Finnish banks remain strong despite the economic situation

The Finnish banking sector faced many challenges in 2015. The unusually low interest rates, Finland’s generally weak economic situation and the market environment were all factors of uncertainty, but banks nevertheless successfully improved their results and capital adequacy.

The strength of the banking sector has enabled the growth of lending, thereby supporting the Finnish real economy. New regulation not only requires a larger capital base from banks, but also better quality capital. Finnish banks’ capital adequacy was considerably strengthened by raised capital and retained earnings during 2015, and consists almost entirely of Tier 1 capital.

Aggregate operating profits of the banking sector increased by an impressive 18% during 2015. Most banks managed to raise their operating profits, but there is divergence in the results of individual credit institutions.

Impairment losses remained at a low level. Banks have been able to respond to the challenging market situation by cutting costs, diversifying operations and giving more focus on commission-based business.

”The Finnish banking sector has been able to respond to its challenges and boost its profits and capital adequacy. A strong banking sector is an absolute necessity for increasing lending and supporting economic growth”, says Valtteri Vuorio, analyst at the FFI.

The corporate loan portfolio grew faster than the euro area average in Finland with 6%. The demand for corporate loans showed signs of improvement, although the demand for investment funding stayed low. Compared to other euro countries, corporate funding is still inexpensive in Finland.

Banks are now at a turning point. Their operations are influenced by low and even negative market rates, stricter regulation, and weak development of the national economy. Long-term effects will also be caused by changes in customer behaviour, digitalisation and competition in the financial sector. Banks have made investments towards the future by developing their digital business, renewing their services and improving their competitiveness. This reflects in rising employee numbers and changing job descriptions.