OTP Bank : Auditor Report (consolidated)

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This is a translation of the Hungarian Report

Independent Auditor's Report

To the Shareholders of OTP Bank Nyrt.

Report on the audit of the consolidated financial statements

Opinion

We have audited the accompanying 2023 consolidated financial statements of OTP Bank Nyrt. ("the Company") and its subsidiaries (altogether "the Group") included in the accompanying 529900W3MOO00A18X956-2023-12-31-hu.zip1 digital file, which comprise the consolidated statement of financial position as at 31 December 2023 - showing a total assets of HUF 39,609,144 million - and a consolidated statement of comprehensive income - showing a total comprehensive income for the year of HUF 864,843 million -, the related consolidated statement of profit or loss, consolidated statement of changes in equity, consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including material accounting policy information.

In our opinion the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2023 and of its consolidated financial performance and its consolidated cash flows for the financial year then ended in accordance with International Financial Reporting Standards as adopted by the EU ("EU IFRSs") and have been prepared, in all material respects, in accordance with the supplementary requirements of Act C of 2000 on Accounting ("Hungarian Accounting Law") relevant for consolidated financial statements prepared in accordance with EU IFRSs.

Basis for opinion

We conducted our audit in accordance with Hungarian National Auditing Standards and with applicable laws and regulations in Hungary, including also Regulation (EU) No. 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities ("Regulation (EU) No. 537/2014"). Our responsibilities under those standards are further described in the "Auditor's responsibilities for the audit of the consolidated financial statements" section of our report.

1 Digital identification of the above referred 529900W3MOO00A18X956-2023-12-31- hu.zip consolidated financial statements, using SHA 256 HASH algorithm is 2808F7287D51E1D0482F6BC5E1AEEFB0B728991CC79FB18D6D8FA448658CE4A9

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We are independent of the Group in accordance with the applicable ethical requirements according to relevant laws in effect in Hungary and the policy of the Chamber of Hungarian Auditors on the ethical rules and disciplinary proceedings and, concerning matters not regulated by any of these, with the International Ethics Standards Board of Accountants' (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the "Auditor's responsibilities for the audit of the consolidated financial statements" section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Acquisition accounting for significant new business combinations

In 2023, after obtaining all required regulatory approvals, the Group acquired 43 legal entities, of which two entities, Nova KBM d.d. and JSCMB Ipoteka Bank, have significant operations from a Group perspective.

Accounting for acquisitions falls under the scope of IFRS 3 - Business Combinations and involves significant judgments and assumptions for the determination and recognition of the fair value of the acquired assets and liabilities assumed. Management performed the assessment and purchase price allocations with the

Our audit procedures on the business combinations included among others the following procedures. We read and evaluated the share purchase agreements and the acquisition accounting assessments made by management.

Our audit procedures included the involvement of valuation specialists to assess the appropriateness of the methodology applied by management in determining the fair value of acquired financial instruments, real estate, immaterial rights and other assets acquired and liabilities

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involvement	of	(external)	valuation	assumed. We also assessed the main
expert.						assumptions used in the valuation and
After performing the purchase price	evaluated the competence, capabilities
allocations for the two subsidiaries, the	and objectivity of the (external)
Group	recognized	negative	goodwill	valuation	specialists	involved	by
arising on these two acquisitions in the	management.	We assessed	the
amount of HUF 198 billion.		measurement of the assets acquired
Due to the significance of the	and liabilities assumed at fair value, as
recognized		negative	goodwill	well as the calculation of negative
(representing 20% of total profit after	goodwill.
income tax as of 31 December 2023)	We also assessed the completeness of
and the related estimation uncertainty,	the fair value adjustments recognized
this is considered a key audit matter.
by	reading	share	purchase
						agreements, Board decisions and due
						diligence reports.
						We evaluated whether the negative
						goodwill determined is reasonable and
						whether there are any potential
						liabilities to be recognized as part of
						the purchase price allocation.
						We also evaluated whether the
						disclosures	in	the	consolidated
						financial	statements	appropriately
						reflect		the	Group's	acquisition
						accounting and are compliant with the
						EU IFRSs.
						The Group's disclosures about its
						policies for business combinations are
						included in Note 2.4. Accounting for
						acquisitions, which specifically explain
						the accounting policies and key
						assumptions	used	when determining
						the estimations and their evaluation,
						are detailed in Note 42 Acquisition.
Determination of expected credit losses relating to loans at amortised cost
Credit impairment is a highly subjective	We involved valuation specialists to
area due to the level of judgement	assist us in performing our audit
applied by management in determining	procedures on ECL and related credit
expected credit losses ("ECL"). The	impairments.	Our	audit procedures
identification	of	impairment	and the	included among others the following
determination		of	the recoverable
	procedures.
amount	are		inherently	uncertain
	We evaluated the design and tested the
processes		involving	various
	operating	effectiveness	of internal
assumptions and factors. Such factors
controls over the approval, recording

