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 2022
2 Table of Contents CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022 ......................... 5 CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2022 ... 6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 .................................................................................................................................................. 8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022 ........................................................................................................................................................................ 9 CONSOLIDATED STATEMENT OF CASH-FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022....... 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 SIGNIFICANT 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. Securities at amortized cost ............................................................................................................. 19 2.6. Financial assets at fair value through profit or loss ......................................................................... 19 2.7. Hedge accounting ............................................................................................................................ 21 2.8. Offsetting ........................................................................................................................................ 22 2.9. Embedded derivatives ..................................................................................................................... 22 2.10. Securities at fair value through other comprehensive income ......................................................... 22 2.11. Loans, placements with other banks, repo receivables and loss allowance for loan and placements and repo receivable losses .............................................................................................................. 23 2.12. Modified assets................................................................................................................................ 25 2.13. Purchased or originated credit impaired financial assets ................................................................. 25 2.14. Loss allowance ................................................................................................................................ 26 2.15. Sale and repurchase agreements, security lending .......................................................................... 28 2.16. Associates and other investments .................................................................................................... 28 2.17. Property and equipment, Intangible assets ...................................................................................... 29 2.18. Inventories ....................................................................................................................................... 30 2.19. Government grants and government assistance............................................................................... 30 2.20. Financial liabilities .......................................................................................................................... 30 2.21. Leases .............................................................................................................................................. 31 2.22. Investment properties ...................................................................................................................... 32 2.23. Share capital .................................................................................................................................... 32 2.24. Treasury shares................................................................................................................................ 32 2.25. Non-current assets held-for-sale and discontinued operations ........................................................ 33 2.26. Interest income and income similar to interest income and interest expense .................................. 33 2.27. Fees and Commissions .................................................................................................................... 34 2.28. Profit from associates ...................................................................................................................... 34 2.29. Income tax ....................................................................................................................................... 34 2.30. Banking tax ..................................................................................................................................... 35
3 2.31. Off-balance sheet commitments and contingent liabilities .............................................................. 35 2.32. Share-based payment....................................................................................................................... 35 2.33. Employee benefits ........................................................................................................................... 35 2.34. Biological assets and agricultural produce ...................................................................................... 36 2.35. Consolidated Statement of Cash-flows ........................................................................................... 36 2.36. Segment reporting ........................................................................................................................... 36 2.37. Comparative balances ..................................................................................................................... 36 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES ........................................................................................................... 37 3.1. Loss allowances on financial instruments exposed to credit risk .................................................... 37 3.2. Valuation of instruments without direct quotations ........................................................................ 37 3.3. Provisions ........................................................................................................................................ 37 3.4. Impairment on goodwill .................................................................................................................. 38 3.5. Business model................................................................................................................................ 38 3.6. Contractual cash-flow characteristics of financial assets ................................................................ 38 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP .......... 40 NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANKS (in HUF mn) ................................................................................................................................... 50 NOTE 6: PLACEMENTS WITH OTHER BANKS (in HUF mn) ................................................................ 51 NOTE 7: REPO RECEIVABLES (in HUF mn) ............................................................................................ 52 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) .......... 53 NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn).................................................................................................................................................. 55 NOTE 10: SECURITIES AT AMORTIZED COST (in HUF mn) .................................................................. 58 NOTE 11: LOANS AT AMORTIZED COST AND AT FAIR VALUE (in HUF mn) ................................... 60 NOTE 12: ASSOCIATES AND OTHER INVESTMENTS (in HUF mn) ...................................................... 63 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) ................................... 64 NOTE 14: INVESTMENT PROPERTIES (in HUF mn) ................................................................................ 71 NOTE 15: DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) ........................................................................................................................................................ 73 NOTE 16: OTHER ASSETS (in HUF mn) ...................................................................................................... 74 NOTE 17: AMOUNTS DUE TO BANKS, THE NATIONAL GOVERNMENTS, DEPOSITS FROM THE NATIONAL BANKS AND OTHER BANKS (in HUF mn) ......................................................... 76 NOTE 18: REPO LIABILITIES (in HUF mn) ................................................................................................ 77 NOTE 19: FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) ................................................................................................................................... 78 NOTE 20: DEPOSITS FROM CUSTOMERS (in HUF mn) ........................................................................... 79 NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) ......................................................... 80 NOTE 22: DERIVATIVE FINANCIAL LIABILITIES HELD FOR TRADING (in HUF mn) ..................... 84 NOTE 23: DERIVATIVE FINANCIAL LIABILITIES DESIGNATED AS HEDGE ACCOUNTING (in HUF mn)......................................................................................................................................... 85 NOTE 24: PROVISIONS AND OTHER LIABILITIES (in HUF mn) ........................................................... 86 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) ............................................................. 88 NOTE 26: SHARE CAPITAL (in HUF mn) ................................................................................................... 89 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) ........................................................... 90 NOTE 28: TREASURY SHARES (in HUF mn) ............................................................................................. 94 NOTE 29: NON-CONTROLLING INTEREST (in HUF mn) ........................................................................ 95
4 NOTE 30: INTEREST INCOME, INCOME SIMILAR TO INTEREST INCOME AND EXPENSE (in HUF mn).................................................................................................................................................. 96 NOTE 31: LOSS ALLOWANCES / IMPAIRMENT / PROVISIONS (in HUF mn) ..................................... 97 NOTE 32: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) ............................................... 98 NOTE 33: GAIN AND LOSSES BY TRANSACTIONS (in HUF mn) ........................................................ 101 NOTE 34: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn)............................................................................................................. 103 NOTE 35: INCOME TAXES (in HUF mn) ................................................................................................... 105 NOTE 36: LEASES (in HUF mn) .................................................................................................................. 108 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) ................................................................... 111 37.1. Credit risk ...................................................................................................................................... 111 37.2. Maturity analysis of assets, liabilities and liquidity risk................................................................ 128 37.3. Net foreign currency position and foreign currency risk ............................................................... 133 37.4. Interest rate risk management........................................................................................................ 134 37.5. Market risk .................................................................................................................................... 143 37.6. Capital management ...................................................................................................................... 147 NOTE 38: TRANSFER OF FINANCIAL INSTRUMENTS (in HUF mn) ................................................... 149 NOTE 39: OFF-BALANCE SHEET ITEMS AND DERIVATIVE FINANCIAL INSTRUMENTS (in HUF mn)................................................................................................................................................ 150 NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) ........................... 152 NOTE 41: RELATED PARTY TRANSACTIONS (in HUF mn) ................................................................. 158 NOTE 42: ACQUISITION (in HUF mn) ....................................................................................................... 161 NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) ......................................... 163 NOTE 44: TRUST ACTIVITIES (in HUF mn) ............................................................................................. 167 NOTE 45: CONCENTRATION OF ASSETS AND LIABILITIES.............................................................. 168 NOTE 46: EARNINGS PER SHARE............................................................................................................ 169 NOTE 47: NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS (in HUF mn) .............. 171 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn)................................................ 173 48.1. Fair value of financial assets and liabilities ................................................................................... 174 48.2. Fair value of derivative instruments .............................................................................................. 175 48.3. Types of hedge accounting ............................................................................................................ 178 48.4. Fair value levels ............................................................................................................................ 188 NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) ...................................................................................................................................................... 195 NOTE 50: ASSET CLASSIFIED AS HELD-FOR-SALE AND DISCONTINUED OPERATIONS (in HUF mn)................................................................................................................................................ 208 NOTE 51: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2022 ..................... 209 NOTE 52: POST BALANCE SHEET EVENTS ........................................................................................... 212
OTP Bank Plc Consolidated Financial Statements 2022 5 OTP BANK PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022 (in HUF mn) Note 2022 2021 Cash, amounts due from banks and balances with the National Banks 5. 4,221,392 2,556,035 Placements with other banks 6. 1,351,082 1,584,861 Repo receivables 7. 41,009 61,052 Financial assets at fair value through profit or loss 8. 436,387 341,397 Securities at fair value through other comprehensive income 9. 1,739,603 2,224,510 Securities at amortized cost 10. 4,891,938 3,891,335 Loans at amortized cost 11. 16,094,458 13,493,183 Loans mandatorily at fair value through profit or loss 11. 1,247,414 1,068,111 Finance lease receivables 36. 1,298,752 1,182,628 Associates and other investments 12. 73,849 67,222 Property and equipment 13. 464,469 411,136 Intangible assets and goodwill 13. 237,031 248,631 Right-of-use assets 36. 58,937 50,726 Investment properties 14. 47,452 29,882 Derivative financial assets designated as hedge accounting 15. 48,247 18,757 Deferred tax assets 35. 75,421 15,109 Current income tax receivables 35. 5,650 29,978 Other assets 16. 471,119 276,785 Assets classified as held for sale 50. - 2,046 TOTAL ASSETS 32,804,210 27,553,384 Amounts due to banks, the National Governments, deposits from the National Banks and other banks 17. 1,463,158 1,567,348 Repo liabilities 18. 217,369 79,047 Financial liabilities designated at fair value through profit or loss 19. 54,191 41,184 Deposits from customers 20. 25,188,805 21,068,644 Liabilities from issued securities 21. 870,682 436,325 Derivative financial liabilities held for trading 22. 385,747 202,716 Derivative financial liabilities designated as hedge accounting 23. 27,949 11,228 Leasing liabilities 36. 63,778 53,286 Deferred tax liabilities 35. 40,094 24,045 Current income tax payable 35. 28,866 36,581 Provisions 24. 131,621 119,799 Other liabilities 24. 707,654 598,081 Subordinated bonds and loans 25. 301,984 278,334 TOTAL LIABILITIES 29,481,898 24,516,618 Share capital 26. 28,000 28,000 Retained earnings and reserves 27. 3,395,215 3,109,509 Treasury shares 28. (106,862) (106,941) Total equity attributable to the parent 3,316,353 3,030,568 Total equity attributable to non-controlling interest 29. 5,959 6,198 TOTAL SHAREHOLDERS' EQUITY 3,322,312 3,036,766 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 32,804,210 27,553,384 Budapest, 31 March, 2023 Dr. Sándor Csányi László Wolf Chairman and Chief Executive Officer Deputy Chief Executive Officer
OTP Bank Plc Consolidated Financial Statements 2022 6 OTP BANK PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2022 (in HUF mn) Note 2022 2021 CONTINUING OPERATIONS Interest income calculated using the effective interest method 30. 1,508,050 922,539 Income similar to interest income 30. 495,973 194,920 Interest income and income similar to interest income 2,004,023 1,117,459 Interest expense (912,709) (243,149) NET INTEREST INCOME 1,091,314 874,310 Loss allowance on loans, placements, amounts due from banks and on repo receivables 31. (155,681) (27,721) Change in the fair value attributable to changes in the credit risk of loans mandatorily measured at fair value through profit of loss 31. 13,346 (16,289) Loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost 31. (60,774) (3,974) Provision for commitments and guarantees given 31. (6,145) (99) (Impairment) / Release of impairment of assets subject to operating lease and of investment properties 31. (1,204) 438 Risk cost total (210,458) (47,645) NET INTEREST INCOME AFTER RISK COST 880,856 826,665 (Loss) / Gain from derecognition of financial assets at amortized cost 31. (1,655) 1,885 Modification loss 4. (39,997) (13,672) Income from fees and commissions 32. 739,576 554,113 Expense from fees and commissions 32. (139,216) (111,939) Net profit from fees and commissions 600,360 442,174 Foreign exchange result, net 33. (14,989) (4,075) (Loss) / Gain on securities, net 33. (4,488) 5,560 Fair value adjustment on financial instruments measured at fair value through profit or loss 33. (4,164) (532) Net results on derivative instruments and hedge relationships 33. 10,558 6,798 Profit from associates 8., 9. 14,640 15,648 Goodwill impairment 13. (67,715) - Other operating income 34. 125,415 81,328 Other operating expenses 34. (128,785) (85,732) Net operating income (69,528) 18,995 Personnel expenses 34. (402,563) (340,684) Depreciation and amortization 13. (107,588) (94,996) Other general expenses 34. (464,997) (311,932) Other administrative expenses (975,148) (747,612) PROFIT BEFORE INCOME TAX 394,888 528,435 Income tax expense 35. (59,251) (72,123) PROFIT AFTER INCOME TAX FOR THE PERIOD FROM CONTINUING OPERATIONS 335,637 456,312
OTP Bank Plc Consolidated Financial Statements 2022 7 OTP BANK PLC CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2022 [continued] (in HUF mn) Note 2022 2021 PROFIT AFTER INCOME TAX FOR THE PERIOD FROM CONTINUING OPERATIONS 335,637 456,312 From this, attributable to: Non-controlling interest 29. 727 836 Owners of the company 334,910 455,476 DISCONTINUED OPERATIONS Gain from disposal of subsidiary classified as held for sale 50. 11,444 - Gain from discontinued operations 50. - 116 PROFIT AFTER INCOME TAX FROM CONTINUING AND DISCOUNTINUED OPERATION 347,081 456,428 From this, attributable to: Non-controlling interest 29. 727 836 Owners of the company 346,354 455,592 Earnings per share (in HUF) From continuing operations Basic 46. 1,246 1,738 Diluted 46. 1,246 1,738 From continuing and discontinued operations Basic 46. 1,289 1,738 Diluted 46. 1,288 1,738
OTP Bank Plc Consolidated Financial Statements 2022 8 OTP BANK PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 (in HUF mn) Note 2022 2021 PROFIT AFTER INCOME TAX FOR THE YEAR 347,081 456,428 Items that may be reclassified subsequently to profit or loss: Fair value adjustment of securities at fair value through other comprehensive income 27. (134,692) (50,789) Deferred tax related to fair value adjustment of securities at fair value through other comprehensive income 27. 10,816 3,526 Foreign currency translation difference 27. 179,623 61,729 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. 5,780 2,747 Deferred tax related to equity instruments at fair value through other comprehensive income 27. (1,282) (361) Change of actuarial gain related to employee benefits 27. 1,059 53 Deferred tax related to change of actuarial gain related to employee benefits 27. (43) (11) Subtotal 61,261 16,894 TOTAL COMPREHENSIVE INCOME 408,342 473,322 From this, attributable to: Non-controlling interest 647 1,041 Owners of the company 407,695 472,281
OTP Bank Plc Consolidated Financial Statements 2022 9 OTP BANK PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022 (in HUF mn) Note Share capital Capital reserve Retained earnings and other reserves 1 Treasury shares Total attributable to shareholders Non-controlling interest Total Balance as at 1 January 2021 28,000 52 2,629,024 (124,080) 2,532,996 4,116 2,537,112 Profit after income tax for the period - - 455,592 - 455,592 836 456,428 Other Comprehensive Income - - 16,689 - 16,689 205 16,894 Total comprehensive income - - 472,281 - 472,281 1,041 473,322 Increase due to business combination - - - - - 1,041 1,041 Share-based payment 40. - - 3,589 - 3,589 - 3,589 Adjustment of previous years' reserves - - 1,034 - 1,034 - 1,034 Sale of Treasury shares 28. - - - 293,572 293,572 - 293,572 Treasury shares - loss on sale 28. - - (27,800) - (27,800) - (27,800) Treasury shares - acquisition 28. - - - (276,433) (276,433) - (276,433) Payments to ICES holders 27. - - (3,734) - (3,734) - (3,734) Increase due to termination of ICES 27. - - 35,063 - 35,063 - 35,063 Balance as at 31 December 2021 28,000 52 3,109,457 (106,941) 3,030,568 6,198 3,036,766 Note Share capital Capital reserve Retained earnings and other reserves 1 Treasury shares Total attributable to shareholders Non-controlling interest Total 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 1 See details in Note 27.
OTP Bank Plc Consolidated Financial Statements 2022 10 OTP BANK PLC CONSOLIDATED STATEMENT OF CASH-FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022 (in HUF mn) OPERATING ACTIVITIES Note 2022 2021 Profit after income tax for the period (attributable to the owners of the company) 346,354 455,592 Net accrued interest 45,499 14,854 Dividend income 27. (13,800) (15,648) Depreciation and amortization 13. 112,749 100,321 Goodwill impairment 13. 67,715 - Loss allowance on securities 9.,10. 60,774 3,974 Loss allowance on loans and placements, amounts due from banks and on repo receivables 5-7., 11. 155,681 27,721 Loss allowance on investments 12. 901 6,640 Loss allowance / (Release of loss allowance) on investment properties 14. 1,326 (243) Impairment on tangible and intangible assets 13. 468 2,772 Loss allowance on other assets 16. 15,973 1,986 Provision on off-balance sheet commitments and contingent liabilities 24. 8,589 10,856 Share-based payment 40. 2,948 3,589 Unrealized (gains) / losses on fair value change of financial instrument at fair value through profit or loss 33. (84,641) 11,404 Non-realized foreign exchange (gain) / loss 33. (296,986) 22,258 (Gain) / Loss from sale of tangible and intangible assets 13. (1,281) 129 Unrealized losses on fair value change of derivative financial instruments 33. 81,440 18,982 Negative goodwill 42. (3,784) - Gain on discontinued operations 50. - (116) Net changes in assets and liabilities in operating activities Net increase in securities at fair value through profit or loss 8. (133,548) (126,364) Net increase in compulsory reserves at the National Banks 5. (769,233) (96,936) Decrease / (Increase) in placement with other banks, before loss allowance for placements 6. 412,510 (307,731) Net increase in loans at amortized cost before loss allowance for loans and in loans at fair value 11. (2,733,463) (2,206,183) Net increase in other assets before loss allowance 16. (205,916) (17,930) Net (decrease) / increase in amounts due to banks, the National Governments, deposits from the National Banks and other banks and repo liabilities 17., 18. (43,747) 299,138 Net increase in financial liabilities designated at fair value through profit or loss 19. 11,073 1,315 Net increase in deposits from customers 20. 3,787,573 3,125,494 Cash payments for the interest portion of the lease liability 36. (2,386) (935) Net increase in other liabilities 24. 400,077 186,319 Income tax paid 35. (74,411) (47,876) Net Cash Provided by Operating Activities 1,148,454 1,473,382
OTP Bank Plc Consolidated Financial Statements 2022 11 OTP BANK PLC CONSOLIDATED STATEMENT OF CASH-FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022 (in HUF mn) [continued] Note 2022 2021 INVESTING ACTIVITIES Purchase of securities at fair value through other comprehensive income 9. (1,129,729) (2,342,772) Proceeds from sale of securities at fair value through other comprehensive income 9. 1,529,538 2,217,702 Purchase of investments 12. (38,053) (32,626) Proceeds from sale of investments 12. 30,525 11,207 Dividends received 27. 13,800 15,648 Purchase of securities at amortized cost 10. (32,573,247) (6,249,137) Redemption of securities at amortized cost 10. 31,625,182 4,997,215 Purchase of property, equipment and intangible assets 13. (275,017) (300,715) Proceeds from disposals of property, equipment and intangible assets 13. 76,136 119,661 Purchase of investment properties 14. (20,935) (134) Proceeds from sale of investment properties 14. 1,127 7,983 Net change in cash and cash equivalents from discontinued operation 50. - 116 Net cash paid for acquisition 42. 38,889 - Net Cash Used in Investing Activities (721,784) (1,555,852) FINANCING ACTIVITIES Cash received from issuance of securities 21. 569,839 76,728 Cash used for redemption of issued securities 21. (133,712) (106,350) Cash payments for the principal portion of the lease liability 36. (24,632) (14,149) Cash received from issuance of subordinated bonds and loans 25. 6,418 2,676 Cash used for redemption of subordinated bonds and loans 25. (4,646) - Payments to ICES holders 27. - 71,688 Sale of Treasury shares 28. 8,913 293,572 Purchase of Treasury shares 28. (16,268) (276,433) Dividends paid 27. (116,147) (10) Net Cash Provided by Financing Activities 289,765 47,722 TOTAL NET CASH PROVIDED BY / (USED IN) 716,435 (34,748) Cash and cash equivalents at the beginning of the period 5. 1,701,564 1,674,777 Foreign currency translation 179,689 61,533 Net change in cash and cash equivalent 716,435 (34,748) Adjustment due to discontinued operation - 2 Cash and cash equivalents at the end of the period 5. 2,597,688 1,701,564
OTP Bank Plc Consolidated Financial Statements 2022 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. The Bank’s register ed 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 Budapest Váci Street 20. Registered under 01-09- 267553 by Budapest-Capital Regional Court, as registry court. Statutory registered auditor: Zsuzsanna Nagyváradiné Szépfalvi, registration number: 005313. These Consolidated Financial Statements were approved by the Board of Directors and authorised for issue on 31 March 2023. The Bank’s owners have the power to amend the Consolidated Financial Statements after issue if applicable. 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 (%): 2022 2021 Domestic and foreign private and institutional investors 99% 98% Employees 1% 1% Treasury shares - 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 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 1,392 branches in the following countries Hungary, Bulgaria, Serbia, Croatia, Russia, Romania, Ukraine, Albania, Montenegro, Moldova and Slovenia, 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: 2022 2021 The number of employees at the Group 35,976 37,866 The average number of employees at the Group 36,168 37,890
OTP Bank Plc Consolidated Financial Statements 2022 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 2022 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 IFRS 1 “First-time Adoption of International Financial Reporting Standards”, IFRS 9 “Financial Instruments”, IAS 41 “Agriculture”– “Annual Improvements to IFRSs 2018-2020 Cycle” - adopted by EU on 28 June 2021 (effective for annual periods beginning on or after 1 January 2022): o IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first- time adopter: The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported in the parent’s consolidated financial statements, based on the parent’s date of transition to IFRS, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. These amendments had no impact on the consolidated financial statements of the Group as it is not a first-time adopter. o IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities: The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. There is no similar amendment proposed for IAS 39 Financial Instruments: Recognition and Measurement. In accordance with the transitional provisions, the Group applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment (the date of initial application). These amendments had no impact on the consolidated financial statements of the Group as there were no fees charged or incurred related to modifications during the period.
OTP Bank Plc Consolidated Financial Statements 2022 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 2022 [continued] o IAS 41 Agriculture – Taxation in fair value measurements: The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41. These amendments had limited impact on the consolidated financial statements of the Group as it has limited assets in scope of IAS 41 as at the reporting date. • Amendments to IFRS 3 “Business Combinations”; IAS 16 “Property, Plant and Equipment”; IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” - adopted by the EU on 28 June 2021 Annual Improvements (effective for annual periods beginning on or after 1 January 2022): o IFRS 3 Business Combinations (Amendments) update a reference in IFRS 3 to the previous version of the IASB’s Conceptual Framework for Financial Reporting to the current version issued in 2018 without significantly changing the accounting requirements for business combinations. o IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from the cost of property, plant and equipment any proceeds from the sale of items produced while bringing the asset to the location and condition necessary for it be capable of operating in the manner intended by management. Instead, a company recognizes such sales proceeds and related cost in profit or loss. o IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a company includes in determining the cost of fulfilling a contract for the purpose of assessing whether a contract is onerous. The amendments clarify, the costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to the contract activities. The adoption of these amendments to the existing standards has not led to any material changes in the Group’s Consolidated Financial Statements. 1.2.2. New and revised Standards and Interpretations issued by IASB and adopted by the EU but not yet effective At the date of authorization of these financial statements there are new standards, amendments to the existing standards or interpretations which are issued by IASB and adopted by the EU which are not yet effective: • 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 repla ce 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.
OTP Bank Plc Consolidated Financial Statements 2022 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 [continued] • 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). • 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). • 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 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. The Group does not adopt these new standards and amendments to existing standards before their effective date. The Group anticipates that the adoption of these new standards, amendments to the existing standards and new interpretations will have no material impact on the Consolidated Financial Statements of the Group in the period of initial application. 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 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): 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.
OTP Bank Plc Consolidated Financial Statements 2022 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 IFRS 16 “Leases” – Lease Liability in a Sale and Leaseback – issued by IASB on 22 September 2022 (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 determines ‘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. • 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 2022 17 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant 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 2.8. 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 2.7. 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 2022 18 NOTE 2: SUMMARY OF SIGNIFICANT 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 2022 19 NOTE 2: SUMMARY OF SIGNIFICANT 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”. 2.5. 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 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 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 and discounted treasury bills. 2.6. Financial assets at fair value through profit or loss 2.6.1. 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. 2.6.2. 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 2022 20 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.6. Financial assets at fair value through profit or loss [continued] 2.6.3. 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 2022 21 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.6. Financial assets at fair value through profit or loss [continued] 2.6.3 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. 2.7. 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 2022 22 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.7. 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. The Group has terminated these transactions since 2020. 2.8. 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. 2.9. 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. 2.10. 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.
OTP Bank Plc Consolidated Financial Statements 2022 23 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.10. Securities at fair value through other comprehensive income [continued] 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 option is based only on direct decision of management of the Group. 2.11. 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. 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/losses from derecognit ion 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”.
OTP Bank Plc Consolidated Financial Statements 2022 24 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.11. Loans, placements with other banks, repo receivables and loss allowance for loan and placements and repo receivable losses [continued] 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 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 “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 remote. 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 2022 25 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.12. 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 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 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 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. 2.13. 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 derecogniton 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 Group’s books.
OTP Bank Plc Consolidated Financial Statements 2022 26 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.14. 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. 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 “Impairment 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 2022 27 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.14. 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 2022 28 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.14. 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. 2.15. 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 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. 2.16. Associates and other investments 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. 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.
OTP Bank Plc Consolidated Financial Statements 2022 29 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.16. Associates and other investments [continued] The Group’s share of the profits or losses of the investee, or other changes in the investee’s equi ty, 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. 2.17. 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 6.3% - 50.0% 2 – 15 Property right 16.7% - 33.3% 3 – 6 Property 1.0% - 50.0% 2 – 100 Machinery and office equipment 3.3% - 50.0% 2 – 30 Vehicle 3.0% - 33.3% 3 – 33
OTP Bank Plc Consolidated Financial Statements 2022 30 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.18. 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. 2.19. 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. 2.20. 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 2022 31 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.20. 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. 2.21. 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 the 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 2.14.). 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 2022 32 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.21. 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 2.22. 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. 2.23. 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. 2.24. 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 losses on the sale of treasury shares are credited or charged directly to shareholder’s equity.
OTP Bank Plc Consolidated Financial Statements 2022 33 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.25. 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. 2.26. 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 2022 34 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.27. 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 (see more details in Note 32). These fees are related to deposits, cash withdrawals, security trading, bank card etc. The Group recognizes income if performance obligations related to the certain goods or services are satisfied, performed, and control over the asset is transferred to the customer, and it is probable that consideration payable will probably flow to the entity. In case of those services, where the Group transfers control over the asset continuously, income is recognised on accrual basis. 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. 2.28. 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. 2.29. 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. 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. 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.
