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Bank of Finland Bulletin 2/2012 – Financial
stability 2012
Pentti Hakkarainen
Deputy Governor
8 May 2012
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Themes
1) Stability situation and outlook for the Finnish financial
system
- domestic and foreign operational environment
- situation of main debtor sectors
2) Risk resilience of the Finnish financial system
3) Necessary measures for strengthening the stability of the
Finnish financial system
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Euro area countries’ 10-year bond yield
spreads vis-à-vis German yields
Euro area countries 10-year bond yield spreads vis-à-vis German yields
Finland
6
France
Netherlands
Spain
Italy
Percentage points
5
4
3
2
1
0
12/2011
1/2012
2/2012
3/2012
4/2012
5/2012
Source: Reuters.
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Stability situation and outlook for the Finnish
financial system
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Stability of the Finnish financial system
strengthened in 2012
Macroeconomy
Banks'
sustainability
Housing
prices
Risk premia
December 2009
September 2011
Indebtedness
March 2012
Sources: NASDAQ OMX Helsinki, banks, Statistics Finland and Bank of Finland.
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Annual growth in corporate loans* accelerated
Average interest rates on corporate loans* and annual growth rate
1 Average interest rate on corporate loan stock (left-hand scale)
2 Average interest rate on new corporate loans (left-hand scale)
3 Corporate loans, annual growth rate (right-hand scale)
7
%
%
25
6
20
5
15
4
10
3
3
5
1
2
2
0
1
-5
0
2003
-10
2004
2005
2006
2007
2008
2009
2010
2011
2012
*Also includes housing corporations.
Source: Bank of Finland.
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Household
indebtedness
to grow
Household
indebtedness
continues tocontinues
grow
Loan stock (left-hand scale)
Share of housing corporations' loan stock (left-hand scale)
Interest expenditure (right-hand scale)
120
% of disposable income
% of disposable income
12
100
10
80
8
60
6
40
4
20
2
0
0
1987
1992
1997
2002
2007
Sources: Statistics Finland and Bank of Finland calculations.
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Household indebtedness at average
European level
Household indebtedness at average European level
%
Denmark
Netherlands
Ireland
Norway
Cyprus
Sweden
United Kingdom
Portugal
Spain
European Union
Finland
Euro area*
Estonia
Germany
Austria
Belgium
Greece
France
Italy
Slovakia
Slovenia
0
50
100
150
200
250
300
350
Loans, % of disposable income.
Also includes non-profit institutions serving households.
Sources: Eurostat and Bank of Finland calculations.
* Euro area figure has been corrected after the press conference (8.5.2012).
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Share of heavily indebted households (debt
ratio*
inhouseholds
excess
ofof 500%)
500%)
Share
of heavily indebted
(debt ratio* in excess
on the increase on the increase
Proportion of households with debt (left-hand scale)
Proportion of total household debt (left-hand scale)
Average debt (right-hand scale)
18
EUR, thousands
%
15
250
12
200
9
150
6
100
3
50
0
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
* Debt, % of disposable monetary income.
Sources: Statistics Finland and Bank of Finland calculations.
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300
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Low lending rates have kept interest payment
Low lending rates have
kept interest paymentat
burden tolerable
at tolerable levels
burden
levels
Loans, average interest rate
Total margin
6
Deposits, average interest rate
12-month Euribor
%
5
4
3
2
1
0
2006
2007
2008
2009
2010
2011
2012
Sources: Bank of Finland and Reuters.
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Risk resilience of the Finnish financial
system
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Banks strong in terms of profitability and
Banks strong adequacy,
in terms of profitability
and capital adequacy,
leverage
ratio
capital
leverage
ratio
declined
declined
Return on equity (ROE)
Leverage ratio (equity / total assets)
Capital adequacy, %
16 %
12 %
8%
4%
0%
2006
2007
2008
2009
2010
2011
Source: Financial Supervisory Authority.
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Banks’
credit
Banks’ credit
risk outlook
stablerisk
outlook stable
Filed corporate bankruptcies, 12-month moving sum (left-hand scale)
Banks' non-performing assets (right-hand scale)
Banks' net impairment losses, 12-month moving sum (right-hand scale)
7
EUR billion
Number, 1,000
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Sources: Statistics Finland, Financial Supervisory Authority and Bank of Finland calculations.
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Covered bonds have diversified Finnish banks’
funding structure
Covered bonds have diversified Finnish banks’ funding structure
1 Outstanding
24
2 Issues
EUR billion
20
1
16
12
2
8
4
*
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
*For 2012, outstanding volume at end-February, issues in January-February.
Sources: Bank of Finland, European Covered Bonds Council and Bloomberg.
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Special questions regarding payment and
settlement systems
 Benefits from international infrastructure services
– Lower prices with economies of scale
– Broader markets for participants
 Challenges for international infrastructure services
– Harmonised operational procedures still need to support the
already achieved efficiency gains:
• Eg automatic recording of payments at firms
• Market development must be fostered
– Risk management must be updated to correspond to the new
environment
 Infrastructure decisions are strategically important
 Possibilities to influence infrastructures must be retained
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Measures to enhance financial stability
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1) Household indebtedness must be tackled
 We have to increase awareness of interest rate risks and
the risks related to large debts and various loan
products.
 Banks must carefully comply with FIN-FSA’s
recommendations for assessing mortgage loan
applicants’ housing and repayment affordability and for
caution regarding loan-to-value (LTV) ratios in excess of
90%.
 Banks and authorities should be cautious about
amortisation-free and bullet housing loans that have
become widespread in some countries.
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2) Authorities need to be equipped with
adequate macroprudential tools
 Finnish authorities must be equipped with discretionary
means for restraining excessive overall lending and
lending for house purchases, at least.
 We must also consider whether tools are needed to
restrict excessive growth in banks’ balance sheets and
short-term market funding.
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3) Sustainability of Finland’s public finances
must be safeguarded
 Measures to safeguard the long-term sustainability of
Finland’s public finances must be continued in a
determined manner.
– The long-term sustainability of the public finances is an
indispensable condition for the stability of the national financial
system.
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4) The quality and availability of infrastructure
services directed at financial markets
must be ensured
 In developing national financial markets, care must be
taken to ensure that infrastructure services directed at
financial markets remain reliable and effective and are
flexibly accessible to different market participants.
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5) Attention needs to be devoted to
developments in equity ratios
 Supervisory authorities must pay attention to credit
institutions’ balance sheet growth and declining leverage
ratios.
 Banks operating in Finland differ in terms of their
structures and business models, which places special
demands on regulation and supervision.
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