - - - 93,577 136,913 93,577 136,913 230,490
OTP Bank Plc Consolidated Financial Statements 2023 152 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2022 [continued] LIABILITIES Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest- bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Amounts due to banks, the Hungarian Government, deposits from the National Bank of Hungary and other banks 17,358 187,834 27,239 55,363 109,518 80,566 71,613 5,187 751,109 42,918 81,757 32,696 1,058,594 404,564 1,463,158 fixed rate 12,847 62,086 27,239 5,079 109,518 70,661 71,613 5,182 751,109 42,913 - - 972,326 185,921 1,158,247 variable rate 4,511 125,748 - 50,284 - 9,905 - 5 - 5 - - 4,511 185,947 190,458 non-interest-bearing - - - - - - - - - - 81,757 32,696 81,757 32,696 114,453 Repo liabilities 29,145 188,121 98 5 - - - - - - - - 29,243 188,126 217,369 fixed rate 29,143 5 98 5 - - - - - - - - 29,241 10 29,251 variable rate 2 188,116 - - - - - - - - - - 2 188,116 188,118 non-interest-bearing - - - - - - - - - - - - - - - Financial liabilities designated at fair value through profit or loss 16,575 - - - - - - - - - 37,616 - 54,191 - 54,191 fixed rate 26 - - - - - - - - - - - 26 - 26 variable rate 16,549 - - - - - - - - - - - 16,549 - 16,549 non-interest-bearing - - - - - - - - - - 37,616 - 37,616 - 37,616 Deposits from customers 7,466,580 13,217,695 292,239 1,746,958 153,147 869,141 37,952 154,101 220,222 189,032 14,525 827,213 8,184,665 17,004,140 25,188,805 fixed rate 1,097,639 6,265,835 292,239 1,746,958 153,147 869,141 37,952 151,009 220,222 189,032 - - 1,801,199 9,221,975 11,023,174 variable rate 6,368,941 6,951,860 - - - - - 3,092 - - - - 6,368,941 6,954,952 13,323,893 non-interest-bearing - - - - - - - - - - 14,525 827,213 14,525 827,213 841,738 Liabilities from issued securities 1,878 - 1,215 18 194,515 41 79,497 - 145,295 448,205 - 18 422,400 448,282 870,682 fixed rate 211 - - 18 44,390 41 79,497 - 145,295 448,205 - - 269,393 448,264 717,657 variable rate 1,667 - 1,215 - 150,125 - - - - - - - 153,007 - 153,007 non-interest-bearing - - - - - - - - - - - 18 - 18 18
OTP Bank Plc Consolidated Financial Statements 2023 153 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.4. Interest rate risk management [continued] As at 31 December 2022 [continued] LIABILITIES [continued] Within 1 month Over 1 month and Within 3 months Over 3 months and Within 12 months Over 1 year and Within 2 years Over 2 years Non-interest-bearing Total Total HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx HUF Fx Fair value adjustment of derivative financial instruments 2,868,787 2,091,600 478,930 1,824,450 577,862 556,209 22,780 36,714 118,071 113,968 246,135 529,820 4,312,565 5,152,761 9,465,326 fixed rate 2,783,756 1,945,423 331,253 972,676 218,514 531,863 22,758 36,714 118,071 113,968 - - 3,474,352 3,600,644 7,074,996 variable rate 85,031 146,177 147,677 851,774 359,348 24,346 22 - - - - - 592,078 1,022,297 1,614,375 non-interest-bearing - - - - - - - - - - 246,135 529,820 246,135 529,820 775,955 Leasing liabilities 2,005 9,146 2 1,329 - 5,384 4 7,647 1,277 31,084 - 5,900 3,288 60,490 63,778 fixed rate 1,905 8,686 1 408 - 2,197 4 2,541 1,277 17,244 - - 3,187 31,076 34,263 variable rate 100 460 1 921 - 3,187 - 5,106 - 13,840 - - 101 23,514 23,615 non-interest-bearing - - - - - - - - - - - 5,900 - 5,900 5,900 Other financial liabilities 93,677 36,041 2,247 1,735 11 6,706 - 2,494 - 2,408 288,478 211,855 384,413 261,239 645,652 fixed rate 93,668 35,843 1,748 1,735 7 3,283 - 2,401 - 2,319 - - 95,423 45,581 141,004 variable rate 9 198 499 - 4 3,423 - 93 - 89 - - 512 3,803 4,315 non-interest-bearing - - - - - - - - - - 288,478 211,855 288,478 211,855 500,333 Subordinated bonds and loans - - - 93,110 - 201,076 - - - 7,798 - - - 301,984 301,984 fixed rate - - - - - - - - - 7,798 - - - 7,798 7,798 variable rate - - - 93,110 - 201,076 - - - - - - - 294,186 294,186 non-interest-bearing - - - - - - - - - - - - - - - Net position (6,681,274) (3,560,594) 2,506,895 785,846 236,208 825,677 449,748 500,607 3,589,198 2,277,983 (154,136) 1,637,790 (53,361) 2,467,309 2,413,948
OTP Bank Plc Consolidated Financial Statements 2023 154 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.5. Market risk The Group takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Group applies a ‘Value - at-Risk’ (VaR) methodology to esti mate the market risk of positions held and the maximum losses expected, based upon a number of assumptions for various changes in market conditions. The Management Board sets limits on the value of risk that may be accepted, which is monitored on a daily basis. (Analysis of liquidity risk, foreign currency risk and interest rate risk is detailed in Notes 37.2., 37.3. and 37.4., respectively.) 37.5.1. Market Risk sensitivity analysis The VaR risk measure estimates the potential loss in pre-tax profit over a given holding period for a specified confidence level. The VaR methodology is a statistically defined, probability-based approach that takes into account market volatilities as well as risk diversification by recognizing offsetting positions and correlations between products and markets. Risks can be measured consistently across all markets and products, and risk measures can be aggregated to arrive at a single risk number. The one-day 99% VaR number used by the Group reflects the 99% probability that the daily loss will not exceed the reported VaR. VaR methodologies are employed to calculate daily risk numbers include the historical and variance-covariance approach. The diversification effect has not been validated among the various market risk types when capital calculation happens. In addition to these two methodologies, Monte Carlo simulations are applied to the various portfolios on a monthly basis to determine potential future exposure. The VaR of the trading portfolio can be summarized as follows (in HUF mn): Historical VaR (99%, one-day) by risk type Average VaR 31/12/2023 31/12/2022 Foreign exchange 10,391 5,896 Interest rate 406 890 Equity instruments 18 42 Diversification - - Total VaR exposure 10,815 6,829 The table above shows the VaR figures by asset classes. Since processes driving the value of the major asset classes are not independent (for example the depreciation of HUF against the EUR mostly coincide with the increase of the yields of Hungarian Government Bonds), a diversification impact emerges, so the overall VaR is less than the sum of the VaR of each individual asset class. While VaR captures the Group’s daily exposure to currency and interest rate risk, sensitivity analysis evaluates the impact of a reasonably possible change in interest or foreign currency rates over a year. The longer time frame of sensitivity analysis complements VaR and helps the Group to assess its market risk exposures. Details of sensitivity analysis for foreign currency risk are set out in Note 37.5.2., for interest rate risk in Note 37.5.3., and for equity price sensitivity analysis in Note 37.5.4.
OTP Bank Plc Consolidated Financial Statements 2023 155 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.5. Market risk [continued] 37.5.2. Foreign currency sensitivity analysis The Bank changed its methodology of foreign currency sensitivity analysis and has been using a historical VaR calculation since 31 March 2021. The former Monte Carlo simulation represented the Group’s sensitivity to the rise and fall in the HUF exchange rate against EUR, over a 3-month period. The sensitivity analysis included only outstanding foreign currency denominated monetary items as strategic open positions related to foreign activities. In line with the Management's intention, the former EUR (310) million strategic open position was fully closed as at 31 March 2021. Since the closing of the strategic open position, the Group has been using a historical VaR calculation with a 1 day holding period. The analysis includes the same net open foreign exchange position as used under the internal capital adequacy assessment process (ICAAP). The VaR methodology is a statistically defined, probability-based approach that takes into account market volatilities as well as risk diversification by recognizing offsetting positions and correlations between products and markets. Additionally, the Bank determines the foreign currency risk of assets evaluated through the Other Comprehensive Income, which includes securities valuated on fair value through other comprehensive income and the foreign currency translation reserves. The following table shows the result of the foreign currency sensitivity analysis. The numbers below indicate the expected daily profit or loss of the portfolio beside the given confidence level. Probability Effects to the Consolidated Statement of Profit or Loss Effects to the Consolidated Statement of Other Comprehensive Income In HUF million In HUF million 31/12/2023 31/12/2022 31/12/2023 31/12/2022 1% (9,947) (4,746) (4,201) (5,604) 5% (4,586) (2,542) (3,150) (2,992) 25% (1,041) (843) (1,264) (1,190) 50% 157 (15) (211) (235) 25% 1,488 990 928 834 5% 4,740 2,837 2,480 2,415 1% 7,333 4,245 4,116 4,767 Note: (1) Historical VaR simulation is based on the empirical distribution of the historical exchange rate movements between 31 December 2022 and 31 December 2023.
OTP Bank Plc Consolidated Financial Statements 2023 156 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.5. Market risk [continued] 37.5.3. Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. The analysis is prepared assuming the amount of assets and liabilities outstanding at the balance sheet date was outstanding for the whole year. The analysis was prepared by assuming only adverse interest rate changes. The main assumptions were as follows: • Floating rate assets and liabilities were repriced to the modelled benchmark yields at the repricing dates assuming the unchanged margin compared to the last repricing. • Fixed rate assets and liabilities were repriced at the contractual maturity date. • As for liabilities with discretionary repricing feature by the Bank were assumed to be repriced with two- weeks delay, assuming no change in the margin compared to the last repricing date. • Deposits with an interest rate lower than 0.3% even at high market rates were assumed to be unchanged for the whole period. The sensitivity of interest income to changes in BUBOR was analysed by assuming two interest rate path scenarios: (1) BUBOR decreases gradually by 500 bps over the next year (probable scenario) (2) BUBOR increases gradually by 100 bps over the next year (alternative scenario) The net interest income in a one-year period after 1 January 2024 would be decreased by HUF (2,800) million (probable scenario) and increased by HUF 296 million (alternative scenario) as a result of these simulation. A similar simulation indicated HUF (9,002) million decrease (probable scenario) and HUF 4,306 million (alternative scenario) increase in the Net interest income in a one-year period after 1 January 2023. This effect is further enhanced by capital results HUF 429 million (for probable scenario) and HUF (104) million (for alternative scenario) as at 31 December 2023, the comparative results were (HUF (350) million for probable scenario, HUF 181 million for alternative scenario as at 31 December 2022) on the government bond portfolio held for hedging (economic). Furthermore, the effects of an instant 10bps parallel shift of the HUF, EUR and USD yield-curves on net interest income over a one-year period and on the market value of the hedge government bond at fair value through other comprehensive income portfolio booked against capital was analysed. The results of unfavorable shocks can be summarized as follows (in HUF million): 31/12/2023 31/12/2022 Description Effects to the net interest income Effects to capital Effects to the net interest income Effects to capital HUF (0.1%) parallel shift (298) 14 1,669 36 HUF 0.1% parallel shift 298 (14) (1,667) (36) EUR (0.1%) parallel shift (4,409) - (3,661) - EUR 0.1% parallel shift 3,933 - 4,423 USD (0.1%) parallel shift (102) - 119 - USD 0.1% parallel shift 112 - (290) -
OTP Bank Plc Consolidated Financial Statements 2023 157 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.5. Market risk [continued] 37.5.4. Equity price sensitivity analysis The following table shows the effect of the equity price sensitivity. The Group uses VaR calculation with 1 day holding period and a 99% confidence level. The VaR methodology is a statistically defined, probability-based approach that takes into account market volatilities as well as risk diversification by recognizing offsetting positions and correlations between products and markets. The daily loss will not exceed the reported VaR number with 99% of probability. The stress test assumes the largest price movement of the last year and calculates with it as the adverse direction. These scenarios show the loss of the portfolio when all prices change with the maximum amount of the last year. Description 31/12/2023 31/12/2022 VaR (99%, one day, HUF million) 10 15 Stress test (HUF million) (103) (26)
OTP Bank Plc Consolidated Financial Statements 2023 158 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.6. Capital management Capital management The primary objective of the capital management of the Group is to ensure the prudent operation, the entire compliance with the prescriptions of the regulator for a persistent business operation and maximising the shareholder value, accompanied by an optimal financing structure. The capital management of the Group members includes the management and evaluation of the shareholders` equity and other types of funds available for hedging risks, to be recorded in the equity and all material risks to be covered by the capital. The basis of the capital management of the Group members in the short run is the continuous monitoring of their capital position, in the long run the strategic and the business planning, which includes the monitoring and forecast of the capital position. The Group members maintain the capital adequacy required by the regulatory bodies and the planned risk taking mainly by means of ensuring and developing their profitability. In the event that the planned risk level of a Group member exceeded its Core and the previously raised Supplementary capital, it ensures the prudent operation by occasional measures. A further tool in the capital management of the Bank is the dividend policy, and the transactions performed with the treasury shares. Capital adequacy The Capital Requirements Directive package (CRDIV/CRR) transposes the new global standards on banking regulation (known as the Basel III agreement) into the EU legal framework. The new rules are applied from 1 January 2014. They set stronger prudential requirements for institutions, requiring them to keep sufficient capital reserves and liquidity. This new framework makes institutions in the EU more solid and strengthens their capacity to adequately manage the risks linked to their activities and absorb any losses they may incur in doing business. The capital adequacy of the Group is supervised based on the financial statements data prepared in accordance with IFRS applying the current directives, rulings and indicators from 1 January 2014. For regulatory compliance the capital adequacy ratios according to regulatory scope of consolidation are relevant. The Pillar3 Disclosure of OTP Group contains the capital adequacy ratios calculated under regulatory scope of consolidation. The Group has entirely complied with the regulatory capital requirements both in the year ended 31 December 2023 and 31 December 2022. The Group uses the standard method for determining the regulatory capital requirements of the credit risk and market risk, and parall el to that, the base indicator method, and the advanced method (“AMA”) in case of the operational risk. For international comparison purposes, the Group calculated the Regulatory capital based on IFRS data as adopted by the EU, and the consolidated Capital adequacy ratio based on this in accordance with the regulations of Basel III. The Capital adequacy ratio of the Group (IFRS) was 18.9%, the Regulatory capital was HUF 4,475,381 million and the Total regulatory capital requirement was HUF 1,896,022 million as at 31 December 2023. The same ratios calculated as at 31 December 2022 were the following: 17.8%, HUF 3,671,106 million and HUF 1,648,616 million.
OTP Bank Plc Consolidated Financial Statements 2023 159 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.6. Capital management [continued] Capital adequacy [continued] Calculation on IFRS basis (in HUF million) 31/12/2023 31/12/2022 Core capital (Tier 1) = 3,945,571 3,383,162 Common Equity Tier 1 (CET 1) Issued capital 28,000 28,000 Reserves 1 3,992,843 3,149,251 Fair value adjustments (64,033) (135,905) Other capital components 92,443 288,531 Non-controlling interests 28,542 2,464 Treasury shares (13,226) (15,000) Goodwill and other intangible assets (188,894) (164,642) Other adjustments 69,896 230,463 Additional Tier 1 (AT1) - - Supplementary capital (Tier 2) 529,810 287,944 Subordinated bonds and loans 500,555 287,362 Other issued capital components - - Components recognized in T2 capital issued by subsidiaries 29,255 582 Regulatory capital 4,475,381 3,671,106 Credit risk capital requirement 1,702,000 1,494,358 Market risk capital requirement 29,346 29,322 Operational risk capital requirement 164,676 124,936 Total requirement regulatory capital 1,896,022 1,648,616 Surplus capital 2,579,359 2,022,490 CET 1 ratio 16.60% 16.40% Tier 1 ratio 16.60% 16.40% Capital adequacy ratio 18.90% 17.80% 1 The dividend amount planned to pay out / paid out is deducted from reserves. Basel III The components of the Common Equity Tier 1 capital (CET 1) are the following: Issued capital, Reserves (Retained earnings, Other reserves, Changes in the equity of subsidiaries, Net Profit for the year, Changes due to consolidation) Fair value adjustments, Other capital components, (Revaluation reserves, Share based payments, Cash-flow hedges, Net investment hedge in foreign operations), Non-controlling interest, Treasury shares, Goodwill and other Intangible assets, other adjustments (due to prudential filters, due to deferred tax receivables, due to temporary regulations). Supplementary capital (Tier 2): Subordinated loan capital, Supplementary loan capital, Other issued capital components, Components recognized in T2 capital issued by subsidiaries.
OTP Bank Plc Consolidated Financial Statements 2023 160 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued]
37.6. Capital management [continued] Resolution strategy of OTP Group In line with Section 7 of the Resolution Act (XXXVII of 2014 on the further development of the system of institutions strengthening the security of the individual players of the financial intermediary system) implementing Article 12 of BRRD (“Bank Recovery and Resolution Directive”) (2014/59 EU Directive) the National Bank of Hungary (NBH) as the group-level resolution authority of OTP Group draw up the group resolution plan for OTP Group in close cooperation with the national resolution authorities of the EU and the equivalent third country subsidiaries. According to the group-resolution plan the resolution strategy for OTP Group is the multiple point of entry approach (“MPE”) which determines two intervention points in the Group in case of resolution: OTP Bank and NKBM Bank. Having regard to the acquisition of the Slovenian Nova KBM d.d. (NKBM) and its subsidiary (together NKBM Group) in February 2023, the SPE (single point of entry) strategy formerly determined for OTP Group as the preferred resolution strategy has been altered as a result of the update of the resolution plan in October 2023. NKBM Group was considered by the resolution authorities financially and operationally independent from the rest of the OTP Group, therefore the MPE approach has been selected as the most suitable resolution strategy in respect of OTP Group. Nevertheless, the MPE resolution strategy will be reviewed in the next update of the group-level resolution plan and for this reason the resolution authorities monitor the degree of integration of the NKBM Group into the OTP Group as a result of the integration project. OTP Bank’s Resolution Group covers entities included in the prudential scope of consolidation of OTP Bank (without Ipoteka Bank and NKBM Bank and their subsidiaries) and NKBM Resolution Group covers Nova KBM and its subsidiary (Aleja d.o.o) which is equivalent to the prudential scope of consolidation. For both resolution groups the preferred resolution tool is the application of open-bank bail-in at the level of each of the resolution entities – OTP Bank Plc. and NKBM Group. Minimum requirement for own funds and eligible liabilities requirement of OTP Bank Pursuant to Section 62 (1) of the Resolution Act OTP Bank shall meet the minimum requirement for own funds and eligible liabilities (“MREL”) on a consolidated basis at the level of the resolution group. The NBH establishes and updates annually the MREL requirement on the basis of the Joint Decision of the Resolution College, which is operated jointly with the resolution authorities of OTP Bank’s subsidiaries. The consolidated MREL requirement of OTP Bank applicable in 2023 was 16.69% of the total risk exposure amount / risk-weighted assets (“TREA”/”RWA”) and 5.74% of the total exposure measure (“TEM”) of OTP Bank’s Resolution Group. The consolidated MREL ratio was 25.10% on 31 December 2023. From 1 January 2024, OTP Bank's consolidated MREL requirement is 18.94% of the TREA/RWA and 5.78% of the TEM of OTP Bank’s Resolution Group. Subordination requirements are applicable to OTP Bank from 16 December 2024 that are set at 13.5% of TREA/RWA, 5% of TEM and 8% of TLOF (total liabilities and own funds) of OTP Bank’s Resolution Group which shall be met with own funds and subordinated eligible instruments. OTP Bank shall meet the combined buffer requirement in addition to the consolidated MREL RWA requirement / MREL RWA subordination requirement. OTP Bank’s Resolution Group consists of entities included in the prudential scope of consolidation of OTP Bank without NKBM and Ipoteka Bank and their subsidiaries. The MREL requirement of NKBM Resolution Group at consolidated level in 2023 was 20.88% of RWA, and 5.90% of TEM of NKBM Group. The MREL requirement applicable from 1 January 2024 is 22.44% of RWA and 5.90% of TEM of NKBM Group. No bank-specific subordination target has been set for NKBM Group. NKBM Group shall also meet the combined buffer requirement in addition to the consolidated MREL RWA requirement. Expected changes in 2024 In 2024 SKB is expected to ex it OTP’s resolution group and join that of NKBM by the planned legal merge of the two Slovenian banks. Furthermore, a decision is expected on Ipoteka Bank (acquired in June 2023) whether NBH will include it in the resolution group of OTP Bank based on Section 7 of the Resolution Act.
