OP Financial Group
Interim Report 1 January–31 March 2022
Stock Exchange Release 4 May 2022 at 9.00 EEST
OP Financial Group’s Interim Report 1 January–31 March 2022: Earnings before tax EUR 189 million – net interest income and net commissions and fees increased in an uncertain business environment
Earnings before tax totalled EUR 189 million (265).
Income from customer business decreased by 1% to EUR 736 million (743). Net interest income increased by 5% to EUR 333 million (316) and net commissions and fees by 1% to EUR 272 million (270). Net insurance income decreased by 16% to EUR 131 million (157).
Investment income decreased by 25% to EUR 68 million (91).
Total income decreased by 11% to EUR 793 million (896). Total income including the overlay approach, EUR 844 million (841), remained unchanged year on year.
Total expenses increased by 3% to EUR 523 million (507).
Impairment loss on receivables in the income statement increased by EUR 61 million to EUR 83 million (22). This increase mainly came from the indirect effects of the war in Ukraine. Ratio of impairment loss on receivables to loan and guarantee portfolio was 0.11% (0.09).
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 the rise in energy and raw material prices.
OP Financial Group’s loan portfolio grew by 4% to EUR 97 billion (94) and deposits by 5% to EUR 75 billion (71) year on year.
The CET1 ratio was 18.4% (18.2), which exceeds the minimum regulatory requirement by 8.7 percentage points. OP Financial Group has decided to apply a risk-weighted assets (RWA) floor, based on the standardised approach, in the calculation of its capital adequacy ratio. Application of the floor is expected to decrease OP Financial Group’s CET1 ratio by no more than 3 percentage points in the second quarter of 2022.
Retail Banking earnings before tax were EUR 54 million (66). Net interest income, EUR 236 million (235), was at the previous year’s level, and net commissions and fees increased by 7% to EUR 211 million (198). Impairment loss on receivables increased by EUR 17 million to EUR 41 million (24). The loan portfolio grew by 2% and deposits by 5% in the year to March.
Corporate Banking earnings before tax were EUR 3 million (115). Net interest income increased by 4% to EUR 104 million (100), net commissions and fees decreased by 20% to EUR 42 million (52) and net investment income decreased by EUR 51 million to EUR –2 million (49). Impairment loss on receivables increased by EUR 45 million to EUR 43 million.
Insurance earnings before tax were EUR 100 million (117). Net insurance income decreased by 16% to EUR 138 million (164). Investment income decreased by EUR 21 million to EUR 35 million (56). Non-life Insurance recorded an operating combined ratio of 95.4% (86.0).
Group Functions earnings before tax were EUR 11 million (–22).
New OP bonuses accrued to owner-customers totalled EUR 54 million (51).
OP Financial Group turns 120 in 2022 and wants to reward its owner-customers. The return target for Profit Shares for 2022 has been raised by 1.20 percentage points to 4.45%.
The sale of Pohjola Hospital Ltd to Pihlajalinna Terveys Oy was finalised on 1 February 2022. OP Financial Group recognised a capital gain of EUR 32 million on the sale.
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 Mar 2022
31 Mar 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 deriving from the income statement are based on figures for the corresponding periods a year ago. Unless otherwise specified, balance-sheet and other cross-sectional figures on 31 December 2021 are used as comparatives.
*Change in ratio
Comments by President and Group Chief Executive Officer Timo Ritakallio
OP Financial Group’s earnings before tax for the first quarter of 2022 came to EUR 189 million. Regarding our business segments, the earnings performance of Retail Banking and Insurance was good in January–March but that of Corporate Banking was clearly weaker than a year ago.
In the year to March, net interest income was up by 5% and net commissions and fees by 1%. Meanwhile, net insurance income decreased by 16% year on year, particularly due to higher expenditure on insurance claims. Russia’s attack on Ukraine increased uncertainty in the capital market, causing a decline in share prices and a rise in interest rates. The challenging investment environment also had a negative effect on OP Financial Group’s net investment income: including the overlay approach, investment income decreased year on year by EUR 23 million, to EUR 68 million.
