OP Mortgage Bank: Interim Report 1 January–31 March 2024
OP Mortgage BankInterim Report 1 January–31 March 2024Stock
Exchange Release 8 May 2024 at 10.00 EET
OP Mortgage Bank: Interim Report 1 January–31 March
2024
OP Mortgage Bank (OP MB) is the covered bond issuing entity of
OP Financial Group. Together with OP Corporate Bank plc, its role
is to raise funding for OP Financial Group from money and capital
markets. OP MB is responsible for the Group’s funding for the part
covered bond issuance.
Financial standing
The intermediary loans and loan portfolio of OP MB totalled EUR
16,869 million (16,988) * on 31 March 2024. Bonds issued by OP MB
totalled EUR 14,915 million (14,915) at the end of March 2024.
OP MB's covered bonds after 8 July 2022 are issued under the
Euro Medium Term Covered Bond (Premium) programme (EMTCB), pursuant
to the Finnish Act on Mortgage Credit Banks and Covered Bonds
(151/2022). The collateral is added to the EMTCB cover pool
from the member cooperative banks' balance sheets via the
intermediary loan process on the issue date of a new covered
bond.
In January, OP MB issued a covered bond in the international
capital market. The fixed rate covered bond worth EUR 1 billion has
a maturity of seven years and six months. All proceeds of the bond
were intermediated to 63 OP cooperative banks in the form of
intermediary loans.
The terms of issue are available on the op.fi website, under
Debt investors:
www.op.fi/op-ryhma/velkasijoittajat/issuers/op-mortgage-bank/emtcb-debt-programme-documentation.
On 31 March 2024, 101 OP cooperative banks had a total of EUR
14,800 million (14,800) in intermediary loans from OP MB.
Impairment loss on receivables related to loans in OP MB’s
balance sheet totalled EUR 0.0 million (0.0). Loss allowance was
EUR 2.6 million (2.6).
Operating profit was EUR 2.3 million (3.1). The company’s
financial standing remained stable throughout the reporting
period.
* The comparatives for 2023 are given in brackets. For income
statement and other aggregated figures, January–March 2023 figures
serve as comparatives. For balance-sheet and other cross-sectional
figures, figures at the end of the previous financial year (31
December 2023) serve as comparatives.
Collateralisation of bonds issued to the
public
On 31 March 2024, loans as collateral in security of the covered
bonds EUR 5,250 million issued under the EMTCB programme worth EUR
25 billion established on 11 October 2022, in accordance with the
Act on Mortgage Credit Banks and Covered Bonds (151/2022), totalled
EUR 5,783 million. Loans as collateral in security of the covered
bonds, totalling EUR 9,665 million, issued under the Euro Medium
Term Covered Note programme worth EUR 20 billion established on 12
November 2010, in accordance with the Laki
kiinnitysluottopankkitoiminnasta 688/2010 Act, totalled EUR 12,338
million on 31 March 2024.
Capital adequacy
OP MB’s Common Equity Tier 1 (CET1) ratio stood at 43.9% (41.8)
on 31 March 2024. The ratio was improved by the decrease in
mortgages on OP MB's balance sheet and the resulting reduction in
capital requirement for credit risk. 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% (or 10.5% with the increased capital conservation buffer).
Because OP MB covers capital requirements in their entirety with
CET1 capital, the CET1 capital requirement is 10.5%. Estimated
profit distribution has been subtracted from earnings for the
reporting period.
OP MB uses the Standardised Approach (SA) to measure its capital
adequacy requirement for credit risk. The Standardised Approach is
also used to measure the capital requirement for operational
risks.
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.
Own funds and capital adequacy, TEUR |
31 Mar 2024 |
31 Dec 2023 |
Equity capital |
374,030 |
372,160 |
Excess funding of pension liability |
-13 |
-13 |
Share of unaudited profits |
|
-7,490 |
Planned profit distribution and unpaid profit distribution for
previous financial year |
-9,360 |
|
Insufficient coverage for non-performing exposures |
-3,578 |
-2,856 |
CET1 capital |
361,078 |
361,800 |
Tier 1 capital (T1) |
361,078 |
361,800 |
Total own funds |
361,078 |
361,800 |
Total risk exposure amount |
|
|
Credit and counterparty risk |
770,452 |
812,205 |
Operational risk |
26,636 |
25,140 |
Other risks* |
24,800 |
27,336 |
Total |
821,888 |
864,682 |
Ratios, % |
|
|
CET1 ratio |
43.9 |
41.8 |
Tier 1 capital ratio |
43.9 |
41.8 |
Capital adequacy ratio |
43.9 |
41.8 |
Capital requirement |
|
|
Own funds |
361,078 |
361,800 |
Capital requirement |
86,334 |
90,829 |
Buffer for capital requirements |
274,744 |
270,971 |
* Risks not otherwise covered.
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 March 2024, OP Cooperative’s member
credit institutions comprised 102 OP cooperative banks, 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, and 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 the amount necessary to preventing
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 a support measure or to a creditor of such a member bank in
payment of an overdue amount which the creditor has not received
from the member bank. Furthermore, if the central cooperative
defaults, 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 said Act. For
mortgage-backed loans included in the total amount of collateral of
covered bonds, the priority of the covered bond holders’ payment
right 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 from 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 said priority.
