OP Financial Group’s Report
by the Board of Directors and
Financial Statements 2022
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s Report by the Board of Directors
1 January–31 December 2022
OP Financial Group’s key indicators ................................................................................................................................................... 4
Comments by President and Group Chief Executive Officer Timo Ritakallio ............................................................................... 5
Business environment ......................................................................................................................................................................... 6
Earnings analysis and balance sheet ................................................................................................................................................. 7
2022 highlights ................................................................................................................................................................................... 10
OP Financial Group’s strategic targets and priorities .................................................................................................................... 11
Promotion of the success of owner-customers and operating region ...................................................................................... 11
Allocation of earnings ........................................................................................................................................................................................... 11
Customer relationships and customer benefits ............................................................................................................................................... 12
Report on non-financial information ................................................................................................................................................................. 12
Sustainability and corporate responsibility ....................................................................................................................................................... 17
Multichannel services ........................................................................................................................................................................................... 18
Capital adequacy and capital base ................................................................................................................................................... 19
Key principles of risk management .................................................................................................................................................. 21
Risk profile............................................................................................................................................................................................ 21
Financial performance by segment .................................................................................................................................................. 27
Retail Banking ....................................................................................................................................................................................................... 27
Corporate Banking ................................................................................................................................................................................................ 29
Insurance ................................................................................................................................................................................................................ 31
Group Functions .................................................................................................................................................................................................... 34
ICT investments .................................................................................................................................................................................. 35
Personnel ............................................................................................................................................................................................. 35
Changes in OP Financial Group’s structure .................................................................................................................................... 35
Governance of OP Cooperative ......................................................................................................................................................... 36
Legal structure of OP Financial Group ............................................................................................................................................ 36
Events after the balance sheet date ................................................................................................................................................ 40
Outlook for 2023 ................................................................................................................................................................................ 40
Key income statement and balance sheet it
ems, and financial indicators ................................................................................ 41
Formulas for key figures and ratios ................................................................................................................................................. 43
Capital adequacy and solvency ......................................................................................................................................................... 47
Primary statements…………………………………………………………………………………………………………………………………….49
Income statement 49
Statement of comprehensive income 50
Balance sheet 51
Statement of changes in equity 52
Cash flow statement 53
1
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Notes to financial statements………………………………………………………………………………………………………………………54
1. OP Financial Group’s accounting policies under IFRS 56
2.
OP Financial Group’s Risk Appetite Framework 86
3.
Changes in accounting policies and presentation 107
4.
Segment reporting 114
Notes to the income statement..........................................................................................................................................117
Notes to assets........................................................................................................................................................................126
Notes to liabilities and equity capital ................................................................................................................................143
Other notes to on-balance and off-balance sheet items ............................................................................................156
Notes to risk management..................................................................................................................................................173
Risk exposure of Retail and Corporate Banking ............................................................................................................174
Risk exposure by Insurance.................................................................................................................................................178
Other notes..............................................................................................................................................................................194
Statement concerning the financial statements 202
Auditor
s’ note 203
2
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s Report by the Board of Directors 1 January–31 December 2022:
Earnings before tax EUR 1,265 million – total income up by 2%,
total expenses unchanged year on year
• Earnings before tax totalled EUR 1,265 million (1,127).
• Income from customer business increased by a total of 10% to EUR 3,512 million (3,186). Net interest income
increased by 15% to EUR 1,618 million (1,409) and net insurance income by 20% to EUR 889 million (743).
Net commissions and fees decreased by 3% to EUR 1,005 million (1,034).
• Net investment income decreased to EUR –149 million (376). The overlay approach increased investment income
by EUR 143 million (–118). Including the overlay approach, investment income decreased to EUR –5 million (257).
• Total income decreased by 5% to EUR 3,426 million (3,616). Including the overlay approach, total income increased
by 2% to EUR 3,570 million (3,497).
• Total expenses decreased by 1% to EUR 1,981 million (2,007).
• Impairment loss on receivables in the income statement decreased by EUR 43 million to EUR 115 million (158).
Ratio of impairment loss on receivables to loan and guarantee portfolio was 0.11% (0.16).
• OP Financial Group’s loan portfolio grew by 2% to EUR 99 billion (97) and deposits by 2% to EUR 77 billion (76).
• CET1 ratio was 17.4% (18.2), which exceeds the minimum regulatory requirement by 5.5 percentage points.
OP Financial Group adopted a risk-weighted assets (RWA) floor, based on the Standardised Approach, in the second
quarter. On the date of transition, this decreased the CET1 ratio by one percentage point.
• Retail Banking earnings before tax increased to EUR 502 million (304). Net interest income increased by 25% to
EUR 1,194 million (959) and net commissions and fees by 3% to EUR 773 million (753). Impairment loss on
receivables increased by EUR 12 million to EUR 96 million (84). The loan portfolio decreased by 0.3% and deposits
increased by 3%.
• Corporate Banking earnings before tax decreased to EUR 416 million (474). Net interest income increased by 10%
to EUR 457 million (414), net commissions and fees decreased by 19% to EUR 166 million (204) and net
investment income decreased by 21% to EUR 136 million (171). Impairment loss on receivables decreased by
EUR 56 million to EUR 18 million (74).
• Insurance earnings before tax decreased to EUR 433 million (504). Net insurance income grew by 20% to EUR 901
million (754), particularly due to the increase in the discount rate. Investment income decreased by EUR 257 million
to EUR –87 million (170). Non-life Insurance recorded an operating combined ratio of 90.5% (85.5).
• Group Functions earnings before tax were EUR –91 million (–109).
• New OP bonuses accrued to owner-customers totalled EUR 215 million (210). OP Financial Group wants to allocate
part of its profitability improvement to support its owner-customers by increasing the OP bonuses they earn for
2023 by 30%. This means an estimated additional bonus totalling more than EUR 60 million.
• Interest payable for the year 2022 on Profit Shares held by owner-customers is estimated to total EUR 144 million
(96).
• On 30 September 2022, OP Financial Group filed an application with the European Central Bank (ECB) on the use
of the Standardised Approach in capital adequacy calculation, instead of the internal models (IRBA) and the currently
applied risk-weighted assets floor based on the Standardised Approach. Transfer to the Standardised Approach is
estimated to have no essential effect on OP Financial Group’s capital adequacy or risk exposure.
• 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.
• Earnings before tax for 2023 are expected to be higher than in 2022. For more detailed information on the outlook,
see “Outlook for 2023”.
Earnings before tax
Q1–4/2022
€1,265 mill.
Net interest
income
Q1–4/2022
+15%
Net insurance
income
Q1–4/2022
+20%
Total
expenses
Q1–4/2022
–1%
CET1
ratio
31 Dec 2022
17.4%
3
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s key indicators
Q1–4/2022
Q1–4/2021
Change, %
Earnings before tax, € million
1,265
1,127
12.2
Retail Banking
502
304
65.2
Corporate Banking
416
474
-12.2
Insurance
433
504
-14.1
Group Functions
-91
-109
-
New OP bonuses accrued to owner-customers, € million
215
210
2.1
Return on equity (ROE), %
7.2
6.6
0.6*
Return on equity, excluding OP bonuses, %
8.3
7.8
0.5*
Return on assets (ROA), %
0.59
0.54
0.05*
Return on assets, excluding OP bonuses, % 0.68
0.64
0.04*
31 Dec 2022
31 Dec 2021
Change, %
CET1 ratio, %
17.4
18.2
-0.8*
Loan portfolio, € billion
98.5
96.9
1.6
Deposits, € billion
77.1
75.6
2.0
Ratio of non-performing exposures to exposures, %
2.3
2.4
-0.1*
Ratio of impairment loss on receivables to loan and
guarantee portfolio, %
0.11
0.16
-0.04*
Owner-customers (1,000)
2,066
2,049
1.0
Comparatives for the income statement are based on the corresponding figures a year ago. Unless otherwise specified, figures from 31 December 2021 are used as
comparatives for balance-sheet and other cross-sectional items.
*Change in ratio
4
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Comments by President and Group
Chief Executive Officer Timo Ritakallio
In 2022, the financial sector’s operating environment was
characterised by exceptional uncertainty. Russia’s war of
aggression in Ukraine and strongly accelerated inflation
resulted in a significant increase in market interest rates.
Combined with a weakening economic outlook, this affected
demand both for home loans and corporate finance,
particularly towards the end of the year. During the year,
stock prices fell in all major markets, which in turn reduced
demand for investment services.
Despite the uncertain operating environment, OP Financial
Group’s earnings before tax for 2022 improved by 12%,
reaching an excellent level of EUR 1,265 million. Net interest
income increased by 15% to EUR 1,618 million and net
insurance income by 20% to EUR 889 million. Meanwhile, net
commissions and fees decreased by 3% year on year, totalling
EUR 1,005 million. Net investment income fell substantially
from the previous year. Costs remained well under control,
showing a decrease of 1% year on year.
All of our three business segments performed very well last
year. Earnings by Retail Banking were particularly strong. In
the insurance business, claims expenditure returned to its
pre-pandemic level.
At around two per cent, growth in deposits and loans was
clearly slower than in previous years. Despite the weaker
economy, the loan repayment capacity of both personal and
corporate customers remained good throughout the year,
and there was no growth in non-performing exposures.
Similarly, impairment loss on receivables remained low. In
recent years, we have actively offered interest rate protection
to our home loan customers. This has proved its worth
amidst rapidly rising market interest rates. Roughly a third of
our home loan customers have taken out interest rate
protection. At the end of 2022, a growing number of
customers benefitted from interest rate protection, which cut
their loan servicing costs.
OP Financial Group’s CET1 ratio continued to be very strong,
at 17.4%, exceeding the minimum regulatory requirement by
5.5 percentage points. OP Financial Group is among Europe’s
strongest banks in terms of capital adequacy.
In income growth, we focused on income from customer
business in line with our strategic target, achieving growth of
10% in 2022. In recent years, OP Financial Group has focused
on its core business – banking and insurance – in keeping
with its strategy. While the Group’s income from customer
business has grown substantially, we have managed to keep
our costs at the same level for several years. Our continuous
strategy process, which we revised four years ago, has
proven highly effective in the business environment of recent
years, which has been marked by surprises and uncertainties.
We have also been implementing a cultural change by
adopting leaner organisational structures and an agile
method based on multi-skilled teams. This new way of
working promotes a better customer and employee
experience, and operational efficiency.
Our customers are increasingly using digital channels for their
banking and insurance matters. In 2022, we continued to
focus our development efforts on our mobile channel. At the
end of the year, OP-mobile had more than 1.4 million active
users – an increase of almost 600,000 people compared to
slightly over three years ago.
Despite the challenging investment environment, our
customers have continued to make sustainable, far-reaching
choices for their future through systematic investing. In 2022,
OP Financial Group’s mutual funds attracted more than
55,000 new unitholders, with the total number of unitholders
exceeding 1.2 million at the year end. OP Financial Group’s
market share of all unitholders in Finnish mutual funds
exceeded 30%. Stock investment also continued to be lively:
71,000 new book-entry and equity savings accounts were
opened during the year.
In line with our strategy, we continued to increasingly embed
responsibility into our investment, lending and insurance
processes, and grow the share of responsible products and
services in our offering. OP Financial Group’s sustainable
financing commitment portfolio grew by 70% from the
previous year, reaching a total of EUR 5.2 billion. At the end
of December, the share of sustainable financing products in
OP Corporate Bank’s exposures was around 17%, compared
to 11% a year earlier.
OP Financial Group is a financial services group owned by its
customers. In line with our mission, we want to support our
owner-customers in these financially challenging times. We
will allocate part of our profitability improvement to
supporting the daily lives of our almost 2.1 million owner-
customers, by increasing the OP bonuses they earn for 2023
by 30%. The value of this additional bonus is over EUR 60
million.
We will also allocate part of our strong profitability to further
improving our customer service and to carrying out various
corporate responsibility actions, with a particular focus on the
wellbeing of children and young people. Through donations
and sponsorships of nearly EUR 4.5 million, we will support
young people’s hobbies and activities promoting their financial
literacy and employment around Finland.
OP Financial Group is in an excellent position to provide for its
customers’ banking and insurance needs today and beyond.
Our leading market position, strong capital base, excellent
profitability, and customers’ trust in our brand provide us with
a strong foundation for continuing to coach our customers in
making better financial choices, pointing the way towards
futures filled with hope – together through time.
I would like to express my warmest thanks to our customers
for their trust and to our employees and governing body
members for their outstanding and successful work in 2022!
5
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Business environment
World economic growth slowed down markedly in 2022. As a
result of Russia’s aggressive war in Ukraine, the European
energy market was unstable throughout the year. Raw
material prices that rose rapidly early in the year decreased
after the middle of the year. In addition, the acceleration of
inflation to its climax since the 1980s cast a shadow on
economies in general. Strong growth in the euro area almost
came to a standstill during the latter part of the year.
In the financial market, interest rates soared, as central banks
began to tighten their policy. The European Central Bank
(ECB) started to tighten its monetary policy in the summer
and raised the deposit facility rate to two per cent in
December. The most common reference interest rate for
home loans in Finland, the 12-month Euribor, increased by
3.8 percentage points to 3.3 per cent during the year.
Stock prices fell considerably around the world. In the fourth
quarter, stock prices rebounded, as fears of the energy crisis
and higher interest rates abated.
Brisk growth of the Finnish economy dwindled in 2022.
Despite this slowdown, employment improved and the
profitability of businesses remained good. Consumer
spending decreased during the year, as inflation eroded
purchasing power. A sharp rise in reference interest rates
pushed prices down in the housing market after the
favourable first half of the year, and home sales decreased
during the rest of the year. The economic outlook is still
exceptionally uncertain, and the economy is expected to
continue to weaken during 2023. A rise in short-term
interest rates is anticipated to dampen the housing market.
In December, the annual growth rate of total deposits slowed
down to 0.7%, compared to 5.0% at the end of 2021. On an
annual basis, corporate deposits increased by 2.4% and
household deposits by 2.4%.
In December, total loans were 3.5% higher than a year
earlier. The annual growth rate of corporate loans was 4.5%.
The corresponding loan growth rate was 7.0% for housing
companies and 0.8% for households. Growth in loans to
households slowed down from its level of 4.0% at the end of
2021, while the annual growth rate of home loans slowed
down to 0.5%. The annual growth rate of consumer loans
was 3.1% in December as against 2.4% during the same
period a year earlier.
The value of mutual funds registered in Finland decreased
from the 2021 record of EUR 158.8 billion to EUR 134
billion. Assets redeemed in 2022 totalled EUR 4.4 billion.
Demand for investment services remained stable. The end of
the Covid-19 restrictions in Finland and the general rise in
costs increased claims incurred. A decline in the capital
market was partly reflected in the profitability of insurance
companies.
6
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Earnings analysis and balance sheet
Earnings analysis, € million Q1–4/2022
Q1–4/2021
Change, %
Q4/2022
Q4/2021 Change, %
Earnings before tax
1,265
1,127
12.2
325
270
20.5
Retail Banking 502 304 65.2 167 80 109.1
Corporate Banking 416 474 -12.2 197 119 65.8
Insurance 433 504 -14.1 113 123 -8.0
Group Functions
-91
-109
-
-75
-39
-
Income
Net interest income
1,618
1,409
14.8
496
438
13.3
Net insurance income
889
743
19.6
336
201
67.0
Net commissions and fees 1,005 1,034 -2.8 249 273 -8.9
Net investment income -149 376 -139.6 -76 123 -161.8
Other operating income
63
54
17.0
12
8
56.0
Total income
3,426
3,616
-5.2
1,017
1,043
-2.5
Total income, incl. overlay
approach
3,570 3,497 2.1 968 973 -0.5
Expenses
Personnel costs
894
914
-2.2
246
258
-4.7
Depreciation/amortisation and
impairment loss
214 283 -24.4 55 91 -39.8
Other operating expenses 874 810 7.9 244 237 2.8
Total expenses 1,981 2,007 -1.3 545 586 -7.1
Impairment loss on receivables
-115
-158
-
-45
-63
-
Overlay approach
143
-118
-
-49
-70
-
New OP bonuses accrued to
owner-customers
215 210 2.1 54 54 -
Key indicators, € million
31 Dec 2022
31 Dec 2021
Change, %
Loan portfolio
98,546
96,947
1.6
Home loans
42,304
41,522
1.9
Corporate loans
23,117
23,128
0.0
Housing company and other loans
33,125
32,297
2.6
Guarantee portfolio
3,974
4,047
-1.8
Other exposures
14,801
15,314
-3.3
Deposits
77,121
75,612
2.0
Assets under management (gross)
98,226
111,836
-12.2
Mutual funds
27,575
32,515
-15.2
Institutional clients
35,713
38,336
-6.8
Private Banking
23,326
27,831
-16.2
Unit-linked insurance assets
11,612
13,154
-11.7
Balance sheet total
175,516
174,110
0.8
Investment assets
20,754
22,945
-9.5
Insurance liabilities
7,638
8,773
-12.9
Debt securities issued to the public
37,438
34,895
7.3
Equity capital
14,335
14,184
1.1
7
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
January–December
OP Financial Group’s earnings before tax amounted to
EUR 1,265 million (1,127), up by EUR 137 million from the
previous year. Income from customer business grew by a
total of 10.2% to EUR 3,512 million (3,186). As regards
income from customer business, net interest income and net
insurance income increased. Earnings were reduced by lower
investment income.
Net interest income grew by 14.8% to EUR 1,618 million, due
to the significant increase in market interest rates. Net
interest income reported by the Retail Banking segment
increased by EUR 235 million, that by the Corporate Banking
segment by EUR 43 million and that by the Group Functions
segment by EUR 72 million. OP Financial Group’s loan
portfolio grew by 1.6% to EUR 98.5 billion and deposits by
2.0% to EUR 77.1 billion. New loans drawn down by
customers during the financial year totalled EUR 24.5 billion
(26.4).
Net insurance income increased by 19.6% to EUR 889
million. The Insurance segment’s non-life insurance premium
revenue increased by 2.8% to EUR 1,598 million and claims
incurred by 12.5% to EUR 1,012 million, excluding the
increase in the discount rate. Claims volumes have returned
to their pre-pandemic level. Large claims increased claims
incurred by EUR 180 million (134). The increase in the
discount rate for insurance liability improved net insurance
income by EUR 283 million. Operating combined ratio
reported by non-life insurance was 90.5% (85.5).
Net commissions and fees totalled EUR 1,005 million (1,034).
Net commissions and fees for payment transfer services
increased by EUR 8 million and those for lending and asset
management by EUR 4 million. Meanwhile, net commissions
and fees for mutual funds decreased by EUR 14 million and
those for life insurance by EUR 17 million. Net commissions
and fees for health and wellbeing services fell by EUR 8
million year on year following the sale of Pohjola Hospital that
was completed on 1 February 2022.
The investment environment was challenging due to higher
market interest rates and lower stock prices. Net investment
income decreased by EUR 524 million to EUR –149 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 increased investment income by
EUR 143 million (–118). Total investment income decreased
by EUR 262 million year on year, to EUR –5 million. On
1 January 2023, OP Financial Group adopted IFRS 17
Insurance Contracts and stopped applying the overlay
approach.
Net income from financial assets at fair value through other
comprehensive income totalled EUR 29 million (67), of which
net capital losses accounted for EUR –10 million (14).
Net capital gains on all financial instruments recognised
through fair value reserve totalled EUR 16 million (144).
Net income from financial assets, recognised at fair value in
net investment income through profit or loss, totalled
EUR –855 million (129). Net income from financial assets
held for trading decreased by a total of EUR 382 million due
to changes in the fair value of derivatives. Fair values of
equity instruments recognised at fair value in the income
statement decreased by a total of EUR 440 million and those
of notes and bonds by a total of EUR 191 million, year on
year. An item related to the increase in the discount rate of
the insurance liability for non-life insurance, EUR 218 million,
was shown as negative value change in net investment
income. Life insurance items, which include, for example,
changes in technical items, increased net investment income
by EUR 528 million to EUR 650 million. Net income from
investment property decreased by EUR 29 million to EUR 16
million.
The combined return on investments at fair value of
OP Financial Group’s insurance companies was –13.1% (1.7).
The negative figure was affected by a rise in market interest
rates and the fall in stock prices.
Other operating income increased to EUR 63 million (54).
The sale of Pohjola Hospital increased other operating
income by EUR 32 million. A year ago, the sale of Checkout
Finland Ltd increased other operating income.
Total expenses decreased by 1.3% year on year to EUR 1,981
million. Personnel costs decreased by 2.2% to EUR 894
million. Depreciation/amortisation and impairment loss on
PPE and intangible assets decreased by 24.4% to EUR 214
million. Other operating expenses increased by 7.9% to
EUR 874 million. ICT costs totalled EUR 382 million (364).
Development costs were EUR 216 million (195). Charges of
financial authorities increased by 28.0%, or EUR 18 million, to
EUR 82 million as a result of the EUR 15 million increase in
the stability contribution paid to the Single Resolution Fund
financed by the euro-area banks.
Impairment loss on loans and receivables and on investments
recognised under various income statement items that
reduced earnings amounted to EUR 196 million (164), of
which EUR 115 million (158) concerned loans and
receivables. The indirect effects of the war in Ukraine
increased impairment loss on receivables in the first quarter.
OP Financial Group has assessed the impact of higher
electricity prices and Euribor rates on the credit risk
associated with the home loan portfolio. Following this
analysis, the Group made an additional provision of EUR 42
million under expected credit losses, based on management
judgment. Final credit losses recognised totalled EUR 118
million (113). Loss allowance was EUR 750 million (751) at
the end of the financial year. Non-performing exposures
accounted for 2.3% (2.4) of the exposures. Impairment loss
on loans and receivables accounted for 0.11% (0.16) of the
loan and guarantee portfolio.
8
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s income tax amounted to EUR 242
million (224). The effective tax rate was 19.1% (19.8). The
tax-exempt capital gain on the sale of Pohjola Hospital
reduced the effective tax rate.
OP Financial Group’s equity amounted to EUR 14.3 billion
(14.2). Equity included EUR 3.4 billion (3.2) in Profit Shares,
terminated Profit Shares accounting for EUR 0.4 billion (0.3).
Comprehensive income after tax totalled EUR 139 million
(897). Changes in the fair values of equities, derivatives and
notes and bonds decreased the fair value reserve. Changes in
the fair value reserve decreased comprehensive income by a
total of EUR 979 million (–59). Gains from the
remeasurement of defined benefit plans improved
comprehensive income by EUR 96 million (40) as a result of
the increase in the discount rate used in the calculation.
