Financial position and risks of supervised entities 1/2014: Finnish financial sector in reasonably good health, but operating environment fairly fragile with growing risks
According to information as of the end of 2013 published by FIN-FSA today, the capital position of the Finnish banking and insurance sectors was reasonably good overall. The sectors’ profitability has also remained fairly good despite the weak performance of the real economy.
– The risks in the operating environment remain significant, says Anneli Tuominen, Director General of FIN-FSA. – The outlook for the Finnish economy is uncertain, which increases the financial sector's susceptibility to negative changes. Maintaining adequate capital buffers is therefore crucial to financial market stability and confidence. The continued weak economic situation requires that banks, in particular, carefully monitor the financial position of their customers and ensure that their risk management is adequate and functions smoothly.
Capital adequacy of the banking sector remained strong
Finnish banks’ capital adequacy ratio was 16.0% at the end of the year (31 December 2012: 17.0%). The Core Tier 1 capital ratio was 14.8% (31 December 2012: 15.5%). The ratios were lowered by Nordea Group’s internal guarantee in favour of Nordea Bank Finland. In absence of the guarantee the banking sector’s capital adequacy in 2013 would have continued to improve in line with the developments in recent years. Financial and insurance conglomerates’ solvency ratio remained unchanged at 1.9.
Banks compensated for the low interest rate level and the consequent fall in their net interest income by increasing lending margins and raising service fees as well as cutting costs. Excluding the impact of the new bank tax, the overall costs of the banking sector decreased from the previous year.
Impairment losses on lending decreased, but domestic non-performing assets increased in nominal terms. The rise in non-performing assets anticipates an increase in impairment losses over the longer term.
Strong risk bearing capacity in the employee pension sector
The solvency position of the sector improved slightly to stand at 28.4% at the end of 2013 (31 December 2012: 26.2%). The risk-based solvency position in turn deteriorated a little to 2.1 (31 December 2012: 2.5). This was due to a much higher-than-average risk level caused by the large weight (nearly 40%) of equity investment. The higher risk level in employee pension institutions increased the solvency requirement, but in the favourable market situation it enabled a good return on investment for the majority of institutions.
Solvency good in life insurance sector and strong in non-life sector
The life insurance sector’s solvency margin was still more than 5 times the statutory minimum (31 December 2012: 5.4). The risk-based solvency position of life insurance companies was 3.7 (3.0). The improved solvency was based on the increased sales of unit-linked products.
The non-life insurance sector’s risk-based solvency position was 2.3 (2.1) and its solvency position 4.2 (4.3). The solvency position was strengthened by improved profitability.
Information on January-March capital positions will only be published for the insurance sector
Because of significant changes in reporting, information on the first quarter of 2014 will only be published for the insurance sector. Capital adequacy information for the banking sector will be published next in September based on information as of the end of June.
For further information, please contact
- Anneli Tuominen, Director General, tel. +358 10 831 5300 or
- Marja Nykänen, Deputy Director General, tel. +358 10 831 5247
- Financial position and risks of supervised entities 1/2014 (in Finnish, pdf)