FIN-FSA stresses assessment of loan-repayment ability

The Board of the Financial Supervisory Authority (FIN-FSA) will not impose a countercyclical capital buffer requirement on credit institutions and will maintain unchanged the loan cap imposed a year ago for residential mortgage loans other than first-home loans.

In its meeting on 22 March 2019, the FIN-FSA Board decided not to impose a countercyclical capital buffer (CCyB) requirement on credit institutions, said FIN-FSA in a press release

The primary risk indicator for imposing a countercyclical capital buffer requirement has remained clearly below its threshold value: at the end of September 2018, the domestic private sector credit-to-GDP gap was -7.1 percentage points. Moreover, other supplementary risk indicators are not signalling such a build-up of financial system risks as would necessitate an immediate increase in the CCyB requirement.

The FIN-FSA Board also maintains its earlier decision on lowering the maximum LTC ratio for residential mortgage loans other than first-home loans by 5 percentage points. The decision came into force on 1 July 2018 and is still justified in terms of containing household indebtedness.

The high level of household indebtedness is a structural vulnerability that may increase the sensitivity of the economy to cyclical fluctuations.

"One of the objectives of the FIN-FSA Board’s macroprudential strategy is to ensure that the growth rate of household loans does not exceed the growth rate of household disposable income over the medium term. The application of macroprudential instruments is aimed at achieving this goal," said Marja Nykänen, Chair of the FIN-FSA Board.

Currently, the increase in credit levels has been focused on housing corporation loans and consumer credits. Particularly in new construction, the proportion of housing corporation loans has increased sharply. At the same time, residential mortgage loan repayment periods have lengthened. The slowing of economic growth underlines the systemic vulnerabilities associated with the level of lending for housing corporation loans, consumer credit and residential mortgage loans.

"It is natural for channels and forms of financing to change over time, but from a stability perspective we must ensure that the changes do not excessively increase the risks and vulnerabilities of the housing market and the financial system. In this situation, it is beneficial for households that are planning to borrow to assess more carefully their ability to manage residential mortgage loans, consumer credit and housing corporation loans, and for banks not to ease their existing lending practices," said Anneli Tuominen, Director General of the FIN-FSA.