OP Financial Group
Half-year Financial Report 1 January–30 June 2023
Stock Exchange Release 25 July 2023 at 9.00 EEST
OP Financial Group’s Half-year Financial Report for 1 January–30 June 2023: Operating profit EUR 986 million – Income increased markedly
- Operating profit (earnings before tax) was EUR 986 million (402).
- Income from customer business, or net interest income, insurance service result and net commissions and fees, increased by 47% to EUR 1,777 million (1,209). Net interest income grew by 93% to EUR 1,299 million (675). Insurance service result decreased by EUR 48 million to EUR 8 million (56). Net commissions and fees were EUR 470 million (478).
- Impairment loss on receivables in the income statement totalled EUR 99 million (100). Ratio of impairment loss on receivables to loan and guarantee portfolio was 0.19% (0.20).
- Investment income increased by 101% to EUR 250 million (125).
- Total expenses increased by 9% to EUR 1,079 million (988).
- In the year to June, OP Financial Group’s loan portfolio decreased by 1% to EUR 98.5 billion (99.2). Deposits decreased by 4% to EUR 73.3 billion (76.0).
- CET1 ratio was 18.8% (17.4), which exceeds the minimum regulatory requirement by 6.5 percentage points. During the first quarter, OP Financial Group adopted the Standardised Approach to credit risk.
- Retail Banking operating profit rose to EUR 524 million (136). Net interest income grew by 106% to EUR 999 million (485). Impairment loss on receivables increased by EUR 16 million to EUR 76 million (60). Net commissions and fees decreased by 9% to EUR 361 million (397). The loan portfolio decreased by 1% and deposits by 2% in the year to June.
- Corporate Banking operating profit was EUR 219 million (91). Net interest income grew by 33% to EUR 285 million (214). Impairment loss on receivables decreased by EUR 17 million to EUR 23 million (40). Net commission and fees grew by 39% to EUR 116 million (83) and investment income by EUR 23 million to EUR 30 million (7). The loan portfolio increased by 2% and deposits decreased by 23% in the year to June.
- Insurance operating profit was EUR 217 million (148). Insurance service result decreased by EUR 48 million to EUR 8 million (56). Investment income increased by 226% to EUR 211 million (65). Non-life Insurance recorded a combined ratio of 98% (94).
- Group Functions operating loss was EUR –1 million (–24).
- New OP bonuses accrued to owner-customers totalled EUR 134 million (107). OP Financial Group allocates part of its profitability improvement to support the daily lives of its owner-customers. The Group increased the OP bonuses earned for 2023 by 30% and will not charge its owner-customers for daily services between October 2023 and March 2024. The increase in OP bonuses means an estimated additional bonus of more than EUR 60 million for 2023. The value of the additional benefit from free daily banking services is approximately EUR 44 million.
- 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 Half-year Financial 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
| H1/2023 | H1/2022 | Change, % | Q1–4/2022 | |
| Operating profit, € million | 986 | 402 | 145.2 | 1,120 |
| Retail Banking | 524 | 136 | 286.1 | 502 |
| Corporate Banking | 219 | 91 | 140.1 | 416 |
| Insurance | 217 | 148 | 46.6 | 293 |
| Group Functions | -1 | -24 | - | -91 |
| New OP bonuses accrued to owner-customers, € million | -134 | -107 | 24.8 | -215 |
| Total income | 2,286 | 1,587 | 44.1 | 3,394 |
| Total expenses | -1,079 | -988 | 9.2 | -1,961 |
| Return on equity (ROE), % | 10.7 | 4.7 | 6.0* | 6.3 |
| Return on equity, excluding OP bonuses, % | 12.0 | 5.9 | 6.2* | 7.5 |
| Return on assets (ROA), % | 0.96 | 0.39 | 0.57* | 0.51 |
| Return on assets, excluding OP bonuses, % | 1.08 | 0.48 | 0.60* | 0.61 |
| 30 Jun 2023 | 30 Jun 2022 | Change, % | 31 Dec 2022 | |
| CET1 ratio, % | 18.8 | 17.6 | 1.2* | 17.4 |
| Loan portfolio, € billion** | 98.5 | 99.2 | -0.7 | 100.2 |
| Deposits, € billion** | 73.3 | 76.0 | -3.6 | 78.0 |
| Ratio of non-performing exposures to exposures, % ** | 2.53 | 2.44 | 0.9* | 2.31 |
| Ratio of impairment loss on receivables to loan and guarantee portfolio, % | 0.19 | 0.20 | -0.01* | 0.11 |
| Owner-customers (1,000) | 2,075 | 2,057 | 0.9 | 2,066 |
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. 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:
OP Financial Group reports strong performance, capital base and liquidity
In the first half of 2023, Finland saw modest economic growth, inflation remained clearly higher than before and market interest rates continued to rise. Despite the challenges in the business environment, OP Financial Group’s operating profit continued to develop extremely well in the second quarter. The operating profit for January–June was EUR 986 million, which was clearly higher than a year ago.
