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02 Jul 2009
London, 02 July 2009 -- Moody's Investors Service has published an in-depth Banking
System Outlook on Finland in which the rating agency reiterates that its
fundamental credit outlook for the banking system is negative, having
changed the outlook from stable in April. This reflects its view
that the severely contracting economy will likely contribute to a further
weakening in banks' credit fundamentals.
Moody's negative outlook for the Finnish banking system expresses
the rating agency's view on the likely future direction of fundamental
credit conditions in the industry over the next 12 to 18 months.
It does not represent a projection of rating upgrades versus downgrades.
In Moody's view, the weakening economic environment in Finland
will continue to have an adverse effect on the asset quality and profitability
of Finnish banks. "We expect problem loans to increase significantly,
although from a low level, and, in addition to increased credit
risk costs, high funding costs to continue to weigh on banks'
profitability," says Kimmo Rama, a Moody's Vice
President/Senior Analyst. Moody's also expects fee and commission
income to remain under pressure due to weakened asset management and corporate
The Finnish banking system has proven relatively resilient to the challenges
confronting banking systems globally. This is largely due to the
fact that the exposure of Finnish banks to toxic financial assets and
failed financial institutions has been minimal, partly explained
by Finnish banks being more oriented towards traditional banking activities.
However, given that the crisis on financial markets has now spread
extensively into the real economy, Moody's expects Finnish
banks to be adversely affected.
An important indicator of the weakened credit environment is the increase
in the number of bankruptcies. Overall, corporate bankruptcies
increased by 16% in 2008, spread across all industries,
but most heavily affecting the services sector. Moody's also
expects the recession to have an adverse effect on the debt servicing
ability of households. "Positively, a large proportion
of Finnish households' mortgage loans are variable rate loans,
which at a time of decreasing interest rates will reduce the burden of
debt servicing," adds Mr. Rama.
Like other Nordic countries, Moody's notes that the Finnish
government has introduced state guarantees as a measure to support banks'
funding. Currently, the government guarantees up to 50
billion for refinancing purposes, limited to amounts falling due
by the end of 2009. A state guarantee can be given as a security
for certificates of deposits that have a maturity of three to 12 months
or unsecured bond issues that have a maturity of more than one year and
a maximum of five years or for mortgage-backed notes that have
a maturity of a maximum of five years.
The government also offers, to deposit-taking banks only,
interest-bearing subordinated loans (up to EUR4 billion) that can
be considered as banks' Tier 1 capital (for more information see "Moody's
comments on Finnish government measures to support banking sector",
published on 28 February 2009). So far, no Finnish banks
have made use of the government's guarantee or capital loans,
which can be partly explained by their adequate capital levels.
The principal methodologies used in rating the Finnish banking system
are the "Bank Financial Strength Ratings: Global Methodology"
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology", which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies sub-directory. Other methodologies and factors
that may have been considered in the process of rating the Finnish banking
system can also be found in the Credit Policy & Methodologies directory.
The "Banking System Outlook: Finland" is available on
* * * * *
NOTE TO JOURNALISTS ONLY: For a copy of this report, please
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Scholz in Frankfurt +49-69-707-30-700;
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in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110;
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Reynold R. Leegerstee
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's reports: Negative outlook maintained for Finnish banking system
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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