OP Financial Group
Half-year Financial Report 1 January–30 June 2024
Stock Exchange Release 24 July 2024 at 9.00 EEST
OP Financial Group's Half-year Financial Report for 1 January–30 June 2024: Strong business performance continued – operating profit EUR 1,229 million
- Operating profit was EUR 1,229 million (986).
- Income from customer business, or net interest income, insurance service result and net commissions and fees, increased by 11% to EUR 1,844 million (1,656). Net interest income grew by 18% to EUR 1,407 million (1,196). Insurance service result increased by EUR 29 million to EUR 37 million (8). Net commissions and fees decreased by 11% to EUR 400 million (452).
- Impairment loss on receivables in the income statement was EUR 67 million (99), accounting for 0.13% (0.19) of the loan and guarantee portfolio.
- Investment income increased by 7% to EUR 269 million (250).
- Total expenses grew by 2% to EUR 1,104 million (1,079). The cost/income ratio improved to 46% (50).
- In the year to June, the loan portfolio decreased by 1% to EUR 97.7 billion (98.5). Deposits increased by 3% to EUR 75.3 billion (73.3).
- CET1 ratio was 20.8% (19.2), which exceeds the minimum regulatory requirement by 7.5 percentage points.
- Retail Banking segment's operating profit rose to EUR 685 million (524). Net interest income grew by 22% to EUR 1,092 million (896). Impairment loss on receivables decreased by EUR 24 million to EUR 52 million (76). Net commissions and fees decreased by 15% to EUR 305 million (361). The cost/income ratio improved to 48% (53). The loan portfolio decreased by 1% year on year to EUR 70.4 billion, while deposits were at the previous year's level at EUR 62.9 billion.
- Corporate Banking segment's operating profit rose to EUR 275 million (219). Net interest income grew by 15% to EUR 328 million (285). Impairment loss on receivables decreased by EUR 7 million to EUR 16 million (23). Net commissions and fees decreased by 4% to EUR 99 million (103). The cost/income ratio improved to 37% (44). The loan portfolio was at the previous year's level at EUR 27.4 billion, while deposits grew by 20% year on year to EUR 12.9 billion.
- Insurance segment's operating profit rose to EUR 267 million (217). Insurance service result increased by EUR 29 million to EUR 37 million (8). Investment income grew by 10% to EUR 232 million (211). Combined ratio reported by non-life insurance weakened to 100% (98).
- Group Functions operating loss was EUR –8 million (–1).
- OP Financial Group pays 40% extra on OP bonuses earned by owner-customers for 2024 compared to the 2022 level. The estimated total amount of OP bonuses to be paid in 2024 will exceed EUR 300 million. In addition, owner-customers get daily banking services without monthly charges until the end of 2024. The estimated total value of this benefit will be EUR 88 million for 2024.
- OP Financial Group's operating profit for 2024 is expected to be at a good level but lower than that for 2023. For more detailed information on the outlook, see "Outlook towards the year end".
OP Financial Group’s key indicators
| H1/2024 | H1/2023 | Change, % | Q1–4/2023 | |
| Operating profit, € million | 1,229 | 986 | 24.6 | 2,050 |
| Retail Banking | 685 | 524 | 30.7 | 1,223 |
| Corporate Banking | 275 | 219 | 25.4 | 408 |
| Insurance | 267 | 217 | 22.9 | 414 |
| Group Functions | -8 | -1 | - | -26 |
| New OP bonuses accrued to owner-customers, € million | -154 | -134 | 14.8 | -275 |
| Total income** | 2,400 | 2,164 | 10.9 | 4,520 |
| Total expenses | -1,104 | -1,079 | 2.3 | -2,201 |
| Cost/income ratio, %** | 46.0 | 49.9 | -3.9* | 48.7 |
| Return on equity (ROE), % | 11.9 | 10.7 | 1.2* | 10.6 |
| Return on equity, excluding OP bonuses, % | 13.3 | 12.0 | 1.3* | 12.0 |
| Return on assets (ROA), % | 1.24 | 0.94 | 0.30* | 0.98 |
| Return on assets, excluding OP bonuses, % | 1.39 | 1.07 | 0.32* | 1.11 |
| 30 Jun 2024 | 30 Jun 2023 | Change, % | 31 Dec 2023 | |
| CET1 ratio, % | 20.8 | 18.8 | 2.0* | 19.2 |
| Loan portfolio, € billion | 97.7 | 98.5 | -0.8 | 98.9 |
| Deposits, € billion | 75.3 | 73.3 | 2.8 | 74.5 |
| Ratio of non-performing exposures to exposures, % | 2.99 | 2.53 | 0.46* | 2.94 |
| Ratio of impairment loss on receivables to loan and guarantee portfolio, % | 0.13 | 0.19 | -0.06* | 0.26 |
| Owner-customers (1,000) | 2,100 | 2,075 | 1.2 | 2,094 |
Comparatives for the income statement are based on the corresponding figures in 2023. Unless otherwise specified, figures from 31 December 2023 are used as comparatives for balance-sheet and other cross-sectional items.
