Finland must minimize potential risks to the stability of its financial systems by taking additional measures to curb household indebtedness, the Bank of Finland said in a statement issued on Wednesday.
Although the new measures proposed by the government to limit the duration of mortgages were necessary, they are not enough to properly address the growing household indebtedness. It added that solving the problem also requires the implementation of other reforms, such as a debt ceiling on the borrower’s income.
According to the central bank, the amount of long-term household debt had reached a new record. The amount of new mortgages is now higher than before, and mortgages often exceed traditional 25-year loan periods, which the bank says increases potential risks.
Borrowing households need to be confident that their ability to repay will withstand rising interest rates, rising household costs and uncertainty in the labor market,"said Marja NykänenDeputy Governor of the Bank of Finland.
The vulnerabilities of the Finnish banking sector are exacerbated by its small size and concentration, while the country’s financial stability could be threatened by external events – such as the war in Ukraine and the Covid pandemic, the bank warned.
Government measures to curb indebtedness would increase the country’s overall economic sustainability and make it easier to respond to unforeseen situations, the bank said.
"It should be possible to strengthen banks’ capital buffers in a more comprehensive way," Nykänen said.
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Source: The Nordic Page