Financial position and risks of supervised entities 2/2013: Finnish financial sector capital positions strong, but profitability weaker for many market participants
According to end-June data published today by the Financial Supervisory Authority (FIN-FSA), the capital position of the Finnish banking and insurance sectors has remained good overall. However, the profitability of some of the market participants was weak.
─ Strong capital positions and good risk management have helped market participants to weather this financially difficult situation, notes Anneli Tuominen, Director General. ─ There are however considerable differences among the banks and insurance companies. The smaller banks in particular have had difficulties in maintaining their profitability, which has been under continuous strain due to the low level of interest rates and sluggish economic growth.
Financial sector has already adjusted, but the pressures continue
Financial market participants have improved their profitability by, for example, increasing the share of business based on fee and commission income, raising their service and product fees, entering into cooperative arrangements, and cutting expenses. Smaller banks have also resorted to mergers.
Finnish banks fulfil the new capital adequacy requirements, liquidity requirements more challenging
The new stricter capital adequacy requirements safeguard the level of banks' capital, as they can restrain dividend distributions to shareholders. ─ With the continued weak outlook, it is essential to maintain strong capital positions, notes Anneli Tuominen, Director General. Banks with strong capital and liquidity positions are best positioned to maintain lending also in an economic downturn.
The liquidity requirements require banks to increase their liquid assets and lower their risk levels. This involves more significant changes for smaller banks than for the larger ones.
Euro area banking sector assets to be scrutinised
European banks' capital positions have generally improved as a result of the recapitalisation and balance sheet reduction measures already taken. However, particularly the banks in highly indebted countries are suffering from poor profitability and many of them are posting negative results because of higher credit losses.
The Council of the European Union is expected to adopt a final decision on the establishment of a single supervisory mechanism in the near future. The regulation would most probably enter into force in October. The European Parliament has already adopted the regulation. – Before the launch of the banking union, it is essential to thoroughly assess with uniform criteria those banks’ balance sheets that fall under single supervisory mechanism and to conduct stress tests on these banks to verify the valuation of their balance sheet items and form a clear understanding of possible recapitalisation needs, emphasises Jukka Vesala, Deputy Director General.
Finnish banking sector's capital position remained strong, financial and insurance conglomerates' capital position unchanged
Finnish banks’ capital buffer has decreased slightly as growth in the minimum capital requirement exceeded growth in the banks’ capital base. Capital adequacy ratio declined to 15.6% (31 December 2012: 17.0%). The Core Tier 1 capital ratio was 14.3 % (31 December 2012: 15.5%).
Financial and insurance conglomerates' solvency ratio remained unchanged at 1.9.
Employee pension institutions' solvency unchanged
The sector's solvency position has remained good and was 25.9% at the end of June (31 December 2012: 26.2%). The risk-based solvency position decreased significantly in the first quarter of the year due to the change in legislation and the rise in risk level, but stabilised in the second quarter at 2.0 (31 December 2012: 2.5).
Life insurance sector's solvency at a good level, non-life insurance companies’ solvency remained strong
Despite a decline of EUR 0.2 billion in the first half of the year, the life insurance sector's solvency margin was still more than 5 times the statutory minimum. Life insurance companies' risk-based solvency position (3.2) actually improved from the end of 2012 (3.0).
Non-life insurance companies’ risk-based solvency position was 2.3. Changes in company structures hamper the comparison of the non-life insurace sector figures.
For further information, please contact
- Anneli Tuominen, Director General, tel. +358 10 831 5300
- Jukka Vesala, Deputy Director General, tel. +358 10 831 5374
- Financial position and risks of supervised entities 2/2013 (in Finnish, pdf)