OP Mortgage Bank: Financial Statements Bulletin for 1 January–31 December 2022
OP Mortgage Bank
Financial Statements Bulletin
Stock Exchange Release 8 February 2023 at 10.00 EET
OP Mortgage Bank: Financial Statements Bulletin for 1 January–31 December 2022
OP Mortgage Bank (OP MB) is part of OP Financial Group. Together with OP Corporate Bank plc, its role is to raise funding for OP from money and capital markets. OP MB is responsible for the Group’s funding with regard to covered bond issuance.
The intermediary loans and loan portfolio of OP MB totalled EUR 19,620 million (18,275)* on 31 December 2022. Bonds issued by OP MB totalled EUR 18,165 million (16,415) at the end of December 2022.
In April, OP MB issued a green covered bond in the international capital market. The fixed-rate one-billion-euro covered bond has a maturity of five and a half years. All proceeds of the bonds were intermediated to 98 OP cooperative banks in the form of intermediary loans.
In June, OP MB issued a one-billion-euro retained covered bond with a maturity of one year and three months, which was implemented as OP Financial Group’s internal issue.
In November, a new extension of an intermediary loan model was performed on a bond issued in November 2020 that will mature in 2030. As part of this extension, OP MB provided one OP cooperative bank with an intermediary loan totalling EUR 2 million.
In November, OP MB issued the first covered bond under the new Act on Mortgage Credit Banks and Covered Bonds (Laki kiinnitysluottopankeista ja katetuista joukkolainoista 151/2022) in the international capital market. The bond forms part of the Euro Medium Term Covered Bond (Premium) Programme. The fixed-rate covered bond is worth EUR 1.25 billion and has a maturity of three years and seven months. All proceeds of the bond were intermediated to 77 OP cooperative banks in the form of intermediary loans.
On 31 December 2022, 106 OP cooperative banks had a total of EUR 16,833 million (14,691) in intermediary loans from OP MB.
Earnings before tax totalled EUR 8.3 million (6.7). The company’s financial standing remained stable throughout the reporting period.
Impairment loss on receivables related to loans in OP MB’s balance sheet totalled EUR 0.5 million (–0.5). Loss allowance was EUR 2.4 million (3.1).
* The comparatives for 2021 are given in brackets. For income statement and other aggregated figures, the figures for January–December 2021 serve as comparatives. For balance-sheet and other cross-sectional figures, figures at the end of the previous financial year (31 December 2021) serve as comparatives.
Collateralisation of bonds issued to the public
On 31 December 2022, loans as collateral in security of the covered bonds issued under the Euro Medium Term Covered Bond (Premium) Programme worth EUR 25 billion established on 11 October 2022 under the Act on Mortgage Credit Banks and Covered Bonds (Laki kiinnitysluottopankeista ja katetuista joukkolainoista 151/2022) totalled EUR 1,379 million.
On 31 December 2022, loans as collateral in security of the covered bonds issued under the Euro Medium Term Covered Note programme worth EUR 20 billion established on 12 November 2010 under the Act on Mortgage Credit Banks (Laki kiinnitysluottopankkitoiminnasta 688/2010) totalled EUR 16,185 million. On the same date, loans as collateral in security of the covered bonds issued under the Euro Medium Term Retained Covered Note programme worth EUR 10 billion established on 15 June 2020 totalled EUR 3,484 million.
OP MB’s Common Equity Tier 1 (CET1) ratio stood at 32.5% (92.9) on 31 December 2022. The ratio was weakened by the adoption of the risk-weighted assets floor based on the Standardised Approach in OP Financial Group according to the decision made on 1 March 2022. The minimum CET1 capital requirement is 4.5% and the requirement for the capital conservation buffer is 2.5%. The minimum total capital requirement is 8% and 10.5% with increased capital conservation buffer. OP MB covers the capital requirements in their entirety with CET1 capital, so the CET1 capital requirement is 10.5%. Earnings for the reporting period were not included in CET1 capital.
OP MB uses the Internal Ratings Based Approach (IRBA) to measure its capital adequacy requirement for credit risk. 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 MB’s capital adequacy or risk exposure. According to OP Financial Group’s assessment, the transfer will take place during the first quarter of 2023. OP MB uses the Standardised Approach to measure its capital requirement for operational risks. The capital adequacy requirement is increased by the RWA floor based on the Standardised Approach.
OP MB belongs to OP Financial Group. As part of the Group, OP MB is supervised by the ECB. OP Financial Group presents capital adequacy information in its financial statements bulletins and interim and half-year financial reports in accordance with the Act on the Amalgamation of Deposit Banks. OP Financial Group also publishes Pillar III disclosures.
