The Financial Supervisory Authority raises the capital requirements of banks, the mortgage ceiling remains unchanged

The loan ceiling will be kept at its current tightened level of 85 percent.

Financial Supervisory Authority (Fiva) has decided to set credit institutions a requirement of one percent of the system risk buffer.

The decision increases the capital requirements of Finnish banks. The goal is to strengthen the risk-bearing capacity of the Finnish banking sector.

The decision will enter into force after the transition period in April of next year, says Fiva.

Setting a requirement for a system risk buffer did not come as a surprise. Fiva had already said in December that it was preparing to decide on the matter at the beginning of the year.

Fiva justifies the decision with the fact that the structural vulnerabilities of the Finnish banking sector are now at least as great as before the corona pandemic, when the requirement for a systemic risk buffer was used last time.

“Thanks to strong solvency, the risk-bearing capacity of the Finnish credit institution sector is good. However, the sector’s structural vulnerabilities require particularly good capitalization. Therefore, it is justified to return the capital requirements to approximately the pre-corona pandemic level in accordance with the previous plan,” says the chairman of Fiva’s board of directors Marja Nykänen’s bulletin.

Fiva does not believe that the decision will significantly weaken banks’ lending ability if the economy develops as predicted.

Banking group Nordea says that Fiva’s decision is not expected to have an impact on Nordea’s capital return plans.

Financial Supervisory Authority also decided to keep the loan ceiling for new mortgages other than for the purchase of a first home unchanged at 85 percent.

Fiva notes that housing sales have decreased significantly over the past year, when interest rates on loans have risen. Households’ ability to manage debt is expected to weaken, but remain mostly good.

“Since the amount of household debt in relation to income has remained high, it is important to strive to ensure that mortgage borrowers have sufficient financial sustainability in case of the burden of loan management and the increase in other living costs and the decrease in collateral values ​​of apartments,” says Fiva in the press release.

The loan ceiling means that a maximum of 85 percent of the fair value of the collateral provided for the mortgage can be obtained. The loan ceiling has been at its current tightened level since 2021.

For first-time home buyers, the loan ceiling is 95 percent. Fiva also kept the loan ceiling for first-time home buyers unchanged.