Finnish financial sector is stable - economy is recovering but risks remain high

Economic forecasts have been revised upwards over the summer, but the unpredictable development of the pandemic continues to overshadow the economic recovery in Finland and throughout the world.It is therefore important for the financial sector to prepare for weaker-than-expected development, which could be reflected in, among other things, an increase in credit losses and sudden changes in securities prices.  

“It is important that the capital and liquidity position of the financial sector remain strong.At the same time, the Finnish financial sector must also prepare for the new challenges brought by climate change and digitalisation,” says Anneli Tuominen, Director General of the Financial Supervisory Authority.

Banking sector’s capital position remained strong

The capital adequacy ratios of the Finnish banking sector strengthened in the first half of 2021 and remained clearly stronger than the European average level.The operating result of the banking sector improved significantly compared with the previous year, driven by declining impairments and broad-based income growth.The development of the investment market and the economic recovery supported Finnish banks’ income growth.

The credit risks of Finnish banks have increased in the service sectors most affected by the pandemic, but loans granted to these sectors account for only a small proportion of Finnish banks' corporate loans.

Most of Finnish banks’ corporate loans have been granted to the real estate sector.The level of problem loans in this sector has remained modest and among the lowest in Europe.

Pension sector’s solvency ratio highest since 2015

At the end of June, the pension sector’s solvency ratio was at its highest since 2015

The level of equity investments continued to grow during the first half of the year and at the end of June equity investments accounted for half of all investments.Despite increased risk-taking, the sector's stress resilience has remained at a reasonable level.

Insurance premium income turned to growth after last year’s dip.

Solvency of life insurance sector strengthened

The solvency ratio of life insurance companies was higher than at the end of 2020.Solvency was improved by investment income, which increased own assets, and by a rise in interest rates, which reduced technical provisions.

Life insurance premiums grew strongly year on year.More investment insurance policies were purchased than before.

Non-life insurance companies’ solvency was strengthened by own assets growth

Non-life insurance companies’ own assets were increased mainly by equity income as well as seasonal fluctuation and the rise in interest rates, which reduced insurance liabilities.

Equity investments yielded the best returns, but returns on fixed income investments were negative.The profitability of the insurance business improved due to favourable claims development.Pandemic mitigation measures continued in January-June, reducing economic activity and thus the number of claims.

Appendix

Financial state and risks of supervised entities - page on website (in Finnish)