Press release 22 December 2017

Macroprudential decision: FIN-FSA ready to restrict maximum LTC ratio should risks relating to household indebtedness increase further

The Board of the Financial Supervisory Authority (FIN-FSA) has decided not to activate the countercyclical capital buffer (CCyB) requirement. The maximum loan-to-collateral (LTC) ratio for new residential mortgage loans will remain at 90% (for first home purchases at 95%) and there will be no restrictions to the types of collateral used in calculating the LTC ratio. ‘However, the FIN-FSA is ready to restrict the maximum LTC ratio should risks relating to household indebtedness increase further’ says Dr Olli Rehn, Chairman of the Board of the FIN-FSA.

In recent years, the FIN-FSA has repeatedly expressed concerns over the high and increasing level of household indebtedness in Finland. The European Systemic Risk Board also issued a warning to Finland on the matter. What is at stake is, above all, credit institutions’ and households’ ability to withstand risks stemming from high indebtedness. The stock of household credit has grown faster than disposable income. Strong growth in borrowing by housing corporations has recently also added to the concerns.

CCyB rate at zero; systemic risk buffer as part of the macroprudential toolkit

The CCyB rate applicable to credit institutions will remain at zero. The CCyB rate is set primarily on the basis of the credit-to-GDP gap, i.e. the deviation of the domestic private sector credit-GDP ratio from its long-term trend. The credit-to-GDP gap continues to give a reference value of 0% for the CCyB rate. The supplementary risk indicators are signalling an increase in credit-related risks. However, these risks are not currently indicating such a build-up of financial system risks as would necessitate a higher CCyB rate in order to improve banks’ risk resilience.

The systemic risk buffer requirement will be introduced as part of the FIN-FSA’s macroprudential toolkit as from 1 January 2018. The Government bill concerning the systemic risk buffer and amending the Credit Institutions Act was approved by Parliament in November 2017. The systemic risk buffer requirement may be set to cover long-term non-cyclical risks to the financial system. A further requirement that will enter into force on 1 January 2018 is the minimum risk weight level of 15% for residential mortgage loans applicable to credit institutions that have adopted the Internal Ratings Based Approach for the calculation of capital requirements.

Other systemically important institutions

The Board of the FIN-FSA has identified credit institutions significant for the Finnish financial system (other systemically important institutions, O-SIIs) and set additional capital requirements (O-SII buffers) for them. The new O-SII identifications and buffers will take effect on 1 July 2018. The FIN-FSA Board took the first decision on O-SIIs in July 2015. As a result of restructuring, Nordea Bank Finland Plc merged with Nordea Bank AB (publ). Nordea Mortgage Bank Plc has been identified as a new O-SII. If Danske Bank Plc converts into a branch structure on 31 December 2017 as planned, the decision on its O-SII buffer will not take effect. The O-SII buffer requirement on Municipal Finance Plc has been raised to 1%. 

Credit institution

O-SII buffer, %

Previous O-SII buffer, %
Danske Bank Plc 0.5 0.5
Municipal Finance Plc 1.0 0.5
Nordea Bank Finland Plc - 2.0
Nordea Mortgage Bank Plc 0.5 -
OP Cooperative 2.0 2.0

The FIN-FSA Board made its decision upon a proposal by the Director General and after consultation with the Bank of Finland, the Ministry of Finance and the Ministry of Social Affairs and Health. In accordance with the regulations governing the Single Supervisory Mechanism and other EU legislation, the relevant EU institutions and national authorities were notified of the forthcoming decision.

For further information, please contact:

Olli Rehn, Chairman of the Board of the Financial Supervisory Authority, tel. +358 9 183 2002.

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See also