OP Financial Group
Financial Statements Bulletin 1 January–31 December 2021
9 February 2022 09.00 am EET
OP Financial Group’s Financial Statements Bulletin for 1 January–31 December 2021: Earnings before tax improved to EUR 1,127 million – strong growth in income from customer business, costs under control
- Earnings before tax improved by 44% to EUR 1,127 million (785).
- Income from customer business increased by a total of 14% to EUR 3,186 million (2,787). Net interest income increased by 10% to EUR 1,409 million (1,284), net insurance income by 30% to EUR 743 million (572) and net commissions and fees by 11% to EUR 1,034 million (931).
- Investment income rose by 42% to EUR 257 million (181).
- Total income increased by 17% to EUR 3,616 million (3,103).
- Total expenses increased by 9% to EUR 2,007 million (1,839). The transfer of the remaining statutory earnings-related pension liability to Ilmarinen Mutual Pension Insurance Company reduced OP Financial Group’s pension costs by EUR 96 million in 2020. Excluding the transfer, total expenses increased by 4%.
- Impairment loss on receivables was EUR 158 million (225), accounting for 0.16% (0.23) of the loan and guarantee portfolio.
- OP Financial Group’s loan portfolio grew by 4% to EUR 97 billion (94) and the deposit portfolio by 7% to EUR 76 billion (71).
- The CET1 ratio was 18.2% (18.9). Proactive recognition of changes related to the internal models method weakened capital adequacy by one percentage point.
- Retail Banking earnings before tax improved to EUR 304 million (115). Net interest income increased by 4% and net commissions and fees by 8%. Impairment loss on receivables decreased by EUR 88 million to EUR 84 million (172). The loan portfolio increased by 2% and deposits by 5%.
- Corporate Banking earnings before tax improved to EUR 474 million (349). Net interest income increased by 5%, net commissions and fees by 34% and net investment income by 20%. Impairment loss on receivables increased by EUR 21 million to EUR 74 million (53).
- Insurance earnings before tax improved to EUR 504 million (348). Net insurance income grew by 30% to EUR 754 million (582). Investment income rose by EUR 86 million to EUR 170 million (84). The operating combined ratio improved to 85.5% (87.8) in non-life insurance.
- Other Operations earnings before tax were EUR –109 million (3). A year ago, the sale of the Vallila property improved earnings by EUR 96 million.
- New OP bonuses accrued to owner-customers totalled EUR 210 million (255). The accrual of OP bonuses was changed as of 1 November 2020.
- OP Financial Group paid interest on Profit Shares for 2020 to holders of those shares on 4 October 2021. In the payment of interest, OP Financial Group complied with the ECB’s recommendation that limited banks’ profit distribution, which expired on 30 September 2021.
- In honour of its 120th anniversary in 2022, OP Financial Group increases the return target for Profit Shares by 1.20 percentage points. This means that the return target for 2022 is at 4.45%.
- The sale of Pohjola Hospital Ltd to Pihlajalinna Terveys Oy was finalised on 1 February 2022.
- Earnings before tax for 2022 are expected to be lower than in 2021. For more detailed information on the outlook, see “Outlook for 2022”.
OP Financial Group’s key indicators
| Q1–4/2021 | Q1–4/2020 | Change, % | |
| Earnings before tax, € million | 1,127 | 785 | 43,6 |
| Retail Banking | 304 | 115 | 165.3 |
| Corporate Banking | 474 | 349 | 35.8 |
| Insurance | 504 | 348 | 44.5 |
| Other Operations | -109 | 3 | - |
| New OP bonuses accrued to owner-customers, € million | -210 | -255 | - |
| Return on equity (ROE), % | 6.6 | 5.0 | 1.6* |
| Return on equity, excluding OP bonuses, % | 7.8 | 6.6 | 1.3* |
| Return on assets (ROA), % | 0.54 | 0.42 | 0.12* |
| Return on assets, excluding OP bonuses, % | 0.64 | 0.55 | 0.09* |
| 31 Dec 2021 | 31 Dec 2020 | Change, % | |
| CET1 ratio, % | 18.2 | 18.9 | -0.7* |
| Loan portfolio, € billion | 96.9 | 93.6 | 3.5 |
| Deposits, € billion | 75.6 | 70.9 | 6.6 |
| Ratio of non-performing exposures to exposures, %** | 2.4 | 2.5 | -0.1* |
| Ratio of impairment loss on receivables to loan and guarantee portfolio, % | 0.16 | 0.23 | -0.08* |
| Owner-customers (1,000) | 2,049 | 2,025 | 1.2 |
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 2020 are used as comparatives. *Change in ratio
** The name and content of the ratio was changed in Q1/2021. Comparatives have been adjusted accordingly. More detailed information on the change can be found under table Forborne loans and non-performing receivables in the Risk exposure section of this Financial Statements Bulletin.
