Financial sector's capital position as at 30 September 2024: The solvency of the Finnish financial sector remained strong amid increasing geopolitical uncertainty

Geopolitical tensions are still high, and it has created uncertainty in the operating environment of the Finnish financial sector. Finland's annualised GDP growth is still negative and unemployment and bankruptcies continued to grow. The weak cyclical conditions have increased banks’ credit risks. On the other hand, the decline in Euribor rates has supported and will continue to support the repayment capacity of mortgage borrowers. Consumers’ home purchase and borrowing intentions have also increased and the number of housing transactions has improved. Banks’ interest income and net interest income have weakened, however, as a result of the decline in interest rates. Consumer and business confidence has risen slightly from its low level and, according to preliminary data, Finland's GDP grew in July-September 2024 on the previous quarter. Growing optimism and the strength of the investment markets, particularly in the United States, have supported demand for and returns on financial sector investment products and services.

“Despite the strong capital position of the Finnish financial sector, the current geopolitical situation is still causing significant uncertainty. One cause for concern is the increase in the probability of extreme and adverse developments threatening the financial sector. The recent hybrid and cyber-attacks have only emphasised further the importance of preparedness and the management of operational risks,” says Tero Kurenmaa, Director General of the Financial Supervisory Authority (FIN-FSA).

Banking sector's capital position remained strong – quality of credit stock continued to weaken 

Solid financial performance has supported growth in the banking sector's own funds, but changes in the calculation models in the third quarter weakened the capital ratios. The Common Equity Tier 1 (CET1) capital ratio at the end of September was 18.0% (12/2023: 18.3%) and the total capital ratio was 21.8% (12/2023: 22.1%). Financial performance in January–September remained stronger than in year-earlier period, reflecting the increase in net interest income and the still moderate level of loan losses. Growth in net interest income has halted,  however, and started to decline slightly, due to lower interest income.

The banking sector's non-performing loans grew slightly, both in household and corporate credit. Growth was evident particularly in consumer credit and in certain industries that have suffered from the rise in interest rates and prices as well as the weaker business cycle, for example in construction and wholesale and retail trade. Movements of loans between the stages of impairment in corporate and household credit are also still signalling an increase in credit risks.

The banking sector's liquidity situation and liquidity position have remained strong. Finnish banks’ funding costs have started to decline slightly, reflecting the decrease in market interest rates in the case of both deposits and market funding. The refinancing of debt securities issued during the period of low interest rates may, however, increase the costs of banks’ market funding.

Employee pension institutions’ solvency ratio continue to improve

The employee pension sector's solvency ratio continued to strengthen and at the end of September was 129.3% (12/2023: 126.7%). Solvency capital has increased in 2024 by EUR 4.8 billion. The solvency position strengthened slightly as the solvency limit rose at a slower rate than solvency capital.

In January–September 2024, the employee pension sector’s return on investment was 7.4%. Return on equity investment was 11.2%, return on fixed-income investment 4.6%, and that of other investment 5.6%. The return on real estate investment for the year 2024 is still slightly negative. Of equity investments, the highest return has been generated by listed shares.

In the employee sector’s investment allocation, the weight of equities decreased slightly in the third quarter but was still higher than at the end of 2023.

The employee pension sector's risk bearing capacity against a decline in share prices improved in the third quarter, due to lower risk-taking and stronger solvency.

Life and non-life insurance sector solvency remained strong

The life insurance sector’s solvency ratio was 239.4% (12/2023: 235.1%) and the solvency ratio of the non-life insurance sector was 257.2% (12/2023: 265.5%) in the third quarter of 2024. Compared to the situation in June 2024, the solvency ratios strengthened slightly. The amount of own funds grew because investment assets increased more than technical provisions, despite the decline in interest rates. The solvency capital requirement remained unchanged as a result of sales of equity investments.

Life insurance companies’ return on investment in January–September was 4.4% and that of non-life insurance companies was 6.4%. In the third quarter, both fixed-income investments and equity investments generated a solid return. Premiums written on life insurance increased due to the strong sales of investment insurance policies. Non-life insurance companies’ claims incurred continued to increase more than premiums written.

For further information, please contact:

Samu Kurri, Head of Department, Digitalisation and Analysis. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030, Mon–Fri 9:00–16:00.

Appendices

• Capital position of banking sector and financial and insurance conglomerates as at 30 September 2024 (Excel)
• Solvency position of pension insurance companies, pension funds and the employee pension sector as at 30 September 2024 (Excel)
• Solvency position of life and non-life insurance companies as at 30 September 2024 (Excel)