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NOTE 38: TRANSFER OF FINANCIAL INSTRUMENTS (in HUF mn) Financial assets transferred but not derecognized Transferred assets Associated liabilities Transferred assets Associated liabilities Carrying amount Carrying amount 31/12/2023 31/12/2022 Financial assets at amortized cost Debt securities 213,166 197,315 332,082 282,227 Loans and advances 8,785 1,134 3,534 1,647 Total 221,951 198,449 335,616 283,874 Total 221,951 198,449 335,616 283,874 As at 31 December 2023 and 2022, respectively, the Group had an obligation from repurchase agreements (repo liability) of HUF 126,237 million and HUF 217,264 million respectively. Securities sold temporarily under repurchase agreements will continue to be recognized in the Consolidated Statement of Financial Position of the Group in the appropriate securities category. The related liability is measured at amortized cost in the Consolidated Statemen t of Financial Position as “Amounts due to the National Governments, to the National Banks and other banks and repo liabilities”. Financial assets transferred, derecognized with continuing involvement Financial assets which would have been derecognized but would be represented the continuing involvement are not recognized in the Consolidated Statement of Financial Position as at 31 December 2023 or as at 31 December 2022.
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NOTE 39: OFF-BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL INSTRUMENTS (in HUF mn) In the normal course of business, the Group becomes a party to various financial transactions that are not reflected on the Consolidated statement of financial position and are referred to as off-balance sheet financial instruments. The following represent notional amounts of these off-balance sheet financial instruments, unless stated otherwise. Contingent liabilities 31/12/2023 31/12/2022 Commitments to extend credit 4,784,943 4,230,289 Guarantees arising from banking activities 1,421,958 1,413,017 Factoring loan commitment 460,455 419,620 Confirmed letters of credit 61,997 53,557 Other 410,796 144,893 Contingent liabilities and commitments total in accordance with IFRS 9 7,140,149 6,261,376 Legal disputes (disputed value) 88,750 86,137 Underwriting guarantees 29,915 1,397 Other 2,990 5,393 Contingent liabilities and commitments total in accordance with IAS 37 121,655 92,927 Total 7,261,804 6,354,303 Legal disputes At the balance sheet date, the Group was involved in various claims and legal proceedings of a nature considered normal to its business. The amount of these claims and legal proceedings corresponds to the amount of claims and legal proceedings in previous years. The Group believes that the various asserted claims and litigations in which it is involved will not materially affect its financial position, future operating results or cash-flows, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation. Provisions due to legal disputes were HUF 39,351 million as at 31 December 2023 and HUF 37,043 million as at 31 December 2022, respectively. (See Note 24.)
Commitments to extend credit, guarantees and letters of credit The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. Guarantees, irrevocable letters of credit and undrawn loan commitments are subject to similar credit risk monitoring and credit policies as utilised in the extension of loans. The Management of the Group believes the market risk associated with guarantees, irrevocable letters of credit and undrawn loan commitments are minimal.
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NOTE 39: OFF-BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL INSTRUMENTS (in HUF mn) [continued] Guarantees, payment undertakings arising from banking activities Payment undertaking is a promise by the Group to assume responsibility for the debt obligation of a borrower if that borrower defaults until a determined amount, until a determined date, in case of fulfilling conditions, without checking the underlying transactions. The guarantee’s liability is joint and primary with the principal, in case of payment undertaking, while the Group assumes the obligation derived from guarantee independently by the conditions established by the Group. A guarantee is most typically required when the ability of the primary obligor to perform its obligations under a contract is in question, or when there is some public or private interest which requires protection from the consequences of the principal's default or delinquency. A contract of guarantee is subject to the statute of frauds (or its equivalent local laws) which has maturity and is only enforceable if recorded in writing and signed by the surety and the principal. This means that if the beneficiary has not exercised his rights against the surety or guarantor by the deadline indicated, he automatically forfeits all his claims against the guarantor or surety. In the case of a simple surety, the beneficiary is obliged to seek recovery of the debt from the debtor, because as long as the debt is recoverable from the debtor, the guarantor can refuse to pay, whereas in the case of a cash surety, the beneficiary can also go to the guarantor immediately, there being no objection to enforcement.
Derivatives The Group maintains strict control limits on net open derivative positions, that is the difference between purchase and sale contracts, regarding both the amount and the term. At any time the amount subject to credit risk is limited to the current fair value of instruments that are favourable to the Group (i.e. assets), which in relation to derivatives is only a small fraction of the contract or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments, except for trading with clients, where the Group in most of the cases requires margin deposits.
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NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) The previously approved option program required a modification due to the introduction of the Bank Group Policy on Payments accepted in resolution of Annual General Meeting regarding to the amendment of CRD III. Directives and Act on Credit Institutions and Financial Enterprises. Key management personnel affected by the Bank Group Policy receive compensation based on performance assessment generally in the form of cash bonus and equity shares in a ratio of 50-50%. Assignment is based on OTP shares, furthermore performance-based payments are deferred in accordance with the rules of Credit Institutions Act. The Bank ensures the share-based payment part for the management personnel of the Group members. During implementation of the Remuneration Policy of the Group appeared that in case of certain foreign subsidiaries it is not possible to ensure the originally determined share-based payment because of legal reasons – incompatible with relevant EU-directives –, therefore a decision was made to cancel the share-based payment in affected countries, and virtual share-based payment – cash payment fixed to share price - was made from 2017. In case of foreign subsidiaries virtual share-based payment was made uniformly from 2021 (in the case of payments related to 2021). The quantity of usable shares for individuals calculated for settlement of share-based payment shall be determined as the ratio of the amount of share-based payment and share price determined by Supervisory Board (until the end of 2014 by Board of Directors). The value of the share-based payment at the performance assessment is determined within 10 days by Supervisory Board based on the average of the three previous trade day’s middle rate of OTP Bank’s equity shares fixed on the Budapest Stock Exchange. At the same time the conditions of discounted share-based payment are determined, and share-based payment shall contain maximum HUF 6,000 discount at the assessment date, and earnings for the shares at the payment date is maximum HUF 12,000. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. IAS 19 Employee Benefits shall be applied in accounting for all employee benefits, except those to which IFRS 2 Share-based Payment applies. The parameters for the share-based payment relating to ongoing years 2018-2020 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 HUF per share for the year 2018 for the year 2019 for the year 2020 2019 10,413 4,000 12,413 - - - - - - 2020 10,413 4,000 12,413 9,553 4,000 11,553 - - - 2021 10,413 4,000 12,413 9,553 4,000 11,553 12,644 9,000 16,644 2022 10,913 4,000 12,413 9,553 4,000 11,553 12,644 8,000 16,644 2023 10,913 4,000 12,413 9,553 4,000 11,553 13,644 8,000 16,644 2024 10,913 4,000 12,413 9,553 4,000 11,553 13,644 8,000 16,644 2025 10,913 4,000 12,413 9,553 4,000 11,553 13,644 8,000 16,644 2026 - - - 9,553 4,000 11,553 13,644 8,000 16,644 2027 - - - - - - 13,644 8,000 16,644
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NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] The parameters for the share-based payment relating to ongoing years 2021-2022 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 Exercise price Maximum earnings Exercise price Maximum earnings HUF per share for the year 2021 for the year 2022 2022 5,912 6,000 8,912 - - - 2023 6,912 7,000 8,912 7,773 6,000 10,773 2024 6,912 8,000 8,912 8,773 7,000 10,773 2025 6,912 9,000 8,912 8,773 8,000 10,773 2026 6,912 10,000 8,912 8,773 9,000 10,773 2027 6,912 10,000 8,912 8,773 10,000 10,773 2028 6,912 10,000 8,912 8,773 10,000 10,773 2029 - - - 8,773 10,000 10,773 1 Parameters of benefits for year after 2021 due in 2029 only is applicable to foreign companies and for virtual benefits. Relevant factors considered during measurement of fair value related to share-based payment as follows: Year Reference price Assumed volatility Risk-free interest rate (HUF) 1-year 2-year 3-year 4-year 5-year 6-year 7-year 2017 9,200 21.30% 0.10% 0.50% 0.70% 1.00% 1.30% 1.30% 1.30% 2018 10,064 26.00% 0.20% 0.60% 1.00% 1.30% 1.60% 1.90% 2.10% 2019 12,413 19.20% 0.20% 0.70% 0.90% 1.10% 1.30% 1.40% 1.60% 2020 11,553 33.60% 0.60% 0.40% 0.50% 0.60% 0.80% 0.90% 1.00% 2021 16,644 28.60% 1.00% 1.60% 1.80% 1.90% 2.00% 2.10% 2.10% 2022 8,912 42.60% 7.10% 7.90% 7.60% 7.30% 7.10% 7.00% 6.90% 2023 10,773 33.30% 13.20% 9.20% 8.20% 7.70% 7.30% 7.10% 6.90% Year Expected dividends (HUF/Share) Pricing model 1 -year 2-year 3-year 4-year 5-year 6-year 7-year 2017 219 219 252 290 334 384 442 Binomial 2018 219 219 219 219 219 219 219 Binomial 2019 252 290 333 383 440 507 583 Binomial 2020 219 252 290 333 383 440 507 Binomial 2021 371 321 357 393 432 475 523 Binomial 2022 452 497 547 601 661 728 800 Binomial 2023 300 330 363 399 439 483 531 Binomial
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NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] Based on parameters accepted by Supervisory Board relating to the year 2018 effective pieces are as follows as at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2023 Share purchasing period started in 2019 82,854 82,854 13,843 - - Remuneration exchanged to share provided in 2019 17,017 17,017 11,829 - - Share purchasing period started in 2020 150,230 150,230 14,294 - - Remuneration exchanged to share provided in 2020 33,024 33,024 11,897 - - Share purchasing period started in 2021 73,799 73,799 16,314 - - Remuneration exchanged to share provided in 2021 14,618 14,618 16,468 - - Share purchasing period started in 2022 86,456 77,425 14,605 9,031 - Remuneration exchanged to share provided in 2022 13,858 13,858 8,529 - - Share purchasing period started in 2023 45,155 45,155 14,736 - - Remuneration exchanged to share provided in 2023 3,217 3,217 11,820 - - Remuneration exchanged to share applying in 2024 - - - - 864 Remuneration exchanged to share applying in 2025 - - - - 432 Based on parameters accepted by Supervisory Board relating to the year 2019 effective pieces are as follows as at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2023 Share purchasing period started in 2020 91,403 91,403 12,218 - - Remuneration exchanged to share provided in 2020 22,806 22,806 11,897 - - Share purchasing period started in 2021 201,273 201,273 16,298 - - Remuneration exchanged to share provided in 2021 30,834 30,834 17,618 - - Share purchasing period started in 2022 107,760 101,897 13,771 1,344 4,519 Remuneration exchanged to share provided in 2022 10,564 10,564 8,529 - - Share purchasing period started in 2023 117,437 114,063 13,893 - 3,374 Remuneration exchanged to share provided in 2023 13,427 13,427 11,674 - - Share purchasing period starting in 2024 - - - - 44,421 Remuneration exchanged to share applying in 2024 - - - - 6,279 Remuneration exchanged to share applying in 2025 - - - - 1,000 Remuneration exchanged to share applying in 2026 - - - - 500
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NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] Based on parameters accepted by Supervisory Board relating to the year 2020 effective pieces are as follows as at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2023 Share purchasing period started in 2021 41,098 14,142 17,997 26,956 - Remuneration exchanged to share provided in 2021 17,881 17,881 17,498 - - Share purchasing period started in 2022 83,688 3,536 14,193 1,288 78,864 Remuneration exchanged to share provided in 2022 15,232 15,111 8,529 121 - Share purchasing period started in 2023 47,275 - - - 47,275 Remuneration exchanged to share provided in 2023 8,562 8,562 11,659 - - Share purchasing period starting in 2024 - - - - 51,002 Remuneration exchanged to share applying in 2024 - - - - 9,518 Share purchasing period starting in 2025 - - - - 13,080 Remuneration exchanged to share applying in 2025 - - - - 3,443 Remuneration exchanged to share applying in 2026 - - - - 680 Remuneration exchanged to share applying in 2027 - - - - 680 Based on parameters accepted by Supervisory Board relating to the year 2021 effective pieces are as follows as at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2023 Share purchasing period started in 2022 60,018 59,776 10,122 242 - Remuneration exchanged to share provided in 2022 11,028 11,028 8,691 - - Share purchasing period started in 2023 117,276 117,276 13,672 - - Remuneration exchanged to share provided in 2023 10,824 10,824 11,534 - - Share purchasing period starting in 2024 - - - - 50,771 Remuneration exchanged to share applying in 2024 - - - - 4,942 Share purchasing period starting in 2025 - - - - 54,262 Remuneration exchanged to share applying in 2025 - - - - 4,942 Share purchasing period starting in 2026 - - - - 58,155 Remuneration exchanged to share applying in 2026 - - - - 4,942 Share purchasing period starting in 2027 - - - - 25,305 Remuneration exchanged to share applying in 2027 - - - - 631
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NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] Based on parameters accepted by Supervisory Board relating to the year 2022 effective pieces are as follows as at 31 December 2023: Approved pieces of shares Exercised until 31 December 2023 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2023 Share purchasing period started in 2023 57,412 57,364 13,484 - 48 Remuneration exchanged to share provided in 2023 8,726 8,590 11,629 - 136 Share purchasing period starting in 2024 - - - - 103,450 Remuneration exchanged to share applying in 2024 - - - - 8,494 Share purchasing period starting in 2025 - - - - 42,814 Remuneration exchanged to share applying in 2025 - - - - 3,993 Share purchasing period starting in 2026 - - - - 43,714 Remuneration exchanged to share applying in 2026 - - - - 3,993 Share purchasing period starting in 2027 - - - - 44,701 Remuneration exchanged to share applying in 2027 - - - - 3,993 Share purchasing period starting in 2028 - - - - 19,756 Remuneration exchanged to share applying in 2028 - - - - - Effective pieces relating to the periods starting in 2024-2028 settled during valuation of performance of year 2019- 2022, can be modified based on risk assessment and personal changes. In connection with the share-based compensation for Board of Directors and connecting compensation, shares given as a part of payments detailed above and for the year 2023 based on performance assessment accounted as equity-settled share-based transactions, HUF 3,292 million and HUF 2,948 million was recognized as expense for the year ended 31 December 2023 and 2022, respectively.
Defined benefit plan Defined benefit plan is post‑employment benefit plans other than defined contribution plan. The Group's net obligation is calculated by estimating the amount of employee's future benefit based on their servicies for the current and prior periods. The future value of benefit is being discounted to present value. The Group has small number of plans and mainly in Bulgaria, Serbia, Montenegro, Croatia and Slovenia. These plans are providing retirement benefits upon pension age as lump-sum payment based either on fixed amounts or certain months of salary. These plans are unfunded consequently there are no significant plan assets associated with these plans.
OTP Bank Plc Consolidated Financial Statements 2023 169 NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued]
Defined benefit plan [continued] The movements of defined benefit obligation can be summarized as follows: 31/12/2023 31/12/2022 Balance as at 1 January 4,728 5,264 Increase due to acquisition 1,621 - Current service cost 369 432 Interest cost 322 105 Actuarial gains from changes in demographic assumptions (497) (110) Actuarial loss / (gains) from changes in financial assumptions 844 (1,179) Benefits paid (279) (271) Past service cost - 47 Other decreases (322) (19) Revaluation difference (202) 459 Closing balance 6,584 4,728 Amounts recognized in profit and loss 31/12/2023 31/12/2022 Current service cost 369 432 Net interest expense 322 105 Past service cost - 47 Actuarial losses / (gains) 11 (288) Other income (340) (129) Total 362 167 Maturity analysis of the present value of defined 31/12/2023 31/12/2022 benefit obligations Within one year 609 575 Within 5 years and over one year 2,015 1,285 Within 10 years and over 5 years 2,107 1,470 Over 10 years 1,853 1,398 Total present value 6,584 4,728 Actuarial assumptions 31/12/2023 31/12/2022 Discount rate 2.88% - 6.25% 1.80% - 6.00% Future salary increases 1.28% - 8.50% 0.75% - 8.00% Since plan asset is not recognized in the Consolidated Financial Statements, the effect of the asset ceiling, the effect of changes in foreign exchange rates and the return on plan assets, excluding amounts included in interest accounts are also not recognized and therefore not presented. OTP Group made an insignificant amount of contribution to the defined benefit plans during the year ended 31 December 2023 and 2022, respectively.
