The pandemic year encouraged households’ saving – Overview of Finnish banking in 2020

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  • Banks maintained more or less level capital positions.
  • Operating profits increased €0.9 billion.
  • The coronavirus crisis reduced consumption but boosted saving.
  • Banks approved the majority of households’ and companies’ 300,000 loan moratoria applications.

Finance Finland publishes an annual overview on the Finnish banking sector, its structure and its operating environment. The overview is written by FFI Adviser Mariia Somerla.

The coronavirus crisis suppressed households’ consumption especially in early 2020, but on the flip side, households’ saving rate grew. Households’ saving rose to €6.9 billion. The previous year, their saving amounted to €1 billion. Households’ saving rate grew to 5.7%.

“Last year’s saving rate was the highest witnessed since the 1990s. As consumers spent less money on clothes, accessories and services and were unable to travel abroad, they had more to put aside in saving and investing”, comments FFI’s Adviser Mariia Somerla.

Finnish banks made it through the year of the pandemic with relatively little damages, indicates FFI’s analysis of the Finnish banking sector in 2020. The overall capital adequacy ratio of the sector stood at 21.2% at the end of the year, nearly the same as the previous year. The sector’s Common Equity Tier 1 ratio strengthened, as did the sector’s operating profits by €0.9 billion.

“Banks maintained their level of operating profits in Finland despite the ongoing crisis. Banks have also hedged against potential credit losses by holding reserves on their balance sheets.”

Finnish banks reacted quickly to the coronavirus-induced financial crisis by granting loan payment moratoria and other flexible arrangements for their household and corporate customers. In the course of the year, households and businesses applied for a total of more than 300,000 grace periods. Nearly all applications were accepted.

“The prerequisite for grace periods and other flexible arrangements was that the customer had no pre-crisis loan servicing difficulties and that the bank estimated the customer’s repayment ability will return to normal after the crisis”, Somerla points out.

Finnish households’ loan debts totalled €163 billion at the end of 2020, which is €6 billion more than in 2019. Housing loans comprised the majority of this debt with €103 billion.

“The debt-to-income ratio of the mortgage portfolio – investment property mortgages excluded – has continued to decrease since 2016. This is worth taking into account in any consideration of housing loan regulation”, Somerla emphasises.

The pandemic year also influenced banks’ regulatory environment. The Finnish Financial Supervisory Authority (FIN-FSA) relaxed its macroprudential policy and certain reporting obligations. At the same time, however, banks had their work cut out for them with new reporting obligations.    

One of the year’s most significant regulatory projects in the banking sector was the EU Banking Package which was transposed into national legislation. This work extended into early 2021. The package implemented the revised rules on EU capital requirements (CRR II/CRD IV) and resolution (BRRD/SRM).

Finnish banking in 2020 – key figures

  • Banking sector’s overall capital adequacy ratio at the end of 2020 was 21.2%, down by 0.1 percentage points from 2019. The sector’s CET1 ratio improved 0.5 percentage points to 18.1%.
  • The aggregate operating profits of the Finnish banking sector grew by €0.9 billion, totalling €4.3 billion.
  • Net interest income (the difference between interest income and interest expenses) grew 4% to €6.7 billion. Net interest income is the banking sector’s most substantial source of income.
  • Finnish banks’ NPL ratio in the households sector was 1.6%. This is 0.3 percentage points higher than the previous year.
  • Households’ saving grew with one billion euros to €6.9 billion at year-end.
  • Households’ financial assets reached €354 billion at the end of 2020, which was €23 billion more than the previous year.
  • Finnish households’ loan debts totalled €163 billion at the end of 2020. This is €6 billion more than in 2019.
  • At the end of the year, there were 228 credit institutions operating in Finland. This was 18 credit institutions fewer than at the end of 2019.
  • Finnish banking groups and foreign deposit-taking banks’ Finnish branches employed a total of 20,317 people at the end of 2020.
  • There were 769 banking offices in Finland, which was 21 fewer than the year before.

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