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may include the financial condition of the counterparty, expected future cash flows, and expected net selling prices of collateral. The portfolios which give rise to the greatest uncertainty are typically those where impairments are derived from estimates of future cash flows and the realisable value of collateral, calculated using collective impairment models, which are unsecured or are subject to potential collateral shortfalls.

These models require the significant periodic judgment of management regarding correct segmentation, the identification of significant changes in credit risk, the inclusion of forward- looking elements as well as the application of management overlay (to reflect on circumstances beyond the modelling capabilities).

Given the economic uncertainties from the Russian - Ukrainian conflict, the risks to the global economy, significant judgement is required in the assessment of significant changes in credit risk, the definition of default, the estimation of future cash-flows (including the value of realisable collateral) and the evaluation of forward-looking information.

Due to the significance of loans at amortised cost (representing 48% of Total Assets as of 31 December 2023) and the related estimation uncertainty, this is considered a key audit matter.

and monitoring of loans at amortized cost and controls over ECL calculations, including the quality of underlying data and applications.

We evaluated the controls over the general IT environment of the applications relevant from an audit perspective related to the determination of ECL.

We evaluated management's assumptions relating to the overall uncertainties arising from the geopolitical and economic situation caused by the Russian-Ukrainian conflict.

For ECL calculated on an individual basis, we tested the assumptions used by the management underlying the

impairment identification and quantification, focusing on loan cases with the most significant potential impact on the consolidated financial statements. We also evaluated management's assumptions on the expected future cash flows, including the value of realisable collateral and estimates of recovery, based on our own understanding and available market information.

For ECL calculated on a collective basis we evaluated the model governance,

methodologies, inputs and management assumptions used (probability of default, loss given default, significant increase in credit risk and forward-looking elements).

For exposures subject to increased uncertainties arising from the Russian- Ukrainian conflict we designed additional procedures to address the higher estimation uncertainty. Such procedures, among others included: an assessment of the overall changes in the ECL model (including its parameters), an assessment of the additional criteria applied for the

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identification of significant changes in credit risk, territorial analysis of the value of realisable collateral of the exposures which are directly or indirectly impacted by the Russian- Ukrainian conflict, and benchmarking of the ECL coverage of the portfolio against other market participants. We assessed the sensitivity of the Ukrainian ECL models to reasonable

alternative forward-looking assumptions.

We considered the regulatory measures on the assumptions applied by the management for ECL estimation purposes.

We also evaluated whether the disclosures in the consolidated financial statements appropriately reflect the Group's exposure to credit risk and are compliant with the EU IFRSs.

The Group's disclosures about its risk management policies are included in Note 2.6 Loss allowance and Note 37.1 Credit risk which specifically explains the key assumptions used when determining credit risk and their evaluation are described in Note 4: Macro environment, impact of economic situation on the Group, Note 11 Loans at amortised cost and at fair value and Note 31 Loss allowances / Impairment / Provisions.

