OP Mortgage Bank: Financial Statements Bulletin for 1 January‒31 December 2024

OP Mortgage Bank
Financial Statements Bulletin
Stock Exchange Release 6 February 2025 at 10.00 EET

OP Mortgage Bank: Financial Statements Bulletin for 1 January‒31 December 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.

Financial standing

The intermediary loans and loan portfolio of OP MB totalled EUR 14,800 million (16,988)* on 31 December 2024. Bonds issued by OP MB totalled EUR 14,800 million (14,915) at the end of December.

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 its first covered bond of the year 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.

In March, a fixed-rate covered bond worth EUR 1 billion issued by OP MB in March 2017 matured. At the same time, OP cooperative banks’ intermediary loans worth EUR 1 billion related to the bond in question matured.

In October, OP MB issued its second covered bond of the year in the international capital market. The fixed-rate covered bond worth EUR 1 billion has a maturity of five years. All proceeds of the bond were intermediated to 48 OP cooperative banks in the form of intermediary loans.

The terms of issue are available on the op.fi website, under Debt investors: https://www.op.fi/en/op-financial-group/debt-investors/issuers/op-mortgage-bank/emtcb-debt-programme-documentation

In November, OP MB sold a loan portfolio with a nominal value of EUR 1,825 million back to 85 OP cooperative banks. A capital loss of EUR 7.9 million was recognised on the sale in other operating expenses, and at the same time, income of EUR 5.0 million was recognised in net interest income consisting of income of EUR 7.7 million from the unwinding of hedge accounting items and an expense of EUR 2.7 million from the unwinding of loan EIR amortisations. In addition, EUR 4.5 million was recognised as expected credit loss on the sold loans. Net effect on operating profit was EUR 1.7 million. Previously, OP MB has purchased loans from OP cooperative banks as collateral for the bonds. Currently, OP MB operates on an intermediary loan model in which loans are tagged as collateral for bonds directly in OP cooperative banks’ balance sheets.

Also, a fixed-rate registered bond (Namensschuldverschreibung) worth EUR 115 million issued by OP MB in November 2012 matured in November. Additionally, a fixed-rate covered bond worth EUR 1 billion issued by OP MB in November 2014 matured in November together with OP cooperative banks’ intermediary loans related to the bond worth EUR 1 billion.

At the end of December, 92 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 2.5 million (-0.3). Loss allowance was EUR 0.0 million (2.6) following the sale of the loan portfolio.

Operating profit was EUR 4.4 million (9.3). 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–December 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

The European covered bonds (premium) 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 6,250 million. The cover pool included a total of EUR 6,882 million in loans serving as collateral on 31 December 2024. Overcollateralisation exceeded the minimum requirement under the Act (151/2022).

The covered bonds issued under the Euro Medium Term Covered Note programme worth EUR 20 billion established on 12 November 2010, in accordance with the Act on Mortgage Credit Banks (Laki kiinnitysluottopankkitoiminnasta, 688/2010), totalled EUR 8,550 million. The cover pool included a total of EUR 9,451 million in loans serving as collateral on 31 December 2024. Overcollateralisation exceeded the minimum requirement under the Act (688/2010).

Capital adequacy

OP MB’s Common Equity Tier 1 (CET1) ratio stood at 797.0% (41.8) on 31 December 2024. The ratio was improved by the sale of the loan portfolio back to OP cooperative banks 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). OP MB fully covers its capital requirements with CET1 capital, which in practice means that it has a CET1 capital requirement of 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 European Central Bank. 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 3 disclosures.

Own funds and capital adequacy

Total risk exposure amount

* Risks not otherwise covered.

Ratios

Capital requirement

Liabilities under the Resolution Act

Under regulation applied to the 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. According to the resolution strategy, OP Mortgage Bank would continue its operations as the new OP Corporate Bank’s subsidiary.

The SRB has set a Minimum Requirement for Own Funds and Eligible Liabilities (MREL) for OP MB. From May 2024, the MREL is 16% of the total risk exposure amount and 18.5% of the total risk exposure amount including a combined buffer requirement, and 6% of leverage ratio exposures. The requirement entered into force on 15 May 2024. The requirement includes a Combined Buffer Requirement (CBR) of 2.5%.