* Change in ratio, percentage point(s).
** OP bonuses to owner-customers, which were previously shown on a separate line in the income statement, have been divided under the following items based on their accrual: interest income, interest expenses, and commission income from mutual funds. The line 'OP bonuses to owner-customers' is no longer shown in the income statement. Comparative information has been adjusted accordingly. For more detailed information of the change, see Note 1 to this Half-year Financial Report, Accounting policies and changes in accounting policies and presentation.
Comments by the President and Group Chief Executive Officer:
The worst of the Finnish recession seems over, the moderate slowdown in inflation has continued as interest rates have fallen
The Finnish downturn seems to have passed its lowest point and an export and consumer-led recovery is expected later in the year. Economic growth is forecast to reach 2% next year, but this only represents a return to sluggish long-term growth trends.
Inflation in Finland fell to 1.3% in June and was clearly below the average for the euro area (2.5%). In the same month, the European Central Bank began to lower interest rates as expected, cutting the benchmark rate by 0.25 percentage points to 3.75%. Among market rates, the 12-month Euribor remained at 3.6–3.7% in the second quarter. The slowdown in price rises and downward turn in market rates will support the economic turnaround.
Home sale volumes and demand for home loans were clearly lower than a year earlier. In addition, home prices continued their moderate downward trend. However, there are signs of a positive turn in the housing market in the near future.
Stock markets were on an upward trend in early 2024, driven by continuously moderate global growth, improvements in corporate-sector balance sheets, and market expectations of interest-rate cuts. Stock prices in Finland underperformed compared to elsewhere in Europe, and fell far below the levels of the United States. The rise in US stock prices was driven by tech giants in particular.
Construction and the related sectors continued to be especially hard hit by the downturn. Overall risks in the real estate sector remained higher than normal, and private-sector investment was low.
Geopolitical risks were high in the first half of the year, largely due to the continuation of Russia's war of aggression in Ukraine and the Israel-Gaza War in the Middle East. Unfortunately, there is no prospect of a rapid solution to either conflict. Uncertainty on the financial markets was sustained by elections held in several European countries, and their surprising results. However, the global economic outlook improved in early 2024, with indicators suggesting a gradual recovery.
OP Financial Group's businesses continued to grow strongly – the excellent result will secure the continuance of competitive benefits for owner-customers
Despite the sluggish business environment, OP Financial Group's operating profit continued to develop extremely well in the second quarter. Operating profit for the first half of 2024 grew by 25% from a year earlier, to EUR 1,229 million. Our strong profit performance guarantees highly competitive benefits for our owner-customers. We will pay 40% extra on OP bonuses earned in 2024 compared to the 2022 level, and will not require owner-customers to pay monthly fees for daily services throughout the year. Together, these benefits will add up to around EUR 400 million in value for our owner-customers.
Being customer-owned, OP Financial Group will continue to share its financial success through a range of financial and other benefits for its 2.1 million owner-customers. We are ready for possible changes in the taxation of customer bonuses in the financial sector. OP Financial Group's owner-customers will continue to receive at least the same level of financial benefits as before, regardless of any changes in legislation. It therefore pays to be an owner-customer of OP Financial Group.
