OTP Bank NyRt. Semiannual update. CREDIT OPINION 23 March Update. Summary

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1 CREDIT OPINION 3 March 18 OTP Bank NyRt Semiannual update Update Summary RATINGS OTP Bank NyRt Domicile Hungary Long Term Deposit Baa3 Type LT Bank Deposits - Fgn Curr Outlook Stable Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Contacts Arif Bekiroglu AVP-Analyst arif.bekiroglu@moodys.com OTP's Baa/Prime- local-currency deposit ratings incorporate (1) the bank's standalone ba1 baseline credit assessment (BCA); () the results of our Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by different liability classes in resolution, and which leads to two notches of rating uplift for OTP s deposit ratings; and (3) our assumptions of moderate support from the government of Hungary (Baa3 Stable), which nevertheless results in no further uplift at the current sovereign rating level. For further detail, please see the Notching Considerations section. The bank s Counterparty Risk Assessment (CRA) is Baa(cr)/Prime-(cr). OTP's ba1 BCA reflects the bank's geographically diversified footprint across countries in Central and Eastern Europe (CEE) which leads to a weighted Macro Profile of Moderate-. OTP's asset risk is elevated with a large, albeit declining stock of non-performing loans (NPL) which, however, benefit from strong coverage. Key strenghts are the bank's adequate risk-absorption capacity, as reflected in (1) its resilient capitalisation; () the recovery of its earnings generation capacity over the past two years. Further, the BCA incorporates OTP's good funding and liquidity. Exhibit 1 Rating Scorecard - Key Financial Ratios Aleksander Blacha Associate Analyst aleksander.blacha@moodys.com CLIENT SERVICES Solvency Factors 55% 45% 45% 35% 35% 5% 5% 15% 5% Americas Asia Pacific Japan EMEA Median ba1-rated banks 15% 15.5% 17.1% 7.3% 43.% Funding Structure: Market Funds/ Tangible Banking Assets Liquid Resources: Liquid Banking Assets/Tangible Banking Assets 5% 1.4% -5% -5% Asset Risk: Problem Loans/ Gross Loans Capital: Tangible Common Equity/Risk-Weighted Assets Solvency Factors (LHS) Source: Moody's Financial Metrics Profitability: Net Income/ Tangible Assets Liquidity Factors (RHS) Liquidity Factors Carola Schuler MD-Banking carola.schuler@moodys.com OTP Bank NyRt (BCA: ba1) 55%

2 Credit Strengths» Leading bank in Hungary with significant geographical diversification» Satisfactory capital adequacy» Historically good revenue generation, although mostly in countries with volatile operating environments» Good deposit base and liquidity cushion Credit Challenges» Large stock of NPLs, albeit declining and benefitting from a high level of coverage» Increasing level of exposure to countries with significantly weaker operating environment than Hungary will increase earnings volatility and exert downward pressure on the group's average Macro Profile of Moderate- Rating Outlook The outlook on the Baa long-term local-currency deposit rating is stable reflecting our expectation that upward and downward pressures on the ratings will be balanced over the next 18 months. The foreign-currency deposit rating is constrained by the respective country ceiling of Baa3 for Hungary and as a result its outlook is stable as well. Factors that Could Lead to an Upgrade OTP's local-currency deposit rating could experience upward pressure due to (1) an upgrade of the bank's ba1 BCA; and/or () an increase in uplift resulting from our LGF analysis. OTP's BCA could be upgraded in the event of a further material improvement in asset quality while preserving adequate capitalisation and good profitability. A higher BCA will result in an upgrade of the bank's local-currency deposit and subordinated debt ratings. Additionally, alterations to OTP's liability structure may change the amount of uplift provided by our Advanced LGF analysis and lead to higher notching form the bank's adjusted BCA, thereby positively affecting the local-currency deposit rating. The Baa3 foreign-currency deposit rating will be upgraded if the country's foreign-currency deposit ceiling is raised. Factors that Could Lead to a Downgrade OTP's ratings could experience negative pressure from (1) a downgrade of its BCA; and/or () a reduction in rating uplift as a result of our Advanced LGF analysis. The bank's BCA could experience downward pressure owing to (1) a lower average Macro Profile of the group driven by increasing exposure to countries with significantly weaker operating environments than Hungary; and () a material erosion of the bank's capital or a significant deterioration of asset quality. Changes in OTP's liability structure may change the amount of uplift provided by our Advanced LGF analysis and lead to lower notching form the bank's adjusted BCA, thereby negatively affecting the local-currency deposit rating. The foreign-currency deposit rating would be negatively affected by the downgrade of Hungary's government rating and in turn a lowering of the country's foreign-currency deposit ceiling. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 3 March 18

