Finnish banks credit fundamentals to be hit-Moody's

HELSINKI, July 2 (Reuters) - The severely contracting Finnish economy would take a toll on local banks' credit fundamentals, the credit rating agency Moody's said on Thursday, as it maintained a negative outlook for the Finnish banking system.

Up until now the Finnish banking sector -- lead by Pohjola Bank (POH1S.HE) and local branches of Nordea (NDA.ST) and Danske Bank (DANSKE.CO) -- has weathered the economic storm due to minimal exposure to toxic assets and their focus on traditional banking activities, it said.

Export-dependent Finland said earlier last month it expected gross domestic product (GDP) to contract 6 percent in 2009, and struck a cautious note on next year.

"Given that the crisis on financial markets has now spread extensively into the real economy, Moody's expects Finnish banks to be adversely affected," the agency said in its report.

Moody's said an increase in bankruptcies was indicative of the weakened credit environment.

Corporate bankruptcies increased 33 percent in January-May from a year ago, according to Statistics Finland. (Reporting by Yegor Paanukoski; Editing by Jon Loades-Carter)