Key income statement items by quarter
Q1/
Q2/
Q3/
Q4/
Q1–4/
Q1–4
Change,
€ million
2022
2022
2022
2022
2022
2021
%
Net interest income
333
341
447
496
1,618
1,409
14.8
Net insurance income
131
252
169
336
889
743
19.6
Net commissions and fees
272
243
241
249
1,005
1,034
-2.8
Net investment income
18
-131
40
-76
-149
376
-139.6
Other operating income
39
7
6
12
63
54
17.0
Total income
793
712
905
1,017
3,426
3,616
-5.2
Personnel costs
226
224
197
246
894
914
-2.2
Depreciation/amortisation and
impairment loss
57
53
49
55
214
283
-24.4
Other operating expenses
239
201
190
244
874
810
7.9
Total expenses
523
478
435
545
1,981
2,007
-1.3
Impairment loss on receivables
-83
-17
30
-45
-115
-158
-27.4
Overlay approach
51
106
35
-49
143
-118
-
OP bonuses to owner-customers
54
54
54
54
215
210
2.1
Earnings before tax
189
270
481
325
1,265
1,127
12.2
9
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
2022 highlights
Application filed with the European Central Bank
on the use of the Standardised Approach
On 30 September 2022, OP Financial Group filed an
application with the European Central Bank on the use of the
Standardised Approach in capital adequacy calculation,
instead of the internal models (IRBA) and the currently
applied risk-weighted assets floor based on the Standardised
Approach. Transfer to the Standardised Approach is
estimated to have no essential effect on OP Financial Group’s
capital adequacy or risk exposure. This was due to enhanced
regulatory requirements and discussions with the banking
supervisor, the European Central Bank, related to the
application of the Internal Ratings Based Approach (IRBA).
The schedule for transferring to the Standardised Approach
depends on the processing of the application at the ECB.
According to OP Financial Group’s assessment, the transfer
will take place during the first quarter of 2023.
OP Financial Group adopted a risk-weighted
assets floor, based on the Standardised Approach,
in its capital adequacy calculation
On 1 March 2022, OP Financial Group decided to adopt a
risk-weighted assets floor (SA floor) in the calculation of its
capital adequacy ratio – based on the Standardised Approach
– in the second quarter of 2022. This was due to enhance
d
r
egulatory requirements and discussions with the banking
supervisor, the European Central Bank, on the application of
the Internal Ratings Based Approach (IRBA). The adoption of
the SA floor in the second quarter decreased the CET1 ratio
by 1.0 percentage point at the time of transition.
Changes in the Executive Management Team of
OP Financial Group’s central cooperative
Chief Risk Officer Markku Pehkonen joined OP Cooperative’s
Executive Management Team on 1 January 2022. Pehkonen
has served as OP Financial Group’s Chief Risk Officer since
2018.
Vesa Aho, who was appointed Executive Vice President of
OP Financial Group’s Insurance Customers segment and
Executive Vice President, Chief Executive Officer of Pohjola
Insurance, took up his new duties on 1 March 2022. Aho
previously served as the CFO of OP Financial Group. In his
new position, Aho will also continue as member of the
Executive Management Team of OP Cooperative. Olli Lehtilä,
the previous EVP, CEO of Pohjola Insurance, became the
Managing Director of the new Uudenmaan Osuuspankki.
Mikko Timonen, who was appointed CFO and a member of
OP Cooperative’s Executive Management Team, took up his
new duties on 1 March 2022. Timonen previously worked as
Head of Business Control in OP Financial Group’s Corporate
Banking segment.
Kasimir Hirn, M.Sc. (Econ. & Bus. Adm.), assumed his duties
as OP Financial Group’s new Chief Information Officer (CIO)
and as member of OP Cooperative’s Executive Management
Team as of 1 September 2022. As the CIO, Hirn is
responsible for the development and maintenance of OP
Financial Group’s services and systems and for the
Development & Technologies unit.
OP Financial Group’s former CIO, Juho Malmberg, resigned
from OP Financial Group at his own request on 31 October
2022. He acted as Senior Advisor as of 1 September until 31
October.
Pohjola Insurance sold its hospital business
Pohjola Insurance Ltd, part of OP Financial Group, sold all
shares of Pohjola Hospital Ltd to Pihlajalinna Terveys Oy, part
of Pihlajalinna Group. On 14 January 2022, the Finnish
Competition and Consumer Authority approved the corporate
transaction, which was finalised on 1 February 2022. The net
debt free transaction price was EUR 31.8 million. In addition,
OP Financial Group sold five hospital buildings in March
2022.
OP Financial Group and Pivo withdrew from
Nordic mobile wallet project
OP Financial Group and Pivo stood aside from the joint
venture planned with Danske Bank’s MobilePay and the
Norwegian Vipps. The venture would have provided a joint
mobile payment platform for users of three services. OP
Financial Group’s Pivo, Danske Bank’s MobilePay and the
Norwegian company Vipps announced plans to create a joint
mobile payment platform in June 2021. Pivo continues to
operate independently and the cancellation of the project
does not directly affect its customers.
OP Financial Group established a new historical
foundation
Because OP Financial Group turned 120 years old on 14 May
2022, OP Cooperative’s Board of Directors established a
foundation to cherish the heritage of OP Financial Group. The
foundation’s main task is to maintain and develop OP
Financial Group’s museum, which tells the story of the
Group’s growth from cooperative credit societies into
Finland’s largest financial services group. It also promotes and
supports Finnish cooperative banking and its cultural
heritage, and manages and assembles the Group’s historical
information, collections, artefacts and material. In addition,
the foundation issues permits for using its material in
research.
10
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s strategic targets
and priorities
OP Financial Group has a strategy process in which it
assesses, reshapes and implements its strategy on an
ongoing basis. The Group systematically assesses its business
environment and operating model to be able to make and
implement new strategic choices when needed.
OP Financial Group’s mission, values, vision and strategic
priorities form a whole whose parts complement each other.
OP Financial Group’s vision is to be the leading and most
appealing financial services group in Finland. Continuous
monitoring of the business environment and the strategic
priorities will help achieve the shared vision and guide all
actions.
The Supervisory Council of OP Financial Group’s central
cooperative confirmed the Group’s strategy at its meeting on
25 August 2022. In the next few years, the Group’s
operations will be guided by the following five strategic
priorities:
• Value for customers
• Profitable growth
• Efficient, high-quality operations
• Responsible business
• Highly skilled, motivated and satisfied
personnel.
OP Financial Group’s operations are based on a
strong culture of risk management and compliance.
OP Financial
Group’s
strategic targets
31 Dec
2022
31 Dec
2021
Target
2025
Return on equity
(ROE excluding
OP bonuses), %
8.3 7.8 8.0
CET1 ratio, % 17.4 18.2
At least
CET1
requirement
+ 4 pps*
Brand
recommendations,
NPS (Net
Promoter Score,
personal and
corporate
customers)**
Banking:
27
Banking:
29
Banking:
30
Insurance:
17
Insurance:
16
Insurance:
20
Credit rating AA-/Aa3 AA-/Aa3
At least at
the level of
AA-/Aa3
* OP Financial Group’s target CET1 ratio is at least the CET1 capital adequacy
requirement plus four percentage points. The CET1 target calculated by
applying the December-end capital adequacy requirement was 15.9%.
** Average of quarters (per financial year)
In 2022, OP Financial Group updated the essential
meanings of its values – people first, responsibility and
succeeding together.
Promotion of the success of owner-
customers and operating region
OP Financial Group’s mission is to promote the sustainable
prosperity, security and wellbeing of its owner-customers
and operating region. The Group’s operations are based on
its values, mission, a strong capital base, capable risk
management and customer respect.
Allocation of earnings
OP Financial Group aims to provide its owner-customers with
the services they need, as efficiently as possible. The shared
success will be used for the benefit of owner-customers in
the form of loyalty benefits and other financial benefits as
well as the maintenance and further development of service
capabilities.
OP Financial Group’s estimated earnings allocation for 2022
that is to be confirmed after the end of the financial year:
*) Customers = OP bonuses, discounts and interest on Profit Shares to
owner-customers
Implementing OP Financial Group’s mission successfully
requires a strong capital base which the requirements set by
the authorities also necessitate. A stronger capital base will
require efficiency and earnings power of the Group in the
years to come too. In addition to the part returned to owner-
customers, a significant part of earnings is used to strengthen
OP Financial Group’s capital base.
Benefits created by OP Financial Group are allocated to
owner-customers on the basis of the extent to which each
owner-customer of an OP cooperative bank uses the Group’s
services. The owner-customers’ loyalty benefit programme
consists of OP bonuses – accrued on the basis of an owner-
customer’s transactions with OP – as well as benefits and
discounts granted on OP’s banking services, insurance
contracts and savings and investment services. Owner-
customers also have the opportunity to contribute capital to
their own OP cooperative bank through Profit Shares.
Interest will be paid annually on Profit Shares as the banks’
profit distribution.
In 2022, OP Financial Group celebrated its 120
th
anniversary
by increasing the return target for Profit Shares by 1.20
percentage points. This means that the return target stands
11
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
at 4.45%. Interest payment and its amount depend on the
financial performance of the issuing OP cooperative bank.
OP Financial Group wants to allocate part of its strong
profitability to further improving its customer service and to
carrying out various corporate responsibility actions. In 2023,
the Group will focus on the wellbeing of children and young
people in particular. Through donations and sponsorships of
nearly EUR 4.5 million, OP Financial Group will support young
people’s hobbies and activities promoting their financial
literacy and employment around Finland.
OP Financial Group is one of the largest taxpayers in Finland
measured by tax on profits. As a major taxpayer, OP is
contributing to prosperity in the whole of Finland.
OP Financial Group paid EUR 214 million in corporate tax for
2021.
Customer relationships and customer
benefits
OP Financial Group had a total of 2.1 million (2.0) owner-
customers at the end of the financial year. The number of
owner-customers increased by 16,000.
The number of banking customers totalled 3.6 million (3.6).
Retail Banking had a total of 3.3 million customers (3.3) and
Corporate Banking 0.3 million customers (0.3). Non-life
insurance had a total of 1.7 million customers (1.6) and life
insurance 0.4 million customers (0.4).
The number of joint banking and insurance customers
totalled 1.3 million (1.3).
OP cooperative banks’ owner-customers earn OP bonuses
through banking, insurance and wealth management
transactions. The value of new OP bonuses accrued in
January–December totalled EUR 215 million (210). During
the financial year, a total of EUR 101 million (107) of
OP bonuses were used to pay for banking and wealth
management services and EUR 114 million (112) to pay
non-life insurance premiums.
Owner-customers benefitted EUR 62 million (57) from the
reduced price of the daily services package of Retail Banking.
Owner-customers were provided with EUR 60 million (58) in
non-life insurance loyalty discounts. They also bought, sold
and switched units in most mutual funds without separate
charges. The value of this benefit amounted to EUR 8 million
(7).
The abovementioned OP bonuses and customer benefits
totalled EUR 345 million (332), accounting for 21.4% (22.8) of
OP Financial Group’s earnings before tax and granted
benefits.
Contributions made by OP cooperative banks’ owner-
customers to the OP cooperative banks’ Profit Shares and
cooperative shares totalled EUR 3.6 billion (3.5). The return
target for Profit Shares for 2022 was an interest rate of
4.45% (3.25). Interest payable on Profit Shares accrued
during the financial year is estimated to total EUR 144 million
(96).
Report on non-financial information
OP Financial Group is made up of 108 OP cooperative banks
and the central cooperative which they own, including its
subsidiaries and affiliated entities. On 31 December 2022, OP
Financial Group had 12,999 employees. The Group's
business consists of the following three business segments:
Retail Banking (Banking Personal and SME Customers),
Corporate Banking (Banking Corporate and Institutional
customers), and Insurance (Insurance Customers). The
Group’s main area of operation is Finland. In addition, OP
Corporate Bank operates in Estonia, Latvia and Lithuania.
The entire financial sector is being shaped by higher ESG
expectations among customers and other stakeholders,
regulation on sustainable finance, and supervisory
requirements. Responsible business is one of OP Financial
Group’s strategic priorities. The Group has defined the
following values that guide its operations and support its
mission: people first, responsibility, and succeeding together.
OP Financial Group follows the Code of Business Ethics in its
operations. This includes the key principles for corporate
responsibility and environmental impact that all employees
and members of governing bodies of OP Financial Group
must observe. The Group is committed to complying with
international principles that guide operational responsibility.
The most important of these are the principles of the United
Nations Global Compact initiative, the Principles for
Responsible Banking under the United Nations Environment
Programme Finance Initiative (UNEP FI), the UN Principles for
Responsible Investment (UN PRI) and the UN Principles for
Sustainable Insurance (UN PSI). OP is one of the founding
members of Finland’s Sustainable Investment Forum (Finsif)
and an active member of Finnish Business & Society (FIBS),
the largest corporate responsibility network in the Nordic
countries.
OP Financial Group’s corporate responsibility activities are
guided by a Group-level sustainability programme that was
revised in August 2022.
OP Financial Group will publish its sustainability report for
2022 as part of its annual review. The report is based on the
GRI Universal Standards and includes information
supplementing this report. The report also includes a review
based on the TCFD framework (Task-force on Climate
related Financial Disclosures). OP Financial Group will publish
its sustainability report for 2022 as part of its annual review
in week 10.
12
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Environmental and climate-related aspects
The financial sector plays a key role in the fight against
climate change, particularly in financing and investment
operations, but also as part of sustainable insurance and
claims management. OP Financial Group wants its operations
to have a positive effect on the climate and the environment
and enable a change towards a more sustainable future
together with its customers. The Group supports its
customers’ preparation for the effects of climate change and
their shift towards low-carbon operations by, for example,
providing them with green loans tailored for environmentally
friendly projects.
OP Financial Group is committed to the Paris Agreement,
which aims to hold the increase in the global average
temperature well below 2°C above pre-industrial levels and
to limit the rise in temperatures to 1.5°C above pre-industrial
levels. OP Financial Group has developed two products based
on the international framework for sustainable finance: green
loans and sustainability-linked loans. Green loans are
designed for corporate customers that can make a
commitment to using the borrowed funds to promote specific
projects, while sustainability-linked loans are for corporate
customers that are prepared to pursue sustainability-based
performance targets agreed with the lender. These targets
affect the loan margin. The combined exposures of these
loans and limits increased to EUR 5.2 billion (3.0) in 2022.
OP Financial Group has issued three green bonds:
OP Corporate Bank’s EUR 500 million green bond and the
EUR 500 million senior non-preferred green bond issued in
January 2022, as well as the EUR 700 million green covered
bond issued by OP Mortgage Bank.
In its loan decisions, OP Financial Group considers the ESG
themes and risks related to environmental, social and
governance factors in accordance with the EBA (European
Banking Authority) Guidelines on loan origination and
monitoring. OP Financial Group prepares an ESG analysis of
its corporate customers as part of assessing their
creditworthiness. The purpose of the analysis is to assess
how well the companies have included essential ESG themes
in their business models and how these themes will affect
their business operations and potential.
OP Financial Group’s goal is to make its own operations
carbon neutral by 2025, which means not producing
emissions from the energy and fuels that the Group uses.
These direct (Scope 1) and indirect (Scope 2) emissions
include emissions from the oil used by heating and stand-by
generators, district heating, district cooling as well as energy
production. The aim is to minimise energy consumption. For
this purpose, we have been building an energy management
system which will provide us with more detailed information
regarding our properties’ energy consumption and emissions.
OP Financial Group calculates emissions from its own
operations in accordance with the Greenhouse Gas Protocol
(GHG), and greenhouse gases are indicated as CO2
equivalents. In 2022, Scope 1 and Scope 2 emissions totalled
7,156 CO2e tonnes (25,485).
OP Financial Group’s most significant climate impacts arise
through our financing and investments. With respect to
indirect emissions, OP Financial Group reports the emission
distribution of its exposures for the most significant sectors.
After OP Financial Group joined the PCAF calculation method
in 2022, the emissions are focused more accurately based on
the fund use targets financed by us. The information
OP Financial Group uses for the emission calculation methods
is also more comparable and precise than before. Due to the
change in the calculation method, the GHG emissions of the
financing and investment portfolios are not comparable to
those of 2021.
OP Financial Group is committed to ensuring that its
corporate loan portfolios are carbon neutral by 2050. In
addition to this long-term target, the Group has a roadmap
for major reductions in emissions before 2050, especially in
Finland, its main corporate financing market. OP Financial
Group will cut 25% of its corporate loan portfolio emissions by
2030, compared with the 2022 level.
In line with the UNEP FI Principles for Responsible Banking,
OP Financial Group is committed to aligning its loan portfolio
with the Paris Agreement. The Group will not finance new
coal power plants or coal mines, including companies that
plan to build them. Neither will it provide finance to new
corporate customers whose financial dependence on using
coal as an energy source is over 5%, measured in net
sales.
OP Asset Management and OP Fund Management Company
are committed to becoming carbon neutral in their managed
funds by 2050. In addition, we will halve the greenhouse gas
emission intensity of our mutual funds by 2030, compared
with the 2019 level. We will stepwise tighten our coal-
exclusion policy in such a way that, by the end of 2030, our
direct and active investments exclude business related to coal
mining or coal power generation.
OP Fund Management Company publishes carbon footprint
calculations for its managed equity and fixed income funds
twice a year, and fund-specific ESG analyses for the majority
of such funds four times a year. These analyses show not
only the overall sustainability and corporate responsibility
score for the whole portfolio but also the percentage of the
portfolio companies’ net sales attributable to renewable
energy, energy efficiency and green buildings.
OP Financial Group and the European Investment Fund
agreed on new risk sharing guarantee facilities in December
2022. The guarantee facilities promote the green transition
and companies’ innovation activities and bring additional
financing of approximately EUR 200 million to the market.
The guarantee facilities help SMEs obtain financing for
investments that accelerate the green transition and enable
them to implement projects with lower collateral
requirements. The different guarantee facility solutions will be
available at OP cooperative banks in the early spring of 2023.
13
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
In early 2022, OP Corporate Bank plc issued a green bond
worth EUR 500 million in accordance with its updated Green
Bond Framework. Proceeds raised through this bond are also
used to promote sustainable corporate finance.
At the end of 2022, a total of 45.6% of OP Financial Group's
mutual funds were funds that promote ESG characteristics
(EU regulation on sustainable finance, article 8 or 9).
OP offers four sustainability-themed funds: OP-Sustainable
World, OP-Climate, OP-Clean Water and OP-Low-carbon
World. In addition to theme funds, responsible investment
funds include index funds and the OP-Target funds available
on OP-mobile. Five index funds (OP-America Index, OP-
Europe Index, OP-World Index, OP-Asia Index and OP-Nordic
Countries Index) track ESG indexes which place greater
weight on companies that integrate ESG risks better than
their peers. These funds do not invest in companies that have
ties to the manufacture of controversial weapons or that
have violated international standards. Target funds, too, place
greater weight on companies that integrate ESG risks better
than their peers, and target funds avoid investments in
controversial sectors. Assets under management invested
through responsible investment funds totalled EUR 13.0
billion (8.8) at the end of 2022.
OP Real Estate Asset Management Ltd is committed to
promoting carbon neutrality in its property investment
operations. Its responsibility targets include carbon neutral
energy by 2030 and carbon neutral construction by 2050.
In addition to its GRI sustainability reporting, OP evaluates its
impacts on climate change in the annual CDP survey. In the
survey for 2022, OP Financial Group reached the score B.
Aspects related to personnel and other areas of
social responsibility
OP Financial Group is committed to being a responsible actor
and respecting human rights, including OECD Guidelines,
employee rights and the fundamental principles and rights
named in the ILO Declaration on Fundamental Principles and
Rights at Work. The Group is committed to the UN Global
Compact initiative and to promoting human rights, labour
standards, environmental protection and anti-corruption.
The Group’s value descriptions updated in 2022 emphasise
value to the customer, diversity of personnel, appreciating
differences and viewing them as strengths, as well as
transformation and continuous learning.
One of OP Financial Group’s strategic priorities is highly
skilled, motivated and satisfied personnel. The aim of
OP Financial Group’s employee wellbeing policy is to maintain
and promote the health and wellbeing of all employees
through close and well-organised management of
occupational health and safety and wellbeing at work.
This creates the basis for a good employee experience.
Key elements supporting employee wellbeing at OP Financial
Group include early intervention, extensive occupational
healthcare services, rehabilitation, flexibility at work and
diversity management.
Employee experience is measured through regular personnel
surveys and by monitoring the health rate indicator. In 2022,
sickness absences accounted for 3.1% of regular working
hours. The ‘health rate’ (percentage of personnel with no
sickness absences) was 54% of all personnel in 2022.
OP Financial Group aims to promote diversity in its
organisations. The goal is to have a personnel structure that
reflects the diversity of the Group’s clientele regarding age,
gender, nationality and other background factors. The
Group’s corporate culture and practices are non-
discriminating and diverse and promote a sense of belonging,
and this is what its sustainability programme aims to
reinforce. The Group considers diversity to be an asset and
guarantees equal opportunities, rights and fair treatment for
everyone. The Group’s employees have equal opportunities
and rights at all stages of the employment relationship,
including recruitment, career transitions and salary. We pay
attention to our personnel’s diverse experiences and
competencies. We regularly monitor and promote the
implementation and development of equality and diversity by
means such as personnel surveys and candidate experience
measurement during recruitment.
To promote diversity, OP Financial Group’s objective is that
the proportion of both genders in defined executive positions
is at least 40%. The proportion of women in these positions
was 31% (30) at the end of 2022. The proportion of women
in these positions was 21% at the end of 2017. The Group
monitors on an annual basis the distribution of personnel in
various task groups by factors such as gender, pay and age.
OP Financial Group requires that its personnel have diverse
skills, in addition to regulatory competence requirements. The
Group supervises these competencies and reports them
through completed e-courses, according to various needs.
Online courses compulsory to all OP Financial Group
employees include preventing money laundering, code of
business ethics, cybersecurity in the workplace and security
training. As of 2023, all employees must complete an ESG
training, too.
Increasing financial literacy in Finland is an integral part of OP
Financial Group’s corporate responsibility efforts. In 2022, the
Group strengthened the financial literacy of more than
90,000 (39,000) children and young people. The Group also
provided training in digital literacy to a total of 12,000 (8,400)
older people.
OP Financial Group’s charity donations in 2022 totalled
around EUR 2.7 million (2.4). The donations were channelled
in line with themes that support the Group’s sustainability
programme and values.
Aspects related to human rights
OP Financial Group respects human rights and aims to
prevent discrimination in all its activities. The Group’s own
operations do not involve any significant human rights risks
or impacts. Indirectly, such impacts may arise from the supply
14
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
chain or from the operations of investees and financed
parties. OP Financial Group’s Supplier Code of Conduct
requires that product and service suppliers ensure the
fulfilment of human rights in their supply chains. The Group
measures this by monitoring the number of discrimination
incidents and the number of reports filed through the
whistleblowing channel.
OP Corporate Bank’s ESG analyses for large corporate
customers enable it to systematically assess companies’ social
impacts and risks, in addition to environmental matters.
Human rights aspects are included in OP Asset
Management’s process of keeping up with and influencing
international standards. OP Financial Group does not make
active direct investments in companies that have violated
international norms and where engagement to urge
corrective measures has been unsuccessful.
The most important objective of internal data protection
procedures is to ensure that all stakeholders can trust the
way in which OP Financial Group manages data protection
matters and processes customer data responsibly.
OP Financial Group was the first Finnish company to publish
its ethical guidelines for artificial intelligence.
OP Financial Group aims to improve equal opportunities in
the digital society by developing the accessibility of the
Group’s digital services. OP Accessible – an easy-to-use,
clear-language web service for daily banking – is the OP
service which best meets accessibility requirements. It is also
easy to use with various assistive software and devices.
Accessibility of OP Financial Group’s other digital services is
continuously improving as development efforts progress.
Already today, the Group’s mobile apps accept login with
fingerprint, and key code lists are also available in Braille.