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NOTE 41: RELATED PARTY TRANSACTIONS (in HUF mn) The compensation of key management personnel, such as the members of the Board of Directors, members of the Supervisory Board, key employees of the Bank and its major subsidiaries involved in the decision-making process in accordance with the compensation categories defined in IAS 24 Related Party Disclosures, is summarised below: Compensations 31/12/2023 31/12/2022 Short-term employee benefits 9,974 9,020 Share-based payment 2,173 2,632 Other long-term employee benefits 556 474 Termination benefits 126 293 Post-employment benefits - 1 Total 12,829 12,420 Share based compensations to the members of the Board of Directors, Supervisory Board or key employees of the Bank and its major subsidiaries are detailed in Note 40 Share-based payments. An analysis of payment to executives of the Group related to their activity in Board of Directors and Supervisory Board is as follows: 31/12/2023 31/12/2022 Members of Board of Directors 3,225 2,539 Members of Supervisory Board 432 348 Total 3,657 2,887
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NOTE 41: RELATED PARTY TRANSACTIONS (in HUF mn) [continued] Connections with related party (key management personnel and their close family member and companies) by which line of the consolidated statement of financial position and off-balance sheet is presented: 31/12/2023 31/12/2022 Assets Other related parties Associated companies Other companies Total Other related parties Associated companies Other companies Total Securities (net value) 608 52 - 660 601 - - 601 Fair value adjustment of derivative financial instruments - 164 - 164 - - - - Loans at amortized cost (net value) 70,091 22,048 2,459 94,598 75,704 23,554 4,067 103,325 Finance lease receivable (net value) - 47 - 47 - 22 - 22 Loans mandatorily at fair value through profit or loss 200 1,711 - 1,911 164 - - 164 Total assets 70,899 24,022 2,459 97,380 76,469 23,576 4,067 104,112 Liabilities Deposits from customers and loan liabilities 87,857 22,042 1,373 111,272 54,002 12,490 2,104 68,596 Fair value adjustment of derivative financial instruments - - - - - 46 - 46 Total liabilities 87,857 22,042 1,373 111,272 54,002 12,536 2,104 68,642
OTP Bank Plc Consolidated Financial Statements 2023 172
NOTE 41: RELATED PARTY TRANSACTIONS (in HUF mn) [continued] Connections with related party (key management personnel and their close family member and companies) by which line of the consolidated statement of financial position and off-balance sheet is presented [continued]: 31/12/2023 31/12/2022 Off-balance sheet items Other related parties Associated companies Other companies Total Other related parties Associated companies Other companies Total Undrawn line of credit 64,900 50 1,910 66,860 47,522 322 2,209 50,053 Bank Guarantee 11,080 1,914 2,491 15,485 8,455 - 2,652 11,107 Commitments and guarantees given 40 - - 40 24 - - 24 Total off-balance sheet items 76,020 1,964 4,401 82,385 56,001 322 4,861 61,184 Statement of profit or loss 31/12/2023 31/12/2022 (turnover during the current period) Interest income 2,448 860 Fees and commissions 164 117 Interest expense (514) (243) Fees and commission expenses (2,094) (7) Loss allowance / Provision on loans, placements, for commitments and guarantees given (86) (29) Operational costs (4,093) (1,852) Net income from sale of assets - - In the normal course of business, the Bank enters into other transactions with its unconsolidated subsidiaries of the Group, the amounts and volumes of which are not significant to these Consolidated Financial Statements taken as a whole. Related party transactions were made on terms equivalent to thos e that prevail in arm’s length transactions and such terms can be substantiated.
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NOTE 42: ACQUISITION (in HUF mn) Acquisition and consolidation of subsidiaries On 6 December 2021 OTP Bank signed an acquisition agreement with Alpha International Holdings Single Member S.A. on purchasing 100% shareholding of Alpha Bank SH.A., the Albanian subsidiary of the Greek Alpha Bank S.A. The purchase price has been agreed at EUR 55 million. The financial closing of the transaction was completed on 18 July 2022. The Seller shall, on an after-tax basis, indemnify and keep indemnified OTP Bank (the Purchaser) against all losses suffered or incurred by it arising directly out of two lawsuits. The aggregate liability of the Seller for all indemnity claims shall not exceed three million euros. The Seller made a strategic decision to dispose of its Albanian subsidiary. Purchasing an entity with negative goodwill is reasoned by altogether the expected cost synergies arising from the market situation in Albania. In line with the sale and purchase agreement (two-step structure of purchase agreement) concluded on 12 December 2022 between OTP Bank and the Ministry of Economy and Finance of the Republic of Uzbekistan, the first step of the Ipoteka Bank acquisition was completed on 13 June 2023. Consequently, OTP Bank became the majority shareholder of Ipoteka Bank by acquiring a 73.71% stake and became indirect shareholder of Ipoteka Bank’s wholly-owned subsidiaries. In the second step of the transaction, the shares that remained in the ownership of the Ministry will be bought three years after the first step by purchasing further 25% of the shares owned by the seller. On the basis of contractual conditions, different purchase price modifying factors can modify the second instalment of the purchase price. In this regard, the amount of HUF 15,757 million compensation assets presented in the consolidated financial statement, which comes from the fact that the former owners of the acquired company are contractually indemnifying the acquiring OTP Bank due to the acquired uncertainties. As a result of the acquisition, OTP Group entered the Central Asian region, and is the first foreign bank to participate in the privatization of the Uzbek banking sector. On 31 May 2021, OTP Bank signed a share sale and purchase agreement on purchasing 100% shareholding of OTP Luxembourg S.a.r.l. and its subsidiaries - Nova KBM d.d. and Aleja Finance d.o.o., (hereinafter “NKBM group”) which are 80% owned by funds managed by affiliates of Apollo Global Management, Inc. and 20% by EBRD. The financial closing of the transaction took place on 6 February 2023, after obtaining all the necessary regulatory approvals. The acquisition of the bank is the most significant acquisition in the history of OTP Group. The integration process of the two Slovenian subsidiaries, SKB banka purchased in 2019 and Nova KBM is expected to be completed in 2024. The new bank will be the largest foreign subsidiary of OTP Group. On 27 September, 2023, Aranykalász Group became with 100% ownership the member of OTP Group through Portfolion Zöld Magántőkealap. Aranykalász Group contains Aranykalász 1955. Mezőgazdasági Ltd., Aranymező 2001. Mezőgazdasági Ltd., Agromag-Plusz Mezőgazdasági Ltd. On 7 November 2023, Szekszárd Group e ngaged in agricultural activities became 100% owned by OTP Group through Portfolion Zöld Magántőkealap. Szekszárd Group contains Szekszárd i Mezőgazdasági Plc. and Szajki Mezőgazdasági Plc. On 10 October 2022 OTP Fund Management Company and OTP banka Srbija a.d. signed a share sale and purchase agreement on purchasing 100% shareholding of Ilirika DZU AD Beograd, a Serbian asset management company, with the Slovenian companies Ilirika Fintrade d.o.o., Ilirika svetovanje d.o.o. and Ilirika d.d. The ownership proportion is 75 – 25%, de total consideration for the purchase of the shares was 93,8 million RSD. The financial closing of the transaction took place on 11 July 2023. In October 2023 the Subsidiary changed its name to OTP Invest AD Beograd. Through this acquisition OTP Group entered the Serbian asset management market with only a few market competitors.
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NOTE 42: ACQUISITION (in HUF mn) [continued] The fair value of the assets and liabilities acquired is as follows [continued]: The fair value of the assets and liabilities acquired is as follows: JSCMB 'Ipoteka Bank' (June 2023) NKBM group (February 2023) Aranykalasz group (August 2023) Szekszard group (November 2023) OTP Invest (July 2023) Total (2023) Alpha Bank SH.A. (July 2022) Cash amounts and due from banks and balances with the National Banks (98,886) (887,441) (925) (585) (57) (987,894) (58,880) Placements with other banks, repo receivables (50,298) (11,605) - - - (61,903) (26,500) Financial assets at fair value through profit or loss - (11,167) - - - (11,167) - Securities at fair value through other comprehensive income (154) (136,612) - - - (136,766) (46,003) Loans at amortized cost (875,037) (2,037,656) - - - (2,912,693) (101,642) Loans mandatorily at fair value through profit or loss - - - - - - - Associates and other investments (981) (4,891) (12) (2,279) - (8,163) - Securities at amortized cost (136,267) (788,383) - - - (924,650) (3,038) Property and equipment (27,187) (20,199) (2,852) (1,434) (1) (51,673) (1,063) Intangible assets (1,200) (17,171) - (3) (110) (18,484) (1,391) Right-of-use assets (1,920) (1,941) - - - (3,861) (3,209) Investment properties - (9,910) - - - (9,910) - Derivative financial assets designated as hedge accounting - (1,842) - - - (1,842) - Other assets (31,533) (50,941) (11,294) (10,502) (6) (104,276) (6,852) Total assets (1,223,463) (3,979,759) (15,083) (14,803) (174) (5,233,282) (248,579)
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NOTE 42: ACQUISITION (in HUF mn) [continued] The fair value of the assets and liabilities acquired is as follows [continued]: JSCMB 'Ipoteka Bank' (June 2023) NKBM group (February 2023) Aranykalasz group (August 2023) Szekszard group (November 2023) OTP Invest (July 2023) Total (2023) Alpha Bank SH.A. (July 2022) Amounts due to the banks, the National Governments, deposits from the National Banks and other banks and repo liabilities 571,792 69,398 300 990 - 642,480 1,969 Deposits from customers 309,898 3,250,141 - - 188 3,560,227 213,400 Liabilities from issued securities 118,897 169,071 - - - 287,968 - Derivative financial liabilities held for trading - - - - - - - Derivative financial liabilities designated as hedge accounting - 2,982 - - - 2,982 - Leasing liabilities - 1,967 - - - 1,967 3,346 Other liabilities 27,681 51,157 1,415 768 7 81,028 6,089 Subordinated bonds and loans 12,098 32,916 - - - 45,014 - Total liabilities 1,040,366 3,577,632 1,715 1,758 195 4,621,666 224,804 Net assets (183,097) (402,127) (13,368) (13,045) 21 (611,616) (23,775) JSCMB 'Ipoteka Bank' (June 2023) NKBM group (February 2023) Aranykalasz group (August 2023) Szekszard group (November 2023) OTP Invest (July 2023) Total (2023) Alpha Bank SH.A. (July 2022) Net assets total (183,097) (402,127) (13,368) (13,045) 21 (611,616) (23,775) Non-controlling interest 1 3,149 - - - - 3,149 - Negative goodwill / (Goodwill) 93,891 104,470 - - (324) 198,037 3,784 Net cash (86,057) (297,657) (13,368) (13,045) (303) (410,430) (19,991) Cash acquired on purchase 98,886 887,441 925 585 57 987,894 58,880 Net cash paid for acquisition 12,829 589,784 (12,443) (12,460) (246) 577,464 38,889 Purchase price - part one (83,347) Purchase price - part two (2,710) Total (86,057) 1 Non-controlling interest was measured at its proportionate share of net assets of the acquiree.
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NOTE 42: ACQUISITION (in HUF mn) [continued] The fair value of the assets and liabilities acquired is as follows [continued]: Breakdown of the acquired entity’s income, profit / loss from the date of the acquisition: Interest income Net result One-off expense 2 JSCMB 'Ipoteka Bank' 96,490 (52,760) (40,060) NKBM group 156,314 77,804 (10,010) Aranykalász group - - - Szekszárd group - - - OTP Invest 1 (37) - Total 252,805 25,007 (50,070) 2 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). Breakdown of the acquired entity’s income, profit / loss if the Group would have acquired from the beginning of year 2023: Interest income Net result One-off expense 2 JSCMB 'Ipoteka Bank' 175,815 (70,215) (40,060) NKBM group 166,772 79,338 (10,010) Aranykalász group - 1,607 - Szekszárd group - 2,904 - OTP Invest 2 (89) - Total 342,589 13,545 (50,070) 2 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). With the acquisition the following shares were purchased: Number of shares Type Voting rights JSCMB 'Ipoteka Bank' 2,203,591,374,374 Common stock 73.7090% JSCMB 'Ipoteka Bank' 59,197,658 Preferred dividend 0.0020% Ipoteka Leasing LLC 60,000,000,000 Common stock 100.00% IMKON Sugurta JSC 45,000,000,000 Business share 100.00% Mortgage refinancing Company of Uzbekistan 20,000,000 Common stock 20.00% OTP Luxembourg s.á.r.l. 2,771,440 Business share 100.00% Nova Kreditna Banka Maribor d.d. 10,000,000 Common stock 100.00% Telekom Slovenije, d.d. 11,938 Common stock 0.18% Elektro Maribor d.d. 76,715 Common stock 0.23% Pivka Perutninarstvo d.d. 486 Common stock 0.04% Skupina Prva, Zavarovalniški Holding, d.d. 4,764 Preferred dividend 2.35% Sava d.d. 496,851 Common stock 1.71% VISA Inc. C 3,688 Preferred dividend 0.00% VISA Inc. A 369 Preferred dividend 0.00% Bodočnost Maribor d.o.o. 1 Business share 1.00% Sklad Za Reševanje Bank 50,003,264 Business share 26.17% SWIFT SCRL La Hulpe, Belgija 32 Business share 0.03% Bankart d.o.o. 584,424 Business share 29.22% Aleja Finance d.o.o. 500,000 Business share 100.00%
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NOTE 42: ACQUISITION (in HUF mn) [continued] With the acquisition the following shares were purchased [continued]: Number of shares Type Voting rights Aranykalász 1955. Mezőgazdasági Ltd. 41,670,000 Business share 100.00% Dél-borsodi Gazdák Ltd. 3,703,260 Business share 40.82% "Egertej" Ltd. 4,274,600 Business share 28.12% Aranymező 2001. Mezőgazdasági Ltd. 2,250,000 Business share 100.00% Agromag-Plusz Mezőgazdasági Ltd. 28,650,000 Business share 98.34% Szekszárdi Mezőgazdasági Plc. 52 Common stock 100.00% Szajki Mezőgazdasági Plc. 659,859 Common stock 100.00% Újberek Ltd. 4,800,000 Business share 100.00% Sióvölgye Ltd. 156,580,000 Business share 100.00% Orbánhegyi Szőlőbirtok Limited partnership 25,000 Business share 76.92% Szekszárdi Liszt Pincészet Ltd. 30,000,000 Business share 100.00% Iphygénia Ltd. 51,000,000 Business share 100.00% ZA-Gamma Agro Ltd. 2,250,000 Business share 99.00% GM Agrár Ltd. 3,000,000 Business share 100.00% Szajkmenti Gazda Limited partnership 95,000 Business share 100.00% Sióparti Gazda Limited partnership 5,000 Business share 87.50% OTP invest AD Beograd 177,032 Common stock 100.00%
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NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) Investments in companies in which the Bank has a controlling interest are detailed below. They are fully consolidated companies and incorporated in Hungary unless otherwise stated. Significant subsidiaries Name Ownership (Direct and Indirect) Activity 31/12/2023 31/12/2022 DSK Bank AD (Bulgaria) 99.92% 99.92% commercial banking services OTP Bank JSC (Ukraine) 100.00% 100.00% commercial banking services JSC “OTP Bank” (Russia) 97.92% 97.92% commercial banking services OTP banka d.d. (Croatia) 100.00% 100.00% commercial banking services OTP Bank Romania S.A. (Romania) 100.00% 100.00% commercial banking services OTP banka Srbija a.d. Novi Sad (Serbia) 100.00% 100.00% commercial banking services Crnogorska komercijalna banka a.d. (Montenegro) 100.00% 100.00% commercial banking services Banka OTP Albania SH.A. (Albania) 100.00% 100.00% commercial banking services OTP Bank S.A. (Moldova) 98.26% 98.26% commercial banking services SKB Banka d.d. Ljubljana (Slovenia) 100.00% 100.00% commercial banking services Nova Kreditna Banka Maribor d.d. (Slovenia) 100.00% - commercial banking services JSCMB 'Ipoteka Bank' (Uzbekistan) 79.58% - commercial banking services OTP Financing Malta Company Ltd. (Malta) 100.00% 100.00% refinancing activities OTP Holding Ltd. (Cyprus) 100.00% 100.00% refinancing activities OTP Factoring Ltd. 100.00% 100.00% work-out OTP Mortgage Bank Ltd. 100.00% 100.00% mortgage lending OTP Real Estate Ltd. 100.00% 100.00% real estate management and development Merkantil Bank Ltd. 100.00% 100.00% finance lease OTP Building Society Ltd. 100.00% 100.00% housing savings and loan OTP Fund Management Ltd. 100.00% 100.00% fund management Bank Center No. 1. Ltd. 100.00% 100.00% real estate lease Inga Kettő Ltd. 100.00% 100.00% property management OTP Funds Servicing and Consulting Ltd. 100.00% 100.00% fund services OTP Real Estate Leasing Ltd. 100.00% 100.00% real estate leasing
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NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) [continued] Significant associates and joint ventures Summarized financial and non-financial information of associates which are accounted according to IAS 28 and in line with IFRS 9 as at 31 December 2023 is as follows: List of associated entities Carrying amount Ownership of OTP Bank Profit after tax Country / Headquarter Activity Edrone spółka z ograniczoną odpowiedzialnością 848 23.54% (342) Poland / Krakow Computer programming activities NovaKid Inc. 2,009 4.07% (231) USA / San Francisco Online kids English learning platform operator Banzai Cloud Closed Co. Plc 4 17.42% 267 Hungary /Budapest Computer programming activities CodeCool Ltd 1,310 7.26% (731) Hungary /Budapest Other education Pepita.hu Closed Co. Plc 2,679 38.75% (580) Hungary / Szeghalom Retail sale via mail order houses or via Internet Seon Holdings Ltd 8,070 19.26% (1,210) UK / London Computer programming activities VCC Live Group Closed Co. Plc 1,632 24.72% (220) Hungary /Budapest Computer programming activities Cursor Insight Ltd 73 6.75% (51) UK / London Computer programming activities OneSoil Ag. 6 3.72% (819) Switzerland / Zurich Computer programming activities Packhelp Spółka Akcyjna 899 3.14% (2,725) Poland / Warsaw Manufacture of corrugated paper and paperboard and of containers of paper and paperboard Phoenix Play Invest Closed Co. Plc 6,368 21.68% 151 Hungary /Budapest Activities of holding companies Algorithmiq Invest Closed Co. Plc 5,185 21.68% (8,907) Hungary /Budapest Activities of holding companies Deligo Vision Technologies Ltd 302 8.70% (215) Hungary /Budapest Other information service activities Shopper Park Plus Closed Co. Plc. 1 5,237 2.80% 3,175 Hungary /Budapest Sale and purchase of own real estate New Frontier Technology Invest SARL 3,624 14.00% 103 Luxemburg / Luxembourg Activities of holding companies Mindgram sp. z.o.o 206 2.38% (1,083) Poland / Warsaw Other human health activities Tine Limited - 0.00% (1,086) Great Britain / London Child day-care services Renewabl Ltd. 102 5.01% (269) Great Britain / London Other information technology services Giganci Programowania sp. z.o.o. 514 5.03% (149) Poland / Warsaw Other education FlowX.Ai., Inc 2,252 9.50% (1,786) USA / Camano Park Computer programming activities Commsignia Inc. 1,763 3.17% (1,438) USA / Santa Clara Retail sale of computers, peripheral units and software in specialized stores Deskbird AG 1,079 8.46% (1,944) St. Gallen / Switzerland Computer programming activities Subtotal (Investments through funds) 44,162 (20,090) OTP Risk Fund I. 611 44.12% 158 Hungary /Budapest Trusts, funds and similar financial entities OTP-DayOne Magvető Fund 280 22.00% 308 Hungary /Budapest Trusts, funds and similar financial entities D-ÉG Thermoset Ltd 'u.l.' - 46.99% n.a. Hungary / Dunaújváros Wholesale of hardware, plumbing and heating equipment and supplies Company for Cash Services AD 392 25.00% 337 Bulgaria / Sofia Other financial service activities, except insurance and pension funding Fabetker Ltd 3 20.00% 119 Hungary / Nádudvar Manufacture of concrete products for construction purposes NGY Propertiers Investment SRL 11,637 14.54% 6,903 Romania / Bucharest Renting and operating of own or leased real estate Fintech CEE Software Invest Ltd 408 20.04% (7) Hungary /Budapest Activities of holding companies Bankart Procesiranje Placilnih Instrumentov d.o.o. 7,219 43.06% (1,733) Ljubjana / Slovenia Data processing, web hosting services Mortgage refinancing Company of Uzbekistan 1,030 20.00% (615) Tashkent / Uzbekistan Refinancing mortgage loans Dél-borsodi Gazdák Ltd. 4 40.92% (4) Hungary / Mezőkeresztes Wholesale of grain, tobacco, seeds and animal feeds. "Egertej"Ltd. 8 28.12% 78 Hungary / Eger Manufacture of dairy products. Orbánhegyi Szőlőbirtok - 25.00% 28 Hungary / Budapest Viticulture Subtotal 21,592 5,572 Total 65,754 (14,518) 1 Previously known as: GRADUW Invest Closed Co. Plc
