Finnish banking sector stands stronger than EU average

The Finnish banking sector had a good year in 2018. The economic upswing, increased demand for credit, and access to inexpensive funding were reflected in banks’ balance sheets. Their capital adequacy and cost and profit efficiency remained stronger than the EU average. Structural changes continued as Nordea moved its headquarters to Finland in October. The regulatory environment was also very active.

The aggregate operating profits of the Finnish banking sector totalled €5.4 billion. There was a slight dip in profits if we eliminate the effects of structural changes and compare the figures to last year. In euros, the most negative effect for the overall results came from investments, which suffered especially due to the steep decline in share prices at the end of the year. Strong profitability enabled banks to continue their extensive IT projects and digitalisation.

Banks’ capital position fell slightly from 2017 but remained above the average level of EU member states. The sector’s short-term liquidity in particular was strong. The reasons for the weaker capital adequacy ratio lay foremost in the structural changes that took place in the banking sector.

In October, Nordea moved its headquarters from Sweden to Finland. Because Finland is a member of the banking union, the entire group now falls under direct supervision of the ECB. The Finnish banking sector’s balance grew to 3.4 times the annual GDP as a result of the move. It also turned the Finnish sector into one of Europe’s largest relative to the size of the national economy. The structural changes greatly affect the comparability of the results and key figures for 2016–2018.

The regulatory environment was also very active nationally and internationally. The FIN-FSA board made several decisions regarding the use of macroprudential tools. The decisions concerned new additional capital requirements and household indebtedness. IFRS 9 Financial Instruments also entered into force at the start of the year. This increased volatility in the banking sector’s results.

Read more from the financial overview: Finnish Banking in 2018

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Financial and Prudential Regulation

Veli-Matti Mattila

Director, Chief Economist