Macroprudential decision: Credit institutions’ systemic risk buffers unchanged
The Board of the Financial Supervisory Authority (FIN-FSA) will maintain unchanged the additional capital requirement imposed on credit institutions on the basis of the structural characteristics of the financial system, i.e. the systemic risk buffer.
The Board of the FIN-FSA has decided to keep the systemic risk buffer applicable to credit institutions unchanged. The buffer will strengthen credit institutions’ resilience against systemic risks. It will be imposed on Nordea at the level of 3.0%, on OP Group at 2.0%, on Municipality Finance at 1.5% and on other Finnish credit institutions at 1.0%. In making an overall assessment of the imposition of a systemic risk buffer, the Board took into account the principles of continuity, consistency and predictability.
The requirement of a systemic risk buffer was first imposed on 29 June 2018, with an effective date of 1 July 2019. The buffer requirement is reviewed on an annual basis and the present decision will become effective on 1 July 2020. The buffer level will be reviewed in 2020, at the latest.
Tighter loan cap on residential mortgage loans other than first-home loans still applicable
The Board of the FIN-FSA maintains unchanged its earlier decision on lowering the maximum loan-to-collateral (LTC) ratio, i.e. the loan cap, for residential mortgage loans other than first-home loans by 5 percentage points. The decision became effective on 1 July 2018 and is still justified in order to contain household indebtedness.
The terms and conditions of new mortgage loans have eased further and the housing market has diverged in Finland. New construction activity has been brisk, which has dampened upward pressures on prices of old homes in some regions. At the same time, the repayment periods of mortgage loans have lengthened and loans to housing corporations have grown at an annual rate of about 10%.
The FIN-FSA Board has decided to extend by one year the credit institution-specific average minimum risk weight of 15% applicable to residential mortgages of credit institutions using the Internal Ratings Based Approach. The extended period of application begins from 1 January 2020. The initial decision on the risk weight floor was taken on 26 June 2017. The entry into force of the present decision is subject to the Council of the European Union not objecting to the Board’s decision. Setting higher risk weights for loans secured by mortgages on immovable property will raise the capital requirements for lending secured by immovable property and will therefore indirectly reduce the risk of overheating of immovable property markets.
‘There is a clear need for the use of macroprudential instruments, considering the systemic risks stemming from household indebtedness. These instruments should enable us to address the risks from the greatest vulnerabilities. The macroprudential toolkit should be extended further, especially with a debt-to-income cap, i.e. a maximum ratio of debt relative to the borrower’s income,’ says Marja Nykänen, Chair of the FIN-FSA Board.
The CCyB rate remains at zero
The FIN-FSA will not impose a countercyclical capital buffer (CCyB) requirement on credit institutions, and therefore the CCyB rate will remain at zero. The primary risk indicator for setting the countercyclical capital buffer requirement has declined further and remained well below the threshold value: at the end of 2018, the private sector credit-to-GDP gap was –11.4 percentage points. Economic growth and credit developments are currently subject to uncertainties and downward risks. Therefore, setting a CCyB requirement is not justified under the current situation.
The FIN-FSA Board took the decisions at its meeting on 28 June 2019.
Marja Nykänen, Chair of the Board of the Financial Supervisory Authority, tel. +358 9 183 2007.
- Decision of the Board of the Financial Supervisory Authority on setting an additional capital requirement on the basis of the structural characteristics of the financial system (systemic risk buffer) (pdf)
- FIN-FSA Board’s decision on the application of macroprudential instruments (pdf)
- Decision by the Board of the Financial Supervisory Authority to retain the minimum level for the average risk weight on residential mortgage loans of credit institutions that have adopted the IRB Approach (pdf)
- Director General of the FIN-FSA’s proposal, circulated for comment, on the application of macroprudential instruments (25 April 2019) (pdf, in Finnish)
- Director General of the FIN-FSA’s proposal on the application of macroprudential instruments (24 June 2019) (pdf, in Finnish)
- Opinions on the Director General’s proposal on the application of macroprudential instruments (pdf, in Finnish)
- Principles for setting an additional capital requirement on the basis of the structural characteristics of the financial system (systemic risk buffer) (pdf)
- Principles for determining national systemically important credit institutions (O-SIIs) and setting additional capital requirements (O-SII buffers) (pdf)