OP Financial Group
Financial Statements Bulletin 1 January–31 December 2023
Stock Exchange Release 7 February 2024 9.00 am EET
OP Financial Group’s Financial Statements Bulletin for 1 January–31 December 2023: Operating profit EUR 2,050 million – Record amount of benefits for owner-customers
- Operating profit was EUR 2,050 million (1,120).
- Income from customer business, or net interest income, insurance service result and net commissions and fees, increased by 45% to EUR 3,860 million (2,666). Net interest income grew by 77% to EUR 2,871 million (1,618). Insurance service result decreased by 23.2% to EUR 81 million (106) and net commissions and fees by 3.7% to EUR 908 million (942).
- Impairment loss on receivables in the income statement was EUR 269 million (115), accounting for 0.26% (0.11) of the loan and guarantee portfolio.
- Investment income increased by 59% to EUR 389 million (245).
- Total expenses increased by 12% to EUR 2,201 million (1,961). The cost/income ratio improved to 46% (58).
- The loan portfolio decreased by 1% to EUR 98.9 billion (100.2) and deposits by 5% to EUR 74.5 billion (78.0).
- CET1 ratio was 19.2% (17.4), which exceeds the minimum regulatory requirement by 6.9 percentage points. During the first quarter, OP Financial Group adopted the Standardised Approach to credit risk.
- Retail Banking operating profit rose to EUR 1,223 million (502). Net interest income grew by 89% to EUR 2,258 million (1,194). Impairment loss on receivables increased by EUR 77 million to EUR 173 million (96). Net commissions and fees decreased by 11% to EUR 686 million (773). The cost/income ratio improved to 46% (62). The loan portfolio decreased by 2% and deposits by 6%.
- Corporate Banking operating profit decreased to EUR 408 million (416). Net interest income grew by 29% to EUR 591 million (457). Impairment loss on receivables increased by EUR 78 million to EUR 96 million (18). Net commissions and fees grew by 32% to EUR 219 million (166). The cost/income ratio improved to 40% (41). The loan portfolio increased by 1% and deposits decreased by 2%.
- Insurance operating profit increased to EUR 414 million (293). Insurance service result decreased by EUR 25 million to EUR 81 million (106). Investment income grew by EUR 193 million to EUR 347 million (154). Non-life Insurance recorded a combined ratio of 94% (90).
- Group Functions operating loss was EUR –26 million (–91).
- OP Financial Group paid 30% extra on OP bonuses earned by owner-customers for 2023. The value of the new OP bonuses earned totalled EUR 275 million (215). In addition, owner-customers will get daily banking services without monthly charges from October 2023 until the end of 2024. The value of this benefit was EUR 22 million for 2023.
- OP Financial Group has applied IFRS 17 Insurance Contracts as of 1 January 2023. 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 Financial Statements Bulletin provides more information on the adoption of IFRS 17 and the changes in the format of the income statement and balance sheet.
- 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 for 2024”.
OP Financial Group’s key indicators
| Q1–4/2023 | Q1–4/2022 | Change, % | |
| Operating profit, € million | 2,050 | 1,120 | 83.0 |
| Retail Banking | 1,223 | 502 | 143.5 |
| Corporate Banking | 408 | 416 | -2.1 |
| Insurance | 414 | 293 | 41.4 |
| Group Functions | -26 | -91 | - |
| New OP bonuses accrued to owner-customers, € million | -275 | -215 | 28.0 |
| Total income | 4,775 | 3,394 | 40.7 |
| Total expenses | -2,201 | -1,961 | 12.2 |
| Cost/income ratio, % | 46.1 | 57.8 | -11.7* |
| Return on equity (ROE), % | 10.6 | 6.3 | 4.3* |
| Return on equity, excluding OP bonuses, % | 12.0 | 7.5 | 4.5* |
| Return on assets (ROA), % | 0.98 | 0.51 | 0.46* |
| Return on assets, excluding OP bonuses, % | 1.11 | 0.61 | 0.50* |
| 31 Dec 2023 | 31 Dec 2022 | Change, % | |
| CET1 ratio, % | 19.2 | 17.4 | 1.8* |
| Loan portfolio, € billion** | 98.9 | 100.2 | -1.4 |
| Deposits, € billion** | 74.5 | 78.0 | -4.6 |
| Ratio of non-performing exposures to exposures, % ** | 2.94 | 2.31 | 0.6* |
| Ratio of impairment loss on receivables to loan and guarantee portfolio, % | 0.26 | 0.11 | 0.15* |
| Owner-customers (1,000) | 2,094 | 2,066 | 1.4 |
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 Financial Statements Bulletin provides more information 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 in 2022. Unless otherwise specified, figures from 31 December 2022 are used as comparatives for balance-sheet and other cross-sectional items.