3 Key indicators Exhibit OTP Bank NyRt (Consolidated Financials) [1] Total Assets (HUF billion) Total Assets (EUR million) Total Assets (USD million) Tangible Common Equity (HUF billion) Tangible Common Equity (EUR million) Tangible Common Equity (USD million) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross Loans / Due to Customers (%) ,64 4,693 48,17 1,55 4,91 5, ,37 36,67 38,61 1,315 4,58 4, ,718 33,918 36,844 1,39 3,89 3, ,97 34,743 4,41 1,6 3,365 4, CAGR/Avg.4 1,38 34,94 48,145 1,15 4,9 5, [1] All figures and ratios are adjusted using Moody's standard adjustments [] Basel III - fully-loaded or transitional phase-in; IFRS [3] Basel II; IFRS [4] May include rounding differences due to scale of reported amounts [5] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [6] Simple average of periods presented for the latest accounting regime. [7] Simple average of Basel III periods presented Source: Moody's Financial Metrics Profile Leading bank in Hungary with significant geographical diversification With reported total assets of HUF13,19 billion (EUR4 billion) in December 17, OTP is Hungary s largest banking group. As of yearend 17, approximately 49% of the group's consolidated assets were outside of Hungary. The group is active in nine countries and has leading market positions in Hungary, Bulgaria and Montenegro. Further, following the purchase of Croatian Splitska banka (unrated) in December 16, OTP's market share by total assets in Croatia increased to 11.6% from 4%. In Russia, it is a relatively large consumer lender. The group has continuously developed its retail business and as of December 17 approximately 64% of loans were retail, half of which were mortgages. For its core domestic market in Hungary, OTP reported a market share of 6% of total assets and 8% of deposits, as of December 17. It has been successful in defending its position as the dominant bank in the Hungarian retail market, with a market share of 36% in retail deposits. For further information on the bank's profile see OTP Bank. Detailed credit considerations OTP s Moderate- Macro Profile reflects business mix in CEE and CIS countries OTP s credit profile is driven by its operations in selected CEE and CIS countries, with its Hungarian domestic exposure accounting for around 51% of the group s total assets in December 17. These operations have distinct characteristics: the Hungarian and other CEE activities, especially in Bulgaria, are likely to contribute more predictable and satisfactory earnings, while OTP s Russian and Ukraine operations are more volatile and may represent a key challenge for the group s performance. Given the dominance of Hungary in OTP s business mix, the country s Macro Profile of Moderate- is a key factor in the group s overall assigned Macro Profile. Among countries where OTP s subsidiaries operate, we attribute a Macro Profile of Strong- to Slovakia and weaker Macro Profiles to the other significant markets of Russia and Ukraine. Overall, this results in a weighted Moderate- Macro Profile. Given OTP's consideration to expand its operations in CEE and CIS countries, the current Macro Profile may experience downward pressure from increasing presence in countries with weaker operating environments. 3 3 March 18

