Early signs of growth in Finnish banks’ credit risks – environment of elevated risks highlights the importance of appropriate impairment staging of borrowers


High inflation, increased interest rates and a weaker economic outlook are weighing on the resilience of Finnish banks’ main borrowing sectors: households and businesses. Despite the elevated risks in the operating environment, the financial position of households and firms has remained at a reasonable level overall and Finnish banks’ non-performing loans are low. The Finnish banking sector also remains highly resilient against potential credit losses. There are, however, early signs of a rise in credit risk, especially relating to housing company loans and corporate loans. Significant differences have been observed in Finnish banks’ classification of common borrowers according to stages of impairment, which may be indicative of shortcomings in risk management. The higher risks in the operating environment underline the importance of appropriate credit risk classification and adequate and front-loaded loan loss provisioning in banks’ credit risk management.

The risks in the operating environment for the Finnish banking sector remain elevated. High inflation, the rapid rise in interest rates to significantly higher levels than in previous years, and the economic slowdown have tested the resilience of households and firms and cast a shadow over the economies in Finland and the Nordic countries over the past years.

“After the economy suffers from a disturbance there is typically a delay before non-performing loans start to rise and credit losses materialise. Banks should therefore prepare against the risk of credit losses by ensuring appropriate risk classification of borrowers and maintaining adequate and front-loaded loan loss provisions. These points will be returned to in our forthcoming inspections and thematic reviews, as credit risks are one of the priorities in the prudential supervision of banks this year,” says Jyri Helenius, Deputy Director General of the Financial Supervisory Authority.

Differences in Finnish banks’ impairment staging of common borrowers

The level of non-performing loans held by Finnish banks remains among the lowest in Europe both for household loans and for corporate loans. Finnish banks’ resilience against potential credit losses is also above the European average.1 However, household and corporate borrowers in Finland are more vulnerable to interest rate rises than their peers in Europe on average. A significant proportion of Finnish household and corporate loans are variable rate loans of an amortisation type where a rise in the level of interest rates will directly increase the debtors’ monthly debt servicing burden.

Changes in the impairment stages of loans are showing early signs of growing credit risk for Finnish banks. Over the past year, the amount of corporate loans whose credit risk has increased significantly since initial recognition2 (stage 2 loans) has increased notably, especially among loans backed by commercial real estate and loans to small and medium-sized enterprises. Broken down by industrial activity sectors, the highest growth has been seen in sectors particularly sensitive to the impacts of Russia’s war in Ukraine, such as the energy sector and manufacturing.

The amount of stage 2 housing company loans has also risen markedly over the past year. Signs of growing credit risk are especially associated with loans to newer housing companies. Nevertheless, arrears and forbearance cases in housing company loans have remained modest so far. 

There are discrepancies in how Finnish banks categorise their common corporate borrowers into different stages of impairment, which undermines the comparability of credit risk indicators and may be indicative of shortcomings in the risk management of banks. Deficient credit risk classifications which inadequately measure a borrower’s financial position increase the risk that banks have not prepared for potential and often lagged credit losses with sufficient loan loss provisions or that no measures have been taken to improve the borrower’s financial position. This, in turn, may lead to higher credit losses later on, when the risks are realised, and weaken banks’ ability to support the economy in times of crisis.

The FIN-FSA has begun publishing a series of thematic analyses on key supervisory topics and current issues related to the operations of supervised entities. The first publication in this series is on banks’ credit risks.

Contact information

Samu Kurri, Head of Department, Digitalisation and Analysis.

Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030, Mon–Fri 9.00–16.00.


1 See the FIN-FSA press release of 7 June 2023.

2 Loans with a significant increase in credit risk are loans that are in ‘stage 2’ of impairment in accordance with the financial reporting standard IFRS 9. Stage 2 loans are loans where credit risk has increased significantly since initial recognition. This is the case when, for example, a payment has been more than 30 days past due or a loan is subject to forbearance due to the customer’s financial distress. Banks also have other criteria in assessing credit risk.


Finanssivalvonta, or the Financial Supervisory Authority (FIN-FSA), is the authority for supervision of Finland’s financial and insurance sectors. The entities supervised by the authority include banks, insurance and pension companies as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. We foster financial stability and confidence in the financial markets and enhance protection for customers, investors and the insured.

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