OTP Bank Plc Consolidated Financial Statements 2022 35 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.30. Banking tax The Bank and some of its subsidiaries are obliged to pay banking tax based on Act LIX of 2006. 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%. 2.31. 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 2.14.). 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. 2.32. 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. 2.33. 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 Statement of Profit or Loss. 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.
OTP Bank Plc Consolidated Financial Statements 2022 36 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued] 2.33. Employee benefits [continued] 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. 2.34. 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. 2.35. 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. 2.36. 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, Romania, Serbia, Croatia, Montenegro, Albania, Moldova, Slovenia, Merkantil Group, Asset Management subsidiaries, Other subsidiaries, Corporate Center. 2.37. 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 2021.
OTP Bank Plc Consolidated Financial Statements 2022 37 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.
OTP Bank Plc Consolidated Financial Statements 2022 38 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES [continued] 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. 3.5. Business model 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. 3.6. Contractual cash-flow characteristics of financial assets 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 2022 39 NOTE 3: SIGNIFICANT ACCOUNTING ESTIMATES AND DECISIONS IN THE APPLICATION OF ACCOUNTING POLICIES [continued] 3.6. Contractual cash-flow characteristics of financial assets [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.
OTP Bank Plc Consolidated Financial Statements 2022 40 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP The Covid-19 pandemic and the volatile economic environment in the post-Covid-19 era Since the outbreak of the COVID-19 pandemic, OTP Group has regularly updated its forecasts in light of the pandemic and the impact of the pandemic on the operations of OTP Group. However, the continuance of new waves of the pandemic emerging may require further revision by OTP Group to such macroeconomic scenarios and its estimations of credit impairments. Over the last 3 years, the COVID-19 pandemic severely impacted the evolution of the global economy. The supply- chain and logistic relationships were disrupted by periodic lockdowns and social distancing requirements and the supply of several key raw materials dropped significantly, leading to a more volatile economic environment compared to previous years. Raw material and energy prices rose steeply, leading to higher inflation and interest rates in some of OTP Group’s operating countries. The conflict between Russian and Ukraine and the subsequent implementation of sanctions on Russia have accelerated supply shortages and resulted in higher energy prices and more broad-based inflation. Several major central banks have already raised or are considering raising interest rates earlier than previously expected. The Hungarian central bank has already hiked rates since the summer of 2021. The risk of local currency devaluations versus EUR or USD has increased and could lead to a more volatile operating environment for OTP Group. This volatile environment could cause financial difficulties for OTP Group’s customers. The deteriorating credit quality of OTP Group’s customers may in particular result in increasing defaults and arrears in monthly payments on loans, higher credit impairments on the loan portfolios of OTP Group. Furthermore, lower demand for, and origination of, new loans could have a material adverse effect on the OTP Group’s results of operations. The OTP Group’s activities and the profitability of its operations are strongly affected by the macroeconomic environment and the domestic and international perception of the economies in which it operates. 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, 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. Macro economy and financial situation Hungary The rapid recovery following the Covid crisis has created capacity bottlenecks in many sectors, which, coupled with rising commodity and energy prices, have significantly increased inflation in advanced economies. In the USA, the rate of inflation has not been at this level since the 1970s. The rapidly rising and increasingly broad- based inflation prompted the Fed to take action and to become the first major central bank to start raising interest rates. This move has significantly strengthened the dollar, and US 10-year yields rose to 4.3%. In the USA, inflation clearly peaked in mid-2022, and has been on a downward trend since then. Inflation also rose rapidly in Europe, where the dramatically growing gas and electricity prices posed the bigger problem. However, inflation also peaked in the euro area by the end of 2022 and has been on a downward trend since October 2022. As the Russia-Ukraine war had a much stronger impact on Europe’s economic outlook, and the labour market was much less tight than in the USA, the ECB was slower to react to the rise in inflation. Still, European short-term interest rates also rose to 2% by the end of 2022. The USA went into a technical recession in the first half of 2022, but this turned out to be temporary, and the US economy resumed growth in the second half-year. Europe’s economies proved more resilient than had been expected to the effects of the Russia-Ukraine war. In the first half of the year, growth benefited from the sectors that recovered after the pandemic, but the currency area also avoided recession in the second half of the year and grew by 3.5% in full year 2022.
OTP Bank Plc Consolidated Financial Statements 2022 41 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] Macro economy and financial situation [continued] Hungary [continued] The main factor that affected Hungary’s economy in 2022 was the war in a neighbouring country. Although the Hungarian economy grew by 8.2% year-on-year in the first quarter and by 6.5% in the second, this was largely fuelled by massive one-off transfers at the beginning of 2022. By the second half of the year, however, the economy had lost steam and entered technical recession (two consecutive quarters of economic contraction) by the end of 2022. As a result, the Hungarian economy grew by 4.6% in 2022 as a whole. Inflation, which went beyond 20% by the end of the year, played a significant role in the downturn, significantly eroding real income, and turning its growth negative by the end of 2022. The strong domestic demand at the beginning of the year allowed businesses to pass through the ongoing cost shocks to prices. From the second half of the year, a number of administrative measures (tightening of KATA tax rules, windfall taxes, increasing the public heath product tax, scrapping some price caps, etc.) also boosted inflation. As a consequence, Hungary’s inflation decoupled from the developments in the euro area, where inflation peaked around 10%, and from the CEE region, where it peaked at 15-17%. In Hungary, inflation did not peak in 2022. Given that Hungary is a major net energy importer, the sharp rise in energy prices has significantly worsened the Hungarian economy’s external balance, which put the forint under depreciation pressure. In addition, the continued delay in agreeing on EU funds has increased the risk premium on HUF assets, which also contributed to the forint’s weakening – the MNB could reverse this only by a drastic interest rate hike, when the HUF/EUR was nearing 435. As a result, the effective reference rate rose to 18%. The falling gas prices, and the agreement reached with the EU at the end of 2022 had a benign effect on the HUF’s exchange rate. Falling real incomes and high interest rates have considerably slowed credit market growth. The housing loan market saw the sharpest slowdown: by the end of 2022 (as the Green Home Programme credit line ended), the contracted amount had fallen to half of the level seen in 2021. Despite the rapidly eroding real incomes, household consumption was still relatively buoyant. But this came at a price: households’ ability to save has sharply fallen. Outflows from demand deposits was particularly strong; these amounts flowed into foreign currency deposits and investment fund units. The principles used in the preparation of the Consolidated Statement of Financial Position as at 31 December 2022 in connection with the evaluation of Russian and Ukrainian exposures Going concern principle Russia launched an operation against Ukraine on 24 February 2022, which has not ended even as of the date of these Consolidated Financial Statements. Because of the armed conflict, many countries and the European Union have imposed sanctions against Russia, Russian companies and citizens in several rounds. Russia responded to these sanctions with similar sanctions measures. Armed conflict and international sanctions significantly affect business and economic activity worldwide. Under an unexpected and extremely negative scenario of deconsolidating the Ukrainian entity and writing down the outstanding gross intragroup exposures as well, the effect for the consolidated CET1 ratio would be +1 bp, whereas in the case of Russia the impact would be -71 bps, based on the end of December 2022 numbers. OTP Group’s Ukrainian operation incorporates the Ukrainian bank, as well as the leasing and factoring companies. The country-consolidated Ukrainian total assets represented HUF 1,049 billion at the end of 2022 (3.2% of total consolidated assets), while net loans comprised HUF 414 billion (2.2% of consolidated net loans) and shareholders’ equity HUF 122 billion (3.7% of the consolidated total equity). At the end of 2022 the gross intragroup funding towards the Ukrainian operation represented HUF 84 billion. In 2022 the Ukrainian operation posted an adjusted after-tax loss of HUF 15.9 billion. Regarding the trajectory of the quarterly results, following the loss of HUF 34.4 billion realized in the first quarter, the financial performance of the Ukrainian operation stabilized: in the second quarter around break-even result, then both in the third and the fourth quarter a positive result was achieved.
OTP Bank Plc Consolidated Financial Statements 2022 42 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 2022 in connection with the evaluation of Russian and Ukrainian exposures [continued] Going concern principle [continued] The total assets of the Group’s Russian operation represented HUF 1,030 billion at the end of 2022 (3.1% of consolidated total assets), while net loans comprised HUF 612 billion (3.3% of consolidated net loans) and shareholders’ equity HUF 306 billion (9.2% of consolidated total equity). As the Russian subsidiary repaid its maturing intragroup loans in the fourth quarter of 2022, the gross intragroup funding towards the Russian operation declined from HUF 75 billion equivalent at the end of 2021 to HUF 10 billion equivalent at the end of 2022 (these figures are practically the same as the net group funding due to the lack of deposits placement by Russia in the Group). The remaining intragroup exposure toward the Russian operation at the end of 2022 was a subordinated loan.The Russian operation posted HUF 42.5 billion adjusted profit in 2022. Within that, HUF 27.2 billion loss was suffered in the first quarter, followed by profitable quarters in the remaining part of the year. 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, though a Russian Presidential decree in October 2022 prohibited the sale of foreign owned banks. Based on the current evaluation of the Bank's management, the Ukrainian-Russian conflict does not have a significant negative impact on the OTP Group's business activities, financial situation, effectiveness of its activities, liquidity, and capital situation. Even after the recognition of the potential losses and write-offs outlined above, the Group's capital adequacy remains above the expected regulatory level. There is no sign of significant uncertainties having been arisen regarding carrying out its business as a going concern. 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 2022 43 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 2022 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 41,143 - 48,537 - - - Placements with other banks 5 248,192 - 5 36,835 (250) - - Financial assets at fair value through profit or loss - derivatives 3 366 - 4 14 - - - Securities at fair value through other comprehensive income 1a 22,051 - 2a 26,601 - 1b; 2b 71,683 (43,003) Securities at amortized cost - - 2a 309,128 (14) 1b; 2b 50,962 (17,635) Loans at amortized cost 5 792,217 (180,364) 5 373,560 (87,860) 5 11,311 (6,929) Finance lease receivables - - 153,090 (24,899) - - Associates and other investments 58 (2) Property and equipment 39,583 (25,058) 14,132 (6,827) - - Intangible assets and goodwill 37,524 (17,927) 9,760 (5,897) 6 40,866 (40,866) Right-of-use assets 19,741 (10,555) 6,311 (3,007) - - Investment properties - - 252 - - - Deferred tax assets 7 20,719 - 7 - - - - Other assets 36,237 (7,378) 13,231 (1,097) - - TOTAL ASSETS 1,257,831 (241,284) 991,451 (129,851) 174,822 (108,433) Amounts due to banks, the National Governments, deposits from the National Banks and other banks 18,415 - 26,125 - - -
OTP Bank Plc Consolidated Financial Statements 2022 44 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 2022 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 Due to the increased credit risk, the Bank classified these securities in the Stage 2 category. 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 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. 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 are classified as Stage2. In the case of a portfolio valued at fair value against 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. 3. Valuation of Russian derivative transactions Similar to the bond market, in 2022 the money market inside and outside Russia will also be separated. 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. In 2022, there was one case of non-performance, the impact of which was HUF 13.8 billion.
OTP Bank Plc Consolidated Financial Statements 2022 45 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 2022 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] 4. Valuation of Ukrainian derivatives Similar to the bond market, in 2022 the liquidity and number of transactions in the Ukrainian money market were limited. 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 deteriorating economic environment compared to previous years was taken into account when determining the expected loss, however, the Bank does not expect any further substantial deterioration of the economic environment. As a result of the cessation of active corporate lending, the exposure of corporate loans in rubles decreased by 75% in 2022. The retail credit market started to pick up again from the second half of the year, although the dynamics of lending fell short of the similar period of the previous year. In the case of Ukrainian Group members, the proportion of customers with increased risk (Stage2) and non- performing (Stage3) increased significantly in 2022. When determining the expected loss, the drastically deteriorating external environment in 2022 was taken into account, compared to which the Bank does not expect any further significant deterioration in 2023. 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. Adjusted for exchange rates, the stock of residential loans due in 2022 (Stage 1+2) fell by approximately half. New corporate lending is predominantly limited to the refinancing of existing frameworks, the corporate loan portfolio decreased by 20% and the leasing portfolio by 28% adjusted for exchange rates last year. In the residential segment, the Bank's activity dropped to a fraction from the end of February, and in the second half of the year, there was already a small recovery in commodity lending. 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 2022 46 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 2022 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 20.7 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. Summary of economic policy measures made and other relevant regulatory changes in the period under review In the section below, the measures and developments which have been made since the beginning of 2022, and – in OTP Bank’s view – are relevant and have materially influenced / can materially influence the operation of the Group members. OTP Bank excludes any liability for the completeness and accuracy of the measures presented herein. Hungary • On 5 April 2022 the National Bank of Hungary raised the available amount under the Green Home Programme by an additional HUF 100 billion, up from the originally announced HUF 200 billion. • Pursuant to Government Decree No. 150/2022 published on 14 April 2022, effective from 29 April the intermediary and other fees paid by the State to commercial banks were amended in the case of the Housing Subsidy for Families (CSOK), the VAT refund subsidy for newly built homes, the repayment by the State of housing loan taken out by families with children, and the baby loans. These fees are now set as absolute amounts, instead of the previous percentage terms. Furthermore, the interest subsidy paid by the state was reduced by one percentage point in the case of baby loans requested after 29 April. • According to the press release made by the National Bank of Hungary on 30 June 2022, the counter-cyclical capital buffer rate will be increased, for the first time since its introduction 6 years ago, to 0.5% effective from 1 July 2023. • The baby loan programme which was originally meant to expire by the end of 2022 was extended by 2 years, till the end of 2024. Interest rate cap For the period between 1 January and 30 June 2022 the Hungarian Government introduced an interest rate cap for variable-rate retail mortgage loans, and with its decision announced on 18 February for housing purposes financial leasing contracts, too. Accordingly, the affected exposures’ reference rate cannot be higher than the rel evant contractual reference rate as at 27 October 2021. The modification loss related to the interest rate cap for variable rate mortgage loans announced was recognized in the Bank’s 2021 financial accounts. The extension of the interest rate cap to housing purposes financial leasing contracts did not have a significant negative effect. Pursuant to Government Decree No. 215/2022 (issued on 17 June) the Government extended the interest rate cap for variable-rate retail mortgage loans by an additional 6 months, i.e. until 31 December 2022. The expected one- off effect of the extension of the interest rate cap amounted to -HUF 10.1 billion (after tax) and was booked in the second quarter of 2022.
OTP Bank Plc Consolidated Financial Statements 2022 47 NOTE 4: MACRO ENVIRONMENT, IMPACT OF ECONOMIC SITUATION ON THE GROUP [continued] Interest rate cap [continued] The details of the extension of the interest rate cap scheme were revealed on 14 October 2022. Firstly, the interest rate cap was further extended by 6 months, until the end of June 2023. Secondly, from 1 November 2022 the provisions of the interest rate cap must applied to the market-based mortgages with up to 5 years interest rate repricing period, too. On 22 October 2022 the Government announced that starting from 15 November until 30 June 2023, the reference rate of certain MSE loans will also be capped, as set out by Government Decree 415/2022 (X. 26.) published on 26 October. Accordingly, the provisions shall be applied to HUF denominated, non-subsidized, floating rate loans to micro and small enterprises and financial lease contracts, excluding overdraft loan agreements. In this period, the reference rate of these exposures cannot be higher than the relevant reference rate as specified in the contract as at 28 June 2022 (on that day the 3M BUBOR stood at 7.77%). The financial burden of the MSE rate cap must be shouldered by the banks. The cost of the rate cap scheme is borne by the banks. The expected negative after tax effect of the measures taken in October 2022 amounted to HUF 26.4 billion and was accounted for in the fourth quarter of 2022 in one sum. Moratorium, one-off effect In Hungary the first phase of the moratorium on loan payments was effective from 19 March 2020 to 31 December 2020. At the end of 2020 the moratorium was extended in unchanged form for the period between 1 January 2021 and 30 June 2021. Furthermore, according to Government Decree No. 317/2021. (VI. 9.) released on 9 June 2021 the payment moratorium was extended with unchanged conditions until 30 September 2021. Pursuant to Government Decree 536/2021. (IX. 15.) published on 15 September, the Government decided to extend the debt repayment moratorium: the blanket moratorium was extended by an additional month, until the end of October, in an unchanged form. Furthermore, from the beginning of November 2021 until 30 June 2022 only the eligible borrowers can participate in the moratorium provided that they submitted a request to their banks about their intention to stay. Similarly, with its Government Decree No. 216/2022 published on 17 June, the Government further extended the expiry of the moratorium, until the end of 2022. Eligible clients had to notify their bank about their intention to participate in the payment holiday until the end of July 2022. The general payment holiday expired at the end of 2022. Starting from September 2022 to the end of 2023, due to the severe draught, agricultural companies can enjoy a payment moratorium on their working capital and investment loans. Eligible borrowers can decide whether to join the scheme or not. At the end of 2022, HUF 41 billion worth of loans were subject to the moratorium for agricultural companies, making up 0.6% of OTP Core’s total gross loan volume. During the term of the moratorium OTP Bank accrues the unpaid interest in its statement of recognized income, amongst the revenues. At the same time, due to the fact that interest cannot be charged on the unpaid interest, and the unpaid interest will be repaid later, in the course of 2020, 2021 and 2022 altogether HUF 44.1 billion one-off loss emerged in Hungary (after tax). 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 2022 48 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 2022 49 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 2021 (in HUF mn) Modification due to prolongation of deadline of covid moratoria until 30 September: Group Gross carrying amount before modification 1,175,230 Loss allowance before modification (66,066) Net amortised cost before modification 1,109,164 Modification loss due to covid moratoria (6,620) Net amortised cost after modification 1,102,544 Modification due to prolongation of deadline of covid moratoria until 31 October: Group Gross carrying amount before modification 1,166,115 Loss allowance before modification (69,415) Net amortised cost before modification 1,096,700 Modification loss due to covid moratoria (2,104) Net amortised cost after modification 1,094,596 In the case of credit card and overdraft loans interest charged during the moratoria period should be refunded to the debtors in amount determined as a difference between the charged interest and a premoratoria personal loan interest at 11,99%. The Bank has managed this government measure as loan agreement modification in the financial statements. Group Gross carrying amount before modification 57,892 Loss allowance before modification (9,234) Net amortised cost before modification 48,658 Modification loss due to covid moratoria (1,983) Net amortised cost after modification 46,675 Modification due to prolongation of deadline of covid moratoria until 30 June 2022: Group Gross carrying amount before modification 113,728 Loss allowance before modification (25,428) Net amortised cost before modification 88,300 Modification loss due to covid moratoria (2,838) Net amortised cost after modification 85,462 Modification due to temporarily fixing of loan with variable interest rate: On 24 December 2021 new regulation was issued on fixing of retail loan product’s interest, under that interest rates of mortgage loans with variable interest shall be fixed at reference rates of 27 October 2021, predictably till 30 June 2022. Group Gross carrying amount before modification 321,323 Loss allowance before modification (9,317) Net amortised cost before modification 312,006 Modification loss due to covid moratoria (3,397) Net amortised cost after modification 308,609
OTP Bank Plc Consolidated Financial Statements 2022 50 NOTE 5: CASH, AMOUNTS DUE FROM BANKS AND BALANCES WITH THE NATIONAL BANKS (in HUF mn) 2022 2021 Cash on hand In HUF 92,526 87,489 In foreign currency 582,950 409,045 675,476 496,534 Amounts due from banks and balances with the National Banks 2022 2021 Within one year In HUF 732,956 83,540 In foreign currency 2,814,663 1,977,069 3,547,619 2,060,609 Over one year In HUF - - In foreign currency - - - - Loss allowance on amounts due from bank and balances with the National Banks (1,703) (1,108) Total 4,221,392 2,556,035 Compulsory reserve set by the National Banks (1,623,704) (854,474) Cash and cash equivalents 2,597,688 1,701,561 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: 2022 2021 Balance as at 1 January 1,108 - Loss allowance for the period 8,072 952 Release of loss allowance for the period (7,697) - Use of loss allowance for the period - - Foreign currency translation difference 220 156 Closing balance 1,703 1,108
OTP Bank Plc Consolidated Financial Statements 2022 51 NOTE 6: PLACEMENTS WITH OTHER BANKS (in HUF mn) 2022 2021 Within one year In HUF 681,892 851,053 In foreign currency 447,648 523,205 1,129,540 1,374,258 Over one year In HUF 199,056 162,774 In foreign currency 26,323 50,823 225,379 213,597 Loss allowance on placements (3,837) (2,994) Total 1,351,082 1,584,861 An analysis of the change in the loss allowance on placements with other banks is as follows: 2022 2021 Balance as at 1 January 2,994 1,489 Loss allowance for the period 38,314 25,133 Release of loss allowance for the period (38,378) (23,613) Use of loss allowance for the period (100) (112) Foreign currency translation difference 1,007 97 Closing balance 3,837 2,994 Interest conditions of placements with other banks: 2022 2021 Interest rates on placements with other banks denominated in HUF 0.00% - 25.70% (1.50)% - 5.90% Interest rates on placements with other banks denominated in foreign currency (1.5)% - 13.29% (5.00)% - 29.00% 2022 2021 Average interest rates on placements with other banks (%) 11.02% 1.52%
OTP Bank Plc Consolidated Financial Statements 2022 52 NOTE 7: REPO RECEIVABLES (in HUF mn) 2022 2021 Within one year In HUF 41,250 33,710 In foreign currency - 27,632 41,250 61,342 Over one year In HUF - - In foreign currency - - - - Loss allowance on repo receivables (241) (290) Total 41,009 61,052 An analysis of the change in the loss allowance on repo receivables is as follows: 2022 2021 Balance as at 1 January 290 292 Loss allowance for the period 4,744 1,112 Release of loss allowance for the period (4,794) (1,124) Use of loss allowance - - Foreign currency translation difference 1 10 Closing balance 241 290 Interest conditions of repo receivables (%): 2022 2021 Interest rates on repo receivables denominated in HUF 10.70% - 18.00% 3.04% - 3.20 % Interest rates on repo receivables denominated in foreign currency - (0.58)% - 9.62%
OTP Bank Plc Consolidated Financial Statements 2022 53 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) 2022 2021 Securities held for trading Government bonds 78,897 97,531 Equity instruments and fund units 385 1,173 Corporate bonds 119 740 Discounted Treasury bills 22,896 923 Mortgage bonds 72 101 Other interest-bearing securities 1,628 1,347 Other non-interest-bearing securities 753 1,695 104,750 103,510 Non-trading securities mandatorily at fair value through profit or loss Equity instruments, shares and open-ended fund units 49,746 44,894 Bonds 5,409 8,509 55,155 53,403 Debt securities designated at fair value through profit or loss - - Total 159,905 156,913 Positive fair value of derivative financial assets held for trading 2022 2021 Foreign exchange swaps held for trading 79,395 38,728 Interest rate swaps held for trading 127,230 59,504 Commodity swaps 33,693 51,523 CCIRS and mark-to-market CCIRS held-for-trading 1 20,512 11,758 Foreign exchange forward contracts held for trading 13,085 10,790 Held-for-trading option contracts 2,122 1,285 Held-for-trading forward security agreement 13 - Other derivative transactions held for trading 2 432 10,896 Total 276,482 184,484 Total 436,387 341,397 1 CCIRS: Cross Currency Interest Rate Swaps (See Note 2.6.3.) 2 Other category includes: fx spot, equity swaps, option and index futures. An analysis of securities held for trading portfolio by currency (%): 2022 2021 Denominated in HUF 81.47% 30.46% Denominated in foreign currency 18.53% 69.54% Total 100.0% 100.0%
OTP Bank Plc Consolidated Financial Statements 2022 54 NOTE 8: FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) [continued] An analysis of government bond portfolio by currency (%): 2022 2021 Denominated in HUF 78.42% 28.31% Denominated in foreign currency 21.58% 71.69% Total 100.00% 100.00% Interest conditions of held for trading securities (%): 2022 2021 Interest rates on securities held for trading denominated in HUF 0.00% - 16.69% 0.00% - 6.75% Interest rates on securities held for trading denominated in foreign currency 0.00% - 7.63% 0.00% - 9.57% Interest conditions and the remaining maturities of securities held for trading can be analysed as follows: 2022 2021 Within one year With variable interest 3,041 111 With fixed interest 29,025 44,011 32,066 44,122 Over one year With variable interest 9,535 1,544 With fixed interest 62,011 54,976 71,546 56,520 Non-interest-bearing securities 1,138 2,868 Total 104,750 103,510 2022 2021 Profit from associates from shares measured at fair value through profit or loss 12,216 3,893 An analysis of non-trading securities mandatorily measured at fair value through profit or loss portfolio by currency (%): 2022 2021 Denominated in HUF 60.69% 57.11% Denominated in foreign currency 39.31% 42.89% Total 100.00% 100.00% 2022 2021 Interest rates on non-trading securities mandatorily measured at fair value through profit or loss 0.00% - 0.00% 0.00% - 0.00%
OTP Bank Plc Consolidated Financial Statements 2022 55 NOTE 9: SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (in HUF mn) 2022 2021 Securities at fair value through other comprehensive income Government bonds 1,301,179 1,765,172 Corporate bonds 82,651 88,519 Listed securities: In HUF - 2,896 In foreign currency 13,626 51,882 13,626 54,778 Non-listed securities: In HUF 14,304 15,487 In foreign currency 54,721 18,254 69,025 33,741 Mortgage bonds 54,553 63,072 Discounted Treasury bills - 96,625 Interest bearing treasury bills 182,726 63,115 Securities issued by the National Bank of Hungary 74,867 109,774 Other securities 3,470 3,257 Total 1,699,446 2,189,534 2022 2021 Non-trading equity instruments to be measured at fair value through other comprehensive income Listed securities: In HUF - - In foreign currency 11,233 8,416 11,233 8,416 Non-listed securities: In HUF 403 403 In foreign currency 28,521 26,157 28,924 26,560 40,157 34,976 Total 1,739,603 2,224,510 An analysis of securities at fair value through other comprehensive income by currency (%): 2022 2021 Denominated in HUF 36.47% 32.74% Denominated in foreign currency 63.53% 67.26% Total 100.00% 100.00%
OTP Bank Plc Consolidated Financial Statements 2022 56 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: 2022 2021 Strategic investments closely related to banking actitvity Fair value 31,873 29,320 Dividend income from instruments held at the reporting date 1,120 438 Derecognition Fair value of derecognized equity instrument, fund units - 65 Cumulative gain / loss on disposal transferred to retained earnings - 29 Other strategic investments Fair value 8,284 5,656 Dividend income from instruments held at the reporting date 59 29 Derecognition Cumulative gain / loss on disposal transferred to retained earnings - 196 Total Total fair values 40,157 34,976 Dividend income from instruments held at the reporting date 1,179 467 Fair value of derecognized equity instrument, fund units - 65 Cumulative gain / loss on disposal transferred to retained earnings - 225 During the year ended 31 December 2022 there wasn’t any sale transaction regarding equity instruments designated to measure at fair value through other comprehensive income in the Group while during the year ended 31 December 2021 the Group sold HUF 65 million equity instruments designated to measure at fair value through other comprehensive income An analysis of government bonds by currency (%): 2022 2021 Denominated in HUF 23.64% 24.29% Denominated in foreign currency 76.36% 75.71% Total 100.00% 100.00% Interest conditions of the security portfolio at fair value through other comprehensive income are as follows (%): 2022 2021 Interest rates on securities at fair value through other comprehensive income denominated in HUF 1.50% - 15.11% 1.25% - 7.00% Interest rates on securities at fair value through other comprehensive income denominated in foreign currency 0.00% - 18.24% 0.00% - 17.25% 2022 2021 Average interest rates securities at fair value through other comprehensive income denominated in HUF (%) 3.31% 2.00% Average interest rates on securities at fair value through other comprehensive income denominated in foreign currency (%) 2.55% 2.51%
OTP Bank Plc Consolidated Financial Statements 2022 57 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: 2022 2021 Within one year With variable interest 15,124 1,091 With fixed interest 507,888 522,939 523,012 524,030 Over one year With variable interest 28,523 51,211 With fixed interest 1,147,911 1,614,293 1,176,434 1,665,504 Non-interest-bearing securities 40,157 34,976 Total 1,739,603 2,224,510 Certain securities are hedged against interest rate risk. See Note 37.4.
