The Central Bank of Finland stated that there had been a persistent increase in debt of the Finish households, which is leading the country towards a future economic crisis. However, the government is coping better than anticipated from coronavirus, and it is because of the firm monetary and fiscal policies. In addition, the financial packages and loans of Finnish loan companies have helped businesses and households in Finland cope with the situation.
According to Marja Nykänen, the Governor of the Central Bank of Finland, there has been an increase in housing mortgage loans. As a result, it has led to a rise in the country’s debt burden. She also stated that the increasing indebtedness of the country and the increasing provision of long-term housing loans is a matter of concern from the financial viewpoint.
As per data gathered from the Organization for Economic Co-operation and Development (OECD), the level of debt of the Finnish households has been increasing steadily for the last few years, which has moved Finland to the 10th position among the OECD countries.
Authorities are also concerned about the rising prices of household properties and lending across Europe. The banks are committed to supporting the economy and taking low rates until the pandemic is over. It is causing losses and, in fact, leading to a degradation of economic stability.
Defining caps on family debt-to-income
Standing at the present situation of the financial crisis, the solution to reduce it is by exercising the macroprudential policies- as stated by the Central Bank of Finland officials. The main aim of the policy is to increase the stability of the financial system as a whole.
The bank now urges households to have debt-to-income caps. This, along with limits on the housing loan maturity, would help tighten up the loan terms- as stated by Nykänen. These macroprudential tools should be exercised on the loans granted by both banks and other financial institutions.
Looking at the bank data, it can also be stated that the household mortgage loan for a home purchase has remained stable over the past decade. Still, there has been a steady increase in the consumer’s debt for housing companies’ loans during the same period. One of the main reasons behind this is the housing companies lure the buyers into buying expensive dwellings- more than their debt-covering abilities and budget for the property maintenance cost.
Despite the household debt issues, Finnish banks were in good shape, and their profitability increased during 2020. Moreover, the recent reforms have contributed to boosting the Finnish banks’ abilities; they are now able to operate globally.
Nykänen stated that, with adequate capital in reserve, Finnish banks successfully lent money to different households and businesses, even during the pandemic situation. However, it should be considered that Finnish banks have a high risk-susceptibility which is also seen in other Nordic countries like Sweden and Norway. Here, the increasing cost of housing properties has led to a magnified imbalance in the housing market.
Interesting related article: “What is a Loan?“