Equity 3 May 2019, 11:50am

What should we know about OTP's newest acquisition

Portfolio

In line with previously announced plans, Hungary’s OTP Bank made an acquisition in Slovenia. It has bought SKB, another Societe Generale’s operation, as the French bank has been divesting its assets in the region. Just like the assets obtained over the last few years, the Slovenian unit is also a soundly managed financial institution, and it is relatively large. Via organic growth OTP may achieve a double-digit market share on the Slovenian banking market. Let’s see what we should know about SKB!

Key metrics of SKB

SKB is a particularly well-managed bank. It has been profitable for years, its return on equity (ROE) was nearly 16% and its return on assets (ROA) was 1.8% in 2018, but both figures are below the respective indicators of OTP Group.

SKB’s cost-to-income ratio is lower than that of OTP, and its net interest margin is way below OTP’s own.

How large is this Slovenian bank?

Slovenian banks had combined total assets of 38.8 billion euros at the end of 2018. SKB’s balance sheet total stood at EUR 3.3 bn, which gives the bank a 8.55% market share, making it the fourth-largest bank in the country. Needless to say, OTP will become the fourth-largest player by this takeover. At the end of last year, SKB provided services to 245,000 customers with the help of 912 employees in 54 branches.

How much will OTP Group grow by?

If SKB had been an OTP asset already at the end of 2018, we’d see 7.3% larger total assets, 6.3% larger equity, 4.4% larger total income, 5.8% higher after-tax profit, with 2.6% more employees and 3.8% more branches on a group level.

How large share will SKB have within the group?

The Slovenian operation will be one of the largest subsidiaries in OTP Group, with total assets of over HUF 1,000 billion. It will actually be the fourth-largest foreign operation behind the Bulgarian, Croatian and Serbian units, beating the Romanian, Russian and Ukrainian operations. This list already includes total assets boosted by the operations acquired in the meantime.

How much could SKB have cost?

OTP has not disclosed the purchase price, as it did not reveal that information at the previous acquisitions, either. The usual answer to any inquiry in this regard is that the agreement with the seller do not allow the purchase price to be published. What we can go on is the purchase prices of Splitska (EUR 425 mn) and Vojvodjanska (EUR 125 mn), and OTP also said that in the last two years it bought banks on an average P/BV of 1.0x. SKB’s book value was HUF 115 bn at the end of last year, i.e. the sum OTP paid for the bank was probably in the ballpark.