Financial stability 2024
A key task of the Bank of Finland is to safeguard financial stability through actions such as identifying the risks related to housing markets, to household indebtedness and to the risk-bearing capacity of banks. In 2024, the Bank of Finland enhanced its statistics and its reporting collaboration to strengthen its knowledge base for assessing financial stability and for managing financial and climate risks.
In brief
Finland’s financial system has remained stable due to the strong capital position of the banks and their minor level of loan losses, although there has been a slight increase in the loan-servicing problems of households and businesses.
Finland’s housing market showed signs of a recovery, but the construction industry and real estate investment were in difficulties.
The Bank of Finland was actively involved in the development of climate statistics and promoted transparency in the financial markets via new data collection projects.
Housing market began post-shock recovery
Residential property sales picked up towards year end
Finland’s housing market started to recover in 2024 from the shocks experienced in the previous 18 months. For example, sales and purchase intentions concerning existing dwellings started to increase slowly in 2024, following an exceptionally strong contraction a year earlier (Chart 12).
As a result of the gradual pick-up in residential property sales, the steep fall in prices of existing homes levelled off in 2024.
Gloom in real estate investment market did not ease in 2024
Finland’s real estate investment market, i.e. the commercial property market, remained rigid in 2024. Property transactions by professional investors involving rental housing and office and business premises, for example, were considerably below their record levels of a few years ago.
The slackness of the real estate investment market was due to both cyclical and structural factors. The weakness of the housing market cycle was reflected in the decrease in residential investment. The prevalence of teleworking following the COVID-19 pandemic has reduced the need for office premises. The increase in e-commerce has in turn reduced the demand for commercial premises.
Household indebtedness continued to decrease
Due to the subdued residential property sales, the stock of household mortgages grew only marginally in 2024. Finnish households’ high debt-to-income ratio – one of the most severe vulnerabilities of Finland’s financial system – contracted in 2024 for the second year running (Chart 13).
Construction sector and real estate funds in difficulties
The slight pick-up in the housing market did little to ease the distress in the construction sector, despite the lurch in the number of construction starts in autumn 2024 (Chart 14). There were still plenty of homes for sale, which decreased the need for new residential construction.
The subdued housing market also tested Finnish open-end real estate investment funds. Many management companies had to either limit or interrupt redemptions by investors in these funds in 2024, to ensure that the funds did not have to sell large volumes of their real estate holdings at low prices.
Finland’s financial system remained stable in 2024
Households managed well in servicing their debts
Changes in market rates are quickly transmitted to lending rates in Finland (Chart 15). Thanks to the decline in interest rates and shrinking of loan stocks, the debt-servicing burden of households started to decrease in 2024.
Households managed to service their debts well overall in 2024. Nevertheless, the share of non-performing loans in the stock of loans to households increased slightly compared to the previous peak during the pandemic in 2021 (Chart 16).
Number of corporate bankruptcies levelled off
The number of bankruptcies by Finnish companies started to increase in 2021. This upward trend was still rapid in the first half of 2024, but towards the end of the year the number of bankruptcies levelled off (Chart 17).
Measured as the share of non-performing loans, the loan-servicing capacity of Finnish companies remained broadly unchanged in 2024 (Chart 18). However, the loan-servicing difficulties of construction companies, in particular, increased strongly in the period up to summer 2024.
Finnish banks’ profitability and capital position strengthened
Despite the weakness of Finland’s economy, the impairment losses, i.e. loan losses, of Finnish banks even decreased slightly in 2024. The difficulties of construction companies are barely visible in banks’ losses as loans to construction companies account for only a very small share of the corporate credit stock of banks.
The capital adequacy of the banks – and hence their ability to grant loans and absorb losses – remained strong as a result of their low loan losses and continued high level of net interest income (Chart 19).
Bank of Finland assessed financial stability risks and improved preparedness for banking crises
Largest threats to financial stability are the strong volatility in housing markets and geopolitical shocks
In May 2024, the Bank of Finland published its extensive annual assessment of the stability of the financial system in Finland and the risks and vulnerabilities that threaten stability, along with proposals for measures necessary for strengthening financial stability.