OTP Bank Plc Consolidated Financial Statements 2022 58 NOTE 10: SECURITIES AT AMORTIZED COST (in HUF mn) 2022 2021 Government bonds 4,375,085 3,651,508 Corporate bonds 250,538 172,526 Bonds of Hungarian National Bank 177,679 - Discounted Treasury bills 19,539 15,705 Mortgage bonds 24,586 24,356 Interest bearing Treasury bills 4,977 - Other securities 82,583 36,353 4,934,987 3,900,448 Loss allowance on securities at amortized cost (43,049) (9,113) Total 4,891,938 3,891,335 Interest conditions and the remaining maturities of securities at amortized cost can be analysed as follows: 2022 2021 Within one year With variable interest 159 8,101 With fixed interest 951,773 480,296 951,932 488,397 Over one year With variable interest 25,753 5,122 With fixed interest 3,957,302 3,406,929 3,983,055 3,412,051 Total 4,934,987 3,900,448 An analysis of securities at amortized cost by currency (%): 2022 2021 Denominated in HUF 63.50% 75.42% Denominated in foreign currency 36.50% 24.58% Total 100.00% 100.00% Interest conditions of securities at amortized cost (%): 2022 2021 Interest rates of securities at amortized cost with variable interest 0.75% - 17.74% 1.20% - 2.08% Interest rates of securities at amortized cost with fixed interest 0.00% - 23.00% 0.00% - 9.00% 2022 2021 Average interest rates on securities at amortized cost denominated in HUF (%) 3.31% 2.46%
OTP Bank Plc Consolidated Financial Statements 2022 59 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: 2022 2021 Balance as at 1 January 9,113 5,657 Opening change due to modification - 1,281 Balance as at 1 January after modification 9,113 6,938 Loss allowance for the period 37,104 6,634 Release of loss allowance (5,603) (3,621) Use of loss allowance - (992) Foreign currency translation difference 2,435 154 Closing balance 43,049 9,113
OTP Bank Plc Consolidated Financial Statements 2022 60 NOTE 11: LOANS AT AMORTIZED COST AND AT FAIR VALUE (in HUF mn) Loans at amortized cost 2022 2021 Within one year In HUF 1,422,663 1,243,635 In foreign currency 3,672,023 2,901,682 5,094,686 4,145,317 Over one year In HUF 2,425,793 2,359,485 In foreign currency 9,540,339 7,840,375 11,966,132 10,199,860 17,060,818 14,345,177 Loss allowance on loans (966,360) (851,994) Total 16,094,458 13,493,183 An analysis of the gross loan portfolio at amortized cost by currency (%): 2022 2021 In HUF 22.56% 25.12% In foreign currency 77.44% 74.88% Total 100.00% 100.00% Interest rates of the loan portfolio at amortized cost are as follows: 2022 2021 Loans at amortized cost denominated in HUF 1 0.00% - 43.70% 0.00% - 52.00% Loans at amortized cost denominated in foreign currency 2 (0.10)% - 90.00% (0.59)% - 90.00% 1 The highest interest rate relates to HUF loan is overdraft loan, both in the current and in the previous years. 2 The highest interest rate relates to loan in foreign currency regarding POS services in Russia both in the current and in the previous years. 2022 2021 Average interest rates on loans at amortized cost denominated in HUF (%) 8.65% 6.23% Average interest rates on loans at amortized cost denominated in foreign currency (%) 5.47% 4.79% 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 117,357 million and HUF 104,940 million as at 31 December 2022 and 2021, respectively.
OTP Bank Plc Consolidated Financial Statements 2022 61 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: 2022 2021 Balance as at 1 January 851,994 829,543 Opening change due to modification - (1,281) Balance as at 1 January after modification 851,994 828,262 Loss allowance for the period 676,389 546,284 Release of loss allowance (469,929) (464,888) Loss allowance in the current period 206,460 81,396 from this: effect of change in parameters used for loss allowance calculation 10,276 (60,531) Use of loss allowance (92,004) (66,784) Partial write-off 1 (67,651) (17,936) Unwinding - 345 Foreign currency translation difference 67,561 26,711 Closing balance 966,360 851,994 1 See details in Note 2.11. Movement in loss allowance on loans and placements is summarized as below: 2022 2021 Loss allowance on placements and gains from write-off and sale of placements (39) 1,664 Loss allowance on loans and gains from write-off and sale of loans 114,163 34,776 Total 2 114,124 36,440 2 See details in Note 31. Loans mandatorily at fair value through profit or loss 2022 2021 Within one year In HUF 70,883 61,537 In foreign currency - - 70,883 61,537 Over one year In HUF 1,176,531 1,006,293 In foreign currency - 281 1,176,531 1,006,574 Total 1,247,414 1,068,111
OTP Bank Plc Consolidated Financial Statements 2022 62 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 (%): 2022 2021 In HUF 100.00% 99.17% In foreign currency 0.00% 0.83% Total 100.00% 100.00% Interest rates of the loan portfolio mandatorily at fair value through profit or loss are as follows (%): 2022 2021 Interest rates on loans denominated in HUF 1.12% - 18.26% 1.21% - 10.83% Interest rates on loans denominated in foreign currency - 4.00% - 4.00% 2022 2021 Average interest rates on loan portfolio at fair value through profit or loss denominated in HUF (%) 4.55% 4.17% Average interest rates on loan portfolio at fair value through profit or loss denominated in foreign currency (%) 0.04% 1.82%
OTP Bank Plc Consolidated Financial Statements 2022 63 NOTE 12: ASSOCIATES AND OTHER INVESTMENTS (in HUF mn) 2022 2021 Investments Investments in associates (non-listed) 29,010 42,409 Other investments (non-listed) 56,919 37,327 85,929 79,736 Impairment on investments (12,080) (12,514) Total 73,849 67,222 An analysis of the change in the impairment on investments is as follows: 2022 2021 Balance as at 1 January 12,514 5,864 Impairment for the period 1,312 7,266 Release of impairment for the period (411) (626) Modification due to merge (1,238) 28 Use of impairment - - Foreign currency translation difference (97) (18) Closing balance 12,080 12,514
OTP Bank Plc Consolidated Financial Statements 2022 64 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 3,466 million and HUF 3,057 million as at 31 December 2022 and 31 December 2021, respectively. There were no restrictions on title and properties, plants or equipment pledged as security for liabilities as at 31 December 2022 and 2021. As at 31 December 2022 and 2021 the amount of contractual commitments for the acquisition of tangible and intangible assets was HUF 21,116 million and HUF 1,595 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 2021 impairment test was prepared where a three- year cash-flow model was applied with an explicit period between 2022-2024. The basis for the estimation was the actual data of May 2022 and based on the prepared medium-term (2022-2024) forecasts. When the Bank prepared the calculations for the period 2022-2024, 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 bonds 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 t he 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 2022 and 2021 Based on the valuations of the subsidiaries 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) while for the year ended 31 December 2021 no goodwill impairment was needed to be recorded by the Group.
OTP Bank Plc Consolidated Financial Statements 2022 65 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 2022 66 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 2022 67 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 2022 68 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2021 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 364,495 101,393 285,506 212,105 23,893 23,403 28,926 1,039,721 Increase due to acquisition - Additions 90,887 - 28,684 37,266 19,135 111,316 13,427 300,715 Foreign currency translation differences 4,656 4,247 3,609 3,237 163 136 422 16,470 Disposals (52,035) - (12,877) (8,877) (1,939) (67,198) (11,942) (154,868) Closing balance 408,003 105,640 304,922 243,731 41,252 67,657 30,833 1,202,038 Depreciation and amortization Intangible assets Property Machinery and office equipment Vehicle Tangible assets subject to operating lease Total Balance as at 1 January 224,180 77,753 155,292 6,241 10,279 473,745 Charge for the period 44,973 9,219 22,753 1,986 4,212 83,143 Foreign currency translation differences 3,263 1,266 2,394 102 262 7,287 Disposals (10,109) (4,531) (7,301) (1,141) (5,260) (28,342) Closing balance 262,307 83,707 173,138 7,188 9,493 535,833
OTP Bank Plc Consolidated Financial Statements 2022 69 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2021 [continued] Impairment Intangible assets Property Machinery and office equipment Tangible assets subject to operating lease Total Balance as at 1 January 2,704 1,122 42 338 4,206 Impairment for the period - 2,967 - 9 2,976 Release of impairment for the period - - - (204) (204) Foreign currency translation differences 5 55 6 (1) 65 Use of impairment (4) (591) (5) (5) (605) Closing balance 2,705 3,553 43 137 6,438 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 137,611 101,393 206,631 56,771 17,652 23,403 18,309 561,770 Closing balance 142,991 105,640 217,662 70,550 34,064 67,657 21,203 659,767 Fair values - - 247,754 70,258 34,063 - 21,339 373,414 Gross amount of the fully depreciated assets that are still in use 129,805 - 25,396 132,611 924 - - 288,736 An analysis of the intangible assets for the year ended 31 December 2021 is as follows: Intangible assets Self-developed Purchased Total Gross values 12,700 395,303 408,003 Accumulated amortization (5,017) (257,290) (262,307) Impairment - (2,705) (2,705) Carrying value 7,683 135,308 142,991
OTP Bank Plc Consolidated Financial Statements 2022 70 NOTE 13: PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS (in HUF mn) [continued] For the year ended 31 December 2021 [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 280,692 43,138 28,541 HUF 99.91% 832,445 3.00% 7.90% (Bulgaria) 77 BGN OTP banka d.d. (Croatia) 205,349 21,421 58 EUR 100.00% 361,995 2.69% 8.83% JSC “OTP Bank” (Russia) 124,411 40,866 9,395 RUB 97.92% 187,552 1.89% 15.44% POK-DSK Rodina a.d. (Bulgaria) 1,680 11 11 HUF 99.85% 15,299 3.00% 7.90% George Consult (Croatia) 225 204 4 HRK 76.00% 171 2.69% 8.83% 612,357 105,640
OTP Bank Plc Consolidated Financial Statements 2022 71 NOTE 14: INVESTMENT PROPERTIES (in HUF mn) An analysis of the change in gross values of investment properties is as follows: Gross values 2022 2021 Balance as at 1 January 40,241 54,154 Increase due to transfer from inventories or owner-occupied properties 1,830 3,425 Increase from purchase 20,935 134 Transfer to held-for-sale properties (321) (66) Transfer to inventories or owner-occupied properties (1,442) (2,858) Disposal due to sale (1,798) (14,993) Foreign currency translation difference 1,901 445 Closing balance 61,346 40,241 The applied depreciation and amortization rates were as follows: 2022 2021 Depreciation and amortization rates 2.00% - 20.00% 1.00% - 20.00% An analysis of the movement in the depreciation and amortization on investment properties is as follows: Depreciation and amortization 2022 2021 Balance as at 1 January 9,111 11,383 Additions due to transfer from inventories or owner-occupied properties 1,513 1,296 Charge for the period 912 1,113 Transfer to inventories or owner-occupied properties (126) (236) Disposal due to sale (780) (4,577) Transfer to held-for-sale properties (17) - Foreign currency translation difference 660 132 Closing balance 11,273 9,111 An analysis of the movement in the impairment on investment properties is as follows: Impairment 2022 2021 Balance as at 1 January 1,248 4,170 Impairment for the period 1,389 54 Release of impairment for the period (63) (297) Use of impairment (40) (2,726) Decrease due to transfer to inventories or owner-occupied properties (8) - Foreign currency translation difference 95 47 Closing balance 2,621 1,248
OTP Bank Plc Consolidated Financial Statements 2022 72 NOTE 14: INVESTMENT PROPERTIES (in HUF mn) [continued] Carrying values 2022 2021 Balance as at 1 January 29,882 38,601 Closing balance 47,452 29,882 Fair values 61,198 34,257 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 2022 2021 Rental income 2,511 2,621 Direct operating expenses of investment properties – income generating 426 318 Direct operating expenses of investment properties – non income generating 82 14
OTP Bank Plc Consolidated Financial Statements 2022 73 NOTE 15: DERIVATIVE FINANCIAL ASSETS DESIGNATED AS HEDGE ACCOUNTING (in HUF mn) Positive fair value of derivative financial assets designated as fair value hedge 2022 2021 CCIRS and mark-to-market CCIRS designated as fair value hedge 20,732 5,471 Foreign exchange swap designated as fair value hedge 1,696 - Interest rate swaps designated as fair value hedge 25,819 13,286 Total 48,247 18,757
OTP Bank Plc Consolidated Financial Statements 2022 74 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. 2022 2021 Other financial assets Receivables from card operations 67,981 27,820 Prepayments and accrued income on other financial assets 29,284 27,778 Trade receivables 37,777 24,951 Receivables from investment services 57,189 15,077 Other advances 19,652 21,043 Stock exchange deals 31,234 12,255 Giro clearing accounts 12,593 2,635 Receivables due from pension funds and investment funds 6,478 3,250 Receivables from leasing activities 1,778 363 Advances for securities and investments 358 525 Other financial assets 30,490 17,019 Loss allowance on other financial assets (31,833) (16,800) Total 262,981 135,916 Other non-financial assets 2022 2021 Prepayments and accrued income on other non-financial assets 62,878 46,418 Receivables, subsidies from the State, Government 23,383 15,800 Settlement and suspense accounts 40,066 14,974 Biological assets and agricultural produce 8,366 5,193 Other non-financial assets 27,963 15,495 Impairment on other non-financial assets (7,041) (4,413) Total 155,615 93,467 Other assets (under IAS 2) 2022 2021 Inventories 48,210 43,843 Repossessed real estate 6,985 6,354 Repossessed other non-financial assets 1,192 1,069 Write-down of the assets measured under IAS 2 (3,864) (3,864) Total 52,523 47,402 Total other assets 471,119 276,785
OTP Bank Plc Consolidated Financial Statements 2022 75 NOTE 16: OTHER ASSETS (in HUF mn) [continued] An analysis of the movement in the loss allowance on other financial assets is as follows: 2022 2021 Balance as at 1 January 16,800 18,459 Loss allowance for the period 22,472 8,569 Release of allowance for the period (8,917) (6,903) Use of loss allowance (2,083) (3,767) Reclassification 253 - Foreign currency translation difference 3,308 442 Closing balance 31,833 16,800 An analysis of the movement in the impairment on other non-financial assets is as follows: 2022 2021 Balance as at 1 January 4,413 4,699 Impairment for the period 3,304 949 Release of impairment for the period (647) (653) Use of impairment (324) (751) Reclassification (253) - Foreign currency translation difference 548 169 Closing balance 7,041 4,413
OTP Bank Plc Consolidated Financial Statements 2022 76 NOTE 17: AMOUNTS DUE TO BANKS, THE NATIONAL GOVERNMENTS, DEPOSITS FROM THE NATIONAL BANKS AND OTHER BANKS (in HUF mn) 2022 2021 Within one year In HUF 369,015 277,397 In foreign currency 218,611 225,398 587,626 502,795 Over one year In HUF 689,579 900,948 In foreign currency 185,953 163,605 875,532 1,064,553 Total 1,463,158 1,567,348 Interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks are as follows: 2022 2021 Within one year In HUF (2.40)% - 18.00% (2.04)% - 4.66% In foreign currency 1 (2.32)% - 12.00% (2.40)% - 17.60% Over one year In HUF (2.40)% - 9.23% (2.40)% - 4.66% In foreign currency 1 (2.40)% - 13.76% (2.40)% - 12.00% 1 The highest interest rates for due to banks denominated in foreign exchange relate to loans taken from EBRD and Green for Growth Fund in Ukraine. 2022 2021 Average interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks denominated in HUF 2.28% 1.20% Average interest rates on amounts due to banks, the National Governments, deposits from the National Banks and other banks denominated in in foreign currency 2.40% 1.49%
OTP Bank Plc Consolidated Financial Statements 2022 77 NOTE 18: REPO LIABILITIES (in HUF mn) 2022 2021 Within one year In HUF 29,147 49,726 In foreign currency 197 29,321 29,344 79,047 Over one year In HUF 96 - In foreign currency 187,929 - 188,025 - Total 217,369 79,047 Interest rates on repo liabilities are as follows: 2022 2021 Interest rates on repo liabilities denominated in HUF 4.75% - 15.47% 0.00% - 2.80% Interest rates on repo liabilities denominated in foreign currency 2.47% - 5.20% (0.95)% - 0.00%
OTP Bank Plc Consolidated Financial Statements 2022 78 NOTE 19: FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS (in HUF mn) 2022 2021 Within one year In HUF 1,716 1,784 In foreign currency - - 1,716 1,784 Over one year In HUF 52,475 39,400 In foreign currency - - 52,475 39,400 Total 54,191 41,184 Contractual amount outstanding 19,853 21,479 Result from associated entity's measured at fair value attributable to the Group 37,616 21,051 Interest conditions of financial liabilities designated at fair value through profit or loss can be analysed as follows: 2022 2021 Interest rates on financial liabilities designated at fair value denominated in HUF within one year 2.19% - 3.96% 0.46% - 2.46% Interest rates on financial liabilities designated at fair value denominated in HUF over one year 0.01% - 4.63% 0.01% - 2.90% 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.
OTP Bank Plc Consolidated Financial Statements 2022 79 NOTE 20: DEPOSITS FROM CUSTOMERS (in HUF mn) 2022 2021 Within one year In HUF 7,910,448 7,829,595 In foreign currency 16,757,984 12,758,360 24,668,432 20,587,955 Over one year In HUF 274,217 293,606 In foreign currency 246,156 187,083 520,373 480,689 Total 25,188,805 21,068,644 Interest rates on deposits from customers are as follows: 2022 2021 Within one year In HUF 0.00% - 17.95% (2.48)% - 7.96% In foreign currency 1 (0.40)% - 45.10% (1.01)% - 17.20% Over one year In HUF 0.00%- 13.00% 0.01% - 3.00% In foreign currency 0.00% - 18.00% 0.00% - 8.90% 1 The highest interest rate regarding within-one-year deposits in foreign currency for the current and previous year relate to treasury deposit in Turkish lira in Hungary. 2022 2021 Average interest rates on deposits from customers denominated in HUF 2.21% 0.18% Average interest rates on deposits from customers denominated in foreign currency 0.68% 0.34% An analysis of deposits from customers by type is as follows: 2022 2021 Retail deposits 13,739,669 54.55% 11,982,784 56.88% Corporate deposits 10,408,982 41.32% 8,093,206 38.41% Municipality deposits 1,040,154 4.13% 992,654 4.71% Total 25,188,805 100.00% 21,068,644 100.00%
OTP Bank Plc Consolidated Financial Statements 2022 80 NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) 2022 2021 With original maturity Within one year In HUF 48,755 9,332 In foreign currency 6,427 13 55,182 9,345 Over one year In HUF 373,645 426,929 In foreign currency 441,855 51 815,500 426,980 Total 870,682 436,325 Interest rates on liabilities from issued securities are as follows: 2022 2021 Issued securities denominated in HUF 0.60% - 15.00% 0.60% - 4.26% Issued securities denominated in foreign currency 0.74% - 7.35% 0.74% - 5.00% 2022 2021 Average interest rates on issued securities denominated in HUF 5.00% 2.20% Average interest rates on issued securities denominated in foreign currency 2.95% 0.25% 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 1.70 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 Subtotal 38,089 39,198
OTP Bank Plc Consolidated Financial Statements 2022 81 NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Issued securities denominated in HUF as at 31 December 2022 (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.) 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) (FX 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 5.50 3 XS2536446649 29/09/2022 29/09/2026 USD 60 22,541 61 22,972 fix 7.25 4 Other 1 12 60 15 76 Total issued securities in FX 442,596 448,282 Total issued securities 870,682 1 Issued other securities denominated in foreign currency are promissory notes issued by JSC “OTP Bank” (Russia) in the amount of HUF 60 million as at 31 December 2022. Issued securities denominated in HUF as at 31 December 2021 (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 OTPX2022A 22/03/2012 23/03/2022 175 236 indexed NaN hedged 2 OTPX2022B 18/07/2012 18/07/2022 164 549 indexed 1.70 hedged 3 OTPX2022C 29/10/2012 28/10/2022 177 317 indexed 1.70 hedged 4 OTPX2022D 28/12/2012 27/12/2022 238 290 indexed 1.70 hedged 5 OTPX2023A 22/03/2013 24/03/2023 312 366 indexed 1.70 hedged 6 OTPX2023B 28/06/2013 26/06/2023 198 272 indexed 0.60 hedged 7 OTPX2024A 18/06/2014 21/06/2024 241 277 indexed 1.30 hedged 8 OTPX2024B 10/10/2014 16/10/2024 295 336 indexed 0.70 hedged 9 OTPX2024C 15/12/2014 20/12/2024 242 275 indexed 0.60 hedged 10 OTPRF2022A 22/03/2012 23/03/2022 2,321 2,513 indexed 1.70 hedged 11 OTPRF2022B 22/03/2012 23/03/2022 934 1,011 indexed 1.70 hedged 12 OTPRF2022C 28/06/2012 28/06/2022 209 266 indexed 1.70 hedged Subtotal 5,506 6,708
OTP Bank Plc Consolidated Financial Statements 2022 82 NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] Issued securities denominated in HUF as at 31 December 2021 (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.) 13 OTPRF2022D 28/06/2012 28/06/2022 286 324 indexed 1.70 hedged 14 OTPRF2022E 29/10/2012 31/10/2022 862 933 indexed 1.70 hedged 15 OTPRF2022F 28/12/2012 28/12/2022 708 773 indexed 1.70 hedged 16 OTPRF2023A 22/03/2013 24/03/2023 899 977 indexed 1.70 hedged 17 OJB2023_I 05/04/2018 24/11/2023 44,120 42,300 1.75 fix 18 OJB2024_A 17/09/2018 20/05/2024 57,067 57,010 4.26 floating 19 OJB2024_C 24/02/2020 24/10/2024 80,125 79,972 3.95 floating 20 OJB2024_II 10/10/2018 24/10/2024 96,800 89,138 2.5 fix 21 OJB2025_II 03/02/2020 26/11/2025 22,550 20,003 1.5 fix hedged 22 OJB2027_I 23/07/2020 27/10/2027 76,850 67,257 1.25 fix 23 OJB2031_I 18/08/2021 22/10/2031 82,000 70,655 2.5 fix 33 Other 211 211 Total issued securities in HUF 467,984 436,261 Issued securities denominated in foreign currency are promissory notes issued by JSC “OTP Bank” (Russia) in the amount of HUF 64 million as at 31 December 2021. 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.
OTP Bank Plc Consolidated Financial Statements 2022 83 NOTE 21: LIABILITIES FROM ISSUED SECURITIES (in HUF mn) [continued] 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. Term Note Program in the value of HUF 200 billion for the year of 2021/2022 On 28 May 2021 the Bank initiated term note program in the value of HUF 200 billion with the intention of issuing registered dematerialized bonds in public. On 8 July 2021, 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. 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. 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. There was other issuance of notes denominated in USD after the balance sheet date. See details in Note 52.
OTP Bank Plc Consolidated Financial Statements 2022 84 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 2022 2021 Foreign exchange swaps held for trading 83,149 46,380 Commodity swaps 31,632 51,508 Interest rate swaps held for trading 237,269 87,945 Foreign exchange forward contracts held-for-trading 13,740 7,738 CCIRS and mark-to-market CCIRS held for trading 15,759 7,789 Held for trading option contracts 1,891 479 Held-for-trading forward security agreement - 13 Other derivative transactions held for trading 1 2,307 864 Total 385,747 202,716 1 Other category includes: fx spot, equity swaps, forward rate agreement, options and index futures.
