OP Financial Group's Interim Report for 1 January–31 March 2024: OP
Financial Group reports a strong Q1 – operating profit EUR 618
million
OP Financial GroupInterim Report 1 January–31 March 2024Stock
Exchange Release 8 May 2024 9.00 am EET
OP Financial Group's Interim Report for 1 January–31
March 2024: OP Financial Group reports a strong Q1 – operating
profit EUR 618 million
- Operating profit was EUR 618 million
(480).
- Income from customer business, or net
interest income, insurance service result and net commissions and
fees, increased by 13% to EUR 969 million (857). Net interest
income grew by 24% to EUR 763 million (615). Insurance service
result decreased by EUR 8 million to EUR –10 million (–2). Net
commissions and fees decreased by 11% to EUR 217 million
(244).
- Impairment loss on receivables in the
income statement was EUR 39 million (23), accounting for 0.15%
(0.09) of the loan and guarantee portfolio.
- Investment income increased by 19% to
EUR 151 million (128).
- Total expenses decreased by 3% to EUR
537 million (553). The cost/income ratio improved to 43% (50).
- In the year to March, the loan
portfolio decreased by 1% to EUR 98.4 billion (98.8). Deposits
decreased by 1% to EUR 73.6 billion (74.1).
- CET1 ratio was 19.6% (19.2), which
exceeds the minimum regulatory requirement by 7.3 percentage
points.
- Retail Banking
segment's operating profit rose to EUR 368 million (256).
Net interest income grew by 34% to EUR 611 million (455).
Impairment loss on receivables increased by EUR 15 million to EUR
27 million (12). Net commissions and fees decreased by 17% to EUR
161 million (194). The cost/income ratio improved to 43% (52). The
loan portfolio decreased by 1% and deposits by 2% year on
year.
- Corporate Banking
segment's operating profit rose to EUR 140 million (100).
Net interest income grew by 21% to EUR 166 million (138).
Impairment loss on receivables increased by EUR 1 million to EUR 12
million (11). Net commissions and fees decreased by 3% to EUR 57
million (58). The cost/income ratio improved to 34% (47). The loan
portfolio grew by 2% and deposits by 11% year on year.
- Insurance segment's
operating profit rose to EUR 118 million (90). Insurance service
result decreased by EUR 8 million to EUR –10 million (–2).
Investment income increased by 37% to EUR 129 million (94).
Combined ratio reported by non-life insurance weakened to 109%
(101).
- Group Functions
operating loss was EUR –5 million (4).
- OP Financial Group increased the OP
bonuses earned by owner-customers in 2024 by 40% compared to the
2022 level. The estimated total amount of OP bonuses to be paid in
2024 will exceed EUR 300 million. In addition, owner-customers will
get daily banking services without monthly charges until the end of
2024. The estimated total value of this benefit will be EUR 88
million for 2024.
- OP Financial Group's operating profit
for 2024 is expected to be at a good level but lower than that for
2023. For more detailed information on the outlook, see "Outlook
towards the year end".