Comments by President and Group Chief Executive Officer Timo Ritakallio
OP Financial Group’s earnings for 2021 were record high, at EUR 1,127 million. All three business segments – Retail Banking, Corporate Banking and Insurance – markedly improved their earnings year on year. Income from customer business increased by 14%, due to higher net commissions and fees, net interest income and net insurance income. Investment income also showed strong growth.
OP Financial Group reported controlled growth in expenses. The pension liability transfer to Ilmarinen Mutual Pension Insurance Company reduced pension costs in 2020. Excluding this effect, expenses grew by 4%. Our income clearly grew faster than expenses, in line with our strategic target. Total income increased by 17%.
Our customers’ repayment capacity remained good as reflected by the year-on-year decrease in impairment loss on receivables. At EUR 158 million, impairment loss on receivables was 0.16% of the loan and guarantee portfolio.
OP Financial Group’s capital adequacy continues to be strong – among the best in the European banking sector. The CET1 ratio was 18.2% at the end of December.
In 2021, our customers were more active than ever in the capital market. OP’s mutual funds attracted almost 190,000 new unitholders, or 46% of all new unitholders in mutual funds registered in Finland. Measured by the number of unitholders, OP-Climate was the most popular fund in Finland; the number of unitholders rose by 85% in 2021. As part of our revised owner-customer benefits, we launched an investor benefits package in early 2021, encouraging owner-customers to build their wealth by saving and investing on a long-term basis. Overall, the investment assets of households increased by 16% and those of SME customers by 21% in 2021.
Responsible business is one of our strategic priorities. We are continuously developing our responsible products, which have become increasingly popular in the investment and financing markets. Exposures from our sustainable corporate finance doubled to EUR 3 billion. As part of our corporate responsibility programme, we promote financial literacy in Finland by providing services for the management of personal finances and guidance in financial and digital skills. Despite the challenges caused by the Covid-19 pandemic in 2021, we taught financial skills to more than 39,000 children and young people, and digital skills to more than 8,400 people.
We focus on banking and insurance – our core business. In early 2022, we finalised arrangements to simplify the structure of the central cooperative consolidated. The Finnish Competition and Consumer Authority approved the sale of Pohjola Hospital to Pihlajalinna. The transaction was finalised on 1 February 2022.
More merger projects were implemented between OP cooperative banks than at any other time this century: there were 121 OP cooperative banks at the end of 2021, compared to 137 a year earlier. A major merger project was launched in the Helsinki Metropolitan Area when Helsinki Area Cooperative Bank, Itä-Uudenmaan Osuuspankki and Uudenmaan Osuuspankki decided to merge to form a single, more competitive bank offering even better services.
The economic recovery continued in the fourth quarter of 2021, although the number of infections caused by the Omicron virus variant began to rise sharply. Inflation continued to accelerate towards the end of the year, and central banks announced the gradual tightening of monetary policy. Uncertainty increased in the financial market due to expectations of higher inflation and interest rates.
The Finnish economy has recovered from the Covid-19 pandemic faster than the euro area on average, with household finances improving due to the positive employment trend. The housing market was lively in 2021, although peak growth began to level off towards the end of the year. Businesses are in good financial health, which has increased their willingness to invest. Uncertainty prevails, despite the positive economic outlook: risks are posed by the exceptional business cycle as well as non-economic factors such as Covid-19 and geopolitical developments.
Due to expectations of rising interest rates, our customers have shown increasing interest in interest-rate hedging for home loans and housing company loans. At the end of 2021, 29.6% of personal customers’ home loans were covered by interest rate protection, characterised by long hedging periods and low levels of interest rate caps.
OP Financial Group has been helping people to grow their wealth and wellbeing, and building a sustainable future, for 120 years. As we celebrate the Group’s 120th anniversary this year, we are offering our owner-customers the possibility of an additional interest rate of 1.2 percentage points on Profit Shares, bringing the return target for 2022 to 4.45%.
Our warm thanks to our customers for trusting in us, and to our personnel and governing bodies for their excellent and fruitful cooperation!
January–December
OP Financial Group’s earnings before tax amounted to EUR 1,127 million (785), up by EUR 342 million from the previous year. Income from customer business, or net interest income, net insurance income and net commissions and fees, showed strong growth. Earnings were also improved by higher investment income and lower impairment loss on receivables.
