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Introduction

The Finnish banking sector is characterised by a strong presence of pan-Nordic banking groups in Finland coupled with robust local financial and banking groups, and specialised institutions. Finland suffered a severe banking crisis between 1991 and 1994 that thoroughly reshaped the banking sector. Partly because of this experience and ensuing structural changes, Finnish banks were able to weather the global financial crises that began in 2008 more resiliently than some of their European peers. Also, in the continuing covid-19 pandemic, Finnish banks' ability to absorb losses and provide credit has remained strong. According to the Finnish Financial Supervisory Authority (FIN-FSA), the Finnish banking sector's capital ratios have remained stronger than the European average even if the capital rations weakened slightly during 2021.2 Banks are well-capitalized, liquid, and profitable, and the lowering of structural capital buffer requirements at the onset of the pandemic provided additional lending and loss-absorbing capacity. However, the banking sector is large and highly concentrated, and banks are highly exposed to residential and commercial real estate, the latter facing headwinds from the pandemic.3

According to the Ministry of Finance, in the forecast, the deterioration of the pandemic is expected to slow down the recovery of the economy temporarily. The recovery of the economy will continue strong in 2022 in sectors where production has not yet reached its pre-pandemic level. In spite of the slowing down of growth, the economic outlook of the business sector has remained good and confidence in the future is strong. Employment is improving rapidly, and the unemployment rate is declining. Acceleration of inflation is expected to remain temporary. Rapid growth and the end of spending on managing the pandemic will quickly reduce the general government deficit in 2021–2023. However, the deficit will not be fully eliminated during the period of rapid economic growth, as public expenditure is structurally higher than revenue. Finland's gross domestic product is expected to grow by 3.4 per cent in 2021. The deterioration of the covid-19 pandemic in late 2021 increases uncertainty for economic decision-makers and will temporarily slow down economic growth around the turn of the year. Finland's GDP growth will remain at 3 per cent in 2022, as production in many sectors is still below the pre-pandemic level.4 During the fourth quarter of 2021, the number of loans granted to corporations was slightly higher than in the same period of 2020.5 Finnish households drew down €1.4 billion of new housing loans in January 2022, up by about €30 million on the same month last year. At the end of January 2022, the stock of housing loans stood at €107.1 billion, and the annual growth rate of the stock was 4 per cent. The stock of Finnish households' deposits at the end of January 2022 stood at €109.4 billion, and the average interest rate on the deposits was 0.03 per cent.6

The largest credit institutions in Finland measured by total assets as at 31 December 2021 were Nordea Group with €570.4 billion, OP Financial Group (previously OP Pohjola Group, including 121 cooperative banks) with €174.1 billion, Municipality Finance Plc with €46.4 billion, the Savings Bank Group with €13.1 billion and Aktia Group with €11.7 billion.

Regulatory measures adopted during 2021 were comprehensively still defined by the crisis caused by the covid-19 pandemic, which caused unforeseen market turbulence in both the global and the Finnish financial markets. The year saw Finnish banks playing an important role in supporting the real economy by way of, for example, offering more funding to businesses and households in order to alleviate the impacts of the economic crisis caused by covid-19. 2021 saw Finnish banks abandon certain alleviating acts adopted in the previous year, such as grace periods to borrowers. Certain trends that have been prominent in the Finnish financial market for some years now, such as digitalisation, public efforts to curb household debt and a focus on sustainable business and growth, also influenced the Finnish financial markets in 2021 with the pandemic contributing to the development of some of them. For example, the Financial Supervisory Authority has encouraged banks to refrain from granting particularly large and long loans. Covid-19 has accelerated the adoption of digital banking with more Finnish customers choosing – or rather being forced to choose – digital channels for their interactions. The Finnish banks have also continued to focus more on sustainability factors influencing their operations and sustainable financing. For example, Nordea Group has launched green loans at reduced rates for small and medium-sized enterprises in Finland and Sweden in collaboration with the European Investment Fund. Further, the implementation of the EU's second banking package (CRR II/CRD V7 and BRRD II/SRM II8) aiming to further reinforce banks' ability to withstand potential shocks was commenced in the Finnish parliament, which adopted the amendments in March 2021.

