The Bank of Finland’s tasks include maintaining the stability of the financial system in Finland. The objective is to identify in good time the vulnerabilities that threaten financial stability and to prevent banking and financial crises. The Bank of Finland’s economic forecasts and risk assessments make use of high-quality statistics prepared by the Bank.

In brief

Threats to financial stability

The European Central Bank (ECB) curbed the high rate of inflation in the euro area in 2023 through measures such as raising interest rates. The resilience of the Finnish financial system was put to the test as the rapid rise in interest rates led to a housing market freeze and an increase in corporate bankruptcies, particularly in the construction sector.

Finnish households

The indebtedness of Finnish households declined in 2023 following a period of some 30 years of almost continuous growth. The strong employment situation relative to the state of the economy helped households cope with the higher loan servicing costs.

Global situation and Finland

Geopolitical tensions and the problems experienced by certain banks threatened the stability of the international financial system in 2023. The Finnish financial system remained stable, however.

The Bank of Finland aims to identify in a timely manner the risks and vulnerabilities threatening financial stability. The Bank of Finland also assesses and examines ways to mitigate the risks it has identified.

The materialisation of risks in the banking system or in the housing and real estate markets, for example, could even lead to an economic or financial crisis or exacerbate an existing crisis. The ways to mitigate the risk of a financial crisis include the use of macroprudential policy.

Read more about maintaining financial stability.

Rise in interest rates strained businesses and the housing market

Housing market freeze tested the stability of the Finnish financial system in 2023

The resilience of the Finnish financial system was put to the test in 2023 when the rapid rise in key ECB interest rates, market rates and lending rates and the uncertainty surrounding future interest rates caused many households and residential property investors to either abandon housing purchases or postpone their intentions to purchase.

As a result of the housing market freeze, the prices of existing dwellings declined in Finland more than in any year since the economic and banking crisis of the early 1990s (Chart 11).

Household indebtedness decreased in 2023 after a protracted period of growth

Following a period of some 30 years of almost continuous growth, Finnish household indebtedness declined in 2023 (Chart 12) when, exceptionally, the growth in the stock of housing loans turned negative.

The rise in market interest rates was also rapidly reflected in the interest rates on existing loans. Finnish households’ interest payments relative to their disposable income therefore increased sharply in 2023 (Chart 12, black curve).

Slowdown in new-build residential construction hit construction companies in 2023

Finnish construction companies suffered the most from the rise in interest rates and the housing market freeze. Although a large number of construction projects already started were brought to completion in 2023, the number of new projects and building permits issued decreased drastically (Chart 13).

In 2023, the number of bankruptcies in the construction sector was higher than in 2009, the year after the global financial crisis (Chart 14).

Credit risks of loans to the real estate sector and for real estate investments increased in 2023

Investments in various types of real estate, such as rental housing and office and business premises, decreased notably in 2023 (Chart 15).

An analysis by the Bank of Finland showed that credit risks in the case of loans to the real estate sector and for real estate investments increased in 2023 (in Finnish).

However, in the Bank’s view, the problems in the real estate market did not threaten financial stability. The risks in the Finnish real estate investment market were kept in check by the diversified composition of investors, the large role of pension and life insurance companies and other institutional investors, and the limited number of investors operating with substantial leverage financing.

Financial stability in Finland remained good in 2023 despite global turbulence

Financial system remained stable

Despite the rise in interest rates, the plunge in the housing market and the increase in bankruptcies, the Finnish financial system remained stable and operated smoothly in 2023.

Finnish households managed to service their debts well enough overall. Banks’ impairment losses on loans to households increased only moderately (Chart 16).

The loan-servicing ability of households was supported by the employment situation, which remained fairly strong relative to the state of the economy.

Impairment losses on bank loans to Finnish companies increased only slightly.

Loans to construction companies accounted for only about 5% of banks’ corporate credit stock in 2023, and the difficulties of construction companies did not spread extensively to other business sectors (Chart 17). 

The profitability of Finnish banks even improved and capital positions strengthened in 2023 (Chart 18), as the rise in lending rates boosted banks’ net interest income. The liquidity and funding position of banks also remained good, even though Finnish banks are increasingly vulnerable to liquidity risks.

Confidence in the international banking system faltered in March 2023

The resilience of the international financial system was put strongly to the test in March 2023. The rise in interest rates triggered a bank run in the California-based Silicon Valley Bank, which had taken excessive interest rate risks, and in several other US banks with a vulnerable balance sheet.

In addition, Credit Suisse, a major Swiss bank that had long been in difficulty, ended up being sold to its biggest competitor, Union Bank of Switzerland (UBS), with the support of the Swiss authorities. 

Nevertheless, in the international financial markets confidence in banks was restored rapidly, mainly due to the swift crisis management measures taken by the US and Swiss authorities.

The increase in geopolitical tensions in autumn 2023 in Finland’s neighbouring areas – the damage to the gas pipeline and communication cable between Finland and Estonia in October 2023 and the start of ‘orchestrated’ migration to Finland in November 2023, at Finland’s eastern border crossings – did not erode investor confidence in the Finnish economy or hinder efforts by Finnish companies and financial institutions to obtain financing from international financial markets.