In March 2022, the Group published a new guide for older
people. It assists and guides them in doing their banking
independently without a computer or a smartphone.
Prevention of corruption and financial crime
OP Financial Group is committed to acting on the Code of
Business Ethics. Responsibility involves managing conflicts of
interest and abolishing corruption. The Group has compiled
an online course for all employees to ensure that the Code of
Business Ethics is observed. The course must be taken every
year. All employees must also pass the online course on
managing conflicts of interest and anti-corruption on an
annual basis.
OP Financial Group regularly analyses and assesses risks
involved in its operations, including risks related to corruption,
in accordance with the related application guide, OP Financial
Group’s operational risk management procedures. As
required by regulation and guidelines issued by authorities,
the Group has drawn up policies and procedures for knowing
its customers and performing ongoing customer due
diligence as well as for staff training, instructions and
protection.
OP Financial Group is committed to the continuous
strengthening and improvement of its capabilities in financial
crime prevention. All Group employees must annually pass
the online course on preventing money laundering. Any
suspicious transactions will be reported to the Financial
Intelligence Unit in line with regulatory requirements. Internal
control is complemented by the opportunity of anyone
employed by the Group and other stakeholders to report
through an independent channel if they suspect
discrimination or a violation of rules or regulations
(whistleblowing). Actions that are against OP Financial
Group’s values can also be reported. Reports can be filed at
any time via OP Financial Group’s intranet or website. All
reports are processed with confidentiality by designated
specialists of the independent Compliance function.
Risks and their management in respect of non-
financial information
From the perspective of a financial services provider, the
drivers of change in the business environment, such as
changes related to climate and the environment, may be
channelled into financial risks in the banking and insurance
business through various impact chains. Climate and
environmental risk factors can be divided into physical risk
factors and transition risk factors. Physical risks include risks
arising from extreme weather phenomena, such as floods
and heatwaves, or from other environmental risk factors
such as the scarcity or contamination of natural resources.
Transition risks may arise if climate policy actions to reduce
emissions are taken too abruptly or too late. Risks arise from
new regulations, changes in customer behaviour or the
adoption of new technology.
Credit risk is affected by, for example, the sector to which
financing is provided or investment made. Physical risks may
affect the value of real property, including the value of
collateral through buildings, for example. The transition to a
low-carbon economy may affect the value of assets that are
dependent on energy inefficient or fossil fuels, for example.
Through changes in market expectations, climate and
environmental risk factors may impact on both the market
risks involved in OP Financial Group’s investment operations
and the preferences of our investor clients. The Group can
respond to changes in investor preferences by providing, for
example, bonds recently added to asset management’s
product portfolio.
Extreme weather phenomena may cause physical damage
and, thus, operational risks in our business locations. Failure
to fulfil our shareholders’ expectations regarding responsibility
may cause reputational damage.
From social and employee perspectives, risks may arise from
projects being financed and the availability of skilled
workforce. From a human rights perspective, risks may arise,
for example, through investments. Corruption and bribery
risks may arise in connection with financing decisions or due
to negligence in customer due diligence procedures.
15
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
The business concerned and process owners are responsible
for the management of risks that apply to their own activities.
OP Financial Group’s risk management and compliance
organisations also oversee risks, risk management and
compliance related to ESG factors. The Risk Committee of OP
Cooperative’s Board of Directors oversees risk management,
including that related to climate and environmental factors.
Taxonomy eligibility
The aim of the EU Taxonomy for sustainable finance that
entered into force in 2021 is to determine the sustainability
of financing and investment instruments. OP Financial Group
reports taxonomy eligibility information for 2022. In future
years, the Group will present key performance indicators for
sustainable finance on its taxonomy-eligible assets in
accordance with the disclosure obligations established under
the taxonomy.
Home loans contribute to economic activities classified in
taxonomy regulation, in other words, they are taxonomy
eligible.
Home loans (31 Dec) € million
Share of
balance sheet
assets, %
Taxonomy-
eligible, %
2022
42,304
24.3
100.0
2021
41,522
23.8
100.0
As regards Insurance business, the proportion of taxonomy-
eligible economic activities related to non-life insurance is
reported for 2022. Insurance contracts are taxonomy eligible
if they fall within the lines of insurance specified in the EU
Taxonomy criteria and if, based on the insurance terms and
conditions, the insurance contracts cover losses arising from
threats related to climate change. Insurance covers provided
by Pohjola Insurance are regarded as taxonomy-eligible,
excluding general liability, business interruption, luggage and
legal expenses insurance. The indicator applied is gross
premiums written.
Insurance business,
Q1–4/2022
€ million %
Non-life insurance
gross premiums written 1,606 100.0
Taxonomy-eligible
1,407
87.6
Taxonomy-non-eligible 199 12.4
Reinsurance
gross premiums written 82
100.0
Taxonomy-eligible 56 68.3
Taxonomy-non-eligible 26 31.7
Insurance business,
Q1–4/2021
€ million %
Non-life insurance
gross premiums written 1,543 100.0
Taxonomy-eligible 1,357 87.9
Taxonomy-non-eligible
186
12.1
Reinsurance
gross premiums written
70
100.0
Taxonomy-eligible 49 70.5
Taxonomy-non-eligible 21 29.5
As regards other functions, OP Financial Group reports their
taxonomy eligibility on the basis of the taxonomy reporting of
the companies in question. The figures are based on the
percentage of taxonomy-eligible net sales reported by the
companies.
31 Dec 2022 € million
Share of
balance
sheet
assets, %
Taxonomy-
eligible, %
Corporate lending, NFRD
exposures* 5,951 3.4 21.8
Non-life insurance
investments**
4,100
2.4
2.6
Life insurance investments**
16,600
9.5
3.3
Banking notes and bonds***
7,082
4.1
4.0
Total 33,733 19.4
*Companies subject to the NFRD (Non-Financial Reporting Directive) includes
listed European companies with more than 500 employees.
**Fair value of investments. Life insurance investments include unit-linked
investments and separated balance sheets.
***Excluding notes and bonds held for trading.
Information on the NFRD exposures of corporate lending has
been collected from the public taxonomy eligibility reports of
the companies concerned.
Taxonomy figures related to investments are based on
information collected by an external supplier on figures
reported by investees.
Balance sheet information,
31 Dec 2022
€ million
Share of balance
sheet assets, %
Total balance sheet assets
175,516
100.0
Exposures to central
governments, central banks and
supranational issuers
39,481 22.5
Derivative contracts, assets
4,117 2.3
Financial assets held for trading
381 0.2
Receivables from credit
institutions payable on demand
652 0.4
16
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Balance sheet information,
31 Dec. 2021 € million
Share of balance
sheet assets, %
Total balance sheet assets
174,110
100.0
Exposures to central
governments, central banks and
supranational issuers
36,236
20.8
Derivative contracts, assets 3,467 2.0
Financial assets held for trading 409 0.2
Receivables from credit
institutions payable on demand 283 0.2
As regards 2022, OP Financial Group does not report
taxonomy eligibility information on nuclear power and natural
gas under the EU Taxonomy Complementary Climate
Delegated Act, because companies do not publish such
information.
OP Financial Group constantly assesses the impacts of the EU
Taxonomy on the Group, its strategy and customers. The
Group guides its customers in preparing for and adapting to
the various effects of climate change and the related risks.
The Group is monitoring developments in sustainable finance
regulation and the EU taxonomy since they will change the
business environment and the conditions for success.
The Group analyses the taxonomy alignment of non-life
insurance products and engages in product development.
The Group has begun to prepare for taxonomy alignment
reporting for 2023.
Voluntary information supplementing taxonomy
reporting
Based on taxonomy regulation applied to the financial sector,
OP Financial Group discloses voluntary information as part of
taxonomy reporting. The Group reports assessment
information on the taxonomy eligibility of investments. This
reporting is based on the assessments performed by an
external supplier regarding the taxonomy eligibility of the
activities subject to investment by OP Financial Group. The
target group subject to the assessments is wider than that of
companies subject to the Non-Financial Reporting Directive
(NFRD). OP Financial Group reports the taxonomy eligibility of
the NFRD exposures of corporate lending and the eligibility of
banking notes and bonds for 2021 on a voluntary basis. For
2022, these items are subject to mandatory reporting.
31 Dec 2022
€ million
Share of
balance
sheet
assets, %
Taxonomy-
eligible, %
Non-life insurance investments* 4,100 2.4 18.5
Life insurance investments* 16,600 9.5 25.3
Total 20,700 11.9
*Fair value of investments. Life insurance investments include unit-linked
investments and separated balance sheets.
31 Dec 2021 € million
Share of
balance
sheet
assets, %
Taxonomy-
eligible, %
Corporate lending, NFRD
exposures* 7,802 4.5 33.1
Non-life insurance
investments** 4,235 2.4 37.3
Life insurance investments** 19,473 11.2 12.9
Banking notes and bonds*** 7,899
4.5
3.4
Total 39,409 22.6
*Companies subject to the NFRD (Non-Financial Reporting Directive) includes
listed European companies with more than 500 employees. As regards
corporate lending, the information covers Finnish companies only. The figures
for 2021 and 2022 are not comparable because the
source of information
and the calculation method changed in 2022.
**Fair value of investments. Life insurance investments include unit-linked
investments and separated balance sheets.
***Excluding notes and bonds held for trading.
Sustainability and corporate responsibility
Sustainability and corporate responsibility form an integral
part of OP Financial Group’s business and strategy, and
responsible business is one of OP Financial Group’s strategic
priorities. The Group published its new sustainability
programme in August 2022. The programme and its policy
priorities implement OP Financial Group’s strategy and guide
its sustainability and corporate responsibility actions.
OP Financial Group’s sustainability programme is built around
three themes: Climate and the environment, People and
communities and Corporate governance.
The programme is based on OP Financial Group’s values,
megatrends in the business environment and materiality
assessment. The sustainability programme and its goals have
been worked on together with different stakeholders. The
Climate and environment section sets goals for the provision
of sustainable financial and investment products, the
emission reductions of loan and investment portfolios as well
as the promotion of biodiversity. The People and
communities section focuses on the wellbeing of local
communities and on supporting management of personal
finances and financial literacy. Corporate governance involves
integrating responsibility with all business and related risk-
taking and a goal to enhance governance diversity.
OP Financial Group is committed to complying with the ten
principles of the UN Global Compact initiative in the areas of
human rights, labour rights, the environment and anti-
corruption. OP has agreed to follow the UN Principles for
Responsible Investment and the UN Principles of Sustainable
Insurance. OP Financial Group is a Founding Signatory of the
Principles for Responsible Banking under the United Nations
Environment Programme Finance Initiative (UNEP FI).
OP Financial Group is committed to the international
Partnership for Carbon Accounting Financials (PCAF), which
aims to develop and implement a harmonised approach to
17
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
assessing and disclosing greenhouse gas emissions
associated with partners’ loans and investments.
Sustainability and corporate responsibility
highlights 2022
In January, OP Corporate Bank plc issued a 500 million-euro
senior non-preferred green bond with a maturity of 5.5
years. The bond was targeted at international responsible
institutional investors. Proceeds raised with the green bond
are allocated to sustainable corporate finance. Eligible sectors
to be funded include renewable energy, green buildings and
environmentally sustainable management of living natural
resources and land use.
In April, OP Mortgage Bank issued a one-billion-euro green
covered bond with a maturity of 5.5 years. This fixed-rate
covered bond is targeted at international institutional
investors, and proceeds raised with the bond will be allocated
to OP Financial Group’s home loans recognised as green ones
according to the Green Covered Bond Framework of
OP Mortgage Bank. The sector to be financed is energy-
efficient residential buildings (green buildings).
In April–May, OP Financial Group organised the Financial
Literacy Competition, which has a long tradition, in
cooperation with The Association for Teachers of History and
Social Studies in Finland (HYOL ry). This year, around 20,000
young people from 325 schools all over Finland participated
in the national competition. In May, OP Financial Group
donated EUR 500,000 to Finnish Red Cross for helping the
Ukrainians.
OP Financial Group donated a total of EUR 1.8 million to
Finnish universities. The Group’s central cooperative’s, that is
to say OP Cooperative’s, share of the donation was EUR 1.2
million. It was equally distributed between ten universities
that teach economic sciences: Aalto University, the
universities of Eastern Finland, Jyväskylä, Oulu, Tampere,
Turku and Vaasa, as well as LUT University, Hanken School
of Economics and Åbo Akademi each received a donation of
EUR 120,000. In addition, OP cooperative banks donated a
total of EUR 620,000 to their regional universities. With the
donations to universities, OP Financial Group aims to support
Finnish expertise and research, create opportunities for
sustainable growth and promote the long-term success of its
operating region.
Through its campaign “Summer jobs paid for by OP”, OP
provided 2,000 young people with a summer job in the third
sector. OP cooperative banks donated funding to non-profit
associations for hiring young people from 15 to 17 years for
two weeks. Enhancing the wellbeing of children and youths
and their confidence in the future, and supporting the
employment of young people form an important part of OP
cooperative banks’ sustainability actions. In July, OP and Hope
ry organised for the sixth time the Backpack for every back
campaign to collect school backpacks at OP cooperative banks
across Finland. This year, a total of 2,500 backpacks were
collected for the children of families living on limited means.
OP Financial Group launched its new sustainability
pr
ogramme in August 2022. The programme and its goals
guide the Group’s sustainability activities.
Pohjola Insurance and several OP cooperative banks around
Finland have joined the Dreams programme to strengthen
youths’ dreams, wellbeing and faith in the future. Over the
next two years, Dreams visits will be carried out to as many
as 240 schools across Finland with support from Pohjola
Insurance and OP cooperative banks.
OP Financial Group has been supporting MIELI Mental Health
Finland’s Crisis Helpline since 2020. This autumn’s donation
of 30 000 euros provides a total of 200,000 euros for
MIELI’s Crisis Helpline. These donations have provided
multiple forms of assistance for the Crisis Helpline, such as
enabling the hiring of crisis workers.
As a member of the national ‘Down a degree’ initiative,
OP Financial Group began to launch energy-saving measures
in September with the aim of cutting its heating energy
consumption by five per cent this winter. The Group will
reduce the indoor temperature of its offices by one degree
and take several other energy-saving measures. Through
this energy saving challenge, OP Financial Group encourages
all customers and partners to join the campaign.
OP Financial Group has developed two products based on the
international framework for sustainable finance: green loans
and sustainability-linked loans. Green loans are designed for
corporate customers that can make a commitment to using
the borrowed funds to promote specific projects, while
sustainability-linked loans are for corporate customers that
are prepared to pursue sustainability-based performance
targets agreed with the lender. These targets affect the loan
margin. At the end December, total exposures from these
loans and facilities stood at EUR 5.2 billion (3.0).
In December 2022, OP Financial Group and the European
Investment Fund signed an agreement on new risk sharing
guarantee facilities. The aim is to help SMEs obtain financing
for investments that accelerate the green transition and
enable them to implement projects with lower collateral
requirements.
Multichannel services
OP Financial Group has a multichannel service network
comprising online, mobile, branch and telephone services. In
December, the Group’s mobile channels (OP-mobile, OP
Business mobile) had more than 1.4 million active users
(1.3). The Group provides personal customer service both at
branches and digitally.
18
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Mobile and online
services,
no. of logins (million)
Q1–4/
2022
Q1–4/
2021
Change, %
OP-mobile 513.6 481.3 6.7
OP Business mobile 27.3 20.9 30.6
Pivo
43.4
44.4
-2.3
Op.fi* 73.8 53.4 38.2
31 Dec 2022 31 Dec 2021 Change, %
Siirto payment,
registered customers
(OP)
1,148,218 1,054,931 8.8
* The figures are not comparable due to a change in the measurement
method in 2022.
In March, OP introduced the Google Pay service to its
customers in Finland, alongside the Apple Pay service. The
service enables customers to pay for their purchases using
Android phones or smartwatches in contactless payment
readers and on apps and online stores. In December,
OP extended the service to cover customers using
Mastercard.
In March, OP published a new guide for older people to
support them in using non-digital banking services, and
finding options for the daily use of services without a
computer or smartphone.
OP Financial Group has an extensive branch network with
297 branches (324) across the country. In addition, Pohjola
Insurance has a comprehensive network of agencies and
partnerships.
OP Financial Group has extensive presence in the most
common social media channels where it has a total of
650,000 followers (630,000). In addition to OP Financial
Group’s national social media accounts, many OP cooperative
banks have their own social media accounts where they
share publications targeted at local customers.
Capital adequacy and capital base
Capital adequacy under the Act on the
Supervision of Financial and Insurance
Conglomerates
OP Financial Group’s capital base, calculated according to the
Act on the Supervision of Financial and Insurance
Conglomerates (FiCo), exceeded the minimum amount
specified in the Act by EUR 4.1 billion (4.5). Banking capital
requirement remained unchanged at 13.8%, calculated on
risk-weighted assets. The ratio of OP Financial Group’s capital
base to the minimum capital requirement was 137% (146).
The ratio weakened by around 15 percentage points as a
result of the adoption of the risk-weighted assets floor based
on the Standardised Approach (SA floor). As a result of the
buffer requirements for banking and the solvency
requirements for insurance companies, the minimum FiCo
solvency of 100% reflects the level within which the
conglomerate can operate without regulatory obligations
resulting from buffers below the required level.
Capital adequacy for credit institutions
OP Financial Group’s CET1 ratio was 17.4% (18.2), which
exceeds the minimum regulatory requirement by 5.5
percentage points. The ratio decreased by one percentage
point at the time of transition to the SA floor in the second
quarter. The ratio was improved by earnings performance
and the issues of Profit Shares.
As a credit institution, OP Financial Group’s capital adequacy
is on a solid basis compared to the statutory requirements
and those set by the authorities. The statutory minimum for
the capital adequacy ratio is 8% and for the CET1 ratio 4.5%;
the minimum requirement of 1.6% for AT1 and T2, which
needs to be covered with CET1, raises the CET1 minimum to
6.1%. The requirement for the capital conservation buffer of
2.5% under the Act on Credit Institutions, the O-SII buffer of
1% and the ECB’s P2R requirement increase, in practice, the
minimum total capital ratio to 13.8% and the minimum CET1
ratio to 11.9%, including the shortfalls of Additional Tier 1
(AT1) and Tier 2 (T2) capital.
The CET1 capital of OP Financial Group as credit institution
was EUR 12.6 billion (12.0). The CET1 capital was improved
by Banking earnings and Profit Share issues. The amount of
Profit Shares in CET1 capital was EUR 3.2 billion (3.1).
19
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
The risk exposure amount (REA) totalled EUR 72.3 billion
(65.7), or 10% higher than on 31 December 2021. The SA
floor increased the total risk exposure amount. OP Financial
Group shifted to the Standardised Approach in its capital
adequacy measurement for credit institution exposures and
certain minor parts of corporate exposures during the third
quarter. This change had no substantial effect on the CET1
ratio. The Group previously applied the IRBA for such
exposures.
OP Financial Group treats insurance holdings within the
financial conglomerate as risk-weighted assets, based on
permission from the ECB. Equity investments include
EUR 8.6 billion (6.8) in risk-weighted assets of the Group’s
internal insurance holdings. The increase was due to the
adoption of the Simple Risk Weight Approach – a risk weight
of 370% – replacing the previous PD/LGD method. Under the
Standardised Approach, the risk weight of insurance
company holdings is 100%.
The Finnish Financial Supervisory Authority (FIN-FSA) makes
a macroprudential policy decision on a quarterly basis. In
December 2022, the FIN-FSA reiterated its decision not to
impose a countercyclical capital buffer requirement on banks.
In its macroeconomic stability decision in December 2022,
the FIN-FSA indicated imposing a systemic risk buffer in the
first quarter of 2023. In connection with its macroprudential
policy decision of June 2022, the FIN-FSA performed an
annual review of banks’ capital buffer requirements and
decided to raise OP Financial Group’s O-SII buffer by 0.5
percentage points to 1.5%, effective as of 1 January 2023.
The minimum leverage ratio for OP Financial Group’s
Banking was 7.6% (7.4). This higher ratio was due to Banking
earnings in particular. The regulatory minimum requirement
is 3%.
On 30 September 2022, OP Financial Group filed an
application with the ECB on the use of the Standardised
Approach in capital adequacy calculation, instead of the
internal models (IRBA) and the currently applied risk-
weighted assets floor based on the Standardised Approach.
Transfer to the Standardised Approach is estimated to have
no essential effect on OP Financial Group’s capital adequacy
or risk exposure. According to OP Financial Group’s
assessment, the transfer will take place during the first
quarter of 2023.
The future changes in the EU Capital Requirements
Regulation (CRR3), which will implement the final elements of
Basel III, are assessed to not have a substantial effect on the
capital adequacy of OP Financial Group. The changes should
take effect in 2025.
OP Financial Group’s Capital Adequacy and Risk Management
Report and OP Amalgamation's Pillar III tables will be
published in week 10.
Insurance
The solvency position of insurance companies is strong. The
solvency of the insurance business was improved mainly by
higher interest rates and lower market risks.
Non-life insurance
Life insurance
31 Dec
2022
31 Dec
2021
31 Dec
2022
31 Dec
2021
Capital base, € mill.* 1,658 1,464 1,523 1,656
Solvency capital
requirement (SCR),
€ mill.*
671 840 567 833
Solvency ratio, %* 247 174 269
199
Solvency ratio, %
(excl. transitional
provision)
247 174 232 173
*including transitional provisions
ECB’s supervision
OP Financial Group is supervised by the European Central
Bank.
On 25 April 2019, OP Financial Group received the ECB’s
decision on increases in the risk weights of mortgage-backed
retail exposures as part of the targeted review of internal
models (TRIM). These risk weight increases will be valid until
further notice, until the qualitative requirements set out in the
decision have been met.
On 19 February 2020, OP Financial Group received the ECB’s
decision concerning the change in the definition of default, in
which the ECB set risk weighting factors for corporate and
retail exposures. These risk-weighting factors will be valid
until the qualitative requirements set out in the decision have
been met.
On 11 December 2020, OP Financial Group received the
ECB’s decision concerning increases in the risk weights of
retail exposures. The decision overruled the ECB’s earlier
decision issued on 2 February 2017.
20
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
On 18 March 2021, OP Financial Group received the ECB’s
decision concerning an increase in the risk parameter of
corporate exposures. This risk parameter factor will be valid
until the qualitative requirements set out in the decision have
been met.
The ECB has set a capital requirement for OP Financial
Group based on the supervisory review and evaluation
process (SREP). The capital buffer requirement (P2R) set by
the ECB is 2.25% (2.25) as of 1 January 2022.
Liabilities under the Resolution Act
Under regulation applied to crisis resolution of credit
institutions and investment firms, the resolution authority is
authorised to intervene in the terms and conditions of
investment products issued by a bank in a way that affects an
investor’s position. The EU’s Single Resolution Board (SRB)
based in Brussels is OP Financial Group’s resolution authority.
The SRB has confirmed a resolution strategy for OP Financial
Group whereby the resolution measures would focus on the
OP amalgamation and on the new OP Corporate Bank that
would be formed in case of resolution.
On 21 February 2022, the resolution authority updated the
Minimum Requirement for Own Funds and Eligible Liabilities
(MREL) for OP Financial Group. The updated MREL is 25.8%
of the risk-weighted assets (RWA) and 9.9% of the leverage
ratio exposures (LRE).