In the Bank of Finland’s assessment, the greatest risks to financial stability relate to four issues. These are:
1. the second-round effects of Finnish households’ high indebtedness
2. the Finnish housing market’s high vulnerability to disruptions
3. more difficult access to international funding for Finnish banks and companies if there is a strong increase in geopolitical risks and Finland’s country risks
4. the adverse effects of climate change on the economic and financial system.
The Bank of Finland’s recommendations for action include proposals that Finland should:
- extend the macroprudential policy toolkit and make it more flexible
- strengthen the ability of financial sector participants, authorities and central government to respond to financial sector crises
- prepare, in financial regulations and macroprudential policy, for, among other things, new systemic risks caused by climate change, cyber risks and non-bank financial actors (Table 6).
| Policy recommendations for strengthening financial stability | ||
|---|---|---|
| The resilience of financial market participants must be maintained by means of macroprudential policy. | Trust in the resilience and reliability of the financial system must be firmly strengthened. | The financial regulatory framework must be continuously developed to accommodate the constant changes in risks and the operating environment. |
| Banks need sufficient capital buffers as a counterbalance to their structural vulnerabilities. | The financial sector and the authorities must continue to prepare for operational disruptions and an increase in cyber risks. | Tools must be designed for the assessment of systemic risks and the protection of the financial system against climate and cyber risks. |
| A cap on borrowers’ debt-servicing burden is needed to prevent excessive household indebtedness. | Finland’s public finances must be strengthened to secure their funding and increase central government’s fiscal ability to respond. | Progress towards a capital markets union must be stepped up given the increase in both the private and public sector’s funding needs as a result of climate change. |
| The responsiveness of macroprudential policy should be improved by allowing for a more flexible use of the counter-cyclical capital buffer requirement. | Finland must actively promote the completion of the banking union and, by extension, the unity and stability of the European financial system. | The scope of macroprudential policy must be expanded to include non-bank financial actors, but the targeting of measures must be carefully designed. |
Bank of Finland experts also assess annually the risks to financial stability caused by disruptions in Finland’s real estate investment market.
According to the most recent assessment (in Finnish), risks increased significantly in 2024, particularly in construction and in open-end real estate funds. However, the resilience of banks and the non-bank financial sector against shocks from the real estate investment market was considered strong.
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 the use of macroprudential policy measures are taken by the Board of the Financial Supervisory Authority (FIN-FSA). Experts from the Bank of Finland and the FIN-FSA prepare an analysis to support the macroprudential decisions (in Finnish), and part of this analysis is published.
In addition, the Bank of Finland issues, on a quarterly basis, an official publicly available opinion concerning the FIN-FSA Director General’s proposal for a FIN-FSA Board decision on the deployment of macroprudential tools.
In 2024, the FIN-FSA Board made no adjustments to its macroprudential requirements that were in force. In its opinions, the Bank of Finland supported the Board’s decisions and considered that the requirements in force are sufficient for maintaining the risk-bearing capacity of the financial system.
Bank of Finland participated in an exercise on cross-border cooperation between authorities in a banking crisis
The Bank of Finland and other authorities regularly conduct extensive exercises that test the ability of authorities to function in financial crises and during severe disruptions in society.
In September 2024, the central banks, supervisory authorities, resolution authorities and various ministries of the Nordic and Baltic countries conducted a three-day exercise, in which three fictious banks in the region were at risk of failure and causing a severe economic crisis.
The exercise was exceptionally large even by global standards. The preparation and execution of the exercise involved nearly 450 people, including around 30 from the Bank of Finland.
Bank of Finland assessed AI impacts on the economy and financial system
In addition to the more traditional economic and risk analyses, the Bank of Finland assesses how agents of profound social and economic change – such as climate change and technological development (in Finnish) – will affect economic growth and financial stability, among other things.
In November 2024, the Bank of Finland and the FIN-FSA organised an international seminar (in Finnish) on the impacts of AI on the economy, the financial sector and financial supervision.