OP MB’s buffer for the MREL requirement was EUR 356 million. The buffer consists of own funds only. OP MB clearly exceeds the MREL requirement. OP MB’s MREL ratio was 797% of the total risk exposure amount.

Joint and several liability of amalgamation

Under the Act on the Amalgamation of Deposit Banks (599/2010), 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 2024, OP Cooperative’s member credit institutions comprised 93 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), which was valid at that time, 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, 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 issued prior to 8 July 2022 and 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), which entered into force on 8 July 2022, the creditors of bonds 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. A similar priority also applies to creditors of derivative contracts related to covered bonds, including the related management and clearing costs. Interest and yield accruing on the collateral, and any substitute assets, fall within the scope of said priority. Section 44, subsection 3 of the Act on Mortgage Credit Banks and Covered Bonds includes provisions on the creditor’s priority claim regarding cover pool liquidity support. According to said subsection, the creditor has the right to receive payment against the funds contained in the cover pool after claims based on the principal and interest of covered bonds secured by the cover assets included in the cover pool, obligations based on derivatives contracts associated with covered bonds, as well as administration and liquidation costs.

Sustainability and corporate responsibility

As of the reporting year 2024, OP Financial Group reports on its sustainability and corporate responsibility in accordance with the European Sustainability Reporting Standards (ESRS) under the EU’s Corporate Sustainability Reporting Directive (CSRD). OP Financial Group’s Report by the Board of Directors and Financial Statements 2024, including CSRD reporting, will be published in March 2025.

Responsible business is one of OP Financial Group’s strategic priorities. OP Financial Group’s sustainability programme guides the Group’s actions and is built around three themes: Climate and the environment, People and communities, Corporate governance. Read more about the sustainability programme at www.op.fi/en/op-financial-group/corporate-social-responsibility/corporate-social-responsibility-programme

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. The 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 a Founding Signatory of the Principles for Responsible Banking under the United Nations Environment Programme Finance Initiative (UNEP FI). Furthermore, OP Financial Group is committed to complying with the UN Principles for Responsible Investment and the UN Principles for Sustainable Insurance.

OP Financial Group’s biodiversity roadmap includes measures to promote biodiversity. OP Financial Group aims to grow its 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 drawn up a Human Rights Statement and Human Rights Policy. The Group respects all recognised human rights. 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 perform remediation actions if its operations have 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

At the end of the reporting period, OP MB had six employees. OP MB has been digitising its operations and purchases all key support services from OP Cooperative and its subsidiaries, reducing the need for its own personnel.

 Governing body members

The Board composition is as follows:

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 most significant risks are related to the quality of collateral and to 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. 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.

The liquidity buffer for OP Financial Group is centrally managed by OP Corporate Bank and therefore exploitable by OP MB. At the end of the reporting period, OP Financial Group’s Liquidity Coverage Ratio (LCR) was 193% and the Net Stable Funding Ratio (NSFR) was 129%. OP MB monitors its cash flows on a daily basis to secure funding liquidity and its structural funding risk on a regular basis as part of the company’s internal capital adequacy assessment process (ICAAP).

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 its 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

Finland’s economy contracted in 2024. However, the economy began to recover as the year progressed and preliminary figures suggest that GDP grew in the second half compared to the same period in 2023. Slower inflation and lower interest rates provide a basis for the recovery to continue. Risks associated with the economic outlook are still higher than usual. The escalation of geopolitical crises or a rise in trade barriers may affect capital markets and the economic environment.

OP MB’s capital adequacy is expected to remain strong and its risk exposure favourable. This enables the issuance of covered bonds in the future.

Schedule for financial reports for 2024

Schedule for Interim Reports and Half-Year Financial Report in 2025

Helsinki, 6 February 2025

OP Mortgage Bank

Board of Directors

Additional information:

Sanna Eriksson, Managing Director, tel. +358 10 252 2517

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www.op.fi