OP Financial Group’s key indicators
|
Q1/2024 |
Q1/2023 |
Change, % |
Q1–4/2023 |
Operating profit, € million |
618 |
480 |
28.7 |
2,050 |
Retail Banking |
368 |
256 |
43.5 |
1,223 |
Corporate Banking |
140 |
100 |
39.8 |
408 |
Insurance |
118 |
90 |
31.4 |
414 |
Group Functions |
-5 |
4 |
- |
-26 |
New OP bonuses accrued to owner-customers, € million |
-75 |
-64 |
17.4 |
-275 |
Total income |
1,259 |
1,111 |
13.3 |
4,775 |
Total expenses |
-537 |
-553 |
-2.9 |
-2,201 |
Cost/income ratio, % |
42.6 |
49.8 |
-7.1* |
46.1 |
Return on equity (ROE), % |
12.1 |
10.5 |
1.6* |
10.6 |
Return on equity, excluding OP bonuses, % |
13.4 |
11.8 |
1.6* |
12.0 |
Return on assets (ROA), % |
1.25 |
0.94 |
0.31* |
0.98 |
Return on assets, excluding OP bonuses, % |
1.39 |
1.05 |
0.34* |
1.11 |
|
31 Mar 2024 |
31 Mar 2023 |
Change, % |
31 Dec 2023 |
CET1 ratio, % |
19.6 |
18.3 |
1.3* |
19.2 |
Loan portfolio, € billion |
98.4 |
98.8 |
-0.5 |
98.9 |
Deposits, € billion |
73.6 |
74.1 |
-0.8 |
74.5 |
Ratio of non-performing exposures to exposures, % |
3.04 |
2.41 |
0.6* |
2.94 |
Ratio of impairment loss on receivables to loan and guarantee
portfolio, % |
0.15 |
0.09 |
0.06* |
0.26 |
Owner-customers (1,000) |
2,095 |
2 071 |
1.1 |
2,094 |
Comparatives for the income statement are based on the
corresponding figures in 2023. Unless otherwise specified, figures
from 31 December 2023 are used as comparatives for balance-sheet
and other cross-sectional items. * Change in ratioComments
by the President and Group Chief Executive Officer:
Finland's economic performance was weaker than forecast,
inflation continued to slow and, despite a small decrease, interest
rates remained higher than in previous years
Finland's economic growth in January–March was slower than
forecast. This was due to factors such as strikes and the poor
performance of the construction sector. Despite this, the economy
is slowly resuming an upward trend thanks to exports and consumer
spending. After a poor start to the year, the Finnish economy could
even recover brusquely, but this would still be just a rebound from
a long-standing, sluggish growth trend.
Inflation in Finland slowed to a couple of per cent in early
2024. The slowdown in the inflation rate and the fall in interest
rates will support the economic turnaround. In January–March,
market rates remained considerably higher than previously familiar
levels, due to the ECB's continuation of its tight monetary
policy.
On the housing market, home sale volumes and demand for home
loans were clearly lower than a year earlier. In addition, home
prices continued their moderate downward trend.
Low economic growth affected construction and the related
sectors in particular. Overall risks in the real estate sector
remained a cause for concern. The number of new bankruptcies was
again considerably higher than in previous years; new bankruptcy
petitions were filed in sectors such as construction, accommodation
and restaurant services in particular.
Geopolitical risks remained high as the situation in the Middle
East deteriorated. No improvement is expected in this regard in the
near future. The global economic outlook has nevertheless improved
in recent months and indicators suggest that the economy will
gradually pick up.
OP Financial Group had a strong first quarter – this
excellent performance enables considerable benefits for
owner-customers
Despite the challenging business environment, OP Financial
Group's operating profit fared extremely well. Earnings before tax
for January–March grew by 29 per cent year on year. Operating
profit was 618 million euros in the first quarter. Our strong
profit performance enables us to provide outstanding benefits for
our almost 2.1 million owner-customers in 2024. This year again, we
will use such benefits to help ease the strain on households in
economically challenging times. OP Financial Group will pay 40%
extra on OP bonuses earned in 2024 and will not charge
owner-customers monthly fees for daily services throughout the
year. Together, these benefits will add up to around 400 million
euros in value for owner-customers. Being customer-owned, OP
Financial Group will continue to share its financial success
through a range of financial and other benefits for its
owner-customers.
Strong capital adequacy and excellent liquidity provide security
in an uncertain and often unpredictable business environment. OP
Financial Group's CET1 ratio strengthened again, to 19.6 per cent,
which exceeds the minimum regulatory requirement by 7.3 percentage
points. OP Financial Group is one of the most financially solid
large banks in Europe. Furthermore, our liquidity remained
excellent. Strong capital adequacy, excellent liquidity and broad
trust among customers and other stakeholders are vital both for
banks and insurance companies. OP Financial Group is in great shape
in all these respects.
OP Financial Group's income from customer business continued to
grow, mainly spurred by the strong increase in net interest income.
Both deposit funding and wholesale funding costs rose. On the other
hand, net commissions and fees decreased by 11 per cent year on
year, chiefly due to the benefit (provided for owner-customers) of
zero monthly charges for daily banking services.
The insurance service result was a EUR 10 million loss,
attributable to growth in claims expenditure in particular. In
early 2024, claims expenditure was swelled by several large claims
and claims due to frost damage, as well as active use of health
insurance.