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NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) [continued] Significant associates and joint ventures [continued] Summarized financial and non-financial information of associates which are accounted according to IAS 28 and in line with IFRS 9 as at 31 December 2022 is as follows: List of associated entities Carrying amount Ownership of OTP Bank Profit after tax Country / Headquarter Activity Edrone spółka z ograniczoną odpowiedzialnością 822 23.54% (516) Poland / Krakow Computer programming activities NovaKid Inc. 1,723 4.07% (5,409) USA / San Francisco Online kids English learning platform operator Banzai Cloud Closed Co. Plc 216 17.42% 267 Hungary /Budapest Computer programming activities CodeCool Ltd 1,323 20.15% 1 Hungary /Budapest Other education Pepita.hu Closed Co. Plc 1,323 40.00% (157) Hungary / Szeghalom Retail sale via mail order houses or via Internet Seon Holdings Ltd 8,689 19.26% (3) UK / London Computer programming activities VCC Live Group Closed Co. Plc 1,308 24.75% (226) Hungary /Budapest Computer programming activities Cursor Insight Ltd 75 6.75% n.a. UK / London Computer programming activities OneSoil Ag. 362 3.72% (514) Switzerland / Zurich Computer programming activities Packhelp Spółka Akcyjna 1,168 3.15% (3,385) Poland / Warsaw Manufacture of corrugated paper and paperboard and of containers of paper and paperboard Phoenix Play Invest closed Co. Plc 2,350 21.69% (1) Hungary /Budapest Activities of holding companies Algorithmiq Invest Closed Co. Plc 8,195 21.69% 792 Hungary /Budapest Activities of holding companies Deligo Vision Technologies Ltd 205 2.50% (15) Hungary /Budapest Other information service activities GRADUW Invest Closed Co. Plc 4,803 3.81% 131 Hungary /Budapest Sale and purchase of own real estate SEH-Partner Ltd 6,403 30.56% n.a. Hungary /Budapest Activities of holding companies New Frontier Technology Invest SARL 3,393 14.01% n.a. Luxemburg / Luxembourg Activities of holding companies Mindgram sp. z.o.o 200 2.38% (328) Poland / Warsaw Other human health activities Subtotal (Investments through funds) 42,558 (9,363) OTP Risk Fund I. 520 44.12% (52) Hungary /Budapest Trusts, funds and similar financial entities OTP-DayOne Magvető Fund 683 22.00% 13 Hungary /Budapest Trusts, funds and similar financial entities D-ÉG Thermoset Ltd 'u.l.' - 46.99% - Hungary / Dunaújváros Wholesale of hardware, plumbing and heating equipment and supplies Company for Cash Services AD 392 25.00% 183 Bulgaria / Sofia Other financial service activities, except insurance and pension funding Fabetker Ltd 1 20.48% 135 Hungary / Nádudvar Manufacture of concrete products for construction purposes NGY Propertiers Investment SRL 11,735 14.54% (22,567) Romania / Bucharest Renting and operating of own or leased real estate Simonyi út 20. Ingatlanhasznosító Ltd 90 47.62% - Hungary /Debrecen Renting and operating of own or leased real estate Fintech CEE Software Invest Ltd 127 20.04% n.a. Hungary /Budapest Activities of holding companies Subtotal 13,548 (22,288) Total 56,106 (31,651)
OTP Bank Plc Consolidated Financial Statements 2023 181 NOTE 44: TRUST ACTIVITIES (in HUF mn) The Bank acts as a trustee for certain loans granted by companies or employers to their employees, mainly for housing purposes. The ultimate risk for these loans rests with the party advancing the funds. As these loans and related funds are not considered to be assets or liabilities of the Group, they have been excluded from the accompanying Consolidated Statement of Financial Position. 31/12/2023 31/12/2022 The amount of loans managed by the Group as a trustee 37,402 37,714
OTP Bank Plc Consolidated Financial Statements 2023 182 NOTE 45: CONCENTRATION OF ASSETS AND LIABILITIES 31/12/2023 31/12/2022 In the percentage of the total assets Receivables from, or securities issued by the Hungarian Government or the NBH 13.32% 14.75% There were no other significant concentrations of the assets or liabilities of the Group either as at 31 December 2023 or as at 31 December 2022. The Group continuously provides the NBH with reports on the extent of dependency on large depositors as well as the exposure of the biggest 50 depositors towards the Group. Further to this obligatory reporting to the NBH, the Group pays particular attention on the exposure of its largest partners and cares for maintaining a closer relationship with these partners in order to secure the stability of the level of deposits. The organisational unit of the Bank in charge of partner-risk management analyses the biggest partners on a constant basis and sets limits on the Bank’s and the Group’s exposure separately partner -by-partner. If necessary, it modifies partner-limits in due course thereby reducing the room for manoeuvring of the Treasury and other business areas. The Bank’s internal regulation (Limit-management regulation) controls risk management related to exposures of clients. The Bank makes a difference between clients or clients who are economically connected with each other, partners, partners operating in the same geographical region or in the same economic sector, exposures from customers. Limit-management regulation includes a specific range provision system used by the Bank to control risk exposures. This regulation has to be used by the Bank for its business (lending) risk-taking activity both in retail and corporate sector. To specify credit risk limits Group strives their clients get an acceptable margin of risk based on their financial situation. In the Group limit system has to be provided a lower-level decision-making delegation. If a Group member takes risk against a client or group of clients (either inside the local economy or outside), the client will be qualified as a group level risk and these limits will be specified at group level. The validity period of this policy is 12 months. The limit shall be reviewed prior to the expiry date but at least once a year - based on the relevant information required to limit calculations.
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NOTE 46: EARNINGS PER SHARE Consolidated Earnings per share attributable to the ordinary shares of the Group are determined by dividing consolidated Net profit for the year attributable to ordinary shareholders, after the deduction of declared preference dividends, by the weighted average number of ordinary shares outstanding during the year. Dilutive potential ordinary shares are deemed to have been converted into ordinary shares. Earnings per share from continuing and discontinued operations 31/12/2023 31/12/2022 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 988,658 346,354 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) 267,591,265 268,790,272 Basic Earnings per share (in HUF) 3,695 1,289 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 988,658 346,354 Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) 267,737,358 268,873,185 Diluted Earnings per share (in HUF) 3,693 1,288 Earnings per share from continuing operations 31/12/2023 31/12/2022 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 1,009,904 318,351 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) 267,591,265 268,790,272 Basic Earnings per share (in HUF) 3,774 1,184 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 1,009,904 318,351 Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) 267,737,358 268,873,185 Diluted Earnings per share (in HUF) 3,772 1,184 Earnings per share from discontinued operations 31/12/2023 31/12/2022 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) (21,246) 28,003 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) 267,591,265 268,790,272 Basic Earnings per share (in HUF) (79) 104 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) (21,246) 28,003 Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) 267,737,358 268,873,185 Diluted Earnings per share (in HUF) (79) 104
OTP Bank Plc Consolidated Financial Statements 2023 184
NOTE 46: EARNINGS PER SHARE [continued] 31/12/2023 31/12/2022 Weighted average number of ordinary shares 280,000,010 280,000,010 Average number of Treasury shares 12,408,745 11,209,738 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS 267,591,265 268,790,272 Dilutive effects of options issued in accordance with the remuneration policy and convertible into ordinary shares 1 146,093 82,913 The modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS 267,737,358 268,873,185 1 Both in the year 2023 and 2022 the dilutive effect is in connection with the Remuneration Policy and the Management Option Program.
OTP Bank Plc Consolidated Financial Statements 2023 185
NOTE 47: NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS (in HUF mn) 31/12/2023 Net interest / similar to interest gain and loss Net non-interest gain and loss Loss allowance Other Compre- hensive Income Cash, amounts due from banks and balances with the National Banks 354,208 - 1,060 - Placements with other banks 187,436 - 1,455 - Repo receivables 17,011 - (371) - Securities at amortized cost 242,256 (18,716) 9,185 - Loans at amortized cost 1,345,570 34,335 (149,822) - Finance lease receivables 100,749 - 1,656 - Other financial assets 2 6,942 - 1,333 - Financial assets at amortized cost total 2,254,172 15,619 (135,504) - Trading securities at fair value through profit or loss - 7,713 - - Non-trading instruments mandatorily at fair value through profit or loss - 8,240 - - Interest-bearing securities at fair value through other comprehensive income 1 55,320 (1,221) (354) 76,954 Non-interest-bearing instruments at fair value through other comprehensive income - 430 - 1,465 Loans mandatorily at fair value through profit or loss 92,117 96,082 (91) - Financial assets at fair value total 147,437 111,244 (445) 78,419 Total result on financial assets 2,401,609 126,863 (135,949) 78,419 Amounts due to banks, the National Governments, deposits from the National Banks and other banks (74,338) - - - Repo liabilities (40,398) - - - Deposits from customers (484,398) 386,823 - - Liabilities from issued securities (116,628) - - - Leasing liabilities (2,970) - - - Subordinated bonds and loans (32,565) - - - Financial liabilities at amortized cost total (751,297) 386,823 - - Financial liabilities designated at fair value through profit or loss (1,433) (4,542) - - Total result on financial liabilities (752,730) 382,281 - - Derivative financial instruments 2 (262,173) (12,760) - - Total result on financial instruments 1,386,706 496,384 (135,949) 78,419 1 For the year 2023 HUF (1,221) million net non-interest loss on securities at fair value through other comprehensive income was transferred from other comprehensive income to profit or loss. 2 Gains from other financial assets and derivative financial instruments recognized in net interest income as Income similar to interest income. Current year change of derivative financial assets and liabilities held-for-trading and designated as hedge accounting by types of results in the profit or loss 31/12/2023 Held-for-trading Hedge accounting Balance as at 1 January (109,265) 20,298 Change in current period through p/l 106,994 (44,576) on interest income/interest expense (27,506) 86,915 on net results on derivative instruments 66,774 (26,714) on revaluation difference 67,726 (104,777) Realized result on closed deals /matured deals 13,088 494 Increase due to acquisition 104 1,842 Assets held for sale 1,216 - Foreign currency translation difference 1,004 10 Closing balance 13,141 (21,932)
OTP Bank Plc Consolidated Financial Statements 2023 186
NOTE 47: NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS (in HUF mn) [continued] 31/12/2022 Net interest / similar to interest gain and loss Net non-interest gain and loss Loss allowance Other Compre- hensive Income Cash, amounts due from banks and balances with the National Banks 62,120 - (440) - Placements with other banks 153,692 - (19) - Repo receivables 4,261 - 50 - Securities at amortized cost 139,445 (4,636) (31,471) - Loans at amortized cost 906,011 31,144 (168,406) - Finance lease receivables 74,994 - (23,513) - Other financial assets 2 4,123 - (1,204) - Financial assets at amortized cost total 1,344,646 26,508 (225,003) - Trading securities at fair value through profit or loss - (3,168) - - Non-trading instruments mandatorily at fair value through profit or loss 54 265 - - Interest-bearing securities at fair value through other comprehensive income 1 53,078 (1,022) (29,290) (123,874) Non-interest-bearing instruments at fair value through other comprehensive income - 8 - 4,497 Loans mandatorily at fair value through profit or loss 54,036 (5,951) 13,346 - Financial assets at fair value total 107,168 (9,868) (15,944) (119,377) Total result on financial assets 1,451,814 16,640 (240,947) (119,377) Amounts due to banks, the National Governments, deposits from the National Banks and other banks (14,885) - - - Repo liabilities (31,006) - - - Deposits from customers (253,609) 338,952 - - Liabilities from issued securities (27,838) - - - Leasing liabilities (2,296) - - - Subordinated bonds and loans (8,986) - - - Financial liabilities at amortized cost total (338,620) 338,952 - - Financial liabilities designated at fair value through profit or loss (562) 1,932 - - Total result on financial liabilities (339,182) 340,884 - - Derivative financial instruments 2 (85,764) 16,360 - - Total result on financial instruments 1,026,868 373,884 (240,947) (119,377) 1 For the year of 2022 HUF (1,022) million net non-interest loss on securities at fair value through other comprehensive income was transferred from other comprehensive income to profit or loss. 2 Gains from other financial assets and derivative financial instruments recognized in net interest income as Income similar to interest income. Current year change of derivative financial assets and liabilities held for trading and designated as hedge accounting by types of results in the profit or loss 31/12/2022 Held-for-trading Hedge accounting Balance as at 1 January (18,232) 7,529 Change in current period through p/l (57,689) 1,555 on interest income/interest expense (56,775) (1,152) on net results on derivative instruments (77,886) 48,429 on revaluation difference 76,972 (45,722) Realized result on closed deals /matured deals (31,820) 11,219 Foreign currency translation difference (1,524) (5) Closing balance (109,265) 20,298
OTP Bank Plc Consolidated Financial Statements 2023 187
NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) In determining the fair value of a financial asset or liability the Group uses the market price in the case of instruments that are quoted on an active market. In most cases market price is not publicly available, so the Group has to make assumptions or use valuation techniques to determine the fair value of a financial instrument. See Note 48.4. for more information about fair value classes applied for financial assets and liabilities measured at fair value in these financial statements. To provide a reliable estimate of the fair value of those financial instruments that are originally measured at amortized cost, the Group used the discounted cash-flow analyses (loans, placements with other banks, repo receivables, amounts due to banks, repo liabilities, deposits from customers). The fair value of issued securities and subordinated bonds is based on quoted prices (e.g. Reuters). Cash and amounts due from banks and balances with the National Banks represent amounts available immediately thus the fair value equals to the cost. The assumptions used when calculating the fair value of financial assets and liabilities when using valuation technique are the following: • the discount rates are the risk-free rates related to the denomination currency adjusted by the appropriate risk premium as of the end of the reporting period, • the contractual cash-flows are considered for the performing loans and for the non-performing loans, the amortized cost less impairment is considered as fair value, • the future cash-flows for floating interest rate instruments are estimated from the yield curves as of the end of the reporting period, • the fair value of the deposit which can be due in demand cannot be lower than the amount payable on demand. Classes of assets and liabilities not measured at fair value in the Consolidated Statement of Financial Position, the income approach was used to convert future cash-flows to a single current amount. Fair value of current assets is equal to carrying amount, fair value of liabilities from issued securities and other bond-type classes of assets and liabilities not measured at fair value measured based on Reuters market rates, and the fair value of other classes not measured at fair value of the Consolidated Statement of Financial Position is measured at discounted cash- flow method. Fair value of loans, net of loss allowance for loans measured at discount rate adjustment technique, the discount rate is derived from observed rates of return for comparable assets or liabilities that are traded in the market. Methods and significant assumptions used to determine fair value of the different levels of financial instruments: - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; - Level 2: inputs other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly. - Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Asset held for sale is valued at fair value less cost to sell, that is in this case equal to the sales price and would be classified as Level 3 fair value. Use of modified yield curve During the year ended 31 December 2023 and 2022 yield curves derived from Hungarian government bonds (“ÁKK curve”) have become distorted due to certain market events, which means that real liquidity has concentrated on certain part of the yield curve. Therefore, a modified yield curve - which is not observable on the market - has been used at the concerning fair value calculations. This yield curve is based on the relevant yield curve points of the original ÁKK curve. Based on Management’s discretion fair value calculated with modified yield curves can represent the perspective of market participants reliable at current market conditions. For the year ended 31 December 2023 and 2022 modified yield curve was used for calculating fair value in case of subsidized personal loans represented in “Loans mandatorily measured at fair value through profit or loss” line.
OTP Bank Plc Consolidated Financial Statements 2023 188 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.1. Fair value of financial assets and liabilities at amortized cost by level of the fair value hierarchy and their carrying amount 31/12/2023 Carrying amount Fair value Level 1 Level 2 Level 3 Cash, amounts due from banks and balances with the National Banks 7,125,049 7,125,049 6,005,164 1,119,885 - Placements with other banks 1,566,998 1,448,684 1,059,696 375,266 13,722 Repo receivables 223,884 223,884 - 223,884 - Securities at amortized cost 5,249,272 5,184,729 4,478,411 640,591 65,727 Loans at amortized cost 17,676,533 17,723,130 - 1,219 17,721,911 Finance lease receivables 1,289,712 1,504,439 189,830 91,948 1,222,661 Other financial assets 282,400 282,400 - - 282,400 Total financial assets at amortized cost 33,413,848 33,492,315 11,733,101 2,452,793 19,306,421 Amounts due to the National Governments, to the National Banks and other banks 1,940,862 1,974,503 458,700 690,452 825,351 Repo liabilities 126,237 126,237 - 126,237 - Deposits from customers 28,332,431 28,295,214 - 10,459,658 17,835,556 Liabilities from issued securities 2,095,548 2,118,233 1,770,138 19,629 328,466 Leasing liabilities 76,313 76,313 - - 76,313 Other financial liabilities 656,864 656,864 - - 656,864 Subordinated bonds and loans 562,396 452,595 410,495 - 42,100 Total financial liabilities at amortized cost 33,790,651 33,699,959 2,639,333 11,295,976 19,764,650 31/12/2022 Carrying amount Fair value Level 1 Level 2 Level 3 Cash, amounts due from banks and balances with the National Banks 4,221,392 4,221,392 3,557,491 663,901 - Placements with other banks 1,351,082 1,322,560 967,438 342,595 12,527 Repo receivables 41,009 42,993 - 42,993 - Securities at amortized cost 4,891,938 4,048,877 3,063,237 764,096 221,544 Loans at amortized cost 16,094,458 15,557,928 - 1,757,358 13,800,570 Finance lease receivables 1,298,752 1,320,286 - 264,057 1,056,229 Other financial assets 262,981 262,981 - - 262,981 Total financial assets at amortized cost 28,161,612 26,777,017 7,588,166 3,835,000 15,353,851 Amounts due to the National Governments, to the National Banks and other banks 1,463,158 1,109,924 42,544 123,662 943,718 Repo liabilities 217,369 227,669 - 227,669 - Deposits from customers 25,188,805 25,056,412 - 12,452,761 12,603,651 Liabilities from issued securities 870,682 743,907 545,677 15,454 182,776 Leasing liabilities 63,778 63,791 - - 63,791 Other financial liabilities 645,652 645,652 - - 645,652 Subordinated bonds and loans 301,984 268,911 229,121 - 39,790 Total financial liabilities at amortized cost 28,751,428 28,116,266 817,342 12,819,546 14,479,378
OTP Bank Plc Consolidated Financial Statements 2023 189 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.2. Fair value of derivative instruments The Group regularly enters into hedging transactions in order to decrease its financial risks. However some economically hedging transaction do not meet the criteria to qualify as hedge accounting, therefore these transactions were accounted for as derivatives held for trading. The assessment of the hedge effectiveness (both for fair value hedges and cash flow hedges) to determine the economic relationship between the hedged item and the hedging instrument is accomplished with prospective scenario analysis via different rate shift scenarios of the relevant risk factor(s) of the hedged risk component(s). The fair value change of the hedged item and the hedging instrument is compared in the different scenarios. Economic relationship is justified if the change of the fair value of the hedged item and the hedging instrument are in the opposite direction and the absolute changes are similar amounts. The hedge ratio is determined as the ratio of the notional of the hedged item and the notional of the hedging instrument. The sources of hedge ineffectiveness are the not hedged risk components (e.g. change of cross currency basis spreads in case of interest rate risk hedges), slight differences in maturity dates and interest payment dates in case of fair value hedges, and differences between the carrying amount of the hedged item and the carrying amount of the hedging instrument in case of FX hedges (e.g. caused by interest rate risk components in the fair value of the hedging instrument).
