The bank's business profile is stable
OmaSp focuses on stable retail banking in Finland, with the aim of keeping individual customer and investment risk concentrations limited, and the organizational structure simple and transparent. The bank has defined precise risk management processes, risk-taking limits and guidelines for staying within the defined limits. OmaSp maintains a strict credit policy. An internal credit rating is assigned to each customer and the majority of OmaSp's loan portfolio are loans from internally rated AAA – A (1) customers. OmaSp's credit risk is also limited by the large share of secured loans in the loan portfolio, the limited weight of individual customers in total exposures and geographical diversification. OmaSp also maintains low borrowing rates (LTV) in its loans to minimize credit losses.
The risks related to the company's operations are widely diversified from the perspective of both the customer base and geographical locations. Given OmaSp's diversified customer base and the high share of secured loans, the bank is exposed to relatively limited risks from individual customers. In 2020, OmaSp granted mortgages at 4 times the market rate. The bank's loan portfolio is also relatively geographically diversified, limiting the impact of local economic shocks on the company. OmaSp operates in many growth centers with a favorable economic outlook and a vibrant housing market. Housing prices and the relative indebtedness of households are higher in these areas compared to the rest of Finland. On the other hand, OmaSp also operates in many smaller locations where the economic outlook is less favorable than average. However, house prices in these locations are generally lower than in the rest of Finland and household indebtedness is low, lowering the likelihood of credit risks materializing in these locations. (2)
For retail customers, the combined share of the best credit categories AAA-A and B in 2020 was 88.5%, up from the previous year (86.2%). For companies and housing companies, the share of the best credit categories AAA-AA in 2020 was 52.4%, up slightly from the previous year (51.5%).
1) OmaSp classifies both its personal and corporate customers into AAA (highest credit rating) to D (lowest credit rating or unrated). The Company uses its own and publicly available customer data for its internal credit rating, on the basis of which the bank makes an independent credit rating of the customer. 2) Breakdown of loan portfolio by size of customer total liability by parent company figures
Strong funding base and liquidity
OmaSp has a strong refinancing base that has grown steadily with both the deposit portfolio and market-based debt financing. The bank's refinancing base consists mainly of deposits (1) which, in the 2020 financial statements, covered 54% of the total refinancing base. The deposit portfolio is widely distributed among different customer groups and customers. Most of the deposits are held in customer current accounts. The diversification of the deposit portfolio reduces the risk of large simultaneous withdrawals, which could complicate the company's liquidity management.
The Bank set up a EUR 1.5 billion covered bond program in November 2017, and for the first time trading on the Bank's bond began on the Helsinki Stock Exchange. In OmaSp's view, bonds will continue to play an important role in refinancing the bank. Funding through covered bond issues will, in the Bank's management's view, allow future funding costs to decline. The total amount of debt securities issued to the public increased by 43.5% to EUR 1,346.8 (938.3) million in 2020. During 2020, the company issued three bonds. In April and November, EUR 250 million covered bonds were issued and in June, a EUR 55 million in senior-term and unsecured bonds was issued.
In addition, OmaSp uses certificates of deposit and debentures to diversify its financial position and increase refinancing opportunities. In addition to deposits and market-based debt financing, OmaSp has a TARGET2 account with the Bank of Finland, which enables the use of central bank financing for short-term and long-term liquidity management. The company has also obtained long-term financing from the European Investment Bank and the Nordic Investment Bank (NIB).
OmaSp has high liquidity, which is maintained by investing assets mainly in liquid funds and investments. OmaSp aims to minimize the cost of maintaining its liquidity portfolio by keeping its cash holdings with the Central Bank as low as possible in order to maximize the return on liquid assets. The Group’s Liquidity Coverage Ratio (LCR) maintained at a good level and was 184.9% (140.1%) at the end of the period when the minimum liquidity requirement level is 100%. Owing, among other things, to the expanded refinancing base and successful risk management, OmaSp has succeeded in lowering its financing costs. The decline in financing costs has also been influenced by lower interest rates on deposits, a relatively low interest rate on covered bonds, and support from the S&P BBB + credit rating.
1)The refinancing base includes liabilities to credit institutions, debts to the public and general government, debt securities issued to the public and subordinated debt
Attractive financial profile
The historical economic development of OmaSp has been strong. Factors that have contributed to historical economic development include a positive development in operating income, earnings and profitability, as well as strong capital adequacy. The company's operating income has increased during 2018-2020 in average by 14.8%The company’s operating income increased by 20% in 2020 compared to 2020. In 2020, the company's net interest income increased by 18% compared to 2019. OmaSp's earnings have grown between 2019 and 2020, and the return on equity (ROA) was 0.9%. The improvement in profit and profitability is due to cost-effective organization and operations, focusing on high-value customer segments that value good service, low credit losses and non-recurring gains on sales. The most important factor for low credit losses has been a strict lending policy and a focus on customers with good solvency.
In addition to its strong growth and profitability profile, OmaSp's strong strength is the bank's strong capital adequacy, which increases the company's loss tolerance and provides room for growth and dividend payments. A strong solvency position is also an important factor in credit rating and influences refinancing pricing. At the end of 2020, OmaSp's capital adequacy ratio (TC) was 16.2%.