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Finland’s banking sector: Facts & Figures

The Finnish economy returned to growth in 2016 and the main driver was domestic demand, especially private consumption. In addition, construction investments increased rapidly. The prolonged weak condition of Finnish manufacturing finally took a turn for the better as industrial output in 2016 recorded year-on-year growth for the first time in four years.

Unemployment decreased during 2016 and consumer confidence improved. Inflation continued to be low and housing prices grew very moderately. In 2017 the so called Competitiveness Pact will curb increases in average earnings and unit labour costs.

Despite the slight rebound the Finnish economy will continue to make only slow progress over the next couple of years. Growth prospects are subdued, and there is no significant improvement in sight for public finances.

There were 12 Finnish banking groups or amalgamations at the end of 2016.

The biggest Finnish banking group by its market share, is the OP Financial Group, which in recent years has expanded its operations outside of the traditional financial sector. The group includes 180 cooperative banks.

The second largest banking group at year-end 2016 was Nordea Finland Group. On 2 January 2017 Nordea subsidiary merged into the Swedish parent bank and turned into a branch in Finland.

Danske Bank Finland and Municipality Finance are nearly equal in terms of their balance sheets. Danske Bank has announced its plans to turn its Finnish subsidiary in Finland into a branch like Nordea.

The above mentioned four biggest credit institutions are considered domestically significant institutions and are supervised by the ECB. Smaller groups, like Savings Banks Group and POP Bank group and other small individual banks, are under the supervision of the Finnish Supervisory Authority.

By market shares, approximately 45% of the banking sector is foreign-owned. All the other credit institutions are private-owned except Municipality Finance which is specialised in the financing of the Finnish public sector.

At the end of 2016, Finnish banking groups had 1,063 branches in Finland and this is 49 fewer than the year before. The pared down number of branches is the result of mergers, improved efficiency of functions and customer service moving to digital channels.

Banks continued to invest substantial amounts in digitalisation and service development. To foster development of new products, banks seek new partnerships with fintechs. The majority of Finns (92%) are paying bills online, and of which 34% via mobile phone.

At the end of 2016, an average of 67% of the banking groups’ funding consisted of non-MFI deposits.

Banks have been preparing for the upcoming NSFR regulation for several years, and the average maturity of their funding has lengthened. Covered bonds have increased their popularity both as a source of funding and as a target of investment.

Finnish households’ housing loan portfolio grew faster than in the rest of the euro area. The low interest rate level was a major contributing factor to this growth rate.

The Finnish corporate loan portfolio (housing companies included) grew by a little under 5% in 2016. This was mainly coming from loans to housing companies. Since 2010, corporate lending in Finland has grown faster than in the rest of the euro area. ECB’s expansionary monetary policy has been aimed at improving financial conditions in the real economy, and indeed seems to be taking effect in the recovering corporate loan portfolios.

At the end of the year, the overall capital adequacy ratio of the Finnish banking sector was 23.9%. The Common Equity Tier 1 (CET1) ratio climbed to 21.7%. The leverage ratio of the Finnish banking sector improved to 5.9% at the end of the year.

Aggregate operating profits of the Finnish banking sector fell by 6% from the previous year. The zero interest rate environment continues to strain net interest income, which in total fell by about 4% from the previous year. The interest rates on deposits are approaching zero and the margins of housing loans are shrinking.

Net interest income nevertheless continues to be the banking sector’s most substantial source of income: on average, it comprises 41% of the sector’s total returns. On average, the proportion of net interest income out of banks’ total returns has become smaller. Banks have diversified their revenue generation models and received more income from sources such as asset management, trading activities and insurance products.

The operating costs of the sector increased by nearly 3%. Underlying factors included, for example, growing investments in digitalisation and service development.

With the weakened operating profits and larger amount of own capital, the return on equity (ROE) of the Finnish banking sector decreased to 8.2% from the previous year’s 9.3%.

Banking groups employed a total of 28,491 people at the end of 2016. A banking group’s number of employees also includes persons who, for example, work in insurance and asset management.

The Financial industry continued to be one of the most significant taxpayers to the Finnish economy, tax contribution being around 20% of the total annual corporate tax.