HELSINKI Earnings quality at Finland’s banks is at risk of being eroded by a struggling domestic economy and financial market together with low euro zone interest rates, the country’s financial watchdog said on Monday.
With borrowing costs at historic lows, the banks are not generating as much net interest income as before and having to rely more on their trading, investment and insurance businesses, said Financial Supervisory Authority Director General Anneli Tuominen.
“These other income streams are more vulnerable to changes in the market situation. In our supervisory work, we also take this into account,” she said in a statement
While the overall capital position of Finnish banks and insurance companies was strong, the financial sector should maintain adequate capital buffers and keep a close eye on how the economy was impacting their customers.
Finland’s economy was the only one in Europe to contract in the second quarter and has yet to return to 2008 levels. Credit agency Standard & Poor’s cited concerns that Finnish growth would remain below average when it cut its sovereign rating outlook to negative from stable on Friday.
The country’s banking sector’s capital adequacy rate was 19 percent at the end of June, up from 17.3 percent at the end of 2014, while the common equity Tier 1 rate increased to 17.5 percent from 15.8 percent, the watchdog said.
Finland’s largest banks include OP-Pohjola, Nordea (NDA.ST) and Danske Bank (DANSKE.CO).
(Reporting By Anna Ercanbrack- editing by John Stonestreet)
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