OTP Bank Plc Consolidated Financial Statements 2022 85 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 2022 2021 CCIRS and mark-to-market CCIRS designated as fair value hedge 5,398 5,451 Foreign exchange swap designated as fair value hedge 16,199 - Interest rate swaps designated as fair value hedge 6,352 5,777 Total 27,949 11,228
OTP Bank Plc Consolidated Financial Statements 2022 86 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. 2022 2021 Other financial liabilities Liabilities connected to Cafeteria benefits 91,001 114,867 Liabilities from investment services 108,513 92,612 Accrued expenses on other financial liabilities 55,898 58,247 Liabilities from card transactions 75,544 31,484 Accounts payable 56,828 46,243 Liabilities due to short positions 24,596 16,904 Giro clearing accounts 32,133 14,830 Advances received from customers 12,540 11,903 Liabilities from wages and other salary related payments 34,672 13,092 Loans from government 7,961 5,851 Dividend payable 207 135 Other financial liabilities 82,387 79,603 Subtotal 582,280 485,771 Other non-financial liabilities 2022 2021 Clearing and giro settlement accounts 46,800 48,715 Liabilities from social security contributions 11,749 11,853 Accrued expenses on other non-financial liabilities 13,647 13,029 Liabilities related to housing loans 12,868 11,428 Insurance technical reserve 2,354 3,416 Other non-financial liabilities 37,956 23,869 Subtotal 125,374 112,310 Total 707,654 598,081
OTP Bank Plc Consolidated Financial Statements 2022 87 NOTE 24: PROVISIONS AND OTHER LIABILITIES (in HUF mn) [continued] The provisions are detailed as follows: 2022 2021 Commitments and guarantees given 63,372 51,990 Total provision according to IFRS 9 63,372 51,990 Pending legal issues and tax litigation 37,043 35,354 Pensions and other retirement benefit obligations 8,225 9,308 Other long-term employee benefits 1,331 910 Restructuring 1,256 1,801 Provision due to CHF loans conversion at foreign subsidiaries 900 1,285 Other provision 19,494 19,151 Total provision according to IAS 37 68,249 67,809 Total 131,621 119,799 The movements of provisions according to IFRS 9 can be summarized as follows: 2022 2021 Balance as at 1 January 51,990 54,810 Provision for the period 102,928 28,869 Release of provision for the period (96,783) (28,770) Use of provision (293) (7) Change due to acquisition 21 - Transfer - (4,426) Foreign currency translation differences 5,509 1,514 Closing balance 63,372 51,990 The movements of provisions according to IAS 37 can be summarized as follows: 2022 2021 Balance as at 1 January 67,809 61,657 Provision for the period 27,290 37,924 Release of provision for the period (24,846) (27,167) Use of provision (6,878) (10,953) Change due to actuarial gains or losses related to employee benefits (1,098) (42) Change due to acquisition 57 - Unwinding of the discounted amount 16 7 Transfer - 4,426 Foreign currency translation differences 5,899 1,957 Closing balance 68,249 67,809
OTP Bank Plc Consolidated Financial Statements 2022 88 NOTE 25: SUBORDINATED BONDS AND LOANS (in HUF mn) 2022 2021 Within one year In HUF - - In foreign currency 3,395 2,841 3,395 2,841 Over one year In HUF - - In foreign currency 298,589 275,493 298,589 275,493 Total 301,984 278,334 Types of subordinated bonds and loans are as follows: 2022 2021 Debt securities issued 7,798 6,558 Loan received 294,186 271,776 Total 301,984 278,334 Interest rates on subordinated bonds and loans are as follows: 2022 2021 Denominated in HUF - - Denominated in foreign currency 2.90% - 5.00% 2.50% - 5.00% 2022 2021 Average interest rates on subordinated bonds and loans denominated in foreign currency 3.10% 2.75% 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 2022 Subordinated bond EUR 231 million 07/11/2006 Perpetual 99.375% Three-month EURIBOR + 3%, variable after year 10 (payable quarterly) 4.742% Subordinated bond EUR 499 million 15/07/2019 15/07/2029 99.738% Fixed 2.875% annual in the first 5 years and callable after 5 years, starting from year 6 fix coupon (payable annually) is calculated as a sum of the initial margin (320 basis point) and the 5 year mid- swap rate prevailing at the end of the 5 year. 2.875% Subordinated loan USD 17.0 million 05/06/2018 30/06/2025 100.00% Bullet repayment, once at the end of the loan agreement 5.00%
OTP Bank Plc Consolidated Financial Statements 2022 89 NOTE 26: SHARE CAPITAL (in HUF mn) 2022 2021 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 2022 90 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) In 2021, the Bank did not pay dividend based on the earlier NBH warnings issued due to covid moratoria. In 2022 dividend of HUF 119 billion from the profit of years 2019 and 2020 and HUF 1 billion from the profit of year 2021 (totally HUF 120 billion) was paid out, which meant HUF 425.89 (for the year 2019 and 2020) and HUF 3.57 (for the year 2021) dividend per share payable to shareholders. In 2023 dividend of HUF 84,000 million are expected to be proposed by the Management from the profit of the year 2022, which means HUF 300 dividend per share payable to the shareholders. The retained earnings and reserves according to IFRS contains the retained earnings (HUF 774,151 million and HUF 844,343 million) and reserves (HUF 2,621,064 million and HUF 2,265,166 million) as at 31 December 2022 and 2021, 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, additional reserves of Income Certificates Exchangeable for Shares (“ICES”), 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 forint 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 237,853 million and HUF 58,164 million as at 31 December 2022 and 2021, respectively. On 19 October 2006, the Bank sold 14.5 million Treasury shares owned by the Group through an issue of ICES. Within the transaction 10 million shares owned by OTP Bank, and a further 4.5 million shares owned by the Group were sold during the underwriting period of ICES on the weighted average market price (HUF 7,080) of the Budapest Stock Exchange. The shares have been purchased by Opus Securities S.A. (“OPUS”), which issued an exchangeable bond with a total face value of EUR 514,274,000 backed by those shares. The exchangeable bonds have been sold at a 32% premium over the selling price of the shares. The EUR denominated exchangeable bonds were perpetual and the investors could have exercised the conversion right between years 6 and 10. The bonds carried a fixed coupon of 3.95% during the first 10 years, and thereafter the Issuer had the right to redeem the bonds at face value. Following year 10, the bonds carried a coupon of 3-month EURIBOR +3%. OTP Bank had a discretional right to cancel the interest payments. The interest payable was non-cumulative. Due to the conditions described above, ICES was accounted as an equity instrument and therefore any payment was accounted as equity distribution paid to ICES holders. On 14 September 2021 the Bank decided to terminate the subordinated swap agreement related to ICES transaction as at 29 October 2021, and to exercise its option for repurchasing approximately 14.5 million OTP ordinary shares held by Opus at market price based on the swap agreement. On the same day, the Bank recognised liability due to Opus as a reduction of EUR 514 million in the shareholder’s equity. Treasury shares were repurchased on 29 October 2021 on a price HUF 18,118 and on the same day the swap transaction was financially settled. As a result of the closure of the subordinated swap agreement the Bank’s shareholder’s equity increased by HUF 75,421 million, the Group’s shareholders’ equity increased by HUF 35,063 million. Approximately 12 million pieces of treasury shares were sold to OTP SECOP I. (“OTP Special Employee Stock Ownership Program”) and OTP SECOP II.
OTP Bank Plc Consolidated Financial Statements 2022 91 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued] 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 were accounted as a deduction 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 sharholders’ equity is related to DSK Bank EAD, OTP banka d.d. and Crnogorska komercijalna banka a.d.
OTP Bank Plc Consolidated Financial Statements 2022 92 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. 2022 2021 Retained earnings 774,151 844,343 Capital reserve 52 52 Option reserve (55,468) (55,468) Other reserves 129,902 129,208 Actuarial loss related to employee defined benefits 544 (471) Fair value of financial instruments measured at fair value through other comprehensive income (107,676) 11,690 Share-based payment reserve 49,110 46,162 Net investment hedge in foreign operations (27,405) (27,405) Profit after income tax 346,354 455,592 Changes in equity accumulated in the previous year at the subsidiaries and due to consolidation 2,047,798 1,647,642 Foreign currency translation differences 237,853 58,164 Retained earnings and other reserves 1 3,395,215 3,109,509 1 See more details in the Consolidated Statement of Comprehensive Income and in the Consolidated statement of Changes in equity on page 6 and 7. Fair value adjustment of securities at fair value through other comprehensive income 2022 2021 Balance as at 1 January (7,653) 43,958 Change of fair value (180,981) (49,621) Deferred tax related to change of fair value 22,401 3,035 Other transfer to retained earnings - (5,070) Deferred tax related to other transfer to retained earnings - 457 Transfer to profit or loss due to derecognition 1,040 (2,547) Deferred tax related to transfer to proft or loss (194) 491 Foreign currency translation difference 955 1,644 Closing balance (164,432) (7,653) Expected credit loss on securities at fair value through other comprehensive income 2022 2021 Balance as at 1 January 6,710 6,984 Increase of loss allowance 40,664 4,414 Release of loss allowance (11,391) (3,453) Decrease due to sale, derecognition (43) (1,749) Foreign currency translation difference 3,685 514 Closing balance 39,625 6,710
OTP Bank Plc Consolidated Financial Statements 2022 93 NOTE 27: RETAINED EARNINGS AND RESERVES (in HUF mn) [continued] Fair value changes of equity instruments as at fair value through other comprehensive income 2022 2021 Balance as at 1 January 12,633 10,454 Change of fair value 5,394 2,465 Deferred tax related to change of fair value (1,282) (361) Transfer to retained earnings due to derecognition - (207) Foreign currency translation difference 386 282 Closing balance 17,131 12,633 Actuarial loss related to defined employee benefits 2022 2021 Balance as at 1 January (471) (513) Change of actuarial loss related to employee benefits 1,097 98 Deferred tax related to change of actuarial loss related to employee benefits (43) (11) Foreign currency translation difference (39) (45) Closing balance 544 (471) Foreign currency translation difference 2022 2021 Balance as at 1 January 58,164 (3,369) Change of foreign currency translation 179,689 61,533 Closing balance 237,853 58,164
OTP Bank Plc Consolidated Financial Statements 2022 94 NOTE 28: TREASURY SHARES (in HUF mn) 2022 2021 Nominal value (Ordinary shares) 1,132 1,091 Carrying value at acquisition cost 106,862 106,941 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: 2022 2021 Number of shares as at 1 January 10,906,881 23,924,900 Additions 1,801,256 16,251,451 Disposals (1,390,041) (29,269,470) Closing number of shares 11,318,096 10,906,881 Change in carrying value: 2022 2021 Balance as at 1 January 106,941 124,080 Additions 16,268 276,433 Disposals (16,347) (293,572) Closing balance 106,862 106,941
OTP Bank Plc Consolidated Financial Statements 2022 95 NOTE 29: NON-CONTROLLING INTEREST (in HUF mn) 2022 2021 Balance as at 1 January 6,198 4,116 Increase due to business combination - 1,041 Non-controlling interest included in net profit for the period 727 836 Purchase of non-controlling interest (886) - Foreign currency translation difference (80) 205 Closing balance 5,959 6,198 The non-controlling interest is not significant in respect of the whole OTP Group.
OTP Bank Plc Consolidated Financial Statements 2022 96 NOTE 30: INTEREST INCOME, INCOME SIMILAR TO INTEREST INCOME AND EXPENSE (in HUF mn) 2022 2021 Interest income calculated using the effective interest method from / on loans 981,566 692,432 securities at amortized cost 144,757 79,602 finance lease receivables 78,262 59,084 securities at fair value through other comprehensive income 54,046 49,473 banks and balances with the National Banks 62,121 16,527 placements with other banks 162,532 20,922 liabilities (negative interest expense) 20,505 3,672 repo receivables 4,261 827 Subtotal 1,508,050 922,539 Income similar to interest income from swap deals related to placements with other banks 364,496 128,519 loans mandatorily at fair value through profit or loss 54,036 40,131 swap deals related to credit institutions 68,123 15,557 rental income 9,264 8,964 non-trading securities mandatorily at fair value through profit or loss 54 1,749 Subtotal 495,973 194,920 Total interest income and incomes similar to interest income 2,004,023 1,117,459 2022 2021 Interest expense due to / from / on swaps related to banks, National Governments and to deposits from the National Banks 390,375 116,895 deposits from customers 270,407 50,645 swaps related to deposits from customers 128,153 23,860 banks, National Governments and on deposits from the National Banks 35,134 17,467 issued securities 27,838 9,822 subordinated and supplementary bonds and loans 8,986 7,598 financial assets (negative interest income) 11,830 7,275 depreciation of assets subject to operating lease and investment properties 5,161 5,325 leases 2,386 1,556 repo liabilities 31,006 2,299 other 1,433 407 Total interest expense 912,709 243,149
OTP Bank Plc Consolidated Financial Statements 2022 97 NOTE 31: LOSS ALLOWANCES / IMPAIRMENT / PROVISIONS (in HUF mn) 2022 2021 Loss allowance on loans Loss allowance for the period 676,389 546,284 Release of loss allowance (477,513) (475,067) from this: impairment gain 9,517 10,179 Income from loan recoveries (67,869) (51,876) Income from recoveries exceeding the gross loans (8,658) (8,752) Impairment gain (50,715) (35,194) Income from provisions on loans before OTP acquisition (1,664) (1,622) Income from recoveries of written-off, but legally existing loans (6,832) (6,308) 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) 16,289 Loss allowance on finance lease 49,433 20,694 Release of loss allowance on finance lease (25,020) (14,918) 142,074 41,406 Loss allowance on due from banks, balances with National Banks, on placements and on repo receivables Allowance for the period 51,130 27,341 Release of allowance (50,869) (24,737) 261 2,604 Loss allowance on securities at fair value through other comprehensive income and on securities at amortized cost Allowance for the period 77,768 11,048 Release of allowance (16,994) (7,074) 60,774 3,974 Impairment / (Release of impairment) of intangible, tangible assets subject to operating lease and of investment properties Impairment for the period 1,389 63 Release of impairment (185) (501) 1,204 (438) Provision for commitments and guarantees given Provision for the period 102,928 28,869 Release of provision (96,783) (28,770) 6,145 99 Loss allowances / Impairment and provisions 210,458 47,645
OTP Bank Plc Consolidated Financial Statements 2022 98 NOTE 32: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) Income from fees and commissions 2022 2021 Fees and commissions related to lending 1 43,179 36,999 Deposit and account maintenance fees and commissions 251,684 203,553 Fees and commissions related to the issued bank cards 136,341 99,766 Currency exchange gains and losses 113,494 47,843 Fees related to cash withdrawal 61,738 46,143 Fees and commissions related to security trading 32,172 30,224 Fees and commissions related to fund management 29,906 23,553 Insurance fee income 19,588 16,974 Other 51,474 49,058 Fees and commissions from contracts with customers 696,397 517,114 Total 739,576 554,113 1 Such kinds of fees and commissions related to lending which aren’t included in the effective interest rate calculation due to their nature. Fee type Nature and timing of obligation settlement, and the significant payment terms Revenue recognition under IFRS 15 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 on a monthly basis during the period when they are provided. Transaction-based fees are charged when the transaction takes place or charged monthly at the end of the month. Fees for ongoing 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.
OTP Bank Plc Consolidated Financial Statements 2022 99 NOTE 32: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) [continued] Fee type Nature and timing of obligation settlement, and the significant payment terms Revenue recognition under IFRS 15 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. 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. 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. 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. 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. Account management fees are typically charged quarterly or annually. The amount is determined in %, based on the stocks of securities managed by the clients on the account in a given period. Fees for transactions on the securities account are charged immediately after the transaction. They are determined in %, based on the transaction amount. Fees for complex services provided to clients (e.g. portfolio management or custody) are typically charged monthly or annually. The fees are fixed monthly amounts and in some cases a bonus fee are charged. Fees and commissions related to fund management Fees from fund management services provided to investment funds and from portfolio management provided to insurance companies, funds. The fee income are calculated on the basis of net asset value of the portfolio and by the fee rates determined in the contracts about portfolio management. 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 that are not significant in the Group total income are included in Other fees category. Such fees are safe lease, special procedure fee, account rent fee, fee of a copy of document, etc. Other fees may include charges for continuous services or for ad hoc administration services. Continuous fees are charged monthly (e.g., safe lease fees) at the beginning of the period, typically at a fixed rate. Fees for ad hoc services are charged immediately after the service obligation were met, usually in a fixed amount. Fees for ongoing services are charged on a monthly basis during the period when they are provided. Fees for ad hoc services are charged when the transaction takes place.
OTP Bank Plc Consolidated Financial Statements 2022 100 NOTE 32: NET PROFIT FROM FEES AND COMMISSIONS (in HUF mn) [continued] Expense from fees and commissions 2022 2021 Fees and commissions related to issued bank cards 56,190 42,662 Interchange fees 30,470 22,831 Fees and commissions paid on loans 9,164 9,502 Fees and commissions related to deposits 9,834 8,438 Cash withdrawal transaction fees 5,292 4,063 Fees and commissions related to security trading 4,263 3,730 Insurance fees 1,578 1,413 Fees and commissions related to collection of loans 985 830 Postal fees 576 590 Money market transaction fees and commissions 333 281 Other agent fee 1,912 1,335 Other 18,619 16,264 Total 139,216 111,939 Net profit from fees and commissions 600,360 442,174
OTP Bank Plc Consolidated Financial Statements 2022 101 NOTE 33: GAIN AND LOSSES BY TRANSACTIONS (in HUF mn) Gains and losses by transactions 2022 2021 Gain by transactions 7,173 5,662 Loss by transactions (3,700) (4,808) Gain from sale of loans, placements, finance lease 3,473 854 Gain by transactions 41 3,552 Loss by transactions (5,169) (2,521) (Loss) / Gain from derecognition of securities and other receivables at amortized cost (5,128) 1,031 (Loss) / Gain from derecognition of financial assets at amortized cost (1,655) 1,885 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 2022 2021 Gain by transactions 16,494 9,553 Loss by transactions (19,645) (4,537) Fx (loss) / gain on securities at fair value through profit or loss (3,151) 5,016 Gain by transactions - 2,405 Loss by transactions (323) (1,889) Fx (loss) / gain on derecognition of investment in subsidiaries, associates (323) 516 Gain by transactions 4,502 10,505 Loss by transactions (5,516) (13,092) Fx loss on securities at fair value through other comprehensive income (1,014) (2,587) Gain by transactions - 2,847 Loss by transactions - (232) Fx gain on other securities - 2,615 (Loss) / Gain on securities, net (4,488) 5,560 Gains and losses by transactions 2022 2021 Gain by transactions 4,247 5,835 Loss by transactions (4,102) (1,023) Gain on non-trading securities mandatorily at fair value through profit or loss 145 4,812 Gain by transactions 50,693 36,591 Loss by transactions (60,234) (44,346) Loss on loans mandatorily at fair value through profit or loss (adjustment resulting from change in market factors) (9,541) (7,755) Gain by transactions 7,809 2,868 Loss by transactions (2,577) (457) Gain on financial assets and liabilities designated at fair value through profit or loss 5,232 2,411 Fair value adjustment on financial instruments measured at fair value through profit or loss (4,164) (532)
OTP Bank Plc Consolidated Financial Statements 2022 102 NOTE 33: GAINS AND LOSSES (in HUF mn) [continued] Gains and losses by transactions 2022 2021 Gain by transactions 147,311 74,582 Loss by transactions (150,804) (64,034) (Loss) / Gain from fx swap, swap and option deals (3,493) 10,548 Gain by transactions 4,156 2,684 Loss by transactions (5,082) (3,005) Loss from option deals (926) (321) Gain by transactions 148,699 94,639 Loss by transactions (132,968) (95,794) Gain / (Loss) from commodities deals 15,731 (1,155) Gain by transactions 752 745 Loss by transactions (1,506) (3,019) Loss from futures deals (754) (2,274) Net results on derivative instruments and hedge relationships 10,558 6,798 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 2022 2021 Hedged items 6,750 17,406 Hedging instrument (9,352) (15,147) Hedge effectiveness (2,602) 2,259
OTP Bank Plc Consolidated Financial Statements 2022 103 NOTE 34: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn) Other operating income 2022 2021 Income from agricultural activity 62,809 42,526 Income from tourism activity 23,197 8,588 Gains on transactions related to property activities 5,269 6,424 Rental income 2,175 2,132 Income from computer programming 1,250 1,113 Fair value adjustment of biological assets and agricultural produce (1,939) (2,551) Income from written-of receivable 3,727 3,577 Income from air passenger transport 1,863 762 Gains on transactions related to insurance activity 1,369 657 Non-repayable assets received 447 165 Negative goodwill due to acquisition 3,784 31 Other income from non-financial activities 21,464 17,904 Total 125,415 81,328 Other operating expenses 2022 2021 Expense related to agricultural activity 45,612 30,392 Provision for off-balance sheet commitments and contingent liabilities 2,878 11,395 Financial support for sport association and organization of public utility 16,370 11,111 Expenses related to tourism activity 20,868 7,928 Loss allowance and loan losses on other financial assets 13,306 2,624 Expenses from losses due to foreign currency loan conversion at foreign subsidiaries 562 949 Impairment on investments 1 901 6,640 Non-repayable assets contributed 1,339 881 Impairment on tangible and intangible assets 627 2,967 Impairment / (Release of impairment) and loan losses on other non-financial assets and assets measured under IAS 2 2,667 (638) Release of provision due to foreign currency loan conversion at foreign subsidiaries (434) (638) Operating expenses of assets subject to operating lease and investment property 883 - Other 23,206 12,121 Other expenses from non-financial activities 5,927 5,613 Other costs 17,279 6,508 Total 128,785 85,732 1 See details in Note 12.
OTP Bank Plc Consolidated Financial Statements 2022 104 NOTE 34: OTHER OPERATING INCOME AND EXPENSES AND OTHER ADMINISTRATIVE EXPENSES (in HUF mn) [continued] Other administrative expenses 2022 2021 Personnel expenses Wages 311,231 271,497 Taxes related to personnel expenses 49,015 44,049 Other personnel expenses 42,317 25,138 Subtotal 402,563 340,684 Depreciation, amortization of tangible, intangible assets, right-of-use assets 2 107,588 94,996 Other administrative expenses Taxes, other than income tax 3 193,587 93,678 Services 150,505 113,400 Professional fees 22,932 21,775 Fees payable to authorities and other fees 54,751 44,113 Advertising 20,827 19,457 Administration expenses 17,211 14,662 Rental fees 5,184 4,847 Subtotal 464,997 311,932 Total 975,148 747,612 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 99,974 million for the year ended 31 December 2022 and HUF 19,652 million for the year 2021, recognized as an expense thus decreased the corporate tax base. For the year ended 31 December 2022 financial transaction duty was paid by the Bank in the amount of HUF 88,642 million while for the year ended 31 December 2021 the same duty was HUF 68 billion. The table below contains the detailing of the fees for audit and non-audit services: Ernst & Young Audit Ltd. 2022 2021 In thousand EUR OTP – annual audit – separate financial statements 458 458 OTP – annual audit – consolidated financial statements 738 659 Other audit services based on statutory provisions to OTP Group members 1,120 1,050 Other services providing assurance 1,805 1,575 Other non-audit services 426 316 Total 4,547 4,058 Ernst & Young Network 2022 2021 In thousand EUR Audit based on statutory provisions 2,354 1,788 Other services providing assurance - - Tax consulting services 209 29 Other non-audit services 1,015 209 Total 3,578 2,026
OTP Bank Plc Consolidated Financial Statements 2022 105 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, 25.5% in the Netherlands and 35% in Malta. The breakdown of the income tax expense is: 2022 2021 Current tax expense 91,537 65,692 Deferred tax (income) / expense (32,286) 6,431 Total 59,251 72,123 A reconciliation of the net deferred tax asset/liability is as follows: 2022 2021 Balance as at 1 January (8,936) (3,673) Deferred tax income / (expense) in profit or loss 32,286 (6,431) Deferred tax receivable related to items recognized directly in equity and in Comprehensive Income 14,591 1,294 Due to acquisition of subsidiary - (737) Foreign currency translation difference (2,614) 611 Closing balance 35,327 (8,936) A breakdown of the deferred tax assets are as follows: 2022 2021 Loss allowance on granted loans 13,244 8,244 Provision for off-balance sheet commitments and contingent liabilities, derivative financial instruments 7,668 7,688 Securities at amortized cost 8 9 Difference in depreciation of tangible assets 1,304 3,636 Fair value adjustment of non-trading instruments mandatorily at fair value though profit or loss 214 256 Fair value adjustment of derivative financial instruments 7,227 992 Provision on other financial, non-financial liabilities 564 1,073 Difference in accounting for leases 430 999 Fair value adjustment of securities at fair value through other comprehensive income 7,563 202 Unused tax allowance 12,103 - Loss allowance / impairment on other financial, non-financial assets 159 2,427 Tax accrual caused by negative taxable income 19,744 152 Difference in depreciation of right-of-use assets 564 214 Loss allowance on investment 84 77 Fair value adjustment of securities at fair value through profit or loss 4,023 95 Difference in accounting for investment properties 51 4 Amounts unenforceable by tax law 32 - Other 477 3,980 Deferred tax asset 75,459 30,048
OTP Bank Plc Consolidated Financial Statements 2022 106 NOTE 35: INCOME TAXES (in HUF mn) [continued] A breakdown of the deferred tax liabilities are as follows: 2022 2021 Difference in depreciation of tangible assets (10,944) (10,245) Fair value adjustment of securities at fair value through other comprehensive income (4,586) (6,569) Fair value adjustment of securities at fair value through profit or loss - (2,781) Loss allowance on investment (1,293) (1,142) Fair value adjustment of non-trading instruments mandatorily at fair value though profit or loss (25) - Securities at amortized cost (959) (210) Provision for off-balance sheet commitments and contingent liabilities, derivative financial instruments (639) (559) Loss allowance on granted loans (4,383) (944) Interbank placements and receivables (1,269) (491) Fair value adjustment of derivative financial instruments - (214) Loss allowance / impairment on other financial, non-financial assets (91) (2,261) Repurchase agreement and security lending (265) - Provision on other financial, non-financial liabilities - (1,875) Difference in accounting for investment properties (204) (186) Difference in depreciation of right-of-use assets (272) - Other (15,202) (11,507) Deferred tax liabilities (40,132) (38,984) 2022 2021 Net deferred tax asset / (liability) 35,327 (8,936) (amount presented in the consolidated statement of financial position) Deferred tax assets 75,421 15,109 Deferred tax liabilities (40,094) (24,045) Among deferred tax assets the tax accruals are included the following accruals by entities: Tax accrual caused by negative 2022 2021 Date until taxable income it can be used OTP Bank 19,424 - 31 December 2027 Merkantil Bank Ltd. - 40 31 December 2030 OTP Real Estate Leasing Ltd. 142 55 31 December 2030 Nagisz Ltd. 55 - 31 December 2025 Nagisz Ltd. 56 - 31 December 2026 Nagisz Ltd. 67 57 31 December 2030 19,744 152
OTP Bank Plc Consolidated Financial Statements 2022 107 NOTE 35: INCOME TAXES (in HUF mn) [continued] A reconciliation of the income tax income / expense is as follows: 2022 2021 Profit before income tax 394,888 528,435 Income tax expense at statutory tax rates 53,933 68,823 Income tax adjustments due to permanent differences are as follows: Deferred use of tax allowance (12,102) (8) Tax effect of transaction costs related to share-based payment recognized directly in shareholders' equity - 323 Reversal of statutory general provision (5) - Permanent differences from unused tax losses (1,894) (103) Tax effect of transaction costs related to treasury share transaction recognized directly in shareholders' equity 267 - Amounts unenforceable by tax law 61 (846) Use of tax allowance in the current year (23) (4,036) Other (2,804) (11,250) Income tax expense 37,433 52,903 Effective tax rate 9.48% 10.01% Business tax and innovation contribution 21,818 19,220 Total income tax expense 59,251 72,123 2022 2021 Net current tax liability (23,216) (6,603) (amount presented in the consolidated statement of financial position) Current income tax receivables 5,650 29,978 Current income tax payable (28,866) (36,581)
OTP Bank Plc Consolidated Financial Statements 2022 108 NOTE 36: LEASES (in HUF mn) The Group as a lessee: Right-of-use assets by class of underlying assets as at 31 December 2022: 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 Right-of-use assets by class of underlying assets as at 31 December 2021: 2021 Property Office equipment and vehicles Total Depreciation expense of right-of-use assets 15,710 355 16,065 Additions to right-of-use assets 13,915 245 14,160 Carrying amount of right-of-use assets at the end of the reporting period 50,265 461 50,726 The total cash outflow for leases was HUF 31,872 million as at 31 December 2022 and HUF 19,663 million as at 31 December 2021. The Group mainly leases real estate, 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: 2022 2021 Within one year 13,757 11,761 Over one year 50,021 41,525 Total 63,778 53,286 Lease liabilities by payments: 2022 2021 Arising from fixed lease payments 38,636 36,047 Arising from variable lease payments 25,142 17,239 Total 63,778 53,286 On 31 December 2022 and 31 December 2021 HUF 44 million and HUF 123 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 4,220 million as at 31 December 2022 and would have been HUF 4,041 million as at 31 December 2021 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 2022 109 NOTE 36: LEASES (in HUF mn) [continued] The Group as a lessee [continued]: Amounts recognized in profit and loss 2022 2021 Interest expense on lease liabilities 2,386 1,556 Expense relating to short-term leases 3,935 3,885 Expense relating to leases of low value assets 919 694 Expense relating to variable lease payments not included in the measurement of lease liabilities - - Income from subleasing right-of-use assets 6 11 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, Ukraine and Croatia. 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 2022 2021 In less than 1 year 438,205 469,646 Between 1 and 2 years 391,229 332,360 Between 2 and 3 years 265,744 241,217 Between 3 and 4 years 175,723 159,306 Between 4 and 5 years 175,420 90,548 More than 5 years 69,877 60,000 Total receivables from undiscounted lease payments 1,516,198 1,353,077 Unguaranteed residual values 395 692 Gross investment in the lease 1,516,593 1,353,769 Less: unearned finance income (164,710) (141,138) Present value of minimum lease payments receivable 1,351,883 1,212,631 Loss allowance (53,131) (30,003) Net investment in the lease 1,298,752 1,182,628 An analysis of the change in the gross values on finance receivables is as follows: 2022 2021 Balance as at 1 January 1,212,631 1,075,742 Additions due to new contracts 662,694 656,055 Additions due to interest income and amortized fees 82,181 64,168 Decrease due to write-off (484) (543) Decrease due to repossession of the asset (3,616) (3,174) Decrease due to sale (1,697) (3,864) Decrease due to early repayment (77,500) (59,246) Decrease due to regular lease payment (572,293) (530,157) Foreign currency translation difference 49,967 13,650 Closing balance 1,351,883 1,212,631
OTP Bank Plc Consolidated Financial Statements 2022 110 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: 2022 2021 Balance as at 1 January 30,003 24,602 Loss allowance for the period 49,433 20,694 Release of loss allowance (25,020) (14,918) Use of loss allowance (319) (257) Partial write-off (516) - Decrease due to sale (61) (513) Foreign currency translation difference (389) 395 Closing balance 53,131 30,003 Result from finance leases 2022 2021 Selling profit or loss - 325 Finance income on the net investment in the lease 78,262 59,084 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 2022 2021 In less than 1 year 6,636 10,383 Between 1 and 2 years 6,177 5,172 Between 2 and 3 years 4,782 3,527 Between 3 and 4 years 3,481 2,704 Between 4 and 5 years 2,644 2,019 More than 5 years 2,173 904 Total receivables from undiscounted lease payments 25,893 24,709 Result from operating leases 2022 2021 Lease income 11,439 10,791 Therein lease income relating to variable lease payments that do not depend on an index or a rate - -
OTP Bank Plc Consolidated Financial Statements 2022 111 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 the 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 2022 112 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 EUR 11 million less impairment in Slovenia, while in Romania the RON 95 million impairment release outcome of the review was netted with a post model adjustment resulting neutral overall effect.
