Hungary's FHB barely misses profit

You cannot really see the Q2 loss of FHB on the chart below since the bank was close to breakeven. FHB had twice as large after-tax loss in the base period than the current HUF 121 mn loss. FHB continues to balance on the edge between profit and loss, but this generally stems mainly from special items, without which the bank would be in the black, albeit at low profitability.

The loss was caused not only by the usual items, such as the bank tax and non-shifted part of the transaction tax, but also by a special item, a loss from associates which amounted to HUF 1.156 million. This was “due to a consolidation adjustment for the sale of an entity which was consolidated with equity method and for which the Bank made HUF 1.3 billion impairment." This adjustment does not appear in the Hungarian Accounting Standards-based separate accounts of FHB therefore it has no effect on HAS based results as at 30 June, 2017. The transaction is expected to be closed by the third quarter of 2017. Among the companies in the scope of consolidation the result of Diófa Asset Management Plc. is still noteworthy, which closed the second quarter with HUF 200 mn after-tax profit, according to HAS.

FHB’s net interest income amounted to HUF 3.5 bn in Q2, down 1.1% yr/yr, but 0.5% higher than in the first quarter. The latter change occurred as net interest margin edged up to 2.42% from 2.39%, although the minor increase came about as a result of a decrease in average total assets.

Net fee and commission income dropped 9.9% yr/yr, due to the raise in fee incomes from mortgage loans, fund management services, guarantee fees, and card services while declined the fee incomes from bank accounts, and direct debit orders. The shrinkage of net fees and commissions is mainly caused by the fee expense which includes the result of the termination of a swap before its maturity which occurred in the second quarter.

Operating expenses totalled HUF 5.1 bn in Q2, which corresponds to a 3% yr/yr increase. This already included severance payment for which the group made a provision at the end of 2016.

Risks costs were significantly influenced by the costs related to portfolio cleaning and the reversal of provision which is driven by the derecognition of terminated FX loan commitments. In Q2, its effect on profit is HUF +592 million, which is significant change compared to Q216 and to Q117.

The ratio of non-performing loans (NPL ratio) declined from 9.8% of previous quarter to 9.0% by 30 June. NPL coverage was 69.8% at end-June, according to IFRS, up from 57.2% a year earlier.

The lending volume grew further in Q2. New retail lending volume jumped 21% yr/yr to HUF 6.3 bn. Of this, retail mortgage loans rose 15.0% yr/yr, i.e. less than the average increase in the banking sector. The volume of disbursed corporate loans of HUF 13.2 billion reflects a 36.0% expansion quarter-on-quarter.

The gross loan portfolio expanded by 1.5%, whereas refinanced loans shrank 23%. At the same time, the number of loans disbursed increased 30%, as FHB refinanced a record number of 10 banks, which has to do with the central bank’s mortgage finance regulations.

Contrary to a rising trend observed in the local banking sector, FHB’s customer deposits dropped 2% in Q2 compared to end-March. The number of current accounts opened in the Hungarian Post’s network dropped to 67,500 by the end of June. The volume of - non-consolidated - total savings managed by the members of FHB Group amounted to HUF 923 billion as of June 30. The net asset value of investment funds under management of Diófa Asset Management Ltd. increased by 9.2% compared to the previous quarter. Net asset value of Magyar Posta Takarék Real Estate Fund reached HUF 173 billion at the end of June representing nearly 38% of the value of total net assets managed by Diófa Asset Management.

Finally, here are all the details:

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