Political economy|Despite the weak economic cycle, the financial sector has survived the beginning of the year well.
Finland the weakness of the economy and geopolitical tensions have kept the risks in the financial sector high, announced the Financial Supervisory Authority on Thursday.
The authority is particularly concerned about the effects of Russia’s war of aggression in Ukraine and the situation in the Middle East.
“In addition to the direct war effects, they may raise prices and disrupt world trade. The realization of the risks would further weaken the operating environment of the Finnish financial sector, says the head of the Financial Supervisory Authority Tero Kurenmaa in the bulletin.
From the big ones despite the risks and the weak economic cycle, the financial sector has survived the beginning of the year well. The banks’ solvency remained strong in the first half of the year.
According to the Financial Supervisory Authority, non-performing loans of both households and companies increased slightly, but their share was small in a European comparison.
Solvency also remained at a good level in the insurance sector.
The authority emphasizes that the economy as a whole is still weak, which is reflected in the increase in unemployment, layoffs and bankruptcies. The economy has grown a little at the beginning of the year.
The confidence indicators have still strengthened slightly, and the fall in inflation and reference interest rates on loans support the debt repayment capacity of financial sector customers.
On the market strengthened expectations of a decrease in the central banks’ policy rates have strengthened stocks and lowered the market interest rates of bonds.
“Several years of weak economic development are now behind us, but the outlook would finally seem to be slowly improving. Finland’s financial sector has survived the turbulent years well thanks to, among other things, strong solvency and high-quality risk management. However, the uncertainty continues,” says Kurenmaa in the press release.
Banks the core solvency ratio was 19.1 percent at the end of June, while it was 18.3 percent at the end of last year. The total solvency ratio strengthened to 23.1 percent.
According to the Financial Supervisory Authority, the result was better than the comparison year thanks to the increase in net interest income. The growth of net interest income stopped at the end of 2023, and in the first quarters of 2024, net interest income was reduced by lower interest income than before.
In the banks’ non-performing loans, the Financial Supervisory Authority observed growth, especially in consumer loans and in certain industries affected by increased interest rates, increased prices and a weakened economic cycle.
They include, for example, construction and wholesale and retail trade.
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