OTP Bank Plc Consolidated Financial Statements 2022 113 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.1. Financial instruments by stages Gross carrying amount and accumulated loss allowance of financial assets at amortized cost and of interest-bearing securities at fair value through other comprehensive income and financial commitments and provision on them by stages as at 31 December 2022: Gross carrying amount / Notional value Accumulated loss allowance / Provision 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 2022 114 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.1. 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 2021: Gross carrying amount / Notional value Accumulated loss allowance / Provision 2021 Carrying amount / Exposure Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Placements with other banks 1,584,861 1,587,827 - 28 - 1,587,855 2,966 - 28 - 2,994 Repo receivables 61,052 61,342 - - - 61,342 290 - - - 290 Mortgage loans 3,822,426 3,173,491 559,939 178,066 57,988 3,969,484 10,450 25,590 84,937 26,081 147,058 Loans to medium and large corporates 5,294,170 4,680,180 657,586 158,773 24,117 5,520,656 51,724 69,724 98,017 7,021 226,486 Consumer loans 2,963,112 2,585,014 422,975 356,485 12,856 3,377,330 49,104 84,158 274,098 6,858 414,218 Loans to micro and small enterprises 500,991 412,247 76,131 54,458 2,339 545,175 4,751 9,707 28,351 1,375 44,184 Car-finance loans 446,341 370,790 79,965 9,675 2,452 462,882 2,988 4,978 6,508 2,067 16,541 Municipal loans 466,143 444,944 23,890 816 - 469,650 1,372 1,475 660 - 3,507 Loans at amortized cost 13,493,183 11,666,666 1,820,486 758,273 99,752 14,345,177 120,389 195,632 492,571 43,402 851,994 Finance lease receivable 1,182,628 959,361 210,955 41,944 371 1,212,631 4,432 11,140 14,243 188 30,003 Interest bearing securities at fair value through other comprehensive income 1 2,189,534 2,187,835 1,699 - - 2,189,534 6,566 144 - - 6,710 Securities at amortized cost 3,891,335 3,879,749 20,699 - - 3,900,448 7,789 1,324 - - 9,113 Financial assets total 22,402,593 20,342,780 2,053,839 800,245 100,123 23,296,987 142,432 208,240 506,842 43,590 901,104 Loan commitments given 3,776,768 3,665,153 128,603 14,805 211 3,808,772 20,539 7,482 3,961 22 32,004 Financial guarantees given 913,038 887,585 35,648 4,568 7 927,808 11,814 1,408 1,542 6 14,770 Other commitments given 1,174,462 1,127,354 44,064 8,260 - 1,179,678 3,170 1,140 906 - 5,216 Financial liabilities total 5,864,268 5,680,092 208,315 27,633 218 5,916,258 35,523 10,030 6,409 28 51,990 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 2022 115 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.2. Movement table of loss allowance / provision on financial instruments Movement of loss allowance on financial assets at amortized cost and on interest bearing securities at fair value through other comprehensive income and of provision of financial commitments as at 31 December 2022: 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 Other adjustments 1 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 1 Other adjustment mainly includes changes due to foreign exchange conversion.
OTP Bank Plc Consolidated Financial Statements 2022 116 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.2. 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]: 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 Other adjustments 1 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 1 Other adjustment mainly includes changes due to foreign exchange conversion.
OTP Bank Plc Consolidated Financial Statements 2022 117 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.2. 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 2021: 31/12/2021 Opening balance Modi- fication 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 Other adjustments 1 Closing balance Stage 1 123,675 - 141,894 (37,619) (103,930) 25,663 (4,885) (102) (2,264) 142,432 Placements with other banks 1,377 - 24,635 (4,383) - (18,854) - - 191 2,966 Repo receivables 292 - 667 - - (669) - - - 290 Loans at amortized cost 106,151 - 109,970 (29,761) (91,303) 33,215 (4,442) (102) (3,339) 120,389 Finance lease receivables 4,141 - 2,643 (255) (12,106) 10,426 (443) - 26 4,432 Interest bearing securities at fair value through other comprehensive income and securities at amortized cost 11,714 - 3,979 (3,220) (521) 1,545 - 858 14,355 Stage 2 203,173 - 29,705 (21,813) 9,826 (27,800) 8,202 (498) 7,445 208,240 Placements with other banks 1 - - - - - (1) - - Repo receivables - - - - - - - - - - Loans at amortized cost 194,941 (1,281) 26,947 (21,200) 3,766 (23,004) 8,550 (497) 7,410 195,632 Finance lease receivables 8,103 - 2,696 (613) 5,539 (4,229) (348) - (8) 11,140 Interest bearing securities at fair value through other comprehensive income and securities at amortized cost 128 1,281 62 - 521 (567) - - 43 1,468 Stage 3 476,668 - 19,133 (44,871) 94,104 21,425 8,856 (69,523) 1,050 506,842 Placements with other banks 111 - - - - 46 - (240) 111 28 Repo receivables - - - - - - - - - - Loans at amortized cost 463,570 - 17,649 (43,539) 87,537 25,360 9,852 (67,453) (405) 492,571 Finance lease receivables 12,188 - 1,484 (1,332) 6,567 (3,981) (996) (1,022) 1,335 14,243 Interest bearing securities at fair value through other comprehensive income and securities at amortized cost 799 - - - - - - (808) 9 - Loss allowance on financial assets subtotal 803,516 - 190,732 (104,303) - 19,288 12,173 (70,123) 6,231 857,514 1 Other adjustment mainly includes changes due to foreign exchange conversion.
OTP Bank Plc Consolidated Financial Statements 2022 118 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.2. 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 2021 [continued]: 31/12/2021 Opening balance Modi- fication 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 Other adjustments 1 Closing balance POCI 65,051 - - (2,929) - (17,138) (129) (4,370) 3,105 43,590 Placements with other banks - - - (2,929) - 6,004 (129) (4,370) 1,424 - Repo receivables - - - - - - - - - - Loans at amortized cost 64,881 - - - - (23,142) - - 1,663 43,402 Finance lease receivables 170 - - - - - - - 18 188 Interest bearing securities at fair value through other comprehensive income and securities at amortized cost - - - - - - - - - - Loss allowance on financial assets total 868,567 - 190,732 (107,232) - 2,150 12,044 (74,493) 9,336 901,104 Loan commitments and financial guarantees given - stage 1 37,297 - 23,514 (5,522) 1,446 (20,069) (1,031) - (112) 35,523 Loan commitments and financial guarantees given - stage 2 11,055 - 3,804 (791) (2,173) (2,216) 436 - (85) 10,030 Loan commitments and financial guarantees given - stage 3 6,458 - 932 (1,337) 727 196 (65) - (502) 6,409 Loan commitments and financial guarantees given - poci - - 31 (4) - 3 (1) - (1) 28 Provision on financial liabilities total 54,810 - 28,281 (7,654) - (22,086) (661) - (700) 51,990 1 Other adjustment mainly includes changes due to foreign exchange conversion.
OTP Bank Plc Consolidated Financial Statements 2022 119 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.3. Loan portfolio by internal ratings 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 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) 2021 Gross carrying amount Internal rating grade Stage 1 Stage 2 Stage 3 POCI Total Low risk grade (1-4) 7,644,341 631,138 - 2,921 8,278,400 Medium risk grade (5-7) 4,692,656 869,200 - 46,708 5,608,564 High risk grade (8-9) 289,030 526,928 - 2,563 818,521 Non-performing - 4,175 800,217 47,931 852,323 Total loans at amortized cost and finance lease receivable 12,626,027 2,031,441 800,217 100,123 15,557,808 2021 Accumulated loss allowance Internal rating grade Stage 1 Stage 2 Stage 3 POCI Total Low risk grade (1-4) 52,654 42,988 - 129 95,771 Medium risk grade (5-7) 57,421 81,894 - 13,009 152,324 High risk grade (8-9) 14,746 78,111 - 375 93,232 Non-performing - 3,779 506,814 30,077 540,670 Total loans at amortized cost and finance lease receivable 124,821 206,772 506,814 43,590 881,997
OTP Bank Plc Consolidated Financial Statements 2022 120 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.4. Loan portfolio by countries An 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 by country is as follows: 2022 2021 Country Gross amount of exposure Loss allowance Gross amount of exposure Loss allowance Hungary 5,955,212 235,946 5,528,516 215,911 Bulgaria 3,537,330 159,412 2,972,390 206,233 Croatia 2,279,085 102,039 1,826,233 101,067 Serbia 2,127,646 70,779 1,729,147 47,085 Romania 1,326,510 65,646 1,076,696 57,665 Slovenia 1,200,735 14,627 981,307 16,244 Russia 1,053,208 187,610 812,070 137,920 Ukraine 543,159 124,859 684,030 52,678 Montenegro 454,567 22,421 385,342 24,930 France 272,848 1,171 182,850 725 Albania 390,856 16,660 233,391 10,551 Moldova 171,616 11,181 166,720 5,025 Germany 39,631 525 84,164 675 Belgium 38,855 134 80,434 328 Austria 3,182 31 40,426 201 Slovakia 121,591 545 80,117 319 The Netherlands 101,078 1,864 36,858 622 Switzerland 63,843 3,138 80,611 1,701 United Kingdom 13,833 1,336 21,209 1,763 United States of America 45,232 205 106,347 419 Luxembourg 3,477 1,085 33,251 1,271 Poland 34,012 987 19,203 239 Italy 9,330 235 10,558 239 Ireland 5,966 116 5,375 106 Cyprus 5,311 217 8,646 562 Denmark 46 7 339 16 Czech Republic 739 10 899 12 Canada 74 4 4,823 16 Australia 58 13 3,164 10 Greece 999 122 1,808 192 Turkey 1,418 63 1,810 95 Spain 1,164 35 1,095 25 Israel 937 13 1,174 15 Bosnia and Herzegovina 673 97 467 76 Sweden 542 30 810 63 Norway 107 9 334 23 Saudi Arabia 87 70 239 9 United Arab Emirates 36 26 532 30 Egypt 726 14 582 15 Kazakhstan 224 9 209 15 Latvia 50 30 46 26 Other 1 2,877 248 2,783 164 Total 19,808,870 1,023,569 17,207,005 885,281 1 Other category as at 31 December 2022 mainly includes e.g.: Japan, Macedonia, Portugal, China, Brazil, Lithuania, Republic of South- Africa, Armenia, Belorussia, Tunisia, Iran, Syria, Kosovo and other countries.
OTP Bank Plc Consolidated Financial Statements 2022 121 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.4. Loan portfolio by countries [continued] Country 2022 2021 Hungary 1,247,401 1,067,830 Croatia - 281 Others 13 - Total loans at fair value 1,247,414 1,068,111 37.1.5. Loan portfolio classification by economic activities Gross loan at amortized cost and finance lease 2022 2021 receivable portfolio by economic activities Retail 8,575,020 7,826,752 Agriculture, forestry and fishing 752,497 610,270 Manufacturing, mining and quarrying and other industry 2,338,129 1,830,591 Construction 734,908 600,945 Wholesale and retail trade, transportation and storage accommodation and food service activities 2,948,392 2,525,942 Information and communication 241,809 196,045 Financial and insurance activities 354,235 273,817 Real estate activities 841,069 568,810 Professional, scientific, technical, administration and support service activities 657,055 437,813 Public administration, defence, education, human health and social work activities 494,955 429,290 Other services 474,632 257,533 Total gross loans and finance lease receivable 18,412,701 15,557,808
OTP Bank Plc Consolidated Financial Statements 2022 122 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.5. Loan portfolio classification by economic activities [continued] Loss allowance on loans at amortized cost and 2022 2021 finance lease receivable by economic activities Retail 633,253 599,650 Agriculture, forestry and fishing 39,200 20,118 Manufacturing, mining and quarrying and other industry 94,324 62,951 Construction 26,040 22,165 Wholesale and retail trade, transportation and storage accommodation and food service activities 141,799 105,934 Information and communication 6,293 5,117 Financial and insurance activities 12,373 12,945 Real estate activities 29,500 21,363 Professional, scientific, technical, administration and support service activities 18,079 13,464 Public administration, defence, education, human health and social work activities 7,783 4,828 Other services 10,847 13,462 Total loss allowance on loans and finance lease receivable 1,019,491 881,997 37.1.6. Collateral The values of collateral received and held by the Group by type are as follows ( total collateral). The collateral covers loans as well as off-balance sheet exposures. Types of collateral 2022 2021 Mortgages 16,332,892 13,367,891 Guarantees and warranties 1,630,318 1,296,415 Guarantees of state or organizations owned by state 1,635,382 1,070,479 Assignments (revenue or other receivables) 423,098 422,030 Securities 168,941 237,076 Cash deposits 208,487 187,934 Other 1,758,802 2,211,671 Total 22,157,920 18,793,496 The values of collateral received and held by the Group by type are as follows ( to the extent of the exposures). The collaterals cover loans as well as off-balance sheet exposures. Types of collateral 2022 2021 Mortgages 8,044,836 6,479,871 Guarantees of state or organizations owned by state 1,241,702 832,432 Guarantees and warranties 1,016,672 799,775 Assignments (revenue or other receivables) 220,062 290,066 Securities 99,345 156,715 Cash deposits 80,313 76,338 Other 752,241 1,295,740 Total 11,455,171 9,930,937
OTP Bank Plc Consolidated Financial Statements 2022 123 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.6. Collateral [continued] The coverage level of the loan portfolio (total collateral) increased by 2.22 pps and the coverage level to the extent of the exposures also increased by 0.06 pps as at 31 December 2022. The values of collateral given and held by the Group according to which financial asset is recognized as collateral are as follows: Financial assets as collaterals recognized in the 2022 2021 consolidated statement of financial position Cash, amounts due from banks and balances with the National Banks 87,916 15,791 Placements with other banks 11,313 9,590 Repo receivables 13,253 35,826 Securities at fair value through other comprehensive income - 16,546 Securities at amortized cost 91,991 42,233 Loans at amortized cost 1,099,311 1,089,614 Finance lease receivables 32,553 32,553 Total 1,336,337 1,242,153 37.1.7. Restructured loans 2022 2021 Gross portfolio Loss allowance Gross portfolio Loss allowance Retail mortgage loans 89,167 (5,803) 269,700 (8,779) Loans to medium and large corporations 403,643 (59,453) 276,796 (44,197) Retail consumer loans 64,268 (21,346) 149,469 (32,850) Loans to micro and small enterprises 59,096 (4,750) 57,403 (7,668) Municipal - - 75 (8) Other loans 3,417 (1,361) 27,092 (2,555) Total 619,591 (92,713) 780,535 (96,057) 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 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 (a total decrease of HUF 320 billion). This was partially offset by the increased volume of forborne exposures in Ukraine and Russia (a total increase of HUF 132 billion).
OTP Bank Plc Consolidated Financial Statements 2022 124 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.8. Financial instruments by Moody’s rating categories Securities held for trading as at fair value through profit or loss 2022 Aaa Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 N/A 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 2021 Aaa Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 B1 B3 N/A Total Government bonds - - - 16 - 18,747 26,024 11,282 10,156 31,306 - - - 97,531 Equity instruments and fund units 569 19 49 59 35 12 24 83 - 2 6 - 315 1,173 Corporate bonds - - - - 485 - - 97 - - - - 158 740 Discounted Treasury bills - - - - - - 869 - - - - 54 - 923 Mortgage bonds - - - - - - - - - - - 101 101 Other interest bearing securities - - - - - - 1,347 - - - - - - 1,347 Other non-interest bearing securities 561 - - - - - - - - - - - 1,134 1,695 Total 1,130 19 49 75 520 18,759 28,264 11,462 10,156 31,308 6 54 1,708 103,510
OTP Bank Plc Consolidated Financial Statements 2022 125 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.8. Financial instruments by Moody’s rating categories [continued] Non-trading securities mandatorily at fair value through profit or loss 2022 Aaa Aa3 A3 Baa2 Baa3 N/A 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 2021 Aa3 Baa3 Ba1 N/A Total Non-trading equity instruments mandatorily at fair value through profit or loss - - 7,811 37,083 44,894 Non-trading debt instruments mandatorily at fair value through profit or loss 3,498 1,043 56 3,912 8,509 Total 3,498 1,043 7,867 40,995 53,403
OTP Bank Plc Consolidated Financial Statements 2022 126 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.8. Financial instruments by Moody’s rating categories [continued] Securities at fair value through other comprehensive income 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 2021 Aaa Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B3 Caa1 N/A Total Government bonds 21,728 7,849 - 17,808 28,492 99,425 203,172 495,231 372,198 188,395 162,477 - 76,732 91,487 178 - 1,765,172 Corporate bonds - - - - - 2,896 - 6,152 44,606 4,144 12,630 - - - - 18,091 88,519 Mortgage bonds - - - 47,568 - - - - - - - - - - - 15,504 63,072 Discounted treasury bills - - - - - - - 44,924 - 51,701 - - - - - - 96,625 National Bank of Hungary bonds - - - - - - - - - - - 109,774 - - - - 109,774 Interest bearing treasury bills - - - - - - - 63,115 - - - - - - - - 63,115 Other securities - - - - - - - - - - - - - - - 3,257 3,257 Non-trading equity instruments - - 6,112 349 - - - - 305 - - - - - - 28,210 34,976 Total 21,728 7,849 6,112 65,725 28,492 102,321 203,172 609,422 417,109 244,240 175,107 109,774 76,732 91,487 178 65,062 2,224,510
OTP Bank Plc Consolidated Financial Statements 2022 127 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.1. Credit risk [continued] 37.1.8. Financial instruments by Moody’s rating categories [continued] Securities at amortized cost 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 2021 Aaa Aa2 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 B1 B3 N/A Total Government bonds 185,261 45,392 20,043 - 31,892 172,502 2,858,111 174,929 26,544 12,617 25,587 91,423 - 3,644,301 Corporate bonds - - - - - - - 32,013 - - - - 138,862 170,875 Discounted Treasury bills - - - - - - 6 - - - - 15,696 - 15,702 Mortgage bonds - - 12,992 - - - - 47 - - - - 11,282 24,321 Other securities 298 - - 8,210 - 7,343 3,682 - - - - - 16,603 36,136 Total 185,559 45,392 33,035 8,210 31,892 179,845 2,861,799 206,989 26,544 12,617 25,587 107,119 166,747 3,891,335
OTP Bank Plc Consolidated Financial Statements 2022 128 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.2. Maturity analysis of assets, liabilities and liquidity risk 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 multiply 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- 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 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 2022. 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 2022 129 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.2. Maturity analysis of assets, liabilities and liquidity risk [continued] 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 measured 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 reserves as maintenance and management of liquidity risk.
