OP-Pohjola Group's earnings increased by 10% in January-September

OP-Pohjola Group
Company Release 2 November 2011 at 08.00 am (EET)
Interim Report

OP-Pohjola Group's earnings increased by 10% in January-September

- The Group's earnings before tax grew by 10% to EUR 482 million (438) - those of Banking increased by 34%. However, pre-tax earnings in Q3 contracted year on year.
- Net interest income continued on a good growth path, coming to 11% in January-September. Total income improved by 4% year on year while expenses increased by 5%.
- Impairment losses on receivables shrank by 40% year on year, amounting to 0.14% of the loan and guarantee portfolio.
- Total deposits grew vigorously, at an annual rate of 13%, and Non-life Insurance's premium revenue experienced strong growth, too.
- Good progress was made in the strategic focus areas: OP-Pohjola Group's joint banking and insurance customers increased in the report period by 67,000 and the corporate loan portfolio by 9%.
- The Group's risk-bearing capacity is very strong. The Group's capital base exceeded the statutory minimum (EUR 4.0 billion) by EUR 2.0 billion.
- The Group has adopted a new capital adequacy target: a Core Tier 1 ratio of 15%.
- The deepening European sovereign debt crisis and non-recurring items related to technical provisions are weakening the earnings expectations of Non-life and Life Insurance. The Group's full-year pre-tax earnings for 2011 without these non-recurring items are expected to be at the same level as last year. For the outlook in full, see 'Outlook towards the year end' below.

OP-Pohjola Group's key indicators

* Change in ratio

Comments by Reijo Karhinen, Executive Chairman

The financial sector's operating environment has suffered some major setbacks in recent months as a result of the European sovereign debt crisis and tardy political decision-making. Yet OP-Pohjola Group remained stable and continued operations on a solid basis even in such demanding conditions, indeed growing at an accelerating rate and improving its performance in the first three quarters.

Banking in particular performed really well, boosted by solid growth of net interest income and significantly lower loan losses. The performance of insurance operations was depleted in the third quarter by poor return performance of investment assets.

Financial market jitters are eroding our earnings power and undermining earnings outlook but at the same timer underlining one of our strengths: our capacity among European banks to cope with crises is right at the top with the best. Calculations made by the authorities have repeatedly shown that we are strong and tenacious. Our capital buffers are firm and the fact that our capital adequacy is high to begin with creates presence of mind.

We want to be seen as an actor with solid capital adequacy in the future too. We have decided, amid this market storm, to increase our Banking's Core Tier 1 capital ratio target to well above the highest requirements set by the authorities - to 15% - and by doing so set an example for the entire sector. Our message is very clear: We are a solid and reliable partner to our customers.

I am extremely pleased with our customer business success. Our growth rate perked up in a number of areas, most prominently in deposits. Our funding has also in other respects operated without problems even in these exceptional conditions. We can also boast a higher rate of growth in corporate financing than the market average. One thing we have been particularly pleased about all this year is that the integration of banking and non-life insurance operations has proceeded successfully. On the other hand, our mutual fund business has not lived up to our expectations.

I interpret our good growth figures in deposits and loans as a sign of confidence from our customers. It is encouraging to know how much faith our customers have in their tried and trusted Finnish actor. We in turn want to be committed to acting responsibly and pooling our resources with our customers to build a bridge over difficult times. Our ability and willingness to provide funding to our customers remain strong.

We are currently updating OP-Pohjola Group's strategy which will stress that we maintain a balance between solid capital adequacy, moderate risk-taking and healthy growth. We will also emphasise the importance of investment in business development, with our project in Oulu focusing on the development of electronic services serving as a good example.

The financial sector outlook is still overshadowed by a global economic crisis. The EU summit meeting raised some optimism and the worst market scenario was not realised, but Europe's inability to solve the sovereign debt crisis has raised doubts on the durability of the entire euro system and undermined confidence to such an extent that any failures to implement the decisions would cause the markets to react with extreme nervousness. This would wreak havoc on the financial sector and its operating environment.

The economic outlook in Finland in late autumn and the winter is moderate at best. There will be no chance for sustainable growth if people have lost confidence in the economy. Confidence in the future is only created through acts. The European sovereign debt crisis, Finland's waning price competitiveness and the widening sustainability gap will not go away if we hesitate and just wait for something to happen.

Financial performance in the report period

The Group's earnings before tax grew by 10% to EUR 482 million (438) and can be attributed to lower impairment charges, higher investment income by Life Insurance despite the difficult market situation and, as a consequence of higher market rates, growing net interest income. However, the effect of higher interest rates and investment income was lower in the third quarter than previously. Bonuses to owner-members and OP bonus customers that were recognised in the profit and loss grew by 7.6% year on year to EUR 121 million.

Earnings before tax at fair value shrank owing to falling market prices that were the result of jittery investment markets. The Group's fair value reserve shrank by EUR 338 million, while a year ago it increased by EUR 190 million.

Outlook towards the year end

The deterioration of the sovereign debt crisis and its repercussions has turned the global and Finnish economic outlook even darker. The probability for the Finnish economy of slipping into recession has increased. The levelling off of short-term market rates, plummeting long-term market rates and a general feeling of uncertainty in the investment markets have significantly weakened the outlook in the financial sector.

The outlook for Banking has remained stable and its earnings are expected to exceed last year's figures. The exacerbation of the European sovereign debt crisis and the threat that it may become even worse, combined with the approximately 0.1-0.3 percentage point discount rate decrease and the changes about to be made to the insurance segments' mortality model, will on the other hand erode performance expectations in the Non-life and Life Insurance segments. The Group's earnings without these non-recurring items are expected to be at the same level as last year. The greatest uncertainty concerns developments in bond and equity markets.

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 the future financial performance of OP-Pohjola Group, and actual results may differ materially from those expressed in the forward-looking statements.

Press conference

OP-Pohjola Group's financial performance will be presented to the media by Executive Chairman Reijo Karhinen in a press conference on 2 September 2011 at 12 noon at Teollisuuskatu 1 b, Vallila, Helsinki.

Financial reporting in 2012

Schedule for Financial Statements Bulletin for 2011 and Interim Reports in 2012:

Financial Statements Bulletin 2011        8 February 2012
Interim Report Q1/2012                          3 May 2012
Interim Report H1/2012                          1 August 2012
Interim Report Q1-3/2012                     31 October 2012


Additional information
Executive Chairman Reijo Karhinen, tel. +358 (0)10 252 4500
Harri Luhtala, CFO, tel. +358 (0)10 252 2433
Carina Geber-Teir, Chief Communications Officer, tel. +358 (0)10 252 8394


Distribution
NASDAQ OMX Helsinki Ltd
LSE London Stock Exchange
SIX Swiss Exchange
Major media
op.fi and pohjola.fi


OP-Pohjola Group is Finland's leading financial services group providing a unique range of banking, investment and insurance services. The Group has the mission of promoting the sustainable prosperity, well-being and security of its owner-members, customers and operating regions through its local presence. Its objective is to offer the best and most versatile package of loyal customer benefits on the market. OP-Pohjola Group consists of some 200 member cooperative banks and the Group's central institution, OP-Pohjola Group Central Cooperative, with its subsidiaries and closely-related companies, the largest of which is the listed company Pohjola Bank plc. With a staff of more than 12,000, OP-Pohjola Group posted consolidated earnings of 575 million euros before tax in 2010 and had total assets of 84 billion euros on 31 December 2010. The group has over four million customers.

www.op.fi