Press release 1 June 2016

Position of banking and employee pension insurance sectors as at 31 March 2016:

Banks' capital adequacy still strong, solvency ratio of employee pension sector at a solid level – in stress test, employee pension companies below solvency limit but technical reserves remain covered also in stress scenario

According to the end-March information released by FIN-FSA today, capital adequacy remains strong in the Finnish banking sector. However, profitability fell clearly short of the 2015 level in the first quarter due to weak income performance. In an environment of exceptionally low interest rates, the total net operating income of the banking sector declined considerably, although developments were mixed and some banking groups' net interest income grew. At the same time, the unstability of the investment markets undermined investment-linked returns. The solvency ratio for the employee pension sector continued to decline, although remaining solid at sector level.

​In spring 2016, a national stress test was made on employee pension companies as part of the IMF's country assessment. The purpose of the stress test was purely to test the risk-bearing capacity of the companies' solvency capital. The test was conducted as a scenario which was assumed to take place as a whole in a single point in time, and therefore any active portfolio reallocation measures by the companies were not taken into consideration. According to the stress test, the solvency capital declined in a stress scenario resembling the financial crisis below the solvency limit while still exceeding the minimum capital requirement. Hence, the technical reserves remained covered.

– Risk levels have risen in the pension sector, as also shown by the results of the stress test. In addition, the decrease in the results of the banking sector also reflected its higher-risk income structure. These circumstances further highlight the importance of solid risk management by supervised entities, states Anneli Tuominen, Director General of the Financial Supervisory Authority (FIN-FSA).

Capital adequacy of the banking sector was strong

The common equity tier 1 capital adequacy of the banking sector weakened slightly in January-March to stand at 20.8% at the end of March (31 Dec 2015: 21.0%). Total capital ratio declined to 22.8 percent (31 Dec 2015: 23.1%).

The reason underlying the weakening of the capital ratios in January-March was the growth of the credit portfolio and balance sheet. Risk-weighted assets grew while own funds remained unchanged.

The capital ratio of financial and insurance conglomerates deteriorated due to Solvency II regulation changes. At the end of March, the ratio stood at 1.6 (31 December 2015: 2.1). The solvency calculation of insurance companies was reformed completely when Solvency II entered into force on 1 January 2016. The solvency ratios calculated under Solvency II provisions are not comparable to those calculated under Solvency I provisions.

Solvency of employee pension sector remains at a solid level

The solvency ratio of the employee pension sector continued to decline, to 26.3% (31 Dec 2015: 28.6%), but solvency remained still at a good level. The decline was due to weak investment returns and the relatively high return payable on pension liabilities. The risk-based solvency position for the sector was 2.0 (31 Dec 2015: 2.0).

The average investment return for the employee pension sector in the first quarter was -1.0%. On average, the sector's equity investments returned
-3.3% and fixed income investments 0.1%.

The solvency limit indicating the risk relating to the investments of the sector declined clearly during the quarter to stand at 13% of the technical reserves at the end of March (31 Dec 2015: 14.6%). The decline was due to a decrease in the valuations of the higher-risk investments and active reduction of equity risk.

Due to changes in the reporting schedule, life and non-life insurance sectors’ Solvency II data will exceptionally not be released until the autumn.

For further information, please contact:

  • Anneli Tuominen, Director General, tel. +358 10 831 5300
  • Marja Nykänen, Deputy Director General, tel. +358 10 831 5247


Position of banking and employee pension insurance sectors as at 31 March 2016 (in Finnish)