OP Financial Group
Half-year Financial Report 1 January–30 June 2022
Stock Exchange Release 27 June 2022 at 9.00 EEST
OP Financial Group’s Half-year Financial Report for 1 January–30 June 2022: Earnings before tax EUR 459 million – a good result in an uncertain business environment
Earnings before tax totalled EUR 459 million (561).
Income from customer business increased by a total of 6% to EUR 1,572 million (1,479). Net interest income increased by 5% to EUR 675 million (641) and net insurance income by 17% to EUR 383 million (326). Net commissions and fees totalled EUR 515 million (512).
Investment income decreased by 73% to EUR 44 million (164).
Total income decreased by 15% to EUR 1,505 million (1,777). Including the overlay approach, total income decreased by 1% to EUR 1,662 million (1,682).
Total expenses increased by 1% to EUR 1,001 million (991).
Impairment loss on receivables in the income statement increased by EUR 65 million to EUR 100 million (35). This increase mainly came from the indirect effects of the war in Ukraine in the first quarter. Ratio of impairment loss on receivables to loan and guarantee portfolio was 0.20% (0.07).
OP Financial Group has no significant direct exposures to Russia. The impacts of the war in Ukraine on credit risk exposure mainly arise indirectly from certain sectors, especially as a result of a rise in energy and raw material prices, hence affecting the corporate loan portfolio.
OP Financial Group’s loan portfolio grew by 4% to EUR 98 billion (95) and deposits by 3% to EUR 76 billion (74) in the year to June.
The CET1 ratio was 17.6% (18.2), which exceeds the minimum regulatory requirement by 7.9 percentage points. OP Financial Group adopted a risk-weighted assets (RWA) floor, based on the Standardised Approach, in the second quarter. This decreased the CET1 ratio by 1.0 percentage points.
Retail Banking earnings before tax were EUR 136 million (138). Net interest income increased by 2% to EUR 485 million (474) and net commissions and fees by 6% to EUR 397 million (376). Impairment loss on receivables increased by EUR 13 million to EUR 60 million (47). The loan portfolio grew by 2% and deposits by 4% in the year to June.
Corporate Banking earnings before tax were EUR 91 million (276). Net interest income increased by 6% to EUR 214 million (203), net commissions and fees decreased by 15% to EUR 83 million (98) and net investment income decreased by EUR 88 million to EUR 7 million (95). Impairment loss on receivables increased by EUR 52 million to EUR 40 million.
Insurance earnings before tax were EUR 205 million (220). Net insurance income grew by 17% to EUR 393 million (335). Investment income decreased by EUR 107 million to EUR –13 million (94). Non-life Insurance recorded an operating combined ratio of 91.8% (86.2).
Group Functions earnings before tax were EUR –24 million (–51).
New OP bonuses accrued to owner-customers totalled EUR 107 million (103).
OP Financial Group celebrates its 120th anniversary by increasing the return target for its owner-customers’ Profit Shares by 1.20 percentage points. This means that the return target for 2022 stands at 4.45%.
On 26 July 2022, OP Cooperative’s Board of Directors decided to file a pre-application with the European Central Bank on the use of the Standardised Approach in capital adequacy calculation, instead of the internal models (IRBA) and the currently applied risk-weighted assets floor based on the Standardised Approach. A possible transfer to the Standardised Approach will not affect OP Financial Group’s capital adequacy or risk exposure.
Earnings before tax for 2022 are expected to be lower than in 2021. For more detailed information on the outlook, see “Outlook towards the year end”.
OP Financial Group’s key indicators
Earnings before tax, € million
New OP bonuses accrued to owner-customers, € million
Return on equity (ROE), %
Return on equity, excluding OP bonuses, %
Return on assets (ROA), %
Return on assets, excluding OP bonuses, %
31 Jun 2022
31 Jun 2021
31 Dec 2021
CET1 ratio, %
Loan portfolio, € billion
Deposits, € billion
Ratio of non-performing exposures to exposures, %
Ratio of impairment loss on receivables to loan and guarantee portfolio, %
Comparatives for the income statement are based on the corresponding figures a year ago. Unless otherwise specified, figures from 31 December 2021 are used as comparatives for balance-sheet and other cross-sectional items.
