Profitable Finnish bank with a demonstrated ability to grow and operate efficiently

OmaSp has managed to increase its total operating income and balance sheet rapidly by providing its customers with highly accessible and excellent customer service, as per its strategy. To highlight this, OmaSp’s balance sheet total increased between the years 2016 and 2018 by on average 16.4 [1] per cent annually, while the balance sheets of a reference group consisting of competing Finnish banks’ [2] increased on average 6.4 per cent annually during the same time period [3]. OmaSp’s growth has been primarily organic but also successful mergers and acquisitions have had a positive effect on the growth. A fundamental factor in profitability is OmaSp’s efficient operating model and organisation, allowing for a low cost-income ratio. Over the 2016-2018 period, OmaSp’s cost-income ratio was on average 58.9 per cent, while the cost-income ratio of the reference group averaged at 73.4 per cent over the same time period. [4] The operative efficency, focus on profitable customer segments that appreciate good customer service and low credit losses resulting from successful risk management have also further contributed to the high profitability. The company’s Return on Assets (ROA) during 2016-2018 was on average 0.87 per cent, while the equivalent figure for the reference group was 0.83 per cent.[5] In 2017, OmaSp's profitability was also affected by a non-recurring investment gain, which resulted in higher net income on financial assets and liabilities compared to the previous years. [6]

[1] Formula of average annual growth: (2018 figure / 2016 figure)^(1/2)-1 [2] The reference group includes Aktia, Oma Savings Bank, POP Banks, S Bank, Savings Bank Union Coop and Ålandsbanken [3] Source: OmaSp (OmaSp’s figures), Finnish Financial Supervisory Authority: Statistics (reference group figures, excluding OmaSp’s figures) (as at 24 October 2018) [4] Source: OmaSp (OmaSp’s figures), Finnish Financial Supervisory Authority: Statistics (reference group figures, excluding OmaSp’s figures) (as at 24 October 2018) [5] Source: OmaSp (OmaSp’s figures), Finnish Financial Supervisory Authority: Statistics (reference group figures, excluding OmaSp’s figures) (as at 24 October 2018) [6] Net income on financial assets and liabilities is the equivalent of the sum of the items “Net income from trading” and “Net gains on investments” in the financial statements of 2016-2018

OmaSp operates in Finland, which is a stable and favourable operating environment

OmaSp's management is of the view that OmaSp’s operating environment in Finland is attractive, owing, inter alia, to the current positive outlook of the Finnish economy, the stable housing market and the moderate indebtedness of households. The Finnish gross domestic product (GDP) started to grow strongly in 2015, increasing by 2.5 per cent in 2016, and 2.8 per cent in 2017. The growth of GDP is anticipated to persist and to amount on average to 1.8 per cent per annum during the 2018-2020 period [1]. The principal reasons behind the GDP growth include, inter alia, high export demand, increase in the household disposable income, improved cost competitiveness, and favourable financing conditions [2]. The growth of the Finnish economy has also been reflected in the unemployment rate, which has decreased from the level of 9.4 per cent in 2015 to 8.6 per cent by the end of 2017. The unemployment rate is forecast to decline to 7.5 per cent by 2020.[3].

OmaSp’s management considers that the operating environment in Finland is stable also considering the household indebtedness and housing prices. Housing prices in Finland have developed steadily, growing by on arverage 1.8 per cent per annum during 2008-2017 [4] while housing prices relative to the disposable income of households have decreased over the same time period on average 0.5 per cent annually [5]. The International Monetary Fund IMF estimated in 2016 that housing prices in Finland were at a healthy level and the probability for substantial and sudden housing price drops was limited [6]. The bank's management is of the view that there have not been any such material changes in the development of the Finnish housing market that would prevent the development from continuing steadily also going forward. In the view of the bank, although household indebtedness for housing loans has increased through housing cooperative indebtedness, the housing cooperative loans only constitute a marginal part of the household loans. During the last years, household indebtedness has grown somewhat, when measuring the ratio of debts to assets [7]. When comparing the indebtedness ratio to the households’ disposable income, the indebtedness of Finnish households is, however, at a relatively low level when compared, for instance to Sweden and Denmark.[8] Also the proportion of non-performing receivables of the loan portfolio is at a low level in Finland, and below both the eurozone average and the Swedish and Danish averages.[9]

[1] Source: IMF: World Economic Outlook October 2018 (as at 24 October 2018) [2] Source: Bank of Finland, July 2018 Economy Review (13 July 2018) [3] Source: Historical data: Statistics Finland (as at 24 October 2018), projections: Bank of Finland: Euro & Talous 3/2018 (19 June 2018) [4] Source: Eurostat: House price index (as at 24 October 2018) [5] Source: OECD Data: Housing (housing prices and disposable income of households, which have been defined in available gross annual income, added with the net change in the pension funds that the household is entitled to as at 5 September 2018) [6] Source: IMF Country Report No. 16/369: Finland, Selected Issues (4 November 2016) [7] Source: Statistics Finland: Assets, liabilities and income of household by age of reference person (as at 24 October 2018) [8] Source: Eurostat (as at 24 October 2018). Debts include total loans of househoulds, imposable income are defined as gross amounted imposable annual income, added with net change in pension funds in which the household is entitled to. [9] Source: World Bank: World Development Indicators (as at 24 October 2018)