OP Financial Group’s expenses, EUR 523 million, were 3% higher than a year ago. The EUR 16 million increase in expenses was entirely due to a rise in the stability contribution paid to the Single Resolution Fund financed by the euro-area banks.
In the year to March, OP Financial Group’s loan portfolio increased by 4% and its deposit portfolio by 5%. The growth rate in deposits has slowed markedly since the early stages of the pandemic.
The war in Ukraine had both a direct and indirect impact on the quality of the loan portfolio, increasing impairment loss on receivables by EUR 61 million to EUR 83 million year on year. Nevertheless, impairment loss on receivables remained very low, representing 0.11% of the loan and guarantee portfolio.
OP Financial Group’s CET1 ratio remained strong at 18.4 per cent. In the calculation of its capital adequacy ratio, OP Financial Group has decided to implement a risk-weighted assets (RWA) floor – based on the standardised approach – in the second quarter of 2022. Application of the floor is expected to decrease OP Financial Group’s CET1 ratio by no more than 3 percentage points.
Our customers remained active in the capital market in the first quarter despite fluctuations in share prices. Share trading volumes increased by almost 19% year on year. A record number of 26,000 new book-entry accounts and equity savings accounts were opened in the first quarter. Mutual funds also continued to be a popular investment: in January–March, the number of unitholders grew by more than 24,000 people. Almost 40,000 new systematic investment plans were made.
A weaker economic outlook and increasing uncertainty had only a temporary effect on the number of new home loan applications and brokered homes. Accelerating inflation and the rise in market interest rates have increased customers’ willingness to protect against interest rate risk involved in their home loans. At the end of the reporting period, 31% of our home loan portfolio was covered by interest rate protection – in March, more than 38% of new home loans had such protection.
The liquidity of Finnish companies has remained strong, even though their daily operations are affected by the war in Ukraine and the resulting economic sanctions. A survey we conducted indicates that a quarter of Finnish companies involved in international trade have already found markets replacing those of Russia and Belarus. OP helps to remove obstacles to international trade by streamlining companies’ international payments and cash management. In early 2022, OP was the first bank in Finland to launch a service that enables businesses to track their international payments in real time. In the future, corporate customers will be able to make payments from accounts with non-Finnish as well as Finnish banks in Europe, through the same digital service.
The continuing Covid-19 pandemic and Russia’s attack on Ukraine, and its consequences, make it exceptionally difficult to forecast economic developments. However, based on the latest estimates, the economic climate is expected to remain reasonable despite a clear slowdown in economic growth. In Finland, healthy household finances and strong corporate balance sheets should enable the Finnish economy to navigate reasonably well through the expected weakening of the economic cycle.
OP Financial Group celebrates its 120th anniversary this year. We have already been making this journey with our customers, through good and bad times, for 120 years. In accordance with our mission, we promote sustainable prosperity, security and wellbeing for our more than 2 million owner-customers and operating region. We will continue to pursue this mission today and beyond, in line with our values – responsibly, by putting people first, and by succeeding together. Our warm thanks to our customers for trusting in us, and to our personnel for their amazing performance during these times of general uncertainty.
OP Financial Group’s earnings before tax amounted to EUR 189 million (265), down by EUR 76 million from the previous year. As regards income from customer business, net interest income and net commissions and fees increased. Earnings were reduced by lower net insurance income and investment income and higher impairment loss on receivables.
Net interest income increased by 5.4% to EUR 333 million. Net interest income reported by the Retail Banking segment increased by EUR 1 million, that by the Corporate Banking segment by EUR 4 million and that by the Group Functions segment by EUR 11 million. OP Financial Group’s loan portfolio grew by 3.8% to EUR 97.4 billion and deposits by 4.9% to EUR 74.8 billion, year on year. New loans drawn down by customers during the reporting period totalled EUR 6.0 billion (5.1).
Net insurance income decreased by 16.4% to EUR 131 million. The Insurance segment’s non-life insurance premium revenue increased by 5.2% to EUR 391 million. Claims incurred increased by 21.1% to EUR 264 million. Large claims increased claims incurred by EUR 22 million year on year. Operating combined ratio reported by non-life insurance was 95.4% (86.0).