In the first six months of 2024, OP Financial Group's CET1 ratio strengthened again, to 20.8%, which exceeds the minimum regulatory requirement by 7.5 percentage points. OP Financial Group is one of Europe's most financially solid large banks. Excellent profitability and strong capital adequacy and liquidity are critical factors for banks and insurance companies, building trust among customers, partners and other stakeholders. The importance of these factors is highlighted during economically challenging and otherwise uncertain times.
OP Financial Group's income from customer business continued to grow in the first half of 2024, mainly due to the strong increase in net interest income. Both deposit funding and wholesale funding costs clearly rose year on year. Net commissions and fees decreased by 11%, chiefly due to the benefit (provided for owner-customers) of zero monthly charges for daily banking services.
The insurance service result for January to June 2024 was clearly better than in the previous year, increasing to EUR 37 million. Early in the year, claims expenditure was increased by several large claims and the profitability of health insurance was poor. However, growth in claims expenditure slowed in the second quarter and the insurance service result markedly improved, turning positive.
Income from investment activities developed extremely well throughout the first half of 2024 – the result of EUR 269 million was 7% higher than for the same period in 2023. Total income was EUR 2,400 million, or 11% more than during the equivalent period in the previous year.
OP Financial Group's expenses were EUR 1,104 million in January–June, growing by 2% year on year. The key factor in cost performance was the reduction of EUR 62 million in stability contributions. Without this effect, expenses would have grown by 9% compared to the first half of 2023. This underlying rise in expenses was chiefly the result of rising personnel costs and higher investments in ICT development. OP Financial Group's cost/income ratio markedly improved year on year, to the excellent level of 46%.
All three business segments performed well during the reporting period. Growth was particularly strong in the Retail Banking segment, with operating profit rising by 31% to EUR 685 million, following favourable developments in net interest income. Corporate Banking's operating profit improved considerably, by 25% to EUR 275 million. Operating profit in the Insurance segment was EUR 267 million. This was 23% higher year on year, largely because of the excellent result in investment income.
Deposits began to grow gently, while the loan portfolio slightly contracted – there were faint signs of deterioration in customers' loan repayment capacity
The deposit portfolio grew by 3% year on year. There was moderate growth in household and corporate deposits alike. OP Financial Group retained its clear position as the market-leading deposit bank in Finland.
OP Financial Group's loan portfolio shrank by 1% year on year. Demand for new home loans and corporate loans continued to be low. OP Financial Group remained a strong market leader in home loans and corporate loans. Despite higher interest rates, most of our home loan customers have been repaying their loans diligently and on schedule. Although the number of loan modification applications was lower than in the first half of 2023, there was slight growth in the number of household loans being transferred to debt collection. Moreover, there was a rise in the number of corporate customers with non-performing loans in construction and the real estate sector in general. As the economy slowed in early 2024, expected credit loss and non-performing exposures grew a little. However, impairment loss on receivables reduced somewhat compared to a year earlier.
OP Financial Group is investing strongly in wealth management
Hanna Porkka, our new Executive Vice President, Wealth Management (and a member of OP Cooperative's Executive Management Team) began in her post at the start of April. This appointment is part of OP Financial Group's strategic investment in the development and growth of its wealth management services. We aim to make a clear growth leap in this business: in line with our aim of coaching our customers to make better financial choices, we are investing heavily in the range, quality and availability of the wealth management services we provide to meet the needs of our various customer categories. We want to promote our customers' long-term financial wellbeing.
Our customers were interested in systematically investing in funds, with 39% more new systematic investment agreements being made than in the same period last year. The number of OP mutual fund unitholders continued to rise and exceeded 1.3 million. There was also clear growth in the number of active equity investors. Reaching more than EUR 109 billion in value, investment assets managed by OP Financial Group grew by 10% year on year.
The insurance business's profitability improved in the second quarter
Insurance revenue grew by 8%, year on year, in the first six months of 2024. The rapid growth in claims expenditure of early 2024 slowed in the second quarter, but claims expenditure was still 11% higher than in the same period in 2023. At 71%, the non-life insurance risk ratio was 3 percentage points higher than in the previous year. Compensation was paid for 94% of all claims reported to Pohjola Insurance. The profitability of non-life insurance in the second quarter clearly improved on that of the first quarter.