As part of the MREL, the resolution authority has set a
subordination requirement for OP Financial Group in
accordance with the Single Resolution Mechanisms
Regulation. The subordination requirement determines how
much of the MREL must be met with own funds or with
subordinated liabilities. From 2022, the subordination
requirement supplementing the MREL is 22% of the total risk
exposure amount and 9.9% of the leverage ratio exposures.
From the beginning of 2024, the subordination requirement
will be 24% of the total risk exposure amount and 9.9% of the
leverage ratio exposures. The requirements include a
combined buffer requirement (CBR) of 3.5%.
OP Financial Group’s buffer for the MREL was EUR 9.0 billion
and for the subordination requirement EUR 1.9 billion. The
amount of senior non-preferred (SNP) bonds issued by
OP Financial Group totalled EUR 4.4 billion. These bonds
provide funds for the MREL subordination requirement.
Key principles of risk management
At OP Financial Group, OP Cooperative’s Board of Directors is
the most important decision-making body for duties related
to risk management. OP Cooperative’s Supervisory Council
confirms the decisions by the Board of Directors that apply to
OP Financial Group’s risk appetite. The Risk Committee of the
Board of Directors assists the Board of Directors in
performing duties related to risk-taking and risk
management. Based on the decision by the President and
Group Chief Executive Officer, the Executive Management
Team has set up a Risk Management Committee, Steering
and Compliance Committee and Banking ALM Committee
that approve instructions and policy descriptions specifying
the Risk Appetite Statement and the Risk Appetite
Framework.
Senior management prepares business divisions’ strategic
choices that, in terms of risk-taking, are based on OP
Financial Group’s Risk Appetite Statement, confirmed by OP
Cooperative’s Supervisory Council. The Risk Appetite
Statement outlines and gives grounds for what risks each
business is ready to take and to what extent. Businesses are
obliged to operate within the limits of these restrictions.
Senior management decides on the division of responsibilities
related to risk-taking: what risks different revenue logics
(product and service packages) can take, and any potential
elaborations on what risks legal entities and various functions
within those revenue logics can take.
Senior management must ensure the maintenance and
development of sufficient resourcing and expertise for the
monitoring functions of the first, second and third line of
defence. The governance structure provides the basis for the
fact that the key principles guiding operations and the related
policies and operating instructions have been prepared and
resolved appropriately and that each activity is assessed and
supervised in appropriate manner in view of quality, extent
and complexity by expert parties that are independent of
business, in addition to monitoring performed by the business
concerned.
OP Financial Group’s remuneration schemes are built in line
with the Group’s mission, values and targets, while taking
account of regulatory compliance. Remuneration must not
incentivise staff to excessive risk-taking or to actions against
the customer’s best interests. Compliance and Risk
Management are involved in the preparation of the
remuneration principles, remuneration policy and
remuneration schemes and in the determination of
supervisory practices related to remuneration processes.
The principles of corporate governance as required by joint
and several liability define and determine the bank-specific
corporate governance of the central cooperative and its
member cooperative banks, as required under joint and
several liability. In addition, the principles of internal control,
good corporate governance, good business practices and
corporate security set preconditions for practices.
Risk profile
OP Financial Group’s risk-taking starts from the fact that the
Group assumes risks that are associated with executing the
Group’s mission. In its risk-taking, OP Financial Group
emphasises moderation, responsibility and careful action.
Risk-taking is directed and limited by means of principles and
limits prepared by senior management and approved by the
management body.
21
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s success is based on the trust of
customers and other stakeholders, on the adequacy of capital
and liquidity, and on extensive data and knowledge of
customers. Risk-taking is based on understanding matters
affecting customers’ future operations and success in the
current business environment and in situations where the
business environment is affected by an unexpected shock or
change in trend.
OP Financial Group analyses the business environment as
part of the ongoing strategy process. Megatrends and future
visions behind the strategy reflect driving forces that affect
the daily activities, conditions and future of OP Financial
Group and its customers. Such factors currently shaping the
business environment include sustainable development and
responsibility (ESG), demographic change in the population,
geopolitical factors, energy crisis in Europe, strongly
accelerated inflation, exceptionally rapid increase in market
interest rates and fast technological progress. For example,
climate and environmental changes and other factors in the
business environment are considered thoroughly so that their
effects on the customers’ future success are understood.
Through advice and business decisions, OP Financial Group
encourages its customers in developing their sustainable and
successful business in the future.
Considering that OP Financial Group’s business covers various
areas of the financial sector on an extensive basis,
unexpected external shocks from the economic environment
may cause various direct and indirect effects on the
prosperity of OP Financial Group’s customers and on the
Group’s premises, IT infrastructure and personnel.
If materialised, they may affect the risk profile, capitalisation,
liquidity and the continuity of daily business in various ways.
The Group assesses the effects of such potential shocks by
means of scenario work.
In 2022, OP Financial Group’s operational risks were well
managed. Their materialisation resulted in gross losses of
EUR 7 million (10). As regards other risks, the risk profile is
discussed in more detail by business segment.
Assessment of the effects of the war in
Ukraine on OP Financial Group’s risks
Russia’s aggressive war in Ukraine may have an indirect
effect on OP Financial Group’s income and risks as a result of
customers’ changed business conditions, and a direct effect
on the general financial market conditions and obstruction of
the technical infrastructure. The impacts may be realised, for
example, in the following ways:
• higher impairment loss on receivables
• l
ower values of investment assets
• e
ffects of extensive sanctions and counter sanctions
on OP Financial Group or its customers’ activities
• p
roblems in the availability of wholesale funding and
a rise in the wholesale funding price
• pr
oblems in business continuity as a result of cyber
attacks on OP Financial Group or its customers.
Retail Banking and Corporate Banking
Major risks in banking are associated with credit risk arising
from customer business, and market risk.
Banking credit risk exposure remained stable, its risk level
remained moderate and the overall quality of the loan
portfolio remained good. A rise in interest rates may have a
negative effect on credit risk exposure.
OP Financial Group has no significant direct exposures to
Russia. The impacts of the war in Ukraine on credit risk
exposure mainly affect corporate loans indirectly, especially
due to changes in energy and raw material prices, and
individual customer relationships.
The market risk level of Corporate Banking’s long-term
investments decreased in the fourth quarter. No major
changes were made to the asset class allocation during the
financial year. The VaR, a measure of market risks, was
EUR 29 million (33) on 31 December 2022. The VaR risk
metric includes banking’s long-term bond investments as
well as derivatives that hedge their interest rate risks.
The market risks of the Markets function decreased slightly
due to changes made in the open amount of credit spread.
This is reflected in the decrease in Expected Shortfall (ES) and
especially in the share of credit spread compared with the
third quarter.
0
5
10
15
20
25
30
35
40
45
Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
€ million
Corporate banking’s market risk VaR at a confidence
level of 95% and a retention period of 10 days
Equity risk
FX risk
Interest rate risk
Credit risk
Other
Total
0.00
0.50
1.00
1.50
2.00
2.50
€ million
Market risk ES at a confidence level of 97.5 %
and a holding period of 1 day
Treasury trading (OP
MB*)
Commodity risk (NPV)
Structured products
Credit spread risk
Currency risk
Interest rate risk
22
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Non-performing and forborne exposures
Performing
forborne
exposures (gross)
Non-performing
receivables (gross)
Doubtful
receivables (gross)
Loss allowance
Doubtful
receivables (net)
31 Dec
2022
31 Dec
2021
31 Dec
2022
31 Dec
2021
31 Dec
2022
31 Dec
2021
31 Dec
2022
31 Dec
2021
31 Dec
2022
31 Dec
2021
Over 90 days past due,
€ billion
0.52 0.64 0.52 0.64 0.19 0.24 0.33 0.40
Unlikely to be paid,
€ billion
0.91 0.78 0.91 0.78 0.16 0.13 0.75 0.65
Forborne exposures,
€ billion
3.38 3.41 1.32 1.34 4.70 4.75 0.18 0.20 4.51 4.55
Total, € billion 3.38 3.41 2.74 2.76 6.12 6.17 0.53 0.58 5.59 5.59
OP Financial Group Retail Banking Corporate Banking
Key ratios
31 Dec
2022
31 Dec
2021
31 Dec
2022
31 Dec
2021
31 Dec
2022
31 Dec
2021
Ratio of doubtful receivables to exposures, % 5.23 5.31 6.75 6.57 1.88 2.29
Ratio of non-performing exposures to
exposures, %
2.34 2.37 2.72 2.61 1.50 1.77
Ratio of performing forborne exposures to
exposures, %
2.89 2.93 4.04 3.95 0.38 0.52
Ratio of performing forborne exposures to
doubtful receivables, %
55.2 55.3 59.8 60.2 20.3 22.9
Ratio of loss allowance (receivables from
customers) to doubtful receivables, %
12.0 11.9 8.5 7.5 38.4 41.5
No single customer’s exposure exceeded 10% of OP Financial
Group’s capital base after allowances and other recognition of
credit risk mitigation.
The graph shows the distribution of OP Financial Group’s corporate
loans by sector as percentages at the end of the financial year.
Retail Banking’s interest rate risk in the banking book
measured as the effect of a one-percentage point interest
rate increase on net interest income was EUR 286 million
(380) and as the effect of a one-percentage point decrease
EUR –289 million (–90) on the average per year. Interest
income risk is calculated for a one-year period by dividing the
sum of the interest income risk for the next three years by
three.
Corporate Banking’s interest rate risk in the banking book
measured as the effect of a one-percentage point interest
rate increase on net interest income was EUR 16 million (56)
and as the effect of a one-percentage point decrease
EUR –16 million (59) on the average per year.
Deposits within the scope of deposit guarantee and managed
by OP Financial Group totalled EUR 44.2 billion (43.0) at the
end of December. The Deposit Guarantee Fund compensates
a maximum of EUR 100,000 for each OP Financial Group
customer.
23
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Loss allowance by sector
The graph shows the loss allowance of different sectors and the ratio
of loss allowance to gross exposures of the sector at the end of the
financial year, 31 December 2022.
Insurance
Non-life insurance
Major risks within non-life insurance include underwriting
risks associated with claims developments, market risks
associated with investments covering insurance liabilities,
a faster-than-expected increase in life expectancy of the
beneficiaries related to insurance liability for annuities,
interest rates used in insurance liability valuation and the
difference between the discount rate applied to insurance
liabilities and market interest rates. The discount rate applied
in insurance liability valuation was increased by 0.8
percentage points to 2.0 per cent in the fourth quarter.
In IFRS accounting, insurance liabilities discounted with
a constant interest rate have been made more market-
consistent by applying a supplementary interest rate
provision whose value change is based on changes in the
risk-free yield curve.
A one-year increase in life expectancy would increase
insurance liability for annuities by EUR 38 million (45).
A 0.1 percentage point decrease in interest rates used in
insurance liability valuation would increase insurance liabilities
by EUR 22 million (29).
No significant changes took place in non-life insurance’s
underwriting risks during the financial year. Non-life
insurance’s significant market risks include the equity risk and
the increasing insurance liability value and capital
requirement resulting from lower market interest rates.
The market risk level of the investments of non-life insurance
increased during the fourth quarter. The increase is explained
by the increase in credit spread risk. The VaR, a measure of
market risk, was EUR 49 million (49) on 31 December 2022.
VaR includes the company’s investment balance including
investments, insurance liabilities and derivatives that hedge
interest rate risk associated with insurance liabilities.
Non-life insurance’s direct business transactions with Russia
or Ukraine are minor, both in terms of insurance and
investments. More significant business impacts arise from
developments in the capital market.
Life insurance
The key risks associated with life insurance are the market
risks of life insurance’s investment assets, the interest rate
used for the valuation of insurance liabilities, a faster-than-
expected life expectancy increase among those insured, and
the lapse and surrender risk arising from changes in
customer behaviour.
A one-year increase in life expectancy would increase
insurance liability by EUR 25 million (28). A 0.1 percentage
point decrease in interest rates used in insurance liability
valuation would increase insurance liabilities by EUR 17
million (26). The decrease in interest rate sensitivity is due to
higher interest rates and the change in the cash flows of
insurance liabilities.
Investment risks associated with separated insurance
portfolios and risks associated with changes in customer
behaviour have been buffered. The buffer is sufficient to
cover a significant negative return on the investment assets
included in the separated portfolios, after which OP Financial
Group will bear the risks associated with the portfolios.
The buffers totalled EUR 246 million (292) on 31 December
2022.
The market risk level of the investments of life insurance
increased during the fourth quarter. The increase is explained
by the increase in credit spread risk. VaR, a measure of
market risk, was EUR 35 million (35) on 31 December 2022.
VaR includes life insurance’s investment balance, including
investments, insurance liabilities and derivatives that hedge
against interest rate risk associated with insurance liabilities.
Market risks associated with separated life insurance
portfolios, assets that buffer against those risks or customer
bonuses, are not included in the calculation.
Life insurance’s direct investments in Russia or Ukraine are
minor. More significant business impacts arise from general
developments in the capital market. The geopolitical situation
affects life insurance business also through the fact that some
0
10
20
30
40
50
60
70
80
90
Q4/21 Q1/22 Q2/22
Q3/22 Q4/22
€ million
Non-life insurance
’s market risk VaR at a confidence
level of 95% and a retention period of
10 days
Equity risk
FX risk
Interest rate risk
Credit risk
Other
Tota l
24
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
investment instruments comprising the underlying assets for
unit-linked insurance have been closed.
Group Functions
Major risks related to the Group Functions segment include
credit and market risks associated with the liquidity buffer,
and liquidity risks. The most significant market risk factor is
the effect of credit spread changes on the value of notes and
bonds included in the liquidity buffer.
OP Financial Group’s funding position and liquidity is strong.
Between January and December, OP Financial Group issued
long-term bonds worth a total of EUR 8.0 billion (3.8),
EUR 1.0 billion of which was a retained covered bond.
The loan-to-deposit ratio remained stable during the
financial year.
The market risk of notes and bonds in the liquidity buffer
(VaR with 95% confidence) decreased during the financial
year. No major changes occurred in the asset class allocation.
The VaR risk metric that measures market risk associated
with the liquidity buffer was EUR 27 million (30) on
31 December 2022. The VaR risk metric includes the long-
term bond investments within the liquidity buffer and the
derivative contracts that hedge their interest rate risks.
OP Financial Group secures its liquidity through a liquidity
buffer which consists mainly of deposits with central banks
and receivables eligible as collateral for central bank
refinancing. The liquidity buffer is sufficient to cover the need
for short-term funding for known and predictable payment
flows and in a liquidity stress scenario.
OP Financial Group monitors its liquidity and the adequacy of
its liquidity buffer using, for example, the LCR (Liquidity
Coverage Ratio). According to regulation, the LCR must be at
least 100%. OP Financial Group’s LCR was 217% (212) at the
end of the financial year.
OP Financial Group monitors its long-term funding
sufficiency, for example, by means of the Net Stable Funding
Ratio (NSFR), which measures structural funding risk.
According to regulation, the NSFR must be at least 100%.
OP Financial Group’s NSFR was 128% (130) at the end of the
financial year.
Liquidity buffer
€ billion
31 Dec 2022
31 Dec 2021
Change, %
Deposits with
central banks
34.8 32.6 6.
7
Notes and bonds
eligible as collateral
2.1 4.0 -48.2
Total
36.9
36.7
0.7
Receivables
ineligible as
collateral
0.7 1.0 -27.0
Liquidity buffer at
market value
37.6 37.6 -0.1
Collateral haircut
-0.2 -0.3
Liquidity buffer at
collateral value
37.4 37.3 0.3
The liquidity buffer comprises notes, bonds and securitised
assets issued by governments, municipalities, financial
institutions and companies all showing good credit ratings.
0
10
20
30
40
50
60
Q4/21 Q1/22 Q2/22 Q3/22
Q4/22
€ million
Life insurance’s market risk VaR at a confidence level of
95% and a retention period of 10 days
Equity risk
FX risk
Interest rate risk
Credit risk
Other
Tota l
0
5
10
15
20
25
30
35
40
Q4/21 Q1/22 Q2/22 Q3/22 Q4/22
€ million
Liquidity buffer’s market risk VaR at a confidence level
of 95% and a retention period of 10 days
Equity risk
FX risk
Interest rate risk
Credit risk
Other
Total
25
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Credit ratings
OP Corporate Bank plc’s credit ratings on
31 December 2022
Rating
a
gency
Short-
te
rm
debt Outlook
Long-
term
debt Outlook
Standard &
Poor's
A-1+ - AA-
Stable
Moody's P-1 Stable Aa3 Stable
Pohjola Insurance Ltd’s financial strength ratings
on 31 December 2022
Rating agency
Financial
s
trength rating Outlook
Standard & Poor's A+ Stable
Moody's A2 Stable
OP Corporate Bank plc and Pohjola Insurance Ltd have credit
ratings affirmed by Standard & Poor’s Global Ratings Europe
Limited and Moody’s Investors Service (Nordics) AB. When
assessing OP Corporate Bank’s credit rating, credit rating
agencies take account of the entire OP Financial Group’s
financial position.
26
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Financial performance by segment
OP Financial Group’s business segments are Retail Banking (Banking Personal and SME Customers), Corporate Banking (Banking
Corporate and Institutional Customers) and Insurance (Insurance Customers). Non-business segment operations are presented
under the Group Functions segment (formerly the Other Operations segment). OP Financial Group prepares its segment reporting in
compliance with its accounting policies.
Retail Banking
• Earnings before tax increased to EUR 502 million (304).
• Total income increased by 12.6% to EUR 1,996 million. Income from customer business increased by a total of
12.1%: net interest income increased by 24.5% to EUR 1,194 million and net commissions and fees by 2.6% to EUR
773 million.
• Total expenses increased by 0.7% to EUR 1,229 million. Personnel costs increased by 2.0% to EUR 455 million and
other operating expenses by 2.1% to EUR 720 million.
• Impairment loss on receivables increased to EUR 96 million (84). Non-performing exposures (gross) accounted for
2.7% (2.6) of the exposures.
• The loan portfolio decreased by 0.3% to EUR 70.7 billion, and deposits increased by 2.8% to EUR 63.9 billion.
• The most significant development investments focused on upgrading the core banking system and developing
digital services.
Key figures and ratios
€ million
Q1–4/2022
Q1–4/2021
Change, %
Net interest income
1,194
959
24.5
Net commissions and fees
773
753
2.6
Net investment income
-9
-16
-
Other income
39
78
-50.0
Total income
1,996
1,773
12.6
Personnel costs
455
447
2.0
Depreciation/amortisation and impairment loss
53
69
-22.0
Other operating expenses
720
705
2.1
Total expenses
1,229
1,221
0.7
Impairment loss on receivables
-96
-84
-
OP bonuses to owner-customers
-168
-165
-
Earnings before tax
502
304
65.2
Cost/income ratio, %
61.6
68.8
-7.2*
Ratio of non-performing exposures to exposures, % * 2.7 2.6 0.1*
Ratio of impairment loss on receivables to loan and guarantee
portfolio, %
0.13 0.12 0.02*
Return on assets (ROA), %
0.40
0.26
0.15*
Return on assets, excluding OP bonuses, %
0.54
0.40
0.14*
€ million
Home loans drawn down
7,513
8,805
-14.7
Corporate loans drawn down
2,702
2,639
2.4
No. of brokered residential property and property transactions
10,844
13,177
-17.7
€ billion
31 Dec 2022
31 Dec 2021
Change, %
Loan portfolio
Home loans
42.3
41.5
1.9
Corporate loans
8.3
8.2
2.1
Housing company and other loans
20.1
21.3
-5.5
Total loan portfolio
70.7
71.0
-0.3
Guarantee portfolio
1.0
0.9
1.4
Other exposures
8.3
9.6
-13.5
Deposits
Current and payment transfer deposits
42.3
41.4
2.2
Investment deposits
21.6
20.8
4.0
Total deposits
63.9
62.2
2.8
* Change in ratio
27
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s Retail Banking segment consists of
banking and asset management services for personal and
SME customers at OP cooperative banks and at the central
cooperative consolidated.
Economic uncertainty and higher inflation and reference
interest rates affected the housing market. The volume of
home and real property sales brokered by OP Koti real estate
agents totalled 10,884, a decrease of 17.7% year on year.
The loan portfolio decreased by 0,3% to EUR 70.7 billion. The
loan portfolio includes a change of EUR –1.3 billion (0.2) in
the fair value of loans in hedge accounting. New home loan
drawdowns decreased by 14.7% year on year. The home loan
portfolio grew by 1.9% to EUR 42.3 billion. The corporate loan
portfolio increased by 2.1% to EUR 8.3 billion. Housing
company and other loans decreased by 5.5% to EUR 20.1
billion.
The interest rate protection rate of personal customers’ new
home loans was at its highest in the first half of the year, and
customers showed interest in buying protection for their
home loans throughout the year. On 31 December 2022,
a total of 32.8% (29.6) of personal customers’ home loans
were covered by interest rate protection. On the same date,
the interest expenses of around 82,000 home loans were
being cut by an interest rate cap; the loans’ aggregate
principal totalled EUR 7.3 billion.
The deposit portfolio increased by 2.8% to EUR 63.9 billion.
The increase came from current and payment transfer
accounts as well as from investment deposits.
In April 2022, OP Mortgage Bank issued a one-billion-euro
green covered bond with a maturity of 5.5 years.
OP Financial Group customers’ interest in saving and
investing continued despite the uncertain business
environment. OP mutual funds attracted 55,700 new
unitholders, which accounted for 51% of gross market
growth. The number of OP mutual fund unitholders totalled
1,200,000 in gross terms. The Morningstar rating for
OP mutual funds was 3.13 (3.17). In share trading, the
number of executed orders was at the previous year’s level.
During the financial year, the most significant development
investments focused on upgrading the core banking system
and developing digital services.
In the third quarter, OP Financial Group and Pivo stood aside
from the joint venture planned with Danske Bank’s MobilePay
and the Norwegian Vipps. The venture would have provided
a joint mobile payment platform for users of three services.
In February, digital home sales expanded to real property
sales; OP Koti real estate agents were the first in Finland to
implement this system. Digital sale and purchase of housing
company shares began in 2019.
In March, OP introduced the Google Pay service to its
customers in Finland, alongside the Apple Pay service. The
service enables customers to pay for their purchases using
Android phones or smartwatches in contactless payment
readers and on apps and online stores. In December,
OP extended the service to cover customers using
Mastercard.
At the end of December, the number of OP cooperative
banks was 108 (121). Merger projects between OP
cooperative banks are underway in different parts of Finland.
Earnings
Retail Banking earnings before tax were EUR 502 million
(304). Total income increased by 12.6% to EUR 1,996 million.
Net interest income grew by 24.5% to EUR 1,194 million, due
to a strong rise in market interest rates. Net commissions
and fees increased by 2.6% to EUR 773 million as a result of
higher fees from the card business, payments and wealth
management.
Total expenses increased by 0.7% to EUR 1,229 million.
Personnel costs increased by 2.0% to EUR 455 million and
other operating expenses by 2.1% to EUR 720 million as a
result of a higher stability contribution.
Depreciation/amortisation and impairment loss decreased by
22.0% year on year, to EUR 53 million.
