Press release 4 December 2013

Capital position of banking and insurance sector 30 September 2013: Finnish financial sector’s risk-bearing capacity has remained good despite weaker macroeconomic developments

According to end-September data published today by the Financial Supervisory Authority (FIN-FSA), the capital position of the Finnish banking and insurance sectors has remained good, ie the risk-bearing capacity was still good in all sectors. – In a risk sensitive operating environment, it is important that supervised entities maintain adequate capital buffers and thereby a good risk-bearing capacity, notes Anneli Tuominen, FIN-FSA’s Director General.

Despite positive market developments, the Finnish financial sector’s operating environment is still vulnerable to risks. Economic growth prospects have remained bleak in Finland and Europe alike. Corporate bankruptcies have increased and growth in bank lending has waned markedly. Even though the banking sectors’ non-performing loans relative to the stock of credit and guarantees are still low, at 0.56%, they increased from the previous year by 17% and 5% for corporate and household loans respectively.

The low level of interest rates curtails the profitability of net interest income-based core banking operations and heightens the importance of other income items for banking results. Weak economic growth, if continued, will also have a downward impact on profitability in all sectors.

Capital position of banking sector has remained sound

Despite waning growth in lending, the banking sector’s net interest income has started to grow on the back of increased loan margins. However, the continued low level of interest rates and weak economic developments put pressure on banks’ profitability.

At the end of September, the banking sector’s capital adequacy ratio was 15.6%, unchanged from the end of June. The quality of Finnish banks’ own funds was still sound and the volume of own funds increased slightly due to retained earnings. Own funds were mainly composed of Tier 1 capital (95%). The ratio for the highest-quality common equity (Core Tier 1 capital) remained nearly unchanged, at 14.4% (30 June 2013: 14.3%). Finnish banks already fulfil the banking sector capital adequacy requirements which will gradually come into effect at the beginning of the next year. 

The total solvency ratio of financial and insurance conglomerates remained at 1.9.

Solvency of employee pension, life and non-life insurance sectors improved, but considerable differences detected between companies

Employee pension institutions’ total solvency capital rose in the third quarter of 2013 by EUR 1.3 billion, which further improved the already good solvency position and enabled continuance of investments with relatively high risks. However, there were significant differences in solvency between pension providers. The relatively high risk level of investment portfolios is reflected in a lower risk-based solvency position for the sector than recorded in recent years. The risk-based solvency position remained almost unchanged, at 2.1 (30 June 2013: 2.0).

The solvency of life insurance companies improved in the third quarter. The solvency margin rose and was about 5.5 times (30 June 2013: 5.2 times) the statutory minimum. The risk-based solvency position strengthened, to 3.5 (30 June: 3.2). 

Key indicators for the solvency of the non-life insurance sector improved, and the solvency margin was 4.5 times (30 June 2013: 4.3 times) the statutory minimum. There were, however, significant differences in solvency between companies. The risk-based solvency position was 2.4 (30 June 2013: 2.3).

For further information, please contact

  • Anneli Tuominen, Director General, tel. + 10 831 5300
  • Jukka Vesala, Deputy Director General, tel. +10 831 5374  

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