Finanssivalvonta

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

Share
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%.

Appendices

Keywords

Contacts

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

Finanssivalvonta
Finanssivalvonta
PL 103, Snellmaninkatu 6
00100 Helsinki

09 183 51https://www.finanssivalvonta.fi/

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.

Subscribe to releases from Finanssivalvonta

Subscribe to all the latest releases from Finanssivalvonta by registering your e-mail address below. You can unsubscribe at any time.

Latest releases from Finanssivalvonta

Kapitaltäckning och solvens inom den finansiella sektorn 30.6.2024: Den svaga ekonomiska utvecklingen och de geopolitiska spänningarna har fortsatt att hålla riskerna höga inom den finansiella sektorn – kapitaltäckningen och solvensen är alltjämt stark12.9.2024 10:00:00 EEST | Tiedote

Trots det svåra konjunkturläget har den finansiella sektorn i Finland klarat sig bra under början av året. Kapitaltäckningen inom banksektorn var fortsatt stark under första halvåret. Andelen oreglerade lån ökade något både inom hushålls- och företagskrediter, men andelarna är fortfarande bland de lägsta i Europa. Även inom försäkringssektorn var solvensen fortsatt god. Den spirande positiva utvecklingen inom Finlands ekonomi överskuggas emellertid av ett flertal risker som också får återverkningar på den finansiella sektorn. Särskilt de geopolitiska riskerna har accentuerats under början av hösten.

Finanssisektorin vakavaraisuus 30.6.2024: Vaisu talouskehitys ja geopoliittiset jännitteet pitäneet finanssisektorin riskit korkeana – vakavaraisuus säilynyt vahvana12.9.2024 10:00:00 EEST | Tiedote

Vaikeasta suhdannetilanteesta huolimatta Suomen finanssisektori on selviytynyt alkuvuodesta hyvin. Pankkisektorin vakavaraisuus pysyi ensimmäisellä vuosipuoliskolla vahvana. Järjestämättömissä luotoissa oli pientä kasvua sekä kotitalous- että yritysluotoissa, mutta osuudet ovat edelleen Euroopan matalimpien joukossa. Myös vakuutussektorilla vakavaraisuus säilyi hyvällä tasolla. Suomen talouden orastavaa positiivista kehitystä varjostavat kuitenkin useat riskit, jotka heijastuvat myös finanssisektorille. Erityisesti geopoliittiset riskit ovat olleet pinnalla alkusyksyn aikana.

Financial sector's capital position as at 30 June 2024: Sluggish economic growth and geopolitical tensions have maintained the financial sector's risks at a high level – capital position has remained strong12.9.2024 10:00:00 EEST | Press release

Despite the difficult cyclical conditions, the Finnish financial sector has coped well during the first half of the year. The banking sector's capital position remained strong in the first half of the year. Non-performing loans increased slightly both in household and corporate credit, but their levels are still among the lowest in Europe. In the insurance sector, too, solvency remained good. Early signs of positive developments in the economy are overshadowed, however, by many risks that are also affecting the financial sector. Geopolitical tensions, in particular, have risen to the fore in the early autumn.

Kapitaltäckning och solvens i den finansiella sektorn 31.3.2024: Fortsatt stark kapitaltäckning och solvens i Finlands finansiella sektor trots osäker omvärld13.6.2024 10:40:00 EEST | Tiedote

Finlands ekonomi vände från recession till mycket svag tillväxt i början av året, men den finansiella sek­torns omvärld präglas fortfarande av osäkerhet. Trots det svaga ekonomiska läget är kapitaltäckningen inom banksektorn fortfarande stark, fastän andelen krediter med en betydligt förhöjd kreditrisk ökat både inom hushålls- och företagskrediter. Arbetspensionsanstalternas solvensnivå stärktes under det första kvartalet, medan liv- och skadeförsäkringsbolagens solvens försvagades något. Det geopolitiska läget är fortfarande spänt och ränteutsikterna är osäkra, vilket ökar riskerna i den finansiella sektorn.

Finanssisektorin vakavaraisuus 31.3.2024: Suomen finanssisektorin vakavaraisuus säilyi edelleen vahvana epävarmassa toimintaympäristössä13.6.2024 10:40:00 EEST | Tiedote

Suomen talous kääntyi taantumasta hyvin vaisuun kasvuun alkuvuonna, mutta epävarmuus leimaa yhä finanssisektorin toimintaympäristöä. Heikosta taloustilanteesta huolimatta pankkisektorilla vakavaraisuus on säilynyt vahvana, vaikka sekä kotitalous- että yritysluotoissa luottoriskiltään merkittävästi kohonneiden luottojen osuudet ovat olleet kasvussa. Työeläkelaitosten vakavavaraisuusaste vahvistui ensimmäisellä neljänneksellä, mutta henki- ja vahinkovakuutusyhtiöillä se heikkeni hieman. Geopoliittinen tilanne on pysynyt jännitteisenä ja korkonäkymät epävarmoina, mikä lisää finanssisektorin riskejä.

In our pressroom you can read all our latest releases, find our press contacts, images, documents and other relevant information about us.

Visit our pressroom
HiddenA line styled icon from Orion Icon Library.Eye