OREANDA-NEWS. On November 28, 2007 OKO Bank plc's Board of Directors decided on strategy updates. OKO Bank Group (Pohjola Bank Group as of 1 March 2008) will continue to place a strong emphasis on profitability and efficient capital management. The Group seeks growth in all of its business areas, but not at the expense of profitability, reported the press-centre of OKO Bank.

Key strategy updates are as follows:
- Ever-intensified business integration
- Higher target for return on equity
- Stricter target for operating combined ratio
- Higher return on capital
- Stronger market position

OKO Bank's integrated operating model forms the core of its business concept, the related cornerstones including Pohjola's and OP-Pohjola Group's strong brands, extensive service network and customer base, high return on capital, proactive risk management as well as people and competencies.

Key strategy implementation areas are as follows:
1) Exploiting the business areas' shared customer potential and service network
A variety of fields involve growth potential. In 2008, the Group will update its service concept for large customers in such a way that responsibility for customer relationships within both banking and insurance services will be managed under the same roof. The Group will also adopt a similar business model with respect to its service concept for large car dealership chains.

Cooperation in non-life insurance with OP-Pohjola Group's member cooperative banks has begun extremely smoothly, as evidenced by vigorous growth in the number of new loyal customer households in 2006 and 2007.

With the progress made in information system development, OKO's businesses will make use of more extensive shared databanks with a view to improving customer service and creating a more efficient risk-based premium rating system.

2) New value-adding services
OKO's competitive advantage over most of its competitors lies in its ability and opportunity to provide a package of banking and insurance services on a one-stop shop basis. The opportunity of OP bonus customers to utilise bonuses they have earned from their banking transactions in paying Pohjola insurance premiums serves as an example of a new customer service model launched in November.

3) International service capacity
In the next few years, OKO will place a heavier emphasis on its international service offering according to customer needs. In both banking and insurance services, the development of international services will be based on carefully considered partnerships, without ruling out company acquisitions. In the next few years, OKO aims to continue to expand and develop its Baltic operations in the field of Banking and Non-life Insurance. In addition, it will analyse business potential in Russia.

Aiming at stronger market position
Banking and Investment Services and Non-life Insurance constitute the Group's lines of business.

Banking and Investment Services has the strategic goal of becoming the market leader as a bank for large and medium-sized corporate customers in Finland (as compared with the previous aim of strengthening its second place in the market) and, together with the rest of OP-Pohjola Group, the market leader as a bank for SMEs. Asset Management aims at the leading market position in Finland. 

Non-life Insurance aims to continue increasing its market share and rise to number one in Finland from its current second place, underpinned by close cooperation with OP-Pohjola Group member banks and the new loyalty customer scheme. Non-life Insurance will seek growth through risk-based premium rating, which will safeguard profitable operations.

Change in capital adequacy calculation methods
From 1 January 2008, OKO will calculate its capital adequacy in compliance with a new capital adequacy regime reflected in the calculation of own funds and their minimum requirements. Moreover, OKO's own funds will be calculated by deducting the total carrying amount of insurance company investment from its own funds, half from Tier 1 and half from Tier 2. Currently, goodwill arising from insurance company investment and intangible assets are deducted from Tier 1 and the insurance company's minimum solvency margin is deducted from total own funds.

As a result of the adoption of the new capital adequacy calculation method, Tier 1 will increase by EUR 170 million, improving the Tier 1 capital adequacy ratio by 1,5 percentage points, while total own funds will diminish by EUR 200 million, lowering total capital adequacy by 1,3 percentage points.

The minimum regulatory capital requirements (Pillar 1) for credit risk will be calculated using the Standardised Approach (SA) from 1 January 2008. In the credit risk calculation, OKO aims to phase in the Internal Ratings-based Approach (IRBA) in such a way that the capital adequacy requirement for the first exposure classes, such as corporate exposure, will be calculated using IRBA from the second half of 2008. From 1 January 2008, the capital adequacy requirement for operational risks will be calculated using the Basic Indicator Approach (BIA) and that for market risks using SA.

The adoption of IRBA for credit risk and OP-Pohjola Group's zero-risk weight of internal items are expected to lower the minimum requirement for owns funds from their current levels. Due to transitional provisions, the minimum requirement for own funds may decrease by a maximum of 10% in 2008 and by a maximum of 20% in 2009 in comparison with the current method.

Change in criteria for loyal customer households
The Board of Directors has decided to respecify the definition of the loyal customer household to better support the development of the present business. Before OKO acquired Pohjola, the latter's service range covered life insurance and mutual fund products, in addition to non-life insurance products, and these were previously taken into account when defining loyal customer households. Excluding these products from the current definition, loyal customer households are now defined as households who have taken out Pohjola policies within at least three non-life insurance product lines. Although this change decreased the number of loyal customer households by 45,000 to 347,000 (30 September 2007), the average annual premiums written per loyal customer household rose to over EUR 700. Similarly, the target set for the number of loyal customers has changed, i.e. OKO aims to increase the number of loyal customer households from the current 347,000 to 450,000 (500,000 based on the previous definition) by the end of 2010.

OKO Group's financial targets by 2010
When confirming the updated strategy, the Board of Directors also respecified OKO Group's financial targets. By the end of 2010, the Group aims to record a 15% return on equity (ROE) at fair value (previously 13% by 2009).

It seeks to maintain the ratio of Tier 1 to risk-weighted commitments at a minimum of 8,5% (previously a minimum of 8,0%, corresponding to around 9,5% based on the new calculation method for own funds). The adoption of the new capital adequacy rules, profitable business growth and a decrease in intangible assets, generated by the Pohjola acquisition, through amortisation will enable the Group to make more efficient use of capital.

The Group has the aim of maintaining its current strong credit ratings within Banking and Insurance. 

Group profitability, growth and capitalisation needs will determine the annual dividend distribution. OKO aims to distribute at least 50% of its earnings per share in dividends, provided that the Tier 1 ratio stands at a minimum of 8,5%.

In segment reporting, capitalisation by business line is as follows:

Banking and Investment Services capitalisation accounts for 7% of risk-weighted commitments plus intangible assets and goodwill arising from the acquisition of Pohjola Asset Management Ltd.

Non-life Insurance capitalisation equals a 70% solvency ratio plus intangible assets and goodwill arising from the acquisition of Pohjola's non-life insurance operations.

Performance targets for business lines by 2010
Banking and Investment Services aims to report an operating return on equity (ROE) of at least 19% (previously at least 18%) and an operating cost/income ratio of less than 40% (previously 40%).

Non-life Insurance aims to record an operating return on equity of at least 20% and an operating combined ratio of 92% (previously less than 94%). An operating expense ratio of less than 20% is a new financial target set for Non-life Insurance.

The operating ROE is calculated on earnings before amortisation on intangible assets arising from the Pohjola acquisition.

On 30 November 2007, OKO Bank will hold a Capital Market Meeting for analysts and institutional investors in London at noon local time and in Helsinki at 2.00 pm local, and publish the related presentation material, containing more detailed information on OKO's strategy, on its website at www.oko.fi > Equity investors on the same date.