Financial sector’s capital position as at 31 March 2022: Finnish financial sector’s good capital position increasingly important – uncertainty marks the operating environment and risks are elevated


The impacts of Russia’s war, the pick-up in inflation and slowdown in economic growth are creating a high level of uncertainty, accompanied by a rise in interest rates and decline in share values. The preparedness of supervised entities for the consequences of these developments and for possible cyber attacks requires sufficiently large capital buffers for all situations and voluntary contingency plans.

The state of the financial sector has remained good, but the operating environment has become more uncertain.

“The Financial Supervisory Authority is monitoring the operating environment very closely, just as other authorities are doing, each from their own perspective. High inflation and rising interest rates, the weakening outlook for the economy and problems related to energy availability are indications of major changes to which the financial sector must adjust. Likewise, we must be prepared for the possibility of severe cyber attacks. This requires good capital buffers and other preparedness from the financial sector, which will be of benefit to society as a whole,” says Anneli Tuominen, Director General of the Financial Supervisory Authority (FIN-FSA).

Finnish banking sector’s capital ratios have remained strong

The heightened uncertainty in the operating environment has eroded income from trading and investment activities, but the banking sector’s weakening performance has been mitigated by growth in net interest income and fee income. Prolonged uncertainty will continue to put pressure on banks’ profit performance and increase the risk of credit losses.

The Finnish banking sector’s capital ratios remained robust and were stronger than the European average in the first quarter of 2022. The banking sector’s Common Equity Tier 1 (CET1) capital ratio weakened slightly. This was mainly due to profit distribution, which includes share buybacks. The decline in capital ratios was curbed by the banking sector’s continued profitability. Retained earnings and additional capital buffers improve the risk resilience of Finnish banks. The banking sector’s Common Equity Tier 1 (CET1) capital ratio at the end of March was 17.4% (Dec. 2021: 17.8%) and the total capital ratio was 20.8% (Dec. 2021: 21.4%).

Employee pension sector’s solvency weakened due to negative return on investment

The employee pension sector’s return on investment was -2.1%, and as a result the solvency ratio decreased to 133.9% (Dec. 2021: 136.3%). The solvency position also weakened slightly to 1.8 (Dec. 2021: 1.9). There were no significant changes in the allocation of investments; equity investments are the largest investment class, with a weight of 49.5%. Payroll developed favourably compared to the first quarter of 2021.

Life insurance sector’s solvency ratio strengthened significantly

Life insurance companies’ solvency ratio was 215.0% at the end of March (31 Dec. 2021: 192.9%), i.e. strong. The amount of own funds grew, while the solvency capital requirement decreased. The strengthening of solvency was due mainly to the rise in interest rates and the decline in the value of life insurance companies’ investments.

The return on investment was -3.7% in the first quarter of the year, which had a negative impact on profitability. Equity and fixed-income investments generated a loss, but the return on real-estate investments was good.

Non-life insurance companies’ solvency strengthened to a record high, return on investment negative

Non-life insurance companies’ solvency ratio strengthened to 259.0% (31 Dec. 2021: 242.0%). Solvency was bolstered by the decrease in the solvency capital requirement.

The decrease in the 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. In addition, the sharp rise in interest rates reduced insurance liability, which bolstered own funds. However, the growth in own funds slowed in comparison with the situation at the end of 2021, as the level was affected by the increased provision for unearned premiums as a result of seasonal fluctuations.

The return on investment was negative (-2.7%). Both equity and fixed-income investments generated a loss; real-estate investments were the only investment class that generated a profit. Insurance business profitability weakened, which was due to the increase in claims expenses. The combined expense ratio rose to 97.6%.




For more information, please contact 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.

About Finanssivalvonta

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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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