Net interest income increased by 9.7% to EUR 1,409 million. Net interest income reported by the Retail Banking segment increased by EUR 34 million, that by the Corporate Banking segment by EUR 20 million and that by the Other Operations segment by EUR 70 million. The conditional additional margin of –0.5% exceeding the ECB’s deposit facility rate under TLTRO III funding increased net interest income by EUR 103 million (18). The margin was recognised in accordance with IFRS 9 as OP Financial Group fulfilled the criteria for net lending performance. OP Financial Group’s loan portfolio grew by 3.5% to EUR 96.9 billion and deposits by 6.6% to EUR 75.6 billion. New loans drawn down by customers during the reporting period totalled EUR 26.4 billion (22.6).
Net insurance income increased by 29.9% to EUR 743 million. The Insurance segment’s non-life insurance premium revenue increased by 3.3% to EUR 1,555 million. Claims incurred decreased by 2.3% to EUR 899 million. Operating combined ratio reported by non-life insurance improved to 85.5% (87.8).
Net commissions and fees totalled EUR 1,034 million (931). Net commissions and fees for mutual funds increased by EUR 46 million and those for deposits by EUR 20 million. Life insurance total expense loading increased by EUR 15 million and net commissions and fees for payment transfer services by EUR 11 million.
Net investment income increased by EUR 192 million to EUR 376 million. Net income from financial assets at fair value through other comprehensive income totalled EUR 67 million (37), of which capital gains accounted for EUR 14 million (22).
Net income from financial assets recognised at fair value through profit or loss totalled EUR 129 million (438). Net income from financial assets held for trading decreased by a total of EUR 472 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 15 million (–16). The figure a year ago has been adjusted to correspond to the current accounting. Income from equity instruments recognised at fair value in the income statement increased by a total of EUR 293 million year on year. When the Covid-19 crisis broke out a year ago, the fair value of equities decreased significantly. Net income from investment property increased by EUR 75 million due to positive changes in fair value. Life insurance items, which include, for example, changes in technical items, increased net investment income by EUR 385 million to EUR 122 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 decreased investment income by EUR 118 million (–3). Total investment income rose by EUR 77 million year on year, to EUR 257 million. Capital gains on all financial instruments recognised through fair value reserve totalled EUR 139 million (43). The combined return on investments at fair value of OP Financial Group’s insurance companies was 1.7% (4.9).
Other operating income decreased year on year to EUR 54 million (132). The sale of Checkout Finland Ltd to Paytrail Oyj on 30 April 2021 increased other operating income. A year ago, the sale of the Vallila property increased other operating income, for which OP Financial Group recognised a capital gain of EUR 98 million in other operating income and an expense of EUR 2 million in other operating expenses. The Group will continue operating in the property under a long-term lease agreement, and the property was recognised as a right-of-use asset in the balance sheet.
Total expenses increased by 9.1% year on year, to EUR 2,007 million. Personnel costs increased by 27.9% to EUR 914 million due to higher provisions for performance-based bonuses and a higher headcount. In addition, the transfer of the remaining statutory earnings-related pension liability at the end of 2020 reduced pension costs for 2020 by EUR 96 million. Excluding the effect of the pension liability transfer, total expenses rose by 3.7% and personnel costs by 12.8%. Depreciation/amortisation and impairment loss on PPE and intangible assets increased by 3.6% to EUR 283 million. Impairment write-downs were EUR 10 million higher than the year before.
Other operating expenses decreased by 4.9% to EUR 810 million. ICT costs decreased by 7.8% to EUR 364 million. A one-off investment in the IT environment increased ICT costs a year ago. Development costs were EUR 195 million (183). Charges of financial authorities increased by 23.1% to EUR 64 million as a result of a higher EU stability contribution.
Impairment loss on loans and receivables and on investments recognised under various income statement items that reduced earnings amounted to EUR 164 million (244), of which EUR 158 million (225) concerned loans and receivables. Impairment loss on receivables was increased in particular by the tightened management of the measurement of exposures that have been non-performing for a long time and by the update of the collateral values of riskier collateral assets. A year ago, customers actively applied for repayment holidays on their loans and changes to their repayment schedules due to the Covid-19 pandemic. Combined with the changes in macroeconomic parameters applied in the calculation of expected credit losses, this increased impairment loss on receivables by EUR 88 million in January–December 2020. In addition, the adoption of the new definition of default in the first quarter of 2020 increased impairment loss on receivables by EUR 44 million in January–December 2020. Final net loan losses recognised totalled EUR 113 million (107). Loss allowance was EUR 751 million (708) at the end of the reporting period. Non-performing exposures accounted for 2.4% (2.5) of the exposures. Impairment loss on loans and receivables accounted for 0.16% (0.23) of the loan and guarantee portfolio.
