Finland Times

 

 

The international credit-rating agency Moody’s announced on Thursday that the outlook for Finland’s banking system is likely to remain negative in the coming 12-18 months.

 

In a release, Moody’s said the main driver of the current outlook is the upcoming implementation of a bail-in regime across Europe under the Bank Recovery and Resolution Directive (BRRD) and Single Resolution Mechanism (SRM) package. 

 

“Previously, the negative outlook captured the challenges the system faced from operating environment pressure points and asset-quality erosion. But, despite some cyclical improvements in Finland’s economy that have alleviated some of our earlier concerns for creditworthiness in this system, the forthcoming implementation of BRRD is the key consideration in our decision to maintain the negative system outlook,” explains Jan Skogberg, a Moody’s analyst and author of the report. 

 

The credit-rating agency said the new BRRD framework has negative credit implications that exceed the benefits of improved stability for senior unsecured creditors of EU banks, including Finnish banks. 

 

The BRRD/SRM package aims to alleviate the costs of bank failures on taxpayers and shift that burden onto shareholders and unsecured creditors, with a very clear expectation that ‘bail-in’ will be used, if needed, as part of bank resolutions. 

 

Although the credit implications of the upcoming BRRD/SRM framework outweigh the gradual improvements in Finland’s banking system, Moody’s acknowledged that the fragile economic rebound will support Finnish banks’ asset quality, with forecast GDP growth of 0.2% in 2014 and 1.3% in 2015. Finnish banks’ asset quality should stabilise, as borrowers should benefit from the combination of a strengthening economy and continued low interest rates.

 

Household and corporate NPL ratios are stable and low compared with almost any other jurisdiction in the EU. For example, the aggregated problem loan ratio for Finland was 1.9% at year end-2013 compared with the euro area average of 8.2%. 

 

Moody’s said the fragile economic rebound does not change the likelihood that Finnish banks will continue to face profitability pressure in the coming 12-18 months, as the European Central Bank keeps interest rates at current low levels and competition for lending opportunities remains intense.