Impairment loss on receivables increased to EUR 96 million
(84). OP Financial Group has assessed the impact of higher
electricity prices and Euribor rates on the credit risk
associated with the home loan portfolio. Following this
analysis, the Group made an additional provision of EUR 42
million under expected credit losses, based on management
judgment. Final net loan losses recognised for the financial
year totalled EUR 32 million (67). Non-performing exposures
accounted for 2.7% (2.6) of the exposures.
OP bonuses to owner-customers increased by 2.2% to
EUR 168 million.
28
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Corporate Banking
• Earnings before tax decreased to EUR 416 million (474).
• Total income decreased by 12.4% to EUR 776 million. Net interest income increased by 10.4% to EUR 457 million,
net commissions and fees decreased by 19.0% to EUR 166 million and net investment income decreased by 20.5%
to EUR 136 million.
• T
otal expenses increased by 1.1% to EUR 321 million. Other operating expenses rose by 3.3% to EUR 218 million
due to a higher stability contribution.
• T
he loan portfolio grew by 8.3% to EUR 27.8 billion. Deposits decreased by 9.1% to EUR 14.0 billion. Assets under
management decreased by 12.2% to EUR 72.3 billion.
• I
mpairment loss on receivables totalled EUR 18 million (74). Non-performing exposures (gross) accounted for 1.5%
(1.8) of the exposures.
• T
he most significant development investments involved the upgrades of payment and asset management systems.
Key figures and ratios
€ million Q1–4/2022 Q1–4/2021 Change, %
Net interest income
457
414
10.4
Net commissions and fees
166
204
-19.0
Net investment income
136
171
-20.5
Other income
18
97
-81.5
Total income
776
886
-12.4
Personnel costs
95
93
2.2
Depreciation/amortisation and impairment loss
8
14
-39.5
Other operating expenses
218
211
3.3
Total expenses
321
318
1.1
Impairment loss on receivables
-18
-74
-
OP bonuses to owner-customers
-20
-20
-
Earnings before tax
416
474
-12.2
Cost/income ratio, %
41.4
35.9
-5.5*
Ratio of non-performing exposures to exposures, %
1.5
1.8
-0.3*
Ratio of impairment loss on receivables to loan and
guarantee portfolio, %
0.06
0.25
-0.20*
Return on assets (ROA), %
1.00
1.24
-0.24*
Return on assets, excluding OP bonuses, %
1.05
1.29
-0.24*
€ billion
31 Dec 2022 31 Dec 2021 Change, %
Loan portfolio
Corporate loans
15.6
14.5
7.9
Housing company and other loans
12.2
11.2
8.8
Total loan portfolio
27.8
25.7
8.3
Guarantee portfolio
3.4
3.5
-1.8
Other exposures 6.4 5.7 12.3
Deposits
14.0
15.4
-9.1
Assets under management (gross)
Mutual funds
27.6
32.5
-15.2
Institutional clients
35.7
38.3
-6.9
Private Banking
9.0
11.5
-21.4
Total (gross)
72.3
82.3
-12.2
€ million
Q1–4/2022
Q1–4/2021
Change, %
Net inflows
Private Banking clients
-1
-174
-
Institutional clients
-356
76
-
Total net inflows
-357
-98
-
* Change in ratio
29
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
OP Financial Group’s Corporate Banking segment consists of
banking and asset management services for corporate and
institutional customers. The segment comprises
OP Corporate Bank plc’s banking, OP Asset Management Ltd,
OP Fund Management Company Ltd, OP Custody Ltd and
OP Real Estate Asset Management Ltd.
The loan portfolio increased by 8.3% to EUR 27.8 billion and
the deposit portfolio decreased by 9.1% to EUR 14.0 billion.
The most significant Corporate Banking development
investments involved the upgrades of payment, finance and
asset management systems. The upgrade of core payment
systems and improvement of digital services will continue
further. In asset and wealth management, fund management
processes and customer service will be further upgraded.
Investments by Corporate Banking in promoting a
sustainable economy increased the commitment portfolio of
sustainable finance to EUR 5.2 billion (3.0). Corporate
Banking also enhanced its role as an advisor helping clients to
prepare their sustainable finance frameworks.
At the end of 2022, OP Corporate Bank was the market
leader in finance for passenger cars and vans.
The end of 2022 saw a change in the operating model
applied to hedging interest rate risk associated with derivative
contracts between Corporate Banking and Retail Banking.
The variation in the result of value changes due to market
movements of derivative contracts between Corporate
Banking and Retail Banking will decrease at OP Corporate
Bank.
Within asset management, net assets inflow was EUR –357
million (–98). Assets under management by Corporate
Banking decreased by 12.4% to EUR 72.3 billion (82.3).
Assets under management included about EUR 23 billion
(24
) i
n assets of the companies belonging to OP Financial
Group.
Despite the challenging market conditions, interest in
OP mutual funds has remained strong: personal customers’
subscriptions for units in these mutual funds totalled EUR 2.6
billion (3.2) during the financial year.
OP Corporate Bank reacted to the changed market
environment by offering capital-guaranteed structured
products and interest rate-linked products on a broad front;
the demand for such products increased.
OP Corporate Bank’s direct exposures to Russia are small.
Russia’s aggressive war in Ukraine indirectly increased
impairment loss on receivables in the first quarter of 2022.
Earnings
Corporate Banking earnings before tax were EUR 416 million
(474). Total income decreased to EUR 776 million (886) and
total expenses increased to EUR 321 million (318). The
cost/income ratio was 41.4% (35.9).
Net interest income increased by 10.4% to EUR 457 million
(414). Corporate Banking’s net commissions and fees totalled
EUR 166 million (204). The fall in share prices reduced the
amount of assets under management and net commissions
and fees.
Corporate Banking segment’s net commissions and
fees
€ million
Q1–4/
2022
Q1–4/
2021 Change, %
Mutual funds
127 137 -6.7
Asset management 16 28 -43.1
Other
22 40 -44.3
Total
166 204 -19.0
A significant increase in interest rates and greater market
uncertainty lowered net investment income. Net investment
income decreased to EUR 136 million (171).
Total expenses increased by 1.1% to EUR 321 million.
Personnel costs rose by 2.2% to EUR 95 million. Other
operating expenses increased by 3.3% to EUR 218 million.
The stability contribution increased by 26.2% to EUR 31
million.
Impairment loss on receivables totalled EUR 18 million (74).
Non-performing exposures accounted for 1.5% (1.8) of total
exposures.
30
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Insurance
• Earnings before tax decreased to EUR 433 million (504).
• Non-life insurance premium revenue increased by 2.8% to EUR 1,598 million and claims incurred decreased by
14.6% to EUR 732 million. Claims incurred, excluding the impact from the increase in the discount rate, grew by
12.5% to EUR 1,012 million.
• Expenses decreased year on year to EUR 464 million (493).
• Investment income totalled EUR –87 million (170). Investment income excluding the item corresponding to the
increase in the discount rate of insurance liabilities totalled EUR 132 million (170). Net return on investments at fair
value reported by non-life insurance was EUR 78 million (222) and that by life insurance EUR –23 million (142).
• In life insurance, unit-linked insurance assets decreased by 11.7% to EUR 11.6 billion. Premiums written in term life
insurance grew by 5.7%.
• Development investments focused on upgrading the core systems, improving the usability of web and mobile
services and enhancing opportunities to buy insurance products.
• Pohjola Insurance focuses on its core business and sold its hospital business in early 2022.
Key figures and ratios
€ million
Q1–4/2022
Q1–4/2021
Change, %
Net insurance income
901
754
19.5
Net commissions and fees
73
96
-24.1
Net investment income
-230
288
-180.0
Other net income
31
-2
-
Total income
774
1 135
-31.8
Personnel costs
150
160
-6.4
Depreciation/amortisation and impairment loss
51
66
-22.4
Other operating expenses
263
267
-1.6
Total expenses
464
493
-5.9
OP bonuses to owner-customers
-21
-21
-
Overlay approach
143
-117
-
Earnings before tax
433
504
-14.1
Return on assets (ROA), %
1.46
1.64
-0.17*
Return on assets, excluding OP bonuses, %
1.53
1.71
-0.17*
* Change in ratio
OP Financial Group’s Insurance segment comprises life and
non-life insurance business. The segment includes Pohjola
Insurance Ltd and OP Life Assurance Company Ltd. Pohjola
Hospital became part of Pihlajalinna on 1 February 2022.
OP Financial Group recognised a capital gain of EUR 32
million on the sale.
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.
Earnings
Earnings before tax totalled EUR 433 million (504). Net
insurance income increased by 19.5% to EUR 901 million. In
2022, the non-life insurance discount rate was increased
from 0.85% to 2.0%, which increased net insurance income by
EUR 283 million.
Due to the change in the discount rate, net investment
income includes a negative value change of EUR 218 million
in supplementary interest rate provisions related to insurance
liabilities. Total expenses were EUR 464 million (493). The
sale of the hospital business reduced expenses by EUR 28
million.
Investment income totalled EUR –87 million (170), including
the overlay approach. Excluding the negative value change
related to the increase in the discount rate, investment
income totalled EUR 132 million (170). Net capital gains on
investments amounted to EUR –4 million (67) in non-life
insurance and EUR –4 million (59) in life insurance.
31
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Investment income
€ million
Q1–4/2022
Q1–4/2021
At fair value through other
comprehensive income 15 45
At fair value through profit or
loss
-1,260 66
Amortised cost
2
-5
Life insurance items*
1,021
186
Unwinding of discount**
-21
-17
Associated companies
12
14
Net investment income
-230
288
Overlay approach
143
-117
Total
-87
170
* Include credited interest on customers’ insurance assets, changes in
supplementary interest rate provisions and other technical items, and changes
in the fair value of unit-linked and separated balance sheet’s investments.
** Non-life insurance.
Non-life insurance operating result
Non-life insurance’s earnings stood at EUR 351 million (382).
The increase in the discount rate increased net insurance
income by EUR 283 million. Operational balance weakened
as a result of higher claims incurred. Other income includes a
capital gain on the sale of Pohjola Hospital. Investment
income includes a value change in supplementary interest
rate provisions related to insurance liabilities.
€ million
Q1–4/2022
Q1–4/2021
Change, %
Insurance premium
revenue
1,598
1,555
2.8
Claims incurred 1,012 899 12.5
Operating expenses
434 431 0.7
Balance on technical
account, operational
152
225
-32.3
Changes in reserving
bases 279 42 559.4
Balance on technical
account 432 267 61.6
Investment income and
expenses -198 189 -205.1
Other income and
expenses 31 -11 -
Overlay approach
86
-62
-
Earnings before tax
351
382
-8.2
Operating combined
ratio 90.5 85.5
Operating risk ratio
63.3
57.8
Operating cost ratio
27.1
27.7
Non-life insurance: premium revenue
€ million
Q1–4/2022
Q1–4/2021
Change, %
Personal customers
908
877
3.5
Corporate customers
690
679
1.7
Total
1,598
1,555
2.8
Premium revenue increased by 2.8% to EUR 1,598 million.
Among personal customers, the number of loyal customer
households increased. Premium revenue from corporate
customers increased by 1.7%. Premium revenue for the
fourth quarter was strained by charges related to securing
reinsurance capacity. Claims incurred, excluding the impact
from the increase in the discount rate, increased by 12.5% to
EUR 1,012 million. Claims volumes have returned to their
pre-pandemic level. Difficult road conditions in early 2022
and large claims also increased claims incurred.
The reported number of new large claims under property
and business liability insurance (in excess of EUR 0.3 million)
amounted to 116 (115) in January‒December, with their
claims incurred retained for own account totalling EUR 180
million (134). Changes in claims for previous years, excluding
the effect of the discount rate rise, improved the balance on
technical account by EUR 72 million (91). The non-life
insurance operating risk ratio, excluding indirect loss
adjustment expenses, was 63.3% (57.8). Changes in the
provision for outstanding claims under statutory pensions
improved earnings by EUR 17 million (30).
In non-life insurance, the operating cost ratio (including
indirect loss adjustment expenses) was 27.1% (27.7).
Operating combined ratio reported by non-life insurance
weakened to 90.5% (85.5).
Non-life insurance: key investment indicators
€ million
Q1–4/2022
Q1–4/2021
Net return on investments at fair
value, € million* 78
222
Return on investments at fair
value, % -10.8
2.7
Fixed income investments’ running
yield, % 1.4
0.9
31 Dec 2022
31 Dec 2021
Investment portfolio, € million
4,071
4,287
Investments within the investment
grade category, % 92
92
At least A-rated receivables, %
56
54
Modified duration
2.8
3.3
* Net return on investments is calculated by deducting the value change in
market-consistent insurance liability from income from total investment
assets.
32
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Life insurance operating result
The exceptional uncertainty in the capital market was
reflected negatively in unit-linked insurance assets and net
investment income. Unit-linked insurance assets, EUR 11.6
billion, were 11.7% lower than on 31 December 2021. Net
asset inflow of unit-linked insurance contracts amounted to
EUR 175 million (472). The amount of life insurance
surrenders increased as a result of uncertainties in the capital
market. Premiums written in term life insurance grew by
5.7%.
Earnings before tax decreased to EUR 76 million (118).
Earnings were weakened by lower net investment income
and the decrease in performance-based fees, which are
presented under net commissions and fees, and higher
expenses. Earnings from customer business were EUR 58
million (75).
Life insurance: key investment indicators*
€ million
Q1–4/2022
Q1–4/2021
Net return on investments, €
million**
-23
142
Return on investments at
fair value, %
-16.1 0.6
Fixed income investments’
running yield, %
1.3 0.9
31 Dec 2022
31 Dec 2021
Investment portfolio, €
million
3,235 3,646
Investments within the
investment grade category,
%
90 94
A-rated receivables,
minimum, % 50 56
Modified duration
2.8
3.0
* Excluding the separated balance sheets
** N
et return on investments is calculated by deducting the value change in
market-consistent insurance liability from income from total investment
assets. These investments exclude separated balance sheets.
Interest rate risk associated with insurance liability has been
hedged through supplementary interest rate provisions and
interest rate derivatives. In life insurance, the net change in
short-term supplementary interest rate provisions was
EUR –45 million (1). Accrued supplementary interest rate
provisions related to insurance liabilities (excluding the
separated balance sheets) totalled EUR 0 million (355) on
31 December 2022.
€ million
Q1–4/2022
Q1–4/2021
Change, %
Net risk results
35 34
4.2
Net investment income -39 98 -
Net commissions and
fees
111 128 -13.3
Total income
107
260
-58.8
Personnel costs
13
10
20.8
Depreciation/amortisati
on and impairment loss
20 21 -7.8
Other operating
expenses
37 37 3.9
Total expenses
70
68
2.8
OP bonuses
-19
-19
-
Overlay approach
57
-55
-
Earnings before tax
76
118
-35.7
Operating ratio
39.3
34.0
33
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Group Functions
Key figures and ratios
€ million Q1–4/2022
Q1–4/2021
Change, %
Net interest income
-62
10
-
Net commissions and fees
0
-2
-
Net investment income
-11
-5
-
Other operating income
657
684
-4.0
Total income
583
687
-15.2
Personnel costs
195
216
-9.8
Depreciation/amortisation and impairment loss
103
137
-24.7
Other operating expenses
376
444
-15.4
Total expenses
674
797
-15.5
Impairment loss on receivables
0
0
-
Earnings before tax
-91
-109
-
The Group Functions segment (previously the Other
Operations segment) consists of OP Cooperative’s functions
tasked with the support and assurance of business segments,
as well as OP Corporate Bank plc’s treasury functions.
Earnings
Group Functions earnings before tax were EUR –91 million
(–109). Total income decreased by 15.2% to EUR 583 million.
Net interest income was EUR –62 million (10). A year ago,
a higher net interest income was especially explained by the
recognition in profit or loss of an additional benefit from the
interest rate margin of the TLTRO III funding offered by the
European Central Bank to banks. The effect of items related
to TLTRO III funding and its hedging amounted to EUR –10
million (103) during the financial year.
Net investment income was EUR –11 million (–5). Other
operating income decreased by 4.0% to EUR 657 million.
Other operating income mainly includes OP Financial Group’s
intra-group items.
Total expenses decreased by 15.5% to EUR 674 million.
Personnel costs decreased by 9.8% to EUR 195 million.
Depreciation/amortisation and impairment loss on PPE and
intangible assets decreased by 24.7% to EUR 103 million.
Other operating expenses decreased by 15.4% to EUR 376
million. The amount of margin exceeding the ECB’s deposit
facility rate based on the TLTRO programme allocated to the
Retail Banking and Corporate Banking segments decreased
to EUR 1 million (106), which decreased other operating
expenses. ICT costs increased by 4.7% to EUR 263 million.
On 31 December 2022, the average margin of OP Financial
Group’s senior and senior non-preferred wholesale funding
and covered bonds was 27 basis points (25). In 2022, the
price of wholesale funding rose, as credit spreads increased
due to changes in the business environment.
OP Financial Group’s funding position and liquidity is strong.
Between January and December, OP Financial Group issued
long-term bonds worth a total of EUR 8.0 billion (3.8),
EUR 1.0 billion of which was a retained covered bond.
OP Financial Group’s TLTRO III funding totalled EUR 12 billion
(16) at the end of December. The interest rate for TLTRO III
funding for each loan between 23 June 2022 and
22 November 2022 is the average of the ECB’s deposit
facility rate between the start date of the loan concerned an
d
21 November 2022, and after that the ECB’s deposit facility
rate.
34
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
ICT investments
OP Financial Group invests in developing its operations and
improving customer experience on an ongoing basis. The
central cooperative with its subsidiaries is responsible for the
development of OP Financial Group’s products and services,
digital channels and shared technology, data and
cybersecurity capabilities, while safeguarding the high quality,
availability and data security of the services. ICT costs make
up a significant portion of development costs.
OP Financial Group’s development expenditure for January–
December totalled EUR 313 million (294). This included
licence fees, purchased services, other external costs related
to projects and in-house work. The capitalised development
expenditure totalled EUR 97 million (99). More detailed
information on OP Financial Group’s investments can be
found under each business segment’s text section in this
Report by the Board of Directors.
Personnel
On 31 December 2022, OP Financial Group had 12,999
employees (13,079). The number of employees averaged
13,077 (13,009). The number of employees decreased in
early 2022, due to the sale of Pohjola Hospital. The number
of employees increased in areas such as sales, customer
service, service development, risk management and
compliance.
Personnel at year-end
31 Dec 2022 31 Dec 2021
Retail Banking 7,450 7,108
Corporate Banking
962
898
Insurance
2,373
2,550
Group Functions
2,214
2,523
Total
12,999
13,079
During the financial year, 265 OP Financial Group employees
(234
) r
etired at an average age of 62.8 years (62.0).
Variable remuneration applied by OP Financial Group in 2022
consists of the performance-based bonus scheme covering
all personnel, and the personnel fund. Company-specific
targets based on the annual plan and the Group-level
strategic targets are taken into account in the metrics used in
the performance-based bonus scheme and in the personnel
fund. In drawing up the remuneration schemes, OP has
taken account of the regulation regarding the financial
sector’s remuneration schemes.
Changes in OP Financial Group’s
structure
OP Financial Group’s consolidated financial statements at the
end of the financial year included the accounts of
108 OP cooperative banks (121) and OP Cooperative
Consolidated. The number of OP cooperative banks
decreased during the financial year due to mergers.
Luhangan Osuuspankki merged into Keski-Suomen
Osuuspankki on 28 February 2022.
Luopioisten Osuuspankki merged into Kangasalan Seudun
Osuuspankki on 31 March 2022.
Sastamalan Osuuspankki and Satapirkan Osuuspankki
merged into Satakunnan Osuuspankki on 30 April 2022.
Consequently, the business name of Satakunnan
O
suuspankki was changed to Satapirkan Osuuspankki.
Itä-Uudenmaan Osuuspankki and Uudenmaan Osuuspankki
merged into Helsinki Area Cooperative Bank on 31 July
2022. Consequently, the business name of Helsinki Area
C
ooperative Bank was changed to Uudenmaan Osuuspankki.
Peräseinäjoen Osuuspankki merged into Alavuden Seudun
Osuuspankki on 31 October 2022. Consequently, the
b
usiness name of Alavuden Seudun Osuuspankki was
changed to Sydänmaan Osuuspankki.
The OP cooperative banks of Askola, Kärkölä, Mäntsälä and
Pukkila merged into Orimattilan Osuuspankki on
31 December 2022. Consequently, the business name of
Orimattilan Osuuspankki was changed to Ylä-Uudenmaan
Osuuspankki.
Miehikkälän Osuuspankki merged into Länsi-Kymen
Osuuspankki on 31 December 2022.
Osuuspankki Kantrisalo merged into Lounaismaan
Osuuspankki on 31 December 2022.
On 18 August 2022, Kiteen Seudun Osuuspankki, Rääkkylän
Osuuspankki and Pohjois-Karjalan Osuuspankki approved
merger plans according to which Kiteen Seudun Osuuspankki
and Rääkkylän Osuuspankki will merge into Pohjois-Karjalan
Osuuspankki. The planned date for the execution of the
m
ergers is 31 March 2023.
On 22 September 2022, Pohjolan Osuuspankki, Tornion
Osuuspankki and Oulun Osuuspankki approved merger plans
according to which Pohjolan Osuuspankki and Tornion
Osuuspankki will merge into Oulun Osuuspankki. The planned
date for the execution of the mergers is 30 April 2023.
Consequently, the business name of Oulun Osuuspankki will
change to Pohjolan Osuuspankki.
Changes in OP Cooperative Consolidated’s
structure
Pohjola Insurance Ltd has sold all shares of Pohjola Hospital
Ltd to Pihlajalinna Terveys Oy, part of Pihlajalinna Group. The
corporate transaction was published on 2 July 2021. The net
debt free transaction price was EUR 32 million. The Finnish
35
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Competition and Consumer Authority approved the corporate
transaction on 14 January 2022. Pohjola Hospital became
part of Pihlajalinna on 1 February 2022.
Following the merger of Itä-Uudenmaan Osuuspankki and
Uudenmaan Osuuspankki into Helsinki Area Cooperative
Bank on 31 July 2022, OP Cooperative’s control over Helsinki
Area Cooperative Bank ended, and the post-merger bank,
Uudenmaan Osuuspankki, is no longer part of
OP Cooperative Consolidated.
Governance of OP Cooperative
On 2 December 2021, the Supervisory Council of OP
Cooperative (the central cooperative of OP Financial Group)
elected the members of the Board of Directors of OP
Cooperative for the term of office from 1 January to
31 December 2022. In addition, according to the bylaws of
OP Cooperative, the President and Group CEO is a Board
member during their term of office.
The following members continued on the Board in 2022:
Jarna Heinonen (Professor in Entrepreneurship, Turku
School of Economics), Jari Himanen (Managing Director,
Suur-Savon Osuuspankki), Kati Levoranta (Executive Vice
President, Commercial and Operational Activities, P2X
Solutions Ltd), Pekka Loikkanen (board professional), Tero
Ojanperä (Chair of the Board of Directors, Silo AI Ltd), Riitta
Palomäki (board professional), Jaakko Pehkonen
(rahoitusneuvos, Finnish honorary title; Professor of
Economics, University of Jyväskylä), Timo Ritakallio (President
and Group CEO, OP Financial Group), Olli Tarkkanen
(Managing Director, Etelä-Pohjanmaan Osuuspankki) and
Mervi Väisänen (Senior Lecturer in Marketing, Kajaani
University of Applied Sciences).
