Bank of Finland and Finnish Financial Supervisory Authority: Risk of banking crisis avoided in Finland

Large capital buffers offer protection to Finnish banks

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The economic crisis that started from the financial market no longer poses a threat to the banks operating in Finland, believe the Bank of Finland and the Finnish Financial Supervisory Authority.
      The assets of the banks operating in Finland exceed clearly the set minimum requirement. The capital buffers of the entire banking field reached EUR nine billion in Q3 2009.
      “In Finland, the banking sector's profitability and capital adequacy have remained strong within the context of a very difficult operating environment”, stated Erkki Liikanen, Governor of the Bank of Finland at a Thursday press conference.
      “In Finland the banking sector has long avoided taking excessive risks”, Liikanen continued.
      “The banks' sizeable capital buffers will withstand the foreseen losses and even weaker than anticipated economic development.”
     
The Financial Supervisory Authority Deputy Director General Jukka Vesala agreed with Liikanen.
      “We expect the banks’ credit losses to increase somewhat in the near future. Furthermore, banks are experiencing increased pressure with regard to their profitability because of the decreased interest margin. However, the banking sector’s capital buffers are sizeable enough to minimise the risk of any undue problems”, Vesala said.
     
According to Vesala, the banks operating in Finland have not made as many risk investments as banks in many other countries. Hence not too many write-downs of value of investments have been recorded, either.
      “As long as the banks’ business result remains profitable, their solvency increases”, Vesala added.
      As the most significant risks to the financial sector Liikanen listed prolonged recession, excessive reliance on government and central banks' support measures, the banks’ weak granting of credit ability with the recovering economy, and the fact that reforms of the financial system remain incomplete.
      In Finland the banks have not applied for or received any governmental support.
     
According to financial market expert Heikki Koskenkylä, during the entire economic crisis there have been no signs of a banking crisis in Finland.
      “In Finland we took heed of the depression of the 1990s and, unlike many other countries, we avoided the housing bubble”, Koskenkylä says, in a direct reference to the country's earlier travails in the banking sector just over 15 years ago.
      The suggestion is that once burned, the domestic banking sector exercised a measure of caution when others around them did not.
      Koskenkylä warns, however, that the international financial market is in a very unstable stage because of structural problems.


Previously in HS International Edition:
  Finnish bank directors: US bank crisis not spreading to Finland (18.3.2008)

Links:
  Financial Supervisory Authority press release
  Bank of Finland press release

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