Finnish Bank Profitability Eroded by Low Rates, Regulator Says

Banks and insurance companies operating in Finland face weakening profitability because of low interest rates, the country’s market regulator said.

“Banking sector profitability is still at a reasonable level but remains under pressure,” Anneli Tuominen, director general at the Helsinki-based Financial Supervisory Authority, said in a statement. “For insurance sector entities, it’s a challenge to allocate investments profitably, at a controlled risk level.”

The euro area’s recession is hurting Finland’s export-led economy, which gets more than a third of its output from foreign sales. The northernmost euro member entered a recession in the fourth quarter, according to data published by Statistics Finland today.

Banks operating in Finland, including Nordea Bank AB (NDA) and Danske Bank A/S (DANSKE), are struggling to boost income as rates hover close to record lows amid central bank efforts to stimulate demand. The European Central Bank cut its benchmark rate to record-low 0.5 percent last month and Sweden’s Riksbank has reduced its repo rate to 1 percent.

The average core Tier 1 capital ratio among Finland’s banks stood at 15 percent of risk-weighted assets at the end of March, compared with 15.5 percent at the end of last year.

Finland is the only Nordic country to use the single currency.

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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