In addition, the Supervisory Council elected Petri Sahlström,
D.Sc. (Econ. & Bus. Adm.), to the Board of Directors as a new
member. Leif Enberg stepped down from the Board of
Directors on 31 December 2021.
On 3 January 2022, the Board of Directors elected from
among its members the chairs, vice chairs and other
members to the statutory Board Committees for the new
term. Jaakko Pehkonen will continue as Chair and Jarna
Heinonen as Vice Chair of the Board of Directors.
On 1 December 2022, the Supervisory Council elected Board
members for the term 1 January–31 December 2023. The
composition of the Board of Directors remained unchanged.
On 21 December 2022, the Board of Directors elected from
among its members the chairs, vice chairs and other
members to the statutory Board Committees for the new
term. Jaakko Pehkonen will continue as Chair and Jarna
Heinonen as Vice Chair of the Board of Directors.
On 26 April 2022, OP Cooperative held its Annual
Cooperative Meeting which elected members of the
Supervisory Council and the auditor.
The Supervisory Council comprises 36 members. The Annual
Cooperative Meeting re-elected the following members to the
Supervisory Council who were due to resign: Managing
Director Mika Helin, Bachelor of Hospitality Management,
MBA Mervi Hinkkanen, Managing Director Raili Hyvönen,
Development Manager Mika Kainusalmi, Managing Director
Kaisa Markula, Managing Director Ulf Nylund, Managing
Director Teuvo Perätalo, entrepreneur Timo Syrjälä and
Managing Director Pauliina Takala.
New Supervisory Council members elected were M.Sc. Eeva
Harju, Municipal Manager Tuomas Lohi, Managing Director
Kari Mäkelä, Managing Director Leena Selkee and farmer
Janne Tiiri.
At its reorganising meeting on 26 April 2022, the Supervisory
Council elected the presiding officers of the Supervisory
Council. Chair of the Board of Directors Annukka Nikola was
elected as Chair and entrepreneur Taija Jurmu and Managing
Director Ari Väänänen as Vice Chairs of the Supervisory
Council.
The Annual Cooperative Meeting re-elected KPMG Oy Ab, an
audit firm, to act as the auditor for the financial year 2022,
with Juha-Pekka Mylén, APA, acting as the chief auditor,
appointed by KPMG Oy Ab.
Legal structure of OP Financial
Group
Group structure
OP Financial Group (later the Group) is a Finnish financial
services group owned by its customers. It is constituted by
OP Cooperative as the Group’s central body and the parent
undertaking of OP Cooperative Consolidated (later the central
cooperative), its subsidiaries and independent local
OP cooperative banks. The central cooperative, its subsidiary
credit institutions and other financial subsidiaries, and the
central cooperative’s member cooperative banks together
constitute an amalgamation of deposit banks (later OP
Amalgamation) within the meaning of the Finnish
Amalgamation Act (599/2010, later the Amalgamation Act).
OP Cooperative is the central body, and its credit institution
subsidiaries and the OP cooperative banks (later the affiliated
credit institutions) are credit institutions affiliated to the
central body within the meaning of Article 10 of the Capital
Requirements Regulation (Regulation (EU) No 575/2013,
later the Capital Requirements Regulation).
Credit institutions whose bylaws comply with the
requirements of the Amalgamation Act and have been
approved by the central cooperative, can be accepted as
members of the central cooperative. New members are
accepted by the Supervisory Council of the central
cooperative. An affiliated credit institution has the right to
withdraw from the amalgamation. It can also be expelled
from the amalgamation in accordance with the Finnish Co-
36
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
operatives Act (421/2013, later the Co-operatives Act) or if it
has neglected its obligations towards the Amalgamation as
specified in the bylaws of the central cooperative.
The affiliated credit institutions of the central cooperative
consist of:
• c
redit institution subsidiaries of the central
cooperative (OP Corporate Bank plc, which provides
corporate financing, acts as the Group Treasury and
is responsible for the Group’s wholesale funding;
OP Retail Customers plc, which administers th
e
credit cards issued by the Group; and OP Mortgage
B
ank, which issues mortgage bonds backed by th
e
r
esidential loan portfolios of the affiliated credit
institutions); and
• 1
08 local and regional co-operative banks, which
carry out retail banking business and which are
members of OP Cooperative, thus exercising th
e
dec
ision-making powers at the highest
administrational level of the Group.
Apart from the central cooperative and its affiliated credit
institutions, OP Financial Group also includes, as subsidiaries
of the central cooperative, an investment firm (OP Asset
Management Ltd), a fund management company (OP Fund
Management Company Ltd), a life insurance company
(OP Life Assurance Company Ltd), a non-life insurance
company (Pohjola Insurance Ltd) and some minor companies
as well as the real estate agencies owned jointly by
OP cooperative banks under the brand name OP Koti.
OP Amalgamation and the insurance and financial
subsidiaries of OP Cooperative together constitute a bank-
dominated financial conglomerate within the meaning of the
Directive (2002/87/EC) and the Finnish Act on the
Supervision of Financial and Insurance Conglomerates
(699/2004, later the Financial Conglomerates Act). The
European Central Bank has waived, until further notice, the
application of the said Act to the financial conglomerate
constituted by the central cooperative consolidated.
Corporate governance in OP Financial Group
The highest decision-making body in OP Financial Group is
the Cooperative Meeting of the central cooperative consisting
of the representatives of the affiliated credit institutions. The
Meeting elects the central cooperative’s Supervisory Council
(36 members). The Supervisory Council elects the central
cooperative’s Board of Directors, which consists of the
President and Group CEO and 9–13 other members. At least
four of the members of the Board must be independent of
the central cooperative and other entities belonging to
OP Financial Group. The Board of Directors carries out the
tasks of the management body in its management function
as well as the tasks of the management body in its
supervisory function, as defined in the Capital Requirements
Directive (2013/36/EU) and in the Guidelines on Internal
Governance by the European Banking Authority.
The affiliated credit institutions are separate legal entities that
have administrative bodies of their own in accordance with
the general company law. In the member cooperative banks,
the highest decision-making body is the Cooperative Meeting
or the Representative Assembly Meeting. It elects the
OP cooperative bank’s Supervisory Council, which in turn
elects the OP cooperative bank’s Board of Directors. The
subsidiaries of the central cooperative have a Board of
Directors nominated by the central cooperative in accordance
with the Limited Liability Companies Act.
Financial reporting, supervision and internal audit
OP Amalgamation
OP Financial Group publishes an annual consolidated financial
statement covering all significant companies within the
Group. Pursuant to the Amalgamation Act, the financial
statements of OP Financial Group must be drawn up in
accordance with the international financial reporting
standards referred to in the Finnish Accounting Act
(1336/1997). The Finnish Financial Supervisory Authority
(FIN-FSA) has issued more detailed regulations on the
financial statements of amalgamations. The accounting
principles applied to OP Financial Group’s financial statements
are disclosed in the notes to the financial statements.
The central cooperative has an obligation to provide the
affiliated credit institutions and other companies belonging to
OP Amalgamation with guidelines on compliance with
standardised accounting policies in the preparation of the
consolidated financial statements. The companies belonging
to OP Amalgamation must submit the necessary data to the
central cooperative for the purpose of drawing up the
consolidated financial statements.
OP Financial Group’s financial statements are audited by the
auditors of the central cooperative in accordance with the
requirements laid down in the Finnish Act on Credit
Institutions (610/2014, later the Credit Institutions Act), as
applicable. The auditors have the right to obtain a copy of all
audit documents of the companies belonging to
OP Amalgamation. The financial statements are presented to
the Annual Cooperative Meeting of the central cooperative.
OP Amalgamation is supervised by the ECB on the basis of its
consolidated financial position, while the insurance companies
are supervised by FIN-FSA. FIN-FSA also supervises
compliance with the conduct rules applied to banking and
asset management.
OP Amalgamation must comply, on the basis of its
consolidated financial position, with the statutory prudential
requirements for credit institutions laid down in the Credit
Institutions Act and the Capital Requirements Regulation. The
amount of consolidated own funds at the level of the
Amalgamation must meet the requirements laid down in
chapter 10, section 1 of the Credit Institutions Act.
37
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
The internal audit of undertakings belonging to OP Financial
Group is carried out by the Internal Audit unit, which reports
directly to the President and Group CEO. Internal Audit is an
independent function within OP Financial Group, which audits
the adequacy and effectiveness of internal control
arrangements, risk management and corporate governance.
The Chief Audit Executive regularly reports to the President
and Group CEO and the Audit Committee of the Board of
Directors of OP Cooperative. Internal Audit is responsible for
the internal audit of the central cooperative, its subsidiaries
and the affiliated credit institutions and their subsidiaries.
Internal audits are carried out in accordance with
internationally accepted standards and ethical rules and the
Internal Audit Charter approved by the Board of Directors of
OP Cooperative.
Central cooperative consolidated
OP Cooperative also prepares and publishes a consolidated
financial statement of the group that comprises
OP Cooperative and its subsidiaries. The consolidated
financial statement complies with the Finnish Accounting Act
and the Act on Credit Institutions. Regulatory requirements
concerning consolidated capital adequacy and liquidity do not
apply at the level of the sub-consolidation group formed by
the central cooperative consolidated.
Financial conglomerate
Pursuant to section 30 of the Financial Conglomerates Act,
the accounting regime laid down in the said Act is not
applicable to OP Financial Group as its financial statements
are drawn up in accordance with the international financial
reporting standards.
Compliance with the requirements laid down in the Financial
Conglomerates Act, including the aggregate capital
requirement, is supervised by the ECB.
Affiliated credit institutions and other companies
within OP Amalgamation
The affiliated credit institutions and other companies within
OP Amalgamation draw up their individual financial
statements in accordance with the guidelines issued by the
central cooperative, and they are audited in accordance with
the Credit Institutions Act. The obligation to disclose interim
financial reports pursuant to chapter 12, section 12 of the
Credit Institutions Act is not applied to companies within
OP Amalgamation. Nor are they obliged to disclose regulatory
information on their capital adequacy and liquidity (so called
Pillar III) on a solo basis. Such information is disclosed only on
the basis of the consolidated financial position of
OP Amalgamation.
According to the Amalgamation Act, the supervisory authority
can grant the central cooperative a permission to waive the
application of the quantitative rules on the amount of own
funds, liquidity and large exposure limits as well as the
qualitative rules on risk management. The affiliated credit
institutions must, however, comply with the minimum capital
requirements laid down in the Amalgamation Act, which are
lower than those applied to other credit institutions. The
waiver cannot be granted to an affiliated credit institution
which has grossly or recurringly failed to comply with the
instructions issued by the central cooperative pursuant to
section 17 of the Amalgamation Act or the preconditions for
the waiver. Such exception may be granted for a maximum
period of three years at a time. The central cooperative has
utilised the permission granted by the supervisor to waive the
application of the own funds, liquidity and risk management
requirements on the affiliated credit institutions.
The roles of the central cooperative and the
affiliated credit institutions in OP Amalgamation
OP Cooperative operates as the statutory central body of
OP Amalgamation and as a holding company for the strategic
holdings of OP Financial Group.
The central cooperative is under a statutory obligation to:
• supervise the affiliated credit institutions
• issue binding instructions to them on risk
management, good corporate governance and
internal control to secure liquidity and capital
adequacy of the amalgamation; and
• issue binding instructions on compliance with
standardised accounting policies in the preparation
of the consolidated financial statements.
In the manner specified in its bylaws, the central cooperative
may also confirm general principles to be followed by the
affiliated credit institutions in their operations relevant to OP
Amalgamation. The affiliated credit institutions are, among
other things, bound by OP Financial Group’s Risk Appetite
Statement, Risk Appetite Framework and detailed risk policies
as confirmed by the central cooperative’s Board of Directors.
The risk management of OP Financial Group is described in
more detail in other chapters of this Report by the Board of
Directors and in OP Financial Group’s Capital Adequacy and
Risk Management Report.
The central cooperative supervises the affiliated credit
institutions in order to ensure that they comply with the
instructions issued and principles confirmed by the central
cooperative, notably that they do not, in the course of their
operations, take any risk of such magnitude that poses a
substantial danger to the consolidated financial position of OP
Amalgamation. The affiliated credit institutions are
accountable to the central cooperative in accordance with the
principles of joint and several liability. Based on said
principles, the central cooperative can take measures vis-à-
vis the affiliated credit institutions. These measures range
from tighter monitoring to expelling the affiliated credit
institution from the Amalgamation.
The central cooperative is responsible for providing
centralised services to the affiliated credit institutions,
including strategic and capital planning, liquidity and funding,
risk management, accounting, financial and supervisory
38
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
reporting, legal services, ICT including the design and
maintenance of the digital distribution channels, service
design, service range, and marketing. The affiliated credit
institutions, while operationally dependent on the centralised
services provided by the central cooperative, are independent
in maintaining their capital base and deciding on the
distribution of their profits (within the limits of the Group
capital plan) as well as in respect of their customer selection
and individual business decisions.
Solidarity mechanism
General principles
The mutual solidarity mechanism applied within OP
Amalgamation is laid down in the Amalgamation Act. The
central cooperative it is responsible for the implementation of
the solidarity mechanism (calculation of contributions from
the affiliated credit institutions and the collection of the
contributions as well as forwarding the contributions to the
affiliated credit institution being supported) and it has the
ultimate liability for the obligations of the affiliated credit
institutions. The affiliated credit institutions have a recourse
right on the central cooperative for the amount of the
contribution they have made to the central cooperative under
the solidarity mechanism. The central cooperative has, in
turn, a recourse right on the supported affiliated credit
institution for the amount paid to it by the central
cooperative.
The solidarity mechanism consists of the following elements:
• m
utual capital support to ensure the capital
a
dequacy of an affiliated credit institution which
does not meet its statutory capital requirements;
• j
oint and several liability between the affiliated credit
institutions to ensure the liquidity of an affiliated
credit institution that cannot meet its due
obligations;
• t
he additional payment obligation of the affiliated
c
redit institutions in the insolvency of the central
cooperative in accordance with the Finnish Co-
operatives Act.
An affiliated credit institution will remain liable for its
obligations under the solidarity mechanism for the first five
years after withdrawal or expulsion from OP Amalgamation.
Mutual capital support
Each affiliated credit institution has the obligation to lend to
the central cooperative an annual amount of up to 0.05% of
its balance sheet total, to be used by the central cooperative
to recapitalise an affiliated credit institution that fails to meet
its statutory capital requirements.
Joint and several liability
A creditor who has not received payment for an overdue
claim from an affiliated credit institution may demand
payment from the central cooperative. An affiliated credit
institution may not be declared bankrupt upon a creditor’s
petition before the creditor has demanded the repayment of
the principal debt from the central cooperative.
Other affiliated credit institutions have a statutory obligation
t
o lend to the central cooperative the amount it has paid on
behalf of the affiliated credit institution that has failed to meet
its payment obligation. The proportional share of each
affiliated credit institution is calculated on the basis of the
share of its balance sheet total of the aggregate balance
sheet total of all affiliated credit institutions.
OP Corporate Bank is, on a centralised basis, in charge of the
Group’s liquidity reserve and it guarantees the liquidity of the
central cooperative and the affiliated credit institutions in all
situations. Because the joint liability is thus automatically
implemented by a single liquidity pool within OP
Amalgamation, the procedural provisions laid down in the
Amalgamation Act need not be applied in practice.
Refinancing liability of the affiliated credit
institutions in the central cooperative’s default
The affiliated credit institutions, as members of the central
cooperative, have unlimited refinancing liability in case of the
central cooperative’s liquidation or bankruptcy, in accordance
with chapter 14 of the Co-operatives Act. The liability of each
member is determined on the basis of its balance sheet total
assets.
Protection by the Deposit Guarantee Fund and the
Investors’ Compensation Fund
According to the legislation governing the Deposit Guarantee
Fund, the deposit banks belonging to an amalgamation of
deposit banks are considered to constitute a single bank in
respect of deposit guarantee.
The Deposit Guarantee Fund reimburses a maximum total of
100,000 euros to an individual account holder who has
receivables from one or more affiliated credit institutions of
OP Amalgamation.
Under the legislation concerning the Investors’ Compensation
Fund, the amalgamation of deposit banks is also considered
to constitute a single credit institution in respect of investor
compensation. The Investors’ Compensation Fund’s assets
may be used to compensate an investor’s receivables from
one or more affiliated credit institutions of OP Amalgamation
up to a total maximum of 20,000 euros.
The Finnish Financial Stability Authority is responsible for
deposit protection. It administers the Financial Stability Fund,
which is a public fund outside the government budget. The
Fund consists of a resolution fund accrued by collecting
annual stability fees from credit institutions and investment
firms, and a deposit protection fund accrued by collecting
annual deposit protection fees from deposit banks.
39
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Events after the balance sheet date
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.
Solvency II valuations are used in FiCo calculation, so the
adoption of IFRS 17 did not affect the FiCo ratio. For more
detailed information of the adoption of IFRS 17, see Note 3 to
the Financial Statements.
Outlook for 2023
The economy is expected to sink into a moderate recession,
inflation to decrease slowly while short-term interest rates
are predicted to rise further. The economic outlook remains
surrounded by an exceptional degree of uncertainty. In
addition to economic factors, the price and availability of
energy and developments in global markets together with the
geopolitical situation may abruptly affect the economic
outlook.
OP Financial Group’s earnings before tax for 2023 are
expected to be higher than in 2022, due to an increase in
market rates.
Earnings performance continues to be affected by major
uncertainty. Rising inflation and the war in Ukraine, including
its indirect effects, weaken the predictability associated with
the economy and OP Financial Group’s profit performance.
All forward-looking statements in this Report by the Board of
Directors 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.
40
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Key income statement and balance sheet items, and financial indicators
Key income statement items, € million 2022
2021
2020
2019
2018
Net interest income 1,618
1,409
1,284
1,241
1,186
Net insurance income
889
743
572
421
566
Net commissions and fees
1,005
1,034
931
936
887
Net investment income -149 376
184
530
211
Other operating income 63 54
132
53
61
Personnel costs
894
914
715
781
516
Depreciation/amortisation and impairment loss 214 283
273
278
325
Other operating expenses 874 810
852
844
839
Impairment loss on receivables -115 -158 -225 -87 -46
OP bonuses to owner-customers -209 -205 -251 -249 -226
Overlay approach 143 -118 -3 -105 26
Earnings before tax 1,265
1,127
785
838 959
Key balance sheet items – assets, € million
Cash and cash equivalents 35,004
32,846
21,827
11,988
12,350
Derivative contracts
4,117
3,467
5,215
4,824
3,581
Receivables from credit institutions 798
541
306
246
183
Receivables from customers 98,546
96,947
93,644
91,463
87,026
Investment assets
20,754
22,945
23,562
23,509
23,050
Assets covering unit-linked contracts
11,597
13,137
11,285
10,831
9,771
Intangible assets and property, plant and equipment 1,576
1,658
1,944
1,930
2,227
Other items
3,122
2,569
2,424
2,232
2,107
Total assets
175,516
174,110
160,207
147,024
140,294
41
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Key balance sheet items – liabilities and equity, € million 2022
2021
2020
2019
2018
Liabilities to credit institutions 12,301
16,650
8,086
2,632
4,807
Derivative contracts 4,432
2,266
3,424
3,316
2,992
Liabilities to customers 81,468
77,898
73,422
68,289
66,112
Insurance liabilities 7,638
8,773
9,374
9,476
9,476
Liabilities from unit-linked insurance and investment contracts 11,662
13,210
11,323
10,862
9,812
Debt securities issued to the public
37,438
34,895
34,706
34,369
30,458
Other liabilities
6,241
6,233
6,761
5,510
4,896
Equity capital 14,335
14,184
13,112
12,570
11,742
Total liabilities and shareholders’ equity
175,516
174,110
160,207
147,024
140,294
Figures and ratios
Return on equity, ROE, % 7.2
6.6
5.0
5.5
6.5
Return on assets, ROA, %
0.6
0.5
0.4
0.5
0.5
Cost/income ratio, % 58
55
59
60
58
Average personnel 13,077
13,009
12,486
12,376
12,339
Common Equity Tier 1 (CET1) capital ratio, %
17.4
18.2
18.9
19.5
20.5
Capital adequacy ratio, % 19.3
20.4
21.7
21.1
22.1
Capital adequacy under the Act on the Supervision of Financial
and Insurance Conglomerates, %
137 146 150
138 147
42
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Formulas for key figures and ratios
The Alternative Performance Measures are presented to illustrate the financial performance of business operations and to improve
comparability between reporting periods. The formulas for the used Alternative Performance Measures are presented below. The
formulas for the key figures and ratios can be derived from the figures presented in the Report by the Board of Directors and the
Financial Statements, so separate reconciliation statements for the Alternative Performance Measures are not presented.
Alternative Performance Measures
Key figure or ratio
Formula
Description
Return on equity (ROE), %
Profit for the financial year
x 100
The ratio describes how much return is generated on equity
capital as a percentage of equity during the financial year.
Equity (average at beginning and end of
period)
Return on equity (ROE) excluding
OP bonuses, %
Profit for the financial year + OP bonuses
after tax
x 100
The ratio describes how much return is generated on equity
capital as a percentage of equity during the financial year,
excluding OP bonuses paid to owner-customers that are charged
to expenses.
Equity (average at beginning and end of
period)
Return on assets (ROA), %
Profit for the financial year
x 100
The ratio describes how much return is generated on capital tied
up on business during the financial year.
Average balance sheet total (average at
beginning and end of period)
Return on assets (ROA) excluding OP
bonuses, %
Profit for the financial year + OP bonuses
after tax
x 100
The ratio describes how much return is generated on capital tied
up on business during the financial year, excluding OP bonuses
paid to owner-customers that are charged to expenses.
Average balance sheet total (average at
beginning and end of period)
Total expenses
The ratio describes the ratio of expenses to income. The lower
that ratio, the better.
Cost/income ratio, %
x 100
Total income
Investment income
Net investment income + Overlay
approach
The figure describes the development of all investment income.
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.
Loan portfolio
Balance sheet item Receivables from
customers
The loan portfolio is presented under Receivables from customers
in the balance sheet.
Ratio of impairment loss on receivables to
loan and guarantee portfolio, % Impairment loss on receivables
x 100
The ratio describes the ratio of impairment loss on receivables
entered in the income statement to the loan and guarantee
portfolio. The lower that ratio, the better.
Loan and guarantee portfolio at end of
financial year
Deposits
Deposits included in balance sheet item
Liabilities to customers
Deposits are presented in Liabilities to customers in the balance
sheet.
Coverage ratio, % Loss allowance
x 100
The ratio describes the extent to which the amount of expected
losses covers the amount of the liability.
Receivables from customers (on-balance-
sheet and off-balance-sheet items)
Default capture rate, %
New defaulted contracts in stage 2 a year
ago
x 100
The ratio describes the effectiveness of the SICR model (significant
increase in credit risk), in other words how many contracts were
in stage 2 before moving to stage 3.
New defaulted contracts during the
financial year
Income from customer business
Net interest income + net insurance
income + net commissions and fees
Income from customer business describes the development of net
interest income, net insurance income and net commissions and
fees. Income directly from customers is presented mainly under
these items.