General Information Technology controls over the financial reporting process

A significant part of the Group's financial	We focused our audit on those IT
reporting	process, including	revenue	systems and controls that are
recognition, is significantly reliant on IT	significant for the Group's financial
systems	with	embedded	automated	reporting. As audit procedures over
processes and controls over the capture,	the IT systems and application controls
storage and extraction of information. A	require specific expertise, we involved
fundamental	component	of	these	IT audit specialists to assist us in
processes and controls is ensuring	performing our audit procedures. Our
appropriate user access	and	change

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management protocols exist and are	audit	procedures	included	among
being adhered to.			others the following procedures.
These protocols are important because	We understood and assessed the
they ensure that access and changes to IT	overall IT control environment and the
systems and related data are made and	controls in place which included
authorized in an appropriate manner.	controls over access to systems and
As our audit of the financial statements	data, as well as system changes. We
sought to place a high level of reliance	adjusted our audit approach based on
on IT systems and application controls	the financial significance of the system
related to financial reporting, a high	and whether there were automated
proportion of the overall audit effort has	procedures supported by that system.
been carried out regarding to	As part of our audit procedures, we
understand and test IT infrastructure	tested the operating effectiveness of
and	applications including	relevant	controls over appropriate access rights
application	controls. Furthermore, the	to	assess	whether	only	appropriate
complexity of IT systems and nature of	users had the ability to create, modify
application	controls	requires	special
or	delete	user accounts	for	the
technology	expertise	and specialized
relevant in-scope applications. We also
skills	to be	involved	in the audit we
tested the operating effectiveness of
therefore consider this as a key audit
controls around system development
matter.
			and program changes to establish that
					changes to the system were
					appropriately authorized,	developed
					and	implemented.	Additionally,	we
					assessed and tested the design and
					operating	effectiveness		of	the
					application controls embedded in the

processes relevant to our audit.

The Group's disclosures about its IT systems and related IT general and application controls are included in section System of internal controls and IT Controls in the consolidated business report.

Estimation uncertainties as a result of the Russian - Ukrainian conflict (excluding expected credit losses relating to loans at amortised cost)

On 24 February 2022, the Russian army	We involved valuation specialists to
started military operations in Ukraine,	assist us in performing our audit
which are still ongoing at the date of our	procedures which included among
audit report. In connection to this, there	others the following procedures.
have been, among others, impacts on	We evaluated the appropriateness of
businesses in Ukraine and Russia. The
the Group's controls over the valuation
sanctions implemented caused an
of financial instruments, deferred tax
unforeseen rise and volatility of market
assets and goodwill.
prices, foreign exchange and interest
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rates. It is difficult to estimate the

Our

procedures

included

an

further development of market prices

assessment of the suitability of the

and the key macroeconomic indicators.

valuation model and the key

As a consequence, the valuation of

assumptions applied by management.

financial instruments, goodwill and the

As part of our procedures, we reviewed

recoverability of deferred tax assets are

key

market-related

assumptions in

a highly subjective area due to the level

management's

valuation

models,

of

judgement

applied

by

the

country

budgets

and

we

performed

management.

benchmarking

of

foreign

exchange

In the consolidated financial statements,

rates, discount rates against external

the

amount

of

financial

instruments

data where available. We also tested

(government

bonds

and

foreign

the mathematical accuracy of the cash

exchange

derivatives)

which

are

flow models and agreed relevant data

exposed

to

valuation

uncertainties

to Board approved business plans.

relating

to

the

Russian-Ukrainian

We

evaluated

pricing

model

conflict is HUF 463 billion. Cash flow

methodologies

against

industry

estimates and yield curves applied for

practice and valuation guidelines. We

the valuation of Russian and Ukrainian

financial instruments contain significant

performed independent valuations for

judgements. As such, the exposures

selected

instruments

and

used

identified are mainly categorized as

external source data where available.