*Change in ratio
Comments by President and Group Chief Executive Officer Timo Ritakallio
OP Financial Group performed well in the first half despite the uncertain business environment. January–June earnings before tax were EUR 459 million. Earnings developed particularly well in Retail Banking and Insurance, whereas earnings reported by Corporate Banking fell clearly short of the previous year’s level. Income from our customer business rose by 6% year on year. Net interest income was clearly higher year on year, growing by 5%. Net insurance income grew by 17%, due to the increased discount rate in particular. Net commissions and fees remained at the previous year’s level. Excluding the increase in the non-life insurance discount rate, income from customer business remained at the previous year’s level. Meanwhile, due to the challenging investment environment, investment income fell by 73% to EUR 44 million, taking account of the overlay approach.
Growth in expenses has remained moderate, and our development investments have progressed as planned. In the year to June, OP Financial Group’s loan portfolio increased by 4% and deposit portfolio by 3%. The growth rate in deposits has continued to slow since the early stages of the pandemic.
The direct and indirect implications of the war in Ukraine markedly increased impairment loss on receivables in January–March, but no longer continued to do so in April–June. This shows that the loan repayment capacity of both our personal and corporate customers has remained good despite the weaker economic outlook.
Our strategic choices over the last few years have been successful, and our strategic focus on our core business – banking and insurance – has proven effective. Although our business environment continued to be challenging in many ways during the second quarter, OP Financial Group’s overall earnings remained at a good level.
OP Financial Group’s CET1 ratio remained strong at 17.6%. On 30 June 2022, we adopted the risk-weighted assets (RWA) floor, based on the Standardised Approach, in the calculation of our capital adequacy ratio. Adoption of the floor eventually decreased OP Financial Group’s CET1 ratio by just one percentage point.
The number of OP-mobile users once again reached a new record, with more than 1.3 million active users logging into the service more than 46 million times in June. Lifting of the Covid-19 restrictions, the uncertain economic outlook and Russia’s aggressive war in Ukraine led to a slight increase in demand for cash, following a strong decline in previous years. Cash withdrawals by personal customers increased by 7% in euro terms and 2% in volume terms, year on year.
Our clients continued to make long-term investments in mutual funds and equities despite market fluctuations in early 2022. This year, we have made more than 61,000 new systematic investment plans on mutual funds, reaching a total of half a million such plans at the end of the reporting period. A total of 44,000 new book-entry accounts and equity savings accounts were opened during the first half of 2022, and the number of active equity investors grew by nearly 6%. Our clients have increasingly spread their investment risk, both geographically and across asset classes. Although Finnish equities are still the most popular investment option among retail investors, their purchases of international equities grew by 70% in June compared to June 2021. OP-mobile is by far the most popular trading channel, providing investors with a handy tool for making and monitoring investments and comparing investment options.
In the housing market, the first half was fairly lively but residential property transactions and demand for home loans slowed from the previous year, approaching their pre-pandemic levels. Higher interest rates are affecting the daily lives of growing numbers of people with home loans. Preparation for rising housing expenses continues to be a smart move due to higher interest rates and the surge in energy prices fuelled by inflation. The most common reference rate for home loans, the 12-month Euribor, turned positive in April and has increased apace. At the end of June, the reference rate was at the level of one per cent, and markets expect it to rise markedly during the next 12 months. On 30 June 2022, a total of 32% of our personal customers’ home loan portfolio was covered by interest rate protection.
As a result of exceptionally rapid changes, the economic outlook continues to be highly uncertain. While the overall economic climate remains relatively good, economic growth is clearly slowing and the risk of drifting into recession has increased significantly. The Finnish economy is still being buoyed by growth in service consumption and the post-pandemic recovery in exports. Meanwhile, the impacts of Russia’s aggressive war are combining with faster-growing inflation, monetary tightening, capacity constraints and a slowdown in export markets to cause a gradual reduction in growth.
Despite the uncertain outlook in our business environment, OP Financial Group’s strong capital base will keep us in an excellent position to cater for the service needs of our banking and insurance customers in the years to come. With our customers, we continue to work together through time – including challenging times like this.
OP Financial Group’s earnings before tax amounted to EUR 459 million (561), down by EUR 102 million from the previous year. Income from customer business, or net interest income, net insurance income and net commissions and fees, increased. Earnings were reduced by lower investment income and higher impairment loss on receivables.