Capital base and capital adequacy, TEUR
31 Dec 2022
31 Dec 2021
Excess funding of pension liability
Share of unaudited profits
Impairment loss – shortfall of expected losses
Common Equity Tier 1 (CET1)
Tier 1 capital (T1)
Total capital base
Total risk exposure amount
Credit and counterparty risk
Other risks *
Key ratios, %
CET1 capital ratio
Tier 1 capital ratio
Capital adequacy ratio
Buffer for capital requirements
*Floor of risk-weighted assets based on the Standardised Approach.
Joint and several liability of amalgamation
Under the Act on the Amalgamation of Deposit Banks, the amalgamation of cooperative banks comprises the organisation’s central cooperative (OP Cooperative), the central cooperative's member credit institutions and the companies belonging to their consolidation groups as well as credit and financial institutions and service companies in which the above together hold more than half of the total votes. This amalgamation is supervised on a consolidated basis. On 31 December 2022, OP Cooperative’s member credit institutions comprised 108 cooperative banks as well as OP Corporate Bank plc, OP Mortgage Bank and OP Retail Customers plc.
The central cooperative is responsible for issuing instructions to its member credit institutions concerning their internal control and risk management, their procedures for securing liquidity and capital adequacy as well as for compliance with harmonised accounting policies in the preparation of the amalgamation’s consolidated financial statements.
As a support measure referred to in the Act on the Amalgamation of Deposit Banks, the central cooperative is liable to pay any of its member credit institutions an amount that is necessary to prevent the credit institution from being placed in liquidation. The central cooperative is also liable for the debts of a member credit institution which cannot be paid using the member credit institution's assets.
Each member bank is liable to pay a proportion of the amount which the central cooperative has paid to either another member bank as part of support action or to a creditor of such member bank in payment of an amount overdue which the creditor has not received from the member bank. Furthermore, in the case of the central cooperative’s default, a member bank has unlimited refinancing liability for the central cooperative’s debts as referred to in the Co-operatives Act.
Each member bank’s liability for the amount the central cooperative has paid to the creditor on behalf of a member bank is divided between the member banks in proportion to their last adopted balance sheets. OP Financial Group’s insurance companies do not fall within the scope of joint and several liability.
According to section 25 of the Act on Mortgage Credit Banks (688/2010), the creditors of covered bonds issued prior to 8 July 2022 have the right to receive payment, before other claims, for the entire term of the bond, in accordance with the terms and conditions of the bond, out of the funds entered as collateral for the bond, without this being prevented by OP MB’s liquidation or bankruptcy. A similar and equal priority also applies to derivative contracts entered in the register of bonds, and to marginal lending facilities referred to in section 26, subsection 4 of the said Act. For mortgage-backed loans included in the total amount of collateral of covered bonds, the priority of payment right of the covered bond holders is limited to the amount of loan that, with respect to home loans, corresponds to 70% of the value of shares or property serving as security for the loan and entered in the bond register at the time of the issuer’s liquidation or bankruptcy declaration.
Under section 20 of the Act on Mortgage Credit Banks and Covered Bonds (151/2022), the creditors of bonds and derivative contracts issued after 8 July 2022, including the related management and clearing costs, have the right to receive payment out of the collateral included in the cover pool, before other creditors of OP MB or the OP cooperative bank which is the debtor of an intermediary loan. Interest and yield accruing on the collateral, and any substitute assets fall within the scope of the said priority. Section 44, subsection 3 of the said Act contains provisions on the creditor’s priority related to marginal lending facility of the cover pool.
Corporate responsibility is an integral part of OP Financial Group’s business and strategy and responsible business is one of OP Financial Group’s strategic priorities. OP Financial 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.
At OP Financial Group, sustainability and responsibility are guided by a number of principles and policies. OP Financial Group is committed to complying not only with all applicable laws and regulations, but also with a number of international initiatives and standards guiding our operations. 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 Financial Group is committed to complying with the UN Principles for Responsible Investment and is a Founding Signatory of the Principles for Responsible Banking under the United Nations Environment Programme Finance Initiative (UNEP FI).
In 2022, OP MB continued to issue green covered bonds as part of the responsible offering of OP Financial Group, and reported the impacts of the green bond issued earlier. In March 2022, OP MB published a Green Covered Bond Report on Finland’s first green covered bond issued in March 2021. According to OP MB’s Green Covered Bond Framework, funds raised through the bond have been allocated to mortgages with energy-efficient residential buildings as collateral. In 2021, the environmental impacts allocated to the green covered bond include annual avoided energy use of 26,000 MWh and annual avoided CO2-equivalent emissions of 4,100 tonnes.
In April 2022, OP MB issued a one-billion-euro green covered bond with a maturity of 5,5 years. According to OP MB’s Green Covered Bond Framework, funds raised through the bond have been allocated to mortgages recognised as energy efficient by OP Financial Group. The sector to be financed is energy-efficient residential buildings (green buildings).