Climate change impacts on banks and on macroprudential policy analysed in 2023

In addition to looking at short and medium-term risks, the Bank of Finland also analysed how longer term agents of social and economic change – such as climate change – will affect the operation of and risks to the financial system in the longer run.

In 2023, the Bank of Finland analysed the impact of climate change on the performance of banks and macroprudential policy (in Finnish).

Bank of Finland participated in preparation of macroprudential policy

The goal of macroprudential policy is to reduce the probability of financial crises and other severe disruptions in the financial system.

Macroprudential policy is used to regulate such matters as the size of capital buffer requirements that may need to be set for banks, and the maximum size of new housing loans.

In Finland, decisions on macroprudential requirements, i.e. the use of macroprudential measures, are taken by the Board of the Financial Supervisory Authority (FIN-FSA). Experts from the Bank of Finland and the FIN-FSA conduct analysis work in support of quarterly macroprudential decisions (in Finnish), and part of this work is published.

In addition, the Bank of Finland issues an official publicly available opinion on a quarterly basis on proposals by the Director General of the FIN-FSA for a FIN-FSA Board decision on the deployment of macroprudential tools.

FIN-FSA set a capital buffer requirement for banks in 2023 due to structural vulnerability of Finnish banking sector

The FIN-FSA Board decided in March 2023 to set for all Finnish credit institutions a capital buffer requirement in the form of a so-called systemic risk buffer amounting to 1% of the risk-weighted assets of the institution in question.

The Board considered that the impacts of banking crises could be particularly large in Finland due to factors such as the substantial size of the Finnish banking system, common risk exposures and tight Nordic interconnectedness.

To ensure the banking sector’s loss-absorbing and lending capacity in severe crisis situations, a capital buffer requirement can be used. In its opinion, the Bank of Finland supported the FIN-FSA Director General’s proposed decision and its justifications (in Finnish).

FIN-FSA restored housing loan cap to the baseline level of the maximum loan-to-collateral ratio in 2023

In December 2023, the FIN-FSA Board restored the non-first home buyers’ housing loan cap, i.e. the maximum loan-to-collateral ratio, to its statutory baseline level of 90% from the previous 85%. The maximum loan-to-collateral ratio means the maximum size of a housing loan relative to eligible collateral.

In its decision, the Board considered that as a result of the decline in mortgage lending and the downturn in the housing market, the grounds for maintaining a stricter than normal housing loan cap set out by law no longer existed.

In its opinion, the Bank of Finland agreed with (in Finnish) the FIN-FSA Director General’s proposed decision.  

Bank of Finland participated in preparation of household indebtedness report in 2023

In early spring 2023, in connection with the change of government and new parliamentary term, a Ministry of Finance working group prepared a report on the situation of indebted Finnish households and the impact of higher interest rates on borrowers, on the housing market and on banks.

Representatives of the Bank of Finland and the Financial Supervisory Authority participated in the working group as designated experts.

The working group estimated that only a small proportion of indebted households will run into serious difficulties as a result of the rise in interest rates (in Finnish).

To curb the risks related to indebtedness, the working group proposed that a cap on the debt-service-to-income ratio, i.e. a legally binding upper limit on a borrower’s debt-servicing burden, be introduced in Finland.

The working group also proposed changes to the tax treatment of housing company loan repayments and that the deductibility of mortgage interest payments should not be restored.

Bank of Finland participated in crisis simulation exercises in 2023

The Bank of Finland participates regularly in crisis simulation exercises. In the simulations, authorities in Finland and elsewhere practice responses and joint cooperation in financial system crises and in exceptional situations affecting society and the economy. 

In 2023, the Bank of Finland participated in the Northern Bastion exercise hosted by the European Centre of Excellence for Countering Hybrid Threats. Government-sector representatives from Finland, Sweden, Estonia, Denmark, Norway and the United States took part in the exercise.

This involved a hypothetical situation in which a cybersecurity incident and damage to physical infrastructure caused severe disruptions to the digital processes of the financial sector.

International cooperation promotes financial stability

International cooperation to promote financial stability continued in 2023. The Bank of Finland participated in the work of many committees and working groups, for example at the European Central Bank (ECB), the European Systemic Risk Board (ESRB), the Organisation for Economic Cooperation and Development (OECD) and within the context of Nordic-Baltic cooperation.

Statistical data and development of macroprudential policy

Bank of Finland responds to users’ data needs by actively developing its statistics compilation

Compiling statistics is one of the statutory tasks of the Bank of Finland. The Bank meets the information needs of users by actively developing the collection and compilation of statistics and by ensuring that they are up to date, relevant and comprehensive, even in a changing operational environment.

In 2023, the Bank of Finland and Statistics Finland worked together on preparing the collection of 2023 household assets data for the Household Finance and Consumption Survey (HCFS) 2023, which is coordinated by the ECB. The European System of Central Banks (ESCB), in turn, improved its statistical data on wealth by household type to ensure its current relevance.