OP Financial Group’s income tax amounted to EUR 224 million (144). The effective tax rate was 19.8% (18.3). A year ago, the rate decreased due to the transfer of statutory earnings-related pension liability and the group contributions provided.
Non-life insurance will focus on its core business and sell its hospital business. In the second quarter, Pohjola Hospital was classified as a non-current asset held for sale. Hospital business assets recognised in the balance sheet totalled EUR 8 million and liabilities EUR 8 million at the end of the reporting period.
OP Financial Group’s equity amounted to EUR 14.2 billion (13.1). Equity included EUR 3.2 billion (3.0) in Profit Shares, terminated Profit Shares accounting for EUR 0.3 billion (0.3). The return target for Profit Shares for 2021 is 3.25%. Interest payable on Profit Shares accrued during the reporting period is estimated to total EUR 96 million (95). The amount of interest paid for 2020 on 4 October 2021 totalled EUR 95 million and that paid for 2019 on 8 February 2021 totalled EUR 97 billion.
Comprehensive income after tax totalled EUR 897 million (734). Changes in the fair value reserve decreased comprehensive income by EUR 59 million. A year ago, changes in the fair value reserve increased comprehensive income by EUR 131 million.
Outlook for 2022
In 2021, both the world and Finnish economy recovered from the crisis caused by the Covid-19 pandemic, and economic growth was exceptionally strong due to a weak reference level. In the last quarter of the year, the economy continued to grow strongly although the strongest recovery was over. Energy raw material prices rose clearly during the latter half of the year, which sped up inflation, reaching the fastest rate in decades in many countries. In Finland, inflation accelerated more moderately than in many other countries. Nevertheless, consumer prices rose at the fastest pace in a decade.
In the financial market, stock prices increased strongly during 2021. Towards the end of the year, inflation acceleration and the central bank’s preparation for tightening monetary policy made markets nervous. Short-term interest rates remained low but longer-term rates rose gradually during the year.
The higher number of Covid-19 cases and the resulting restrictions are expected to temporarily slow down economic growth at the beginning of the year. Economic recovery is expected to continue but to slow down gradually. Inflation growth is predicted to level off but remain high throughout the early part of the year. The monetary policy is expected to be gradually tightened but the European Central Bank is not expected to raise its benchmark interest rates during the first half of the year.
Economic uncertainty is expected to remain elevated. The Covid-19 pandemic may unexpectedly slow down economic growth or cause major bottlenecks in production. Even if the economic development remained sluggish, the inflation period may prove to be longer than anticipated. This may tighten the financing conditions and increase uncertainty in the financial market.
A sudden worsening of the pandemic could affect OP Financial Group in three ways: economic, financial and capital market uncertainty would increase, a rise in financial difficulties among customers would increase credit risk and decrease the demand for services, and a worsening disease situation could make it more difficult for OP Financial Group to run its operations efficiently.
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 Covid-19 pandemic and inflation relate to changes in the interest rate and investment environment and to the developments in impairment losses.
All forward-looking statements in this Financial Statements Bulletin 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 via a webcast on 9 February 2022 at 11am.
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 financial statements bulletins.
Financial reporting
Time of publication of 2021 reports:
| OP Financial Group's Report by the Board of Directors and Financial Statements for 2021 | Week 10 |
| OP Financial Group's Corporate Governance Statement 2021 | Week 10 |
| OP Financial Group's Annual Review 2021 (incl. CSR Reporting) | Week 10 |
| OP Financial Group’s Capital Adequacy and Risk Management Report 2021 | Week 10 |
| Remuneration Report for Governing Bodies at OP Financial Group 2021 | Week 10 |
| Remuneration Policy for Governing Bodies at OP Financial Group | Week 10 |
Schedule for Interim Reports and Half-year Financial Report in 2022:
| Interim Report Q1/2022 | 4 May 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 | Week 19 |
| OP Amalgamation capital adequacy tables 30 June 2022 | Week 31 |
| OP Amalgamation capital adequacy tables 30 September 2022 | Week 44 |
Helsinki, 9 February 2022
OP Cooperative
Board of Directors
Additional information:
Timo Ritakallio, President and Group Chief Executive Officer, tel. +358 (0)10 252 4500
Vesa Aho, Chief Financial Officer, tel. +358 (0)10 252 1427
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 private 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. www.op.fi
