Finland’s financial system is stable despite Russia’s invasion of Ukraine. There are, however, risks in the air. Economic growth is expected to slow and interest rates rise due to the accelerating inflation.
COVID-19 has not shaken the operating capacity of the Finnish financial system. However, there is cause for concern in the prolonged growth of household indebtedness, which could threaten Finland’s ability to cope with future economic crises.
The financial system is stronger today than during earlier crises, but banks will inevitably see a rise in their loan losses. Government and the financial sector must continue their exceptional measures to support businesses and households.
The current loan-to-value cap on housing loans urgently needs to be accompanied by a new, more comprehensive cap on debt. This would take into account all a loan applicant’s debt relative to their income.
There are no immediate threats to the stability of the Finnish financial system. The relocation of Nordea’s corporate headquarters will, however, increase the banking sector’s exposure to structural vulnerabilities.
The European Systemic Risk Board (ESRB) has issued a warning to Finland concerning the vulnerabilities related to household indebtedness and lending for house purchase. There are, however, no threats to the stability of the Finnish financial system in the short term.
Finland’s financial system has functioned without serious problems during the difficult economic situation of recent years. However, the concentrated and interlinked nature of the financial sector means that the consequences of a financial crisis could be extremely serious for Finland.
According to the Bank of Finland’s stability report, the financial system has remained stable despite the lack of improvement in the Finnish economy. Weak developments of the Finnish economy and risks building up on the financial markets, such as growing search for yield and low interest rates, could expose the system to risks.
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