Section 44, subsection 3 of the said Act includes provisions on the
creditor’s priority related to marginal lending facility of the
cover pool.
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
sustainability 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 corporate
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. It
is also 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. Furthermore, 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).
OP Financial Group reports annually on sustainability issues in
accordance with the GRI standards and, from the 2024 report
onwards, in accordance with the European Sustainability Reporting
Standards (ESRS) under the Corporate Sustainability Reporting
Directive (CSRD). Non-financial and taxonomy reporting for 2023 has
been published in OP Financial Group's Report by the Board of
Directors for 2023.
OP Financial Group has drawn up a biodiversity road map that
includes measures to promote biodiversity at OP Financial Group.
The aim is to create a nature positive handprint by 2030. ‘Nature
positive’ means that OP Financial Group’s operations will have a
net positive impact (NPI) on nature.
OP Financial Group has also drawn up a Human Rights Statement
and Human Rights Policy. OP Financial Group respects all recognised
human rights, and the Human Rights Statement includes the
requirements and expectations that OP Financial Group has set for
itself and actors in its value chains. OP Financial Group is
committed to remediation actions if it causes adverse human rights
impacts.
In March 2024, OP MB published a Green Covered Bond Report on
the allocation and impacts of Finland’s first green covered bonds
issued in March 2021 and April 2022. Under OP MB’s Green Covered
Bond Framework, the proceeds from the bonds have been allocated to
mortgages with energy-efficient residential buildings as
collateral.
The environmental impacts allocated to the green covered bonds
in 2023 were 59,000 MWh of energy use avoided per year and 8,800
tonnes of CO2-equivalent emissions avoided per year.
Personnel
On 31 March 2024, 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.
Management
The Board composition is as follows:
Chair |
Mikko Timonen |
Chief Financial Officer, OP Cooperative |
Members |
Satu Nurmi |
Head of Personal Finance and Real Estate Services, OP Retail
Customers plc |
|
Mari Heikkilä |
Head of Group Treasury & ALM, OP Corporate Bank plc |
OP MB’s Managing Director is Sanna Eriksson. The deputy Managing
Director is Tuomas Ruotsalainen, Senior Covered Bonds Manager at OP
MB.
Risk profile
OP MB has a strong capital base, capital buffers and
risk-bearing capacity. 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 Banking
Risk Policy. The key credit risk indicators in use show that OP
MB’s credit risk exposure is stable. The liquidity buffer for OP
Financial Group is managed by OP Corporate Bank and therefore
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 onto the same basis rate. OP MB has concluded all
derivative contracts for hedging purposes, applying fair value
hedges which have OP Corporate Bank plc as their counterparty. OP
MB’s interest risk exposure is under control, and has been within
the set limit.
An analysis of OP MB's risk exposure should always take account
of OP Financial Group's risk exposure, which is based on the joint
and several liability of all its member credit institutions. The
member credit institutions are jointly liable for each other's
debts. All member banks must participate in support measures, as
referred to in the Act on the Amalgamation of Deposit Banks, to
support each other's capital adequacy.
OP Financial Group analyses the business environment as part of
the ongoing risk assessment activities and strategy process.
Megatrends and worldviews behind OP Financial Group's strategy
reflect driving forces that affect the daily activities, conditions
and future of the Group and its customers. Factors currently
shaping the business environment include climate, biodiversity
loss, scientific and technological innovations, polarisation,
demography and geopolitics. External business environment factors
are considered thoroughly, so that their effects on customers’
future success are understood. OP Financial Group provides advice
and makes business decisions that promote the sustainable financial
success, security and wellbeing of its owner-customers and
operating region while managing the Group's risk profile on a
longer-term basis. Advice for customers, risk-based service sizing,
contract lifecycle management, decision-making, management and
reporting are based on correct and comprehensive information.
Outlook for 2024
The economy is expected to decline in early 2024 but
decelerating inflation and falling interest rates will pave the way
for economic recovery towards the year end. An exceptional degree
of uncertainty is still associated with the business environment.
Developments in capital markets together with increased
geopolitical crises and tensions may abruptly affect the business
environment.
OP MB’s capital adequacy is expected to remain strong, risk
exposure favourable and the overall quality of the loan portfolio
good. This will enable the issuance of new covered bonds in
2024.
Schedule for Interim Reports in 2024
Half-year Financial Report 1 January–30 June 2024 |
24 July 2024 |
Interim Report 1 January–30 September 2024 |
31 October 2024 |
Helsinki, 8 May 2024
OP Mortgage BankBoard of
Directors
For more information, please contact:Sanna
Eriksson, Managing Director, tel. +358 10 252 2517
DISTRIBUTIONLSE London Stock ExchangeEuronext Dublin (Irish
Stock Exchange)Officially Appointed Mechanism (OAM)Major
mediaop.fi
- OP Mortgage Bank Interim Report Q1 2024