The Bank of Finland also published initial data from its payment and fraud data collection.

Bank of Finland and Statistics Finland launched the collection of household assets data for the ECB-coordinated HFCS 2023

The Bank of Finland worked with Statistics Finland to prepare for the collection of Finnish household assets data as part of the fifth wave of the ECB’s Household Finance and Consumption Survey (HFCS).

The data to be collected covers the year 2023. Statistics Finland will collect the data as of 1 January 2024.

The HFCS will be completed in March 2025. The survey will provide important information on the wealth, debts and consumption of households.

Analysis of household indebtedness is important as the debt-servicing problems of highly indebted households can have negative second-round effects on the economy and financial system.

European System of Central Banks developed experimental household wealth accounts

The ECB publishes experimental statistics on Distributional Wealth Accounts (DWA) for the household sector and is now providing this information on a timelier basis than before. The statistics indicate the distribution of wealth among households in the euro area, excluding Croatia. 

The experimental DWA data are based on macroeconomic sector data and will be published quarterly.

The DWA links the household-specific data from the HFCS with financial accounts data on the macro economy. The results of the fourth wave of the HFCS were published in 2023 and were utilised in the creation of the DWA dataset. The results were published in early 2024.

Charts 19 and 20 illustrate that in Finland the increase in household wealth concerns a larger portion of households than those affected by the higher valuation of listed shares.

The wealthiest decile own a majority of the listed shares held by households. Finnish households’ net wealth totalled EUR 913 billion at the end of June 2023, which is 27% more than five years ago. The majority of household wealth is in housing assets.

Bank of Finland participated actively in reform of the reporting framework for euro area banks in 2023

The Bank of Finland took an active role during the year in the Integrated Reporting Framework (IReF) launched by the ECB’s Governing Council in December 2021.

The purpose of the project is to harmonise the collection of statistical data by banks in the euro area, thus reducing the statistical reporting burden particularly for those banks which operate in more than one country. At the same time, however, the ECB is already looking further ahead and seeking harmonisation with the supervisory reporting framework.

The process for compiling statistics will also be reviewed and harmonised across the countries, which will provide more detailed and more timely data for analysis purposes.

In 2023, the ECB carried out a survey that complemented the cost-benefit assessment (CBA) questionnaire conducted in spring 2021. The allocation of costs and benefits will help in the drafting of an IReF regulation, which will proceed swiftly in winter 2024.

The IReF regulation will replace various current ECB statistical regulations, and after its entry into force, the Bank of Finland’s RATI, Luoti and TIHA data collections will be discontinued.

Bank of Finland published new payment transaction statistical data in 2023

The Bank of Finland compiles data for the ECB’s payment statistics on a quarterly and half-yearly basis.

The data has been compiled since 2022 in connection with the Bank of Finland’s payment and fraud data collection, in which, in addition to data on retail payment transactions, the Bank also collects data on, for example, the number of payment cards. In 2014–2021, the data was gathered annually in the collection of payment statistics data.

In 2023, the Bank of Finland published initial data from the payment and fraud data collection.

The new statistical publications included a dashboard of quarterly payment statistics and statistical releases. The Bank also renewed its annual payment statistics dashboard published earlier. The payment and fraud data published in the dashboards were also published in the Bank of Finland’s open data service.

The development of payment statistics publications will continue in 2024, when the data content to be published will be extended to cover payment transaction data reported on a half-yearly basis.

The lack of climate statistics in the financial sector and comparable data on the subject have for a long time hampered the assessment of the risks associated with climate change and the financing of the climate transition.

European System of Central Banks launched a review of the Regulation on investment fund statistics in 2023

In 2023, the ESCB launched a review of the Regulation on investment fund statistics. The preparatory phase was completed in 2023. Users were asked about their data needs and mutual funds were asked about the costs of reporting. Based on this information a new regulation is being drafted.

A public consultation was launched in December and the review will continue in 2024. Reporting under the new regulation is expected to start from the data for June 2025.

The key change is that the statistics that are now collected on a quarterly basis will, for the most part, be published on a monthly basis in the future. The Bank of Finland has already been collecting all of this data on a monthly basis.

A more detailed breakdown of other funds will also increase the applicability of the data. In addition, a more detailed itemisation of profit distribution and management costs will enable a quality improvement in reinvested earnings within the balance of payments after enhancement of the data quality in the ESCB’s Centralised Securities Database (CSDB).

Europe took significant steps forward in climate change-related financial statistics

In January 2023, the ESCB published for the first time climate change-related statistical indicators.

The Bank of Finland participated actively in the work overseen by the ESCB Statistics Committee concerning the improvement of climate statistics in the financial sector: a team of specialists used new techniques and developed indicators that describe physical and transitional risks to the financial sector. The granular loan-specific dataset used for the calculation of the indicators thus enables an in-depth analysis of phenomena.

For more detailed information on the transition risks to Finnish banking sector lending, see the article ‘Assessing transition risks in banks’ corporate loan portfolios’.