Net interest income increased by 5.3% to EUR 675 million. Net interest income reported by the Retail Banking, Corporate Banking and Group Functions segments increased by EUR 11 million. OP Financial Group’s loan portfolio grew by 3.7% to EUR 98.2 billion and deposits by 2.6% to EUR 75.5 billion, year on year. New loans drawn down by customers during the reporting period totalled EUR 12.9 billion (11.7).
Net insurance income increased by 17.5% to EUR 383 million. The Insurance segment’s non-life insurance premium revenue increased by 5.9% to EUR 797 million and claims incurred by 17.3% to EUR 517 million, excluding the increase in the discount rate. Large claims increased claims incurred by EUR 91 million year on year. The increase in the discount rate for insurance liability improved net insurance income by EUR 96 million. Operating combined ratio reported by non-life insurance was 91.8% (86.2).
Net commissions and fees totalled EUR 515 million (512). Net commissions and fees for lending increased by EUR 4 million and those for asset management and legal services by EUR 3 million. Net commissions and fees for health and wellbeing services fell by EUR 3 million year on year following the sale of Pohjola Hospital that was completed on 1 February 2022.
The investment environment was challenging due to higher interest rates and lower stock prices. Net investment income decreased by EUR 368 million to EUR –113 million. An overlay approach is applied to certain equity instruments of insurance companies. Changes in the fair value of investments within the scope of the overlay approach are presented under the fair value reserve under shareholders’ equity. The overlay approach increased investment income by EUR 157 million (–91). Total investment income decreased by EUR 120 million year on year, to EUR 44 million.
Net income from financial assets at fair value through other comprehensive income totalled EUR 23 million (37), of which net capital losses accounted for EUR 1 million. A year ago, net capital gains totalled EUR 9 million. Net capital gains on all financial instruments recognised through fair value reserve totalled EUR 17 million (85).
Net income from financial assets, recognised at fair value in net investment income through profit or loss, totalled EUR –647 million (83). Net income from financial assets held for trading decreased by a total of EUR 283 million due to changes in the fair value of derivatives. Value changes in Credit Valuation Adjustment (CVA) in derivatives owing to market changes improved earnings by EUR 4 million (15). Fair value of equity instruments recognised at fair value in the income statement decreased by a total of EUR 340 million and that from notes and bonds by a total of EUR 151 million, year on year. An item corresponding to the increase in the discount rate of the insurance liability for non-life insurance, EUR 96 million, was shown as negative value change in net investment income. Life insurance items, which include, for example, changes in technical items, increased net investment income by EUR 353 million to EUR 478 million. Net income from investment property increased by EUR 25 million due to positive changes in fair value following the sale of hospital buildings.
The combined return on investments at fair value of OP Financial Group’s insurance companies was –10.9% (0.5). The negative figure was affected by a rise in interest rates and the fall in stock prices.
Other operating income increased to EUR 46 million (43). The sale of Pohjola Hospital increased other operating income by EUR 32 million. A year ago, the sale of Checkout Finland Ltd increased other operating income.
Total expenses increased by 1.0% year on year, to EUR 1,001 million. Personnel costs decreased by 2.1% to EUR 451 million. Depreciation/amortisation and impairment loss on PPE and intangible assets decreased by 14.2% to EUR 110 million. Other operating expenses grew by 9.3% to EUR 440 million. ICT costs totalled EUR 185 million (172). Development costs were EUR 104 million (90). Charges of financial authorities increased by 29.9%, or EUR 16 million, to EUR 69 million as a result of a higher stability contribution paid to the Single Resolution Fund financed by the euro-area banks.
Impairment loss on loans and receivables and on investments recognised under various income statement items that reduced earnings amounted to EUR 112 million (38), of which EUR 100 million (35) concerned loans and receivables. The indirect effects of the war in Ukraine markedly increased impairment loss on receivables in the first quarter, but no longer continued to do so in the second quarter. Sectors particularly affected included agriculture, construction, transport and energy. Final credit losses recognised totalled EUR 37 million (51). Loss allowance was EUR 816 million (751) at the end of the reporting period. Non-performing exposures accounted for 2.4% (2.4) of the exposures. Impairment loss on loans and receivables accounted for 0.20% (0.07) of the loan and guarantee portfolio.
