Note 2, OP Financial Group’s risk and capital adequacy management principles, provides a description of how the Group organises its Group-level risk and capital-adequacy management process. OP Financial Group and all of its institutions fulfil the capital adequacy requirements set by the authorities.
Capital base and capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates
31 Dec. 2014
1 Jan. 2014
31 Dec. 2013
OP Financial Group's equity capital
Cooperative capital, hybrid instruments, perpetual bonds and debenture bonds
Other sector-specific items excluded from capital base
Goodwill and intangible assets
Proposed profit distribution
Items under IFRS deducted from capital base*
Impairments – shortfall of expected losses
Conglomerate’s total capital base
Regulatory capital requirement for credit institutions**
Regulatory capital requirement for insurance operations***
Minimum amount of conglomerate's capital resources
Conglomerate's capital adequacy
Conglomerate’s capital adequacy ratio (capital base/minimum of capital base)
* Excess funding of pension liability, Fair value measurement of investment property, Amount of cash flow hedge of fair value reserve
** Risk-weighted assets x 8%
*** Minimum solvency margin
The Group has two risk limit indicators for its capital adequacy. The first is capital adequacy prescribed in the Act on the Supervision of Financial and Insurance Conglomerates. The Group’s risk limit for this capital adequacy ratio is 1.3, while the minimum statutory requirement is 1. On 31 December 2014, this ratio was 1.89 (1.90). On 31 December 2014, OP Financial Group’s capital base was EUR 1,979 million (2,236) above the Group’s internal risk limit and EUR 2,984 million (3,359) above the limit required by law.
The other risk limit indicator for capital adequacy is the ratio of capital base to economic capital, for which the risk limit is 1.2. On 31 December 2014, the ratio of capital base to economic capital was 1.42 (1.65). The capital buffer above the Group’s internal risk limit was EUR 1,058 million (1,892). The strong capital base acts as a buffer against unexpected losses and paves the way for business growth.