The summary of the derivatives held for trading and derivatives designated as hedge accounting of the Group are as follows:
OTP Bank Plc Consolidated Financial Statements 2023 190 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.2. Fair value of derivative instruments [continued] 31/12/2023 31/12/2022 Before netting Netting After netting Before netting Netting After netting Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Held for trading derivative financial instruments Interest rate derivatives Interest rate swaps 134,599 (117,778) 110,939 23,660 (6,839) 165,478 (171,706) 155,468 10,010 (16,238) Cross currency interest rate swaps 8,644 (6,544) - 8,644 (6,544) 11,332 (12,139) - 11,332 (12,139) OTC options 2,024 (2,033) - 2,024 (2,033) 1,074 (1,069) - 1,074 (1,069) Forward rate agreement - (214) - - (214) 505 (3) 505 - 502 Total interest rate derivatives (OTC derivatives) 145,267 (126,569) 110,939 34,328 (15,630) 178,389 (184,917) 155,973 22,416 (28,944) Foreign exchange derivatives Foreign exchange swaps 31,397 (32,382) - 31,397 (32,382) 76,881 (72,959) - 76,881 (72,959) Foreign exchange forward contracts 7,101 (11,061) - 7,101 (11,061) 13,085 (13,740) - 13,085 (13,740) OTC options 1,016 (871) - 1,016 (871) 1,048 (822) - 1,048 (822) Foreign exchange spot conversion 170 (319) - 170 (319) 177 (177) - 177 (177) Total foreign exchange derivatives (OTC derivatives) 39,684 (44,633) - 39,684 (44,633) 91,191 (87,698) - 91,191 (87,698) Equity stock and index derivatives Commodity Swaps 32,336 (31,661) - 32,336 (31,661) 33,693 (31,632) - 33,693 (31,632) Equity swaps 126 (3,826) - 126 (3,826) 54 (702) - 54 (702) OTC derivatives total 32,462 (35,487) - 32,462 (35,487) 33,747 (32,334) - 33,747 (32,334) Exchange traded futures and options 433 (451) - 433 (451) 214 (1,887) - 214 (1,887) Total equity stock and index derivatives 32,895 (35,938) - 32,895 (35,938) 33,961 (34,221) - 33,961 (34,221) Derivatives held for risk management not designated in hedge Interest rate swaps 64,288 (44,577) 22,237 42,051 (22,340) 136,164 (239,975) 18,944 117,220 (221,031) Foreign exchange swaps 4,671 (19,546) - 4,671 (19,546) 2,514 (10,190) - 2,514 (10,190) Foreign exchange spot - - - - - - (43) - - (43) Forward contracts - - - - - - - - - - Cross currency interest rate swaps - (2,401) - - (2,401) 9,180 (3,620) - 9,180 (3,620) Total derivatives held for risk management not designated in hedge 68,959 (66,524) 22,237 46,722 (44,287) 147,858 (253,828) 18,944 128,914 (234,884) Total held for trading derivative financial instruments 286,805 (273,664) 133,176 153,629 (140,488) 451,399 (560,664) 174,917 276,482 (385,747)
OTP Bank Plc Consolidated Financial Statements 2023 191 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.2. Fair value of derivative instruments [continued] 31/12/2023 31/12/2022 Before netting Netting After netting Before netting Netting After netting Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Derivative financial instruments designated as hedge accounting Derivatives designated in cash flow hedges Interest rate swaps 1,066 (1,066) 1,066 - - 2,651 (2,651) 2,651 - - Total derivatives designated in cash flow hedges 1,066 (1,066) 1,066 - - 2,651 (2,651) 2,651 - - Derivatives designated in fair value hedges Interest rate swaps 42,347 (79,069) 25,130 17,217 (53,939) 56,757 (37,290) 30,938 25,819 (6,352) Cross currency interest rate swaps 24,750 (10,009) - 24,750 (10,009) 20,732 (5,398) - 20,732 (5,398) Foreign exchange swaps - - - - - 1,696 (16,199) - 1,696 (16,199) Interest rate swaps 168 (119) 168 - 49 - - - - - Total derivatives designated in fair value hedges 67,265 (89,197) 25,298 41,967 (63,899) 79,185 (58,887) 30,938 48,247 (27,949) Total derivatives held for risk management (OTC derivatives) 68,331 (90,263) 26,364 41,967 (63,899) 81,836 (61,538) 33,589 48,247 (27,949) Financial assets subject to offsetting, netting arrangement as at 31 December 2023 31/12/2023 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Assets not subject to netting arrangements Total assets Maximum exposure to risk Gross assets before offset Offsetting with gross liabilities Net assets recognized on the statement of financial position Financial liabilities Collateral received Assets after consideration of netting potential Assets recognized on the statement of financial position Recognized in the statement of financial position After consideration of netting potential Derivative financial instruments 324,446 (158,844) 165,602 (60,721) (76,853) 28,028 29,994 195,596 58,022
OTP Bank Plc Consolidated Financial Statements 2023 192 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.2. Fair value of derivative instruments [continued] Financial liabilities subject to offsetting, netting arrangement as at 31 December 2023 31/12/2023 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Liabilities not subject to netting arrangements Total liabilities Maximum exposure to risk Gross liabilities before offset Offsetting with gross assets Net liabilities recognized on the statement of financial position Financial assets Collateral pledged Liabilities after consideration of netting potential Liabilities recognized on the statement of financial position Recognized in the statement of financial position After consideration of netting potential Derivative financial instruments 347,414 (158,844) 188,570 (60,721) (103,563) 24,286 15,817 204,387 40,103 Financial assets subject to offsetting, netting arrangement as at 31 December 2022 31/12/2022 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Assets not subject to netting arrangements Total assets Maximum exposure to risk Gross assets before offset Offsetting with gross liabilities Net assets recognized on the statement of financial position Financial liabilities Collateral received Assets after consideration of netting potential Assets recognized on the statement of financial position Recognized in the statement of financial position After consideration of netting potential Derivative financial instruments 441,413 (208,506) 232,907 (90,551) (103,014) 39,342 91,822 324,729 131,164 Financial liabilities subject to offsetting, netting arrangement as at 31 December 2022 31/12/2022 Offsetting recognised on the balance sheet Netting potential not recognised on the balance sheet Liabilities not subject to netting arrangements Total liabilities Maximum exposure to risk Gross liabilities before offset Offsetting with gross assets Net liabilities recognized on the statement of financial position Financial assets Collateral pledged Liabilities after consideration of netting potential Liabilities recognized on the statement of financial position Recognized in the statement of financial position After consideration of netting potential Derivative financial instruments 580,572 (208,506) 372,066 (90,551) (240,661) 40,854 41,630 413,696 82,484
OTP Bank Plc Consolidated Financial Statements 2023 193 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting Interest rate risk management is centralized at the Group. Interest rate risk exposures in major currencies are managed at OTP Headquarter on a consolidated level. Although risk exposures in local currencies are managed at subsidiary level, the respective decisions are subject to Headquarter ALCO approval. Interest rate risk is measured by simulating NII and EVE under different stress and plan scenarios, the established risk limits are described in „OTP Bank’s Group-Level Regulations on the Management of Liquidity Risk and Interest Rate Risk of Banking Book”. The interest rate risk management activity aims to stabilize NII within the approved risk limits . The risk management objective of these hedge relationships is to mitigate the risk of clean fair value (i.e. excluding accrued interest) change of MIRS loans due to the change of interest rate reference indices (BUBOR, EURIBOR, LIBOR, etc.) of the respective currency. The ineffective part of fair value hedge accounting is presented on Interest income / Interest expense in the Consolidated Statement of Profit or Loss.
OTP Bank Plc Consolidated Financial Statements 2023 194 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] Amount, timing and uncertainty of future cash flows – hedging instruments as at 31 December 2023 (in fx million) 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 - - (121,675) (218,683) (51,700) (392,058) Average Interest Rate (%) - - 5.10% (3.24%) 4.72% EUR Notional - - 65 (461) 180 (216) Average Interest Rate (%) - - 2.64% 4.80% - USD Notional 30 45 - (1,013) 47 (891) Average Interest Rate (%) 2.10% 2.13% - 3.77% 4.18% JPY Notional - - - 4,500 - 4,500 Average Interest Rate (%) - - - 0.22% - Fair Value Hedge Foreign exchange & Interest rate risk Cross currency interest rate swap EUR/HUF Notional - 1 2 8 10 21 Average Interest Rate (%) (1.65%) (1.69%) (1.68%) (1.73%) (1.82%) Average FX Rate 310.23 310.02 310.10 309.36 307.71
OTP Bank Plc Consolidated Financial Statements 2023 195 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] Amount, timing and uncertainty of future cash flows – hedging instruments as at 31 December 2023 (in fx million) [continued] 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 Foreign exchange risk Cross currency interest rate swap EUR/HUF Notional - 175 250 1,167 500 2,092 Average FX Rate 363.88 356.12 359.11 383.36 381.11 RON/HUF Notional - - 575 1,950 - 2,525 Average FX Rate - - 73.75 73.98 - RUB/HUF Notional - - 4,000 7,870 - 11,870 Average FX Rate - - 3.65 3.73 - JPY/HUF Notional - - - 4,500 - 4,500 Average FX Rate - - - 2.43 - USD/HUF Notional - - 143 - - 143 Average FX Rate - 357.16 357.16 - - Other Interest rate swap HUF Notional - - 778 - - 778 Interest rate risk Interest rate swap EUR Notional - - (60) (240) (120) (420) Average Interest Rate (%) - - 3.54% 2.61% 2.42%
OTP Bank Plc Consolidated Financial Statements 2023 196 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] Amount, timing and uncertainty of future cash flows – hedging instruments as at 31 December 2022 (in fx million) 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 - - - (64,875) 30,300 (34,575) Average Interest Rate (%) - - - 7.15% 1.40% EUR Notional - - 101 10 50 161 Average Interest Rate (%) - - 0.24% 0.22% 0.05% USD Notional - 90 - 29 47 166 Average Interest Rate (%) - 2.60% - 2.35% 4.18% JPY Notional - - - 4,500 - 4,500 Average Interest Rate (%) - - - 0.22% - Fair Value Hedge Foreign exchange & Interest rate risk Cross currency interest rate swap EUR/HUF Notional - 1 2 10 11 24 Average Interest Rate (%) (1.64%) (1.68%) (1.68%) (1.71%) (1.82%) Average FX Rate 310.41 310.17 310.20 309.74 307.71
OTP Bank Plc Consolidated Financial Statements 2023 197 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] Amount, timing and uncertainty of future cash flows – hedging instruments as at 31 December 2022 (in fx million) [continued] 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 Foreign exchange risk Cross currency interest rate swap EUR/HUF Notional - (10) 125 878 - 993 Average FX Rate 363.88 407.57 362.11 373.88 - RON/HUF Notional - - 400 3,121 - 3,521 Average FX Rate - - 72.92 75.08 - JPY/HUF Notional - - - 4,500 - 4,500 Average FX Rate - - - 2.79 - USD/HUF Notional - (7) 144 146 - 283 Average FX Rate - 323.77 323.77 323.77 -
OTP Bank Plc Consolidated Financial Statements 2023 198 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] As at 31 December 2023 is as follows: 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 2023 Line item in the consolidated 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 2023 Before netting Netting After netting Assets Liabilities Assets Liabilities Fair value hedge IRS Interest rate risk 2,448,226 43,305 (79,238) 26,196 17,109 (53,042) Derivative financial instruments 10,642 designated as hedge accounting CCIRS FX & IR risk 6,394 - (1,418) - - (1,418) Derivative financial instruments (668) designated as hedge accounting CCIRS FX risk 1,009,180 24,750 (9,488) - 24,750 (9,488) Derivative financial instruments 38,146 designated as hedge accounting IRS Other 778 108 - - 108 - Derivative financial instruments 1 designated as hedge accounting IRS Interest rate risk 160,768 168 (119) 168 - 49 Derivative financial instruments 32 designated as hedge accounting Fair value hedges total 3,625,346 68,331 (90,263) 26,364 41,967 (63,899) 48,153
OTP Bank Plc Consolidated Financial Statements 2023 199 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] As at 31 December 2022 is as follows: 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 2022 Line item in the consolidated 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 2022 Before netting Netting After netting Assets Liabilities Assets Liabilities Fair value hedge IRS Interest rate risk 444,627 56,636 (37,258) 30,938 25,698 (6,320) Derivative financial instruments 12,873 designated as hedge accounting CCIRS FX & IR risk 7,292 - (2,679) - - (2,679) Derivative financial instruments 3 designated as hedge accounting CCIRS FX risk 813,430 20,732 (2,719) - 20,732 (2,719) Derivative financial instruments (6,087) designated as hedge accounting FX swap FX risk 290,982 1,696 (16,199) - 1,696 (16,199) Derivative financial instruments - designated as hedge accounting IRS Other 5,584 121 (32) - 121 (32) Derivative financial instruments 1 designated as hedge accounting Fair value hedges total 1,561,915 79,185 (58,887) 30,938 48,247 (27,949) 6,790
OTP Bank Plc Consolidated Financial Statements 2023 200 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] As at 31 December 2023 is as follows: Type of hedge Type of risk Carrying amount of the hedged item as at 31 December 2023 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 2023 Line item in the consolidated statement of financial position in which the hedged item is included Fair value hedges Assets Liabilities Assets Liabilities Loans Interest rate risk 26,839 - (3,178) - Loans at amortized cost Loans Interest rate risk - 143,857 - (11,249) Amounts due to banks, the National Governments, deposits from the National Banks and other banks Government bonds Interest rate risk 164,229 - 7,808 - Securities at amortized cost Government bonds Interest rate risk 806,018 - 28,001 - Securities at fair value through other comprehensive income Government bonds Interest rate risk Financial assets at fair value through profit or loss Other bonds Interest rate risk 3,828 - 203 - Securities at fair value through other comprehensive income Other bonds Interest rate risk - 730,971 - 31,398 Liabilities from issued securities Other bonds Interest rate risk - 219,989 - (157) Subordinated bonds and loans Loans Foreign exchange & Interest rate risk 3,266 - (96) - Loans at amortized cost Loans Foreign exchange risk 949,447 - - - Loans at amortized cost Refinanced loans Interest rate risk - 213,864 - 13,460 Amounts due to banks, the National Governments, deposits from the National Banks and other banks Government bonds Foreign exchange risk 10,986 - - - Securities at fair value through other comprehensive income Government bonds Foreign exchange risk 49,378 - - - Securities at amortized cost Other securities Other risk - 897 - (39) Liabilities from issued securities Customer deposits Interest rate risk - 157,543 - 84 Deposit from customers Fair value hedges total 2,013,991 1,467,121 32,738 33,497
OTP Bank Plc Consolidated Financial Statements 2023 201 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] As at 31 December 2022 is as follows: Type of hedge Type of risk Carrying amount of the hedged item as at 31 December 2022 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 2022 Line item in the consolidated statement of financial position in which the hedged item is included Fair value hedges Assets Liabilities Assets Liabilities Loans Interest rate risk 64,596 - (5,033) - Loans at amortized cost Loans Interest rate risk - 143,208 - (34,149) Amounts due to banks, the National Governments, deposits from the National Banks and other banks Government bonds Interest rate risk 14,814 - (4,601) - Securities at amortized cost Government bonds Interest rate risk 151,501 - (45,319) - Securities at fair value through other comprehensive income Government bonds Interest rate risk - - - - Financial assets at fair value through profit or loss Other bonds Interest rate risk 44,508 - (638) - Securities at fair value through other comprehensive income Other bonds Interest rate risk - 25,563 - 448 Liabilities from issued securities Loans Foreign exchange & Interest rate risk 9,099 - 503 - Loans at amortized cost Loans Foreign exchange risk 716,841 - - - Loans at amortized cost Government bonds Foreign exchange risk 12,797 - - - Securities at fair value through other comprehensive income Government bonds Foreign exchange risk 113,806 - - - Securities at amortized cost Other securities Other risk - 2,299 - (218) Liabilities from issued securities Fair value hedges total 1,127,962 171,070 (55,088) (33,919)
OTP Bank Plc Consolidated Financial Statements 2023 202 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] Change in basis swap spread recognised in the consolidated other comprehensive income related fair value hedges as follows: Type of risk Carrying amount of the hedged item Items recognized in the consolidated other comprehensive income for the year 2023 Change in the items recognized in other comprehensive income for the year 2023 Line item in the consolidated statement of financial position in which the hedged item is included Assets Liabilities FX risk 949,447 - 167 530 Loans at amortised cost FX risk 10,986 - (69) - Securities at fair value through other comprehensive income Total 960,433 - 98 530 Type of risk Carrying amount of the hedged item Items recognised in the consolidated other comprehensive income for the year 2022 Change in the items recognized in other comprehensive income for the year 2022 Line item in the consolidated statement of financial position in which the hedged item is included Assets Liabilities FX risk 716,841 - (363) 605 Loans at amortised cost FX risk 12,797 - (52) - Securities at fair value through other comprehensive income Total 729,638 - (415) 605 On Group level there weren’t any cash-flow hedges for the year ended 31 December 2023 and 2022, respectively.
