OP Financial Group’s Interim Report for 1 January–31 March 2023: Operating profit EUR 480 million – a strong capital base and good liquidity in an uncertain business environment
OP Financial Group
Interim Report 1 January–31 March 2023
Stock Exchange Release 3 May 2023 at 9.00 EEST
OP Financial Group’s Interim Report for 1 January–31 March 2023: Operating profit EUR 480 million – a strong capital base and good liquidity in an uncertain business environment
Operating profit (earnings before tax) was EUR 480 million (174).
Income from customer business, or net interest income, insurance service result and net commissions and fees, increased by 43% to EUR 857 million (601). Net interest income grew by 84% to EUR 615 million (334). Insurance service result decreased by EUR 23 million to EUR –2 million (21). Net commissions and fees were EUR 244 million (247).
Impairment loss on receivables in the income statement decreased by EUR 60 million to EUR 23 million (83). Ratio of impairment loss on receivables to loan and guarantee portfolio was 0.09% (0.33).
Investment income increased by 82% to EUR 128 million (70).
Total expenses increased by 8% to EUR 553 million (514).
In the year to March, OP Financial Group’s loan portfolio grew by 1% to EUR 98.8 billion (97.9) and deposits decreased by 1% to EUR 74.1 billion (75.0).
CET1 ratio was 18.3% (17.4), which exceeds the minimum regulatory requirement by 6.0 percentage points. During the first quarter, OP Financial Group adopted the Standardised Approach to credit risk. The transition had no effect on its capital adequacy.
Retail Banking operating profit rose to EUR 256 million (54). Net interest income grew by 93% to EUR 455 million (236). Impairment loss on receivables decreased by EUR 29 million to EUR 12 million (41). Net commissions and fees decreased by 8% to EUR 194 million (211). The loan portfolio grew by 0.4% and deposits by 0.3% year on year.
Corporate Banking operating profit was EUR 100 million (3). Net interest income grew by 32% to EUR 138 million (104). Impairment loss on receivables decreased by EUR 32 million to EUR 11 million (43). Net commission and fees grew by 40% to EUR 58 million (42) and investment income by EUR 21 million to EUR 19 million (–2). The loan portfolio increased by 4% and deposits decreased by 20% in the year to March.
Insurance operating profit was EUR 90 million (85). Insurance service result decreased by EUR 23 million to EUR –2 million (21). Investment income increased by 168% to EUR 94 million (35). Non-life Insurance recorded a combined ratio of 101% (98).
Group Functions operating profit amounted to EUR 4 million (11).
New OP bonuses accrued to owner-customers totalled EUR 64 million (54). OP Financial Group allocates part of its profitability improvement to support the daily lives of its owner-customers by increasing the OP bonuses they earn for 2023 by 30%. This means an estimated additional bonus totalling more than EUR 60 million for 2023.
OP Financial Group has applied IFRS 17 Insurance Contracts as of 1 January 2023. As a result of the IFRS 17 transition, OP Financial Group’s equity capital on 1 January 2022 decreased by EUR 52 million on the date of transition. At the same time, the Group ceased to apply the overlay approach. The figures in the income statement and balance sheet for 2022 have been adjusted retrospectively. Note 1 Accounting policies of this Interim Report provides more information on the adoption of IFRS 17 and the changes in the format of the income statement and balance sheet.
Operating profit (earnings before tax) for 2023 is expected to be higher than in 2022. For more detailed information on the outlook, see “Outlook towards the year end”.
OP Financial Group’s key indicators
Operating profit, € 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 2023
31 Mar 2022
31 Dec 2022
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, %
OP Financial Group has applied IFRS 17 Insurance Contracts as of 1 January 2023. The 2022 figures in the income statement and balance sheet have been adjusted retrospectively. The preceding years’ figures (2019, 2020 and 2021) have not been adjusted. Note 1 Accounting policies of this report provides more details on the adoption of IFRS 17 and the changes in the format of the income statement and balance sheet.
Comparatives for the income statement are based on the corresponding figures a year ago. Unless otherwise specified, figures from 31 December 2022 are used as comparatives for balance-sheet and other cross-sectional items.
*Change in ratio.
**The loan portfolio and deposits exclude changes in the fair value of loans and deposits in hedge accounting as of 1 January 2023. Comparatives have been adjusted to correspond to the current definition.
Comments by President and Group Chief Executive Officer Timo Ritakallio
The first quarter of 2023 was characterised by uncertainty on the global capital markets, which had its origins in the US. A major financial crisis seems to have been avoided, but instability persists and banks’ funding costs are rising. Despite the challenges in the business environment, OP Financial Group’s operations are performing strongly, with earnings at an excellent EUR 480 million in the first quarter of 2023.
Strong capital adequacy, excellent liquidity and broad trust among customers and other stakeholders are vital for a bank – particularly in an uncertain environment. OP Financial Group’s CET1 ratio was very strong at 18.3%, which exceeds the minimum regulatory requirement by 6.0 percentage points. This makes us one of the most financially solid banks in Europe. Our liquidity is also excellent. In addition, various surveys state that OP Financial Group is a highly trusted financial services group with a good reputation.
