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OP CorporateBank plc (31VN)


Wednesday 02 August, 2017

OP CorporateBank plc

OP Financial Group's Interim Report for 1 January-30 June 2017: Strong operational transformation while maintaining the good earnings level

OP Financial Group's Interim Report for 1 January-30 June 2017: Strong operational transformation while maintaining the good earnings level

OP Financial Group
Interim report 1 January-30 June 2017
2 August 2017 09.00 am EEST

OP Financial Group's Interim Report for 1 January-30 June 2017:Strong operational transformation while maintaining the good earnings level 

Earnings were strong as expected, business grew on a broad basis        

  • Earnings before tax were EUR 583 million (614). Earnings adjusted for non-recurring items were at the previous year's level.
  • Total income grew by over 3%. Net interest income was at the previous year's level, net commissions and fees increased by 5% and net insurance income decreased by 3%.
  • Expenses increased as expected, being 10% higher than a year ago, due mainly to an increase in investments related to operational reform.
  • Impairment loss on receivables, EUR 23 million (23), remained low accounting for 0.06% of loans and receivables.
  • The CET1 ratio was 19.1% (20.1) on 30 June 2017. 
  • Banking: The loan portfolio increased by 4% and deposits by 6% in the year to June. Banking net interest income increased by 5% and earnings before tax by almost 20%, supported by investment income.
  • Non-life Insurance: Insurance premiums from private customers increased by 3%, while those from corporate customers decreased by one per cent. Non-life Insurance earnings were eroded particularly by weaker claims development than in the year before.
  • Wealth Management: Assets under management increased by 11%. Wealth Management earnings were reduced by lower investment income than a year ago.
  • Other Operations: Earnings before non-recurring items were at the previous year's level.
  • Full-year earnings for 2017 are expected to be about the same as or lower than those for 2016 due to increasing development costs and other expenses arising from strategy implementation. 

Our development programme at annual level of over EUR 400 million is proceeding as planned.

  • Development focuses on present-day businesses - over 90% of our development expenditure goes to Banking, Non-life Insurance and Wealth Management.
  • Through our large-scale basic system upgrades, we will improve the competitiveness or our basic business and enable the development of new digital services. The most important system upgrades concern payment transactions, card business, non-life insurance and financing.
  • Furthermore, there are a large number of development projects underway originating from the relevant authorities and legislation related particularly to data protection and anti-money laundering legislation as well as MiFID II regulation.
  • Online services for private and corporate customers ( were redesigned. Private customer logins to mobile services increased by almost a quarter in the first half and new functionalities were implemented, sch as Siirto payment and Pivo's new mobile payment methods. OP took its first steps in creating fully digital businesses by launching OP Nano Insurance.
  • OP introduced a record number of new products, services and functionalities onto the market. In particular, a new motor liability insurance and products protecting against a rise in interest rates met with a very favourable reception.
  • A third hospital was opened in Oulu and several new mobility initiatives were launched.
  • In the first half, the number of OP cooperative banks' owner-customers increased by almost 40,000 to 1.8 million and that of OP Financial Group's joint banking and insurance customers by 22,000 to 1.8 million.
  • New OP bonuses increased at a rate of 6%. In the first half, they totalled EUR 108 million (102). 

OP Financial Group's key indicators

  Q1-2/2017Q1-2/2016Change, %Q1-4/2016
Earnings before tax, EUR million 583 614 -5.1 1,138
  Banking 338 283 19.5 574
  Non-life Insurance 107 120 -11.2 244
  Wealth Management 93 135 -31.3 226
  Other Operations 45 76 -40.7 95
New OP bonuses accrued to owner-customers 108 102 6.1 208
  30 June 201730 June 2016Change, %31 Dec. 2016
Common Equity Tier 1 (CET1) ratio, % 19.1 19.4 -0.3* 20.1
Return on economic capital, % ** 21.8 22.4 -0.6* 22.7
Ratio of capital base to minimum amount of capital base (under the Act on the Supervision of Financial and Insurance Conglomerates), % *** 145 163 -17* 170
Ratio of impairment loss on receivables to loan and guarantee portfolio, % 0.06 0.06 0.0* 0.09
Owner-customers (1,000) 1,786 1,682 6.2 1,747

Comparatives deriving from the income statement are based on figures reported for the corresponding period in 2016. Unless otherwise specified, balance sheet and other cross-sectional figures on 31 December 2016 are used as comparatives. In the reporting period, non-recurring items included VAT refunds of EUR 22 million and an 18-million-euro profit from the sale of the portfolio of agreements and POS terminals of merchant acquiring and POS terminal services. A non-recurring item a year ago included a gain from the sale of Visa Europe Ltd, totalling EUR 71 million.

