Financial sector capital position as at 30 September 2022: Gloomier outlook for operating environment highlights importance of solvency, risk management and internal control


The outlook for the Finnish financial sector's operating environment has become increasingly gloomy during the autumn. Weakening economic growth, high inflation and energy prices as well as rising interest rates are straining the ability of households to service their debts and consume, and are eroding business profitability. This increases the risk of significant investment losses and loan losses and also weakens the profitability outlook for the Finnish financial sector. In an environment of elevated risks, the strong risk-bearing capacity and preparedness of supervised entities is increasingly important.

High inflation is weakening consumers’ purchasing power, and consumer and business confidence has been very low. According to Statistics Finland, Finnish GDP contracted by 0.3% in July-September 2022 on the previous quarter. Moreover, many economic forecasters estimate that Finland's real GDP will decline in 2023.

As a result of the increase in inflation, central banks worldwide have tightened their monetary policy. The rise in policy rates and the deteriorated outlook for the economy have also been reflected in market interest rates, such as Euribor rates, as well as the interest rates on government bonds and corporate and bank debt securities. This has been accompanied by a decline in equity prices and an increase in risk awareness in the market.

“The difficult operating environment underlines, in particular, the importance of strong risk-bearing capacity as well as sound risk management and internal control in the activities of supervised entities”, says Tero Kurenmaa, Director General of the Financial Supervisory Authority.

Banking sector's capital ratios weakened slightly, but remained higher than the European average

Rising interest rates bolstered net interest income and further increased the share of net interest income in total income. On the other hand, the elevated uncertainty in the operating environment was reflected as strong fluctuations in net income from investment activities and a decrease in fee income. Loan losses remained moderate and there were no signs of a significant weakening in the quality of the loan stock. Banks’ own funding plans and the anticipation of funding needs are increasingly important in an uncertain operating environment.

The banking sector's capital ratios weakened slightly in the third quarter of 2022. The decline in capital ratios was due to profit distribution, which decreased the amount of own funds. The amount of risk-weighted assets remained unchanged in the third quarter. The banking sector's Common Equity Tier 1 (CET1) capital ratio at the end of September was 16.9% (12/2021: 17.8%) and the total capital ratio was 20.3% (12/2021: 21.4%). The ratios remained higher than the European average.

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

Employee pension institution’s solvency remained strong. Solvency however decreased, as the return on investment was negative and clearly lower than the return requirement. The solvency ratio at the end of September was 128.2% (12/2021: 136.3%). The solvency position (the ratio of solvency capital and the minimum solvency requirement) has also weakened in 2022 and was at the end of September 1.7 (12/2021: 1.9). Employee pension institution's average stress resilience is still strong, despite the weakening of solvency.

Employee pension institutions’ return on investment was at the end of September -6.2%, as liquid investments (listed shares, bonds and money market investments) were clearly negative. The return on illiquid investments (loans, real estate, private equity and hedge fund investments) was clearly positive. It must however be taken into consideration that the valuation of these investments is subject to higher uncertainty. The depreciation of the euro in 2022 has also bolstered return on investment notably.

In the employee pension sector, the growth in private equity investments has increased the share of illiquid investments, which accounted for 45% of total investments at the end of September.

Non-life insurance companies’ solvency strengthened by rising interest rates

The solvency ratio of the non-life insurance sector strengthened to 285.9% (12/2021: 242.0%). Insurance liabilities decreased as a result of the steep rise in interest rates. The amount of own funds grew in the third quarter, as the market value of insurance liabilities declined more than the value of investments. Solvency was strengthened also by the decrease in the solvency capital requirement. The lower solvency capital requirement was attributable to a reduced capital requirement for equity risk as a result of the decline in the market prices of equities, to lower insurance risk as a result of the decrease in insurance liabilities, and to a decrease in interest rate risk as a result of higher hedging against interest rate risk.

Return on investment in January-September was -7.8%. Real-estate investments were the only investment class that generated a profit. Catastrophes were reflected as an increase in claims expenses and weaker insurance business profitability compared to the corresponding period in 2021.

Life insurance sector solvency continued to strengthen

Life insurance sector solvency ratio rose to 276.6% in the third quarter of 2022 (12/2021: 192.9%). The solvency capital requirement for market risk decreased as a result of the decline in securities prices, and at the same time, own funds remained close to the level at the end of June, due to the rise in interest rates.

The life insurance sector's return on investment was -10.6% in January-September 2022. The return on equity and fixed-income investments declined in the third quarter of the year, but the return on real-estate investments remained higher than the longer-term average.

Contact information

Samu Kurri, Head of Department, Digitalisation and Analysis. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5250, weekdays 9.00–16.00.



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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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