* Change in ratio
** As of 1 January 2023, the loan portfolio and deposits exclude changes in the fair value of loans and deposits in hedge accounting. Comparatives have been adjusted to correspond to the current definition.
Comments by the President and Group Chief Executive Officer:
The Finnish economy entered a recession, inflation eased, and interest rates remained higher than in recent years
The Finnish economy was affected by exceptional uncertainty and instability in 2023. A mild recession began late in the year and unemployment rose slightly. Inflation slowed down but remained clearly higher than in the preceding years. Despite lowering at the year end, 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 downward trend.
The year-end fall in market rates boosted the stock markets, raising share prices on several stock exchanges, but indexes on the Nasdaq Helsinki declined.
The downturn was exceptionally severe in construction and the related sectors. Risks also grew markedly across the real estate sector. There was a clear rise in the number of bankruptcies compared to previous years.
Geopolitical risks were high throughout the year, intensifying in late 2023 as a result of the Middle East crisis in particular.
OP Financial Group had an outstandingly successful year – its strong performance enables better benefits for owner-customers
Despite the challenges in the business environment, OP Financial Group’s business operations developed extremely well in 2023. Operating profit grew by 83 per cent on the previous year, to 2,050 million euros.
Because of this strong performance, we are providing our almost 2.1 million owner-customers with better benefits in 2024, playing our part to ease the strain on households in these economically challenging times. We will pay 40% extra on OP bonuses earned in 2024 and will not charge our owner-customers any monthly fees for daily services throughout the year. The total value of higher benefits on OP bonuses and daily services will rise to around 400 million euros – a major benefit for owner-customers. Being customer-owned, OP Financial Group will continue sharing 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 business environment
OP Financial Group’s CET1 ratio strengthened again, to 19.2 per cent, which exceeds the minimum regulatory requirement by 6.9 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 vigorously, spurred by the strong increase in net interest income. Meanwhile, there was a clear rise in deposit and wholesale funding costs. Investment income developed well, despite the difficult capital market environment, whereas net commissions and fees were slightly down year on year. The insurance service result was clearly below that of 2022, principally weighed down by higher claims expenditure in health insurance and rising operating expenses. Total income grew by 41 per cent on the previous year.
OP Financial Group’s costs grew by 12 per cent on the year before, due in particular to growth in personnel costs and higher investments in ICT development. OP Financial Group’s cost-income ratio improved considerably, reaching the excellent level of 46 per cent.
All three business segments performed well. Growth was particularly strong in Retail Banking, whose operating profit grew by 143 per cent to 1,223 million euros, following favourable developments in net interest income. Insurance’s result also clearly improved year on year, lifted by considerably higher investment income in particular. Corporate Banking’s result was a few per cent below that of 2022.
Deposit and loan volumes turned downwards – customers’ repayment capacity remained sound
The deposit portfolio diminished by almost five per cent during the year, mainly due to a clear reduction in deposits by corporate and institutional customers. However, household deposits fell by less than one per cent and OP Financial Group’s market share of household deposits grew.
OP Financial Group’s loan portfolio shrank by around one per cent during the year, with demand for new home loans and corporate loans visibly down from 2022. This decrease was driven by a considerable fall in year-on-year demand for new home loans and a steep rise in premature home loan repayments in response to interest rate rises.
Despite higher interest rates, OP’s home loan customers have been repaying their loans diligently and on schedule. The number of loan modification applications was actually lower than in recent years. However, there was a rise in the number of corporate customers with non-performing loans, especially in construction and in the real estate sector in general. Estimated loss provisions and non-performing exposures grew as the economy deteriorated.
