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Fri, 22 May, 2015 12:47:43 AM FTimes- Report, May 22  The Bank of Finland Deputy Governor Pentti Hakkarainen. Photo Lehtikuva. The Bank of Finland on Thursday said low market interest rates, growing search for yield and abundant market liquidity have given rise to risks that could affect the country.
The banking system in the country, it was revealed, is both profitable and well-capitalised but structurally vulnerable.
Furthermore, it is concentrated, dependent on funding from abroad and highly interlinked with the banking systems of the other Nordic countries. The consequences of banking crises could therefore be exceptionally severe in the country.
The potential effects of these structural vulnerabilities can be reduced by further reinforcing banks’ ability to bear risk, said the central bank in an official statement.
The bank said the most significant risks to financial stability relate to both domestic and international developments. Furthermore, weak developments in the Finnish economy could expose the financial system to risks.
“The stable functioning of the financial system is essential to supporting the balanced development of the Finnish economy,” Bank of Finland Deputy Governor Pentti Hakkarainen told a press briefing held to launch the new issue of the journal Euro & talous.
Another growing concern is the household indebtedness, which according to the Bank of Finland has doubled since the turn of the millennium, albeit the pace of growth has slowed in recent years.
“Half of housing debt is borne by the most indebted 10% of all households. In the current situation of prolonged low interest rates, it is particularly important to manage one’s own finances and interest rate risk,” said Hakkarainen.
In the statement, the Bank of Finland said the current monetary policy in the euro area, with low interest rates, is in harmony with the economic cycle in the country.
However, according to the bank, the country’s financial system has remained stable despite the lack of improvement in the macroeconomic situation.
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