In the first quarter, our net interest income grew by 84 per cent to EUR 615 million. Net commissions and fees remained at almost the same level as a year ago. The insurance service result decreased to EUR –2 million. Investment income rose, particularly at the start of the quarter. In the high-inflation environment, costs remained well under control, growing by eight per cent compared to the same period last year. Earnings were good in all three business segments – Retail Banking, Corporate Banking and Insurance. Retail Banking’s earnings in euros particularly improved on last year.
Deposits and the loan portfolio performed sluggishly: deposits decreased by 1 per cent but the loan portfolio grew by 1 per cent year on year. Regardless of the uncertain business environment and rising interest rates, the loan repayment capacity of personal and corporate customers remained high, and there was no increase in non-performing exposures.
Impairment loss on receivables continued to be low. In the current situation, protecting home loans against rising interest rates brings certainty and security to our customers’ daily lives. At the end of March, more than 25 per cent of our customers were benefiting from interest rate caps on their mortgages.
Our customers have continued to save and invest systematically, despite the uncertain economic outlook. Investment has remained popular – it is growing in importance as part of sound, long-term financial planning by our customers, who opened almost 22,000 new book-entry and equity savings accounts in the first quarter. More than 10,000 new accounts were opened in March alone, the second-biggest monthly total ever for OP Financial Group. Early in the year, our customers also actively invested in fixed income funds. In addition, increased interest in fixed income investment products led to growing demand for structured products with capital guarantees.
The rapid digitalisation of consumers’ daily lives continues: more and more of our customers are using digital channels to manage their banking and insurance. Over 1.5 million personal and SME customers were actively using OP-mobile by the end of March.
The number of insurance customers grew in early 2023, and demand for health and term life insurance was particularly lively. Pohjola Insurance and OP Life Assurance Company have strong solvency, securing their operations even in the most volatile of capital markets. Operational and service capability development has focused on Claims Settlement in particular, and on improving the customer experience and ensuring smooth services.
Our investments in promoting a sustainable economy increased our corporate customers’ commitment portfolio in this regard to EUR 5.5 billion. Demand for sustainable financing has remained strong and companies have made active use of our expertise in financing the sustainable economy. The slowdown in companies’ willingness to invest led to sluggish growth in demand for loans.
As our strategy states, corporate responsibility is a key element in our investment, lending and insurance processes. In March, we began making green loans to SMEs, housing companies and farms operating as companies. These new green loans are boosting investments in areas such as energy-efficient construction, renewable energy, and infrastructure for low-emission transport. We signed a guarantee agreement with the European Investment Fund in March, to promote the green transition and innovation investment. This will enable around EUR 200 million in additional financing for the Finnish market. In the same month, we gave OP Visa cards a new look; from now on, cards with the new design will be made of recycled plastic.
As a financial services group owned by our customers, we want to benefit our clients and the business environment regardless of the tumult in the world around us. This year, we will make daily life easier for around 2.1 million of our owner-customers by paying 30 per cent extra on OP bonuses accumulated in 2023. In the first quarter, this meant an additional EUR 11 million in bonus accumulation for them. The estimated amount for the entire year will be over EUR 60 million.
In 2023, we will also share the benefits of our improved profitability by paying a total of EUR 4.5 million in donations and sponsorship to promote the wellbeing of children and young people. Our donations will be focused on enabling children and young people to pursue hobbies, and on improving their financial literacy and employment across Finland. We will also donate to Save the Children Finland’s Eväitä Elämälle (Fuel for Life) programme, which supports the hobbies of under-18s from low-income families. In April, we began the Hippo Street Tennis Tour of schools across Finland, the first activity started under our new Hippo sports school concept. Our cooperation with sports federations is one of the concrete steps we take to improve wellbeing and provide children with opportunities to exercise and try out new sports on a national basis.
We aim to coach our customers to help them make better financial choices in both banking and insurance. In these uncertain times, it is also important to build confidence in a better tomorrow. Our strong capital adequacy, profitability and leading market position provide us with the basis for fulfilling these aspirations.
Many thanks to our customers for trusting in us, and to our personnel and governing bodies for our excellent start to the year!
OP Financial Group’s operating profit (earnings before tax) was EUR 480 million (174), up by EUR 306 million year on year. Income from customer business, or net interest income, net commissions and fees and insurance service result, increased by a total of 42.5% to EUR 857 million (601).
Net interest income grew by 84.4% to EUR 615 million. A significant rise in market interest rates increased net interest income. Net interest income reported by the Retail Banking segment increased by EUR 219 million and that by the Corporate Banking segment by EUR 34 million. In the year to March, OP Financial Group’s loan portfolio grew by 0.9% to EUR 98.8 billion and deposits decreased by 1.1% to EUR 74.1 billion. New loans drawn down by customers during the reporting period totalled EUR 4.8 billion (6.0).
Impairment loss on loans and receivables, which reduces earnings, totalled EUR 23 million (83). A year ago, the indirect effects of Russia’s aggressive war in Ukraine increased impairment loss on receivables. Final credit losses recognised totalled EUR 7 million (9). Loss allowance was EUR 752 million (736) at the end of the reporting period. Non-performing exposures accounted for 2.4% (2.3) of total exposures. Impairment loss on loans and receivables accounted for 0.09% (0.33) of the loan and guarantee portfolio.