OTP Bank Plc Consolidated Financial Statements 2022 130 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.2. Maturity analysis of assets, liabilities and liquidity risk [continued] 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 Off-balance sheet commitments 5,001,574 555,658 391,653 167,598 - 6,116,483
OTP Bank Plc Consolidated Financial Statements 2022 131 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.2. Maturity analysis of assets, liabilities and liquidity risk [continued] 2021 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 2,557,092 51 - - - 2,557,143 Placements with other banks 1,314,523 61,455 145,180 67,764 - 1,588,922 Repo receivables 61,373 - - - - 61,373 Trading securities at fair value through profit or loss 29,714 21,975 37,345 13,530 1,738 104,302 Non-trading instruments mandatorily at fair value through profit or loss - - 9,769 19 43,615 53,403 Securities at fair value through other comprehensive income 295,977 249,131 1,114,027 544,167 40,798 2,244,100 Securities at amortized cost 34,190 482,530 2,146,652 1,202,747 - 3,866,119 Loans at amortized cost 1,827,131 2,599,854 5,897,202 4,742,146 136,975 15,203,308 Finance lease receivable 124,074 307,745 770,154 48,636 - 1,250,609 Loans measured at fair value through profit or loss 30,164 31,662 221,069 835,014 - 1,117,909 Associates and other investments - - - - 79,736 79,736 Other financial assets 1 130,133 3,244 6,265 3,270 9,804 152,716 TOTAL ASSETS 6,404,371 3,757,647 10,347,663 7,457,293 312,666 28,279,640 Amounts due to banks, the National Governments, deposits from the National Banks and other banks 332,330 173,171 704,505 366,025 - 1,576,031 Repo liabilities 79,045 - 2 - - 79,047 Financial liabilities designated at fair value through profit or loss 530 1,253 4,421 34,980 - 41,184 Deposits from customers 19,593,347 997,565 336,246 148,580 - 21,075,738 Liabilities from issued securities 6,702 2,664 303,223 159,139 - 471,728 Leasing liabilities 3,060 9,058 27,307 15,530 - 54,955 Other financial liabilities 1 465,022 26,311 10,312 674 6,235 508,554 Subordinated bonds and loans 2,886 - 7,495 269,698 - 280,079 TOTAL LIABILITIES 20,482,922 1,210,022 1,393,511 994,626 6,235 24,087,316 NET POSITION 2 (14,078,551) 2,547,625 8,954,152 6,462,667 306,431 4,192,324 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 2022 132 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.2. Maturity analysis of assets, liabilities and liquidity risk [continued] 2021 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 4,396,050 1,993,311 302,924 151,959 - 6,844,244 Liabilities from derivative financial instruments held for trading (4,349,598) (1,991,763) (296,648) (146,398) - (6,784,407) Net position of financial instruments held for trading 46,452 1,548 6,276 5,561 - 59,837 Receivables from derivative financial instruments designated as hedge accounting 5,693 37,815 580,489 16,195 - 640,192 Liabilities from derivative financial instruments designated as hedge accounting (7,765) (47,374) (595,938) (16,417) - (667,494) Net position of financial instruments designated as hedge accounting (2,072) (9,559) (15,449) (222) - (27,302) Net position of derivative financial instruments total 44,380 (8,011) (9,173) 5,339 - 32,535 Commitments to extend credit 3,749,199 234,503 74,915 6,385 - 4,065,002 Bank guarantees 532,445 347,448 307,030 106,918 - 1,293,841 Confirmed letters of credit 61,124 2,937 853 163 - 65,077 Factoring loan commitment 464,341 - - - - 464,341 Off-balance sheet commitments 4,807,109 584,888 382,798 113,466 - 5,888,261
OTP Bank Plc Consolidated Financial Statements 2022 133 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.3. Net foreign currency position and foreign currency risk 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 2021 USD EUR CHF Other Total Assets 1,163,960 7,661,460 88,639 7,677,060 16,591,119 Liabilities (1,013,972) (6,769,472) (107,902) (5,971,941) (13,863,287) Derivative financial instruments (186,774) (371,225) 32,021 (101,951) (627,929) Net position (36,786) 520,763 12,758 1,603,168 2,099,903 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 and MDL. 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 2022 134 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 2022 135 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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency 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 2022 136 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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency 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 2022 137 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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency 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 2022 138 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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency 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 2022 139 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.4. Interest rate risk management [continued] As at 31 December 2021 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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency Cash, amounts due from banks and balances with the National Banks 37,712 821,501 - 28,183 - 12,391 - 6,697 - 12,423 133,248 1,503,880 170,960 2,385,075 2,556,035 fixed rate 36,376 661,318 - 28,183 - 12,391 - 6,697 - 12,423 - - 36,376 721,012 757,388 variable rate 1,336 160,183 - - - - - - - - - - 1,336 160,183 161,519 non-interest-bearing - - - - - - - - - - 133,248 1,503,880 133,248 1,503,880 1,637,128 Placements with other banks 435,888 360,795 67,304 109,822 30,509 50,770 49,632 27,234 405,437 17,202 24,415 5,853 1,013,185 571,676 1,584,861 fixed rate 271,734 134,382 449 96,918 1,007 50,238 49,632 27,234 254,065 17,202 - - 576,887 325,974 902,861 variable rate 164,154 226,413 66,855 12,904 29,502 532 - - 151,372 - - - 411,883 239,849 651,732 non-interest-bearing - - - - - - - - - - 24,415 5,853 24,415 5,853 30,268 Repo receivables 33,638 21,535 - 5,828 - - - - - - - 51 33,638 27,414 61,052 fixed rate 33,638 21,535 - 5,828 - - - - - - - - 33,638 27,363 61,001 variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - - 51 - 51 51 Trading instruments at fair value through profit or loss 1,237 7,034 664 26,796 2,506 16,960 360 6,634 25,036 13,415 1,770 1,098 31,573 71,937 103,510 fixed rate 32 7,034 487 26,796 2,233 16,960 360 6,634 25,036 13,415 - - 28,148 70,839 98,987 variable rate 1,205 - 177 - 273 - - - - - - - 1,655 - 1,655 non-interest-bearing - - - - - - - - - - 1,770 1,098 1,770 1,098 2,868 Non-trading instruments mandatorily at fair value through profit or loss - - - - - - - - - - 28,074 25,329 28,074 25,329 53,403 fixed rate - - - - - - - - - - - - - - - variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - 28,074 25,329 28,074 25,329 53,403
OTP Bank Plc Consolidated Financial Statements 2022 140 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.4. Interest rate risk management [continued] As at 31 December 2021 [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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency Securities at fair value through other comprehensive income 205,473 291,988 22,420 92,258 97,202 202,157 40,289 177,681 362,610 697,456 (353) 35,329 727,641 1,496,869 2,224,510 fixed rate 157,136 291,987 6,897 92,258 88,628 202,157 40,289 177,681 395,460 684,739 - - 688,410 1,448,822 2,137,232 variable rate 48,337 1 15,523 - 8,574 - - - (32,850) 12,717 - - 39,584 12,718 52,302 non-interest-bearing - - - - - - - - - - (353) 35,329 (353) 35,329 34,976 Securities at amortized cost 117 124,634 - 24,325 365,576 28,559 264,200 56,712 2,305,098 722,114 - - 2,934,991 956,344 3,891,335 fixed rate - 117,026 - 19,513 365,576 28,559 264,200 56,712 2,305,098 722,114 - - 2,934,874 943,924 3,878,798 variable rate 117 7,608 - 4,812 - - - - - - - - 117 12,420 12,537 non-interest-bearing - - - - - - - - - - - - - - - Loans at amortized cost, net of allowance for loan losses 800,665 5,419,263 534,858 1,525,057 60,259 1,431,981 264,434 410,199 1,636,001 1,180,170 121,187 109,109 3,417,404 10,075,779 13,493,183 fixed rate 51,410 1,029,075 2,075 260,668 16,048 683,927 187,209 374,260 942,294 835,327 - - 1,199,036 3,183,257 4,382,293 variable rate 749,255 4,390,188 532,783 1,264,389 44,211 748,054 77,225 35,939 693,707 344,843 - - 2,097,181 6,783,413 8,880,594 non-interest-bearing - - - - - - - - - - 121,187 109,109 121,187 109,109 230,296 Finance lease receivables 117,384 304,444 16,580 131,417 5,736 161,672 20,288 88,194 197,583 137,387 - 1,943 357,571 825,057 1,182,628 fixed rate 6,555 118,251 440 8,408 5,736 37,140 20,288 40,715 188,967 64,125 - - 221,986 268,639 490,625 variable rate 110,829 186,193 16,140 123,009 - 124,532 - 47,479 8,616 73,262 - - 135,585 554,475 690,060 non-interest-bearing - - - - - - - - - - - 1,943 - 1,943 1,943 Loans mandatorily at fair value through profit or loss 27,185 281 11,172 - 73,893 - 29,473 - 926,107 - - - 1,067,830 281 1,068,111 fixed rate 2 - - - - - - - - - - - 2 - 2 variable rate 27,183 281 11,172 - 73,893 - 29,473 - 926,107 - - - 1,067,828 281 1,068,109 non-interest-bearing - - - - - - - - - - - - - - - Fair value adjustment of derivative financial instruments 1,516,897 1,249,024 395,951 937,234 680,161 863,886 10,760 57,580 221,053 17,693 181,110 672,531 3,005,932 3,797,948 6,803,880 fixed rate 1,409,585 1,125,415 188,029 551,410 574,143 862,177 10,760 57,521 221,053 17,681 - - 2,403,570 2,614,204 5,017,774 variable rate 107,312 123,609 207,922 385,824 106,018 1,709 - 59 - 12 - - 421,252 511,213 932,465 non-interest-bearing - - - - - - - - - - 181,110 672,531 181,110 672,531 853,641 Other financial assets 3,395 13,864 1,261 19 - 212 - - - 128 49,086 67,951 53,742 82,174 135,916 fixed rate 3,393 4,860 1,155 13 - 12 - - - 103 - - 4,548 4,988 9,536 variable rate 2 9,004 106 6 - 200 - - - 25 - - 108 9,235 9,343 non-interest-bearing - - - - - - - - - - 49,086 67,951 49,086 67,951 117,037
OTP Bank Plc Consolidated Financial Statements 2022 141 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.4. Interest rate risk management [continued] As at 31 December 2021 [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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency Amounts due to banks, the Hungarian Government, deposits from the National Bank of Hungary and other banks 103,123 200,292 41,404 56,912 26,730 79,200 355,132 26,401 616,005 12,724 35,951 13,474 1,178,345 389,003 1,567,348 fixed rate 58,913 103,240 12,367 23,208 26,730 52,310 355,132 26,356 615,961 12,724 - - 1,069,103 217,838 1,286,941 variable rate 44,210 97,052 29,037 33,704 - 26,890 - 45 44 - - - 73,291 157,691 230,982 non-interest-bearing - - - - - - - - - - 35,951 13,474 35,951 13,474 49,425 Repo liabilities 49,726 29,321 - - - - - - - - - - 49,726 29,321 79,047 fixed rate 49,726 29,321 - - - - - - - - - - 49,726 29,321 79,047 variable rate - - - - - - - - - - - - - - - non-interest-bearing - - - - - - - - - - - - - - - Financial liabilities designated at fair value through profit or loss 20,133 - - - - - - - - - 21,051 - 41,184 - 41,184 fixed rate - - - - - - - - - - - - - - - variable rate 20,133 - - - - - - - - - - - 20,133 - 20,133 non-interest-bearing - - - - - - - - - - 21,051 - 21,051 - 21,051 Deposits from customers 7,533,566 10,675,265 198,955 456,849 94,140 735,911 31,975 75,104 248,209 120,403 16,356 881,911 8,123,201 12,945,443 21,068,644 fixed rate 463,512 4,039,568 198,955 456,849 92,653 735,911 31,975 74,680 248,209 120,403 - - 1,035,304 5,427,411 6,462,715 variable rate 7,070,054 6,635,697 - - 1,487 - - 424 - - - - 7,071,541 6,636,121 13,707,662 non-interest-bearing - - - - - - - - - - 16,356 881,911 16,356 881,911 898,267 Liabilities from issued securities 864 - 8,514 - 170,732 - - 51 256,151 - - 13 436,261 64 436,325 fixed rate 211 - - - - - - 51 256,151 - - - 256,362 51 256,413 variable rate 653 - 8,514 - 170,732 - - - - - - - 179,899 - 179,899 non-interest-bearing - - - - - - - - - - - 13 - 13 13
OTP Bank Plc Consolidated Financial Statements 2022 142 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.4. Interest rate risk management [continued] As at 31 December 2021 [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 Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency HUF Currency Fair value adjustment of derivative financial instruments 941,607 1,905,033 220,057 1,084,185 709,948 870,647 12,943 54,920 96,381 77,044 453,672 388,146 2,434,608 4,379,975 6,814,583 fixed rate 721,374 1,714,718 151,795 579,964 526,007 868,848 12,398 54,847 96,558 77,044 - - 1,508,132 3,295,421 4,803,553 variable rate 220,233 190,315 68,262 504,221 183,941 1,799 545 73 (177) - - - 472,804 696,408 1,169,212 non-interest-bearing - - - - - - - - - - 453,672 388,146 453,672 388,146 841,818 Leasing liabilities 916 7,401 353 1,076 483 5,359 892 4,534 1,011 24,823 - 6,438 3,655 49,631 53,286 fixed rate 830 6,948 72 435 7 1,757 319 2,582 1,011 17,403 - - 2,239 29,125 31,364 variable rate 86 453 281 641 476 3,602 573 1,952 - 7,420 - - 1,416 14,068 15,484 non-interest-bearing - - - - - - - - - - - 6,438 - 6,438 6,438 Other financial liabilities 117,189 50,063 2,518 672 - 479 - 133 - 103 173,503 141,111 293,210 192,561 485,771 fixed rate 117,185 50,046 907 564 - 211 - 133 - 67 - - 118,092 51,021 169,113 variable rate 4 17 1,611 108 - 268 - - - 36 - - 1,615 429 2,044 non-interest-bearing - - - - - - - - - - 173,503 141,111 173,503 141,111 314,614 Subordinated bonds and loans - - - 85,551 - 186,225 - - - 6,514 - 44 - 278,334 278,334 fixed rate - - - - - - - - - 6,514 - - - 6,514 6,514 variable rate - - - 85,551 - 186,225 - - - - - - - 271,776 271,776 non-interest-bearing - - - - - - - - - - - 44 - 44 44 Net position (5,587,533) (4,253,012) 578,409 1,195,694 313,809 890,767 278,494 669,788 4,861,168 2,556,377 (161,996) 991,937 282,351 2,051,551 2,333,902
OTP Bank Plc Consolidated Financial Statements 2022 143 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 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 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 2022 2021 Foreign exchange 5,896 1,691 Interest rate 890 212 Equity instruments 42 20 Diversification - - Total VaR exposure 6,829 1,923 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 2022 144 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 2022 2021 2022 2021 1% (4,746) (194) (5,604) (1,707) 5% (2,542) (132) (2,992) (1,038) 25% (843) (50) (1,190) (398) 50% (15) (1) (235) 98 25% 990 53 834 531 5% 2,837 142 2,415 1,215 1% 4,245 221 4,767 1,509 Note: (1) Historical VaR simulation is based on the empirical distribution of the historical exchange rate movements between 31 December 2021 and 2022.
OTP Bank Plc Consolidated Financial Statements 2022 145 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 increases gradually by 100 bps over the next year (probable scenario) (2) BUBOR decreases gradually by 50 bps over the next year (alternative scenario) The net interest income in a one-year period after 1 January 2023 would be decreased by HUF (9,002) million (probable scenario) and increased by HUF 4,306 million (alternative scenario) as a result of these simulation. A similar simulation indicated HUF 1,487 million increase (probable scenario) and HUF (1,025) million (alternative scenario) decrease in the Net interest income in a one-year period after 1 January 2022. This effect is further enhanced by capital results HUF (350) million (for probable scenario) and HUF 181 million (for alternative scenario) as at 31 December 2022, the comparative results were (HUF (619) million for probable scenario, HUF 322 million for alternative scenario as at 31 December 2021) 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 can be summarized as follows (in HUF million): 2022 2021 Description Effects to the net interest income Effects to capital Effects to the net interest income Effects to capital HUF (0.1%) parallel shift 1,669 36 (105) 64 HUF 0.1% parallel shift (1,667) (36) 44 (64) EUR (0.1%) parallel shift (3,661) - (1,989) - USD (0.1%) parallel shift 119 - (257) - USD 0.1% parallel shift (290) - 85 -
OTP Bank Plc Consolidated Financial Statements 2022 146 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 2022 2021 VaR (99%, one day, HUF million) 15 12 Stress test (HUF million) (26) (21)
OTP Bank Plc Consolidated Financial Statements 2022 147 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. The Group uses the standard method for determining the regulatory capital requirements of the credit risk and market risk, and parallel 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 17.5%, the Regulatory capital was HUF 3,565,933 million and the Total regulatory capital requirement was HUF 1,632,426 million as at 31 December 2022. The same ratios calculated as at 31 December 2021 were the following: 19.1%, HUF 3,191,765 million and HUF 1,335,305 million.
OTP Bank Plc Consolidated Financial Statements 2022 148 NOTE 37: FINANCIAL RISK MANAGEMENT (in HUF mn) [continued] 37.6. Capital management [continued] Capital adequacy [continued] Calculation on IFRS basis (in HUF million) 2022 2021 Core capital (Tier 1) = 3,277,984 2,926,882 Common Equity Tier 1 (CET 1) Issued capital 28,000 28,000 Reserves 1 3,154,801 2,896,118 Fair value adjustments (135,081) (15,715) Other capital components 286,963 104,326 Non-controlling interests 2,485 1,996 Treasury shares (119,138) (121,941) Goodwill and other intangible assets (170,344) (183,440) Other adjustments 230,298 217,538 Additional Tier 1 (AT1) - - Supplementary capital (Tier 2) 287,949 264,883 Subordinated bonds and loans 287,362 264,397 Other issued capital components - - Components recognized in T2 capital issued by subsidiaries 587 486 Regulatory capital 3,565,933 3,191,765 Credit risk capital requirement 1,478,168 1,199,423 Market risk capital requirement 29,322 13,440 Operational risk capital requirement 124,936 122,442 Total requirement regulatory capital 1,632,426 1,335,305 Surplus capital 1,933,507 1,856,460 CET 1 ratio 16.10% 17.50% Tier 1 ratio 16.10% 17.50% Capital adequacy ratio 17.50% 19.10% 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. 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 in the year ended as at 31 December 2022 as well as 2021.
OTP Bank Plc Consolidated Financial Statements 2022 149 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 2022 2021 Financial assets at fair value through other comprehensive income Debt securities - - 52,371 45,484 Total - - 52,371 45,484 Financial assets at amortized cost Debt securities 332,082 282,227 92,765 90,986 Loans and advances 3,534 1,647 833 1,056 Total 335,616 283,874 93,598 92,042 Total 335,616 283,874 145,969 137,526 As at 31 December 2022 and 2021, the Group had an obligation from repurchase agreements (repo liability) of HUF 217,264 million and HUF 79,045 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 Statement 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 2022 or as at 31 December 2021.
OTP Bank Plc Consolidated Financial Statements 2022 150 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 2022 2021 Commitments to extend credit 4,230,289 4,065,002 Guarantees arising from banking activities 1,413,017 1,293,841 Factoring loan commitment 419,620 464,341 Confirmed letters of credit 53,557 65,077 Other 144,893 27,997 Contingent liabilities and commitments total in accordance with IFRS 9 6,261,376 5,916,258 Legal disputes (disputed value) 86,137 75,453 Underwriting guarantees 1,397 - Other 5,393 5,410 Contingent liabilities and commitments total in accordance with IAS 37 92,927 80,863 Total 6,354,303 5,997,121 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 37,043 million as at 31 December 2022 and HUF 35,354 million as at 31 December 2021, 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.
OTP Bank Plc Consolidated Financial Statements 2022 151 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.
OTP Bank Plc Consolidated Financial Statements 2022 152 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 2017-2019 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 2017 for the year 2018 for the year 2019 2018 8,064 3,000 10,064 - - - - - - 2019 8,064 3,500 10,064 10,413 4,000 12,413 - - - 2020 8,064 4,000 10,064 10,413 4,000 12,413 9,553 4,000 11,553 2021 8,064 4,000 10,064 10,413 4,000 12,413 9,553 4,000 11,553 2022 8,064 4,000 10,064 10,913 4,000 12,413 9,553 4,000 11,553 2023 - - - 10,913 4,000 12,413 9,553 4,000 11,553 2024 - - - 10,913 4,000 12,413 9,553 4,000 11,553 2025 - - - 10,913 4,000 12,413 9,553 4,000 11,553 2026 - - - - - - 9,553 4,000 11,553
OTP Bank Plc Consolidated Financial Statements 2022 153 NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] The parameters for the share-based payment relating to ongoing years 2020-2021 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 2020 for the year 2021 2021 12,644 9,000 16,644 - - - 2022 12,644 8,000 16,644 5,912 6,000 8,912 2023 13,644 8,000 16,644 6,912 7,000 8,912 2024 13,644 8,000 16,644 6,912 8,000 8,912 2025 13,644 8,000 16,644 6,912 9,000 8,912 2026 13,644 8,000 16,644 6,912 10,000 8,912 2027 13,644 8,000 16,644 6,912 10,000 8,912 2028 1 - - - 6,912 10,000 8,912 1 Parameters of benefits for year after 2021 due in 2028 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% 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
OTP Bank Plc Consolidated Financial Statements 2022 154 NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] Based on parameters accepted by Supervisory Board relating to the year 2017 effective pieces are as follows as at 31 December 2022: Approved pieces of shares Exercised until 31 December 2022 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2022 Share purchasing period started in 2018 108,243 108,243 11,005 - - Remuneration exchanged to share provided in 2018 11,926 11,926 10,098 - - Share purchasing period started in 2019 212,282 212,282 12,096 - - Remuneration exchanged to share provided in 2019 26,538 26,538 11,813 - - Share purchasing period started in 2020 101,571 101,565 12,084 6 - Remuneration exchanged to share provided in 2020 11,584 11,584 11,897 - - Share purchasing period started in 2021 109,460 109,460 16,288 - - Remuneration exchanged to share provided in 2021 11,531 11,531 16,477 - - Share purchasing period started in 2022 42,820 - - - 42,820 Remuneration exchanged to share provided in 2022 2,950 2,950 8,529 - - Based on parameters accepted by Supervisory Board relating to the year 2018 effective pieces are as follows as at 31 December 2022: Approved pieces of shares Exercised until 31 December 2022 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2022 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 - - - 86,456 Remuneration exchanged to share provided in 2022 13,858 13,858 8,529 - - Share purchasing period starting in 2023 - - - - 45,155 Remuneration exchanged to share applying in 2023 - - - - 4,114 Remuneration exchanged to share applying in 2024 - - - - 864 Remuneration exchanged to share applying in 2025 - - - - 432
OTP Bank Plc Consolidated Financial Statements 2022 155 NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] Based on parameters accepted by Supervisory Board relating to the year 2019 effective pieces are as follows as at 31 December 2022: Approved pieces of shares Exercised until 31 December 2022 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2022 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 - - 1,335 106,425 Remuneration exchanged to share provided in 2022 10,564 10,564 8,529 - - Share purchasing period starting in 2023 - - - - 125,771 Remuneration exchanged to share applying in 2023 - - - - 18,025 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 Based on parameters accepted by Supervisory Board relating to the year 2020 effective pieces are as follows as at 31 December 2022: Approved pieces of shares Exercised until 31 December 2022 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2022 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 - - 1,288 82,400 Remuneration exchanged to share provided in 2022 15,232 14,743 8,529 - 489 Share purchasing period starting in 2023 - - - - 47,826 Remuneration exchanged to share applying in 2023 - - - - 9,292 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
OTP Bank Plc Consolidated Financial Statements 2022 156 NOTE 40: SHARE-BASED PAYMENTS AND EMPLOYEE BENEFITS (in HUF mn) [continued] Based on parameters accepted by Supervisory Board relating to the year 2021 effective pieces are as follows as at 31 December 2022: Approved pieces of shares Exercised until 31 December 2022 Weighted average share price at the date of exercise (in HUF) Expired pieces Exercisable as at 31 December 2022 Share purchasing period started in 2022 60,018 59,776 10,122 242 - Remuneration exchanged to share provided in 2022 11,028 10,708 8,537 - 320 Share purchasing period starting in 2023 - - - - 117,276 Remuneration exchanged to share applying in 2023 - - - - 10,824 Share purchasing period starting in 2024 - - - - 50,829 Remuneration exchanged to share applying in 2024 - - - - 4,942 Share purchasing period starting in 2025 - - - - 54,324 Remuneration exchanged to share applying in 2025 - - - - 4,942 Share purchasing period starting in 2026 - - - - 58,222 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 Effective pieces relating to the periods starting in 2023-2027 settled during valuation of performance of year 2018- 2021, 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 2022 based on performance assessment accounted as equity-settled share-based transactions, HUF 2,948 million and HUF 3,589 million was recognized as expense for the year ended 31 December 2022 and 2021 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 2022 157 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: 2022 2021 Balance as at 1 January 5,264 5,022 Current service cost 432 457 Interest cost 105 61 Actuarial gains from changes in demographic assumptions (110) (6) Actuarial gains from changes in financial assumptions (1,179) (122) Benefits paid (271) (225) Past service cost 47 (164) Other decreases (-) / increases (+) (19) 252 Revaluation difference 459 (11) Closing balance 4,728 5,264 Amounts recognized in profit and loss 2022 2021 Current service cost 432 457 Net interest expense 105 61 Past service cost 47 (164) Actuarial losses (288) (78) Other cost (129) 44 Total 167 320 Maturity analysis of the present value of defined 2022 2021 benefit obligations Within one year 575 127 Within 5 years and over one year 1,285 1,237 Within 10 years and over 5 years 1,470 2,210 Over 10 years 1,398 1,688 Total present value 4,728 5,262 Actuarial assumptions 2022 2021 Discount rate 1.80% - 6.00% 0.35% - 4.50% Future salary increases 0.75% - 8.00% 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 2022 and 2021.
OTP Bank Plc Consolidated Financial Statements 2022 158 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 2022 2021 Short-term employee benefits 9,790 8,881 Share-based payment 2,638 3,110 Other long-term employee benefits 875 743 Termination benefits 293 - Post-employment benefits 1 112 Total 13,597 12,846 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: 2022 2021 Members of Board of Directors 3,049 3,023 Members of Supervisory Board 386 283 Total 3,435 3,306
OTP Bank Plc Consolidated Financial Statements 2022 159 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: 2022 2021 Assets Other related parties Associated companies Other companies Total Other related parties Associated companies Other companies Total Securities 601 - - 601 596 - - 596 Loans at amortized cost (gross value) 75,704 23,554 4,067 103,325 111,529 1,828 1,798 115,155 Loss allowance on loans at amortized cost - - - - (3,197) (669) (6) (3,872) Finance lease receivable - 22 - 22 - - - - Loans at fair value through profit or loss 164 - - 164 108 - - 108 Total assets 76,469 23,576 4,067 104,112 109,036 1,159 1,792 111,987 Liabilities Deposits from customers and loan liabilities 54,002 12,490 2,104 68,596 39,872 4,280 2,732 46,884 Fair value adjustment of derivative financial instruments - 46 - 46 - - - - Total liabilities 54,002 12,536 2,104 68,642 39,872 4,280 2,732 46,884
OTP Bank Plc Consolidated Financial Statements 2022 160 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]: 2022 2021 Off-balance sheet items Other related parties Associated companies Other companies Total Other related parties Associated companies Other companies Total Undrawn line of credit 47,522 322 2,209 50,053 30,369 1,913 1,176 33,458 Bank Guarantee 8,455 - 2,652 11,107 6,220 - 551 6,771 Commitments and guarantees given 24 - - 24 - - - - Total off-balance sheet items 56,001 322 4,861 61,184 36,589 1,913 1,727 40,229 Statement of profit or loss 2022 2021 (turnover during the current period) Interest income 860 167 Fees and commissions 117 61 Interest expense (243) (13) Fees and commission expenses (7) (22) Loss allowance / Provision on loans, placements, for commitments and guarantees given (29) (652) Operational costs (1,852) (224) 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 t erms equivalent to those that prevail in arm’s length transactions and such terms can be substantiated.
OTP Bank Plc Consolidated Financial Statements 2022 161 NOTE 42: ACQUISITION (in HUF mn) Purchase 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. On 31 May 2021, OTP Bank signed a share sale and purchase agreement on purchasing 100% shareholding of Nova KBM d.d. and its subsidiaries, 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 Nova KBM acquisition completed in February 2023 and the pending acquisition of Ipoteka Bank in Uzbekistan (expected to be financially closed in the second quarter) may substantially contribute to the consolidated profit after tax; in addition to this, the expected positive after-tax effect of one-off items to be booked in relation to the consolidation of Nova KBM (badwill, PPA, initial risk cost, etc.) might reach EUR 230 million. The fair value of the assets and liabilities acquired is as follows: Alpha Bank SH.A. Cash amounts and due from banks and balances with the National Banks (58,880) Placements with other banks, repo receivables (26,500) Financial assets at fair value through profit or loss - Securities at fair value through other comprehensive income (46,003) Loans at amortized cost (101,642) Loans mandatorily at fair value through profit or loss - Associates and other investments - Securities at amortized cost (3,038) Property and equipment (1,063) Intangible assets (1,391) Right-of-use assets (3,209) Investment properties - Derivative financial assets designated as hedge accounting - Other assets (6,852) Total assets (248,579)
OTP Bank Plc Consolidated Financial Statements 2022 162 NOTE 42: ACQUISITION (in HUF mn) [continued] The fair value of the assets and liabilities acquired is as follows [continued]: Alpha Bank SH.A. Amounts due to the banks, the National Governments, deposits from the National Banks and other banks and repo liabilities 1,969 Financial liabilities designated at fair value through profit or loss - Deposits from customers 213,400 Liabilities from issued securities - Derivative financial liabilities held for trading - Derivative financial liabilities designated as hedge accounting - Leasing liabilities 3,346 Other liabilities 6,089 Subordinated bonds and loans - Total liabilities 224,804 Net assets (23,775) 2022 Net assets total (23,775) Non-controlling interest - Negative goodwill 3,784 Net cash (19,991) Cash acquired on purchase 58,880 Net cash paid for acquisition 38,889 Breakdown of the acquired entity’s income, profit / loss from the date of the acquisition: Interest income Net result Alpha Bank SH.A. 2,704 (5,920) Breakdown of the acquired entity’s income, profit / loss if the Group would have acquired from the beginning of year 2022: Interest income Net result Alpha Bank SH.A. 6,889 (11,572) With the acquisition the following shares were purchased: Number of shares Type Voting rights ALPHAALTECH1 5,720,372 Common stock 100.00%
OTP Bank Plc Consolidated Financial Statements 2022 163 NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) 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. 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. 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.