4 We expect that the benign economic conditions in Hungary, Bulgaria, Romania and most other CEE countries where OTP has subsidiaries will support the group s performance over the next 1 to 18 months. In addition, we expect that OTP s performance will continue to improve from weak levels in Russia and Ukraine, after several years of large losses driven by soaring credit costs and pressured revenues. Large stock of non-performing loans, albeit declining and benefitting from a high level of coverage OTP's reported non-performing loans (NPLs), defined as all loans 9+ days past due, declined to 9.% of gross loans as of year-end 17 from 14.7% at the end of 16 and 17% at the end of 15. The decline in NPL ratio was driven by a reduction in NPL stock in most markets, most notably in Ukraine and Hungary. Benign economic conditions in the CEE will likely support the ongoing reduction of the NPLs in these countries. In Russia and Ukraine, we expect that asset quality pressures will also ease as economic conditions improve from previously weak levels. In the group s home market of Hungary, the NPL ratio stood at 6.4% as of year-end 17, down from 9.8% and 1.1% at year-end 16 and 15 respectively. In Ukraine the bank's NPL ratio declined to 6.4% as of year-end 17 from 41.9% at year-end 16, mainly driven by sales and write-offs, whereas in Russia the ratio declined to 15.8% from.% during the same period. The asset risk arising from such high levels of NPLs in Russia and Ukraine are eased by sizable loan loss reserves relative to NPLs that stand at 134% and 119%, respectively, in each country. The total cash coverage of NPLs for the group remains at a good level of 99.3% as of year-end 17, up from 96.8% as of year-end 16. Over the next 1 to 18 months we expect loan-loss provisioning expenses for the group to stabilise at around 1% of the gross loans, mainly driven by a moderate rise/normalisation of credit costs in Hungary after some reversal of reserves in 16 and 17. To reflect the improvements in asset quality and good level of problem loans coverage, we adjust the Asset Risk score upward by three notches to b1. Capital adequacy is satisfactory The bank s current level of capitalisation is satisfactory for its risk profile and has proven resilient to highly adverse conditions. OTP s reported consolidated CET1 ratio (equivalent to our core capital matrix Tangible Common Equity, TCE) was 1.7% as of year-end 17, dropping from 13.5% in December 16 (the ratio does not include part of net profit earmarked for retention, which bring up the ratio to 15.3%). The decline was predominantly driven by the effects of acquisitions, which had a negative impact of 19 basis points. In October 16, the Financial Stability Council of the National Bank of Hungary (NBH) has set the O-SII buffer (buffer for other systematically important institutions) for OTP at the rate of.5% for 17, applicable from July 1, 17. The O-SII buffer will increase annually by 5 basis points until it reaches % in. Nominal leverage is good, with the reported equity-to-assets ratio at 1.7% as of year-end7, slightly down from 1.9% as of yearend 16 owing to accelerating assets growth. The bank s management has announced that they will continue their acquisitions over the next two years. We expect the bank s capital adequacy to moderate at lower levels over the next few years due to planned acquisitions and a stronger lending growth. To reflect this expectation we have adjusted the Capital score down by two notches to. Historically good revenue generation, although mostly in countries with volatile operating environments OTP has a good earnings-generation ability, owing to its dominant position and high, albeit modestly declining, net interest margin in Hungary and even higher net interest margins in some of the bank's foreign markets. OTP s year-end 17 net income amounted to HUF81 billion, an increase of 39% from 16. Consequently, OTP's reported return on assets rose to.37% at the end of December 17 from 1.86% in December 16. This significant improvement was mainly driven by a 51% year-on-year decline in loan loss provisions, 19% growth in fees and commissions income and a 5% growth in net interest income on the back of a sizable decline in interest expense, which was more than 3%. As of end-december 17, the bank was profitable in most CEE countries, with the exception of Serbia, Slovakia and Montenegro. According to OTP, the group s two largest CEE operations of Hungary and Bulgaria reported net incomes of HUF169 billion and HUF March 18

5 billion, respectively. At year-end 17 OTP s Russian and Ukrainian operations reported a combined net profit of HUF34.5 billion, owing mainly to rising revenues in Russia and a reduction of loan loss provisions in Ukraine. In the next 1 to 18 months we expect OTP's profitability to remain relatively stable supported by stabilisation in revenues as lending growth continues and provisioning and operating expenses remain contained. As a result, we assign a score for Profitability, in line with the macro-adjusted score. Good deposit base and liquidity cushion We view OTP's funding profile as a credit strength for the bank. OTP's funding remains primarily based on deposits, which account for 89% of total liabilities as of year-end 17. Overall, as of year-end 17 OTP group's loan to deposit ratio decreased slightly to 75.1% from 78.% as of December 16. On the group level, around 71% of deposits are from retail clients and SMEs, with the remainder from less granular corporate and small and medium-sized enterprise customers, which we consider to be more volatile and confidence sensitive compared to retail deposits. Our assessment also takes into account the funding and liquidity position of the parent bank and its main subsidiaries, as well as fungibility of liquid assets within the group. Most large subsidiaries of the bank are self-funded with only OTP Romanian having moderate reliance on parental funds. The Hungarian and Bulgarian operations are market leaders in their respective countries for retail deposits. We assign a funding score for OTP at, one notch below the macro-adjusted score which is based on the group's consolidated market funding ratio in order to reflect the slightly higher reliance of the parent bank on wholesale funding (non-deposit funding amounted to 18% of total liabilities, on the standalone basis as of year-end 17, compared to % at year-end 16) and to reflect our expectation of slight increase in the wholesale funding reliance going forward. The bank displays a strong liquidity buffer, which accounted for 4% of total assets as of end-september 17, (down 1% compared to year-end 16), mostly in the form of cash held at the National Bank of Hungary and investment in Hungarian Government bonds. We adjust the Liquid Resources score downward by one notch to as we expect a gradual decline in the liquidity resources on the back of loan book growth. Support and structural considerations Loss Given Failure OTP is subject to the EU Bank Recovery and Resolution Directive (BRRD), which we consider to be an Operational Resolution Regime. We assume residual tangible common equity of 3% and losses post-failure of 8% of tangible banking assets (based on a Macro Profile of Moderate-), a 5% run-off in junior wholesale deposits, a 5% run-off in preferred deposits, and assign a 5% probability to deposits being preferred to senior unsecured debt. These are in line with our standard assumptions. For junior deposits, we apply a 7% proportion (higher than our standard assumption of 6% for EU average) based on the respective disclosures of OTP about the level of available corporate deposits. We exclude from our balance sheet at failure deposits and assets relating to foreign subsidiaries, which are outside the scope of Hungarian authorities. We believe that OTP's deposits are likely to face a very low loss-given-failure, owing to the loss absorption provided by the volume of deposits, and limited senior and subordinated debt. This results in a Preliminary Rating Assessment of baa, two notches above the bank's Adjusted BCA of ba1. Government Support We believe there is a moderate probability of government support for OTP's rated wholesale deposits in the event of its failure. This probability reflects the fact that OTP is the largest bank in Hungary, which may lead the government to intervene to prevent a systemic crisis and as a result shield its creditors from disruptive losses. Set against the above-mentioned conditions, the BRRD restricts the ability of the government to provide such support, even if it was willing to do so, requiring losses to be imposed on even senior creditors and large depositors under many circumstances. Our government support assessment does not, however, translate into additional notching for the bank s deposit ratings, as OTP s baa Preliminary Rating Assessment is already higher than the level of the sovereign rating. In our view, the likelihood of government support for the bank's subordinated debt, as well as junior subordinated debt, is low and therefore these ratings do not include any related rating uplift. 5 3 March 18

