Financial sector's capital position as at 30 September 2017: Financial sector stable, life and non-life insurance companies’ premium income unchanged
According to end-September information released today by the Financial Supervisory Authority (FIN-FSA), Finland’s financial sector remains stable. The banking sector’s capital position is strong and the insurance sector’s solvency position is good.
Banking sector's capital position remains strong
The banking sector's Common Equity Tier 1 (CET1) capital ratio improved in July–September, and as at 30 September 2017 it was 20.6% (30 June 2017: 20.1%). The strengthening of the capital position was due to a decrease in risk-weighted assets and increase in CET1 capital, which in turn reflected growth in retained earnings and issuance of equity instruments. The banking sector’s total capital ratio increased to 23.0% (30 June 2017: 22.6%).
The domestic banking sector's capital position is significantly stronger than the European average, which is partly explained by lower-than-average risk weights. The difference in risk weights will be reduced by the risk weight floor of 15% for residential mortgage loans that will enter into force as from 1 January 2018.
Despite improvements in the capital position, the banking sector's Common Equity Tier 1 (CET1) capital ratio weakened by 1.5 percentage points and the total capital ratio by 1.6 percentage points compared with the situation at the end of 2016. This was mainly due to the fact that, as of the turn of the year, Nordea Bank Finland Plc was no longer included in the Finnish banking sector’s key indicators, as a result of which the sector’s own funds decreased more strongly than risk-weighted assets. The capital adequacy ratio was weakened also by the lower limit set by the ECB for OP Group’s risk weights.
Financial and insurance conglomerates’ solvency ratio remained virtually unchanged at 1.54 (30 June 2017: 1.57). The slight weakening of the solvency position compared with the situation at the end of 2016 was due to an increase in the financial sector's own funds requirement, which in turn reflected the above-mentioned lower limit on risk weights set by the ECB and the discretionary additional capital requirements imposed by the ECB and the FIN-FSA in 2017.
Employee pension sector's solvency position bolstered by the good level of investment return
In January–September, the investment return for employee pension institutions was 5.8%, and the good level of return in all investment classes improved the solvency position of employee pension institutions. The solvency position for the sector was 1.9 (30 June 2017: 1.8). Pension institutions’ investment risk (solvency limit) decreased compared with the situation at the end of June 2017. In particular, interest rate risk and credit spread risk decreased, both in value terms and relative to other investment classes.
Life and non-life insurance sectors’ solvency positions good
The life insurance sector's solvency ratio (SCR) has remained good, standing at 207% (30 June 2017: 213%). The non-life insurance sector’s solvency position strengthened slightly and the solvency ratio was good, at 228% (30.6.2017: 226%). Life insurance companies’ and non-life insurance companies’ premium income remained unchanged, but new business on life insurance policies continued to decrease. In the period January–September 2017, investment return in the life insurance sector was 3.0% and in the non-life insurance sector, 2.9%.
Samu Kurri, Head of Department, Institutional Supervision.
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Appendices (in Finnish)
- Capital position of banking sector and financial and insurance conglomerates as at 30 September 2017 (Excel)
- Solvency position of life and non-life insurance companies as at 30 September 2017 (Excel)
- Solvency position of earnings-related pension companies, industry-wide pension funds and earnings-related pension sector as at 30 September 2017 (Excel)
Fourth paragraph has been revised 12 December 2017 at 2.50 pm.