Macroprudential decision: Housing loan cap and countercyclical capital buffer (CCyB) requirement for banks remain unchanged

At its meeting on 28 June 2023, the Board of the Financial Supervisory Authority (FIN-FSA) decided to keep the housing loan cap, i.e. the maximum loan-to-collateral (LTC) ratio, at its previous level of 85%. The countercyclical capital buffer requirement for banks will remain at its standard level. In addition, the Board approved the partial reciprocation of the Norwegian systemic risk buffer requirement to be applied to Finnish credit institutions’ exposures in Norway.

Tightening financial conditions will dampen economic growth in the euro area as well as globally this year and the next. Global growth will strengthen gradually as tightening monetary policy slows down inflation. Uncertainty related to overall economic developments is blurring the financial stability outlook. The Finnish economy fell into a recession in the latter half of last year on the back of fast inflation, impaired purchasing power and tightened financing conditions. According to the Bank of Finland’s forecast published in June, the economy will contract this year by 0.4% from last year, as rising prices and interest rates as well as weak export demand are suppressing growth on a broad scale. However, the recession is expected to remain mild and short-lived. For 2024, a slow growth of 0.9% is forecasted.

Developments in the housing markets have been sluggish due to the interest rates, rising living expenses and other inflation. House sales and the housing loan markets settled down at the beginning of 2023, leading to a slight reduction in the indebtedness of the household sector. The debt-to-income ratio declined to 129.9% while still remaining at a historically high level.

”Household indebtedness is clearly higher than for example in 2007–2008 – the last time when interest rates rose materially. Risks to financial stability may grow if indebted households drastically reduce consumption or debt servicing problems increase. However, interest rate hedges, savings and access to forbearance measures mitigate the immediate threat to financial stability”, says Marja Nykänen, Chair of the FIN-FSA Board.

Loan cap, countercyclical capital buffer (CCyB) requirement for banks and O-SII requirements unchanged

Due to the uncertainty associated with the prospects of the economy and the housing markets, it is important to prevent the growth of vulnerabilities related to high household indebtedness and to ensure the risk resilience of new borrowers. Therefore, the FIN-FSA Board has decided to keep the maximum LTC ratio for new non-first home loans, or the loan cap, unchanged at 85% until further notice. The FIN-FSA continues to develop the analysis of the impacts of the maximum LTC ratio to support related decision making.

The financial cycle has weakened further. The primary risk indicator, i.e. the credit-to-GDP gap, has remained clearly negative. The growth of household loans and the private-sector loan stock as a whole relative to nominal GDP has been sluggish. The stress index for the financial sector rose in March due to financial market turbulence and decreasing bank stock prices, but it has declined since then. Therefore, there are no grounds to raise the countercyclical capital buffer requirement.

The FIN-FSA has reviewed the additional capital requirements for other systemically important institutions (O-SIIs) set by the FIN-FSA Board on 27 June 2022. In the review, no grounds emerged to adjust these capital requirements.

Partial application of the systemic risk buffer requirement imposed by the Norwegian authority

In December 2022, the Norwegian macroprudential authority (Finansdepartementet) notified to Finnish and other EEA authorities that it had imposed a systemic risk buffer requirement on banks, and it requested the reciprocation of the measure with respect to banks registered in EEA countries and operating in Norway. The requirement strengthens the risk resilience of the Norwegian banking sector. At its meeting, the FIN-FSA Board approved the partial reciprocation of the requirement for application to Finnish banks, reflecting a partial overlap with risks covered by structural capital buffer requirements.

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 its macroprudential instruments to promote stability. The Board decides on a quarterly basis the levels of the countercyclical capital buffer (CCyB) 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 (SyRB) at least every second year.

For further information, please contact:

Marja Nykänen, Chair of the Board of the Financial Supervisory Authority, tel. +358 10 831 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)
Proposal of the Director General of the FIN-FSA on the application of macroprudential instruments dated 21 June 2023 (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
Appendix to the 28 June 2023 decision by the FIN-FSA Board: Principles for determining Other Systemically Important Institutions (O-SIIs) and their additional capital requirements
Macroprudential report 1/2023 (in Finnish)