OP Financial Group’s income tax amounted to EUR 84 million (109). The effective tax rate for the reporting period was 18.3% (19.4). The tax-exempt capital gain on the sale of Pohjola Hospital reduced the effective tax rate.
OP Financial Group’s equity amounted to EUR 13.8 billion (14.2). Equity included EUR 3.2 billion (3.2) in Profit Shares, terminated Profit Shares accounting for EUR 0.2 billion (0.3). The return target for Profit Shares for 2022 is 4.45%. Interest payable on Profit Shares accrued during the reporting period is estimated to total EUR 72 million (47). The amount of interest paid for 2021 in June 2022 totalled EUR 96 million.
Comprehensive income after tax totalled EUR –247 million (466). Changes in the fair values of equities, and notes and bonds decreased the fair value reserve. Changes in the fair value reserve decreased comprehensive income by a total of EUR 731 million (–17). Gains from the remeasurement of defined benefit plans improved comprehensive income by EUR 135 million (38) as a result of the increase in the discount rate used in the calculation.
Outlook towards the year end
The world and Finnish economy still developed favourably during the first half of the year in terms of many indicators. Companies showed good financial results and unemployment fell to the rate prevailing in boom conditions. However, Russia’s aggressive war in Ukraine, the Covid-19 pandemic, higher energy prices and inflation increased the level of uncertainty and undermined development.
Central banks began to tighten their monetary policy and market interest rates rose sharply in the spring. The financial market experienced greater uncertainty and stock prices fell markedly.
Several exceptional factors affect the economic outlook. The Covid-19 pandemic, the war in Ukraine, high inflation, increasing uncertainty in the financial market and the tightening monetary policy are undermining the economic outlook. However, there is a lot of pent-up demand following the pandemic, and the economic situation is still strong. In the near future, inflation is expected to remain high and economic growth to slow down, but the economic situation in Finland and the rest of the euro area should remain fairly good. As the year proceeds, monetary policy is anticipated to tighten and interest rates are expected to continue rising.
OP Financial Group’s earnings before tax for 2022 are expected to be lower than in 2021. The most significant uncertainties affecting earnings performance due to the war in Ukraine, the Covid-19 pandemic and inflation relate to changes in the interest rate and investment environment and to the developments in impairment loss on receivables. The war in Ukraine and the related sanctions and counter-sanctions are expected to substantially increase the uncertainties associated with the economy and profit performance.
All forward-looking statements in this Half-year Financial Report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view on developments in the economy, and actual results may differ materially from those expressed in the forward-looking statements.
OP Financial Group's financial performance will be presented to the media by President and Group Chief Executive Officer Timo Ritakallio in a press conference on 27 July 2022 at 11am at Gebhardinaukio 1, Vallila, Helsinki.
Media enquiries: OP Corporate Communications, tel. +358 10 252 8719, firstname.lastname@example.org
OP Corporate Bank plc and OP Mortgage Bank plc will publish their own Half-year Financial Reports.
Time of publication of 2022 reports:
Interim Report Q1−3/2022
26 October 2022
OP Amalgamation capital adequacy tables 30 June 2022
OP Amalgamation capital adequacy tables 30 September 2022
Helsinki, 27 July 2022
Board of Directors
Timo Ritakallio, President and Group Chief Executive Officer, tel. +358 (0)10 252 4500
Mikko Timonen, Chief Financial Officer, tel. +358 (0)10 252 1325
Anni Hiekkanen, Chief Communications Officer, tel. +358 (0)10 252 1989
Nasdaq Helsinki Ltd
Euronext Dublin (Irish Stock Exchange)
London Stock Exchange
OP Financial Group is Finland’s largest financial services group, with more than two million owner-customers and approximately 13,000 employees. We provide a comprehensive range of banking and insurance services for personal and corporate customers. OP Financial Group consists of OP cooperative banks, its central cooperative OP Cooperative, and the latter's subsidiaries and affiliates. Our mission is to promote the sustainable prosperity, security and wellbeing of our owner-customers and operating region. Together with our owner-customers, we have been building Finnish society and a sustainable future for 120 years now. www.op.fi