Macroprudential Decision: Countercyclical Capital Buffer Rate and Loan Cap Unchanged

finanssivalvontaThe Board of the Financial Supervisory Authority (FIN-FSA) will not impose a countercyclical capital buffer (CCyB) requirement on credit institutions, and therefore the CCyB rate will remain at zero. The Board is also keeping in force the decision made on 19 March 2018 to lower the maximum loan-to-collateral (LTC) ratio, or loan cap.

The decision made by the FIN-FSA Board on 19 March 2018 and effective since 1 July 2018 to lower by 5 percentage points the maximum LTC ratio for residential mortgage loans other than first-home loans is still justified in terms of containing household indebtedness.

The credit-to-GDP gap, used as the primary indicator for setting a CCyB requirement, continues to give a reference value of 0% for the CCyB requirement. Overall, the indicators of credit growth or other supplementary risk indicators are not signalling such a build-up of financial system risks as would necessitate an immediate rise in the CCyB requirement.

In the early part of 2018, the Board of the FIN-FSA made decisions on banks’ additional capital requirements and a tighter loan cap.

“We are now carefully assessing the effects of these decisions and the potential need for additional measures,” says Marja Nykänen, Chairman of the FIN-FSA Board.

The strong increase in housing corporation loans has raised concerns in recent years. The Board of the FIN-FSA notes that growth in housing corporation loans may also constitute a risk from the macroprudential perspective.

“Participations in housing corporation loans increase indebtedness of households and their sensitivity to potential interest rate rises,” emphasises Nykänen.

In March–May 2018, the FIN-FSA examined the lending criteria and risks associated with credit institutions’ construction-stage financing and housing corporation loans. Factors increasing these risks include growth in participations in housing corporation loans, growth in debt-financed housing investment, lengthening of interest-only periods and differentiation of the housing market.

“To restrict the risks relating to housing corporation loans, the FIN-FSA is also assessing the need to increase the minimum level of risk weights on housing corporation loans used in credit institutions’ capital adequacy calculations, says Anneli Tuominen, Director General of the FIN-FSA.