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