Capital base and capital adequacy

On 31 December, OP Financial Group’s capital base, calculated according to the Act on the Supervision of Financial and Insurance Conglomerates, exceeded the minimum amount specified in the Act by EUR 2,984 million (3,764). The reference figures for capital adequacy presented here have been estimated in accordance with the regulations that entered into force on 1 January 2014. The buffer specified in the said Act was decreased by the purchase of Pohjola Bank plc shares and increased by the Group's earnings and the issue of Profit shares. The ratio of the total amount of capital resources to the minimum amount of capital resources was, even after the purchase of Pohjola Bank plc's shares, at a high level of 1.89 (2.19).

As a result of the financial crisis, the regulatory framework for banks’ capital adequacy requirements became more rigorous in an effort to improve the quality of their capital base, to increase capital buffers, to reduce the cyclic nature of capital requirements, to decrease banks’ indebtedness and to set quantitative limits to liquidity risk. These changes will take effect between 2014 and 2019. The most significant effects of the changes on OP Financial Group’s capital adequacy under the abovementioned Act will depend on the level of credit institutions’ capital buffer requirements and the calculation method. The effect of the changes on capital adequacy specified in the Act on Credit Institutions is discussed in more detail below under Banking, Capital base and capital adequacy.

The solvency regulations of the insurance sector are changing, too. Changes in the insurance sector’s Solvency II regulations aim to improve the quality of insurance companies’ capital base, improve their risk management, increase the risk-based capital requirements and harmonise insurance sector solvency requirements in Europe. The regulations are still being prepared and will come into effect at the beginning of 2016. The rules and regulations will on the one hand increase capital requirements, and on the other increase the capital base, which will decrease the capital adequacy ratio on a net basis under the Act on the Supervision of Financial and Insurance Conglomerates. According to the current estimate, capital adequacy under the Act will, however, remain on a solid basis.

The Group's Non-life and Life Insurance businesses already completely fulfil the solvency capital requirement (SCR) under the proposed Solvency II framework.

Moving under European Central Bank (ECB) supervision

OP Financial Group’s credit institution was transferred to the direct supervision by the ECB in November 2014. This involved a supervisory risk assessment by the ECB, a comprehensive asset quality review and a stress test on OP Financial Group as a credit institution during 2014.
The purpose of the AQRs and stress tests was to make European banks more transparent and to ensure that they have enough capital. A total of 130 European banks took part in the new type of review carried out using uniform principles and a tight schedule.

The results of the comprehensive assessment were published on 26 October 2014, stating that OP Financial Group's risk-bearing capacity was high. The results were used to update the credit and counterparty risk models used for the valuation of derivatives, and the collective provision model. The changes did not have any material effect on the financial statement or its accounting policies.