OP Life Assurance's performance in early 2024 was excellent, with 8% growth in unit-linked insurance assets since the year began. Kristiina Michelsson, the new Managing Director of OP Life Assurance, began work in her post at the start of May. This business is one of OP Financial Group's strategic focus areas.
Artificial intelligence will enable better services for our customers and provide our employees with new, productivity-improving tools
We are now investing more in ICT, particularly the development of data protection and cybersecurity. The generative AI transition could transform society even more and faster than the Internet did in its day. OP Financial Group aims to be a pioneer in using AI in its customer business and improving the productivity and quality of various functions. We are also strongly investing in reinforcement of our employees' AI competencies.
In June, we launched OP Aina, a new personal assistant on OP-mobile. OP Aina helps our customers with a range of banking and insurance matters on a 24/7 basis. OP Aina is the first Finnish financial-sector service based on AI and alerts – we are using it to provide our customers with more personalised and easily available services than before.
We have something in common
OP Financial Group is in a strong position to support its customers through economic upturns and downturns. We want to be a pioneer in Finnish society, showing the way towards a better tomorrow. The success of Finland and all those who live there is our number one priority.
My warm thanks to all our customers for the trust you have shown in OP Financial Group. We aim to continue being worthy of the confidence you place in us. I would also like to thank our employees and governing bodies for their excellent work in the first half of 2024. This is a strong position from which to go forward.
Timo Ritakallio
President and Group CEO
January–June
OP Financial Group's operating profit was EUR 1,229 million (986), up by EUR 243 million year on year. Income from customer business, or net interest income, net commissions and fees and insurance service result, increased by a total of 11.4% to EUR 1,844 million (1,656). The cost/income ratio improved to 46.0% (49.9). New OP bonuses accrued to owner-customers, which are included in earnings, increased by 14.8% to EUR 154 million.
Net interest income grew by 17.6% to EUR 1,407 million. The development of market rates continued to increase net interest income. Net interest income reported by the Retail Banking segment increased by 21.8% to EUR 1,092 million and that by the Corporate Banking segment increased by 14.8% to EUR 328 million. OP Financial Group's loan portfolio decreased by 0.8% to EUR 97.7 billion while deposits grew by 2.8% to EUR 75.3 billion, year on year. Household deposits increased by 1.7% year on year, to EUR 47.8 billion. New loans drawn down by customers during the reporting period totalled EUR 10.4 billion (10.9).
Impairment loss on loans and receivables, which reduces earnings, totalled EUR 67 million (99). Final credit losses totalled EUR 25 million (32). At the end of the reporting period, loss allowance was EUR 971 million (929), of which management overlay accounted for EUR 105 million (109). Non-performing exposures accounted for 3.0% (2.9) of total exposures. Impairment loss on loans and receivables accounted for 0.13% (0.19) of the loan and guarantee portfolio.
Net commissions and fees decreased by 11.4% to EUR 400 million. Owner-customers have got daily banking services without monthly charges since October 2023. This contributed to the decrease in payment transfer net commissions and fees. Net commissions and fees for payment transfer services decreased by EUR 42 million to EUR 113 million, and those for residential brokerage by EUR 4 million to EUR 27 million. Net commissions and fees for mutual funds decreased by EUR 3 million to EUR 91 million.
Insurance service result increased by EUR 29 million to EUR 37 million. Insurance service result includes EUR 263 million (237) in operating expenses. Non-life insurance net insurance revenue including reinsurer's share grew by 7.0% to EUR 844 million. Net claims incurred after reinsurer's share grew by 11.0% to EUR 597 million. Combined ratio reported by non-life insurance weakened to 100.4% (97.6).
Investment income, or net investment income, net insurance finance expenses and income from financial assets held for trading, increased by a total of 7.5% to EUR 269 million. Investment income grew as a result of the increase in the value of equity investments. Net investment income together with net finance income describe investment profitability in the insurance business. The combined return on investments at fair value of OP Financial Group's insurance companies was 2.6% (3.4).
Net income from financial assets recognised at fair value through profit or loss, or notes and bonds, shares and derivatives, totalled EUR 1,034 million (762). Net income from investment contract liabilities totalled EUR –523 million (–300). Net insurance finance expenses totalled EUR –272 million (–253).
In banking, net income from financial assets held for trading decreased by 10.5% to EUR 17 million due to the decrease in interest income from notes and bonds.
