A large volume of long-term debt funding raised by euro area banks matures during the first half of 2012. The increased cost of market-based funding and uncertainty about the availability of finance in the context of the debt crisis have raised concerns over banks’ ability to provide loans to their customers.
Banks in the euro area have tightened their credit standards on both corporate and housing loans, thereby widening loan margins. At the same time, loan demand by non-financial corporations and households has decreased. However, country differences are large, and to date there is no solid evidence of such a contraction in the loan stock that would constrain economic growth.
In Finland, in 2011, the deepening of the sovereign debt crisis and the slowdown in economic growth had only a minor effect on the development of loans, deposits and securities holdings by non-MFIs. However, the increase in general uncertainty had a major impact on developments in loans and deposits between monetary financial institutions as well as the stock of derivatives.
The aggregate balance sheet of Finnish monetary financial institutions (MFIs) at the end of 2011 amounted to a third more than a year earlier. The MFI balance sheet was boosted particularly by loans taken from outside the euro area and derivatives. MFIs’ repo agreements with non-euro area non-financial corporations, insurance companies and central counterparties multiplied. Non-euro area assets and liabilities were also boosted by internal transfers within banking groups.
In Finland, growth in the stock of loans continued to be stable and faster than in the euro area in 2011. Both non-financial corporations and households increased their borrowing. However, the loan stock grew more slowly than in the years preceding the financial crisis.
The stock of households’ housing loans grew steadily throughout the year at an average annual rate of 6.7%. The stock of loans to non-financial corporations also continued to grow, at an average rate of 6.5%, but accelerating to 8.5% towards the end of the year. In many other euro area countries, the stock of corporate loans contracted or grew only modestly. In Finland, non-financial corporations took out loans mainly to finance their operating capital needs and reorganise their financing, not to finance investments.
The net assets of domestic investment funds decreased by EUR 6.5 billion in 2011, mostly due to the negative price performance of securities, but also because investors reduced their fund holdings by EUR 1.5 billion. In Finland, the decrease in the stock of investment fund assets was more pronounced than in the euro area on average.
In Finland, a working group has been established to assess what kind of regulatory measures and allocation of responsibilities could be used by domestic authorities in order to better recognise and ward off risks to the stability of the financial system and the economy as a whole. The materialisation of risks related to excessive lending and indebtedness was one of the key reasons underlying the present financial and economic crisis.
Migration into the Single Euro Payments Area (SEPA) reached its key stage in Finland as the SEPA credit transfer replaced national transfers at the beginning of 2012. Measures aimed at unifying retail payments within the EU will continue.
The above information is available in the publications Rahoitustilastot Vuosikatsaus 2011 (Financial Statistics Annual Review 2011) and Rahoitusmarkkinaraportti 1/2012 (Financial Market Report 1/2012), published today (in Finnish) by the Bank of Finland. The former will be published in English on 7 March and the latter on 27 February.
For more information, contact:
Hanna Häkkinen, Economist, hanna.hakkinen(at)bof.fi, tel. +358 10 831 2552 (Financial Statistics Annual Review)
Hanna Putkuri, Economist, hanna.putkuri(at)bof.fi, tel. +358 10 831 2103 (Financial Market Report)
Hermanni Teräväinen, Economist, hermanni.teravainen(at)bof.fi, tel. +358 10 831 2172 (Financial Statistics Annual Review)