Finnish central bank calls for ceiling on household debt-to-income ratio | Yle Uutiset
The persistent and growing indebtedness of Finnish households poses a threat to the country’s ability to cope with economic crises in the future, the Bank of Finland said on Tuesday.
At the same time, the central bank said the country’s economy has survived the coronavirus crisis better than expected. He said plans for “strong monetary and fiscal stimulus”, flexible bank lending and other banking regulations had helped Finnish businesses and households.
However, the growth in home mortgage lending that started last summer has helped to increase the household debt burden, according to the vice-governor of the central bank, Marja Nykänen.
“From a financial stability point of view, the increased indebtedness of Finns and, in particular, the growing supply of long-term home loans is worrying,” Nykänen said in the statement.
As a solution to reduce future risks associated with economic crises, the bank suggested exercising macroprudential policies. According to the long definition, the main objective of macroprudential policy is to promote stability within the financial system as a whole.
The bank calls for a cap on the debt-to-household income ratio
“The continued growth in household debt and the easing of conditions for new housing loans increase the need for new macroprudential tools. in order to put an end to the easing of loan conditions, “said Nykänen.
“The new macroprudential tools should target credit provided by both banks and other lenders,” she said.
Meanwhile, Nykänen noted that growing household debt was only part of the problem, saying housing company borrowing was also on the rise, a situation that may skew the real costs facing buyers. potentials.
While the proportion of household mortgages for home purchases has remained stable over the past decade, consumer debt for housing company loans has steadily increased over the same period, according to bank details.
“Loans from housing corporations can blur homebuyers’ understanding of their overall housing costs and cause them to purchase expensive homes relative to their ability to meet their debt and the costs of maintaining the property,” he said. she declared.
Despite the grim outlook on household economies, the central bank said Finnish banks are in good shape and their profitability has increased in 2020, adding that recent reforms have helped strengthen the capacity of Finnish banks to operate in the future. global scale.
“Finnish banks have sufficient capital and were able to lend to businesses and households during the pandemic,” Nykänen said.
However, the bank also warned that Finnish banks were sensitive to risks seen in other Nordic countries, saying rising housing costs “are amplifying housing market imbalances, especially in Sweden and Norway.”