OREANDA-NEWS. Fitch Ratings has affirmed and simultaneously withdrawn Finland-based OP Financial Group's (OP) and its subsidiary Pohjola Bank's Long-term Issuer Default Ratings (IDR) at 'A+' and Short-term IDRs at 'F1'. OP's Viability Rating (VR) has been affirmed and withdrawn at 'a+'. Fitch has withdrawn the ratings for commercial reasons. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
OP's ratings reflect the bank's sound asset quality, prudent risk management, strong and resilient profitability, improved capitalisation and good funding and liquidity.

Asset quality is sound and we do not expect it to deteriorate in the medium term, despite muted Finnish economic growth projections. Our assessment reflects OP's low risk appetite and good risk control, which together with management's strong strategic and execution powers are key rating strengths for the group. Conversely, OP's franchise in banking, insurance and wealth management is fairly strong but as it is solely domestic, our assessment of the company's profile is a rating weakness for the group.

Low-risk mortgage loans represent around two-thirds of total lending, and benefit from conservative loan-to-value ratios and a strong amortisation culture. Finland has not experienced a strong house price increase in recent years. The export-reliant corporate loan portfolio represents a larger risk, especially since Russia is a significant export market for Finnish companies, but Fitch expects any loan impairment charges to be manageable.

The group has a prudent risk management framework and individual member banks are subject to strict central control. The group is exposed to moderate investment risk in the insurance divisions, although the portfolios have been materially de-risked in recent years, a process that Fitch believes will continue.

Fitch expects OP to continue to benefit from strong and resilient revenue generation, driven by its leading domestic franchises in banking, insurance and wealth management. Its profitability has traditionally lagged its Nordic peers, and has not been a prime objective given its mutual status. However, management has placed more weight on it in recent years, including setting ambitious cost-cutting targets and focusing on cross-selling.

We have revised our assessment of OP's capitalisation upwards, as this has strengthened materially since the acquisition of the externally held shares of Pohjola Bank Plc. It has nearly been restored to prior levels through profit share issuance and internal capital generation, and we expect this to continue. At end-September 2015, the Fitch core capital ratio was 16.7%, and OP reported a common equity Tier 1 ratio of 18.6%, in line with its target of 18.0%.

The group's leverage is stronger than peers, with a tangible equity/tangible assets ratio of 6.3% at end-September 2015. However, the absolute volume of capital is relatively small compared with similarly rated peers, which limits the group's resilience to unforeseen events.

OP is less reliant on wholesale funding than its Nordic peers. Fitch expects the group to maintain funding market access and a large liquidity buffer to mitigate refinancing risk. It benefits from having to issue fairly small amounts of debt and provides diversification opportunities for eurozone investors.

SUPPORT RATINGS AND SUPPORT RATING FLOORS
OP and Pohjola Bank's Support Ratings of '5' and Support Rating Floors of 'No Floor' imply that despite the group's systemic importance, it is likely that senior creditors would be required to participate in losses, if necessary, instead of or ahead of the bank receiving sovereign support. This is in line with recently introduced legislative, regulatory and policy initiatives (including the implementation of the Bank Recovery and Resolution Directive). Consequently, sovereign support, although possible, cannot be relied upon in our ratings.

SUBSIDIARY AND AFFILIATED COMPANY
Given the cross-support mechanism between Pohjola Bank and OP, Pohjola Bank's debt ratings are aligned with OP's. Fitch does not assign Pohjola Bank a VR.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt (lower Tier 2) issued by Pohjola Bank is notched down once from OP's VR to reflect above-average loss severity of this type of debt.

RATING SENSITIVITIES
IDRS, VRS AND SENIOR DEBT
Not applicable

SUPPORT RATINGS AND SUPPORT RATING FLOORS
Not applicable

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Not applicable

SUBSIDIARY AND AFFILIATED COMPANIES
Not applicable

The rating actions are as follows:

OP Financial Group
Long-term IDR: affirmed at 'A+'; Outlook Stable and withdrawn
Short-term IDR: affirmed at 'F1' and withdrawn
Viability Rating: affirmed at 'a+' and withdrawn
Support Rating: affirmed at '5' and withdrawn
Support Rating Floor: affirmed at 'No Floor' and withdrawn

Pohjola Bank
Long-term IDR: affirmed at 'A+'; Outlook Stable and withdrawn
Short-term IDR: affirmed at 'F1' and withdrawn
Support Rating: affirmed at '5' and withdrawn
Support Rating Floor: affirmed at 'No Floor' and withdrawn
Long-term senior debt: affirmed at 'A+' and withdrawn
Short-term senior debt: affirmed at 'F1' and withdrawn
Commercial paper: affirmed at 'F1' and withdrawn
Subordinated debt: affirmed at 'A' and withdrawn.