Finland: Financial Sector Assessment Program

Despite high capitalization levels, there are important vulnerabilities in the Finnish banking system. Near-term risks are largely tilted to the downside, stemming from both external and domestic sources. A shaper than expected global growth slowdown would be a drag on Finland’s export and GDP growth. Although so far high compared to the rest of the euro area banks, Finnish banks’ profitability is facing challenges from the low interest rate environment and the low economic growth. Vulnerabilities include funding risks, contagion risks, and challenges related to long-term profitability. Relatively low levels of total equity resulting in part from an aggressive use by banks of their internal risk models might warrant additional buffers. Some banks are significantly exposed to the derivatives business and as a result to counterparty credit risks.