* Change in ratio
** 12-month rolling
*** The FiCo ratio has been calculated under Solvency II transitional provisions.

Comments by Reijo Karhinen, President and Group Executive Chairman

OP Financial Group's first half of the year is characterised by success in terms of transformation and financial performance. Our earnings were slightly lower than a year ago, as expected, but still very strong. Development investments that are growing heavily, according to our strategy, added to expenses significantly. Growth in income was based on favourable development in commission income while net interest income remained at the previous year's level. Favourable development in investment income compensated for a slight drop in net insurance income. Banking improved its financial performance the most, supported by volume growth, investment income and net interest income.

The historically broad-based and fast transformation in the financial sector - change in customer behaviour and transformation in the competitive arena - require remarkable reinvention of OP Financial Group too. Comprehensive reinvention in such a traditional business will necessitate huge amounts of resources, boldness and a bright future vision. Updating competencies too will become challenging.

In this transformation, our strong earnings power and in-depth customer insight as well as our genuine desire to work for customers' best interests is a clear strength of OP Financial Group owned by customers. Our challenge is to allocate development resources properly and ensure that sufficient emphasis will be put on the increasing role of customer experience as a competitive factor in all development work.

Based on our strategy confirmed in summer 2016, we have increased our annual product and service development expenditure to around EUR 400 million. The majority of this amount will be spent on extensive system upgrades and product and service development for our traditional businesses - Banking, Non-life Insurance, and Wealth Management - and for the utilisation of digitisation. This work is currently underway on an extensive basis.

As specified in our strategy, we have also taken our first bold steps in completely new businesses. We opened a third Pohjola Hospital in Oulu in May and introduced several new, innovative mobility services during the spring.

Broad-based economic recovery in Finland is a great and hoped-for thing. In the fast changing operating environment, we cannot, however, take a breathing space. Now we need creative solutions and bold initiatives in society. Digitisation is changing a whole heap of industries, conventional operating models and consumer behaviour in a way never seen before. At the same time, the ongoing update of competencies will provide all of us with the best protection. Alongside technology and new tools, there will be a need for a completely new type of abilities to understand an ecosystem mindset, sharing economy, new value chains and revenue generation models. Digitisation at its best makes it possible to create new businesses, increase employment and Finnish prosperity during the next 100 years as well.


OP Financial Group's earnings before tax amounted to EUR 583 million (614). The figure decreased by EUR 32 million over the previous year. Lower non-recurring items reduced the earnings. The reported earnings included EUR 40 million (71) in non-recurring income. Higher expenses also reduced earnings over the previous year. In the meantime, net commissions and fees and net investment income increased year on year.

Net interest income increased by 0.4% to EUR 530 million. Net interest income from Banking rose by almost 5%, but the Group's net interest income was reduced by lower net interest income from the Other Operations segment. Net insurance income declined by 2.8% to EUR 261, due to weak claims developments in the first quarter, in particular. Net commissions and fees were EUR 458 million, or EUR 20 million higher than the year before. Mutual fund commissions increased by EUR 4 million and commission expenses decreased by a total of EUR 9 million.

Net investment income increased by 29.0% to EUR 235 million. Income from equity investments under available-for-sale assets increased by a total of EUR 29 million year on year. Impairment losses on available-for-sale assets fell by EUR 19 million. Positive value changes in Credit Valuation Adjustment (CVA) in derivatives owing to market changes improved net income from securities trading. Wealth Management net investment income was reduced by lower capital gains and short-term supplementary interest rate provisions of Life Insurance made for the reporting period that were higher than a year ago.

Other operating income decreased by 26.1% year on year to EUR 69 million. Non-recurring VAT refunds for prior years, interest included, totalled EUR 22 million. In the second quarter, OP Financial Group sold its portfolio of agreements and POS terminals of acquiring and POS terminal services to Nets. Non-recurring gain of EUR 24 million on the transaction was recognised in other operating income. OP Financial Group recognised extra amortisation of EUR 3 million and other expenses of EUR 3 million related to the transaction. A year ago, OP Financial Group recognised EUR 71 million in non-recurring gain as a result of the Visa Europe Ltd transaction. 

