Capital position of Finnish financial sector remained strong – uncertainty casts shadow over economic outlook

Finland’s economy is forecast to grow this year, but there is considerable uncertainty surrounding the forecasts. In January–March, the plunge in share prices affected the stock market prices of Finnish financial sector entities and ate into their investment returns. The calming of financial markets in April improved equity prices, however. Although businesses’ and consumers’ belief in the future has gradually improved, the threat of a trade war is undermining confidence and the economic recovery. Businesses’ growth expectations, for example, have again been postponed until after the summer. The labour market situation has also remained weak.

Weaker than anticipated economic development would make things more difficult for both financial sector entities and their customers. The decline in Euribor rates, however, will support businesses’ and consumers’ debt servicing, consumption and investment capacity, as it is reflected in bank lending rates.

 “Finland’s financial system has significant capacity to withstand various disruptions. We are in a very unpredictable world situation, however, and there is a risk that geopolitical and economic conflicts will escalate further. Finnish entities have strong solvency and good profitability, which increases their risk resilience against adversity. However, the financial sector must take into account that this uncertainty is likely to continue for some time,” says Tero Kurenmaa, Director General of the Financial Supervisory Authority (FIN-FSA).

The situation with regard to cyber threats in the Finnish financial sector has remained largely calm. Fraud and phishing for bank credentials have increased, however, highlighting the need for vigilance by both financial sector entities and customers.

 “Geopolitical tensions, combined with the changes brought about by digitalisation and artificial intelligence, are making cybersecurity an increasingly important part of supervision. The key to preventing fraud is to make it as difficult as possible for fraudsters, and we expect banks and other entities to do everything they can to prevent these crimes. We are currently assessing what measures banks have in place to prevent scams and payment fraud and how they have followed our previous recommendations,” says Kurenmaa.

Growth of banking sector’s non-performing loans levelled off – net interest income continued to decline

The Finnish banking sector’s capital ratios are expected to have weakened slightly in the first quarter of 2025, but to have remained strong¹. Due to the decline in net interest income, the banking sector’s operating profit for January-March was lower than the corresponding period last year. Net interest income remained the banking sector’s most significant income item.

The growth of the banking sector’s non-performing loans levelled off in both the corporate and household sectors. The deterioration in quality of the credit stock also came to a halt in consumer credit as well as in the corporate sectors that have in recent years suffered from the increase in debt-servicing expenses and the weak business cycle. In the development of credit risks, however, there were differences between the banks and the various lender segments and corporate sectors.

The banking sector’s liquidity situation and liquidity position remained stable. Finnish banks’ funding costs continued to decline, particularly in deposit funding. The risk premiums of banks’ market-based funding rose briefly in April, in line with general market sentiment, but levelled off quickly after the situation calmed down. The Finnish banking sector’s risk resilience to dollar market disruptions is also at a good level. Diversified funding sources and the strong capital position of banks improve the availability and terms of market-based funding and provide protection against financial market disruptions.

Employee pension institutions’ solvency ratio weakened from previous quarter

The employee pension sector’s solvency ratio weakened to 128.7% in the first quarter of 2025 (12/2024: 129.3%), as the sector’s solvency capital decreased by EUR 0.8 billion. The solvency ratio was, however, higher than a year earlier (3/2024: 128.1%). During the quarter, the solvency limit declined faster than the solvency capital, but the solvency position remained at the level in the previous quarter (1.6). The solvency limit was lowered by a reduction in equity and currency risks.

The employment pension sector’s overall return on investment in the first quarter was 0.0%. The return on equity investments was negative (-0.8%). The return on fixed income investments was 0.9%, on other investments 1.1% and on real estate investments 0.6%.

The employee pension sector’s risk-bearing capacity against a decline in share prices remained at a reasonable level and improved slightly during the quarter.

Life and non-life insurance companies’ solvency remained good

The solvency ratio of the life insurance sector was 222.1% (12/2024: 221.7%) and that of the non-life insurance sector was 246.3% (12/2024: 254.5%) in the first quarter of 2025. The slight decline in the solvency of the non-life insurance sector was attributable to an increase in non-life technical provisions and a marked increase in the symmetric adjustment of the equity capital charge from the end of 2024. The solvency of both the life and non-life insurance sectors remained good.

The return on investment of the life and non-life insurance sectors was -0.3% in the first quarter. The low returns on investment also weighed down overall profitability. Premiums written on life insurance grew significantly due to strong sales of investment insurance, but growth of premiums written on non-life insurance was lower. The combined ratio for the non-life insurance sector was 106.9% in the first quarter of 2025.

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, weekdays 9.00–16.00.

Appendices

• Solvency position of pension insurance companies, pension funds and employee pension sector as at 31 March 2025 (Excel)
• Solvency position of life and non-life insurance companies as at 31 March 2025 (Excel)

¹ Due to changes to banks’ capital requirements regulations (CRR3/CRD6 Banking Package), which came into force at the beginning of 2025, banks have been granted additional time to report capital adequacy data. The FIN-FSA will publish separately more detailed first quarter 2025 capital adequacy data for banks at a later date.