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.
Housing loans are larger and of longer duration than previously. Borrowers should not take on too much debt, so that a rise in interest rates or everyday expenditure will not squeeze their finances too tightly.
If prolonged, the war can weaken the profitability of the corporate sector. It will be harder for companies to service their debts, if energy continues to be expensive and their products and services do not earn as much as before.
The rapid rise in house prices has increased the risks on the housing markets of the other Nordic countries. The risks from Sweden’s housing market and growing household debt can very easily spread to Finland.
In order to prevent crises, authorities should have a more flexible range of means at their disposal to strengthen banks’ risk resilience and contain excessive growth in credit and household indebtedness.
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