Stable business profile
OmaSp focuses on stable retail banking operations in Finland, aiming to keep individual customer and investment risk concentrations limited as well as organisational structure simple and transparent. The bank has defined a clear risk management processes, limits for risk taking and guidelines for remaining within the set boundaries.
OmaSp maintains a strict credit policy. Each customer is assigned an internal credit rating and the majority of the bank's loan portfolio comprises loans to customers with an internal credit rating of AAA-A . Furthermore, OmaSp’s credit risk is limited by the fact that a large proportion of the loan portfolio is comprised of secured loans, the relatively low individual exposure of individual customers, as well as geographic diversification. At the end of September 2018, secured loans constituted 98.6 per cent of the Company’s loan portfolio. OmaSp also maintains low Loan to Value (LTV) ratios in its loans in order to minimise credit losses.
The risks relating to the bank's operations are widely dispersed both from the point of view of the customer base and geographical locations. At the end of June 2018, 71.4 per cent of the company’s loan portfolio was held by customers whose aggregate liabilities towards the bank amounted to under EUR 400 thousand and the top one thousand largest customers accounted for 33.5 per cent of the loan portfolio. Only a small number of customers had liabilities towards the bank in excess of EUR 5 million. Taking into account the bank's diversified customer base and the high proportion of secured loans, relatively limited risks are posed to the bank by individual customers. The average size of the housing loans granted by OmaSp is approximately EUR 62,7 thousand. Furthermore, the bank's loan portfolio is also geographically relatively dispersed, which limits the effect of local shocks in the economy upon the bank. OmaSp operates in several growth centres in which the economic outlook is favourable and the housing market is active. Housing prices and the proportional indebtedness of households are higher in these areas as compared to the rest of Finland. On the other hand, the bank also operates in several smaller municipalities, where the economic outlook is on average less favourable. However, in these areas housing prices are generally speaking lower than in other parts of Finland and household indebtedness is low, decreasing the probability of the actualisation of credit risks in these areas. In small areas, loan margins are also higher than in the largest growth centres.
OmaSp's stable business profile, systematic risk management and high-quality loan portfolio have historically resulted in lower non-performing receivables than in the Finnish banking sector on average according to the FFSA’s statistics during 2015-2017. At OmaSp, the proportion of non-performing receivables of the loan portfolio amounted in 2015 to 1.3 per cent, while in the entire Finnish banking sector the average was 1.4 per cent, and in the banking sector of the entire eurozone an average of 4.9 per cent. At OmaSp, the proportion of non-performing receivables of the loan portfolio amounted in 2016 to 1.2 per cent, while in the entire Finnish banking sector it averaged at 1.4 per cent and in the banking sector of the entire eurozone at 3.7 per cent. In 2017, the proportion of OmaSp’s non-performing receivables of the loan portfolio amounted to 1.2 per cent, while in the entire Finnish banking sector the figure amounted to 1.4 per cent, and in the banking sector of the entire eurozone on average to 3.4 per cent. Furthermore, in accordance with OmaSp’s own reporting, the proportion of adjusted non-performing receivables of the loan portfolio amounted to 1.0 per cent in 2017.
 The Company assigns both its private and corporate customers a credit rating of AAA (highest credit rating) – D (lowest credit rating or unclassified). For its internal credit rating, the Company utilizes its own and publicly available customer data, on the basis of which the Company makes an individual credit rating regarding a customer.  Loan portfolio split for secured and unsecured loans with the parent company’s figures  Loan portfolio split as of customer’s overall liability with the parent company’s figures  Sources: Association of Finnish Local and Regional Authorities, Statistics of Local Finland (as at 29 September 2018); Statistics Finland, Indebtedness (as at 24 September 2018); Etuovi.com, Housing market and house prices in Finland (as at 29 September 2018)  All OmaSp and Finnish bank sector figures presented in the paragraph are based on the figures notified by the Financial Supervisory Authority apart from the separately mentioned OmaSp’s figure from 2017, which is based on the Company’s own reporting. The Company’s calculation method in part of adjusted non-performing receivables differs from the calculation method used by the Financial Supervisory Authority. The Company’s own reporting cannot take cross-default condition into account whereas the Financial Supervisory Authority takes it into account in its own calculations.
Strong funding base and liquidity
OmaSp has a strong funding base that has grown steadily as a result of the increasing deposit base and capital market funding. Over the time period of 2015 through Q3 2018, the funding base grew on average 16.0 per cent per year, and amounted to EUR 2.5 billion at the end of September 2018 . The bank's funding base is primarily composed of deposits  that in September 2018 amounted to 67.8 per cent of the entire funding base. The funding base is widely diversified between different customer groups and customers. The majority of deposits are in the customers’ current accounts. The dispersal of the deposit base reduces the risk for substantial simultaneous withdrawals of deposits, which could complicate the bank's liquidity management.