OTP Bank Plc Consolidated Financial Statements 2023 203 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.3. Types of hedge accounting [continued] 31/12/2023 Change in fair value of hedged item for ineffectiveness assessment Translation difference Balances remaining in the Translation difference for hedge accounting is no longer applied Net assets of subsidiaries where the investment is in EUR - 69,188 (31,588) 31/12/2023 Carrying amount Changes in fair value of hedging instruments used for measuring hedge ineffectiveness Notional amount Liabilities Total Effective part recognized in other comprehensive income Hedge ineffectiveness recognized in statement of profit or loss Reclassification into statement of profit or loss Eur issued bonds 382,780 382,780 (2,707) (2,707) - - 31/12/2023 Less than 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total Eur issued bonds - - - 382,780 - 382,780
OTP Bank Plc Consolidated Financial Statements 2023 204 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: 31/12/2023 Total Level 1 Level 2 Level 3 Financial assets at fair value through profit or loss 288,885 96,816 179,786 12,283 Trading securities at fair value through profit or loss 67,568 48,016 19,552 - Positive fair value of derivative financial assets held for trading 153,629 433 153,196 - Non-trading instruments mandatorily at fair value through profit or loss 1 67,688 48,367 7,038 12,283 Interest-bearing securities at fair value through other comprehensive income 2 1,540,980 800,168 634,396 106,416 Non-interest bearing instruments at fair value through other comprehensive income 60,481 23,809 30,029 6,643 Loans mandatorily at fair value through profit or loss 1,400,485 - - 1,400,485 Equity instruments measured at fair value 3 44,162 - - 44,162 Positive fair value of derivative financial assets designated as fair value hedge 41,967 - 41,967 - Financial assets measured at fair value total 3,376,960 920,793 886,178 1,569,989 Financial liabilities designated at fair value through profit or loss 70,707 - - 70,707 Negative fair value of held-for-trading derivative financial liabilities 140,488 517 136,263 3,708 Negative fair value of derivative financial liabilities designated as fair value hedge 63,899 - 63,899 - Financial liabilities measured at fair value total 275,094 517 200,162 74,415 1 The portfolio in level 3 includes Visa C shares, East West Venture Capital Fund and TCEE Fund III. 2 The portfolio in level 3 includes HUF 78,355 million Ukrainian and HUF 22,452 million Russian government bonds. 3 The detailed list of equity investments measured at fair value categorized in level 3 is presented in Note 43. The fair value of investment properties is presented in Note 14 and they are categorized in level 3. Asset held for sale is valued at fair value less cost to sell, that is in this case equal to the sales price and would be classified as Level 3 fair value.
OTP Bank Plc Consolidated Financial Statements 2023 205 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels [continued] The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: 31/12/2022 Total Level 1 Level 2 Level 3 Financial assets at fair value through profit or loss 436,387 85,339 339,060 11,988 Trading securities at fair value through profit or loss 104,750 50,131 54,619 - Positive fair value of derivative financial assets held for trading 276,482 214 276,268 - Non-trading instruments mandatorily at fair value through profit or loss 1 55,155 34,994 8,173 11,988 Interest-bearing securities at fair value through other comprehensive income 2 1,699,446 541,910 1,092,841 64,695 Non-interest bearing instruments at fair value through other comprehensive income 40,157 20,171 10,241 9,745 Loans mandatorily at fair value through profit or loss 1,247,414 - - 1,247,414 Equity instruments measured at fair value 3 42,558 - - 42,558 Positive fair value of derivative financial assets designated as fair value hedge 48,247 - 48,247 - Financial assets measured at fair value total 3,514,209 647,420 1,490,389 1,376,400 Financial liabilities designated at fair value through profit or loss 54,191 - - 54,191 Negative fair value of held-for-trading derivative financial liabilities 385,747 1,886 383,211 650 Negative fair value of derivative financial liabilities designated as fair value hedge 27,949 - 27,949 - Financial liabilities measured at fair value total 467,887 1,886 411,160 54,841 1 The portfolio in level 3 includes Visa C shares. 2 The portfolio in level 3 includes HUF 26,571 million Ukrainian and HUF 27,415 million Russian government bonds. 3 The detailed list of equity investments measured at fair value categorized in level 3 is presented in Note 43. The fair value of investment properties is presented in Note 14 and they are categorized in level 3.
OTP Bank Plc Consolidated Financial Statements 2023 206 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels [continued] 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: 31/12/2023 Opening balance Purchase / Issuance / Disbursement (+) Settlement / Close / Sale (-) FVA (+/-) Transfer (+/-) Fx effect / Revaluation Other Closing balance Non-trading securities mandatorily at fair value through profit or loss 11,988 - (3) (359) 39 (116) 734 12,283 Interest-bearing securities at fair value through other comprehensive income2 64,695 78,411 (21,594) 3,458 (2,143) (2,838) (13,573) 106,416 Non-interest-bearing instruments at fair value through other comprehensive income 9,745 - (2) - (2,704) (541) 145 6,643 Loans mandatorily at fair value through profit or loss 1 1,247,414 154,902 (96,390) 91,575 394 11 2,579 1,400,485 Equity instruments measured at fair value 42,558 5,782 (4,769) 498 - 93 - 44,162 Financial assets measured at fair value total 1,376,400 239,095 (122,758) 95,172 (4,414) (3,391) (10,115) 1,569,989 Financial liabilities designated at fair value through profit or loss 54,191 - (1,332) 4,543 - - 13,305 70,707 Negative fair value of held-for-trading derivative financial liabilities 650 - - 3,050 - - 8 3,708 Financial liabilities designated at fair value total 54,841 - (1,332) 7,593 - - 13,313 74,415 1 HUF (91) million fair value adjustment resulting from risk factors and HUF 93,581 million adjustment resulting from market factors.are included into FVA change for the current period at loans mandatorily measured at fair value through profit or loss.
OTP Bank Plc Consolidated Financial Statements 2023 207 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels [continued] Movements in Level 3 financial instruments measured at fair value [continued] 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: 31/12/2022 Opening balance Purchase / Issuance / Disbursement (+) Settlement / Close / Sale (-) FVA (+/-) Transfer (+/-) Fx effect / Revaluation Other Closing balance Trading securities at fair value through profit or loss 6 - - - - - (6) - Positive fair value of derivative financial assets held for trading 10,170 - - (10,170) - - - - Non-trading securities mandatorily at fair value through profit or loss 13,191 1,171 - (1,745) - 482 (1,111) 11,988 Interest-bearing securities at fair value through other comprehensive income2 55,476 540 (32,866) 15,310 19,678 (3,870) 10,427 64,695 Non-interest-bearing instruments at fair value through other comprehensive income 7,877 441 (422) - - 2,819 (970) 9,745 Loans mandatorily at fair value through profit or loss 1 1,067,830 258,658 (83,254) 3,885 - (11) 306 1,247,414 Equity instruments measured at fair value 40,064 18,097 (27,360) 11,064 - 693 - 42,558 Financial assets measured at fair value total 1,194,614 278,907 (143,902) 18,344 19,678 113 8,646 1,376,400 Financial liabilities designated at fair value through profit or loss 41,184 - (1,624) (1,934) - - 16,565 54,191 Negative fair value of held-for-trading derivative financial liabilities - - - 650 - - - 650 Financial liabilities designated fair value total 41,184 - (1,624) (1,284) - - 16,565 54,841 1 HUF 13,346 million fair value adjustment resulting from risk factors and HUF (9,991) million adjustment resulting from market factors.are included into FVA change for the previous year at loans mandatorily measured at fair value through profit or loss.
OTP Bank Plc Consolidated Financial Statements 2023 208 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels [continued] Valuation techniques on Level 2 instruments The fair value of Level 2 instruments is calculated by discounting their expected interest and capital cash flows. Discounting is done with the respective swap curve of each currency. Valuation techniques and sensitivity analysis on Level 3 instruments Sensitivity analysis is performed on products with significant unobservable inputs (Level 3) to generate a range of reasonably possible alternative valuations. The sensitivity methodologies applied take account of the nature of the valuation techniques used, 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 a range or spread data of reliable reference source or a scenario based on relevant market analysis alongside the impact of using alternative models. Sensitivities are calculated without reflecting the impact of any diversification in the portfolio. Unobservable inputs used in measuring fair value Type of financial instrument Presentation in the Statement of Financial Position Valuation technique Significant unobservable input Range of estimates for unobservable input VISA C shares Financial assets at fair value through profit or loss Market approach combined Illiquidity + 12% / (12%) with expert judgement. MFB refinanced loans Loans mandatorily at fair value through profit or loss Discounted cash flow model Probability of default + 20% / (20)% Subsidized personal loans Loans mandatorily at fair value through profit or loss Discounted cash flow model Probability of default + 20% / (20)% Subsidized personal loans Loans mandatorily at fair value through profit or loss Discounted cash flow model Operational costs +20% / (20)% Subsidized personal loans Loans mandatorily at fair value through profit or loss Discounted cash flow model Demography Change in the cash flow estimation + 5% /(5)% Ministry of Finance of Russia Securities at fair value through other comprehensive income Discounted cash flow model Credit risk +15% / (15)% Ministry of Finance of Ukraine Securities at fair value through other comprehensive income Discounted cash flow model Credit risk +1% / (1)% Subsidized mortgage loan for families "CSOK" Loans mandatorily at fair value through profit or loss Discounted cash flow model Probability of default +20% / (20)% Subsidized mortgage loan for families "CSOK" Loans mandatorily at fair value through profit or loss Discounted cash flow model Operational costs +20% / (20)%
OTP Bank Plc Consolidated Financial Statements 2023 209 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels [continued] The effect of unobservable inputs on fair value measurement Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3 changing the assumptions used to reasonably possible alternative assumptions would have the following effects. 31/12/2023 Presentation in the Statement of Financial Position Unobservable inputs Book value Fair values Effect on profit and loss Favourable Unfavourable Favourable Unfavourable VISA C shares Financial assets at fair value through profit or loss Illiquidity 10,301 11,538 9,065 1,237 (1,236) MFB refinanced loans Loans mandatorily at fair value through profit or loss Probability of default 19,154 19,499 18,809 345 (345) Subsidised personal loans Loans mandatorily at fair value through profit or loss Probability of default 911,190 913,292 909,097 2,102 (2,093) Subsidised personal loans Loans mandatorily at fair value through profit or loss Operational costs 911,190 916,712 905,728 5,522 (5,462) Subsidised personal loans Loans mandatorily at fair value through profit or loss Demography 911,190 911,939 910,577 749 (613) Russian government bonds Securities at fair value through other comprehensive income Credit risk 22,452 27,909 16,995 5,457 (5,457) Ukrainian government bonds Securities at fair value through other comprehensive income Credit risk 78,355 79,138 77,572 783 (783) Subsidized mortgage loan for families "CSOK" Loans mandatorily at fair value through profit or loss Probability of default 463,926 464,170 463,682 244 (244) Subsidized mortgage loan for families "CSOK" Loans mandatorily at fair value through profit or loss Operational costs 463,926 470,864 457,215 6,938 (6,711) Total 3,791,684 3,815,061 3,768,741 23,376 (22,944)
OTP Bank Plc Consolidated Financial Statements 2023 210 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels [continued] The effect of unobservable inputs on fair value measurement [continued] 31/12/2022 Presentation in the Statement of Financial Position Unobservable Book value Fair values Effect on profit and loss Favourable Unfavourable Favourable Unfavourable VISA C shares Financial assets at fair value through profit or loss Illiquidity 2,951 3,430 2,472 479 (479) MFB refinanced loans Loans mandatorily at fair value through profit or loss Probability of default 15,483 15,602 15,364 119 (119) Subsidised personal loans Loans mandatorily at fair value through profit or loss Probability of default 772,094 773,281 770,911 1,187 (1,183) Subsidised personal loans Loans mandatorily at fair value through profit or loss Operational costs 772,094 777,898 769,012 5,804 (3,082) Subsidised personal loans Loans mandatorily at fair value through profit or loss Demography 772,094 774,528 769,544 2,434 (2,550) Russian government bonds Securities at fair value through other comprehensive income Credit risk 37,580 50,468 24,692 12,888 (12,888) Ukrainian government bonds Securities at fair value through other comprehensive income Credit risk 26,571 26,571 26,571 - - Subsidized mortgage loan for families "CSOK" Loans mandatorily at fair value through profit or loss Probability of default 454,164 454,383 453,945 219 (219) Subsidized mortgage loan for families "CSOK" Loans mandatorily at fair value through profit or loss Operational costs 454,164 459,950 448,558 5,786 (5,606) Total 3,307,195 3,336,111 3,281,069 28,916 (26,126)
OTP Bank Plc Consolidated Financial Statements 2023 211 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued]
48.4. Fair value levels [continued] The effect of unobservable inputs on fair value measurement [continued] The favourable and unfavourable effects of using reasonably possible alternative assumptions for the valuation of Visa C shares have been calculated by modifying the discount rate used for the valuation by +/-12% as being the best estimates of the management as at 31 December 2023 and 2022, respectively. In the case of Hungarian Development Bank (“MFB”) refinancing loans and subsidised personal loans the Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modifying the rates of probability of default by +/- 20% as one of the most significant unobservable inputs. In case of subsidised personal loans operational cost and factors related to demography are considered as unobservable inputs to the applied fair value calculation model in addition to credit risk. The Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modifying the rates of operational costs by +/- 20% as one of the most significant unobservable inputs. In case of subsidised personal loans cash flow estimation are based on assumption related to the future number of childbirths performed by the debtors both in the current and the comparative period. According to the assumptions used in comparative period 15% of the debtors will not fulfill the conditions of the subsidy determined by the government after 5 years (“breach of conditions”), thereby debtors will be obliged to pay back the interest subsidy given in advance. Furthermore, in this case subsidised loans are converted to loans provided based on market conditions. Loans are prepaid by the government as part of the subsidy after the second and the third childbirth following the signatory of the loan contract. The Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modifying the demographical assumption of breach of conditions by +/- 5% as the most significant unobservable input in the cash flow estimation. For the year ended 31 December 2022 the Bank used a new and more detailed model for cash flow calculations of the subsidised personal loans. The new model uses more scenarios compared to the previous one. These scenarios based on the above-mentioned events (child births after signatory and breach of conditions) and also the event of divorce. The model uses public statistical information for these events to estimate. The Bank calculated the favourable and unfavourable effects of using reasonably possible alternative assumptions by modifying the demographical assumption of future child births by +/-5% as one of the most significant unobservable inputs in the cash flow estimation. The favourable and unfavourable effects of using reasonably possible alternative assumptions for the valuation of FVOCI securities have been calculated by modifying the discount rate used for the valuation by +/-15% and +/- 1% as being the best estimates of the management as at 31 December 2023 and 2022, respectively.
OTP Bank Plc Consolidated Financial Statements 2023 212
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) The Group distinguishes business and geographical segments. The report on the base of the business and geographical segments is reported below. The reportable segments of the Group on the base of IFRS 8 are as the follows: OTP Core Hungary, Russia, Ukraine, Bulgaria, Romania, Serbia, Croatia, Montenegro, Albania, Moldova, Slovenia, Uzbekistan, Merkantil Group, Asset Management subsidiaries and Other subsidiaries. Although Romanian segment is classified as discontinued operation from 2023 in these consolidated financial statements, segment reporting still contains it as a separate segment because – in line with the structure of the financial statements monitored by the management (Stock Exchange Report) – the Romanian operation was presented in a way as if it was still classified as continuing operation. OTP Core is an economic unit for measuring the result of core business activity of the Group in Hungary. Financials for OTP Core are calculated from the partially Consolidated Financial Statements of the companies engaged in the Group’s underlying banking operation in Hungary. These companies include OTP Bank Hungary Plc, OTP Mortgage Bank Ltd., OTP Building Society Ltd., OTP Factoring Ltd., OTP Financial Point Ltd., and companies providing intragroup financing. The Bank Employee Stock Ownership Plan Organization was included from the fourth quarter of 2016; OTP Card Factory Ltd., OTP Facility Management Llc., Monicomp Ltd. and OTP Real Estate Lease Ltd. were included from the first quarter of 2017 (from the first quarter of 2019 OTP Real Estate Lease Ltd. was eliminated from OTP Core); OTP Mobile Service Llc., OTP Ingatlanpont Llc. were included from the first quarter of 2019, OTP Ecosystem Ltd. (previous name: OTP eBIZ Ltd. it was eliminated from the first quarter of 2023) from the first quarter of 2020 and OTP Home Solutions Ltd. was included from the second quarter of 2021. The consolidated results of these companies were segmented into OTP Core and Corporate Centre until the end of 2022. According to the new methodology applied from the first quarter of 2023, Corporate Centre is no longer carved out of OTP Core. In the tables of Note 49, the 2022 base periods were presented under the new segment definitions. Until the end of 2022 Corporate Centre acted as a virtual entity established by the equity investment of OTP Core for managing the wholesale financing activity for all the subsidiaries within the Group but outside OTP Core. Therefore, the balance sheet of the Corporate Centre was funded by the equity and intragroup lending received from OTP Core, the intragroup lending received from other subsidiaries, and the subordinated debt and senior notes issued by OTP Bank. From this funding pool, the Corporate Centre was to provide intragroup lending to, and hold equity stakes in OTP subsidiaries outside OTP Core. Main subsidiaries financed by Corporate Centre were as follows: Hungarians: Merkantil Bank Ltd, OTP Real Estate Lease Ltd, OTP Fund Management Ltd, OTP Real Estate Investment Fund Management Ltd, OTP Life Annuity Ltd; foreigners: banks, leasing companies, factoring companies. Starting from 2023 Corporate Centre is no longer carved out of OTP Core. The balance sheet of Ipoteka Bank in Uzbekistan was consolidated from June 2023. The adjusted profit contribution of Ipoteka Bank was recognized in the consolidated profit or loss from the third quarter of 2023. The results of foreign factoring companies (OTP Factoring Ukraine LLC, OTP Factoring Bulgaria LLC (it was merged into DSK Bank EAD in the second quarter of 2023), OTP Factoring Serbia d.o.o., and OTP Debt Collection d.o.o. (formerly known as: OTP Factoring Montenegro d.o.o.)), as well as the foreign leasing companies are included into the relevant foreign bank’s segment. The Other subsidiaries include, among others: OTP Real Estate Ltd., OTP Life Annuity Ltd, OTP Funds Servicing and Consulting Ltd. The reportable business and geographical segments of the Group are those components where: - separated income and expenses, assets and liabilities can be identified and assignable to the segments, - transactions between the different segments were eliminated, - the main decisive board of the Group regularly controls the operating results, - separated financial information is available.