OP Financial Group’s CET1 ratio improved to 18.8%, which exceeds the minimum regulatory requirement by 6.5 percentage points. Our liquidity also remained excellent. Strong capital adequacy, excellent liquidity and broad trust among customers and other stakeholders are equally vital for a bank and an insurance company. At OP Financial Group, all these factors are in excellent shape.
Despite the apparent rise in funding costs, income from customer business showed solid growth, boosted in particular by the strong increase in net interest income. Similarly, investment income developed well in January–June. Meanwhile, net commissions and fees were slightly down, and insurance service result was clearly lower than a year ago. Overall, our income grew by 44 per cent in the first half of the year. OP Financial Group’s cost trend remained well under control, with a growth rate of 9 per cent from a year earlier.
All three business segments showed strong performances in January–June. Growth was particularly strong in Retail Banking, whose operating profit grew by 286 per cent, following favourable developments in net interest income. Similarly, Corporate Banking and Insurance clearly outperformed their results for H1 2022.
Deposits and the loan portfolio continued to perform sluggishly: deposits decreased by 4 per cent and the loan portfolio by 1 per cent year on year. Demand for new home loans and corporate loans was clearly down from a year ago.
Financial market calms down after the turbulence of early 2023
The instability on the financial market has levelled off since the first months of the year. The banking turbulence, which had its origins in the US, has persisted around regional US banks; in Europe, no new problem banks have emerged since the Swiss-based Credit Suisse. However, the first half of 2023 has seen a clear rise in banks’ funding costs around the world.
In the past few months, the world economic outlook has become increasingly polarised: the industrial sector is in recession whereas the service sector continues to grow. The labour market situation has remained strong. We expect continuing economic growth driven by the service sector. As in other countries, use of consumer savings for service consumption has supported the Finnish economy. Construction and industries susceptible to economic fluctuations are experiencing a downturn in Finland, with no rapid turnaround in sight.
Strong rise in health insurance demand and claims expenditure
The problems in public health care were clearly driving demand for health insurance. In the first half of 2023, the volume of new health insurance policies issued by Pohjola Insurance grew by 20 per cent from a year ago. Simultaneously, claims expenditure for health insurance grew by 50 per cent year on year. The digital transformation in health care is also reflected in the insurance sector: our Health Advisor service reached the milestone of one million contacts in April.
Coaching customers in making better financial choices
OP Financial Group aims to coach its 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. Despite the challenging economic times, our customers were active in saving and investing. In January–June, they opened more than 6,000 new equity savings accounts and over 59,000 systematic investment plans. Almost 3 million fund subscriptions were made through systematic investment plans, 7 per cent more than a year earlier. OP Financial Group’s mutual funds have more than 1.2 million unitholders. More than 45,000 new Growth Return Accounts were opened during the reporting period.
Despite weak economic development, high inflation and rising interest rates, the loan repayment capacity of personal and corporate customers remained fairly good during the reporting period. The amount of non-performing exposures grew slightly, but the need for loan repayment holidays did not grow from last year. In April–June, the number of applications for home loan modifications was lower than a year ago. The volume of new home loans grew by as much as 23 per cent from the first quarter.
Meanwhile, the amount of extra repayments made by our customers on loans in January–June was around 10 per cent higher than a year ago. Towards the end of the reporting period, however, we identified weak signals indicating a deterioration in loan repayment capacity among some customers.
As market rates continued to rise during the spring, an increasing number of our home loan customers gained relief from interest rate protection. At the end of June, 32 per cent of our customers were benefiting from interest rate caps on their mortgages. In financial terms, their net benefit from interest rate caps totalled EUR 51 million during the reporting period.
Continued investments in digital transformation – OP Financial Group to hire an additional 300 IT professionals
Our personal and corporate customers increasingly use digital channels for their banking and insurance matters. OP-mobile alone had 55 million logins in June. OP’s mobile channels have almost 1.6 million active users.
During the first half of 2023, we continued our ICT investments, first and foremost to further increase the smoothness of our customer business and ensure data security and security of supply in all circumstances. Based on our estimate, OP Financial Group’s ICT development expenditure for 2023 will amount to EUR 365 million (313). In future, artificial intelligence will play an increasingly important role in the provision of banking and insurance services. For this reason, we have decided to hire an additional 300 ICT professionals to OP Financial Group in order to develop competitive financial services of the future that will be increasingly based on AI.
OP Financial Group to increase rewards for its owner-customers
In light of OP Financial Group’s strong earnings performance, we want to continue rewarding our owner-customers and will provide them with various additional benefits. As we have previously announced, 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. The estimated value of this additional benefit to our owner-customers will be more than EUR 60 million. In addition, we have now decided that we will not charge our owner-customers for daily services between October 2023 and March 2024. The total value of this additional benefit to our owner-customers in these financially challenging times will be approximately EUR 44 million. Our owner-customers will continue to enjoy financial and other benefits stemming from the financial success of a financial services group owned by its customers.