43
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Non-life insurance:
Operating loss ratio, %
Claims incurred excl. changes in reserving
bases
x 100
The ratio describes how much of the insurance premium revenue
is spent on claims paid and claims management. The ratio is
calculated after reinsurers’ share.
Insurance premium revenue, excl. net
changes in reserving bases
Operating expense ratio, % Operating expenses
x 100
The ratio describes how much of the insurance premium revenue
is spent on operating expenses (insurance acquisition,
management and administration costs). The ratio is calculated
after reinsurers’ share.
Insurance premium revenue, excl. net
changes in reserving bases
Operating combined ratio, %
Operating loss ratio + operating expense
ratio
The combined ratio is a key indicator of efficiency for non-life
insurance companies. The ratio describes whether the insurance
premium revenue is sufficient to cover the company’s expenses
during the financial year.
Operating risk ratio + operating cost ratio
Operating risk ratio (excl. unwinding of
discount), %
Claims excl. loss adjustment expenses and
changes in reserving bases
x 100
The ratio describes how much of the insurance premium revenue
is spent on claims paid. The ratio is calculated after reinsurers’
share.
Net insurance premium revenue, excl.
changes in reserving bases
Operating cost ratio, %
Operating expenses and loss adjustment
expenses x 100
The ratio describes the ratio of the company’s operating costs
(acquisition, management, administration and claims settlement
expenses) to its insurance premium revenue.
Net insurance premium revenue, excl.
changes in reserving bases
Life insurance:
Operating ratio, % Total expenses
x 100
The ratio describes the company’s efficiency, or how well the
expenses charged on insurance policies and the
management fee refunds received on insurance policies
cover the company’s operating expenses.
Expense loading + refund of management
fee
Earnings from customer business
Earnings before tax – Net investment
income (incl. overlay approach)
The ratio describes the development of customer business
in life insurance. Income directly from customers is
presented mainly in this key ratio.
Key indicators based on a separate calculation
Capital adequacy ratio, % Total capital
x 100
The ratio describes a credit institution’s capital adequacy and
shows the ratio of total capital to the total risk exposure
amount.
Total risk exposure amount
Tier 1 ratio, % Tier 1 capital
x 100
The ratio describes a credit institution’s capital adequacy and
shows the ratio of Tier 1 capital to the total risk exposure
amount.
Total risk exposure amount
CET1 ratio, % CET1 capital
x 100
The ratio describes a credit institution’s capital adequacy and
shows the ratio of CET1 capital to the total risk exposure
amount.
Total risk exposure amount
Solvency ratio, % Capital base
x 100
The ratio describes an insurance company’s solvency and
shows the ratio of the capital base to the total risk exposure
amount.
Solvency capital requirement (SCR)
Leverage ratio, % Tier 1 capital (T1)
x 100
The ratio describes a credit institution’s indebtedness and
shows the ratio of Tier 1 capital to the total risk exposure
amount.
Exposure amount
44
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Liquidity coverage requirement (LCR), %
Liquid assets
x 100
The ratio describes short-term funding liquidity risk that
requires the bank to have sufficient, high-quality liquid
assets to get through an acute 30-day stress scenario.
Liquidity outflows – liquidity inflows under
stressed conditions
Net stable funding ratio (NSFR), %
Available stable funding
x 100
The ratio describes a long-term liquidity risk that requires
the bank to have a sufficient amount of stable funding
sources in relation to items requiring stable funding sources.
The objective is to secure the sustainable maturity structure
of assets and liabilities applying a 12-month time horizon
and to restrict excessive resort to short-term wholesale
funding.
Required stable funding
Capital adequacy ratio under the Act on the
Supervision of Financial and Insurance
Conglomerates* Conglomerate’s total capital base
x 100
The ratio describes the capital adequacy of the financial
conglomerate and shows the ratio of the capital base to the
minimum amount of the capital base.
Conglomerate’s total minimum capital
requirement
Ratio of non-performing exposures to
exposures, % Non-performing receivables (gross)
x 100
The ratio describes the ratio of customers with severe
payment difficulties to the entire exposure portfolio. Non-
performing exposures refer to receivables that are more
than 90 days past due and other receivables classified as
risky as well as forborne exposures related to such
receivables due to the customer’s financial difficulties.
Forbearance measures consist of concessions agreed at the
customers’ initiative to the original repayment plan to make
it easier for them to manage through temporary payment
difficulties. Non-performing exposures are presented in
gross terms; expected credit losses have not been deducted
from them.
Exposures at end of financial year
Ratio of doubtful receivables to exposures, % Doubtful receivables (gross)
x 100
The ratio describes the ratio of customers with payment
difficulties to the entire exposure portfolio.
Doubtful receivables refer to receivables that are more than
90 days past due and other receivables classified as risky as
well as forbearance related to such receivables or to
performing receivables due to the customer’s financial
difficulties. Forbearance measures consist of concessions
agreed at the customers’ initiative to the original repayment
plan to make it easier for them to manage through
temporary payment difficulties. In addition to non-
performing forborne exposures, doubtful receivables include
non-performing exposures reclassified as performing ones
during their probation period or forbearance measures
made into a performing agreement. Loan modifications due
to reasons other than the customer’s financial difficulties are
not classified as doubtful receivables. Doubtful receivables
are presented in gross terms; expected credit losses have
not been deducted from them.
Exposures at end of financial year
Ratio of performing forborne exposures to
exposures, % Performing forborne exposures (gross)
x 100
The ratio describes the ratio of forborne exposures to the
entire exposure portfolio.
Performing forborne exposures include forborne exposures
reclassified as performing ones during their probation period
or forbearance measures made into a performing
agreement. Loan modifications due to reasons other than
the customer’s financial difficulties are not classified as
forborne exposures.
Exposures at end of financial year
45
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Ratio of performing forborne exposures to
doubtful receivables, % Performing forborne exposures (gross)
x 100
The ratio describes the ratio of performing forborne
exposures to doubtful receivables that include not only
performing forborne exposures but also non-performing
exposures.
Performing forborne exposures include forborne exposures
reclassified as performing ones during their probation period
or forbearance measures made into a performing
agreement. Loan modifications due to reasons other than
the customer’s financial difficulties are not classified as
forborne exposures.
Doubtful receivables at end of financial
year
Ratio of loss allowance (receivables from
customers) to doubtful receivables, %
Loss allowance for receivables from
customers in the balance sheet
x 100
The ratio describes the ratio of expected losses to all
doubtful receivables. Doubtful receivables include non-
performing exposures and performing forborne exposures.
Doubtful receivables at period end
Loan and guarantee portfolio Loan portfolio + guarantee portfolio
The indicator describes the total amount of loans and
guarantees given.
Exposures
Loan and guarantee portfolio + interest
receivables + unused standby credit
facilities
The sum of the loan and guarantee portfolio, interest
receivables and unused standby credit facilities (undrawn
loans and limits) is used as the basis for proportioning
doubtful receivables and non-performing exposures.
Other exposures
Interest receivables + unused standby
credit facilities
In addition to the loan and guarantee portfolio, exposures
come from interest receivables and unused standby credit
facilities (undrawn loans and limits).
*Transitional provisions have been taken into account in the FiCo solvency.
46
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Capital adequacy and solvency
Capital adequacy for credit institutions
Capital base, € million
31 Dec 2022
31 Dec 2021
OP Financial Group’s equity capital
14,335
14,184
Effect of insurance companies on the Group’s shareholders’ equity is excluded
-721
-988
Fair value reserve, cash flow hedge
337
-96
Common Equity Tier 1 (CET1) before deductions
13,951
13,101
Intangible assets
-343
-351
Excess funding of pension liability and valuation adjustments
-231
-132
Cooperative capital deducted from capital base
-163
-160
Planned profit distribution
-144
-96
Shortfall of ECL minus expected losses
-425
-356
Insufficient coverage for non-performing exposures
-76
-41
CET1 capital
12,569
11,965
Tier 1 capital (T1)
12,569
11,965
Debenture loans
1,308
1,308
Debentures to which transition rules apply
91
141
Tier 2 capital (T2)
1,399
1,448
Total capital
13,968
13,413
Risk exposure amount, € million
31 Dec 2022
31 Dec 2021
Credit and counterparty risk
60,437
57,267
Standardised Approach (SA)
8,476
4,822
Central government and central banks exposure
495
298
Credit institution exposure
627
5
Corporate exposure
5,244
3,179
Retail exposure
1,245
1,142
Mortgage-backed exposure
153
1
Defaulted exposure
72
45
Covered bonds
540
Receivables to which a short-term credit rating can be applied
0
Collective investment undertakings (CIU)
0
0
Equity investments
1
6
Other
99
146
Internal Ratings-based Approach (IRB)
51,960
52,446
Credit institution exposure
1,191
Corporate exposure
29,997
29,808
Retail exposure
12,002
13,320
Equity investments
8,944
7,112
Other
1,018
1,015
Risks of the CCP’s default fund
0
Securitisations
111
94
Market and settlement risk (Standardised Approach)
1,070
1,380
Operational risk (Standardised Approach)
3,851
3,786
Valuation adjustment (CVA)
179
204
Other risks*
6,678
3,000
Total risk exposure amount
72,327
65,731
* Addition of risk-weighted assets based on the Standardised Approach
The presentation of the total risk exposure amount table has been changed. C
omparatives for the changed items have been adjusted to correspond
to the new presentation.
47
OP Financial Group
Report by the Board of Directors
1 January‒
31 December 2022
Ratios, %
31 Dec 2022
31 Dec 2021
CET1 capital ratio 17.4 18.2
Tier 1 ratio 17.4 18.2
Capital adequacy ratio
19.3
20.4
Ratios, fully loaded, %
31 Dec 2022
31 Dec 2021
CET1 capital ratio 17.4 18.2
Tier 1 ratio
17.4
18.2
Capital adequacy ratio 19.2 20.2
Capital requirement, EUR million
31 Dec 2022
31 Dec 2021
Capital base
13,968
13,413
Capital requirement 9,979 9,041
Buffer for capital requirements
3,989
4,373
The capital requirement of 13.8% comprises the minimum requirement of 8%, the capital conservation buffer of 2.5%, the O-SII buffer requirement
of 1.0%, the minimum requirement (P2R) of 2.25% set by the ECB and the country-specific countercyclical capital buffers for foreign exposures.
Leverage ratio, EUR million
31 Dec 2022
31 Dec 2021
Tier 1 capital (T1)
12,569
11,965
Total exposure
165,362
161,415
Leverage ratio, %
7.6
7.4
The leverage ratio describes indebtedness. The minimum requirement for the leverage ratio is 3%.
OP Financial Group’s capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates
€ million
31 Dec 2022
31 Dec 2021
OP Financial Group’s equity capital 14,335 14,184
Hybrid instruments and debenture loans 1,399 1,448
Other sector-specific items excluded from capital base
-442
-392
Goodwill and intangible assets
-1,077
-1,097
Insurance business valuation differences*
1,083
794
Proposed profit distribution -144 -96
Items under IFRS deducted from capital base**
177
-181
Shortfall of ECL minus expected losses -370 -330
Conglomerate’s total capital base
14,961
14,331
Regulatory capital requirement for credit institutions***
9,661
8,111
Regulatory capital requirement for insurance operations*
1,237
1,672
Conglomerate’s total minimum capital requirement 10,898 9,783
Conglomerate’s capital adequacy 4,063 4,547
Conglomerate’s capital adequacy ratio
(capital base/minimum of capital base) (%)
137 146
* Differences between fair values and carrying amounts based on the solvency of insurance companies and an estimate of SCR
** Excess funding of pension liability, portion of cash flow hedge of fair value reserve
*** Total risk exposure amount x 13.8%
Transitional provisions have been taken into account in figures.
48
EUR million Notes
Q1–4 2022 Q1–4 2021
Net interest income 5 1,618 1,409
Net insurance income 6 889 743
Net commissions and fees 7 1,005 1,034
Net investment income 8 -149 376
Other operating income 9 63 54
Total income 3,426 3,616
Personnel costs 10, 86 894 914
Depreciation/amortisation 11 214 283
Other expenses 12 874 810
Total expenses 1,981 2,007
Impairments loss on receivables 13 -115 -158
OP bonuses to owner-customers 14 -209 -205
Temporary exemption (overlay approach) 15 143 -118
Earnings before tax 1,265
Income tax expense
16 -242 -224
Profit for the period 1,023 904
Attributable to:
Profit for the period attributable to owners 1,014 900
Profit for the period 1,023 904
Income statement
Profit for the period attributable to non-controlling interest
OP Financial Group
Financial Statements
1 January-31 December 2022
49
EUR million Notes
Q1–4 2022 Q1–4 2021
Profit for the period 1,023 904
Items that will not be reclassified to profit or loss
Gains/(losses) arising from remeasurement of defined benefit plans 34 120 50
36
Items that may be reclassified to profit or loss
Change in fair value reserve
Measurement at fair value 36 -540 -57
Cash flow hedge 36 -540 -135
Temporary exemption (overlay approach) 36 -143 118
Translation differences
Income tax
28 -24 -10
28 -3
Items that may be reclassified to profit or loss
Measurement at fair value 36 108 11
Cash flow hedge 36 108 27
Temporary exemption (overlay approach) 36 29 -24
Other comprehensive income -883 -7
Total comprehensive income for the period 139 897
Attributable to:
Total comprehensive income for the period attributable to owners 131 893
Total comprehensive income for the period attributable to non-controlling interests 9 4
Total comprehensive income for the period 139 897
pl
ans
Statement of comprehensive income
Change in revaluation reserve
Items that will not be reclassified to profit or loss
Change in revaluation reserve
OP Financial Group
Financial Statements
1 January-31 December 2022
50
EUR million Notes
31 Dec
2022
31 Dec
2021
Cash and cash equivalents 17 35,004 32,846
Receivables from credit institutions 18 798 541
Derivative contracts 19 4,117 3,467
Receivables from customers 20 98,546 96,947
Investment assets 21 20,754 22,945
Assets covering unit-linked contracts 22 11,597 13,137
Intangible assets 24 1,153 1,212
Property, plant and equipment (PPE) 25 423 446
Other assets 27 2,819 2,419
Tax assets 28 303 141
Non-current assets held for sale 8
Total assets 175,516 174,110
Liabilities to credit institutions 29 12,301 16,650
Derivative contracts 19 4,432 2,266
Liabilities to customers 30 81,468 77,898
Insurance liabilities 31 7,638 8,773
Liabilities from unit-linked insurance and investment contracts 32 11,662 13,210
Debt securities issued to the public 33 37,438 34,895
Provisions and other liabilities 34 3,849 3,134
Tax liabilities 28 1,008 1,109
Subordinated liabilities 35 1,384 1,982
Liabilities associated with non-current assets held for sale 8
Total liabilities
Equity capital
Share of OP Financial Group's owners
Cooperative capital
Cooperative share 217 215
Profit shares 3,369 3,244
Fair value reserve -656 323
Other reserves 2,172 2,184
Retained earnings 9,115 8,090
Non-controlling interests
Total equity capital
36
Total liabilities and equity capital 175,516 174,110
Balance sheet
OP Financial Group
Financial Statements
1 January-31 December 2022
51
EUR million
Coope-
rative
capital
Fair value
reserve
Other
reserves
Retained
earnings
Total
Non-
controlling
interests
Total equity
capital
Balance at 1 January 2021 3,174 382 2,172 7,248 12,975 137 13,112
-59 12 939
Profit for the period 900
Other comprehensive income -59 12 40
-7 -7
Profit distribution
-94
-94
-7
-101
Change in membership and profit shares 285
Other -3
-3
-5
-9
Balance at 31 December 2021 3,459 323 2,184 8,090 14,057 128 14,184
EUR million
Coope-
rative
capital
Fair value
reserve
Other
reserves
Retained
earnings
Total
Non-
controlling
interests
Total equity
capital
Balance at 1 January 2022 3,459 323 2,184 8,090 14,057 128 14,184
-979 1,110
Profit for the period 1,014
Other comprehensive income -979 96
-883 -883
Profit distribution
-96
-96
-7
-103
Transfer of reserves -12 12
Other -1
-1
-11
-12
Balance at 31 December 2022 3,586 -656 2,172 9,115 14,217 118 14,335
Total comprehensive income for the
period
shares
Statement of changes in equity capital
Attributable to owners
Total comprehensive income for the
period
Attributable to owners
OP Financial Group
Financial Statements
1 January-31 December 2022
52
EUR million Notes
Q1–4 2022
Q1–4 2021
Cash flow from operating activities
Profit for the period
Adjustments to profit for the period 45 -316 540
Increase (-) or decrease (+) in operating assets -4,127 -3,948
Receivables from credit institutions 18 84 -114
Derivative contracts
19 -332 169
Receivables from customers 20 -3,333 -3,663
Non-life insurance assets 22 80 -513
Investment assets 21 -277 430
Other assets 27 -350 -256
Increase (+) or decrease (-) in operating liabilities 1,338 13,435
Liabilities to credit institutions 29 -4,279 8,557
Derivative contracts
19 539 248
Liabilities to customers 30 4,592 4,679
Insurance liabilities 31 142 10
Liabilities from unit-linked insurance and investment contracts 32 0 368
Provisions and other liabilities 34 344 -427
Income tax paid -283 -135
Dividends received 102 89
A. Net cash from operating activities
-2,264 10,883
Cash flow from investing activities
Acquisition of subsidiaries, net of cash acquired 23 1
Disposal of subsidiaries, net of cash disposed 84 33 35
Purchase of PPP and intangible asset
s 24, 25 -123 -135
Proceeds from sale of PPE and intangible assets 24, 25 11 11
B. Net cash used in investing activities -79 -88
Cash flow from financing activities
Subordinated liabilities, change -517 -254
Debt securities issued to the public, change 33 5,135 646
Increases in cooperative and share capital 292 412
Decreases in cooperative and share capital -165 -126
Dividends paid and interest on cooperative capital -96 -189
Lease liabilities -33 -36
C. Net cash used in financing activities 4,615 451
Net change in cash and cash equivalents (A+B+C) 2,272 11,247
Cash and cash equivalents at period-start 33,129 22,055
Effect of foreign exchange rate changes 255 -173
Cash and cash equivalents at period-end 35,656 33,129
Cash flow statement
OP Financial Group
Financial Statements
1 January-31 December 2022
53
Contents
1. OP Financial Group’s accounting policies under IFRS
2. OP Financial Group’s Risk Appetite Framework
3. Changes in accounting policies and presentation
4. Segment reporting
Notes to the income statement
5. Net interest income
6. Net insurance income
7. Net commissions and fees
8. Net investment income
9. Other operating income
10. Personnel costs
11. Depreciation/amortisation and impairment loss
12. Other operating expenses
13. Impairment losses on receivables
14.
15.
16. Income tax
Notes to assets
17. Liquid assets
18. Receivables from credit institutions
19. Derivative contracts
20. Receivables from customers
21. Investment assets
22. Assets covering unit-linked contracts
23. Investments accounted for using the equity method
24. Intangible assets
25.
Property, plant and equipment
26. Leases
27. Other assets
28. Tax assets and liabilities
Notes to liabilities and equity capital
29. Liabilities to credit institutions
30. Liabilities to customers
31. Insurance liabilities
32. Liabilities from unit-linked insurance and investment contracts
33. Debt securities issued to the public
34. Provisions and other liabilities
35. Subordinated liabilities
36. Equity capital
Other notes to on-balance and off-balance sheet items
45. Loss allowance regarding receivables and notes and bonds
38. Collateral given
39. Financial collateral held
40. Classification of financial assets and liabilities
41. Recurring fair value measurements by valuation technique
42. Off-balance-sheet commitments
43. Contingent liabilities and assets
45.
46.
Notes to financial statements
OP bonuses to owner-customers
Temporary exemption (overlay approach)
Financial assets and liabilities offset in the balance sheet or subject to enforceable master netting arrangements or similar agreements
Notes to the cash flow statement
OP Financial Group
Financial Statements
1 January-31 December 2022
54
Notes to risk management
46. OP Financial Group’s exposure split by geographic region and exposure class
Risk exposure of Retail and Corporate Banking
47. Loan losses and impairment losses
48. Structure of OP Financial Group funding
49. Maturity of financial assets and liabilities by residual maturity
50. Maturities of financial assets and liabilities by maturity or repricing
51. Sensitivity analysis of interest rate and market risk
52. Liquidity buffer
Risk exposure by Insurance
53. Sensitivity analysis
54. Non-life insurance premiums written and sums insured by class
55. Trend in non-life insurance large claims
56. Non-life insurance business profitability
57.
