Earnings before tax
million euros (-5.4%)
Loan portfolio growth
over the previous year
New OP bonuses accrued to owner-customers
million euros (+5.7%)
This page shows OP Financial Group’s key figures and ratios for 2017 in summary.
Download OP Financial Group's Report by the Executive Board and Financial Statements 2017 here.
Earnings before tax million euros (-5.4%)
Loan portfolio growth over the previous yea
New OP bonuses accrued to owner-customers million euros (+5.7%)
|EBT, € million||1,077||1,138||-5.4|
|New OP bonuses accrued to owner-customers||220||208||5.7|
|31 Dec. 2017||31 Dec. 2016||Change, %|
|CET1 ratio, %||20.1||20.1||0.0*|
|Return on economic capital, % **||21.3||22.7||-1.4*|
|Ratio of capital base to minimum amount of capital base (under the Act on the Supervision of Financial and Insurance Conglomerates), % ***||148||170||-22*|
|Ratio of impairment loss on receivables to loan and guarantee portfolio, %||0.06||0.09||0.0*|
Comparatives deriving from the income statement are based on figures reported for the corresponding period in 2016. Unless otherwise specified, balance sheet and other cross-sectional figures on 31 December 2016 are used as comparatives
* Change in ratio
** 12-month rolling
*** The FiCo ratio has been calculated for insurance companies using transition provisions included in solvency regulation.
The financial sector is facing a major and fast digital transformation. In 2018, regulation will result in ever-increasing competition and open up banks’ customer data to third parties. New competitors from non-financial industries are entering the sector.
With intensifying and globalising competition, customers are demanding from Finnish players as smooth and easy service experience as they are accustomed when using the services provided by the best-of-breed international firms. OP no longer competes with traditional banks and insurance companies; financial services are also being provided by international technology giants and new players in the sector.
As customers are faced with a growing number of options and switching a service provider is easy, they require financially smarter and more proactive service – 24/7. Customers and other stakeholder groups also expect companies to demonstrate more transparency and responsibility by emphasising their own values in making choices.
The financial sector is also challenged by large-scale social changes in the operating environment, which involves, for example, ageing population and transformation in the employment landscape. Transition from ownership to the right of possession is challenging a number of traditional practices in the financial sector.The financial sector has potential in finding new sources of growth in a role of safeguarding prosperity, providing healthcare services and creating new economic activity.
The underlying megatrends and phenomena are intertwined in a diverse way. OP monitors proactively changes in the operating environment and seeks growth opportunities in the transforming financial landscape according to its strategy. We aim to rise to the challenges presented by the operating environment and to seize the opportunities it provides.
OP Financial Group’s strategy is based on utilising the potential provided by the transformation in the operating environment to boldly modernise business and services for the benefit of our owners and customers. Our aim is to gradually change from a financial services group to a diversified services company of a digital era with strong financial services expertise.
We create value for our owners by modernising our existing businesses and by developing brand new customer-focused service packages and new innovative services. We will branch out into businesses that we find natural and where it enhances customer experience while creating significant synergies relative to our existing businesses.
We will innovate and develop services together with our customers and the best partners in the world. We will exploit the latest technologies, customer insight based on extensive research data and close interaction as well as the best development and design expertise in the sector. At the same time, we will in an exemplary manner bear responsibility for the reliability of our basic services and their nationwide availability as well as for the stability of the financing system and the functioning of the insurance system.
Based on our mission, we create sustainable prosperity, security and wellbeing for our owner-customers and in our operating region by means of our strong capital base and efficiency. A People-first Approach, Responsibility, and Prospering Together form the basis of our operations. Based on our customer promise “We exist to serve our customers”, customer interests guide all we do. Our customers own us and can have their say in our decisions and the development of our activities. Moreover, a considerable part of business earnings are returned to our owner-customers.
In our development activities, we specifically focus on areas that create significant, new customer value and benefit for the society around us. We can also flexibly move from a producer to a service integrator if this is how we can reach the targeted benefits for customers faster and more securely.
We provide our customers with the most diversified package of service channels available in the market that involves the most extensive branch network in Finland, flexible telephone services, advanced online and mobile services and an extensive network of external partners. In addition, we are also building completely new digital business models and services for Banking, Non-life Insurance and Wealth Management to respond to greater demand and the threat of new competition.
OP Financial Group annually invests more than 400 million euros in the development of new products and services and in technology modernisation. Currently, roughly 95% of this goes to the further development of the existing businesses, or financial services, and about 5% to new businesses.
The 2017 highlights in financial services modernisation included developing digital services, digitising and automating business processes, making service processes faster and smoother as well as upgrading a number of key technology platforms and basic systems.