Other operating income increased to EUR 25 million (21).
Total expenses increased by 2.3% to EUR 1,104 million. Personnel costs rose by 10.5% to EUR 535 million. The increase was affected by headcount growth and pay increases. OP Financial Group's personnel increased by 1,000 year on year. Depreciation/amortisation and impairment loss on PPE and intangible assets decreased by 24.7% to EUR 69 million. Other operating expenses remained at the previous year's level at EUR 501 million. ICT costs totalled EUR 252 million (207). Development costs were EUR 171 million (127) and capitalised development expenditure EUR 31 million (50). Charges of financial authorities fell by EUR 62 million to EUR 1 million. The EU's Single Resolution Board (SRB) will not collect stability contributions from banks for 2024. In 2023, OP Financial Group paid a total of EUR 62 million in stability contributions.
OP bonuses to owner-customers, which were previously shown on a separate line in the income statement, have been divided under the following items based on their accrual: EUR 76 million (71) under interest income, EUR 40 million (32) under interest expenses, and EUR 23 million (19) under commission income from mutual funds. The line 'OP bonuses to owner-customers' is no longer shown in the income statement. Comparative information has been adjusted accordingly. For more detailed information of the change, see Note 1 to this Half-year Financial Report, Accounting policies and changes in accounting policies and presentation.
Income tax amounted to EUR 244 million (196). The effective tax rate for the reporting period was 19.9% (19.9). Comprehensive income after tax totalled EUR 1,031 million (803).
OP Financial Group's equity amounted to EUR 17.0 billion (16.3). Equity included EUR 3.2 billion (3.3) in Profit Shares, terminated Profit Shares accounting for EUR 0.2 billion (0.4).
OP Financial Group's funding position and liquidity is strong. At the end of the reporting period, the Group's LCR was 193% (199) and NSFR was 130% (130).
Outlook towards the year end
The Finnish economy was sluggish in the first half of 2024. GDP contracted over the previous year and unemployment increased. After spring, however, economic confidence has improved. Decelerating inflation and falling interest rates are paving the way for economic recovery. Risks associated with the economic outlook are still higher than usual. The escalation of geopolitical crises may abruptly affect capital markets and the economic environment.
OP Financial Group's operating profit for 2024 is expected to be at a good level but lower than that for 2023.
The most significant uncertainties affecting OP Financial Group's earnings performance are associated with developments in the business environment, changes in the interest rate and investment environment and developments in impairment loss on receivables. Forward-looking statements in this Half-year Financial Report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view on developments in the economy, and actual results may differ materially from those expressed in the forward-looking statements.
Press conference
OP Financial Group's financial performance will be presented to the media by President and Group Chief Executive Officer Timo Ritakallio in a press conference on 24 July 2024 at 11am at Gebhardinaukio 1, Vallila, Helsinki.
Media enquiries: OP Corporate Communications, tel. +358 10 252 8719, viestinta@op.fi
OP Corporate Bank plc and OP Mortgage Bank plc will publish their own Half-year Financial Reports.
Financial reporting 2024
| Interim Report Q1−3/2024 | 31 October 2024 |
| OP Amalgamation Pillar III Tables 30 June 2024 | Week 33 |
| OP Amalgamation Pillar III Tables 30 September 2024 | Week 45 |
Helsinki, 24 July 2024
OP Cooperative
Board of Directors
Additional information:
Timo Ritakallio, President and Group Chief Executive Officer, tel. +358 (0)10 252 4500
Mikko Timonen, Chief Financial Officer, tel. +358 (0)10 252 1325
Lotta Ala-Kulju, Head of Corporate Communications, tel. +358 (0)10 252 8719
DISTRIBUTION
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Major media
op.fi
OP Financial Group is Finland’s largest financial services group, with more than two million owner-customers and over 14,000 employees. We provide a comprehensive range of banking and insurance services for personal and corporate customers. OP Financial Group consists of OP cooperative banks, its central cooperative OP Cooperative, and the latter's subsidiaries and affiliates. Our mission is to promote the sustainable prosperity, security and wellbeing of our owner-customers and operating region. Together with our owner-customers, we have been building Finnish society and a sustainable future for 120 years now. www.op.fi