OTP Bank Plc Consolidated Financial Statements 2023 213
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Adjustments Effect of acquisitions (after income tax): In 2023 altogether HUF 64.9 billion positive amount appeared on the effect of acquisitions adjustment line (after tax): o This was partially related to the badwill realized on the two acquisitions closed during the first six months of 2023, and the related initial risk costs: ▪ The badwill impact of the Slovenian Nova KBM acquisition completed in February comprised +HUF 100 billion, and the initial risk cost represented HUF (12.6) billion (after tax). ▪ In June 2023 the first step of the Ipoteka Bank transaction was finalized in Uzbekistan, entailing a one- off consolidation impact of +HUF 59.8 billion (after tax) in 2023 as a whole, through two major items: the adjusted badwill amounted to +HUF 93.9 billion, whereas the initial risk cost represented HUF (34) billion after tax. o OTP Bank on 9 February 2024 concluded a share sale and purchase agreement to sell its Romanian entities. The selling price is EUR 347.5 million which is smaller than the net asset value of the to be sold subsidiaries recognized in the consolidated accounts, accordingly the transaction resulted in a negative P&L impact of HUF 59.5 billion (after tax) on consolidated level, which was booked in 4Q 2023. o The remaining amount presented on this adjustment line comprised integration costs and other direct effects related to acquisitions (such as customer base value amortization). Special taxes on financial institutions (after income tax): In 2023 HUF (62.6) billion special taxes on financial institutions weighed on earnings (after tax) which incorporates both the old banking tax in Hungary (HUF (25.2) billion after tax) and the windfall tax on extra profits (HUF (37.4) billion after tax). Interest rate cap in Hungary and in Serbia: In 2023 altogether HUF (32.9) billion (after tax) amount was recognized in relation to the expected negative impact of the rate cap scheme in Hungary ((25.8) billion after tax effect) and the temporary rate cap on certain outstanding and newly disbursed mortgage loans in Serbia between October 2023 and the end of 2024 ((7.1) billion after tax effect). According to the effective regulation, in Hungary the interest rate caps on the affected Hungarian mortgage loans was extended until 30 June 2024, and until 1 April 2024 in the case of MSE loans. Effect of the liquidation of Sberbank Hungary: In 2023 HUF 10.4 billion (after tax) recovery was accounted for in the wake of the winding up of Sberbank Hungary, as the National Bank of Hungary and the Hungarian Deposit Insurance Fund professionally managed the issue. In 2022 a similar negative amount was booked. Result of the treasury share swap agreement (after tax): In 2023 HUF 10.7 billion after tax result was recorded in relation to the OTP-MOL treasury share swap agreement, which contains both the dividends paid by MOL Plc. and the net present value change of the structure. Explanation to the segments in the following table below: 3; 4; 6: The segments distinguished by geographical basis contain banks in that country and sometimes other financial institutions (like leasing or factoring companies) or other companies. The incomes mainly arise from providing financial services like: collecting deposits, granting loans, leasing and treasury activities, payment and investment services and other financial services. 7: Merkantil Group conducts leasing activities in Hungary, originates its income from providing leasing services (financing cars and production equipment). 8: Incomes arising in this segment is mainly fee income of fund management companies in Hungary, Bulgaria, Romania, Ukraine based on capital in investment funds or assets in funds. 9: The activities of other Hungarian and foreign subsidiaries are very divergent, so their income also originates from different sources. The main part of the income in the Other subsidiaries segment comes from the activities of OTP Funds Servicing and Consulting, OTP Real Estate, OTP Real Estate Investment Fund Management and PortfoLion Funds.
OTP Bank Plc Consolidated Financial Statements 2023 214
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below: As at 31 December 2023 Main components of the consolidated statement of profit or loss in HUF million OTP Group - in the consolidated statement of profit or loss - structure of accounting reports Adjustments on the accounting in Recognized Income OTP Group - in the consolidated statement of profit or loss - structure of management reports a b 1=a+b Profit after income tax for the year from continued and discontinued operations 990,459 990,459 Profit after income tax for the year from discontinued operations (21,246) 21,246 - Profit after income tax for the year from continued operations 1,011,705 21,246 990,459 Adjustments (total) (18,123) (18,123) Dividends and net cash transfers (after income tax) (1,911) (1,911) Goodwill /investment impairment (after income tax) (3,919) (3,919) Special tax on financial institutions (after income tax) (62,551) (62,551) Effect of acquisition (after income tax) 64,887 64,887 Result of the treasury share swap agreement at OTP Core (after income tax) 10,680 10,680 Loss allowance on Russian government bonds at OTP Core and DSK Bank (after income tax) (2,799) (2,799) Effect of the winding up of Sberbank Hungary (after income tax) 10,388 10,388 Expected one-off effect of the extension of the interest rate cap for certain retail loans in Hungary (after income tax) (32,898) (32,898)
OTP Bank Plc Consolidated Financial Statements 2023 215
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2023 [continued] Main components of the consolidated statement of profit or loss in HUF million OTP Group - in the consolidated statement of profit or loss - structure of accounting reports Adjustments on the accounting in Recognized Income OTP Group - in the consolidated statement of profit or loss - structure of management reports Hungarian segment and other foreign subsidiaries not reported in "Foreign bank segment" subtotal (without adjustments) Foreign banks in EU subtotal (without adjustments) Foreign banks not in EU subtotal (without adjustments) Eliminations and adjustments a b 1=a+b; 1=2+3+4+5 2 3 4 5 Consolidated adjusted profit after income tax for the year 1,011,705 (3,123) 1,008,582 364,621 404,779 238,565 617 Profit before income tax 1,201,183 21,145 1,222,328 437,074 450,536 333,369 1,349 Adjusted operating profit 1,365,111 (85,737) 1,279,374 432,460 445,671 400,279 964 Adjusted total income 2,439,448 (196,339) 2,243,109 903,559 730,860 622,761 (14,071) Adjusted net interest income 1,386,706 72,988 1,459,694 474,616 543,257 439,685 2,136 Adjusted net profit - - from fees and commissions 691,993 (213,847) 478,146 240,942 149,074 89,263 (1,133) Adjusted other net non-interest income 360,749 (55,480) 305,269 188,001 38,529 93,813 (15,074) Adjusted other administrative expenses (1,074,337) 110,602 (963,735) (471,099) (285,189) (222,482) 15,035 Personnel expenses (478,696) (25,263) (503,959) (229,992) (149,674) (125,163) 870 Depreciation and amortization (111,996) 16,435 (95,561) (52,017) (22,271) (20,738) (535) Other general expenses (483,645) 119,430 (364,215) (189,090) (113,244) (76,581) 14,700 Gains from derecognition of financial assets at amortized cost (17,182) 6,624 (10,558) (20,137) 8,261 1,572 (254) Modification loss (38,141) 36,909 (1,232) (27) - (1,209) 4 Total risk costs (108,605) 63,349 (45,256) 24,778 (3,396) (67,273) 635 Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (79,281) 37,766 (41,515) 16,023 (4,475) (53,493) 430 Goodwill impairment - - - - - - - Other impairment (adjustment) (29,324) 25,583 (3,741) 8,755 1,079 (13,780) 205 from this: Adjusted impairment under IAS 36 (5,216) 3,566 (1,650) (452) (1,037) (130) (31) Income tax (189,478) (24,268) (213,746) (72,453) (45,757) (94,804) (732) - - - Total Assets 38,075,811 1,533,333 39,609,144 20,253,197 17,227,907 8,331,503 (6,203,463) Total Liabilities 34,374,431 1,139,920 35,514,351 17,276,859 15,071,959 7,128,153 (3,962,620)
OTP Bank Plc Consolidated Financial Statements 2023 216
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2023 [continued] Main components of the consolidated statement of profit or loss in HUF million [continued] Hungarian segment and other foreign subsidiaries not reported in "Foreign bank segment" subtotal (without adjustments) OTP CORE (Hungary) Merkantil Group (Hungary) Asset Management subsidiaries Other subsidiaries 2=6+…+9 6 7 8 9 Consolidated adjusted profit after income tax for the year 364,621 302,936 10,266 19,860 31,559 Profit before income tax 437,074 366,502 11,949 22,376 36,247 Adjusted operating profit 432,460 360,132 14,382 22,425 35,521 Adjusted total income 903,559 771,037 27,428 29,051 76,043 Adjusted net interest income 474,616 432,651 26,257 52 15,656 Adjusted net profit from fees and commissions 240,942 197,104 759 27,056 16,023 Adjusted other net non-interest income 188,001 141,282 412 1,943 44,364 Adjusted other administrative expenses (471,099) (410,905) (13,046) (6,626) (40,522) Personnel expenses (229,992) (205,223) (6,658) (4,437) (13,674) Depreciation and amortization (52,017) (44,745) (1,648) (195) (5,429) Other general expenses (189,090) (160,937) (4,740) (1,994) (21,419) Gains from derecognition of financial assets at amortized cost (20,137) (20,690) 553 - - Modification loss (27) - (27) - - Total risk costs 24,778 27,060 (2,959) (49) 726 Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) 16,023 16,977 (2,756) (39) 1,841 Goodwill impairment - - - - - Other impairment (adjustment) 8,755 10,083 (203) (10) (1,115) from this: Adjusted impairment under IAS 36 (452) (1,816) (4) - 1,368 Income tax (72,453) (63,566) (1,683) (2,516) (4,688) Total Assets 20,253,197 18,459,423 930,761 42,031 820,982 Total Liabilities 17,276,859 16,087,459 869,524 11,609 308,267
OTP Bank Plc Consolidated Financial Statements 2023 217
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2023 [continued] Main components of the consolidated statement of profit or loss in HUF million [continued] Foreign banks in EU subtotal (without adjustments) DSK Bank AD (Bulgaria) OTP banka d.d. (Croatia) SKB Banka and Nova KBM d.d. (Slovenia) OTP Bank Romania S.A. (Romania) 3=10+…+13 10 11 12 13 Consolidated adjusted profit after income tax for the year 404,779 201,991 53,960 128,729 20,099 Profit before income tax 450,536 223,731 65,746 137,401 23,658 Adjusted operating profit 445,671 217,238 66,743 140,717 20,973 Adjusted total income 730,860 315,980 122,952 223,315 68,613 Adjusted net interest income 543,257 226,693 90,996 171,703 53,865 Adjusted net profit from fees and commissions 149,074 72,366 25,661 46,028 5,019 Adjusted other net non-interest income 38,529 16,921 6,295 5,584 9,729 Adjusted other administrative expenses (285,189) (98,742) (56,209) (82,598) (47,640) Personnel expenses (149,674) (47,720) (29,235) (46,411) (26,308) Depreciation and amortization (22,271) (7,855) (4,785) (5,602) (4,029) Other general expenses (113,244) (43,167) (22,189) (30,585) (17,303) Gains from derecognition of financial assets at amortized cost 8,261 1,638 - - 6,623 Modification loss - - - - - Total risk costs (3,396) 4,855 (997) (3,316) (3,938) Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (4,475) 1,141 721 (2,485) (3,852) Goodwill impairment - - - - - Other impairment (adjustment) 1,079 3,714 (1,718) (831) (86) from this: Adjusted impairment under IAS 36 (1,037) (838) (25) - (174) Income tax (45,757) (21,740) (11,786) (8,672) (3,559) Total Assets 17,227,907 6,456,668 3,278,199 5,892,803 1,600,237 Total Liabilities 15,071,959 5,566,481 2,874,712 5,223,180 1,407,586
OTP Bank Plc Consolidated Financial Statements 2023 218
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2023 [continued] Main components of the consolidated statement of profit or loss in HUF million [continued] Foreign banks not in EU subtotal (without adjustments) OTP banka Srbija a.d. (Serbia) OTP Bank JSC (Ukraine) JSC "OTP Bank" (Russia) and Touch Bank Crnogorska komercijalna banka a.d. (Montenegro) Banka OTP Albania SHA (Albania) OTP Bank S.A. (Moldova) JSCMB Ipoteka Bank (Uzbekistan) 4=14+…+20 14 15 16 17 18 19 20 Consolidated adjusted profit after income tax for the year 238,565 68,025 45,184 95,666 21,814 15,033 14,700 (21,857) Profit before income tax 333,369 78,646 82,358 130,172 25,737 18,173 16,759 (18,476) Adjusted operating profit 400,279 83,734 78,294 149,298 23,536 18,269 13,440 33,708 Adjusted total income 622,761 133,591 108,854 223,645 38,362 33,387 25,268 59,654 Adjusted net interest income 439,685 104,050 93,450 122,084 29,717 27,912 16,349 46,123 Adjusted net profit from fees and commissions 89,263 18,419 10,837 40,831 7,797 3,729 2,389 5,261 Adjusted other net non-interest income 93,813 11,122 4,567 60,730 848 1,746 6,530 8,270 Adjusted other administrative expenses (222,482) (49,857) (30,560) (74,347) (14,826) (15,118) (11,828) (25,946) Personnel expenses (125,163) (25,710) (18,046) (45,063) (6,910) (5,798) (7,013) (16,623) Depreciation and amortization (20,738) (3,661) (2,472) (8,660) (1,645) (1,494) (1,234) (1,572) Other general expenses (76,581) (20,486) (10,042) (20,624) (6,271) (7,826) (3,581) (7,751) Gains from derecognition of financial assets at amortized cost 1,572 53 328 1,487 932 (219) (1,009) - Modification loss (1,209) - (1,239) - 30 - - - Total risk costs (67,273) (5,141) 4,975 (20,613) 1,239 123 4,328 (52,184) Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (53,493) (2,348) 11,565 (17,765) 1,967 327 4,115 (51,354) Goodwill impairment - - - - - - - - Other impairment (adjustment) (13,780) (2,793) (6,590) (2,848) (728) (204) 213 (830) from this: Adjusted impairment under IAS 36 (130) (93) - - - - (37) - Income tax (94,804) (10,621) (37,174) (34,506) (3,923) (3,140) (2,059) (3,381) Total Assets 8,331,503 2,874,794 1,036,912 1,470,796 663,676 669,765 428,192 1,187,368 Total Liabilities 7,128,153 2,506,449 879,824 1,196,279 550,672 588,663 364,839 1,041,427
OTP Bank Plc Consolidated Financial Statements 2023 219
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2022 Main components of the consolidated statement of profit or loss in HUF million OTP Group - in the consolidated statement of profit or loss - structure of accounting reports Adjustments on the accounting in Recognized Income OTP Group - in the consolidated statement of profit or loss - structure of management reports a b 1=a+b Profit after income tax for the year from continued and discontinued operations 347,081 347,081 Profit after income tax for the year from held-for-sale operation 11,444 (11,444) - Profit after income tax for the year from discontinued operations 16,559 (16,559) - Profit after income tax for the year from continued operations 319,078 (28,003) 347,081 Adjustments (total) (245,467) (245,467) Dividends and net cash transfers (after income tax) 1,927 1,927 Goodwill /investment impairment (after income tax) (59,254) (59,254) Special tax on financial institutions (after income tax) (91,353) (91,353) Effect of acquisition (after income tax) (15,594) (15,594) Expected one-off negative effect of the debt repayment moratorium in Hungary (after income tax) (2,473) (2,473) Result of the treasury share swap agreement at OTP Core (after income tax) 3,028 3,028 Loss allowance on Russian government bonds at OTP Core and DSK Bank (after income tax) (34,775) (34,775) Effect of the winding up of Sberbank Hungary (after income tax) (10,388) (10,388) Expected one-off effect of the extension of the interest rate cap for certain retail loans in Hungary (after income tax) (36,585) (36,585)
OTP Bank Plc Consolidated Financial Statements 2023 220
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2022 [continued] Main components of the consolidated statement of profit or loss in HUF million OTP Group - in the consolidated statement of profit or loss - structure of accounting reports Adjustments on the accounting in Recognized Income OTP Group - in the consolidated statement of profit or loss - structure of management reports Hungarian segment and other foreign subsidiaries not reported in "Foreign bank segment" subtotal (without adjustments) Foreign banks in EU subtotal (without adjustments) Foreign banks not in EU subtotal (without adjustments) Eliminations and adjustments a b 1=a+b; 1=2+3+4+5 2 3 4 5 Consolidated adjusted profit after income tax for the year 319,078 273,470 592,548 304,293 189,617 92,869 5,769 Profit before income tax 377,678 312,344 690,022 353,561 217,950 110,918 7,593 Adjusted operating profit 704,670 168,945 873,615 361,426 232,797 278,563 829 Adjusted total income 1,634,686 27,013 1,661,699 759,142 446,844 470,700 (14,987) Adjusted net interest income 1,026,868 66,711 1,093,579 448,001 303,256 341,577 745 Adjusted net profit from fees and commissions 584,491 (187,373) 397,118 207,941 113,606 78,675 (3,104) Adjusted other net non-interest income 23,327 147,675 171,002 103,200 29,982 50,448 (12,628) Adjusted other administrative expenses (930,016) 141,932 (788,084) (397,716) (214,047) (192,137) 15,816 Personnel expenses (377,728) (18,576) (396,304) (179,651) (108,850) (108,716) 913 Depreciation and amortization (101,125) 16,462 (84,663) (46,891) (18,928) (18,482) (362) Other general expenses (451,163) 144,046 (307,117) (171,174) (86,269) (64,939) 15,265 Gains from derecognition of financial assets at amortized cost (1,573) (82) (1,655) (7,342) 1,746 3,933 8 Modification loss (39,997) 40,822 825 - 20 805 - Total risk costs (285,422) 102,659 (182,763) (523) (16,613) (172,383) 6,756 Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (199,695) 60,166 (139,529) 34,015 (9,672) (163,792) (80) Goodwill impairment (67,715) 67,715 - - - - - Other impairment (adjustment) (18,012) (25,222) (43,234) (34,538) (6,941) (8,591) 6,836 from this: adjusted impairment under IAS 36 (3,652) 355 (3,297) (1,356) (774) (1,166) (1) Income tax (58,600) (38,874) (97,474) (49,268) (28,333) (18,049) (1,824) Total Assets 32,804,210 - 32,804,210 19,265,918 12,650,295 6,452,844 (5,564,847) Total Liabilities 29,481,898 - 29,481,898 16,775,703 11,104,567 5,452,540 (3,850,912)
OTP Bank Plc Consolidated Financial Statements 2023 221
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2022 [continued] Main components of the consolidated statement of profit or loss in HUF million [continued] Hungarian segment and other foreign subsidiaries not reported in "Foreign bank segment" subtotal (without adjustments) OTP CORE (Hungary) Merkantil Group (Hungary) Asset Management subsidiaries Other subsidiaries 2=6+…+9 6 7 8 9 Consolidated adjusted profit after income tax for the year 304,293 256,198 10,971 9,619 27,505 Profit before income tax 353,561 300,093 12,616 10,870 29,982 Adjusted operating profit 361,426 302,801 13,945 10,955 33,725 Adjusted total income 759,142 647,642 24,780 15,799 70,921 Adjusted net interest income 448,001 417,662 22,537 32 7,770 Adjusted net profit from fees and commissions 207,941 176,830 921 15,242 14,948 Adjusted other net non-interest income 103,200 53,150 1,322 525 48,203 Adjusted other administrative expenses (397,716) (344,841) (10,835) (4,844) (37,196) Personnel expenses (179,651) (157,623) (5,371) (2,905) (13,752) Depreciation and amortization (46,891) (40,538) (1,462) (251) (4,640) Other general expenses (171,174) (146,680) (4,002) (1,688) (18,804) Gains from derecognition of financial assets at amortized cost (7,342) (7,198) (144) - - Modification loss - - - - - Total risk costs (523) 4,490 (1,185) (85) (3,743) Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) 34,015 34,925 (939) - 29 Goodwill impairment - - - - - Other impairment (adjustment) (34,538) (30,435) (246) (85) (3,772) from this: adjusted impairment under IAS 36 (1,356) (58) (18) 14 (1,294) Income tax (49,268) (43,895) (1,645) (1,251) (2,477) Total Assets 19,265,918 17,596,639 948,735 29,916 690,628 Total Liabilities 16,775,703 15,580,210 891,144 11,180 293,169
OTP Bank Plc Consolidated Financial Statements 2023 222
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2022 [continued] Main components of the consolidated statement of profit or loss in HUF million [continued] Foreign banks in EU subtotal (without adjustments) DSK Bank AD (Bulgaria) OTP banka d.d. (Croatia) SKB Banka and Nova KBM d.d. (Slovenia) OTP Bank Romania S.A. (Romania) 3=10+…+13 10 11 12 13 Consolidated adjusted profit after income tax for the year 189,617 119,884 42,801 23,859 3,073 Profit before income tax 217,950 132,564 52,095 29,569 3,722 Adjusted operating profit 232,797 142,393 48,973 24,046 17,385 Adjusted total income 446,844 230,844 102,001 51,403 62,596 Adjusted net interest income 303,256 145,461 70,547 33,688 53,560 Adjusted net profit from fees and commissions 113,606 68,755 24,692 15,416 4,743 Adjusted other net non-interest income 29,982 16,628 6,762 2,299 4,293 Adjusted other administrative expenses (214,047) (88,451) (53,028) (27,357) (45,211) Personnel expenses (108,850) (41,946) (27,020) (15,278) (24,606) Depreciation and amortization (18,928) (7,831) (4,845) (1,671) (4,581) Other general expenses (86,269) (38,674) (21,163) (10,408) (16,024) Gains from derecognition of financial assets at amortized cost 1,746 1,249 578 - (81) Modification loss 20 - - 20 - Total risk costs (16,613) (11,078) 2,544 5,503 (13,582) Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (9,672) (12,251) 6,564 7,028 (11,013) Goodwill impairment - - - - - Other impairment (adjustment) (6,941) 1,173 (4,020) (1,525) (2,569) from this: adjusted impairment under IAS 36 (774) (367) 122 (53) (476) Income tax (28,333) (12,680) (9,294) (5,710) (649) Total Assets 12,650,295 5,946,815 3,224,955 1,790,944 1,687,581 Total Liabilities 11,104,567 5,167,720 2,834,372 1,596,100 1,506,375