Many thanks to our customers for trusting in us, and to our personnel and governing bodies for their excellent work in the first half of the year.
January–June
OP Financial Group’s operating profit (earnings before tax) was EUR 986 million (402), up by EUR 584 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 47.0% to EUR 1,777 million (1,209).
Net interest income grew by 92.6% to EUR 1,299 million. A significant rise in market interest rates increased net interest income. Net interest income reported by the Retail Banking segment increased by EUR 514 million and that by the Corporate Banking segment by EUR 71 million. In the year to June, OP Financial Group’s loan portfolio decreased by 0.7% to EUR 98.5 billion and deposits by 3.6% to EUR 73.3 billion. New loans drawn down by customers during the reporting period totalled EUR 10.9 billion (12.9).
Impairment loss on loans and receivables, which reduces earnings, totalled EUR 99 million (100). Provisions related to the real estate and construction sector increased. A year ago, the indirect effects of Russia’s aggressive war in Ukraine increased impairment loss on receivables. Final credit losses recognised totalled EUR 32 million (37). Loss allowance was EUR 804 million (736) at the end of the reporting period. Non-performing exposures accounted for 2.5% (2.3) of total exposures. Impairment loss on loans and receivables accounted for 0.19% (0.20) of the loan and guarantee portfolio.
Net commissions and fees were EUR 470 million (478). Net commissions and fees for payment transfer services increased by EUR 8 million, those for mutual funds by EUR 12 million and those for lending by EUR 6 million. Meanwhile, net commissions and fees for residential brokerage decreased by EUR 6 million, those for insurance contracts brokerage by EUR 18 million and those for securities brokerage by EUR 4 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 48 million to EUR 8 million. Reinsurance costs increased, and claims expenditure related to medical expenses insurance rose due to higher claims volumes. The number of large claims decreased year on year. Insurance service result includes EUR 237 million (207) in operating expenses. The Insurance segment’s non-life insurance revenue increased by 4.7% to EUR 843 million. Claims incurred decreased by 3.7% to EUR 566 million and operating expenses increased by 12.2% to EUR 233 million. Combined ratio reported by non-life insurance weakened to 97.6% (94.3).
Investment income, or net investment income, net insurance finance income and income from financial assets held for trading, increased by a total of 100.5% to EUR 250 million. Investment income grew as a result of the increase in the value of shares.
OP Financial Group adopted IFRS 17 Insurance Contracts and stopped applying the overlay approach. The Insurance segment’s investment result 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 3.4% (–10.9). A year ago, the negative figure was affected by a rise in interest rates and the fall in stock prices.
Net income from financial assets recognised at fair value through profit or loss, or notes and bonds, shares and derivatives, totalled EUR 762 million (–2,670). Net income from investment contract liabilities totalled EUR –300 million (929). Net insurance finance income totalled EUR –253 million (1,861). Net income from investment property decreased by EUR 16 million to EUR 11 million.
In banking, net income from financial assets held for trading increased by a total of EUR 67 million to EUR 19 million due to the increase in interest income from notes and bonds and derivatives.
Other operating income decreased to EUR 21 million (46). A year ago, the sale of Pohjola Hospital increased other operating income by EUR 32 million.
Total expenses increased by 9.2% to EUR 1,079 million. Personnel costs rose by 13.4% to EUR 484 million. The increase was affected by higher headcount and growth in the provision for performance-based bonuses as well as the one-off compensation under collective agreements paid to personnel during the reporting period. Depreciation/amortisation and impairment loss on PPE and intangible assets decreased by 16.8% to EUR 92 million. Other operating expenses increased by 11.7% to EUR 504 million. ICT costs totalled EUR 207 million (185). Development costs were EUR 127 million (104). Charges of financial authorities fell by EUR 8 million to EUR 64 million.
Income tax amounted to EUR 196 million (72). The effective tax rate for the reporting period was 19.9% (17.9). 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 803 million (142). Changes in the fair value reserve improved comprehensive income by a total of EUR 3 million (–297).
OP Financial Group’s equity amounted to EUR 15.2 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 214% (217) and NSFR was 131% (128). In the reporting period, OP Financial Group repaid in full the EUR 12.0 billion in TLTRO III loans.
Outlook towards the year end
The economy is expected to enter a mild recession and inflation to fall back slowly. An exceptional degree of uncertainty is still associated with the business environment. Rising interest rates are weakening the real estate market and construction sector in particular. Combined with the geopolitical situation, developments in global capital markets 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 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.
Press conference
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 25 July 2023 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 Half-year Financial Reports.
Financial reporting 2023
| Interim Report Q1−3/2023 | 25 October 2023 |
| OP Amalgamation capital adequacy tables 30 June 2023 | Week 32 |
| OP Amalgamation capital adequacy tables 30 September 2023 | Week 44 |
Helsinki, 25 July 2023
OP Cooperative
Board of Directors
Additional information:
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
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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