Net commissions and fees totalled EUR 272 million (270). Mutual fund net commissions and fees increased by EUR 3 million and those for asset management by EUR 2 million.
The investment environment was challenging due to higher interest rates and the war in Ukraine. Net investment income decreased by EUR 128 million to EUR 18 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 51 million (–55). Total investment income decreased by EUR 23 million year on year, to EUR 68 million.
Net income from financial assets at fair value through other comprehensive income totalled EUR 14 million (31), of which capital gains accounted for EUR 6 million (9). Capital gains on all financial instruments recognised through fair value reserve totalled EUR 12 million (62).
Net income from financial assets recognised at fair value through profit or loss totalled EUR –252 million (–20). Net income from financial assets held for trading decreased by a total of EUR 42 million due to changes in the fair value of derivatives. Value changes in Credit Valuation Adjustment (CVA) in derivatives owing to market changes reduced earnings by EUR 3 million. A year ago, value changes in Credit Valuation Adjustment (CVA) in derivatives owing to market changes improved earnings by EUR 16 million. Income from equity instruments recognised at fair value in the income statement decreased by a total of EUR 156 million and that from notes and bonds by a total of EUR 37 million, year on year. Life insurance items, which include, for example, changes in technical items, increased net investment income by EUR 88 million to EUR 222 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 –4.7% (–0.6). The negative figure was affected by a rise in interest rates and the war in Ukraine.
Other operating income increased to EUR 39 million (7). The sale of Pohjola Hospital increased other operating income by EUR 32 million.
Total expenses increased by 3.1% year on year, to EUR 523 million. Personnel costs increased by 1.9% to EUR 226 million. Depreciation/amortisation and impairment loss on PPE and intangible assets decreased by 9.8% to EUR 57 million.
Other operating expenses grew by EUR 18 million to EUR 239 million, representing a growth of 7.9%. ICT costs totalled EUR 90 million (91). Development costs were EUR 50 million (46). Charges of financial authorities increased by 40.1%, or EUR 18 million, to EUR 64 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 94 million (20), of which EUR 83 million (22) concerned loans and receivables. The increase mainly came from the indirect effects of the war in Ukraine. Sectors particularly affected included agriculture, construction, transport and energy. Final credit losses recognised totalled EUR 9 million (35). Loss allowance was EUR 828 million (751) at the end of the reporting period. Non-performing exposures accounted for 2.5% (2.4) of the exposures. Impairment loss on loans and receivables accounted for 0.11% (0.09) of the loan and guarantee portfolio.
OP Financial Group’s income tax amounted to EUR 29 million (55). The effective tax rate for the reporting period was 15.2% (20.9). The tax-exempt capital gain on the sale of Pohjola Hospital reduced the effective tax rate.
OP Financial Group’s equity amounted to EUR 13.9 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 35 million (24). The amount of interest to be paid for 2021 in June 2022 totals EUR 96 million.
Comprehensive income after tax totalled EUR –163 million (187). Changes in the fair value reserve decreased comprehensive income by EUR 351 million (–37).
Outlook towards the year end
The world economy grew at a brisk pace during early 2022. Fast economic recovery from the crisis caused by the Covid-19 pandemic increased raw material prices and sped up inflation, however. Covid-19 infections and the resulting restrictions continued to undermine economic development not only in service sectors but also in industrial sectors suffering from problems in production chains. After Russia’s attack on Ukraine, raw material prices rose more sharply and inflation accelerated further.
In the financial market, stock prices fell and market interest rates rose during the first quarter. The immediate increase in uncertainty caused by Russia’s war of aggression remained short-lived in the market.
Exceptional uncertainty casts a shadow over the economic outlook. The Covid-19 pandemic, the Russian invasion of Ukraine and a strong rise in raw material prices constitute a situation where their combined effects are very hard to predict.
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 losses. 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 Interim 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 4 May 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 interim reports.
Financial reporting in 2022:
Half-year Financial Report H1/2022
27 July 2022
Interim Report Q1−3/2022
26 October 2022
OP Amalgamation capital adequacy tables 31 March 2022
OP Amalgamation capital adequacy tables 30 June 2022
OP Amalgamation capital adequacy tables 30 September 2022
Helsinki, 4 May 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