OP Yrityspankki Oyj - Financial Statement Release

OP Financial Group's Financial Statements Bulletin for 1 January-31 December 2016: Embracing industry transformation from a solid foundation

OP Financial Group
Stock Exchange Release 2 February 2017 09.00 am EET
Financial Statements Bulletin

OP Financial Group's Financial Statements Bulletin for 1 January-31 December
2016: Embracing industry transformation from a solid foundation

OP Financial Group improved its earnings further, above-the-market average
growth continued on a wide front
  * Earnings before tax totalled EUR 1,138 million (1,101).
  * Earnings before tax in October-December were EUR 218 million (175).
  * Net interest income increased by 3% and net insurance income by 6% and total
    income grew by 3% on a year earlier. Expenses rose by 3%. The rise was
    entirely explained by higher development costs.
  * The CET1 ratio increased by 0.6 percentage points year on year to 20.1%.
    Based on the results of the stress test conducted by the European Banking
    Authority, the Group's capital adequacy clearly exceeded regulatory
    requirements also in an operating environment of an extremely adverse
    scenario.
  * The home loan portfolio increased by 4%, the corporate loan portfolio by 3%
    and deposits by 6%. New home loans drawn down were 8% and corporate loans
    10% higher than a year ago.
  * Insurance premium revenue increased by 2%.
  * Assets managed by Wealth Management increased by 9% over the previous year.
  * Full-year earnings for 2017 are expected to be about the same as or lower
    than in 2016 due to increasing development costs and other expenses arising
    from strategy implementation.

Almost 160,000 new OP Financial Group banking customers and 260,000 new owner-
customers
  * OP Financial Group received almost 160,000 new banking customers, or 21%
    more than a year ago. The number of owner-customers increased by almost
    260,000 to over 1.7 million. The number of joint banking and non-life
    insurance customers increased by almost 100,000 to over 1.7 million.
  * New OP bonuses totalled over EUR 200 million, up by almost 5% year on year.
    The estimated interest payable on Profit Shares totals EUR 83 million.
  * The Group launched several #Suominousuun (Putting Finland on a new growth
    path) initiatives in its social role. During the financial year, the Group
    announced, for example, donations worth over EUR 6 million to Finnish
    universities.
  * OP Financial Group's gift to the 100-year-old Finland is 100 years of
    volunteering. Hiiop100.fi, a new volunteer work exchange site, brings
    together those in need of help and volunteers.
  * In June, OP Financial Group confirmed an updated strategy aimed at broad-
    based renewal which is being implemented on a wide front.

OP Financial Group's key indicators

                                               Q1-4/2016    Q1-4/2015 Change, %

 Earnings before tax, EUR million                  1,138        1,101       3.3
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   Banking                                           596          642      -7.3
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   Non-life Insurance                                230          259     -11.1
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   Wealth Management                                 232          213       8.8
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 New OP bonuses accrued to owner-customers           208          197       5.3
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                                            31 Dec. 2016 31 Dec. 2015 Change, %
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 CET1 ratio, %                                      20.1         19.5      0.6*
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 Return on economic capital, % **                   22.7         21.5      1.2*
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 Ratio of capital base to minimum amount of
 capital base (under the Act on the
 Supervision of Financial and Insurance                           191
 Conglomerates), % ***                               170                   -21*
-------------------------------------------------------------------------------
 Ratio of impairment loss on receivables to
 loan and guarantee portfolio, %                    0.09         0.10      0.0*
-------------------------------------------------------------------------------
 Owner-customers (1,000)                           1,747        1.491      17.2
-------------------------------------------------------------------------------


Comparatives  deriving from the  income statement are  based on figures reported
for  the corresponding period in 2015. Unless otherwise specified, balance sheet
and other cross-sectional figures on 31 December 2015 are used as comparatives.
* Change in ratio
** 12-month rolling, change in percentage
*** The FiCo ratio has been calculated under Solvency II transitional provisions
and the comparatives have been adjusted.