Income from investment activities was excellent, rising by 24
million euros from last year to 151 million euros in total. Total
income grew by 13 per cent in January–March, compared to the same
period in 2023.
On the other hand, OP Financial Group's costs decreased by three
per cent year on year, the key reduction being the fall of 62
million euros in stability contributions. The EU's Single
Resolution Board (SRB) will not collect stability contributions
from banks for 2024. Without this effect, expenses would have grown
by 9 per cent. This was chiefly the result of rising personnel
costs and higher investments in ICT development. OP Financial
Group's cost/income ratio markedly improved year on year, to the
excellent level of 43 per cent.
All three business segments performed well. Growth was
particularly strong in the Retail Banking segment, with operating
profit rising by 44 per cent to 368 million euros, following
favourable developments in net interest income. Corporate Banking's
profit improved considerably, by 40 per cent, to 140 million euros.
Earnings in the insurance segment were 118 million euros. This was
31 per cent higher year on year, largely because of the excellent
result in investment income.
Deposit and loan volumes turned slightly downwards –
customers' repayment capacity remained very good
The deposit portfolio decreased by 0.8 per cent over the year.
This was mainly due to a clear reduction in deposits by corporate
and institutional customers. Household deposits, on the other hand,
grew by just over a per cent. OP Financial Group’s market share of
household deposits rose again, to 42.6 per cent.
OP Financial Group's loan portfolio shrank by 0.5 per cent, with
demand for new home loans and corporate loans at a low level.
Despite higher interest rates, home loan customers have been
repaying their loans diligently and on schedule. The number of loan
modification applications was lower than the year before. OP
Financial Group’s market share of home loans was 39 per cent.
Following the deterioration in the construction and real estate
sectors in 2023, the situation regarding customers in these sectors
remained difficult in the first quarter of 2024. The weak economy
led to another slight increase in expected credit loss provisions
and non-performing exposures, but these were moderate in historical
terms.
Interest in saving and investing grew
We aim to coach our customers to help them make better financial
choices. We provide various ways of managing personal finances more
easily, while enabling and supporting long-term saving and
investing. Asset and wealth management is one of our growth focus
areas and we aim to make a clear growth leap in this business
activity. During the quarter, our customers retained a strong
interest in securing their financial futures and accumulating
wealth.
OP Financial Group's customers were interested in systematically
investing in funds, with 51 per cent more new investment agreements
being made than in the same period last year. The number of OP
mutual fund unitholders rose to more than 1.31 million. There was
also considerable growth in the number of active equity investors.
Reaching almost 107 billion euros in value, investment assets
managed by OP Financial Group grew by 8 per cent year on year.
Clear rise in insurance claims expenditure
Insurance claims expenditure grew by 22 per cent compared to the
first quarter in 2023, owing to a few large claims, the
exceptionally freezing weather at the start of the year, and active
use of health insurance. Compensation was paid for 94 per cent of
all claims. Hard frosts in January led to a record number of broken
pipe and emergency road service claims. Compared to January–March
last year, property damage claims rose by 91 per cent and emergency
road service claims by as much as 129 per cent. The weak claims
trend raised the non-life insurance risk ratio to almost 82 per
cent. Insurance revenue rose by eight per cent in early 2024.
Steady growth in use of digital services
continues
Use of digital services grew substantially again. Personal and
corporate customers increasingly use digital channels for banking
and insurance. OP-mobile was logged into more than 57 million times
in March. OP-mobile already has more than 1.6 million active
users.
Major structural change is underway between OP
cooperative banks
Several plans for restructuring projects between OP cooperative
banks around Finland were published during the first quarter. If
the projects announced so far were implemented, the number of OP
cooperative banks would reduce from 102 at the end of 2023 to 71 by
the end of 2025. In addition, several merger projects (not yet
published) between OP cooperative banks were at the planning
stage.
Key drivers of merger projects include OP cooperative banks' aim
to ensure that they can provide banking services of the widest
possible range and highest quality in their operating region, and
the increase in regulatory requirements in the banking sector.
Together through time
OP Financial Group is in good shape and we are ready to support
our customers during the mild recession now underway. For example,
I would encourage customers experiencing loan repayment problems to
contact their OP cooperative bank at the earliest possible stage,
so that we can seek the best solution together.
