Financial Stability Assessment: Weakening economy and tightening financing conditions pose a challenge to financial stability

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.

Newest publication – Published 13 May 2022

Bank of Finland Bulletin 1/2022 – Financial stability

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3.91 MB – Release notes

New housing loans keep growing in size – increased share of longer-than-usual loans

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.

From crisis to crisis – companies are once again facing a challenging operating environment

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.

Nordic housing market risks can affect Finland’s economy

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.

Financial sector also facing new kinds of threats

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.

Large structural risks require banks to hold buffers for a rainy day

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.

Macroprudential toolkit should be replenished in Finland and Europe

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.

Instruments to prevent risk of indebtedness becoming more common in Europe

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.

Banks’ macroprudential buffer requirements lighter in Finland than in its peers

The macroprudential buffers that protect banks from financial crises are lighter in Finland than in comparable countries with similar structural vulnerabilities.

Editorial: Resilience of borrowers, banks and payment systems must be strengthened

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.

Accessible summary: Russia’s invasion reminds us that the financial system needs to be well prepared to bear 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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