Comments by Reijo Karhinen, President and Group Executive Chairman

Even a strong one must reform itself. The year 2016 for OP Financial Group was a
combination of business success on a wide front and the launch of strategy
implementation aimed at broad-based renewal. The determined steps we have taken
for several years now amid the operating environment characterised by various
challenges culminated in all-time high earnings, excellent capital adequacy and
an above-market-average growth rate on a broad basis. In addition, favourable
developments in customer satisfaction and the number of our customers that has
grown faster than ever before strengthen, for their part, the basis on which we
will build the reforming OP.

We are living in a world with more demanding customers with a more powerful
voice. The situation is made for OP. Our committed owner-customers are one of
the strengths why OP is successful. Managing our social role shows more clearly
in our daily activities. Enabled by our good earnings performance, we have a
real chance to promote the prosperity of our owner-customers and in our
operating region during the major transformation too.

The strategy published in the summer means to us a huge transformation process
from a plain financial services provider to a diversified services company. Our
strategy will challenge us to nurture our present-day business, its product and
service range and earnings power while we will increase our investments in
development and create new business with an open mind to replace the one that
will go away.

We will digitise our existing services and internal processes with a bold
approach. Ensuring our price competitiveness and operational agility will
continue to require efforts to significantly improve our operational efficiency.
We will need to modernise our intellectual capital at a faster pace as our
business models and their content undergo transformation and our journey towards
a diversified company proceeds.

After several years of sluggishness, the Finnish economy and employment are
showing an incipient recovery and economic sentiment indicators are improving.
This is a right direction but the pace is too slow in view of the key challenges
our nation is faced with: low employment rate and public finances. In different
parts of society, reforms must be sped up and the vision must be brightened. We
need a deeper, shared understanding of the extent and speed of change. Finland's
digital potential is right at the top in the world, which is why the digital
world economy transformation will provide Finland with huge opportunities for
new growth and prosperity.

Financial performance in the report period

OP Financial Group's earnings before tax were EUR 1,138 million (1,101), or the
best ever recorded. The figure improved by EUR 37 million over the previous
year.

Despite low interest rates, net interest income increased by 3.2% to EUR 1,058
million. Net insurance income improved by 6.0% to EUR 558 million. Net
commissions and fees were EUR 859 million, or slightly higher than the year
before. Fees from payment services and mutual funds and real estate agent
commissions increased whereas securities brokerage and issuance fees declined
over the previous year. Securities brokerage fees decreased by EUR 4 million as
a result of the Sijoita Suomeen (Invest in Finland) opening included in the
#Suominousuun (Putting Finland on a new growth path) initiative.

Net investment income decreased by 9.7% to EUR 390 million. Lower returns on
equity instruments and impairment losses reduced net income from available-for-
sale assets. Income from Life Insurance notes and bonds measured at fair value
was increased by the individual life insurance portfolio transferred from Suomi
Mutual to OP Financial Group at the end of 2015. Hedging interest rate risk
associated with the insurance liability of Life Insurance added to income from
derivatives.

Other operating income rose by EUR 77 million year on year to EUR 122 million.
This rise resulted from the non-recurring gain of EUR 76 million recognised on
the sale of Visa Europe Ltd.

Total expenses increased by 3.1% to EUR 1,567 million. Personnel costs decreased
by EUR 19 million over the previous year due to lower defined benefit pension
costs. A year ago, personnel costs were increased by a non-recurring provision
of EUR 9 million, related to the reorganisation of the central cooperative
consolidated.

OP Financial Group's significant investments in service development increased
development costs by EUR 60 million. Development costs totalled EUR 135 million
(75). Other operating expenses a year ago included the non-recurring expenses
totalling EUR 18 million related to the intra-Group ownership reorganisation and
the reconstruction of the Vallila premises.

Impairment losses recognised under various income statement items that reduced
earnings amounted to EUR 136 million (114), of which EUR 77 million (78)
concerned loans and receivables. Net impairment loss on loans and receivables
were low, at 0.09% (0.10) of the loan and guarantee portfolio.

OP Financial Group's current tax amounted to EUR 223 million (249). The
effective tax rate was 19.6% (22.6). A year ago, the tax rate was increased by
capital gains tax on OP Financial Group's internal transactions.