In August, we published credit portfolio emissions reduction targets for three of our customer sectors: energy production, agriculture and housing. These sectors account for more than 90 per cent of emissions related to OP Financial Group’s credit portfolio. We set such targets in order to promote the green transition, by encouraging our customers to move towards carbon neutrality.
We want to help people in Finland to prosper financially
We aim to coach our customers in making better financial choices and have worked on easing their personal financial management in multiple ways, while enabling and supporting long-term saving and investing. Asset and wealth management is one of our growth focus areas: we aim to achieve clear growth in this business activity in the coming years.
Preparation for the future featured prominently in customer behaviour. Demand for savings and investment products continued to grow briskly. Higher interest rates, particularly in the second half of the year, led to a clear rise in the number of Growth Return Accounts compared to 2022. A record 654,000 systematic investment agreements were valid in December. OP Financial Group’s mutual funds already have more than 1.2 million unitholders. In addition, around 74,000 new equity savings accounts and book-entry accounts were opened in 2023.
Demand for insurance continued to grow
Our customers’ desire to prepare for possible risks was reflected by growing demand for insurance products. Pohjola Insurance’s premiums written grew by just under 6 per cent to 1.8 billion euros. Demand for health insurance increased most. Claims expenditure grew substantially by almost 6 per cent. Around 990,000 claims applications were filed and 94 per cent of reported claims were compensated.
Our customers took out 27 per cent more term life insurance than in 2022.
Growth in the use of digital services continued
Use of digital services grew substantially again. Our personal and corporate customers increasingly use digital channels for banking and insurance, logging into OP-mobile an average of 52.8 million times a month. OP-mobile already has more than 1.6 million active users.
We continued with ICT investments in 2023, primarily to improve the customer experience and ensure data security and service continuity in all circumstances. AI will play a growing role in our ICT development, enabling us to provide customers with even better services. Accordingly, we are investing heavily in information security and data protection through extensive training of personnel and high-level technology solutions. Responsible data use is a core aspect of our work.
Together through time – also during the current recession
OP Financial Group is in good shape and we are ready to support 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 find the best solution together.
My warm thanks to all our customers for the trust they showed in OP Financial Group in 2023. 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 2023.
Timo Ritakallio
President and Group CEO
January–December
OP Financial Group’s operating profit (earnings before tax) was EUR 2,050 million (1 120), up by EUR 929 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 44.8% to EUR 3,860 million (2,666). The cost/income ratio improved to 46.1% (57.8).
Net interest income grew by 77.4% to EUR 2,871 million. The rise in market rates that began in spring 2022 increased net interest income. Net interest income reported by the Retail Banking segment increased by EUR 1,064 million and that by the Corporate Banking segment by EUR 134 million. OP Financial Group’s loan portfolio decreased by 1.4% to EUR 98.9 billion and deposits by 4.6% to EUR 74.5 billion. New loans drawn down by customers during the reporting period totalled EUR 22.0 billion (24.5).
Impairment loss on loans and receivables, which reduces earnings, totalled EUR 267 million (154). Expected credit losses concerning the construction and real estate sectors increased. Final credit losses recognised totalled EUR 77 million (118). Loss allowance at the end of the reporting period was EUR 929 million (736), of which management overlay accounted for EUR 109 million (66). Non-performing exposures accounted for 2.9% (2.3) of total exposures. Impairment loss on loans and receivables accounted for 0.26% (0.11) of the loan and guarantee portfolio.
Net commissions and fees decreased by 3.7% to EUR 908 million. Owner-customers have got daily banking services without monthly charges since October 2023. Net commissions and fees for payment transfer services decreased by EUR 12 million to EUR 291 million, and those for residential brokerage by EUR 8 million to EUR 63 million. Sales commissions on insurance contracts decreased by EUR 9 million to EUR 33 million. Meanwhile, net commissions and fees for lending increased by EUR 9 million to EUR 159 million and those for asset and wealth management by EUR 7 million to EUR 43 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 23.2% to EUR 81 million during the reporting period as a result of the increase in net claims incurred and operating expenses. The rise in the general level of costs and the higher number of claims in health insurance increased claims incurred, whereas the number of large claims decreased year on year. Insurance service result includes EUR 485 million (416) in operating expenses. Non-life insurance revenue increased by 4.6% to EUR 1,758 million, net claims incurred after reinsurer’s share by 5.6% to EUR 1,076 million and operating expenses by 15.6% to EUR 487 million. Combined ratio reported by non-life insurance weakened to 93.8% (89.8).
