Financial sector’s capital position as at 30 September 2023: Solvency has remained strong – uncertainty caused by the geopolitical situation underlines the importance of solvency and risk management


The financial sector’s operating environment continued to weaken in the autumn as high interest rates and the slowdown in the economy burdened households and companies. The situation has put a particular strain on the real estate and construction sectors. Geopolitical tensions are also increasing uncertainty and financial sector risks. Solvency, strong risk-bearing capacity and preparedness are increasingly important at a time of elevated risks.

As a result of weak growth in the Finnish economy, unemployment has risen and corporate bankruptcies have increased in Finland. The rise in interest rates has been reflected in higher credit risks. In addition, access to finance has tightened in the case of higher risk companies and projects in particular. In the real estate sector, the slowdown in construction activity has been especially strong and property prices have declined notably. Uncertainty is compounded by the fact that interest rates may remain higher for longer. 

“The Financial Supervisory Authority sees the economic situation remaining difficult in the immediate months ahead and possibly also at the start of next year. Moreover, geopolitical tensions are creating a lot of general uncertainty. It is very important that financial sector entities retain their risk awareness and risk-bearing capacity. This applies both to the risks brought by the gloomier economic outlook and the management of cyber risks,” says Tero Kurenmaa, Director General of the Financial Supervisory Authority (FIN-FSA).

Based on the FIN-FSA’s assessment, the sector’s resilience is, in general, good. The strong capital position provides financial sector entities protection against the risks brought by a weakening operating environment. 

Banking sector’s capital position and profitability improved due to solid performance – credit risks in housing company loans continued to grow 

The banking sector’s capital position improved in the third quarter of 2023. The sector’s Common Equity Tier 1 (CET1) capital ratio at the end of September was 17.8% (Dec 2022: 17.2%) and the total capital ratio was 21.1% (Dec 2022: 20.6%). The banking sector’s operating result improved significantly compared to the corresponding period the previous year, boosted by the continuing strong growth in net interest income. Movements of loans between the stages of impairment are signalling a growth in credit risks both in household and corporate loans. Non-performing housing company loans increased and the amount of stage 2 housing company loans continued to grow in the third quarter of 2023. The share of stage 2 loans has continued to grow in the real estate and construction sectors as well. The Finnish banking sector’s non-performing loans and loan losses nevertheless remained at a low level and among the lowest in Europe. 

Finnish banks’ liquidity position is strong and the banking sector’s liquidity has improved. However, the Finnish banking sector’s above-average dependency on market funding exposes banks to possible market disruptions, and the general rise in interest rates has also increased the cost of market funding for Finnish banks.

Employee pension sector’s solvency remained strong despite a slight weakening

The employee pension sector’s solvency ratio was 126.2% at the end of September (Dec 2022: 127%). The solvency ratio has weakened slightly in 2023, as the return on investment (3.0%) was lower than the required return on technical provisions (3.7%). Equities, fixed-income investments and other investments have generated a positive return in 2023. The return on real estate investment was negative (-1.7%). Direct and indirect real estate investments account for approximately 12% of the investment allocation of employee pension institutions. The majority of real estate investments are direct domestic real estate holdings. The risk-based solvency position has weakened in 2023, due to the decrease in solvency capital and higher risk-taking, and is now 1.6 (Dec 2022: 1.7). Employee pension institutions’ stress resilience against equity shocks is still reasonable. Employee pension institutions are also resilient to significant negative value changes in illiquid real estate and private equity fund investments.

Non-life insurance companies’ solvency ratio started to increase

At the end of September, non-life insurance companies’ solvency ratio was 291.1% (Dec 2022: 301.6%). In the third quarter of 2023, the downward turn in the market prices of equities decreased the solvency capital requirement and bolstered solvency. Long-term rates rose slightly and the market value of long-term liabilities declined. At the end of September, their value was at the lowest level since the introduction of Solvency II regulation. However, the amount of own funds decreased compared to the situation at the end of June, due to the weaker profitability of investment and insurance business. 

The return on investment in January–September was 2.3% (Jan–Sep 2023: 2.6%). All investment classes generated a positive return, but the return was weaker than in January–June. The return on real estate investments was at its lowest level in more than a decade. The profitability of insurance business was weakened by the growth in claims expenditure. The amount of claims paid increased the most in health insurance.

Life insurance sector solvency strengthened in third quarter

The life insurance sector’s solvency ratio rose in the third quarter of 2023 to 270.7% (Dec 2022: 256.9%). The solvency capital requirement decreased more than own funds. This is explained by the decline in investment returns and a change in the symmetric adjustment of the equity capital charge that evens out the impact of changes in equity prices.

In January–September, life insurance companies’ return on investment was 2.1% (Jan–Jun 2023: 2.4%) and was lower than the long-term average. In the third quarter of 2023, the return on fixed-income and equity investments decreased, but the return on real estate investments increased slightly, boosted by rental return.

For further information, please contact:

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.




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can be contacted on weekdays 9–16, except on Holy Thursday and New Year’s Eve on 9–13.

Tel:+358 9 183 5030

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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