As customer behaviour changes at an accelerating pace, financial-sector solutions do not meet customers’ true needs in all respects. This means that the risk of losing customer trust and loyalty is apparent. Transition from a traditional product-focused philosophy to a customer-focused design approach is at the core of OP Financial Group’s strategic renewal, where in-depth customer insight and ongoing operational improvement in close dialogue with customers form the basis for all development work.
The new philosophy at the strategic level is crystallised in customer-focused service packages that the Group has defined to be four thus far: Housing-related Services, Mobility Services, Health and Wellbeing, and Management of Finances. The purpose of the service packages is to help identify new potential growth areas while directing the development of the existing businesses that pleases customers and coordinating development to enable synergies. Among the above service concepts involving areas new to OP, the most advanced are Health and Wellbeing, and Mobility Services.
The greatest achievements made so far during the strategy period include strong financial performance, strongly improved corporate image and customer experience, numerous new and significant initiatives by businesses and the early-stage success of hospital business, strong growth in the use of mobile services and success of back-office centralisation.
Meanwhile, the greatest challenges are associated with the implementation of the efficiency programme schedule, delays in some major basic information projects, development work agility and productivity, as well as competence update required for business transformation.
When reviewing strategy implementation through strategic indicators (see table below), OP Financial Group has lagged behind several key strategic targets but strategic achievements have proved good considering the wide scope of the strategy. The greatest deviations relate to the strategy period targets set for cost development and the number of owner-customers.
|31 Dec. 2017||Target 2019|
|Customer experience, NPS (-100–+100)|
|Service||58||70, over time 90|
|CET1 ratio, %||20.1||22|
|Return on economic capital, % (12-month rolling)||21.3||22|
|Expenses of present-day business (12-month rolling), € million||1,661||Expenses for 2020 at 2015 level (1,500)|
|Owner-customers, million||1.8||2.1 (2019)|
OP Financial Group has recognised that the financial sector now amid transformation and the Group’s own business reinvention will require enormous competence updates promptly in the next few years. In response to this, the Group has started to create an unparalleled proactive Competence update model with a view to preparing for transformation in employment ahead of us. With the operating model, we want to act responsibly based on our values, to enhance the labour market value of an individual employee and to find new, unconventional models for creating job opportunities and updating competencies. The model will particularly be used to support employees whose job will change considerably or be automated. Through personal support, we aim to find training opportunities and new jobs for people either within the Group or outside of the Group.
As a cooperative Group, our operations have a wide effect on various stakeholder groups in Finland, both on a local and nationwide basis. Our operations are guided by our dual role – business role and social role. Our overall success is measured against how we succeed in both roles.
OP Financial Group’s operations are based on cooperative values, a strong capital base and capable risk management. OP Financial Group’s mission and core values as well as strategic and financial targets form the basis for risk management.
Risk management helps to achieve the targets set in the strategy by controlling that risks are proportional to risk capacity. In the long term within moderate risk-taking, the Group seeks above-market-average growth. This requires controlled risk-taking relying on strong risk management.
Risk management is part and parcel of daily business and its management. Risk awareness and a moderate risk-taking approach are reflected in every business decision and form an integral part of corporate culture. OP manages customer relationships on a long-term basis and responsibly from the perspective of risk management.
An example of the role of risk management in Banking is that a borrower’s repayment capacity is a key prerequisite for loan approval. Robust risk management is in the interests of both customers and OP Financial Group.
Risks associated with OP Financial Group’s business segments differ in terms of weight. Credit risks, structural interest rate and funding risks and funding liquidity risks play a major role in Banking. Meanwhile, interest rate and other market risks are highlighted in Non-life Insurance and life insurance market risks in Wealth Management. As services go digital, operational risks and the resulting escalating reputational risks are highlighted in all businesses, including new businesses. With regulation becoming more complex and supervision tightening, compliance risk management is highlighted in all business segments.
The extent of OP Financial Group provides significant risk diversification benefits. Meanwhile, however, the role of various concentration risks will increase.
According to its strategy, OP will invest in creating new types of service packages and business models in the years to come. Before the company launches any products or services or adopts new operating models or systems, it assesses their risks using procedures as laid down by the central cooperative’s Risk Management. OP Financial Group offers only products to customers and applies business models that have been approved at Group level.
The significant business risks affecting OP Financial Group and their most common management tools are detailed in the table below.
|Risk description||Risk management tool|
Risk caused by changes in the competitive environment, slow reaction to changes in the business environment or customer behaviour, poor choice of strategy or poor strategy implementation.