Investment income, or net investment income, net insurance finance expenses and income from financial assets held for trading, increased by a total of 58.9% to EUR 389 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 8.2% (-13.1). A year ago, the negative figure was affected by the 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 1,706 million (–2,822). Net income from investment contract liabilities totalled EUR –642 million (812). Net insurance finance expenses totalled EUR –722 million (2,226). Net income from investment property decreased by EUR 39 million to EUR –22 million as a result of the decline in the fair value of properties.
In banking, net income from financial assets held for trading increased by a total of EUR 84 million to EUR 55 million due to the increase in interest income from notes and bonds and derivatives.
Other operating income decreased to EUR 40 million (67). A year ago, the sale of Pohjola Hospital increased other operating income by EUR 32 million.
Total expenses increased by 12.2% to EUR 2,201 million. Personnel costs rose by 12.7% to EUR 964 million. The increase was affected by higher headcount and growth in the provision for performance-based bonuses as well as pay rises. Depreciation/amortisation and impairment loss on PPE and intangible assets increased by 5.7% to EUR 226 million. Impairment loss recognised mainly on information systems and property in own use totalled EUR 60 million (9). Other operating expenses increased by 13.4% to EUR 1,011 million. ICT costs totalled EUR 460 million (382). Development costs were EUR 294 million (216). Charges of financial authorities fell by EUR 5 million to EUR 77 million.
The income statement item ‘OP bonuses to owner-customers’ grew by 28.6% to EUR 255 million as a result of the additional bonuses paid for 2023.
Income tax amounted to EUR 408 million (213). The effective tax rate for the reporting period was 19.9% (19.0). A year ago, the tax-exempt capital gain of EUR 32 million on the sale of Pohjola Hospital reduced the effective tax rate. Corporate tax payable by OP Financial Group for 2023 is estimated to amount to EUR 396 million (227).
Comprehensive income after tax totalled EUR 1,719 million (525). Changes in the fair value reserve increased comprehensive income by EUR 70 million (–478).
OP Financial Group’s equity amounted to EUR 16.3 billion (14.7). Equity included EUR 3.3 billion (3.4) in Profit Shares, terminated Profit Shares accounting for EUR 0.4 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% (217) and NSFR was 130% (128). In the reporting period, OP Financial Group repaid in full the EUR 12.0 billion in TLTRO III loans.
Outlook for 2024
The economy is expected to decline in early 2024 but decelerating inflation and falling interest rates will pave the way for economic recovery towards the year end. An exceptional degree of uncertainty is still associated with the business environment. Combined with increased geopolitical crises and tensions, developments in capital markets may abruptly affect the business 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. 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 in a press conference on 7 February 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 financial statements bulletins.
Time of publication of 2023 reports:
| OP Financial Group's Report by the Board of Directors and Financial Statements for 2023 | Week 11 |
| OP Financial Group's Corporate Governance Statement 2023 | Week 11 |
| OP Financial Group's Annual Review 2023 (incl. CSR Reporting) | Week 11 |
| OP Financial Group’s Capital Adequacy and Risk Management Report 2023 | Week 11 |
| OP Amalgamation Pillar III Tables 31 December 2023 | Week 11 |
| Remuneration Report for Governing Bodies at OP Financial Group 2023 | Week 11 |
| Remuneration Policy for Governing Bodies at OP Financial Group | Week 11 |
Schedule for Interim Reports and Half-year Financial Report in 2024:
| Interim Report Q1/2024 | 8 May 2024 |
| Half-year Financial Report H1/2024 | 24 July 2024 |
| Interim Report Q1−3/2024 | 31 October 2024 |
| OP Amalgamation Pillar III Tables 31 March 2024 | Week 19 |
| OP Amalgamation Pillar III Tables 30 June 2024 | Week 32 |
| OP Amalgamation Pillar III Tables 30 September 2024 | Week 45 |
Helsinki, 7 February 2024
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
Lotta Ala-Kulju, Head of Corporate Communications, tel. +358 (0)10 252 8719
www.op.fi
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OP Financial Group is Finland’s largest financial services group, with more than two million owner-customers and over 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