Total expenses increased by 10.1% to EUR 854 million. This increase is mainly explained by higher development costs, operating expenses of new businesses and depreciation/amortisation. OP Financial Group's significant investments in service development increased development costs by EUR 35 million. Development costs totalled EUR 97 million (62). New businesses accounted for EUR 14 million of the increase in total expenses. Depreciation/amortisation increased by EUR 20 million year on year to EUR 95 million. Personnel costs decreased by 0.7% to EUR 393 million.

Impairment losses recognised under various income statement items that reduced earnings amounted to EUR 37 million (58), of which EUR 23 million (23) concerned loans and receivables. Net impairment loss on loans and receivables were low, at 0.06% (0.06) of the loan and guarantee portfolio.

OP Financial Group's current tax amounted to EUR 106 million (122). The effective tax rate was 19.0% (19.8).

OP Financial Group's equity capital increased by 4.9% to EUR 10.7 billion. The reported earnings and Profit Shares were behind the increase. Equity capital included EUR 2.8 billion (2.7) in Profit Shares, terminated Profit Shares accounting for EUR 0.2 billion (0.3). The return target for Profit Shares for 2017 is 3.25%. Interest payable on Profit Shares accrued during the reporting period is estimated to total EUR 44 million (40). The amount of interest paid for 2016 totalled EUR 83 million in June 2017. The fair value reserve decreased by EUR 40 million to EUR 278 million.

Outlook towards the year end

Both the world economy and the euro-area economy developed favourably in the first half of the year. Economic growth in Finland was strong and broad-based: exports and the home market rebounded, the housing market picked up and confidence in the Finnish economy strengthened. Tailwinds in the Finnish economy are estimated to continue for the second half of the year too. If realised, political risks and uncertainties both in Finland and in the export markets can, however, weaken the outlook. A threat to the Finnish economy's positive long-term development is posed by many structural problems that still remain unresolved.

The financial sector has adjusted very well to the new type of low interest rate environment. While low market interest rates have retarded growth in banks' net interest income and eroded insurance institutions' income from fixed income investments, they also have improved customers' repayment capacity. Impairment losses have remained low despite the slow growth that has lasted for several years now. The most significant strategic risks in the financial sector are currently associated with changing customer behaviour, operating environment digitisation and more complex regulation. Industry disruption is threatening to slow down growth and erode income generation in the years to come. In the next few years, the financial sector will be faced with a strong need to reinvent itself. Changes in the operating environment will emphasise the necessity of reinvention with a long-term approach as well as the role of the management of profitability and capital adequacy.

OP Financial Group expects its full-year earnings before tax for 2017 to be about the same as or lower than those for 2016 due to increasing development costs and other expenses arising from strategy implementation. Uncertainty that is still related to the operating environment may cause short-term earnings volatility, which will have an effect on the predictability of OP Financial Group's earnings performance. The most significant uncertainties in respect of the financial performance towards the year end relate to changes in the interest rate and investment environment, impairment losses and the rate of business growth. 

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 of 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 Executive Chairman Reijo Karhinen in a press conference on 2 August 2017 at 11 am at Gebhardinaukio 1, Vallila, Helsinki.
OP Corporate Bank plc will publish its own interim report.

Financial reporting in 2017

Schedule for Interim Reports in 2017:

Interim Report Q1-Q3/2017                        1 November 2017

Helsinki, 2 August 2017

OP Cooperative
Executive Board

Additional information:

Reijo Karhinen, President and Group Executive Chairman, tel. +358 (0)10 252 4500
Harri Luhtala, CFO, tel. +358 (0)10 252 2433
Carina Geber-Teir, Executive Vice President, Corporate Communications, tel. +358 (0)10 252 8394

Nasdaq Helsinki Ltd
London Stock Exchange
SIX Swiss Exchange
Major media

OP Financial Group is Finland's largest financial services group whose mission is to create sustainable prosperity, security and wellbeing for its owner-customers and in its operating region by means of its strong capital base and efficiency. OP Financial Group consists of about 170 member cooperative banks, its central cooperative OP Cooperative, and the latter's subsidiaries and affiliates. The Group has a staff of 12,000 and approximately 1.8 million owner-customers and 4.4 million customers.

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: OP Yrityspankki Oyj via Globenewswire

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