58. Non-life insurance insurance liabilities by estimated maturity
59. Non-life Insurance asset allocation
60. Sensitivity analysis of Non-life Insurance investment risks
61. Risk exposure of Non-life Insurance investments in fixed-income securities
62. Currency risk associated with Non-life Insurance investments
63. Counterparty risk associated with Non-life Insurance investments
64. Information on the nature of insurance liabilities and their sensitivity analysis
65. Expected maturity of life insurance and investment contracts
66. Profitability of life insurance business
67. Life Insurance asset allocation
68. Investment distribution in separated balance sheet 1
69. Investment distribution in separated balance sheet 2
70. Sensitivity analysis of Life Insurance investment risks
71. Sensitivity analysis of investment risks under separated balance sheet 1
72. Sensitivity analysis of investment risks under separated balance sheet 2
73. Risk exposure of Life Insurance investments in fixed-income securities
74. Risk exposure associated with fixed-income investments under separated balance sheet 1
75. Risk exposure of fixed-income investments under separated balance sheet 2
76. Currency risk associated with Life Insurance investments
77. Currency risk associated with investments under separated balance sheet 1
78. Currency risk associated with investments under separated balance sheet 2
79. Counterparty risk associated with Life Insurance investments
80. Counterparty risk associated with investments under separated balance sheet 1
81. Counterparty risk associated with investments under separated balance sheet 2
82. Credit risk associated with investments under separated balance sheet 1
83. Credit risk associated with investments under separated balance sheet 2
Other notes
84. Ownership interests in subsidiaries, structured entities and joint operations
85. Information by country
86. Related-party transactions
87. Events after the balance sheet date
Information on the nature of non-life insurance insurance liabilities
OP Financial Group’s risk exposure
OP Financial Group
Financial Statements
1 January-31 December 2022
55
OP Financial Group
Financial Statements
1 January-31 December 2022
56
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
59
OP Financial Group
Financial Statements
1 January-31 December 2022
60
OP Financial Group
Financial Statements
1 January-31 December 2022
61
OP Financial Group
Financial Statements
1 January-31 December 2022
62
OP Financial Group
Financial Statements
1 January-31 December 2022
63
OP Financial Group
Financial Statements
1 January-31 December 2022
64
OP Financial Group
Financial Statements
1 January-31 December 2022
65
OP Financial Group
Financial Statements
1 January-31 December 2022
66
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
68
OP Financial Group
Financial Statements
1 January-31 December 2022
69
OP Financial Group
Financial Statements
1 January-31 December 2022
70
OP Financial Group
Financial Statements
1 January-31 December 2022
71
OP Financial Group
Financial Statements
1 January-31 December 2022
72
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
76
OP Financial Group
Financial Statements
1 January-31 December 2022
77
OP Financial Group
Financial Statements
1 January-31 December 2022
78
OP Financial Group
Financial Statements
1 January-31 December 2022
79
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
82
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
84
OP Financial Group
Financial Statements
1 January-31 December 2022
85
OP Financial Group
Financial Statements
1 January-31 December 2022
86
OP Financial Group
Financial Statements
1 January-31 December 2022
87
OP Financial Group
Financial Statements
1 January-31 December 2022
88
OP Financial Group
Financial Statements
1 January-31 December 2022
89
OP Financial Group
Financial Statements
1 January-31 December 2022
90
OP Financial Group
Financial Statements
1 January-31 December 2022
91
OP Financial Group
Financial Statements
1 January-31 December 2022
92
OP Financial Group
Financial Statements
1 January-31 December 2022
93
OP Financial Group
Financial Statements
1 January-31 December 2022
94
OP Financial Group
Financial Statements
1 January-31 December 2022
95
OP Financial Group
Financial Statements
1 January-31 December 2022
96
OP Financial Group
Financial Statements
1 January-31 December 2022
97
OP Financial Group
Financial Statements
1 January-31 December 2022
98
OP Financial Group
Financial Statements
1 January-31 December 2022
99
OP Financial Group
Financial Statements
1 January-31 December 2022
100
OP Financial Group
Financial Statements
1 January-31 December 2022
101
OP Financial Group
Financial Statements
1 January-31 December 2022
102
OP Financial Group
Financial Statements
1 January-31 December 2022
103
OP Financial Group
Financial Statements
1 January-31 December 2022
104
OP Financial Group
Financial Statements
1 January-31 December 2022
105
OP Financial Group
Financial Statements
1 January-31 December 2022
106
OP Financial Group
Financial Statements
1 January-31 December 2022
107
OP Financial Group
Financial Statements
1 January-31 December 2022
108
OP Financial Group
Financial Statements
1 January-31 December 2022
109
OP Financial Group
Financial Statements
1 January-31 December 2022
110
OP Financial Group
Financial Statements
1 January-31 December 2022
111
OP Financial Group
Financial Statements
1 January-31 December 2022
112
OP Financial Group
Financial Statements
1 January-31 December 2022
113
OP Financial Group
Financial Statements
1 January-31 December 2022
114
OP Financial Group
Financial Statements
1 January-31 December 2022
115
OP Financial Group
Financial Statements
1 January-31 December 2022
116
Notes to the income statement
OP Financial Group
Financial Statements
1 January-31 December 2022
117
OP Financial Group
Financial Statements
1 January-31 December 2022
118
OP Financial Group
Financial Statements
1 January-31 December 2022
119
OP Financial Group
Financial Statements
1 January-31 December 2022
120
OP Financial Group
Financial Statements
1 January-31 December 2022
121
OP Financial Group
Financial Statements
1 January-31 December 2022
122
OP Financial Group
Financial Statements
1 January-31 December 2022
123
OP Financial Group
Financial Statements
1 January-31 December 2022
124
OP Financial Group
Financial Statements
1 January-31 December 2022
125
Notes to assets
OP Financial Group
Financial Statements
1 January-31 December 2022
126
OP Financial Group
Financial Statements
1 January-31 December 2022
127
OP Financial Group
Financial Statements
1 January-31 December 2022
128
OP Financial Group
Financial Statements
1 January-31 December 2022
129
OP Financial Group
Financial Statements
1 January-31 December 2022
130
OP Financial Group
Financial Statements
1 January-31 December 2022
131
OP Financial Group
Financial Statements
1 January-31 December 2022
132
OP Financial Group
Financial Statements
1 January-31 December 2022
133
OP Financial Group
Financial Statements
1 January-31 December 2022
134
OP Financial Group
Financial Statements
1 January-31 December 2022
135
OP Financial Group
Financial Statements
1 January-31 December 2022
136
OP Financial Group
Financial Statements
1 January-31 December 2022
OP Financial Group
Financial Statements
1 January-31 December 2022
138
OP Financial Group
Financial Statements
1 January-31 December 2022
139
OP Financial Group
Financial Statements
1 January-31 December 2022
140
OP Financial Group
Financial Statements
1 January-31 December 2022
141
OP Financial Group
Financial Statements
1 January-31 December 2022
142
Notes to liabilities and equity capital
OP Financial Group
Financial Statements
1 January-31 December 2022
143
Note 31. Insurance liabilities
OP Financial Group
Financial Statements
1 January-31 December 2022
144
OP Financial Group
Financial Statements
1 January-31 December 2022
145
OP Financial Group
Financial Statements
1 January-31 December 2022
146
OP Financial Group
Financial Statements
1 January-31 December 2022
147
OP Financial Group
Financial Statements
1 January-31 December 2022
148
OP Financial Group
Financial Statements
1 January-31 December 2022
149
OP Financial Group
Financial Statements
1 January-31 December 2022
150
OP Financial Group
Financial Statements
1 January-31 December 2022
151
OP Financial Group
Financial Statements
1 January-31 December 2022
152
OP Financial Group
Financial Statements
1 January-31 December 2022
153
OP Financial Group
Financial Statements
1 January-31 December 2022
154
OP Financial Group
Financial Statements
1 January-31 December 2022
155
Other notes to on-balance and off-balance sheet items
OP Financial Group
Financial Statements
1 January-31 December 2022
156
OP Financial Group
Financial Statements
1 January-31 December 2022
157
OP Financial Group
Financial Statements
1 January-31 December 2022
158
OP Financial Group
Financial Statements
1 January-31 December 2022
159
37
26
33
29
20
19
66
46
52
0
20
40
60
80
2020 2021 2022
€ Million
Stage 1
Corporate Banking
30
27
30
64
61
80
94
88
110
0
20
40
60
80
100
120
2020 2021 2022
€ Million
Stage 2
Corporate Banking
242
283
206
290
319
366
532
602
572
0
200
400
600
800
2020 2021 2022
€ Million
Stage 3
Corporate Banking
OP Financial Group
Financial Statements
1 January-31 December 2022
160
OP Financial Group
Financial Statements
1 January-31 December 2022
161
OP Financial Group
Financial Statements
1 January-31 December 2022
162
OP Financial Group
Financial Statements
1 January-31 December 2022
163
OP Financial Group
Financial Statements
1 January-31 December 2022
164
OP Financial Group
Financial Statements
1 January-31 December 2022
165
OP Financial Group
Financial Statements
1 January-31 December 2022
166
OP Financial Group
Financial Statements
1 January-31 December 2022
167
OP Financial Group
Financial Statements
1 January-31 December 2022
168
OP Financial Group
Financial Statements
1 January-31 December 2022
169
OP Financial Group
Financial Statements
1 January-31 December 2022
170
OP Financial Group
Financial Statements
1 January-31 December 2022
171
OP Financial Group
Financial Statements
1 January-31 December 2022
172
OP Financial Group
Financial Statements
1 January-31 December 2022
173
OP Financial Group
Financial Statements
1 January-31 December 2022
174
OP Financial Group
Financial Statements
1 January-31 December 2022
175
OP Financial Group
Financial Statements
1 January-31 December 2022
176
OP Financial Group
Financial Statements
1 January-31 December 2022
177
OP Financial Group
Financial Statements
1 January-31 December 2022
178
OP Financial Group
Financial Statements
1 January-31 December 2022
179
OP Financial Group
Financial Statements
1 January-31 December 2022
180
OP Financial Group
Financial Statements
1 January-31 December 2022
181
OP Financial Group
Financial Statements
1 January-31 December 2022
182
OP Financial Group
Financial Statements
1 January-31 December 2022
183
OP Financial Group
Financial Statements
1 January-31 December 2022
184
OP Financial Group
Financial Statements
1 January-31 December 2022
185
OP Financial Group
Financial Statements
1 January-31 December 2022
186
OP Financial Group
Financial Statements
1 January-31 December 2022
187
OP Financial Group
Financial Statements
1 January-31 December 2022
188
OP Financial Group
Financial Statements
1 January-31 December 2022
189
OP Financial Group
Financial Statements
1 January-31 December 2022
190
OP Financial Group
Financial Statements
1 January-31 December 2022
191
OP Financial Group
Financial Statements
1 January-31 December 2022
192
OP Financial Group
Financial Statements
1 January-31 December 2022
193
Other notes
OP Financial Group
Financial Statements
1 January-31 December 2022
194
OP Financial Group
Financial Statements
1 January-31 December 2022
195
OP Financial Group
Financial Statements
1 January-31 December 2022
196
OP Financial Group
Financial Statements
1 January-31 December 2022
197
OP Financial Group
Financial Statements
1 January-31 December 2022
198
OP Financial Group
Financial Statements
1 January-31 December 2022
199
OP Financial Group
Financial Statements
1 January-31 December 2022
200
OP Financial Group
Financial Statements
1 January-31 December 2022
201
Statement concerning the financial
statements
We have approved the Report by the Board of Directors and the consolidated Financial Statements for 1 January‒
31 December 2022 of OP Financial Group, a financial entity as referred to in section 9 of the Act on the Amalgamation of
Deposit Banks. The Report by the Board of Directors and the Financial Statements are presented to, and passed out at,
the Annual Cooperative Meeting of OP Cooperative.
Helsinki, 1 March 2023
OP Cooperative’s Board of Directors
Jaakko Pehkonen Timo Ritakallio
Chair of the Board of Directors OP Financial Group’s President and Group Chief Executive Officer
Jarna Heinonen Jari Himanen
Kati Levoranta Pekka Loikkanen
Tero Ojanperä Riitta Palomäki
Petri Sahlström Olli Tarkkanen
Mervi Väisänen
OP Financial Group
Financial Statements
1 January-31 December 2022
202
Auditors’ note
We have today issued an auditor’s report on the audit performed
Helsinki, 2 March 2023
KPMG Oy Ab
Audit firm
Juha-Pekka Mylén
Authorised Public Accountant
OP Financial Group
Financial Statements
1 January-31 December 2022
203
This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding.
Auditor’s Report
To the members of OP Cooperative
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of the amalgamation OP Financial Group pursuant to the Act on
the Amalgamation of Deposit Banks for the year ended on 31 December 2022. The financial statements
comprise the consolidated balance sheet, income statement, statement of comprehensive income, statement
of changes in equity capital, cash flow statement and notes, including a summary of significant accounting
policies.
In our opinion the consolidated financial statements give a true and fair view of OP Financial Group’s financial
position and financial performance and cash flows in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU.
Our opinion is consistent with the additional report submitted to the Board of Directors and the Audit
Committee of OP Cooperative.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good
auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report.
We are independent of member institutions within OP Financial Group in accordance with the ethical
requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
In our best knowledge and understanding, the non-audit services that we have provided to member institutions
within OP Financial Group are in compliance with laws and regulations applicable in Finland regarding these
services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation
(EU) 537/2014. The non-audit services that we have provided have been disclosed in note 12 to the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Materiality
The scope of our audit was influenced by our application of materiality. The materiality is determined based
on our professional judgement and is used to determine the nature, timing and extent of our audit procedures
and to evaluate the effect of identified misstatements on the financial statements as a whole. The level of
materiality we set is based on our assessment of the magnitude of misstatements that, individually or in
aggregate, could reasonably be expected to have influence on the economic decisions of the users of the
financial statements. We have also taken into account misstatements and/or possible misstatements that in
our opinion are material for qualitative reasons for the users of the financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the financial statements of the current period. These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. The significant risks of material misstatement referred to in the EU Regulation No
537/2014 point (c) of Article 10(2) are included in the description of key audit matters below.
2
We have also addressed the risk of management override of internal controls. This includes consideration of
whether there was evidence of management bias that represented a risk of material misstatement due to
fraud.
THE KEY AUDIT MATTER
HOW THE MATTER WAS ADDRESSED IN THE
AUDIT
Receivables from customers - measurement (notes 1, 13, 20 and 37 to the financial
statements)
Receivables from customers, totalling €98.5
billion, are the most significant item on the OP
Financial Group’s consolidated balance sheet
representing 56 percent of the total assets.
Calculation of expected credit losses (ECL) in
accordance with IFRS 9 Financial Instruments
involves assumptions, es
timates and
management judgement, for example, in respect
of determining the probability and amount of
expected credit losses as well as the significant
increases in credit risk.
The indirect effects of the war in Ukraine,
inflation, increase in interest rates as well as
weakened economic outlook may increase credit
risk, which can realize in higher impairment loss
on receivables.
The elements of accounting for expected credit
losses are updated and defined, based on
materialised credit risk developments, validation
and improvement of the accounting process as
well as on regulations and changes therein
Due to the significance of the carrying amount
involved, complexity of the accounting methods
used for measurement purposes and
management judgement involved, measurement
of receivables is addressed as a key audit
matter.
We evaluated compliance with the lending
instructions
and assessed
credit risk
management
as well as principles and controls
over recognition and monitoring of loan
receivables in the entities of OP Cooperative
Consolidated.
We assessed the methods and the key
assumptions for calculating expected credit
losses as well
as tested the controls related to the
calculation process and credit risk models for the
expected credit losses.
The main focus areas in our audit
of ECL were
the
most significant factors requiring
management judgement
in the
calculation of
ECL
, cash flow based ECL calculation based on
expert assessment
, as well as recalculation of
the most significant ECL models and sensitivity
analysis
.
We have also
assessed the basis for the
temporary
extra provisions formed
based on
managem
ent judgement (management overlay).
Our IFRS and financial
instruments specialists
were involved in the audit.
We also requested other auditors of OP Financial
Group entities to issue an opinion that the entities
within OP Financial Group have complied with
the instructions provided by OP Cooperative
for
the financing process.
Furthermore, we considered the
appropriateness
of the notes provided by OP Financial Group in
respect of receivables and expected credit
losses.
3
Measurement of investment assets and derivative contracts (notes 1, 8, 19, 21 and 37 to the
financial statements)
The carrying value of investment assets totals
€20.8 billion mainly consisting of investments
measured at fair value. The aggregate derivative
assets are €4.1 billion and derivative liabilities
€4.4 billion comprising contracts held for trading
and hedging purposes. Derivatives are
measured at fair value in preparing the financial
statements.
The fair value of financial instruments is
determined using either prices quoted in an
active market or OP Financial Group's own
valuation techniques where no active market
exists. Determining fair values for investments
and derivatives involves management
judgements, especially in respect of those
instruments for which market-based data is not
available. Fair values of private equity funds and
properties may also involve time delay.
Due to the significant carrying values of
investment assets and derivative positions
involved, and management judgements related
to measurement of illiquid investments,
measurement of these assets is addressed as a
key audit matter.
We evaluated the appropriateness of the
accounting principles applied and the valuation
techniques used by OP Financial Group, and
tested accounting and valuation of investments
and derivative contracts.
In respect of derivative contracts, we considered
the accounting treatment
and the valuation
process
applied in relation to the requirements
set under IFRS.
As part of our year
-end audit procedures, we
compared the fair values used in
measurement
of investment assets and derivatives with market
quotations and other external price ref
erences.
We assessed the
accuracy of the input data
us
ed in valuations as well as the reasonableness
of the assumptions and estimates applied.
We also
considered the impairment principles
applied and techniques used by OP Financial
Group in respect of inve
stments.
KPMG
IFRS and financial instruments
specialists were involved in the audit.
Finally, we considered the appropriateness of
the notes on investment assets and derivatives
.
Insurance liabilities (notes 1, 6 and 31 to the financial statements)
Measurement of insurance liabilities, amounting
to €7.6 billion on the OP Financial Group’s
balance sheet, is based on various actuarial
assumptions and calculation methods.
Calculation of insurance liabilities relies on data
processed in many IT systems and combination
of that data. The databases are extensive and
data volumes processed by the IT systems are
substantial.
Interest rate risk associated with insurance
liabilities is hedged with derivatives and interest
Our audit procedures included assessment of
the principles related to calculation and
recognition of insurance liabilities. Our actuary
specialist evaluated the appropriaten
ess of the
assumptions and methods used in determining
insurance liabilities
.
We assessed internal control p
rocesses for
insurance liability accounting and the accuracy
of underlying source data, as well as
interconnections between the insurance liability
accounting and financial reporting.
4
rate instruments, which are measured at fair
value in the financial statements.
Discount rate of the insurance liability for
annuities was increased in the financial year.
The change has decreased amount of the
insurance liability.
Due to the significant carrying value of insurance
liabilities involved, and the complexity associated
with actuarial models used, insurance liabilities
are addressed as a key audit matter.
We analysed the hedging principles of interest
rate risk for insurance liabilities
, market based
valuation
and the appropriateness of the
accounting treatment of hedging derivative
instruments.
W
e have also assessed the basis for the
increase in
the non-life company’s discount rate
and the
value change of the related
suppl
ementary interest rate provision as well as
the
ir accounting treatment.
Furthermore, we considered the
appropriateness of the notes on i
nsurance
liabilities.
Control environment relating to financial reporting process and IT systems
In respect of the accuracy of the financial
statements of OP Financial Group, the key
reporting processes are dependent on
information systems. Therefore, information
technology plays an essential role for business
continuity, incident management and the
accuracy of financial reporting. Consequently,
the IT environment related to the financial
reporting process and the application controls of
individual IT systems have a significant effect on
the selected audit approach.
As the consolidated financial statements of OP
Financial Group are based on a large number of
data flows from many systems, the financial
reporting IT environment is addressed as a key
audit matter.
We obtained an understanding of the IT systems
related to financial reporting and the associated
control environment and tested the effectiveness
of the related internal controls.
Our audit procedures also
concentrated on
monitoring key
data flows and transactions,
access management, change management,
interfaces and outsourcing management.
As part
of our audit, we performed extensive
substantive procedures and data analyses
relating to various aspects in the financial
reporting process.
Responsibilities of the Board of Directors and the Managing Director for the Financial Statements
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial
statements that give a true and fair view in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU in a manner explained in more detail in the notes to the financial statements
and comply with statutory requirements. The Board of Directors and the Managing Director are also
responsible for such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for
assessing OP Financial Group’s ability to continue as a going concern, disclosing, as applicable, matters
relating to going concern and using the going concern basis of accounting. The financial statements are
prepared using the going concern basis of accounting unless there is an intention to liquidate OP Financial
Group, or there is no realistic alternative but to do so.
5
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with good auditing practice will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgement and
maintain professional skepticism throughout the audit. We also:
— Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
— Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of OP Financial Group’s internal control.
— Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
— Conclude on the appropriateness of the Board of Directors and the Managing Director’s use of the going
concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on OP Financial Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause OP
Financial Group to cease to continue as a going concern.
— Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events so
that the financial statements give a true and fair view.
— Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within OP Financial Group to express an opinion on the consolidated financial statements. We
remain solely responsible for our audit opinion.
— Audit of the consolidated financial statements of amalgamation OP Financial Group is based on the
financial statements of OP Cooperative Consolidated and member cooperative banks, as well as the
auditor’s reports submitted for the audit of OP Financial Group’s consolidated financial statements.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were
of most significance in the audit of the financial statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not
6
be communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Other Reporting Requirements
Information on our audit engagement
We were first appointed as auditors by the Cooperative Meeting of OP Cooperative in 2002 and our
appointment represents a total period of uninterrupted engagement of 21 years.
Other Information
The Board of Directors and the Managing Director are responsible for the other information. The other
information comprises the report of the Board of Directors. Our opinion on the financial statements does not
cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit, or otherwise appears to be materially misstated. Our responsibility also
includes considering whether the report of the Board of Directors has been prepared in accordance with the
applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors is consistent with the information in the
financial statements and the report of the Board of Directors has been prepared in accordance with the
applicable laws and regulations.
If, based on the work we have performed, we conclude that there is a material misstatement of the report of
the Board of Directors, we are required to report that fact. We have nothing to report in this regard.
Helsinki, 2 March 2023
KPMG OY AB
JUHA-PEKKA MYLÈN
Authorised Public Accountant, KHT
Independent Auditor’s Reasonable Assurance Report
on OP Financial Group’s ESEF Financial Statements
To the Board of Directors of OP Cooperative
We have undertaken a reasonable assurance engagement in respect of whether the consolidated financial
statements for the year ended 31 December, 2022 included in the digital financial statements OPRyhma-
2022-12-31-en.zip of OP Financial Group have been marked up with iXBRL markups
in accordance with the
requirements of Article 4 of EU Delegated Regulation 2018/815 (ESEF RTS).
The Responsibility of the Board of Directors and Managing Director
The Board of Directors and Managing Director are responsible for preparing the report of the Board of
Directors and financial statements (ESEF financial statements) that comply with the requirements of ESEF
RTS. This responsibility includes:
— preparation of ESEF financial statements in XHTML format in accordance with Article 3 of the ESEF RTS
— marking up the primary statements and the notes to the consolidated financial statements, and the
company identification data included in the ESEF financial statements with iXBRL tags in accordance with
Article 4 of the ESEF RTS; and
— ensuring consistency between ESEF financial statements and audited financial statements.
The Board of Directors and the Managing Director are also responsible for such internal control as they deem
necessary to prepare the ESEF financial statements in accordance with the requirements of the ESEF RTS.
Auditor’s Independence and Quality Management
We are independent of the company in accordance with the ethical requirements applicable in Finland, which
apply to the engagement we have performed, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
The auditor applies International Standard on Quality Management ISQM 1, which requires the firm to design,
implement and operate a system of quality management including policies or procedures regarding
compliance with ethical requirements, professional standards and applicable legal and regulations
requirements.
Auditor’s Responsibility
In accordance with the Engagement Letter our responsibility is to express an opinion on whether the marking
up of the consolidated financial statements included in the ESEF financial statements comply in all material
respects
with the Article 4 of the ESEF RTS. We conducted our reasonable assurance engagement in
accordance with International Standard on Assurance Engagements 3000.
The engagement involves procedures to obtain evidence whether;
— the primary statements of the consolidated financial statements included in the ESEF financial statements
are, in all material respects, marked up with iXBRL tags in accordance with Article 4 of the ESEF RTS,
and;
— whether the notes to the consolidated financial statements and the company identification data included
in the ESEF financial statements data, have been marked up, in all material respects, with iXBRL tags in
accordance with Article 4 of the ESEF RTS; and
— whether the ESEF financial statements and the audited financial statements are consistent with each
other.
OP Financial Group
Independent Auditor’s Reasonable Assurance Report on
ESEF Financial Statements
7 March, 2023
2
The nature, timing and the extent of procedures selected depend on practitioner’s judgement. This includes
the assessment of the risks of material departures from the requirements set out in the ESEF RTS, whether
due to fraud or error.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the primary statements of the consolidated financial statements, the notes to the consolidated
financial statements and
the company identification data included in the ESEF financial statements of OP
Financial Group identified as
OPRyhma-2022-12-31-en.zip for the year ended 31 December, 2022 are, in all
material respects, marked up in compliance with the ESEF Regulatory Technical Standard.
Our audit opinion on the audit of the consolidated financial statements of OP Financial Group for the year
ended 31 December, 2022 is set out in our Auditor’s Report dated 2 March, 2023. In this report, we do not
express any audit opinion or other assurance conclusion on the consolidated financial statements.
Helsinki 7 March, 2023
KPMG OY AB
Juha
-Pekka Mylén
Authori
sed Public Accountant, KHT
LEI code of reporting entity
7437003B5WFBOIEFY714
Name of reporting entity or other means of
identification
Domicile of entity
Legal form of entity
Country of incorporation
Address of entity's registered office
Principal place of business
Description of nature of entity's operations and
principal activities
Name of parent entity
Name of ultimate parent of group