At the beginning of April, the Ministry of Finance invited
comments on a draft proposal to reform the tax treatment of
customer bonuses in the financial sector. If the bill is
implemented, it will affect the tax treatment of OP bonuses used to
pay insurance premiums. However, OP Financial Group will ensure
that there is no reduction in the net value of normal benefits
accrued by owner-customers, even if the legislative change
occurs.
My warm thanks to all our customers for the trust they showed in
OP Financial Group in early 2024. We aim to continue being worthy
of the confidence you place in us. I would also like to thank our
employees and governing bodies for their excellent work in the
first quarter of 2024.
Timo RitakallioPresident and Group CEO
January–March
OP Financial Group's operating profit was EUR 618 million (480),
up by EUR 138 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 13.1% to EUR 969 million
(857). The cost/income ratio improved to 42.6% (49.8).
Net interest income grew by 24.0% to EUR 763 million. A rise in
market rates continued to increase net interest income. Net
interest income reported by the Retail Banking segment increased by
34.3% to EUR 611 million and that by the Corporate Banking segment
increased by 20.8% to EUR 166 million. OP Financial Group's loan
portfolio decreased by 0.5% to EUR 98.4 billion and deposits by
0.8% to EUR 73.6 billion year on year. However, household deposits
increased by 1.3% to EUR 47.0 billion. New loans drawn down by
customers during the reporting period totalled EUR 4.5 billion
(4.8).
Impairment loss on loans and receivables, which reduces
earnings, totalled EUR 39 million (23). Final credit losses
recognised totalled EUR 12 million (7). At the end of the reporting
period, loss allowance was EUR 957 million (929), of which
management overlay accounted for EUR 109 million (109).
Non-performing exposures accounted for 3.0% (2.9) of total
exposures. Impairment loss on loans and receivables accounted for
0.15% (0.09) of the loan and guarantee portfolio.
Net commissions and fees decreased by 11.3% to EUR 217 million.
Owner-customers have got daily banking services without monthly
charges since October 2023. This contributed to the decrease in
payment transfer net commissions and fees. Net commissions and fees
for payment transfer services decreased by EUR 21 million to EUR 55
million, and those for residential brokerage by EUR 2 million to
EUR 13 million. Net sales commissions on insurance contracts
decreased by EUR 12 million to EUR 14 million. Meanwhile, net
commissions and fees for mutual funds increased by EUR 7 million to
EUR 55 million.
Insurance service result decreased by EUR 8 million to EUR –10
million as a result of higher net claims incurred. In
January–March, the number of large claims was higher than usual,
which increased claims incurred. Insurance service result includes
EUR 129 million (120) in operating expenses. Non-life insurance
revenue increased by 9.1% to EUR 453 million, net claims incurred
after reinsurer's share by 25.2% to EUR 345 million and operating
expenses by 1.7% to EUR 118 million. Combined ratio reported by
non-life insurance weakened to 108.9% (100.5).
Investment income, or net investment income, net insurance
finance expenses and income from financial assets held for trading,
increased by a total of 18.6% to EUR 151 million. Investment income
grew as a result of the increase in the value of equity
investments. 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 2.0% (2.1).
Net income from financial assets recognised at fair value
through profit or loss, or notes and bonds, shares and derivatives,
totalled EUR 744 million (485). Net income from investment contract
liabilities totalled EUR –359 million (–174). Net insurance finance
expenses totalled EUR –250 million (–223).
In banking, net income from financial assets held for trading
decreased by a total of EUR 25 million to EUR 8 million due to the
decrease in interest income from notes and bonds.
Other operating income increased to EUR 9 million (6).
Total expenses decreased by 2.9% to EUR 537 million. Personnel
costs rose by 15.4% to EUR 256 million. The increase was affected
by headcount growth and pay increases. At OP Financial Group, the
number of personnel increased by 1,000 year on year.
Depreciation/amortisation and impairment loss on PPE and intangible
assets decreased by 29.2% to EUR 33 million. Other operating
expenses decreased by 12.8% to EUR 248 million. ICT costs totalled
EUR 123 million (104). Development costs were EUR 83 million (64)
and capitalised development expenditure EUR 14 million (23).