On 31 December 2022, OP MB had six employees. OP MB has been digitising its operations and purchases all the most important support services from OP Cooperative and its Group members, reducing the need for its own personnel.
The Board composition is as follows:
Chief Financial Officer, OP Cooperative
Head of Retail Customer Financing and Housing-related Services, OP Retail Customers plc
Head of Group Treasury and Asset and Liability Management, OP Corporate Bank plc
The Board was chaired by Vesa Aho until 28 February 2022 and Mikko Timonen has chaired the Board since 1 March 2022.
Lauri Iloniemi was a Board member until 8 May 2022 and Mari Heikkilä has been a Board member since 23 May 2022.
Kaisu Christie was a Board member until 23 May 2022 and Satu Nurmi has been a Board member since 23 May 2022.
OP MB’s Managing Director is Sanna Eriksson. The deputy Managing Director is Tuomas Ruotsalainen, Senior Covered Bonds Manager at OP MB.
A new Act on Mortgage Credit Banks and Covered Bonds (Laki kiinnitysluottopankeista ja katetuista joukkolainoista 151/2022) entered into force on 8 July 2022. The new law implemented a directive concerning covered bonds and it revoked the Act on Mortgage Credit Banks (Laki kiinnitysluottopankkitoiminnasta 688/2010). On 30 June 2022, the Finnish Financial Supervisory Authority granted OP MB a licence to engage in mortgage credit bank operations in accordance with section 8 of the Act on Mortgage Credit Banks and Covered Bonds (Laki kiinnitysluottopankeista ja katetuista joukkolainoista 151/2022). OP MB has updated its prospectus concerning bonds to be in line with the new law. This mainly involved changes pertaining to legislative methods and in terminology, in addition to which the size of the programme was increased to EUR 25 billion. The name of the updated programme is “Euro Medium Term Covered Bond (Premium) Programme”. A new cover pool was established for issues to be made under the updated prospectus and the new law. The amended law has no effect on bonds issued before 8 July 2022, to which the former Act on Mortgage Credit Banks (Laki kiinnitysluottopankkitoiminnasta 688/2010) is applied, including the prospectuses and terms and conditions effective during the issue.
When entering 2022, OP MB had a strong capital base, capital buffers and risk-bearing capacity.
The Covid-19 pandemic, the Russian invasion of Ukraine and the rise in raw material and consumer prices and interest rates are creating a situation whose combined effects are very difficult to predict. The risk factors may affect lending, liquidity maintenance and business processes. OP MB’s capital base is sufficient to secure business continuity.
OP MB’s most significant risks are related to the quality of collateral and to the structural liquidity and interest rate risks on the balance sheet for which limits have been set in the Risk Policy of Banking. The key credit risk indicators in use show that OP MB’s credit risk exposure is stable. The liquidity buffer for OP Financial Group, managed by OP Corporate Bank, is exploitable by OP MB. OP MB has used interest rate swaps to hedge against its interest rate risk. Interest rate swaps have been used to swap home loan interest, intermediary loan interest and interest on issued bonds into the same basis rate. OP MB has concluded all derivative contracts for hedging purposes, with OP Corporate Bank plc being their counterparty. OP MB’s interest risk exposure is under control, and it has been within the set limit.
OP Financial Group analyses the business environment as part of the continuous 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 shaping the business environment include sustainable development and responsibility (ESG), demographic change in the population, geopolitical factors 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. By means of advice and business decisions, OP Financial Group encourages its customers in bolstering their sustainable and successful business of the future. At the same time, OP Financial Group ensures that its operations are profitable and in compliance with its values in the long term.
Outlook for 2023
Economic growth slowed down in the course of 2022 and economic surveys suggest that economic development is still likely to deteriorate. Last year, business profitability remained good and the employment situation was strong. High inflation eroded the purchasing power among households, and higher interest rates and greater uncertainty cut down on home sales.
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.
It is expected that OP MB’s capital adequacy will remain strong, risk exposure favourable and the overall quality of the loan portfolio good. This will make it possible to issue new covered bonds in 2023 as well.
Time of publication of 2022 reports
Report by the Board of Directors and Financial Statements 2022
Corporate Governance Statement 2022
Schedule for Interim Reports and Half-year Financial Report in 2023
Interim Report 1 January–31 March 2023
3 May 2023
Half-year Financial Report 1 January–30 June 2023
25 July 2023
Interim Report 1 January–30 September 2023
25 October 2023
Helsinki, 8 February 2023
OP Mortgage Bank
Board of Directors
For more information, please contact:
Sanna Eriksson, Managing Director, tel. +358 10 252 2517
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