Net commissions and fees totalled EUR 244 million (247). Net commissions and fees for payment transfer services, mutual funds and lending increased by EUR 3 million. Meanwhile, net commissions and fees for residential, insurance and securities brokerage decreased by EUR 3 million.
OP Financial Group has applied IFRS 17 Insurance Contracts as of 1 January 2023. The figures in the income statement and balance sheet for 2022 have been adjusted retrospectively. Insurance service result decreased by EUR 23 million to EUR –2 million. Insurance service result includes EUR 120 million (106) in operating expenses. In non-life insurance, the timing of insurance service result changed in the year to March. Expected losses are immediately recognised in the income statement, which decreases earnings for the first quarter. Meanwhile in life insurance, the recognition of loss component changed the timing of earnings between years. The Insurance segment’s non-life insurance revenue increased by 5.5% to EUR 415 million. Claims incurred increased by 4.2% to EUR 304 million and operating expenses increased by 1.6% to EUR 112 million. Combined ratio reported by non-life insurance weakened to 100.5% (97.7).
The investment environment was challenging in the first quarter due to the uncertainty of the global capital markets. Nevertheless, investment income, or net investment income, net insurance finance income and financial assets held for trading, increased by a total of 82.3% to EUR 128 million. A year ago, investment income decreased due to market reactions to Russia’s aggressive war in Ukraine.
OP Financial Group adopted IFRS 17 Insurance Contracts and stopped applying the overlay approach. The Insurance segment’s net investment income at fair value is fully recognised in the income statement. The impact of economic assumptions, such as the changes in interest rates, on the value of insurance contract liabilities is recognised in net finance income in the income statement. Net investment income together with net finance income describe investment profitability in the insurance business. The combined return on investments at fair value of OP Financial Group’s insurance companies was 2.1% (–4.7).
Net income from financial assets recognised at fair value through profit or loss, or notes and bonds, shares and derivatives, totalled EUR 485 million (–1,214). Net income from investment contract liabilities totalled EUR –174 million (418). Net insurance finance income totalled EUR –223 million (837).
In banking, net income from financial assets held for trading increased by a total of EUR 52 million due to the increase in interest income from notes and bonds and derivatives. Net income from financial assets at fair value through other comprehensive income totalled EUR 4 million (9), of which capital gains accounted for EUR 4 million (9).
Other operating income decreased to EUR 6 million (54). A year ago, the sale of Pohjola Hospital increased other operating income by EUR 32 million.
Total expenses increased by 7.6% year on year, to EUR 553 million. Personnel costs rose by 5.3% to EUR 222 million. Depreciation/amortisation and impairment loss on PPE and intangible assets decreased by 18.6% to EUR 47 million. Other operating expenses increased by 15.6% to EUR 284 million. ICT costs totalled EUR 104 million (90). Development costs were EUR 64 million (50). Charges of financial authorities, EUR 63 million, were at the previous year’s level (64).
Income tax amounted to EUR 95 million (25). The effective tax rate for the reporting period was 19.7% (14.7). A year ago, the tax-exempt capital gain of EUR 32 million on the sale of Pohjola Hospital reduced the effective tax rate.
Comprehensive income after tax totalled EUR 420 million (3). Changes in the fair value reserve improved comprehensive income by a total of EUR 27 million (–173).
OP Financial Group’s equity amounted to EUR 14.9 billion (14.7). Equity included EUR 3.3 billion (3.4) in Profit Shares, terminated Profit Shares accounting for EUR 0.3 billion (0.4).
OP Financial Group’s funding position and liquidity is strong. At the end of the reporting period, the Group’s LCR was 217% (217) and NSFR was 127% (128). In the reporting period, OP Financial Group repaid in full the EUR 12 billion in TLTRO III loans.
Outlook towards the year end
The economy is expected to sink into a moderate recession and inflation to decrease slowly. An exceptional degree of uncertainty is still associated with the business environment. Developments in global capital markets together with the geopolitical situation may abruptly affect the business environment.
OP Financial Group’s operating profit (earnings before tax) for 2023 is expected to be higher than in 2022, due to an increase in market rates.
The most significant uncertainties affecting OP Financial Group’s earnings performance are associated with developments in the business environment, changes in the interest rate and investment environment and developments in impairment loss on receivables. 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 3 May 2023 at 11am at Gebhardinaukio 1, Vallila, Helsinki.
Media enquiries: OP Corporate Communications, tel. +358 10 252 8719, email@example.com
OP Corporate Bank plc and OP Mortgage Bank plc will publish their own interim reports.
Time of publication of 2023 reports:
Half-year Financial Report H1/2023
25 July 2023
Interim Report Q1−3/2023
25 October 2023
OP Amalgamation capital adequacy tables 31 March 2023
OP Amalgamation capital adequacy tables 30 June 2023
OP Amalgamation capital adequacy tables 30 September 2023
Helsinki, 3 May 2023
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