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. OmaSp also maintains low Loan to Value (LTV) ratios in its loans in order to minimise credit losses.
Risks related to the company's operations are widely diversified both in terms of customer base and geographical locations. Given OmaSp's diversified client base and the high share of collateralized loans, the bank is exposed to relatively limited risks from individual clients. In 2019, OmaSp granted mortgage loans at a rate 7.5 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 favorable economic prospects and a buoyant housing market. House prices and the relative indebtedness of households in these areas are higher than in the rest of Finland. On the other hand, OmaSp also operates in many smaller communities where the economic outlook is less favorable than average. However, housing prices in these locations are generally lower than in the rest of Finland, and household indebtedness is low, thus reducing the likelihood of credit risk occurring in these locations. The company's stable business profile, systematic risk management and high quality loan portfolio have resulted in historically low non-performing assets in the Finnish banking sector and below the average for the Finnish banking sector in 2017–2019, according to FIN-FSA statistics.
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 2) Sources: Association of Municipalities, Statistics of Municipalities (retrieved 25.3.2020); Statistics Finland, Indebtedness (retrieved 25 March 2020); Etuovi.com, Housing Market and Home Prices in Finland (Retrieved 25.3.2020)
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. Over the period 2018-2019, the refinancing base has grown at an average annual rate of 11.7% to EUR 3.0 billion on 31 December 2019. The bank's refinancing base consists mainly of deposits (1) which, in the 2019 financial statements, covered 65.8% 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 1,500,000,000 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 31.3% to EUR 938.3 (714.9) million in 2019.
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. As part of its liquidity and market risk strategy, OmaSp has set an LCR of 125% for the liquidity requirement and 100% for the EU Solvency Regulation. 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.
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 grown by an average of 15.7% between 2017 and 2019. The company's operating income in 2019 increased by 22% compared to 2018. In 2019, the company's net interest income increased by 17% compared to 2018. OmaSp's earnings have grown between 2018 and 2019, with a 35% increase in profit for the period and a return on total return on equity (ROA) from 0.7% to 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 2019, OmaSp's capital adequacy ratio (TC) was 17%, significantly above the regulatory requirement of 10.5%.