Level 3 financial instruments. The

We compared results of our valuations

valuation of these instruments involves

to the Group's valuations.

unobservable inputs as well and, as

such, there is greater estimation

We

also

evaluated

whether

the

uncertainty in the determination of their

disclosures

in

the

consolidated

value.

financial

statements

appropriately

As a consequence of differences

reflect the estimation uncertainties of

between the accounting and tax

the Group as a result of the Russian -

treatment

of

ECL

and

valuation

Ukrainian conflict and

are

compliant

adjustments

of

financial

instruments,

with the EU IFRSs.

the

Russian

operation

of the

Group

The Group's disclosures about its risk

recognized deferred tax assets in the

valuation policies are included in Note

amount of HUF 11 billion. Based on the

2.5.3. Financial assets

at

fair

value

available

business plans

the

Russian

through

profit

or

loss,

Note

3.4.

operation of the Group will be able to

Impairment on goodwill, Note 4: Macro

utilize the deferred

tax

assets. The

environment,

impact

of

economic

recoverability of deferred tax assets

situation on the Group, which

involves

significant judgement applied

by the management.

specifically

explains

the

accounting

Due to the conflict, the Group performed

policies

and key

assumptions

used

when determining the estimations and

an impairment test of goodwill. As a

their evaluation, are detailed in Note 8

result, the Group fully impaired the

goodwill (a provision of HUF 41 billion)

Financial assets at fair value through

relating to the Russian operation in

profit or loss, Note 9 Securities at fair

2023. The goodwill impairment test

value

through

other

comprehensive

model includes sensitive inputs as key

income, Note 10 Securities at

assumptions.

amortized

cost,

Note

13

Property,

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Due to the significance of assets impacted by the Russian - Ukrainian conflict (representing 5% of Total Assets as of 31 December 2023) and the related estimation uncertainty, this is considered a key audit matter.

Other information

equipment and intangible assets, Note 35 Income taxes and Note 48.4. Fair value levels.

Other information consists of the 2023 consolidated business report of the Group and the "Management's Analysis" section of the annual report which have been made available to us before the date of our independent auditor's report and of the "Message to the Shareholders", "Corporate Governance" and "Macroeconomic and financial environment in 2023" sections of the annual report which are expected to be made available after the date of our independent auditor's report but do not include the consolidated financial statements and our independent auditor's report. Management is responsible for the other information, including preparation of the consolidated business report in accordance with the Hungarian Accounting Law and other relevant legal requirements, if any. Our opinion on the consolidated financial statements does not cover the other information.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether 1) the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated and 2) the consolidated business report has been prepared in accordance with the Hungarian Accounting Law and other relevant legal requirements, if any.

Our opinion on the consolidated business report should include the information required according to Subsection (2) e) and f) of Section 95/B of the Hungarian Accounting Law and we are required to confirm also whether the information prescribed in Subsection (2) a)-d) and g)-h) of Section 95/B of the Hungarian Accounting Law have been made available and whether the consolidated business report includes the non-financial statement as required by Subsection (5) of Section 134 of the Hungarian Accounting Law.

When fulfilling this responsibility we have considered the following law: Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 on Supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format ("ESEF Regulation") and Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 ("EU Taxonomy Regulation"), as such prescribing specific requirements for the consolidated business report, in relation with forming our opinion on the consolidated business report.

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In our opinion, the consolidated business report of the Group, including the information required according to Subsection (2) e) and f) of Section 95/B of the Hungarian Accounting Law for 2023 is consistent, in all material respects, with the 2023 consolidated financial statements of the Group and the relevant requirements of the Hungarian Accounting Law and the other law listed above.

We also confirm that the Group have made available the information required according to Subsection (2) a)-d) and g)-h) of Section 95/B of the Hungarian Accounting Law and that the consolidated business report includes the non-financial statement as required by Subsection (5) of Section 134 of the Hungarian Accounting Law.

Further to the above, based on the knowledge we have obtained about the Group and its environment in the course of the audit we are required to report whether we have identified any material misstatement in the other information, and if so, the nature of the misstatement in question. We have nothing to report in this regard.

When we read the sections of the annual report, which had not yet been made available to us at the date of this report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with EU IFRSs and for the preparation in accordance with the supplementary requirements of the Hungarian Accounting Law relevant for consolidated financial statements prepared in accordance with EU IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

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Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Hungarian National Auditing Standards and with applicable laws and regulations in Hungary, including also Regulation (EU) No. 537/2014 will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Hungarian National Auditing Standards and with applicable laws and regulations in Hungary, including also Regulation (EU) No. 537/2014, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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