Business 28 November 2019, 10:42am

Hungary's MKB posts strong Q3 results after cost cuts

Portfolio

Although there is virtually no trading in its share on the Budapest Stock Exchange, MKB Bank has complied with regulations on listed companies and published its '3 earnings report Thursday morning. Profit in the quarter was outstanding at HUF 28 billion, largely due to a HUF 17 bn revaluation item (probably mostly capital gains on government securities) and a strong reduction in costs. The report paints a mixes picture overall, as the bank's loan portfolio barely grew in the quarter, which in turn limited revenue growth.

"Despite the increasing pressure from the market and the dubious yield trends, MKB Group was able to maintain the level of value generation experienced during previous years, which supports the fulfilment of EU commitments. Stable underlying business results together with outstanding results from banking book (unevenly distributed between quarters) and stringent cost management were the main factors in finishing 3Q on a high note," MKB said in its report.

As for the numbers:

MKB had HUF 33.6 bn adjusted after-tax profit in January-September, 3% lower than a year earlier,
of this, adjusted after-tax profit in Q3 was HUF 21.8 bn, more than double the Q3 2018 figure,
profit was boosted by HUF 15.6 bn on the net other income line, mostly attributable to a HUF 17.4 bn revaluation item,
as for revaluation, due to its unique nature of the composition of its balance sheet composition, MKB maintains a significant liquid portfolio, and owing to the characteristics of the Hungarian government securities market, it is possible to place this liquidity in securities with high profitability. As a result of adapting the portfolio to the stabilizing new yield level, the revaluation result of such moves concentrated in Q3, compensating the poor results of the first half, the bank said.

The bank's gross loan portfolio was 4.2% lower than a year earlier at HUF 968 bn, while net lending grew 0.3%. Net interest revenue was 3% lower than in Q3 2018.

Net fee income rose 17.7% in a year, which indicates an increase in other business activity. (MKB profited HUF 900 mn from the Hungarian Government Security Plus in the first nine months.)

The bank disbursed HUF 6.2 bn in prenatal loans, fuelling its 6% retail loan portfolio growth, while corporate lending stagnated.

The private banking segment grew further in Q3 to HUF 662.9 bn, a 9% increase from Q2 and more than 25% higher than a year earlier.

MKB sold off a substantial portfolio of non-performing loans in recent quarters, so the IFRS NPL ratio continued to decline to 4.0% from 4.4% in the quarter, while NPL coverage increased from 99.5% to 110.7%.

Costs decreased sharply as personnel costs were 25% lower and material costs decreased 39% year on year, while headcount was 9% lower than a year earlier at 1,870. Total operating costs dropped more than 23%.