OP Financial Group's equity capital increased by 9.8%, exceeding EUR 10 billion
during the financial year. This was explained by the Group's earnings and owner-
customers' Profit Shares. On 31 December 2016, EUR 2.7 billion (2.5) in Profit
Shares were included in equity, terminated Profit Shares accounting for EUR 0.3
billion (0.3). The return target for Profit Shares for 2016 and 2017 is 3.25%.
Interest payable on the Profit Shares accrued during the financial year is
estimated to total EUR 83 million (66). The fair value reserve grew by EUR 77
million to EUR 318 million.

Outlook for 2017

The Finnish economy recovered last year driven by consumer spending and
construction in particular. Brexit, in particular, added uncertainty during
2016. The uncertainty remained, however, transient. Confidence indicators
improved during the rest of the year. In Finland, consumer confidence in
particular improved, which was helped by lower unemployment. The housing market
picked up and home prices rose moderately. The world economy is expected to
recover slightly, which together with pro-competitiveness measures should
gradually support Finnish exports. The Finnish economy is expected to continue
to grow at a relatively steady rate on a broader base than before. Political
uncertainty in export markets and partly in Finland too will cast a shadow over
the economic outlook.

Low market interest rates will erode banks' net interest income and weaken
insurance institutions' investment income, but then again will support
customers' repayment capacity. Impairment losses in the banking sector have been
low despite the persistent slow economic growth. The financial sector's
preparation for changing customer behaviour and challenges presented by
digitisation will substantially increase the need for reinvention in the sector
across the board. Industry disruption is threatening to erode income generation
too in the years to come. Changes in the operating environment will emphasise
the role of the management of operational efficiency, profitability and capital
adequacy with a long-term approach.

OP Financial Group expects its full-year earnings for 2017 to be about the same
as or lower than those for 2016 due to increasing development costs and other
expenses arising from strategy implementation. Abnormally high uncertainty that
is related to developments in the operating environment has further increased
short-term earnings volatility, which will have an effect on the predictability
of OP Financial Group's full-year earnings performance. The most significant
uncertainties relate to changes in the interest rate and investment environment,
impairment loss developments and the rate of business growth.

All forward-looking statements in this Financial Statements Bulletin expressing
the management's expectations, beliefs, estimates, forecasts, projections and
assumptions are based on the current view on developments in the economy, and
actual results may differ materially from those expressed in the forward-looking
statements.

Press conference

OP Financial Group's financial performance will be presented to the media by
President and Group Executive Chairman Reijo Karhinen in a press conference on
2 February 2017 at 11 am at Gebhardinaukio 1, Vallila, Helsinki.

OP Corporate Bank plc will publish its own Financial Statements Bulletin.

Financial reporting in 2017

Schedule for Interim Reports in 2017:

Interim Report Q1/2017                             27 April 2017
Interim Report H1/2017                              2 August 2017
Interim Report Q1-Q3/2017                       1 November 2017

Helsinki, 2 November 2017

OP Cooperative
Executive Board

Additional information:
Reijo Karhinen, President and Group Executive Chairman, tel. +358 (0)10 252 4500
Harri Luhtala, CFO, tel. +358 (0)10 252 2433
Carina Geber-Teir, Executive Vice President, Corporate Communications, tel.
+358 (0)10 252 8394

DISTRIBUTION
Nasdaq Helsinki Ltd
London Stock Exchange
SIX Swiss Exchange
Major media
op.fi and pohjola.com

OP Financial Group is Finland's largest financial services group whose mission
is to create sustainable prosperity, security and wellbeing for its owner-
customers and in its operating region by means of its strong capital base and
efficiency. OP Financial Group consists of about 170 member cooperative banks,
its central cooperative OP Cooperative, and the latter's subsidiaries and
affiliates. The Group has a staff of 12,000 and approximately 1.7 million owner-
customers and 4.3 million customers. www.op.fi



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Liitteet:

OP Financial Group Financial Statements Bulletin 2016.pdf

OP Financial Group background material for FY 2016.pdf