Macroprudential decision: Housing loan cap remains at 85%, Russia’s war in Ukraine and international economic developments may lead to tightening of financing conditions

The Board of the Financial Supervisory Authority (FIN-FSA) has decided to extend the period of validity of the decision on a lower loan cap, and hence the loan cap on residential mortgage loans other than first-home loans will remain at 85%. Banks’ countercyclical capital buffer requirement will also be kept unchanged at its standard level of 0.0%. The FIN-FSA Board is assessing the effects of the war on the stability of the Finnish financial system and on the need to deploy macroprudential instruments.

At present, the key risks to the functioning of the financial system and to the international economy are related to the geopolitical situation, to high inflation - which may lead to a faster tightening of financing conditions than previously expected - and to the continuation of the COVID-19 pandemic. The acute risks to Finland’s financial stability have been increased by the war. At the same time, many structural vulnerabilities in the financial system, such as household indebtedness, have remained significant.

The FIN-FSA Board has repeatedly recommended that lenders exercise restraint in granting loans that are large with regard to the loan applicant’s income and have a longer repayment period than usual. The recommendation will be specified in the second quarter of 2022.

‘Lenders should assess the amount of credit to be granted in such a way that the applicant can repay their debts even if loan interest rates were to increase significantly or the household’s own finances be exposed to serious shocks,’ says Marja Nykänen, Chair of the FIN-FSA Board.

The private sector credit-to-GDP gap, which is used as the primary risk indicator for setting the countercyclical capital buffer (CCyB) requirement for banks, has remained at a very low level. Based on the primary and supplementary risk indicators and other data, there are no such signs of changes in the credit market as would require an increase in the CCyB rate.

The FIN-FSA Board will adopt a renewed set of risk indicators to guide the imposition of the CCyB requirement. Early warning indicators and methods for assessing the build-up of risks of banking and financial crises have developed significantly over recent years. The new set of risk indicators is based on the best international and national research data and, as applicable, on the indicators used by the European Central Bank. The indicators will be introduced in the second quarter of 2022 and applied in the third quarter of 2022.

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 level of the countercyclical capital buffer (CCyB) requirement and the level of 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 (SyRB) 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

About Finanssivalvonta

Finanssivalvonta, or the Financial Supervisory Authority (FIN-FSA), is the authority for supervision of Finland’s financial and insurance sectors. The entities supervised by the authority include banks, insurance and pension companies as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. We foster financial stability and confidence in the financial markets and enhance protection for customers, investors and the insured.