Charges of financial authorities fell by EUR 62 million to EUR 1
million. The EU's Single Resolution Board (SRB) will not collect
stability contributions from banks for 2024. In 2023, OP Financial
Group paid a total of EUR 62 million in stability
contributions.
The income statement item 'OP bonuses to owner-customers' grew
by 17.2% to EUR 65 million (55) as a result of the additional
bonuses paid for 2024.
Income tax amounted to EUR 125 million (95). The effective tax
rate for the reporting period was 20.3% (19.7). Comprehensive
income after tax totalled EUR 509 million (420).
OP Financial Group's equity amounted to EUR 16.5 billion (16.3).
Equity included EUR 3.2 billion (3.3) in Profit Shares, terminated
Profit Shares accounting for EUR 0.2 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 199% (199)
and NSFR was 130% (130).
OP Cooperative's Annual Cooperative Meeting
On 23 April 2024, OP Cooperative held its Annual Cooperative
Meeting which elected members of the Supervisory Council and the
auditor.
The Supervisory Council comprises 36 members. The Annual
Cooperative Meeting re-elected the following members to the
Supervisory Council who were due to resign: Managing Director Kaisa
Markula, Managing Director Ulf Nylund, Managing Director Teuvo
Perätalo, HR Director Titta Saksa and Professor of Regional
Development Studies Markku Sotarauta.
New Supervisory Council members elected were Customer
Relationship Director Essi Alaluukas, Senior Lecturer Kati Antola,
Lawyer Sanna Ebeling, Managing Director Jouni Hautala, Managing
Director Miia Hirvonen, Managing Director Ari Karhapää, Managing
Director Juha Korhonen, Managing Director Leena Perämäki, Managing
Director Eija Sipola, Managing Director Kirsi Soltin, Managing
Director Agneta Ström-Hakala and entrepreneur Antti Turkka.
At its reorganising meeting on 23 April 2024, the Supervisory
Council elected the Chairs of the Supervisory Council. Chair of the
Board of Directors Annukka Nikola was elected as Chair and
entrepreneur Taija Jurmu and Managing Director Ari Väänänen as Vice
Chairs of the Supervisory Council.
The Annual Cooperative Meeting elected PricewaterhouseCoopers
Oy, an audit firm, to act as auditor for the financial year 2024,
with APA Lauri Kallaskari as the chief auditor.
The Annual Cooperative Meeting elected PricewaterhouseCoopers
Oy, a sustainability audit firm, to assure OP Financial Group's
sustainability reporting for the financial year 2024, with Tiina
Puukkoniemi, ASA, acting as the chief authorised sustainability
auditor.
Outlook towards the year end
The Finnish economy declined in the first quarter, but recovery
in the export market, improvement in spending power and a fall in
interest rates are anticipated to ameliorate the economy towards
the year end. The escalation of geopolitical crises may abruptly
affect capital markets and the economic environment.
OP Financial Group's operating profit for 2024 is expected to be
at a good level but lower than that for 2023.
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.
Press conference
OP Financial Group's financial performance will be presented to
the media by the President and Group Chief Executive Officer Timo
Ritakallio in a press conference on 8 May 2024 at 11am at
Gebhardinaukio 1, Vallila, Helsinki.
Media enquiries: OP Corporate Communications, tel. +358 10 252
8719, viestinta@op.fi
OP Corporate Bank plc and OP Mortgage Bank plc will publish
their own interim reports.
Financial reporting 2024:
Half-year Financial Report H1/2024 |
24 July 2024 |
Interim Report Q1−3/2024 |
31 October 2024 |
OP Amalgamation Pillar III Disclosures 30 June 2024 |
Week 33 |
OP Amalgamation Pillar III Disclosures 30 September 2024 |
Week 45 |
Helsinki, 8 May 2024
OP CooperativeBoard of
Directors
Additional information:
Timo Ritakallio, President and Group Chief Executive Officer,
tel. +358 (0)10 252 4500Mikko Timonen, Chief Financial Officer,
tel. +358 (0)10 252 1325Lotta Ala-Kulju, Head of Corporate
Communications, tel. +358 (0)10 252 8719
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OP Financial Group is Finland’s largest financial services
group, with more than two million owner-customers and nearly 14,000
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
- OP Financial Group’s Interim Report Q1 2024
- OP Financial Group's Q1 2024 background material