How is the financial crisis affecting OP-Pohjola Group? Finnish Cooperative Movement Conference: The...
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How is the financial crisis affecting OP-Pohjola Group?
Finnish Cooperative Movement Conference: The Competitiveness of Cooperatives in Changing Business
Environment
24 September 2009
Heikki Vitie
Owner-members
Structure of the OP-Pohjola Group
221 member cooperative banks
OP-POHJOLA GROUP CENTRAL COOPERATIVE
Helsinki OP BankPlc
OP Fund ManagementCompany Ltd
OP Life AssuranceCompany Ltd
Other subsidiaries
POHJOLA BANK PLC
Investment Services Non-life Insurance
Banking Services
Non-Group shareholders
SUBSIDIARIES
Business volumes in Finland
68 72 76 81 83 95 107 10820 22 24 27 29 30 28 2816 22 31
45 6166 41 46
8292
101114
127141 158 160
0
50
100
150
200
250
300
350
2002 2003 2004 2005 2006 2007 2008 6/2009
€ Bn.
Deposits Life insurance savings Mutual fund savings Loans
The OP-Pohjola Group’s core values
People-first approach
Responsibility
Prospering together
We operate locally, regionally and nationally as an exemplary and ethically responsible company. Bolstered by our strong professional skills, we bear responsibility for the high quality and reliability of our services.
Prospering together with our customers both points the way to the development of our operations and services. Operating as a unified group gives our customers greater security and improves our service capabilities.
OP-Pohjola Group is for people. A genuine concern for customers and co-workers is the starting point of our operations.
Cooperativebasis
Close tocustomers
Best loyal customerbenefits
Finnishorigin
Total financialservices offering
OP-Pohjola Group’scompetitive advantages
Effects of the Financial Crisis on the Banking and Insurance
Sector1st phase: Shock (August 2007–2008)
• Materialisation of market risk: stock market crash
• Lack of confidence reflected in strong growth in risk premiums (funding price)
• Insurance companies record plummeting investment income, decreasing solvency and more expensive reinsurance
2nd phase: Economic recession (2009–10)
• Materialisation of interest-rate risk: monetary policy easing, governments are launching large-scale support measures to revive the economy and banks are facing narrowing interest margins
• Banks are providing for loan losses
• Transient improvement in insurance profitability as a result of a reduction in the incidence of loss
3rd phase: Economic recovery (from 2010)
• Materialisation of credit risk: growing unemployment, increasing bankruptcies, and loan losses materialise with a lagging effect
• Weaker insurance profitability due to falling premiums written
OMX Helsinki CAP
2 000
3 000
4 000
5 000
6 000
7 000
2005 2006 2007 2008 2009
Ind.
Source: Reuters Ecowin
OMX Helsinki CAP
2 000
3 000
4 000
5 000
6 000
7 000
2005 2006 2007 2008 2009
Ind.
Source: Reuters Ecowin
Spread between secured and unsecured interest rates 2007- 2009
0,00,20,40,60,81,01,21,41,61,82,02,22,4
1/07 4/07 7/07 10/07 1/08 4/08 7/08 10/08 1/09 4/09 7/09
%
Source: Reuters EcoWin
euribor-eurepo (3 m)
euribor-eurepo (12 m)
Euribor rates
0,0
1,0
2,0
3,0
4,0
5,0
6,0
99 00 01 02 03 04 05 06 07 08 09
%
Source: Reuters EcoWin
3-month euribor
12-month euribor
Unemployment rate12-month moving average
0
2
4
6
8
10
12
14
16
18
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09f 10f
%
Source: Statistics Finland
Stability through Operating on a Cooperative Basis
• The strong capital base of cooperative banks serves as a strong buffer against the financial crisis.
• Long-term view does not require doing business with the minimum possible level of capital, but maintaining higher capital adequacy is acceptable.
• Drastic economic downturns affect bank's earnings performance and capital adequacy.
• During the crisis, OP-Pohjola Group's capital base has remained strong and earnings power at least satisfactory.
• Funding based on deposits to a great extent provides business stability, and customer confidence has also been reflected in growth in deposits.
• We have continued customer financing and in this way borne responsibility for developments in our operating environment.
Total lending12-month change
2
4
6
8
10
12
14
16
18
2007 2008 2009
%
Other MFIs
OP-Pohjola Group
Source: Bank of Finland
Corporate lending12-month change
0
5
10
15
20
25
30
2007 2008 2009
%OP-Pohjola Group
Other MFIs
Source: Bank of Finland
Housing loans12-month change
456789
1011121314151617
2007 2008 2009
%
OP-Pohjola Group
Other MFIs
Source: Bank of Finland
Total deposits12-month change
0
5
10
15
20
25
2007 2008 2009
%
Other MFIs
OP-Pohjola Group
Source: Bank of Finland
OP-Pohjola Group: ROA
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
2004 2005 2006 2007 2008 1-6/2009
%
OP-Pohjola Group: Tier 1 capital(Basel II from 2008)
0
1 000
2 000
3 000
4 000
5 000
6 000
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 6/09
EUR m
Change in GDP volume
-8
-6
-4
-2
0
2
4
6
98 99 00 01 02 03 04 05 06 07 08 09f 10f
%
Source: Reuters EcoWin, OP-Pohjola Group
Finland
Change in GDP volume
-8
-6
-4
-2
0
2
4
6
98 99 00 01 02 03 04 05 06 07 08 09f 10f
%
Source: Reuters EcoWin, OP-Pohjola Group
Finland
Loan losses for banks in Finland
-500
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 1-6/09
EUR m
-1
0
1
2
3
4
5
6
7
8%
Loan losses Loan losses as % of lending
Source: Bank of Finland, The Finnish Financial Supervision Authority, company dataThe data in the time series are not fully comparable. Loan loss % 1-6/2009 converted to full-year figure.
Loan losses as % of lending
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 1-6/09
%
OP-Pohjola Group Finnish banking sector, total
Source: Finnish Financial Supervisory Authority, OP-Pohjola GroupData in the time series are not fully comparable.
Total operating profit for banks in Finland
-4,0
-3,0
-2,0
-1,0
0,0
1,0
2,0
3,0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 1-6/09
EUR bn
Source: Company data