OTP Bank Plc Consolidated Financial Statements 2023 223
NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Information regarding the Group’s reportable segments is presented below [continued]: As at 31 December 2022 [continued] Main components of the consolidated statement of profit or loss in HUF million [continued] Foreign banks not in EU subtotal (without adjustments) OTP banka Srbija a.d. (Serbia) OTP Bank JSC (Ukraine) JSC "OTP Bank" (Russia) and Touch Bank Crnogorska komercijalna banka a.d. (Montenegro) Banka OTP Albania SHA (Albania) OTP Bank S.A. (Moldova) 4=14+…+19 14 15 16 17 18 19 Consolidated adjusted profit after income tax for the year 92,869 36,873 (15,923) 42,548 9,792 10,174 9,405 Profit before income tax 110,918 42,991 (13,205) 46,180 11,976 12,187 10,789 Adjusted operating profit 278,563 58,543 79,862 98,137 15,134 9,335 17,552 Adjusted total income 470,700 104,523 110,805 178,494 28,816 20,232 27,830 Adjusted net interest income 341,577 76,635 90,007 118,004 20,832 16,927 19,172 Adjusted net profit from fees and commissions 78,675 17,954 12,673 35,251 7,106 3,067 2,624 Adjusted other net non-interest income 50,448 9,934 8,125 25,239 878 238 6,034 Adjusted other administrative expenses (192,137) (45,980) (30,943) (80,357) (13,682) (10,897) (10,278) Personnel expenses (108,716) (23,342) (18,170) (50,404) (6,529) (4,318) (5,953) Depreciation and amortization (18,482) (3,342) (2,570) (8,712) (1,711) (1,023) (1,124) Other general expenses (64,939) (19,296) (10,203) (21,241) (5,442) (5,556) (3,201) Gains from derecognition of financial assets at amortized cost 3,933 1,300 286 3,284 (80) (671) (186) Modification loss 805 2,062 (1,245) - (12) - - Total risk costs (172,383) (18,914) (92,108) (55,241) (3,066) 3,523 (6,577) Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (163,792) (17,783) (89,877) (54,330) 731 3,176 (5,709) Goodwill impairment - - - - - - - Other impairment (adjustment) (8,591) (1,131) (2,231) (911) (3,797) 347 (868) from this: adjusted impairment under IAS 36 (1,166) (151) (33) (263) (677) - (42) Income tax (18,049) (6,118) (2,718) (3,632) (2,184) (2,013) (1,384) Total Assets 6,452,844 2,708,993 1,048,713 1,029,721 664,395 635,364 365,658 Total Liabilities 5,452,540 2,350,873 926,221 723,417 565,264 574,537 312,228
OTP Bank Plc Consolidated Financial Statements 2023 224
NOTE 50: ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (in HUF mn) Discontinued operation On 9 February 2024 OTP Bank announced the signing of the share sale and purchase agreement to sell its Romanian operation. As a result of this, according to IFRS 5, as at the end of 2023 the Romanian operation was presented as assets /liabilities held for sale in the consolidated statement of financial position and as discontinued operation in the consolidated profit or loss. With regards to the consolidated financial position, all Romanian assets and liabilities were shown on a separate line in the 2023 closing financial position. As for the consolidated profit or loss, the Romanian contribution for both 2022 and 2023 was shown separately from the result of continuing operation, on the “Net (loss) / gain from discontinued operations” line, that is the particular profit or loss lines in the ‘continuing operations’ section of the profit or loss don’t incorporate the contributio n from the Romanian subsidiaries. The selling price is EUR 347.5 million which is smaller than the net asset value of the to be sold subsidiaries recognized in the consolidated accounts, accordingly the transaction resulted in a negative profit or loss impact of HUF 55.9 billion (before tax) on consolidated level, which has already been booked in the fourth quarter of 2023. On 31 December 2023, the Romanian segment of the Group which was classified as discontinued operation includes the following companies: OTP Bank Romania S.A., OTP Asset Management SAI S.A., OTP Leasing Romania IFN S.A., OTP Factoring SRL, SC Favo Consultanta SRL, SC Aloha Buzz SRL, SC Tezaur Cont SRL. The major classes of assets and liabilities comprising the assets classified as held for sale and liabilities directly associated with assets classified as held for sale are as follows: 31/12/2023 Cash, amounts due from banks and balances with the National Banks 199,587 Placements with other banks 8,147 Repo receivables - Financial assets at fair value through profit or loss 734 Securities at fair value through other comprehensive income 39,430 Securities at amortized cost 226,427 Loans at amortized cost 1,013,582 Loans mandatorily at fair value through profit or loss 1,356 Finance lease receivables 67,068 Associates and other investments 236 Property and equipment 10,313 Intangible assets and goodwill 3,848 Right-of-use assets 4,299 Investment properties 40 Derivative financial assets designated as hedge accounting - Deferred tax assets 224 Current income tax receivables 55 Other assets 13,927 TOTAL ASSETS 1,589,273 Amounts due to banks, the National Governments, deposits from the National Banks and other banks 1,764 Repo liabilities - Financial liabilities designated at fair value through profit or loss - Deposits from customers 1,095,853 Liabilities from issued securities - Derivative financial liabilities held for trading 311 Derivative financial liabilities designated as hedge accounting - Leasing liabilities 4,348 Deferred tax liabilities 912 Current income tax payable 1,865 Provisions 9,006 Other liabilities 25,861 TOTAL LIABILITIES 1,139,920
OTP Bank Plc Consolidated Financial Statements 2023 225
NOTE 50: ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (in HUF mn) [continued] Discontinued operation [continued] The results of discontinued operations, which have been separated on line “Net (Loss) /Gain from discontinued operations” in the consolidated statement of profit or loss, were as follows: Year ended 31 December 2023 Year ended 31 December 2022 Interest income calculated using the effective interest method 103,321 82,191 Income similar to interest income 15,252 20,426 Interest income and income similar to interest income 118,573 102,617 Interest expense (50,513) (38,171) NET INTEREST INCOME 68,060 64,446 Loss allowance on loans, placements, amounts due from banks and on repo receivables (6,779) (10,522) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss - - Release of loss allowance / (Loss allowance) on securities at fair value through other comprehensive income and on securities at amortized cost 235 (13) Release of provision / (Provision) for commitments and guarantees given 2,931 (228) Release of impairment / (Impairment) of assets subject to operating lease and of investment properties - - Risk cost total (3,613) (10,763) NET INTEREST INCOME AFTER RISK COST 64,447 53,683 Loss from derecognition of financial assets at amortized cost 6,624 (82) Modification loss - - Income from fees and commissions 22,351 22,710 Expense from fees and commissions (7,036) (6,841) Net profit from fees and commissions 15,315 15,869 Foreign exchange result, net (11,397) 1,313 Gain / (Loss) on securities, net 37 17 Fair value adjustment on financial instruments measured at fair value through profit or loss 157 (120) Net results on derivative instruments and hedge relationships 11,526 (5,802) Profit from associates 22 22 Goodwill impairment - - Other operating income 409 485 Other operating expenses (1,105) (3,043) Net operating income / (expense) (351) (7,128) Personnel expenses (26,571) (24,835) Depreciation and amortization (5,998) (6,463) Other general expenses (15,197) (13,834) Other administrative expenses (47,766) (45,132) PROFIT BEFORE INCOME TAX 38,269 17,210 Income tax expense (3,575) (651) PROFIT AFTER INCOME TAX FOR THE PERIOD 34,694 16,559 During the year 2023, the Romanian subsidiaries contributed to the Group’s operating activity with HUF 137,550 million, to the Group’s investing activity with HUF 58,328 million, and in respect of the Group’s financing activity with HUF (9,002) million which were modified by the eliminations during the consolidation by HUF (198,270)
million.
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NOTE 50: ASSETS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS (in HUF mn) [continued] Discontinued operation [continued] The Group intends to increase its market share with new acquisitions and organic increase in the Middle East European Region and although during the near 20 years attendance on the Romanian market followed this strategy, the Group hasn’t managed to reach t he optimal share market, the management decided to sell this member of the Group. As a result this allows of the Group to focus on those markets where it can reach significant market share and to strengthen its position in those countries where it has already operated. Assets held for sale On 2 November 2022, the Group sold its share in the associated company Szállás.hu Zrt. to the Polish Wirtualna Polska Media S.A. The whole company was sold for EUR 83 million. The Group's gain recognized in the year under review related to the transaction was HUF 10,458 million, which was presented in the Other income.
OTP Bank Plc Consolidated Financial Statements 2023 227 NOTE 51: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2023 1) Term Note Program See details in Note 21. 2) Financial closing of acquisitions in 2023 For more information about the acquisition of Uzbek Ipoteka Bank, Nova KBM, Aranykalász group, Szekszárdi Group and OTP invest AD please see details in Note 42 Acquisition. 3) OTP Bank is selling its Romanian operations On 9 February 2024, OTP Bank Plc. has concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. OTP Group is also selling its 100% shareholdings in its other Romanian subsidiaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to Banca Transilvania S.A under the transaction. See details in Note 50 Assets classified as held for sale and discontinued operations. 4) Significant regulatory changes in Hungary About the prolongation of deadline of interest rate cap, voluntary interest rate cap on newly granted loans, amending the previously laid down methodology of windfall tax calculation, the changes in savings and government bond markets, family support schemes, capital regulation and mandatory minimum reserve requirements please see details in Note 4. 5) Interest benchmark reform The Group was actively involved in industry efforts supporting transition to IBOR alternatives. The Group has taken extensive steps to prepare for the discontinuation of IBORs and worked closely with clients to ensure awareness and support transition activities. As the transition is complex, time-consuming process and relevant for the whole Group, the management of Group has evaluated the impacts of the interest rate benchmarks reform, preparing itself for the transition through a dedicated internal group-wide project. As LIBOR’s five currencies (USD, GBP, EUR, JPY and CHF) and EONIA will be replaced by Risk-Free Rates – which are different in nature compared to IBOR rates – OTP Group has implemented the relevant rates into the IT systems and reached out the clients. The Group’s priority was to ensure that the Group can continue to offer clients the products and services they need, while also supporting them in the transition to the new alternative Risk-Free Rates. During the IBOR reform the Group identified several risks at the beginning of 2021, which the project had to manage and monitor closely. These risks include but are not limited to the following: • The abolution of LIBOR affected several transactions that may require automated IT solutions, • The new reference rates are different in nature from LIBOR that cause difficulties to settle the value differences with the customers, • It was necessary to implement new processes not to develop LIBOR based products, and to develop a strategy for removing or modifying the affected products handled by the Group, • After the termination of LIBOR, the Group has to act under the "Fallback clauses", the clauses that regulate the replacement of the reference interest rates in the contract and the use of an alternative interest as a reference. The content of these clauses needs to be clearly defined and checked from a business point of view, ie which reference interest rate will be applied instead of LIBOR for the given contract and whether it is commercially appropriate. In defining the fallback clauses, efforts had to be made to provide a viable alternative to the termination of LIBOR that would not result in a business loss for the Group. • Legal risks related to the termination of LIBOR. Such risks can arise when Fallback clauses are not included in the contracts, or the law governing the contract do esn’t contain a statutory reference rate. In these cases, the contracts can be cancelled due to impossibility or the termination by either party. • Missing of contractual interest rates can result in settlement disputes, compensation cases or litigation. • Business risks of the termination of LIBOR. The most significant of these are: ▪ the law governing the contract can set the applicable interest rate that can be result in a business loss for the Group, ▪ business loss due to negative customer experience, ▪ operational risk, when several unique contracts must be handled in a short time.
OTP Bank Plc Consolidated Financial Statements 2023 228 NOTE 51: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2023 [continued] 5) Interest benchmark reform [continued] Terminating interest rates Alternative Reference Rates LIBOR USD (1 week and 2 months settings), FedFund Rate SOFR LIBOR GBP SONIA LIBOR JPY TONA LIBOR EUR EURIBOR LIBOR CHF 1 SARON EONIA €STR 1 In the case of CHF LIBOR, OTP Bank acts in accordance with the implementing regulation of the European Commission (https://eur- lex.europa.eu/legal-content/EN/TXT/PDF/?uri=PI_COM:C(2021)7488&from=EN). Amounts effected by IBOR reform as at 31 December 2023 Reference rate Type of the contract Nominal value of the contract Pieces of contracts USD LIBOR Loan 48,615 1,616 USD LIBOR Deposit 533 1 Other LIBOR Loan 14,534 1,090 Other LIBOR Bonds (assets) 4,853 1 Total 68,535 2,708 The above LIBOR-based amounts outstanding as at 31 December 2023 will be managed at the next first interest period therefore they do not cause a risk to the Group or to the customers. 6) Risk relating to the Russian-Ukrainian armed conflict On 24 February 2022 Russia launched a military operation against Ukraine which is still ongoing at the date of this Report. Until now many countries, as well as the European Union imposed sanctions due to the armed conflict on Russia and Russian businesses and citizens. Russia responded to these sanctions with similar measures. The armed conflict and the international sanctions influence the business and economic activities significantly all around the world. There are a number of factors associated with the Russian-Ukrainian armed conflict and the international sanctions as well as their impact on global economies that could have a material adverse effect on (among other things) the profitability, capital and liquidity of financial institutions such as the OTP Group. The armed conflict and the international sanctions cause significant economic damage to the affected parties and in addition they cause disruptions in the global economic processes, of which the precise consequences (inter alia the effects on energy and grain markets, the global transport routes and international trade as well as tourism) are difficult to be estimated at the moment. It remains unclear how this will evolve going forward and the OTP Group continues to monitor the situation closely. However, the OTP Group's ability to conduct business may be adversely affected by disruptions to its infrastructure, business processes and technology services. This may cause significant customer detriment, costs to reimburse losses incurred by the OTP Group’s customers, and reputational damage. Furthermore, the OTP Group relies on models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures, conducting stress testing and assessing capital adequacy. Models are, by their nature, imperfect and incomplete representations of reality because they rely on assumptions and inputs, and as such assumptions may later potentially prove to be incorrect, this can affect the accuracy of their outputs. This may be exacerbated when dealing with unprecedented scenarios, such as the Russian-Ukrainian armed conflict and the international sanctions, due to the lack of reliable historical reference points and data. Any and all such events mentioned above could have a material adverse effect on the OTP Group’s business, financial condition, results of operations, prospects, liquidity, capital position and credit ratings, as well as on the OTP Group’s customers, employees and suppliers.
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NOTE 52: POST BALANCE SHEET EVENTS Summary of economic policy measures made and other relevant regulatory changes as post-balance sheet events Post-balance sheet events cover the period until 20 February 2024. Hungary • On 23 January 2024 OTP Bank announced that notes were issued with a value date of 31 January 2024, in the aggregate nominal amount of EUR 600 million. The 5 years, Non-Call 4 years Senior Preferred Notes were priced on 23 January 2024. • On 26 January 2024 Scope Ratings affirmed Hungary's long-term local- and foreign-currency issuer and senior unsecured debt ratings at ‘BBB’ with stable outlook. • On 29 January 2024 the Ministry for National Economy announced that following discussions between the Government and the Banking Association, based on the banks' voluntary commitment, from 1 February to 1 May 2024, the interest margin above BUBOR rate for newly contracted Hungarian Forint-based, variable- rate corporate loan contracts (regardless of the purpose of the loan) will be 0%, and the margin will remain at 0% for 6 months from the date of disbursement of the loan, after which it may return to the normal level. At the same time, the Government indicated that the rate cap on outstanding variable rate MSE loans, which expires on 1 April 2024 according to the current legislation, will not be further extended. • On 30 January 2024 the National Bank of Hungary cut its key policy rate by 75 bps to 10.0%. • On 2 February 2024 OTP Bank announced that it decided to terminate the project aiming at establishing a consumer finance joint venture company with its partners in China with a 15%shareholding, as the condition precedents were not fulfilled until the pertaining contractual deadlines. • On 9 February 2024 OTP Bank announced that it concluded a share sale and purchase agreement to sell its directly and indirectly owned 100% shareholding in OTP Bank Romania S.A. to Banca Transilvania S.A. (‘BT’). OTP Group is also selling its 100% shareholdings in its other Romanian subsi diaries, OTP Leasing Romania IFN S.A. and OTP Asset Management S.A.I. S.A. to BT under the transaction. The financial closing of the transaction is expected in 2024 subject to the necessary regulatory approvals. • On 12 February 2024 OTP Bank received a single permission from the Hungarian National Bank for the repurchase of treasury shares, accordingly the Bank is entitled to repurchase its own shares in the amount of HUF 60 billion until 31 December 2024. The total amount specified in the permission shall immediately be deducted from the own funds in accordance with the law. Moldova • On 4 February 2024 the central bank cut the base rate by 50 bps to 4.25%. Slovenia • In Slovenia banking tax is obliged to pay based on The Act on Reconstruction. It is temporarily for calendar years 2024 to 2028. As the calculation is not based on the taxable profit but on the average total assets, the banking tax is considered as other administrative expense, not as income tax. The tax rate is 0,2%. The liability for banking tax is reduced by the difference between the amount of corporate income tax of the previous financial year, calculated at the introduced temporarily higher rate of 22% and at the statutory rate of 19%. Tax is not relevant for year 2023 and these taxes are classified as levies according to IFRS rules.