The Group assesses strategic risks as part of the strategy process while identifying related control measures and assessing their effects, for example, on the Group’s overall risk exposure and economic capital requirement. The Group takes account of risks associated with its operating environment by implementing proactive risk management and systematically monitoring its operating and competitive environment. Strategic risk is reduced by regular planning, based on analyses and forecasts of customer future needs, developments in different sectors and market areas, and of competition.
Risk of financial loss or other detrimental consequences caused by inadequate or failed processes, inadequate or flawed procedures or systems or some external factor. Operational risks also include ICT, security, data security, procedural and model risks.
The key area of operational risk management involves identifying and assessing risks and assessing the effectiveness and adequacy of risk control and management tools. Risks that may disrupt business continuity are prepared against by means of business continuity planning in key business divisions.
Risks caused by non-compliance with external regulation, internal policies, appropriate procedures or ethical principles governing customer relationships.
Managing compliance risks forms part of internal control and good corporate governance practices and, as such, an integral part of business management duties and the corporate culture. Compliance risk management tools include monitoring legislative developments, providing the organisation concerned with guidelines, training and consultation in respect of observing practices based on regulation as well as supervising the regulatory compliance with procedures applied within the organisation.
Risk of deterioration of reputation or trust caused by negative publicity or realisation of some other risk.
The Group manages reputational risk proactively and on a long-term basis by complying with
The Group manages reputational risk proactively and on a long-term basis by complying with
Credit risk management in banking is based on active customer relationship management, good knowledge of customers, strong professional skills and comprehensive documentation. The day-to-day credit approval process and its effectiveness play a key role in the management of credit risks. OP Financial Group mitigates credit risks by using collateral, financial covenants, central counterparty clearing, netting agreements and exchange-traded products.
Risk of loss resulting from interest rate, price, volatility and market liquidity changes in the financial market. Market risks consist of structural market risk associated with the balance sheet (market risks associated with the banking book and insurance liabilities) and market risks associated with trading and long-term investment.
Banking interest rate risk is managed by reducing the difference between floating rate receivables and liabilities as well as through limits and control limits. Moreover, derivatives may be used for hedging purposes.
Managing investment risks is based on diversification through effective allocation. Risks are managed through limits (e.g. VaR limits, allocation, credit rating and country risk limits) and investment plans.
Insurance companies manage market risks associated with investment and insurance liabilities by means of various investment instruments and derivative contracts.
VaR limits are used to limit market risks associated with trading.
Liquidity risk comprises funding liquidity risk, structural funding risk and funding concentration risk. Funding liquidity risk refers to the risk that OP Financial Group will not be able to meet its current and future cash flows and collateral needs, both expected and unexpected, without affecting its daily operations or overall financial position.
OP Financial Group manages its liquidity position through the proactive planning of the funding structure, target levels, the monitoring of the liquidity status and a well-balanced liquidity buffer, planning and management of daily liquidity, the business continuity and contingency plan based on emergency preparedness, as well as the effective and ongoing control of the Group’s liquidity status.
|Non-life Insurance risks||
Non-life Insurance risks comprise risk of loss or damage, and provision risk. Risk of loss or damage occurs when there are an above-average number of losses or they are exceptionally large. Provision risk arises when the claims incurred due to already-occurred losses are higher than anticipated on the balance sheet date.
Risk selection and pricing, the acquisition of reinsurance cover, the monitoring of claims expenditure and the analysis of insurance liabilities are highlighted in underwriting risk management.
|Life insurance risks||
Life Insurance risks comprise biometric risks, cost risk and customer behaviour risks.
Life Insurance underwriting risk management tools include prudent premium rating, careful selection of exposure and reinsurance. Diversifying insurance between different insurance types also reduces risks. Life Insurance reinsures, when necessary, any major individual risks and risk concentrations.
Risks that may arise of a business’s excessive concentration on individual customers, products, lines of business, maturity periods or geographical areas.
The management of concentration risks is closely integrated with other risk management, with the related tools including limits, maximum allocations, diversification and economic capital requirement.
OP Financial Group’s risk management is based on three lines of defence. The first line consists of risk management integrated into business and other operations. It controls risk decisions and monitors risk exposure. Customer knowledge acquired through active customer relationship management ensures that risk-taking is moderate and guarantees the prerequisites for successful risk management.
The second line of defence consists of risk management independent of operational business organisations. In charge of general risks management conditions within OP Financial Group, it controls, supports and supervises the implementation of the risk management principles, confirmed by the Supervisory Board, at OP Financial Group and its entities.
The third line of defence involves centralised Internal Audit, which audits and assesses risk management performed by both the central cooperative and member entities.