The seminar attracted a wide group of participants from central banks, supervisory authorities, businesses, universities and research institutes. The keynote speaker was Professor Anton Korinek from the University of Virginia.
Bank of Finland assessed ways in which the financial system could foster economic growth
The priorities in financial regulation reforms over the past 15 years have been to strengthen the resilience of the banking system and to prevent financial crises.
In Finland and in the EU more broadly, the focus has recently shifted to concerns over low economic growth and sufficient funding for the most productive and fastest growing companies.
The Bank of Finland participated in a working group on the financial sector’s growth strategy (in Finnish), set up by the Ministry of Finance in spring 2024. The task of the working group is to find ways for more effective channelling of funding to support economic growth. The working group is scheduled to publish its final report in May 2025 at the latest.
Bank of Finland experts also submitted proposals (in Finnish) to the Room for Growth project, chaired by Risto Murto, CEO of Varma Mutual Pension Insurance Company, for measures to boost economic growth in Finland.
Bank of Finland successfully integrated into FIN-FSA reporting system
The Bank of Finland’s statistical data collections were integrated successfully, under a tight schedule, into the Financial Supervisory Authority’s reporting system during the year. After a few months of development work, the Bank successfully started production of the first data collections in June 2024. Many large data collections were reported on successfully during the autumn.
A significant change for the reporting entities – the introduction of the XML file format in reporting – was implemented successfully, and there were no reporting delays in autumn 2024.
Cooperation between the Bank of Finland and the reporting entities has traditionally been smooth, which was also the case in this process. In addition, many reporting entities had already previously reported to the FIN-FSA via the system and are hence benefiting from the joint reporting platform.
The FIN-FSA launched the reporting system in 2022–2024. The system is provided by Regnology France. By the end of 2024, the system contained a total of 84 data collections.
Bank of Finland participated actively in reform of the reporting framework for euro area banks in 2024
The Bank of Finland took an active role in 2024 in the Integrated Reporting Framework (IReF) launched by the Governing Council of the European Central Bank (ECB) 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 costs particularly for banks operating in more than one country. The project will also involve the harmonisation of statistical reporting with prudential reporting.
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. This will improve the ability of the authorities to assess risks that threaten financial stability and to act in possible crisis situations.
In 2024, the ECB updated the timeline and phasing of the project. The first phase will start in December 2029 and will include implementation of the features that replace current statistical regulations. The second phase will include the collection of loan-specific data on households.
The IReF regulation will replace various current ECB statistical regulations, and after the parallel reporting phase, the Bank of Finland’s RATI, Luoti and TIHA data collections from banks will be discontinued.
New regulation on investment fund statistics adopted in 2024
The European Central Bank’s recast regulation on investment fund statistics entered into force in June 2024. Data collection under the new regulation will start in December 2025.
This is a significant reform at the European level. The statistics were previously published mainly on a quarterly basis, but, in future, statistical information will be published monthly. It will have a more detailed breakdown of investments, and, for the majority of investment classes, the data will be collected on a security-specific basis. In Finland, these changes will not be as significant as in many other countries, as Finland has already been collecting data on a monthly basis since 2008.
For the internal use of the European System of Central Banks, fund-specific data will also be collected. The usability of the data will be enhanced by having a more detailed breakdown of both the large ‘other funds’ data segment and the geographical locations of investments. New information will also be reported on the funds’ environmental, social and governance (ESG) compliance.
Key figures for housing loans are now available on the suomenpankki.fi home page
Among the most commonly accessed data in the Bank of Finland’s statistics on banking are the data on household mortgage loans. Such housing loan data are a key part of the monitoring of the housing markets and household indebtedness. At the end of September 2024, housing loans, including buy-to-let mortgages, accounted for over 60% of the loan debt of households.
In connection with the redesign of its website in 2024, the Bank of Finland started to publish monthly key figures on housing loans on the suomenpankki.fi home page.
