Macroprudential decision: Loan cap remains at 85%, no changes to banks’ countercyclical capital buffer requirement

The Board of the Financial Supervisory Authority (FIN-FSA) has decided to keep the countercyclical capital buffer requirement (CCyB) for banks unchanged at its standard level and to extend the period of validity of the decision on a tighter loan cap, i.e. the maximum loan-to-collateral (LTC) ratio. The loan cap was tightened in June by lowering the maximum LTC ratio for new residential mortgage loans other than first-home loans by 5 percentage points, to 85%.

‘Although the outlook for the Finnish economy is favourable, the COVID-19 pandemic continues to overshadow global economic developments, thereby prolonging uncertainty about the financial system. High household indebtedness is a structural concern which has been further exacerbated by the fact that large and longer-than-usual housing loans have become more common during the pandemic,’ says Marja Nykänen, Chair of the FIN-FSA Board.

Households’ debt levels have risen during the pandemic especially due to growth in housing loans. In the current situation, it is important that lenders continue to carefully assess borrowers’ ability to pay and exercise restraint in granting loans that are large with regard to the borrowers’ income and have a longer than usual repayment period.

Banks’ countercyclical capital buffer requirement will remain unchanged

The FIN-FSA Board has decided to maintain the CCyB rate at 0.0%. The primary risk indicator for setting the CCyB requirement – the private sector credit-to-GDP gap – has remained at a low level. Supplementary risk indicators and mesaures also suggest that there are no clear signs of such a build-up of cyclical risks as would require a higher CCyB rate.

The Board of the Financial Supervisory Authority assesses on a quarterly basis the short- and long-term risks to the stability of Finland’s financial system. If necessary, the Board may tighten or relax the macroprudential instruments, which promote stability. The Board decides on a quarterly basis the levels of the countercyclical capital buffer (CCyB) requirement and the maximum loan-to-collateral (LTC) ratio for housing loans. The levels of the additional capital requirements for nationally systemically important institutions (O-SII buffers) are reviewed at least annually and the level of the systemic risk buffer at least every second year.

For further information, please contact:

Marja Nykänen, Chair of the Board of the Financial Supervisory Authority, tel. +358 9 183 2007

View this link to access the appendices listed below

Board’s decision on the application of macroprudential instruments (pdf)
Proposal of the Director General of the FIN-FSA, circulated for comment, on the application of macroprudential instruments (pdf, in Finnish)
Opinions on the Director General’s proposal on the application of macroprudential instruments (pdf, in Finnish)
- Bank of Finland
- Ministry of Finance
- Ministry of Social Affairs and Health