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Finland’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The Finnish economy grew at a rapid pace on a wide front. The GDP grew 3.2% in 2017 after a decade-long recovery from the financial crisis.

Exports are finally fuelling growth, while domestic demand also continues to be high. Companies are investing in machinery and equipment, in addition to construction. Consumer confidence improved to a record level which boosted consumer spending, supported by favourable employment development. Government target to reach 72% employment level is close to being achieved.

Strong economic conditions have also improved public finances. The general government deficit shrank to 1.1% of GDP in 2017 and the public debt/GDP ratio will continue to decrease and is expected to come down below 60% by next year. The better economic situation will not, however, resolve the longer-term problems with the ageing population.

Finnish banking market is dominated by four large groups, which together hold 81.0% of the market. These four groups are deemed as domestically significant institutions (O-SII) and are directly supervised by the ECB. Smaller domestic retail groups, like the Savings Banks group and POP Bank group and other small domestic banks, are under the supervision of the Finnish Supervisory Authority.

The biggest group is the OP Financial Group, with 35.5% market share. The group consist of 160 cooperative banks. The second largest group is Nordea with 26.4% market share. In January 2017, the Finnish subsidiary of Nordea merged into the Swedish parent bank and became a branch in Finland. By the end of 2018 Nordea will move its head office from Stockholm to Helsinki and will become the first globally significant institution (G-SIB) domiciled in Finland. Through Nordea’s decision, the Finnish banking sector will grow to over three times the size of its gross domestic product. However, the foreign ownership will drop significantly.

All the other credit institutions are privately owned except Municipality Finance which specialises in financing the Finnish public sector. Danske Bank and Municipality Finance are nearly equal in terms of their balance sheets and market shares, 9.5% and 9.6%, respectively. Danske Bank turned its Finnish subsidiary as a branch in Finland at the end of 2017.

According to the European Commission Digital Economy and Society Index (DESI), Finland ranks third after Denmark and Sweden. Already 96% of people aged 25-54 years pay bills online and especially younger people use mobile phones for payments.

Contactless payments are increasing rapidly. Almost every Finn (97%) has a payment card (debit and/or credit) and 64% of cards include contactless payment facility. In 2015 the share was 22%.

The housing market has been on an upswing. The value of new housing loans rose by 1.6% year-on-year. At the end of 2017, the total housing loan portfolio stood at  €96.1 billion (43.0% of GDP), after growing by 2.2% during the same year. Demand growth is expected to accelerate in 2018 driven by, among other things, positive economic and employment prospects, strong consumer confidence and the low interest rate environment.

At the end of 2017, an average of two thirds of banking groups’ funding consisted of non-MFI deposits. However, the shares vary greatly between credit institutions: some fund their operations almost entirely with deposits while some, especially mortgage credit institutions, only issue covered bonds. Around one third of mortgage loans are funded by covered bonds.

Lending to corporates increased by 4.3 % on an annual basis. The growth was mainly due to boom in construction sector, especially to housing corporations.  Green bonds have been issued in Finland since 2016. While issuance remains low, sustainable finance is gaining momentum through market-led initiatives as well as strong political commitment to support low-carbon society.

The capital adequacy of the Finnish banking sector remained strong. At the end of 2017, the overall capital adequacy ratio was 23.4%. The Common Equity Tier 1 ratio (CET1) stood at 21.0%. The leverage ratio improved to 6.8%.

Operating profits slightly increased from the previous year.  Net interest income continues to be the banking sector’s most substantial source of income, even though on average, its share of banks’ total returns has fallen in recent years. Banks have continued diversifying their business models and have received more income from asset management, trading activities and insurance services.

Operating costs continued to grow and were 9% higher than in 2016. Personnel expenses remained unchanged and the increase was due to other operating expenses such as development projects and IT costs. In recent years, banks have invested heavily in digitalisation and service development. In the long run, efficiency will increase and cost will decrease due to higher automation.

Non-performing loans have remained low and were 1.4% of total loans.

The banking sector´s short-term liquidity position was strong. Liquidity Coverage Ratio stood at 138% at the end of the year. The liquidity buffer totalled €40.6 billion and consisted mainly of central bank’s reserves (56%) and extremely high-quality covered bonds (17%).

The financial industry continued to be a significant taxpayer to the Finnish economy. Corporate tax contribution was €651 million, i.e. 11% of the total annual corporate tax revenue

Contributor: Elina Erkkilä

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