The data items most requested by users were selected as the key figures for display on the home page. These were the total housing loan stock and its annual growth rate, new drawdowns of housing loans and the average interest rate on these new drawdowns, and the average repayment period for the new drawdowns.
Improved monitoring of other financial institutions
The Bank of Finland has collected statistical data on other financial institutions (OFIs) since the end of 2020. Before the collection of OFI data, statistical data on non-bank financial intermediation was comparatively scarce or was very inadequate. Collecting OFI data provides a more detailed picture of household and corporate sector indebtedness.
At the end of September 2024, nearly all (99%) of the OFI loans to households (EUR 4.1 billion) were consumer credit. At the end of the third quarter of 2024, OFIs accounted for 15% of the stock of household consumer credit (EUR 26.6 billion). The stock of corporate loans granted by OFIs stood at EUR 4.9 billion at the end of September 2024.
OFI data published by the Bank of Finland in 2024 included the quarterly OFI loans to households and non-financial corporations dashboard (in Finnish), which enables the general public to follow in more detail developments in household and corporate credit from non-bank financial institutions. In addition, the Bank has regularly published statistical news on OFI data. In 2025, this statistical news will be published on a quarterly basis.
Bank of Finland published new statistical data on payments in 2024
In 2024, the Bank of Finland published additional payment data.
The new statistical data published on payments included a half-yearly payment statistics dashboard (in Finnish) and statistical news releases. The half-yearly payment statistics published in the new dashboard were also published in the Bank of Finland’s open data service. The Bank of Finland also continued to publish quarterly payment statistics (in Finnish) and yearly payment statistics (in Finnish).
The information published on payment statistics will be further developed in 2025, when it will also cover fraudulent payments and more detailed data on card payments and credit transfers.
Climate statistics focusing increasingly on financial markets
The Bank of Finland participated actively in the international development of climate indicators. The Bank’s priorities were:
- participation in joint development work within the European System of Central Banks (ESCB)
- co-chairing, together with the central bank of Spain, the Committee on Monetary, Financial and Balance of Payments Statistics’ task force on sustainability reporting.
The ESCB expert working group continued its work on indicators of the physical and transition risks of climate change to the financial sector. More granular data on physical risks will become available by utilising more detailed location data and national register data.
Corporate sustainability reporting requirements became applicable in the 2024 financial year. It is important that statistics producers and central banks start using the data right from the outset. The working group determined the key indicators and made preparations for collecting this data.
Bank of Finland Statistics analysed the climate commitments of carbon dioxide-intensive energy and manufacturing companies. A significant finding was that the companies with the highest greenhouse gas emissions have very extensively published net-zero targets for their activities.
High greenhouse gas emissions increase business risks, and the success of companies in reaching the carbon targets decreases the transition risk in bank loans (in Finnish).
Bank of Finland and Statistics Finland collected Household Finance and Consumption Survey 2023 data in early 2024
The Bank of Finland together with Statistics Finland launched the collection of Finnish household assets data as part of the fifth wave of the ECB’s Household Finance and Consumption Survey (HFCS).
This data was collected for 2023. Statistics Finland collected the data in the first months of 2024, from nearly 9,000 households. The Bank of Finland added a new data item to the data collection: data on households’ crypto assets.
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 detrimental second-round effects on the economy and financial system.
Bank of Finland used ECB data on household wealth disparity
The ECB’s new quarterly experimental statistics Distributional Wealth Accounts (DWA) describe the distribution of wealth among households in the euro area. The data are compiled from two sources: the wealth distribution data available from the HFCS and financial accounts data on the macro economy.
The Bank of Finland presented the results of the experimental DWA in an analysis article on the Bank’s website (in Finnish) and in Kansantaloudellinen aikakauskirja/The Finnish Economic Journal (2/2024) (in Finnish). The ECB later modified the dataset, and the quality of the data is still being improved. In the autumn, the online business newspaper Taloussanomat discussed the increase in wealth disparity in Finland (in Finnish), and for this purpose the Bank of Finland referred the newspaper to the most recent data published by the ECB.
