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.
The financial sector is part of the chain of Finland’s national readiness, and it must not be allowed to break even in emergencies. We must prepare ever more carefully to meet cyber risks.
Based on a stress test conducted jointly by the Bank of Finland and the Financial supervisory Authority, Finnish banks are well placed to weather a serious crisis on the Nordic housing markets.
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.
Ever more European countries are restricting the maximum permissible level of a loan applicant’s debts or debt-servicing expenditure relative to the applicant’s income.
The macroprudential buffers that protect banks from financial crises are lighter in Finland than in comparable countries with similar structural vulnerabilities.
We need to set limits to household indebtedness, such as a debt ceiling, and banks’ ability to withstand crises should be improved. Banks should also be adequately prepared for cyber risks.
Unpredictable events like war and pandemics may threaten the stability of the financial system. The system must be able to function even in stormy conditions.
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