Finland’s banking sector could withstand even a harsher recession than forecast

Abstract

Despite the economic recession, the capital position of Finnish banks has improved. This is attributable especially to growth in the net interest income of the banks. The financial standing of Finnish banks is expected to further improve in the immediate years ahead. However, the banking sector also faces threats in the form of downside risks to growth in the economy and geopolitical tensions. Stress testing shows that Finnish banks could nevertheless withstand a longer and deeper recession than forecast, but in this case their capital adequacy would weaken considerably, mainly due to an increase in loan losses. It is important that banks maintain sufficient capital buffers, as these buffers will safeguard their risk-bearing capacity in an uncertain operating environment.