OTP Bank Plc Consolidated Financial Statements 2022 164 NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) [continued] Significant subsidiaries Name Ownership (Direct and Indirect) Activity 2022 2021 DSK Bank AD (Bulgaria) 99.92% 99.91% 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 OTP Financing Malta Company Ltd. (Malta) 100.00% 100.00% refinancing activities OTP Financing Netherlands B.V. (the Netherlands) 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
OTP Bank Plc Consolidated Financial Statements 2022 165 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 2022 is as follows: List of associated entities Carrying amount Ownership of OTP Bank Profit after tax Country / Headquarter Activity 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 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 ClodeCool 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 Fabetker Ltd 1 20.48% 135 Hungary / Nádudvar Manufacture of concrete products for construction purposes 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 NGY Propertiers Investment SRL 11,735 14.54% (22,567) Romania / Bucharest Renting and operating of own or leased real estate 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 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 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
OTP Bank Plc Consolidated Financial Statements 2022 166 NOTE 43: SIGNIFICANT SUBSIDIARIES AND ASSOCIATES (in HUF mn) [continued] Significant associates and joint ventures [continued] The Group made significant investments into associates during 2021. Venture capital funds under the control of the Group obtained ownership interest in Phoenix Play Invest Co.Plc, in Algorithmiq Invest Closed Co. Plc and in NGY Propertiers Investment SRL. List of associated entities Carrying amount Ownership of OTP Bank Profit after tax Country / Headquarter Activity OTP Risk Fund I. 526 44.12% (52) Hungary /Budapest Trusts, funds and similar financial entities OTP-DayOne Magvető Fund 288 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 Edrone spółka z ograniczoną odpowiedzialnością 779 17.34% (293) Poland / Krakow Computer programming activities Graboplast Closed Co. Plc 700 7.00% n.a. Hungary / Győr Manufacture of builders’ ware of plastic NovaKid Inc. 2,006 4.17% (4,621) USA / San Francisco Online kids English learning platform operator Banzai Cloud Closed Co. Plc 374 17.42% n.a. Hungary /Budapest Computer programming activities ClodeCool Ltd 1,770 20.15% 1 Hungary /Budapest Other education Pepita.hu Closed Co. Plc 516 34.00% (132) Hungary / Szeghalom Retail sale via mail order houses or via Internet Seon Holdings Ltd 4,756 23.86% (4) UK / London Computer programming activities Starschema Ltd 3,944 36.19% n.a. Hungary /Budapest Computer consultancy activities VCC Live Group Closed Co. Plc 1,672 49.56% (203) Hungary /Budapest Computer programming activities Virtual Solutaion Ltd n.a. 8.33% n.a. Hungary /Budapest Computer programming activities Yieldigo s.r.o. 76 1.97% (168) Czech Republic / Prague Computer programming activities Szallas.hu Closed Co. Plc 1 8,809 51.19% 1,278 Hungary / Miskolc Web portals Cursor Insight Ltd 146 6.75% (247) UK / London Computer programming activities Fabetker Ltd 1 20.48% 132 Hungary / Nádudvar Manufacture of concrete products for construction purposes OneSoil Ag. 318 3.72% (1,058) Switzerland / Zurich Computer programming activities Packhelp Spółka Akcyjna 2,160 1.00% (3,038) Poland / Warsaw Manufacture of corrugated paper and paperboard and of containers of paper and paperboard Phoenix Play Invest closed Co. Plc 3,081 21.69% (1) Hungary /Budapest Activities of holding companies Algorithmiq Invest Closed Co. Plc 8,996 21.69% 792 Hungary /Budapest Activities of holding companies NGY Propertiers Investment SRL 12,331 14.54% (22,567) Romania / Bucharest Renting and operating of own or leased real estate 1 It does not control another entity even though it holds more than half of the voting rights.
OTP Bank Plc Consolidated Financial Statements 2022 167 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. 2022 2021 The amount of loans managed by the Group as a trustee 37,714 36,517
OTP Bank Plc Consolidated Financial Statements 2022 168 NOTE 45: CONCENTRATION OF ASSETS AND LIABILITIES 2022 2021 In the percentage of the total assets Receivables from, or securities issued by the Hungarian Government or the NBH 14.75% 15.87% There were no other significant concentrations of the assets or liabilities of the Group either as at 31 December 2022 or as at 31 December 2021. 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.
OTP Bank Plc Consolidated Financial Statements 2022 169 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 2022 2021 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 346,354 455,592 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) 268,790,272 262,017,836 Basic Earnings per share (in HUF) 1,289 1,738 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 346,354 455,592 Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) 268,873,185 262,094,958 Diluted Earnings per share (in HUF) 1,288 1,738 Earnings per share from continuing operations 2022 2021 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 334,910 455,476 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) 268,790,272 262,017,836 Basic Earnings per share (in HUF) 1,246 1,738 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 334,910 455,476 Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) 268,873,185 262,094,958 Diluted Earnings per share (in HUF) 1,246 1,738 Earnings per share from discontinued operations 2022 2021 Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 11,444 116 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS (number of share) 268,790,272 262,017,836 Basic Earnings per share (in HUF) 43 - Consolidated profit after income tax for the period attributable to ordinary shareholders (in HUF mn) 11,444 116 Modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS (number of share) 268,873,185 262,094,958 Diluted Earnings per share (in HUF) 43 -
OTP Bank Plc Consolidated Financial Statements 2022 170 NOTE 46: EARNINGS PER SHARE [continued] 2022 2021 Weighted average number of ordinary shares 280,000,010 280,000,010 Average number of Treasury shares 11,209,738 17,982,174 Weighted average number of ordinary shares outstanding during the year for calculating basic EPS 268,790,272 262,017,836 Dilutive effects of options issued in accordance with the remuneration policy and convertible into ordinary shares 1 82,913 77,122 The modified weighted average number of ordinary shares outstanding during the year for calculating diluted EPS 268,873,185 262,094,958 1 Both in the year 2022 and 2021 the dilutive effect is in connection with the Remuneration Policy and the Management Option Program.
OTP Bank Plc Consolidated Financial Statements 2022 171 NOTE 47: NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS (in HUF mn) 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 62,121 - (375) - Placements with other banks 154,231 - 39 - Repo receivables 4,261 - 50 - Trading securities at fair value through profit or loss - (3,151) - - Non-trading instruments mandatorily at fair value through profit or loss 54 145 - - Securities at fair value through other comprehensive income 1 54,046 (1,014) (29,273) (119,377) Securities at amortized cost 144,757 (4,636) (31,501) - Loans at amortized cost 978,037 32,572 (167,506) - Finance lease receivables 78,262 - (24,413) - Loans mandatorily at fair value through profit or loss 54,036 (5,951) 13,346 - Other financial assets 2 4,103 - (1,204) - Derivative financial instruments 2 (85,909) 10,558 - - Total result on financial assets 1,447,999 28,523 (240,837) (119,377) Amounts due to banks, the National Governments, deposits from the National Banks and other banks (16,315) - - - Repo liabilities (31,006) - - - Financial liabilities designated at fair value through profit or loss (562) 1,932 - - Deposits from customers (269,592) 342,427 - - Liabilities from issued securities (27,838) - - - Leasing liabilities (2,386) - - - Subordinated bonds and loans (8,986) - - - Total result on financial liabilities (356,685) 344,359 - - Total result on financial instruments 1,091,314 372,882 (240,837) (119,377) 1 For the year 2022 HUF (1,014) million net non-interest gain 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.
OTP Bank Plc Consolidated Financial Statements 2022 172 NOTE 47: NET GAIN OR LOSS REALIZED ON FINANCIAL INSTRUMENTS (in HUF mn) [continued] 2021 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 16,527 - (952) - Placements with other banks 24,594 - (1,664) - Repo receivables 827 - 12 - Trading securities at fair value through profit or loss - 5,016 - - Non-trading instruments mandatorily at fair value through profit or loss 1,749 4,812 - - Securities at fair value through other comprehensive income 1 49,473 (2,587) (961) (44,877) Securities at amortized cost 79,602 1,031 (3,013) - Loans at amortized cost 692,432 26,354 (32,159) - Finance lease receivables 59,084 - (5,776) - Loans mandatorily at fair value through profit or loss 40,131 4,459 (16,289) - Other financial assets 2 3,639 - 438 - Derivative financial instruments 2 3,321 9,412 - - Total result on financial assets 971,379 48,497 (60,364) (44,877) Amounts due to banks, the National Governments, deposits from the National Banks and other banks (24,249) - - - Repo liabilities (2,299) - - - Financial liabilities designated at fair value through profit or loss (493) (3,916) - - Deposits from customers (51,052) 267,033 - - Liabilities from issued securities (9,822) - - - Leasing liabilities (1,556) - - - Subordinated bonds and loans (7,598) - - - Total result on financial liabilities (97,069) 263,117 - - Total result on financial instruments 874,310 311,614 (60,364) (44,877) 1 For the year of 2021 HUF (2,587) million net non-interest gain 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.
OTP Bank Plc Consolidated Financial Statements 2022 173 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. Fair value measurements – in relation to instruments measured not at fair value – are mainly categorized in level 3 of the fair value hierarchy. Use of modified yield curve During the year ended 31 December 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. 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 2022 174 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] 48.1. Fair value of financial assets and liabilities 2022 2021 Carrying amount Fair value Carrying amount Fair value Cash, amounts due from banks and balances with the National Banks 4,221,392 4,221,392 2,556,035 2,556,035 Placements with other banks 1,351,082 1,322,560 1,584,861 1,566,458 Repo receivables 41,009 42,993 61,052 61,121 Securities at amortized cost 4,891,938 4,048,877 3,891,335 3,645,046 Loans at amortized cost 16,094,458 15,557,928 13,493,183 13,106,425 Finance lease receivables 1,298,752 1,320,286 1,182,628 1,183,089 Other financial assets 262,981 262,981 135,916 135,916 Total assets not measured at fair value 28,161,612 26,777,017 22,905,010 22,254,090 Financial assets at fair value through profit or loss 436,387 436,387 341,397 341,397 Trading securities at fair value through profit or loss 104,750 104,750 103,510 103,510 Fair value of derivative financial assets held for trading 276,482 276,482 184,484 184,484 Non-trading instruments mandatorily at fair value through profit or loss 55,155 55,155 53,403 53,403 Financial assets designated at fair value through profit or loss - - - - Equity instruments at fair value through other comprehensive income 40,157 40,157 34,976 34,976 Securities at fair value through other comprehensive income 1,699,446 1,699,446 2,189,534 2,189,534 Loans mandatorily at fair value through profit or loss 1,247,414 1,247,414 1,068,111 1,068,111 Derivative financial assets designated as hedge accounting 48,247 48,247 18,757 18,757 Total assets measured at fair value 3,471,651 3,471,651 3,652,775 3,652,775 Financial assets total 31,633,263 30,248,668 26,557,785 25,906,865 Amounts due to the National Governments, to the National Banks and other banks 1,463,158 1,109,924 1,567,348 1,446,036 Repo liabilities 217,369 227,669 79,047 79,010 Deposits from customers 25,188,805 25,056,412 21,068,644 21,002,125 Liabilities from issued securities 870,682 743,907 436,325 400,071 Leasing liabilities 63,778 63,791 53,286 53,447 Other financial liabilities 645,652 645,652 485,771 485,771 Subordinated bonds and loans 301,984 268,911 278,334 284,709 Total liabilities not measured at fair value 28,751,428 28,116,265 23,968,755 23,751,169 Financial liabilities designated at fair value through profit or loss 54,191 54,191 41,184 41,184 Held for trading derivative financial liabilities 385,747 385,747 202,716 202,716 Derivative financial liabilities designated as hedge accounting 27,949 27,949 11,228 11,228 Total liabilities measured at fair value 467,887 467,887 255,128 255,128 Financial liabilities total 29,219,315 28,584,152 24,223,883 24,006,297
OTP Bank Plc Consolidated Financial Statements 2022 175 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 2022 176 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] 48.2. Fair value of derivative instruments [continued] 2022 2021 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 165,478 (171,706) 155,468 10,010 (16,238) 58,512 (56,070) 40,783 17,729 (15,287) Cross currency interest rate swaps 11,332 (12,139) - 11,332 (12,139) 7,316 (7,621) - 7,316 (7,621) OTC options 1,074 (1,069) - 1,074 (1,069) 484 (299) - 484 (299) Forward rate agreement 505 (3) 505 - 502 - - - - - Total interest rate derivatives (OTC derivatives) 178,389 (184,917) 155,973 22,416 (28,944) 66,312 (63,990) 40,783 25,529 (23,207) Foreign exchange derivatives Foreign exchange swaps 76,881 (72,959) - 76,881 (72,959) 37,638 (42,272) - 37,638 (42,272) Foreign exchange forward contracts 13,085 (13,740) - 13,085 (13,740) 10,790 (7,738) - 10,790 (7,738) OTC options 1,048 (822) - 1,048 (822) 801 (180) - 801 (180) Foreign exchange spot conversion 177 (177) - 177 (177) 187 (242) - 187 (242) Total foreign exchange derivatives (OTC derivatives) 91,191 (87,698) - 91,191 (87,698) 49,416 (50,432) - 49,416 (50,432) Equity stock and index derivatives Commodity Swaps 33,693 (31,632) - 33,693 (31,632) 51,523 (51,508) - 51,523 (51,508) Equity swaps 54 (702) - 54 (702) 10,538 (357) - 10,538 (357) OTC derivatives total 33,747 (32,334) - 33,747 (32,334) 62,061 (51,865) - 62,061 (51,865) Exchange traded futures and options 214 (1,887) - 214 (1,887) 171 (278) - 171 (278) Total equity stock and index derivatives 33,961 (34,221) - 33,961 (34,221) 62,232 (52,143) - 62,232 (52,143) Derivatives held for risk management not designated in hedge Interest rate swaps 136,164 (239,975) 18,944 117,220 (221,031) 47,457 (78,340) 5,682 41,775 (72,658) Foreign exchange swaps 2,514 (10,190) - 2,514 (10,190) 1,090 (4,108) - 1,090 (4,108) Foreign exchange spot - (43) - - (43) - - - - - Cross currency interest rate swaps 9,180 (3,620) - 9,180 (3,620) 4,442 (168) - 4,442 (168) Total derivatives held for risk management not designated in hedge 147,858 (253,828) 18,944 128,914 (234,884) 52,989 (82,616) 5,682 47,307 (76,934) Total held for trading derivative financial instruments 451,399 (560,664) 174,917 276,482 (385,747) 230,949 (249,181) 46,465 184,484 (202,716)
OTP Bank Plc Consolidated Financial Statements 2022 177 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] 48.2. Fair value of derivative instruments [continued] 2022 2021 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 2,651 (2,651) 2,651 - - 1,020 (1,020) 1,020 - - Total derivatives designated in cash flow hedges 2,651 (2,651) 2,651 - - 1,020 (1,020) 1,020 - - Derivatives designated in fair value hedges Interest rate swaps 56,757 (37,290) 30,938 25,819 (6,352) 25,417 (17,908) 12,131 13,286 (5,777) Cross currency interest rate swaps 20,732 (5,398) - 20,732 (5,398) 5,471 (5,451) - 5,471 (5,451) Foreign exchange swaps 1,696 (16,199) - 1,696 (16,199) - - - - - Total derivatives designated in fair value hedges 79,185 (58,887) 30,938 48,247 (27,949) 30,888 (23,359) 12,131 18,757 (11,228) Total derivatives held for risk management (OTC derivatives) 81,836 (61,538) 33,589 48,247 (27,949) 31,908 (24,379) 13,151 18,757 (11,228)
OTP Bank Plc Consolidated Financial Statements 2022 178 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 2022 179 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 2022 180 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 2022 181 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 2021 (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 - 2,000 900 (52,474) 42,950 (6,624) Average Interest Rate (%) - 1.09% 0.49% 1.65% 1.31% EUR Notional - - 1 111 50 162 Average Interest Rate (%) - - 0.23% 0.24% 0.05% USD Notional - - - 119 47 166 Average Interest Rate (%) - - - 2.54% 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 12 12 27 Average Interest Rate (%) (1.64)% (1.68)% (1.67)% (1.69)% (1.82)% Average FX Rate 310.41 310.29 310.26 310.01 307.81
OTP Bank Plc Consolidated Financial Statements 2022 182 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 2021 (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 - (6) 35 572 - 601 Average FX Rate 363.88 354.22 356.94 355.93 - RON/HUF Notional - - 200 2,225 - 2,425 Average FX Rate - - 66.21 73.08 - RUB/HUF Notional - - - 11,200 - 11,200 Average FX Rate - - - 4.15 - JPY/HUF Notional - - - 4,500 - 4,500 Average FX Rate - - - 2.79 - USD/HUF Notional - - (3) 306 - 303 Average FX Rate - 323.77 323.77 323.77 - Other Interest rate swap HUF Notional - 3,345 1,823 3,093 - 8,261
OTP Bank Plc Consolidated Financial Statements 2022 183 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 six-month period 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 2022 184 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] 48.3. Types of hedge accounting [continued] As at 31 December 2021 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 2021 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 2021 Before netting Netting After netting Assets Liabilities Assets Liabilities Fair value hedge IRS Interest rate risk 409,595 23,986 (17,908) 12,131 11,855 (5,777) Derivative financial instruments 6,494 designated as hedge accounting CCIRS FX & IR risk 8,175 - (2,375) - - (2,375) Derivative financial instruments 4 designated as hedge accounting CCIRS FX risk 566,936 5,471 (3,076) - 5,471 (3,076) Derivative financial instruments (1,687) designated as hedge accounting IRS Other 8,261 1,431 - - 1,431 - Derivative financial instruments 3 designated as hedge accounting Fair value hedges total 992,967 30,888 (23,359) 12,131 18,757 (11,228) 4,814
OTP Bank Plc Consolidated Financial Statements 2022 185 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 - 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 - Loans Foreign exchange risk 716,841 - - - Loans - 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 2022 186 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] 48.3. Types of hedge accounting [continued] As at 31 December 2021 is as follows: Type of hedge Type of risk Carrying amount of the hedged item as at 31 December 2021 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 2021 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 57,176 - 637 - Loans - Loans Interest rate risk - 142,649 - (16,858) Amounts due to banks, the National Governments, deposits from the National Banks and other banks - Government bonds Interest rate risk 13,921 - 1,230 - Securities at amortized cost - Government bonds Interest rate risk 152,830 - 22,457 - Securities at fair value through other comprehensive income - Other bonds Interest rate risk 42,008 - 318 - Securities at fair value through other comprehensive income - Loans Foreign exchange & Interest rate risk 101,934 - 611 (1,114) Loans - Loans Foreign exchange risk 458,312 - - - Loans - Government bonds Foreign exchange risk 12,811 - - - Securities at fair value through other comprehensive income - Government bonds Foreign exchange risk 98,668 - - - Securities at amortized cost - Other securities Other risk - 8,261 - (161) Liabilities from issued securities Fair value hedges total 937,660 150,910 25,253 (18,133)
OTP Bank Plc Consolidated Financial Statements 2022 187 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 ended 31 December 2022 Change in the items recognized in other comprehensive income for the year ended 31 December 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 Type of risk Carrying amount of the hedged item Items recognised in the consolidated other comprehensive income for the year 2021 Change in the items recognized in other comprehensive income for the year 2021 Line item in the consolidated statement of financial position in which the hedged item is included Assets Liabilities FX risk 458,312 - (1,032) (1,681) Loans at amortised cost FX risk 12,811 - 64 - Securities at fair value through other comprehensive income Total 471,123 - (968) (1,681) On Group level there weren’t any cash-flow hedges for the year ended as at 31 December 2022 and 2021. Neither at the end of 31 December 2022 nor at the end of 31 December 2021 regarding net investment hedges for foreign subsidi aries there aren’t any disclosure requirements to be presented.
OTP Bank Plc Consolidated Financial Statements 2022 188 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] 48.4. Fair value levels 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. Fair value measurements – in relation with instruments measured not at fair value – are categorized in level 2; - 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: 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 Securities at fair value through other comprehensive income 2 1,739,603 562,081 1,103,082 74,440 Loans mandatorily measured at fair value through profit or loss 1,247,414 - - 1,247,414 Positive fair value of derivative financial assets designated as fair value hedge 48,247 - 48,247 - Financial assets measured at fair value total 3,471,651 647,420 1,490,389 1,333,842 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. The fair value of investment properties is presented in Note 14 and they are categorized in level 3.
OTP Bank Plc Consolidated Financial Statements 2022 189 NOTE 48: FAIR VALUE OF FINANCIAL INSTRUMENTS (in HUF mn) [continued] 48.4. Fair value levels [continued] 2021 Total Level 1 Level 2 Level 3 Financial assets at fair value through profit or loss 341,397 90,877 227,153 23,367 Trading securities at fair value through profit or loss 103,510 58,727 44,777 6 Positive fair value of derivative financial assets held for trading 184,484 171 174,143 10,170 Non-trading instruments mandatorily at fair value through profit or loss 1 53,403 31,979 8,233 13,191 Securities at fair value through other comprehensive income 2 2,224,510 910,324 1,250,833 63,353 Loans mandatorily measured at fair value through profit or loss 1,068,111 281 - 1,067,830 Positive fair value of derivative financial assets designated as fair value hedge 18,757 - 18,757 - Financial assets measured at fair value total 3,652,775 1,001,482 1,496,743 1,154,550 Financial liabilities designated at fair value through profit or loss 41,184 - - 41,184 Negative fair value of held-for-trading derivative financial liabilities 202,716 278 202,438 - Negative fair value of derivative financial liabilities designated as fair value hedge 11,228 - 11,228 - Financial liabilities measured at fair value total 255,128 278 213,666 41,184 1 The portfolio in level 3 includes mainly Visa C shares. 2 The portfolio in level 3 includes HUF 55,476 million Ukrainian government bonds. The fair value of investment properties is presented in Note 14 and they are categorized in level 3.
OTP Bank Plc Consolidated Financial Statements 2022 190 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: 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 Securities at fair value through other comprehensive income 63,353 981 - - (33,288) 15,310 19,678 (1,051) 9,457 74,440 Loans mandatorily measured at fair value through profit or loss 1 1,067,830 - 258,658 (81,764) (1,490) 3,885 - (11) 306 1,247,414 Financial assets measured at fair value total 1,154,550 981 259,829 (81,764) (34,778) 7,280 19,678 (580) 8,646 1,333,842 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 at 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 current year at loans mandatorily measured at fair value through profit or loss.
OTP Bank Plc Consolidated Financial Statements 2022 191 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: 2021 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 12 - - - - - - - (6) 6 Positive fair value of derivative financial assets held for trading 6,586 - - - - 3,584 - - - 10,170 Non-trading securities mandatorily at fair value through profit or loss 15,433 - 390 - (4,501) 640 (57) 256 1,030 13,191 Securities at fair value through other comprehensive income 56,906 81,795 - (5,544) (2,018) (91) (69,636) 1,813 128 63,353 Loans mandatorily measured at fair value through profit or loss 1 798,981 - 333,931 (41,038) - (24,044) - - - 1,067,830 Financial assets measured at fair value total 877,918 81,795 334,321 (46,582) (6,519) (19,911) (69,693) 2,069 1,152 1,154,550 Financial liabilities designated at fair value through profit or loss 31,896 - - (9,685) - 3,916 - - 15,057 41,184 Financial liabilities designated fair value total 31,896 - - (9,685) - 3,916 - - 15,057 41,184 1 FVA change for the previous period at loans mandatorily measured at fair value through profit or loss consists of HUF 16,289 million adjustment resulting from risk factors and HUF 7,755 million adjustment resulting from market factors.
OTP Bank Plc Consolidated Financial Statements 2022 192 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 Valuation technique Significant unobservable input Range of estimates for unobservable input VISA C shares Market approach combined with expert judgement. Illiquidity +12% / (12%) MFB refinancing loans Discounted cash flow model Probability of default +/ (20)% Subsidized personal loans Discounted cash flow model Probability of default +/ (20)% Subsidized personal loans Discounted cash flow model Operational costs +/ (20)% Subsidized personal loans Discounted cash flow model Demography Change in the cash flow estimation +/(5)% Ministry of Finance of Russia Discounted cash flow model Credit risk +/ (15)% Ministry of Finance of Ukraine Discounted cash flow model Credit risk +/ (1)%
OTP Bank Plc Consolidated Financial Statements 2022 193 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. 2022 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 Non-trading instruments mandatorily at fair value through profit or loss Illiquidity 2,951 3,430 2,472 479 (479) MFB refinancing loans Financial liabilities designated 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 Trading securities at fair value through other comprehensive income Credit risk 37,580 50,468 24,692 12,888 (12,888) Ukrainian government bonds Trading securities at fair value through other comprehensive income Credit risk 26,571 26,571 26,571 - - Loans mandatorily at fair value through profit or loss Loans mandatorily at fair value through profit or loss Probability of default 454,164 454,383 453,945 219 (219) Loans mandatorily at fair value through profit or loss 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) 2021 Presentation in the Statement of Financial Position Unobservable Book value Fair values Effect on profit and loss Favourable Unfavourable Favourable Unfavourable VISA C shares Non-trading instruments mandatorily at fair value through profit or loss Illiquidity 5,891 6,704 5,078 813 (813) MFB refinancing loans Financial liabilities designated at fair value through profit or loss Probability of default 19,095 19,218 18,972 123 (123) Subsidised personal loans Loans mandatorily at fair value through profit or loss Probability of default 635,416 639,006 631,855 3,590 (3,561) Subsidised personal loans Loans mandatorily at fair value through profit or loss Operational costs 635,416 647,291 623,933 11,875 (11,483) Subsidised personal loans Loans mandatorily at fair value through profit or loss Demography 635,416 635,484 635,387 68 (29) Ukrainian government bonds Trading securities at fair value through other comprehensive income Credit risk 55,475 55,475 55,475 - - Loans mandatorily at fair value through profit or loss Loans mandatorily at fair value through profit or loss Probability of default 405,819 406,368 405,272 549 (547) Loans mandatorily at fair value through profit or loss Loans mandatorily at fair value through profit or loss Operational costs 405,819 412,873 399,025 7,054 (6,794) Total 2,798,347 2,822,419 2,774,997 24,072 (23,350)
OTP Bank Plc Consolidated Financial Statements 2022 194 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 2022 and 31 December 2021 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 2022 and 2021 respectively.