The regulatory regime applicable to banks

The primary law governing credit institutions in Finland is the Act on Credit Institutions (ACI).9 The ACI entered into force in August 2014, replacing the previous act of the same name. One of the main objectives of the reform was to implement, via the ACI, the Capital Requirements Directive IV (CRD IV)10 and the Capital Requirements Regulation (CRR)11 into Finnish legislation.

The ACI is generally applicable to all credit institutions. In addition, there are other laws on specific matters that are applicable to banks of particular forms. Deposit banks are categorised as commercial banks (banks in the form of a limited company), cooperative banks or savings banks, each of which are subject to their own specific regulation. As such, the regulatory framework in Finland consists of various laws governing specific forms of banking activities. The most important laws and regulations are the following:

  1. the ACI, which governs, inter alia, the establishment and management of credit institutions. The definition of a credit institution includes deposit banks and credit societies. As a general law applicable to all credit institutions, the ACI lays down the authorisation requirements, defines the permitted business activities and sets out the conduct of business rules. The ACI also contains provisions on capital adequacy and liquidity requirements;
  2. the Act on Commercial Banks and Other Credit Institutions in the Form of a Limited Company,12 which regulates the operations of commercial banks. This Act lays down provisions regarding, inter alia, the division, merger, liquidation and bankruptcy of commercial banks. The Companies Act,13 as a generally applicable law, governs the corporate aspects of commercial banks except as otherwise provided for in the Act on Commercial Banks and Other Credit Institutions in the Form of a Limited Company or in the ACI;
  3. the Act on Cooperative Banks and Other Credit Institutions in the Form of a Cooperative,14 which regulates the operations of cooperative banks. The Act lays down provisions regarding, inter alia, the division, merger, liquidation and bankruptcy of cooperative banks. The Cooperatives Act,15 as a generally applicable law, governs the corporate aspects of cooperative banks except as otherwise provided for in the Act on Cooperative Banks and Other Credit Institutions in the Form of a Cooperative or in the ACI. There are two cooperative bank groups operating in Finland: OP Financial Group and POP Bank Group. At the end of 2021, OP Financial Group was made up of 121 independent cooperative banks, while POP Bank Group consisted of 21 independent cooperative banks;
  4. the Act on Covered Bonds16 and the Act on Mortgage Societies,17 which regulate the operations of mortgage banks and mortgage societies, respectively. Mortgage banks and mortgage societies are credit institutions that specialise in the financing of residential and commercial real estate. However, their role is not significant in the Finnish financing sector owing to the strong position of deposit banks as providers of financing;
  5. the Savings Bank Act,18 which governs the operations of savings banks that have the special purpose of promoting saving. At the end of 2021, there were 18 regional savings banks operating in Finland;
  6. the Deposit Banks Amalgamation Act (the Amalgamations Act).19 An amalgamation of deposit banks comprises a cooperative central institution, the companies belonging to the central institution's consolidation group, the member credit institutions and the companies belonging to the member credit institutions' consolidation groups, and the credit institutions, financial institutions and service companies in which the aforementioned institutions jointly hold more than half of the voting rights. Under the Amalgamations Act, a central institution is liable for the debts of its member credit institutions. Furthermore, the member credit institutions are jointly liable for each other's debts. Pursuant to the Amalgamations Act, the aggregate amount and liquidity of the amalgamation's own funds are monitored at the amalgamation level on a consolidated basis; and
  7. regulations and guidelines issued by the FIN-FSA.

As regards banking services provided by non-Finnish banks, the ACI sets out conditions under which non-Finnish credit institutions may provide their services in Finland. Credit institutions from countries belonging to the European Economic Area (EEA) may provide banking services in Finland either by establishing a branch or by providing cross-border services, provided that a notification is submitted to the FIN-FSA in accordance with the passporting regime available to EEA credit institutions. Credit institutions from non-EEA countries are not able to take advantage of the passporting regime available to EEA credit institutions; consequently, if a credit institution from a non-EEA country intends to provide its services in Finland, this must happen through a branch with prior authorisation from the FIN-FSA. The authorisation procedure for non-EEA credit institutions is comparable to the authorisation procedure applicable to Finnish credit institutions. At present, there are three authorisations for non-EEA credit institutions in force in Finland. In addition, a non-EEA credit institution may establish a representative office in Finland by notifying the FIN-FSA thereof. The representative office may not engage in banking services, however.