Finnish financial sector has so far withstood the effects of the coronavirus pandemic well - operating environment remains uncertain, however


The Finnish financial sector has so far withstood the effects of the coronavirus pandemic reasonably well. The economic downturn and the coronavirus pandemic, however, are affecting different actors with different intensities and time spans. A number of public and private sector measures have sustained the real economy: the Financial Supervisory Authority’s macroprudential decisions are supporting the supply of credit, and the recommendation to refrain from profit distributions has strengthened financial sector actors’ risk-bearing capacity. The instalment-free periods granted by banks have eased the situation of households and businesses. Monetary and fiscal policy has also been expansionary.

The Finnish economy is forecast to recover as of the second half of 2020, but the uncertainties and risks remain exceptionally high. In their most recent risk assessments, the European Supervisory Authorities have assessed the level of risk to be either high or very high.

“In the economic uncertainty caused by the coronavirus pandemic, it is even more important than before that all actors thoroughly assess the risks. Investment services providers, in particular, must take into account the risks associated with the exceptional market situation when offering their services, especially to private customers,” says Anneli Tuominen, Director General of the Financial Supervisory Authority.

Banking sector’s loss-bearing capacity remains strong - uncertainty related to pandemic development and extensive instalment-free periods impair visibility to credit risks

The capital position of the Finnish banking sector remained strong in the first half of 2020, despite a significant deterioration in the operating environment. The average Common Equity Tier 1 (CET1) capital ratio of Finnish banks was 16.9% (12/2019: 17.6%) and the total capital ratio was 20.8 % (12/2019: 21.3 %) at the end of June 2020.

Finnish banks’ voluntary capital buffers available to cover losses strengthened when the Board of the Financial Supervisory Authority and Nordic macroprudential authorities lowered, in the spring, the banks’ macroprudential capital requirements. The loss-bearing capacity of Finnish banks is still stronger than the European average.

The banking sector’s operating result declined steeply in January-June 2020 due to a sharp increase in loan impairments and a fall in trading and investment income. Impairments grew due to increased credit risks and the weakened economic outlook resulting from the coronavirus crisis. A significant proportion of the impairments were additional credit loss provisions based on management judgement. The Finnish banking sector’s income from customer business has so far been adversely impacted to only a very limited extent by the crisis.Finnish banks’ net interest income grew and net fee and commission income remained at the previous year’s level in the first half of 2020.

Finnish banks’ levels of non-performing household and corporate loans remained among the lowest in Europe. In practice, the coronavirus crisis-impaired liquidity of household and corporate customers utilising instalment-free periods will not be put to the real test until the instalment-free periods granted by banks come to an end.

“The uncertainty about the development of the pandemic and its economic impact adversely affects assessment of the quality of the credit portfolio and the amount of impairments needed. A significant worsening of the pandemic situation would slow down economic recovery and thus prolong and deepen the payment difficulties of bank customers. In that case, the risk is that banks’ early-year credit loss provisions would be insufficient to cover losses,” explains Tuominen.

Life insurance sector’s solvency withstood market changes well

The solvency of life insurance companies remained almost at the level of the end of 2019 and was 194.9%, i.e. at a good level (31 December 2019: 197.7% adjusted annual reporting). The decline in the value of equity investments resulted in a loss and at the same time lowered the solvency capital requirement. The sector’s weakened operating result was not reflected in solvency in the short term.

The pandemic impacted life insurance companies’ premium income, which declined in the first half of the year. Risk insurance premium income grew slightly, however.

Investment income for the early part of the year was negative, but at the end of June it was only -0.7% down, due to the recovery of the securities markets. In addition to equity investments, real estate investments were also slightly negative, which is exceptional.

Solvency of non-life insurance companies was good, but weakened compared to the end of the previous year

At the end of June, the solvency ratio was 221.0% (31 December 2019: 224.4%). Fluctuations in equity prices resulted in large changes in the solvency ratios of non-life insurance companies at the beginning of the year. The solvency of the companies was not jeopardised, however, because the companies with the highest investment risk also had the largest solvency buffers.Investment income in January-June was negative, and own funds were lower than at the end of 2019. In addition, the fall in the level of interest rates increased technical provisions and therefore reduced own funds.

The effects of the pandemic were reflected in workers’ compensation insurance. The weakened employment situation reduced premium income from workers’ compensation insurance but the contraction in business activity, on the other hand, reduced accidents and claims paid.

Risk-bearing capacity of pension institutions remains at a reasonable level despite weakened solvency

The return on the investments of pension institutions was burdened by the fall in equity prices due to the coronavirus pandemic that took place in the first quarter. The recovery in equity prices that began at the end of March improved the pension institutions’ investment return, which was -3.9% at the end of June (3/2020: -9%).

The amount of pension assets relative to technical provisions (solvency ratio) was 123.3% at the end of June (12/2019: 128.3%). The risk-based solvency position (solvency capital/solvency limit) weakened only slightly and was 1.65 (12/2019: 1.71), because the solvency limit also declined. The decline in the solvency limit was due to lower investment assets, slightly lower risk-taking and the zeroing of the supplement factor from 1 April.

TyEL insurance premium income is forecast to fall this year for the first time since the financial crisis, as a result of weakened employment and the temporary lowering of pension contributions. In the early part of the year, TyEL insurance premium income was approximately EUR 1 billion lower than pension expenditure, and for the full year the difference is forecast to increase to EUR 2.5 billion.

Situation of unemployment funds changed sharply in the spring - situation improved in the summer

The impact of the coronavirus pandemic on the economy caused an explosive increase in the number of first applications in many unemployment funds in the spring. In individual funds, the increase was at most over twenty-fold. The most acute situation overall was in April, when more than 80,000 first applications were received by funds, compared with some 10,000 in April of the previous two years.In July, 34,000 first applications were received.

Due to the increase in the number of applications, processing times of several funds also lengthened sharply.Many funds continue to have major problems with processing times, which at most have been around 80 days. In some of the large funds, however, processing times have shortened in August.

The increase in unemployment naturally significantly increases the earnings-related daily allowance expenditure of the funds. Generally, however, the unemployment funds only fund 5.5% of their benefit expenditure, with the rest of the funding coming from the Employment Fund and central government. At the onset of the coronavirus pandemic, the financial situation of the funds was generally good or excellent. The funds have secured their liquidity and no acute liquidity problems have been identified. The liquidity of the Employment Fund, which plays a significant role in financing the unemployment funds, has remained good.


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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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