OTP Bank Plc Consolidated Financial Statements 2022 195 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, Merkantil Group, Asset Management subsidiaries, Other subsidiaries and Corporate Center. 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 inc lude 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.) from the first quarter of 2020 and OTP Home Solutions Ltd. was included from the second quarter of 2021. The consolidated accounting results of these companies are segmented into OTP Core and Corporate Centre. The latter is a virtual entity. Within the Group, the Corporate Centre acts 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 is 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 arranged by OTP under its running EMTN program. From this funding pool, the Corporate Centre is to provide intragroup lending to, and hold equity stakes in OTP subsidiaries outside OTP Core. Main subsidiaries financed by Corporate Centre are 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. The results of foreign factoring companies (OTP Factoring Ukraine LLC, OTP Factoring SRL, OTP Factoring Bulgaria LLC, 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 2022 196 NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Adjustments Goodwill / investment impairment and their tax shield effect: According to the accounting standards the effect of the goodwill impairment of JSC “OTP Bank” (Russia) was HUF 67,714 million in the first quarter of 2022, which equals to the original RUB 9,395 million amount and the historic FX rate at the time of entry. However, due to the change in RUB exchange rate against HUF until the booking of the goodwill impairment, there was a revaluation gain of HUF 26,848 million booked directly against equity. Thus, the goodwill impairment’s net impact on the shareholders’ equity was HUF (40,866) million (before tax). Furthermore, in the first quarter of 2022 investment impairment was booked in relation to the Russian, Ukrainian and Moldovan subsidiary banks. The impairments themselves are eliminated on consolidated level, therefore they do not have an effect for the consolidated profit or loss, but their positive tax shield is still recognized in the consolidated profit or loss (+HUF 11,400 million effect). In the third quarter of 2022 HUF 1.8 billion corporate tax effect emerged in the wake of the impairment booked in relation to the revaluation of the subsidiary investment in OTP Mortgage Bank. In the fourth quarter of 2022 HUF (4.8) billion corporate tax effect emerged due to the reversal of impairment booked mainly in relation to the revaluation of the investment in the Russian and Serbian subsidiaries. As at 31 December 2021 HUF 39,546 million impairment was booked on the investment in OTP Bank Romania S.A. on which HUF 3,559 million positive tax effect was recognized, HUF 9,906 million impairment release was booked on OTP Banka Srbija a.d. on which HUF 892 million negative tax effect was recognized, 16,628 million impairment release was booked on Crnogorska komercjalna banka a.d. on which HUF 1,496 million negative tax effect was recognized, 8,463 million impairment was booked on Monicomp Ltd. on which HUF 763 million positive tax effect was recognized. Special taxes on financial institutions (after income tax): The after-tax effect of the special tax on financial institutions payable in Hungary since 2010 reached HUF 20.2 billion for full-year 2022, the whole amount was booked in the first quarter. Furthermore, for 2022 the after-tax burden of the windfall tax (announced by the Hungarian Government on 4 June and payable temporarily in 2022 and 2023) was HUF 67.9 billion, accounted for in a lump sum in the second quarter. Thirdly, the newly introduced special tax on certain companies in Croatia was booked in the fourth quarter of 2022 with an after-tax effect of HUF (3.2) billion. Effect of acquisitions (after income tax): The following main items appeared on this line in the period under review: the integration costs of the acquired banks and other direct effects related to the acquisitions (such as customer base value amortisation). Moratorium one-off effect: During the term of the moratorium OTP Bank accrues the unpaid interest in its statement of recognized income, amongst the revenues. At the same time, due to the fact that interest cannot be charged on the unpaid interest, and the unpaid interest will be repaid later, in the course of 2020, 2021 and 2022 altogether HUF 44.1 billion one-off after tax loss emerged in Hungary.
OTP Bank Plc Consolidated Financial Statements 2022 197 NOTE 49: SEGMENT REPORTING BY BUSINESS AND GEOGRAPHICAL SEGMENTS (in HUF mn) [continued] Adjustments [continued] Impairments on Russian government bonds at OTP Core and DSK Bank: As at 31 December 2022 the face value of Russian government bonds held by OTP Bank and DSK Bank comprised HUF 135.7 billion. During the first quarter those exposures were shifted into the Stage 3 category, and altogether HUF 38.3 billion impairments were recognized in the course of 2022 (mainly in the first quarter) in relation to those exposures, resulting in an after-tax negative effect of HUF 34.8 billion. Also, the fair value of those exposures that are measured at fair value was reduced through a negative fair value adjustment recognized within the comprehensive income statement. As a combined effect of the above two factors, the net book value of these Russian bonds held by OTP Bank in Hungary and DSK Bank in Bulgaria stood at HUF 62 billion. Effect of the liquidation of Sberbank Hungary: The liquidation of Sberbank Hungary resulted in an after-tax effect of HUF (10.4) billion. In the second quarter the Hungarian Group members were obliged to pay HUF 28.5 billion extraordinary contribution to the National Deposit Insurance Fund. At the same time this amount was offset by the expected recovery from the already completed sale of Sberbank’s assets. Interest rate cap Hungary: For the period between 1 January and 30 June 2022 the Hungarian Government introduced an interest rate cap for variable-rate retail mortgage loans, and for housing purposes financial leasing contracts, too. Pursuant to Government Decree, the Government extended the interest rate cap by an additional 6 months, that is until 31 December 2022. The expected one-off effect of the extension of the interest rate cap amounted to HUF (10.1) billion (after tax) and was booked in the second quarter of 2022. On 22 October 2022 the Government announced that starting from 15 November until 30 June 2023, the reference rate of certain MSE loans will also be capped and the provisions shall be applied to HUF denominated, non-subsidized, floating rate loans to micro and small enterprises and financial lease contracts, excluding overdraft loan agreements. The expected negative after tax effect of the measures taken in October 2022 amounted to HUF 26.4 billion and was accounted for in the fourth quarter of 2022 in one sum. 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 arises 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 Fund Management and PortfoLion Funds. 10: Net interest income of Corporate Centre includes interest expense on liabilities and interest income on assets allocated into this segment.
OTP Bank Plc Consolidated Financial Statements 2022 198 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 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 discontinued operations 11,444 11,444 Profit after income tax for the year from continued operations 335,637 335,637 Adjustments (total) (245,468) (245,468) 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) (10,389) (10,389) 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) ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 199 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 335,637 256,911 592,548 304,293 189,617 92,869 5,769 Profit before income tax 394,888 295,134 690,022 353,561 217,950 110,918 7,593 Adjusted operating profit 734,658 138,957 873,615 361,426 232,797 278,563 829 Adjusted total income 1,709,806 (48,107) 1,661,699 759,142 446,844 470,700 (14,987) Adjusted net interest income 1,091,314 2,265 1,093,579 448,001 303,256 341,577 745 Adjusted net profit - - from fees and commissions 600,360 (203,242) 397,118 207,941 113,606 78,675 (3,104) Adjusted other net non-interest income 18,132 152,870 171,002 103,200 29,982 50,448 (12,628) Adjusted other administrative expenses (975,148) 187,064 (788,084) (397,716) (214,047) (192,137) 15,816 Personnel expenses (402,563) 6,259 (396,304) (179,651) (108,850) (108,716) 913 Depreciation and amortization (107,588) 22,925 (84,663) (46,891) (18,928) (18,482) (362) Other general expenses (464,997) 157,880 (307,117) (171,174) (86,269) (64,939) 15,265 Gains from derecognition of financial assets at amortized cost (1,655) - (1,655) (7,342) 1,746 3,933 8 Modification loss (39,997) 40,822 825 - 20 805 - Total risk costs (298,118) 115,355 (182,763) (523) (16,613) (172,383) 6,756 Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (210,458) 70,929 (139,529) 34,015 (9,672) (163,792) (80) Goodwill impairment (67,715) 67,715 - - - - - Other impairment (adjustment) (19,945) (23,289) (43,234) (34,538) (6,941) (8,591) 6,836 from this: Adjusted impairment under IAS 36 (4,185) 888 (3,297) (1,356) (774) (1,166) (1) Income tax (59,251) (38,223) (97,474) (49,268) (28,333) (18,049) (1,824) - - - Total Assets 32,804,210 - 32,804,210 21,275,751 12,650,295 6,452,844 (7,574,680) Total Liabilities 29,481,898 - 29,481,898 17,337,096 11,104,567 5,452,540 (4,412,305) ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 200 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 Corporate Centre 2=6+…+10 6 7 8 9 10 Consolidated adjusted profit after income tax for the year 304,293 253,230 10,971 9,619 27,505 2,968 Profit before income tax 353,561 296,670 12,616 10,870 29,982 3,423 Adjusted operating profit 361,426 299,378 13,945 10,955 33,725 3,423 Adjusted total income 759,142 642,591 24,780 15,799 70,921 5,051 Adjusted net interest income 448,001 412,611 22,537 32 7,770 5,051 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) (343,213) (10,835) (4,844) (37,196) (1,628) Personnel expenses (179,651) (157,512) (5,371) (2,905) (13,752) (111) Depreciation and amortization (46,891) (40,536) (1,462) (251) (4,640) (2) Other general expenses (171,174) (145,165) (4,002) (1,688) (18,804) (1,515) 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) (43,440) (1,645) (1,251) (2,477) (455) Total Assets 21,275,751 15,758,292 948,735 29,916 690,628 3,848,180 Total Liabilities 17,337,096 13,742,272 891,144 11,180 293,169 2,399,331 ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 201 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 d.d. (Slovenia) OTP Bank Romania S.A. (Romania) 3=11+…+14 11 12 13 14 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 ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 202 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=15+…+20 15 16 17 18 19 20 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 ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 203 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 2021 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 456,428 456,428 Profit after income tax for the year from discontinued operations 116 116 Profit after income tax for the year from continued operations 456,312 456,312 Adjustments (total) (40,475) (40,475) Dividends and net cash transfers (after income tax) 729 729 Goodwill /investment impairment (after income tax) 1,909 1,909 Bank tax on financial institutions (after income tax) (18,893) (18,893) Effect of acquisition (after income tax) (15,506) (15,506) Expected one-off negative effect of the debt re- payment moratorium in Hungary (after income tax) (15,040) (15,040) Result of the treasury share swap agreement at OTP Core (after income tax) 6,326 6,326 ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 204 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 2021 [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 456,312 44,071 500,383 240,838 131,309 124,272 3,964 Profit before income tax 528,435 62,899 591,334 284,803 152,663 148,419 5,449 Adjusted operating profit 597,770 61,589 659,359 299,431 178,192 183,171 (1,435) Adjusted total income 1,345,382 (33,290) 1,312,092 632,013 356,257 335,934 (12,112) Adjusted net interest income 874,310 9,702 884,012 392,588 237,745 252,782 897 Adjusted net profit from fees and commissions 442,174 (116,626) 325,548 177,034 90,092 63,699 (5,277) Adjusted other net non-interest income 28,898 73,634 102,532 62,391 28,420 19,453 (7,732) Adjusted other administrative expenses (747,612) 94,879 (652,733) (332,582) (178,065) (152,763) 10,677 Personnel expenses (340,684) 483 (340,201) (163,957) (91,350) (85,606) 712 Depreciation and amortization (94,996) 22,180 (72,816) (42,088) (16,383) (13,966) (379) Other general expenses (311,932) 72,216 (239,716) (126,537) (70,332) (53,191) 10,344 Gains from derecognition of financial assets at amortized cost 1,885 (1) 1,884 (1,791) 1,814 1,862 (1) Modification loss (13,672) 10,131 (3,541) (3,397) (14) (130) - Total risk costs (57,548) (8,820) (66,368) (9,440) (27,329) (36,484) 6,885 Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (47,645) 7,809 (39,836) 2,010 (23,973) (21,918) 4,045 Other impairment (adjustment) (9,903) (16,629) (26,532) (11,450) (3,356) (14,566) 2,840 from this: adjusted impairment under IAS 36 (9,903) 437 (9,466) (6,190) (3,001) (274) (1) Income tax (72,123) (18,828) (90,951) (43,965) (21,354) (24,147) (1,485) Total Assets 1 27,551,338 - 27,551,338 18,637,440 10,075,267 5,183,118 (6,344,487) Total Liabilities 24,516,618 - 24,516,618 14,861,117 8,680,440 4,316,145 (3,341,084) 1 Relating to the discontinued operations the assets were HUF 2,046 million. ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 205 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 2021 [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 Corporate Centre 2=6+…+10 6 7 8 9 10 Consolidated adjusted profit after income tax for the year 240,838 213,378 7,998 6,321 10,254 2,887 Profit before income tax 284,803 253,972 8,916 7,138 11,777 3,000 Adjusted operating profit 299,431 256,151 11,961 7,141 23,938 240 Adjusted total income 632,013 545,185 23,291 11,064 51,213 1,260 Adjusted net interest income 392,588 369,309 20,680 4 1,335 1,260 Adjusted net profit from fees and commissions 177,034 150,578 116 10,786 15,554 - Adjusted other net non-interest income 62,391 25,298 2,495 274 34,324 - Adjusted other administrative expenses (332,582) (289,034) (11,330) (3,923) (27,275) (1,020) Personnel expenses (163,957) (143,234) (4,654) (2,443) (13,531) (95) Depreciation and amortization (42,088) (36,926) (1,428) (231) (3,501) (2) Other general expenses (126,537) (108,874) (5,248) (1,249) (10,243) (923) Gains from derecognition of financial assets at amortized cost (1,791) (1,598) (193) - - - Modification loss (3,397) (3,397) - - - - Total risk costs (9,440) 2,816 (2,852) (3) (12,161) 2,760 Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) 2,010 4,910 (2,900) - - - Other impairment (adjustment) (11,450) (2,094) 48 (3) (12,161) 2,760 from this: adjusted impairment under IAS 36 (6,190) 70 179 (14) (6,425) - Income tax (43,965) (40,594) (918) (817) (1,523) (113) Total Assets 18,637,440 14,205,354 782,222 27,753 512,742 3,109,369 Total Liabilities 14,861,117 12,195,467 722,976 12,610 236,701 1,693,363 ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 206 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 2021 [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 d.d. (Slovenia) OTP Bank Romania S.A. (Romania) 3=11+…+14 11 12 13 14 Consolidated adjusted profit after income tax for the year 131,309 76,789 33,446 16,822 4,252 Profit before income tax 152,663 85,243 41,064 20,660 5,696 Adjusted operating profit 178,192 106,240 43,421 19,595 8,936 Adjusted total income 356,257 178,470 88,735 42,354 46,698 Adjusted net interest income 237,745 112,869 60,933 27,673 36,270 Adjusted net profit from fees and commissions 90,092 54,508 18,183 13,258 4,143 Adjusted other net non-interest income 28,420 11,093 9,619 1,423 6,285 Adjusted other administrative expenses (178,065) (72,230) (45,314) (22,759) (37,762) Personnel expenses (91,350) (34,284) (23,111) (13,015) (20,940) Depreciation and amortization (16,383) (7,160) (4,392) (1,350) (3,481) Other general expenses (70,332) (30,786) (17,811) (8,394) (13,341) Gains from derecognition of financial assets at amortized cost 1,814 1,893 1,449 - (1,528) Modification loss (14) - - (14) - Total risk costs (27,329) (22,890) (3,806) 1,079 (1,712) Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (23,973) (20,831) 318 1,833 (5,293) Other impairment (adjustment) (3,356) (2,059) (4,124) (754) 3,581 from this: adjusted impairment under IAS 36 (3,001) (2,401) (135) - (465) Income tax (21,354) (8,454) (7,618) (3,838) (1,444) Total Assets 10,075,267 4,627,132 2,576,445 1,433,206 1,438,484 Total Liabilities 8,680,440 3,927,757 2,225,422 1,253,691 1,273,570 ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 207 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 2021 [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=15+…+20 15 16 17 18 19 20 Consolidated adjusted profit after income tax for the year 124,272 32,104 39,025 37,624 4,139 5,521 5,859 Profit before income tax 148,419 35,714 47,267 47,314 4,956 6,507 6,661 Adjusted operating profit 183,171 40,754 54,761 62,368 10,240 7,212 7,836 Adjusted total income 335,934 83,493 83,567 118,158 22,046 13,398 15,272 Adjusted net interest income 252,782 62,497 62,051 91,364 16,553 10,619 9,698 Adjusted net profit from fees and commissions 63,699 14,410 14,494 25,728 4,880 1,843 2,344 Adjusted other net non-interest income 19,453 6,586 7,022 1,066 613 936 3,230 Adjusted other administrative expenses (152,763) (42,739) (28,806) (55,790) (11,806) (6,186) (7,436) Personnel expenses (85,606) (22,569) (16,580) (33,773) (5,805) (2,794) (4,085) Depreciation and amortization (13,966) (2,820) (2,131) (6,263) (1,461) (559) (732) Other general expenses (53,191) (17,350) (10,095) (15,754) (4,540) (2,833) (2,619) Gains from derecognition of financial assets at amortized cost 1,862 554 916 467 (31) (33) (11) Modification loss (130) - (130) - - - - Total risk costs (36,484) (5,594) (8,280) (15,521) (5,253) (672) (1,164) Adjusted loss allowance on financial assets and liabilities (without the effect of revaluation of FX) (21,918) (941) (6,613) (13,542) 677 (847) (652) Other impairment (adjustment) (14,566) (4,653) (1,667) (1,979) (5,930) 175 (512) from this: adjusted impairment under IAS 36 (274) (245) (3) 24 (51) 1 - Income tax (24,147) (3,610) (8,242) (9,690) (817) (986) (802) Total Assets 5,183,118 2,224,715 983,557 799,965 513,522 350,848 310,511 Total Liabilities 4,316,145 1,918,085 823,801 559,241 431,495 315,713 267,810 ( ) used at: provisions, impairment and expenses
OTP Bank Plc Consolidated Financial Statements 2022 208 NOTE 50: ASSET CLASSIFIED AS HELD-FOR-SALE AND DISCONTINUED OPERATIONS (in HUF mn) Discontinued operation The Serbian Pevec d.o.o. Beograd company as the investment of OTP Factoring Ltd. was classified as asset held- for-sale by the Group as at 31 December, 2021. This investment was not revalued in the Consolidated Financial Statements. Classification as asset held-for-sale was needed due to the purchase agreement had been concluded already in 2021 for the real estates in the ownership of Pevec. In the first half year of 2022, the purchase price was paid out and the transfer of ownership happened. The purchase price of the sold real estate was EUR 9,918,995. the estimated value of those real estates which weren’t sold was defined in the amount of EUR 300,000 by a value assessment in January 2021. These assets which were classified as held-for-sale in the amount of HUF 2,046 million at the end of 31 December 2021 were eliminated during the first half year of 2022 from these Consolidated Financial Statements. Asset classified as 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 is presented in the Other income.
OTP Bank Plc Consolidated Financial Statements 2022 209 NOTE 51: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2022 1) Term Note Program See details in Note 21. 2) Purchase of the majority stake in the Uzbek Ipoteka Bank On 12 December 2022 OTP 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. Ipoteka Bank is the fifth largest bank in Uzbekistan, with a market share of 8.5% based on total assets on 1 October 2022, with more than 1.6 million retail customers and a significant corporate clientele. The financial closure of the first transaction is expected in the second quarter of 2023 subject to obtaining all the necessary regulatory approvals. 3) Joint venture company in China On 2 June 2022 OTP Bank Plc executed transaction agreements with its partners to establish a consumer finance joint venture company as a greenfield investment in China, with a 15% shareholding. 4) Special taxes on financial institutions 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%. The after-tax effect of the special tax on financial institutions payable in Hungary since 2010 reached HUF 20.2 billion for full-year 2022, the whole amount was booked in the first quarter. Furthermore, for 2022 the after-tax burden of the windfall tax was HUF 67.9 billion, accounted for in a lump sum in the second quarter. Thirdly, the newly introduced special tax on certain companies in Croatia was booked in the fourth quarter of 2022 with an after-tax effect of HUF (3.2) billion. 5) Maturity of OTP MOL Swap The amended final maturity of the share swap agreement concluded with MOL Plc (“MOL”) on 16 April 2009 – whereby OTP has exchanged 24.000.000 OTP ordinary shares for 5.010.501 (from 28 September 2017 for 40.084.008) „A” series MOL ordinary shares – is 11 July 2027, until which each party can initiate cash or physical settlement of the transaction. 6) Prolongation of deadline of loan moratorium and interest rate cap See details in Note 4. 7) 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.
OTP Bank Plc Consolidated Financial Statements 2022 210 NOTE 51: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2022 [continued] 7) Interest benchmark reform [continued] 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 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: ▪ 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. Terminating interest rates Alternative Reference Rates LIBOR USD 1 (1 week and 2 months settings), FedFund Rate SOFR LIBOR GBP SONIA LIBOR JPY TONA LIBOR EUR EURIBOR LIBOR CHF 2 SARON EONIA €STR 1 The following USD LIBOR settings will be terminated after June 30, 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. 2 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 2022 Reference rate Type of the contract Nominal value of the contract Pieces of contracts USD LIBOR Loan 139,883 2,299 USD LIBOR Deposit 27,697 43 USD LIBOR Derivatives 451,042 113 Other LIBOR Loan 16,065 1,293 Other LIBOR Derivatives 25,593 4 Other LIBOR Bonds (assets) 5,319 1 Total 665,599 3,753 The above LIBOR-based amounts outstanding as at 31 December 2022 will be managed at the next first interest period therefore they do not cause a risk to the Group or to the customers.
OTP Bank Plc Consolidated Financial Statements 2022 211 NOTE 51: SIGNIFICANT EVENTS DURING THE YEAR ENDED 31 DECEMBER 2022 [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 Consolidated Financial Statements 2022 212 NOTE 52: POST BALANCE SHEET EVENTS Summary of economic policy measures made and other relevant regulatory changes as post-balance sheet events In the section below, the measures and developments which have been made since the balance sheet date, and – in OTP Bank’s view – are relevant and have materially influenced / can materially influence the operation of the Group members. OTP Bank excludes any liability for the completeness and accuracy of the measures presented herein. Hungary • On 4 January 2023 OTP Bank announced that the National Bank of Hungary imposed the below additional capital requirements for OTP Group, on consolidated level, effective from 1 January 2023 until the next review: o 1.13%-points in case of the Common Equity Tier1 (CET1) capital, accordingly the minimum requirement for the consolidated CET1 ratio is 5.63% (without regulatory capital buffers); o 1.50%-points in case of the Tier1 capital, accordingly the minimum requirement for the consolidated Tier1 ratio is 7.50% (without regulatory capital buffers); o 2.00%-points in case of the Total SREP Capital Requirement (TSCR), accordingly the minimum requirement for the consolidated capital adequacy ratio is 10.00% (without regulatory capital buffers). • On 23 January 2023 the Ministry of Economic Development announced that the Gábor Baross Reindustrialization Loan Programme will be launched from February by Eximbank, with a total available amount of HUF 700 billion. Under the scheme, the HUF and EUR denominated loans will be available for all purposes, depending on the loan amount either through commercial banks or directly through Eximbank, but all the funding need will be provided or refinanced by Eximbank. The interest rate of the loans will be fixed throughout the whole tenor and will be typically maximum 6% in the case of HUF loans and maximum 3.5% in the case of EUR loans. • On 24 January 2023 the National Bank of Hungary kept the reference rates unchanged. The NBH held a long-term deposit tender on 25 January, and from 1 February discount bill auctions are held on a weekly basis. The NBH said that it will continue to meet foreign currency liquidity needs in the coming months to reach market balance related to the energy account. Furthermore, the Deputy Governor announced that effective from April the mandatory reserve requirement for banks will be increased from 5% to 10%. • On 27 January 2023 S&P Global Ratings lowered the long- and short-term foreign and local currency sovereign credit ratings on Hungary to 'BBB-/A-3' from 'BBB/A-2'. The outlook on the long-term ratings is stable. • According to the press release published on 30 January 2023 by S&P Global Ratings, the rating agency downgraded its long- and short-term issuer credit ratings, as well as the long- and short-term resolution counterparty ratings on OTP Bank Plc and OTP Mortgage Bank Ltd. to 'BBB-/A-3' from 'BBB/A-2', and the senior preferred debt rating of OTP Bank Plc was also downgraded by one notch to 'BBB-'. The outlook on the long-term issuer ratings is stable. • The financial completion of the transaction to purchase 100% shareholding of Nova KBM d.d. and its subsidiary in Slovenia – after obtaining all necessary regulatory approvals – has been completed on 6 February 2023. • According to the press release published on 6 February 2023 by Moody’s Investors Service, the rating agency concluded the ratings review initiated in July 2021. The rating agency downgraded OTP Bank’s subordinated bond rating by one notch to 'Ba2' from 'Ba1'. All other ratings and assessments of OTP Bank have been affirmed. Outlook is stable. • At the same time, Moody’s Investors Service downgraded the backed long -term domestic currency issuer rating of OTP Mortgage Bank to 'Baa3' from 'Baa2'. All other ratings and assessments of OTP Mortgage Bank have been affirmed. Outlook is stable. • On 15 February 2023 as value date OTP Bank issued Tier 2 Notes in the aggregate nominal amount of USD 650 million. The Tier 2 Notes with 10.25 years maturity, redeemable at par any time during the 3-month period prior to the Reset Date at 5.25 years, were priced on 8 February 2023.
OTP Bank Plc Consolidated Financial Statements 2022 213 NOTE 52: POST BALANCE SHEET EVENTS [continued] Summary of economic policy measures made and other relevant regulatory changes as post-balance sheet events [continued] Bulgaria • On 17 February 2023 the Minister of Finance announced that the originally planned accession date to the Eurozone of 1 January 2024 will be postponed. The new target date will be declared by the new Parliament formed after the elections scheduled to 2 April. Serbia • On 12 January 2023 the central bank hiked the base rate by 25 bps to 5.25%. • On 9 February 2023 the central bank hiked the base rate by 25 bps to 5.5%. Slovenia • On 2 February 2023 the ECB hiked its key interest rate by 50 bps to 3.0%. • On 7 February 2023 Moody’s upgraded the deposit rating of NKBM to ’A3’, the outlook is stable. At the same time, the Bank’s unsecured non -preferred debt rating was upgraded to ’Baa3’. Romania • On 20 January 2023 the central bank hiked the base rate by 25 bps to 7%. Russia • Effective from 1 January 2023 the capital conservation buffer in Russia decreased temporarily to 0% from 2.5%, which does not affect the minimum requirement for OTP Group. Ukraine • Effective from 1 January 2023 the Ukrainian central bank raised the mandatory reserve requirement for local and foreign currency denominated deposits by 5-5 pps each, to 5% and 15%, respectively. • On 10 February 2023 Moody’s downgraded the Ukrainian sovereign credit rating from ’Caa’ to ’Ca’, the outlook is stable. Moldova • On 7 February 2023 Moldova's central bank cut its key rate to 17% from 20%.