April 4, 2014 / 7:32 AM / in 4 years

Finnish bank watchdog says weak economy poses risks to sector

HELSINKI, April 4 (Reuters) - Finnish banks have remained in reasonably good health but they could face significant risks from a weak economy, the country’s financial watchdog said.

The Nordic country is struggling to recover from a two-year recession, and its Finance Ministry this week cut its forecast for the economy’s growth this year to 0.5 percent, citing weak private consumption.

Finland’s Financial Supervisory Authority (FIN-FSA), in its biannual report published on Friday, warned that banks in the country must carefully monitor their customers’ financial position amid the prolonged economic uncertainty.

But it said the capital position of the banking and insurance sectors was reasonably good overall. The sectors’ profitability has also remained fairly good despite the weak performance of the real economy.

“The outlook for the Finnish economy is uncertain, which increases the financial sector’s susceptibility to negative changes. Maintaining adequate capital buffers is therefore crucial to financial market stability and confidence,” said Director General Anneli Tuominen in a statement.

FIN-FSA said the Finnish banks’ capital adequacy stood strong at 16 percent last year, while the Core Tier 1 capital ratio was 14.8 percent. The country’s top lenders are co-operative OP-Pohjola as well as subsidiaries of Nordea and Danske Bank.

The watchdog also said Finnish pension funds had a strong risk-bearing capacity while insurers in the country showed good solvency margins. (Reporting by Jussi Rosendahl; Editing by Alison Williams)

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