6 Counterparty Risk Assessment CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default and () apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR assessment is opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g. swaps), letters of credit, guarantees and liquidity financing. OTP's CR Assessment is positioned at Baa(cr)/P-(cr) The CR Assessment is two notches above the bank's adjusted BCA. The CR Assessment is driven by the seniority of the counterparty obligations and the volume of liabilities subordinated to them under our Advanced LGF framework. About Moody's Scorecard Our Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity. 6 3 March 18

7 Rating methodology and scorecard factors Exhibit 3 OTP Bank NyRt Macro Factors Weighted Macro Profile Moderate - Factor Historic Macro Ratio Adjusted Score Credit Trend Assigned Score Key driver #1 Key driver # Long-run loss performance Solvency Asset Risk Problem Loans / Gross Loans 15.5% caa1 b1 Collateral and provisioning coverage Capital TCE / RWA 17.1% baa1 Expected trend Profitability Net Income / Tangible Assets 1.4% Expected trend Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets Liquid Resources Liquid Banking Assets / Tangible Banking Assets ba ba 7.3% baa Extent of market funding reliance 43.% baa Expected trend Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA baa Balance Sheet in-scope (HUF million),16,51 5,19,869 3,84,73 1,35,146 4, ,768 3,166 7,738,853 Other liabilities Deposits Preferred deposits Junior Deposits Senior unsecured bank debt Junior subordinated bank debt Equity Total Tangible Banking Assets 7 1% 3 March 18 Deposit quality ba1 Baa3 -ba ba1 ba1 % in-scope 7.% 67.1% 49.7% 17.4%.5%.% 3.% 1% at-failure (HUF million),636,184 4,663,196 3,65,587 1,1,61 4, ,768 3,166 7,738,853 % at-failure 34.1% 6.3% 47.% 13.1%.5%.% 3.% 1%

8 Debt class Counterparty Risk Assessment Deposits Junior subordinated bank debt Instrument class De Jure waterfall De Facto waterfall Notching LGF Assigned Additional Preliminary LGF notching Rating Instrument Sub- Instrument SubDe Jure De Facto Notching Guidance notching Assessment volume + ordination volume + ordination vs. subordination subordination Adjusted BCA baa (cr) 5.% 5.7% baa 5.% 3.% 5.% 3.% ba3 (hyb) Loss Given Failure notching Counterparty Risk Assessment Deposits Junior subordinated bank debt Additional Preliminary Rating Notching Assessment baa (cr) baa ba3 (hyb) Government Support notching Local Currency Rating Baa (cr) Baa -- Foreign Currency Rating -Baa3 Ba3 (hyb) Source: Moody's Financial Metrics Ratings Exhibit 4 Category OTP BANK NYRT Outlook Bank Deposits -Fgn Curr Bank Deposits -Dom Curr Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Jr Subordinate Moody's Rating Stable Baa3/P-3 Baa/P- ba1 ba1 Baa(cr)/P-(cr) Ba3 (hyb) OTP JELZALOGBANK ZRT. (OTP MORTGAGE BANK) Outlook Counterparty Risk Assessment Bkd Issuer Rating -Dom Curr Stable Baa(cr)/P-(cr) Baa3 Source: Moody's Investors Service 8 3 March 18

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10 CLIENT SERVICES 1 Americas Asia Pacific Japan EMEA March 18