Itämerenkatu 11-13
Tel: +358 20 793 4200

Finland’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

Finland’s GDP grew by 1.1% in 2019, which is slightly slower than in 2018. Growing uncertainty in the global economy and the weakening economic outlook in the euro area were reflected in the Finnish economy. The manufacturing industry’s economic conditions weakened and the growth of investments slowed down. Private consumption also grew only moderately.

The value of Finnish exports totalled €96 billion, which was a growth of 7.2% from the previous year. The volume of exports grew by 7.5%. Total exports increased as a consequence of strong growth in service exports and ship orders supplied abroad. Finland’s current account nevertheless showed a deficit weakened by more than a billion euros. The value of investments grew by 1.8% to €57 billion, but their volume sank by 0.8%. Private consumption accelerated by 2% to a total of €126 billion. Employment numbers grew by 17,000, which is a 0.9% increase. The national employment rate was 72.6% at year-end.

In 2019, the general government deficit increased to €2.7 billion. General government EDP debt, or consolidated gross debt, was 59.4% relative to gross domestic product at the end of 2019. This is just under the 60% debt-to-GDP limit set in the EU Treaty on the Functioning of the European Union. Government tax revenue grew by 2.5%, as did total revenue by 4.1%. The total tax ratio, i.e. the ratio of tax or tax-like payments to the GDP, fell to 42.1%, down by 0.3% from 2018.

The housing market cooled slightly. The number of new housing permits is on the decrease, which reflects the cooling down of the construction market. However, the previous years’ large number of housing starts will keep the number of completed houses on a high level for a while still.

The Finnish banking market is dominated by four major banks, who together hold 80% of the market shares. Nordea Bank, OP Financial Group and Municipality Finance are deemed domestically significant institutions (O-SII) and are directly supervised by the ECB. Smaller domestic retail groups, like Savings Banks group, POP Bank group and other small domestic banks, are under the supervision of the Finnish Supervisory Authority.

The biggest group by market share (35.5%) is OP Financial Group. The group is made up of 149 independent member cooperative banks and the OP Cooperative, which they own. The second largest is Nordea Bank with a 25.4% market share. Danske Bank and Municipality Finance are nearly equal in terms of their market shares, 10.0% and 9.5%, respectively. Danske Bank turned its Finnish subsidiary into a branch at the end of 2017.

Finnish households’ loan debts totalled €157 billion at the end of 2019, which is €5 billion more than in 2018. Housing loans comprised the majority of this debt with €100 billion. Households were liable for approximately €18 billion in limited-liability housing company loans, and for €23 billion in consumer credits. In recent years, unsecured consumer credits (so-called payday loans) have grown at a fast rate.

Households’ debt-to-income ratio rose and was 129% at the end of the year. In 2018, the Ministry of Finance appointed a working group to examine ways in which the excessive indebtedness of individuals and households could be better controlled and macroprudential risks thus reduced. The working group published its report in October 2019.

The report proposes a number of additional tools to the macroprudential stability toolkit currently in use in Finland. These include a debt-to-income (DTI) loan cap, maximum loan term of 25 years on mortgage lending, and limitations to housing company loans in new housing construction. The latter also involve a loan cap, 25-year maximum maturity, and a rule that no interest-only periods could be used for the first five years. The report also includes proposals which are primarily related to customer protection, but which can indirectly be considered macroprudential policy tools. The government’s draft legislation process has been delayed. The new legislation will probably be handed over to the Finnish Parliament in early 2021.

Lending to corporates (housing corporations included) increased by 6.5%, with growth broadly based across economic activity sectors. At the end of December 2019, the stock of loans to non-financial corporations stood at €90.1 billion (37.4% of GDP), of which loans to housing corporations accounted for  €34.7 billion. The corporate loan stock grew by €5.5 billion during the year, which is the most it has been since 2011.

The aggregate operating profits of the Finnish banking sector totalled €3.4 billion in 2019. Non-recurring costs weakened banks’ operating profits by roughly a third. Net interest income, the banking sector’s most substantial source of income, improved with the volume growth of lending and the low cost of funding. Other sources of income, i.e. commissions and net income from trade and investments, also improved from the previous year. The favourable development of net interest from trading and investment activities was largely the result of changes in market values.

The banking sector’s weaker operating profits in 2019 are largely due to the one-off writedowns entered by Nordea in Q3 2019. The sector’s operating profits were especially burdened by an IT-system related write-down, restructuring-cost reserves, and loan impairments. Banks have made large investments into IT projects and digitalisation. The implementation phase of the new systems means the old systems need to be entered as one-off write-downs.

The capital adequacy of the Finnish banking sector remained strong. At the end of the year, its overall capital adequacy ratio was 21.3%. The Common Equity Tier 1 ratio (CET1) stood at 17.6%. The leverage ratio was 5.9%, which is slightly higher than the European average. The short-term liquidity remained strong in 2019, although the sector’s Liquidity Coverage Ratio (LCR) fell 9 percentage points to 166%. The average LCR in the EU is 148%.

The Finnish banking sector’s return on equity (ROE) was 4.9% at the end of 2019, slightly below the average ROE for all EU banking sectors (5.4%). In Finland, non-performing assets have not been a problem. At the end of 2019, they remained at the same low level as in 2018, comprising about 1.7% of the loan portfolio.

Contributor: Mariia Somerla