Furthermore, as of 2013, OmaSp has issued six bonds, through which the bank has been able to diversify its funding base and to prolong the maturity of the funding, which allows for more leeway for the bank in relation to risk management. On 19th of November, three of the bonds are outstanding. The bank's management is of the view that bonds will continue to play an important role in organising the bank's funding. OmaSp has consistently raised the size of the bonds issued in order to increase the proportion of capital market funding in its funding base. The latest bond issued by the bank was a EUR 250 million covered bond issued in December 2017, which the bank tapped in June 2018 with an EUR 100 million issue. OmaSp's management sees that raising funds by means of issuing covered bonds allows for a reduction of the bank's funding costs in the future. Furthermore, OmaSp employs deposit certificates and debentures to diversify its funding base and to increase its funding options. In addition to deposits and capital market funding, the bank has a TARGET2 account opened and activated at the Bank of Finland, which allows for the utilisation of central bank funding for short and long-term liquidity management. By September 2018, the bank has not used central bank financing. OmaSp has also obtained long-term funding from the European Investment Bank and the Nordic Investment Bank (NIB).
OmaSp has high liquidity that the bank maintains by investing assets primarily in liquid funds and assets. The bank seeks to minimise the costs incurred from maintaining a liquidity portfolio by keeping the amount of cash to be retained at the central bank low, to maximise profit generation from the liquid assets. OmaSp has set the minimum internal threshold of the liquidity coverage requirement (LCR) at 125 per cent as a part of liquidity and market risk strategy, while the requirement under Capital Requirements Regulation amounted to 100 per cent in June 2008.
As a result of, inter alia, its expanded funding base and successful risk management, OmaSp has succeeded to lower its funding costs. The interest expenses relative to the funding base have declined steadily over the review period, amounting to 0.48 per cent in 2015 and 0.26 per cent between 1 January and 30 September 2018. The decline in the funding costs has also been affected by the decreased deposit interest rates, the issuance of a covered bond with a relatively low interest rate cost, as well as the BBB+ credit rating obtained from S&P, which provide further support in obtaining funding.
 Formula of the average annual growth : (2018 Q3 figure / 2015 figure)^(1/2.75)-1  The funding base includes liabilities to credit institutions, liabilities to the public and public sector entities, debt securities issued to the public, and subordinated liabilities.  Liabilities to the public and public sector entities.  The interest expenses relative to the funding base has been calculated as follows: interest expenses of the period / (Liabilities to credit institutions + liabilities to the public and public sector entities + Debt securities issued to the public + Subordinated liabilities, at the end of the period). Between 1 January and 30 September 2018 the interest expenses have been annualized as follows: 1 January – 30 Septebmber 2018 / 3 * 4.  The funding base includes liabilities to credit institutions, liabilities to the public and public sector entities, debt securities issued to the public, and subordinated liabilities.
Attractive financial profile
OmaSp’s historical financial development has been strong. Factors affecting the historical financial development include, inter alia, the positive development of operating income, profits and profitability, along with strong solvency. The bank's total operating income increased during 2015-2017 on average 17 per cent per year. The growth has been to a large extent organic, but Joroisten Osuuspankki and Pyhäselän Osuuspankki becoming part of OmaSp also for their part affected the growth of operating income between 2015 and 2016. The growth from 2015 to 2017 also contains such investment gains that the bank's management is not expecting to gain in the coming years. The net income on financial assets and liabilities were emphasised in 2017, when OmaSp was preparing for the adoption of the IFRS 9 standard and sold a considerable portion of its equity investments in order to reduce the effect of changes in market prices to the bank's profit in the future.  A significant part of the EUR 10.8 million net income on fincancial assets and liabilities in 2017 were related to the afore-mentioned investment realizations. OmaSp's operating income increased during the first nine months of 2018 by 15.7 per cent as compared to the comparison period of 2017. The bank's net interest income increased during the first nine months of 2018 by 25.0 per cent and net fee and comission income and expenses by 20.9 per cent as compared to the comparison period of 2017. The net income on financial assets and liabilities were lower than during the comparison period of 2017 due to the reallocation of the investment portfolio at the end of 2017.
The profit of the bank grew between 2015 and 2017, when the profit for the accounting period increased on average 28 per cent per year  and, simultaneously, the return on assets (ROA) increased from 0.8 per cent to 1.0 per cent. The improvement in the profit and profitability is attributable to a cost-efficient organisation and operations, focusing upon profitable customer segments that appreciate good service as well as low credit losses and non-recurring investment gains. The most notable factor for low credit losses has been a diligent credit policy, as well as a focus on customers with a sound payment ability. In 2017, the Company’s profitability was also affected by non-recurring investment gain, which provided the bank's net income on financial assets and liabilities to be on a significantly higher level than during previous years.
Alongside its strong growth and profitability profile, OmaSp’s notable strength is the Company’s strong solvency, which increases the Company’s tolerance for losses and affords flexibility in terms of growth and dividend distribution. Strong solvency position is an important factor also in terms of credit rating and it affects the price of funding. At the end of September 2018, the Company’s solvency ratio (TC) amounted to 17.5 per cent, which was significantly above the regulatory requirement of 10.5 per cent.
 Formula of the average annual growth: (2017 figure / 2015 figure)^(1/2)-1  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 2015-2017  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 2015-2017  Formula of the average annual growth: (2017 figure / 2015 figure)^(1/2)-1  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 2015-2017