Finland: Financial Sector Assessment Program: Technical Note-Stress Testing the Banking System and Interconnectedness Analysis
IMF Staff Country Reports, January 11, 2017
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- Finland: Financial Sector Assessment Program: Technical Note-Stress Testing the Banking System and Interconnectedness Analysis
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Bibliographic details
- Published: January 11, 2017
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781475564921.002
Key findings and summary
- Discusses results of stress testing of Finland’s banking system.
- Despite high capitalization levels, there are important vulnerabilities in the Finnish banking system.
- Near-term risks are largely tilted to the downside, stemming from both external and domestic sources.
- A sharper-than-expected global growth slowdown would be a drag on Finland’s export and GDP growth.
- Although so far high compared with the rest of the euro area banks, Finnish banks’ profitability is facing challenges from the low interest rate environment and the low economic growth.
- Identified vulnerabilities include funding risks, contagion risks, and challenges related to long-term profitability.
Risks and vulnerabilities (themes highlighted)
- External shock risk: global growth slowdown → adverse effects on exports and GDP growth.
- Profitability pressures: low interest rate environment and low economic growth affecting bank profitability, despite currently higher profitability relative to other euro area banks.
- Funding and liquidity risks: funding risks and liquidity stress testing considerations are noted as vulnerabilities.
- Contagion and interconnectedness: contagion risks and parent/foreign bank linkages underline systemic interconnectedness concerns.
- Long-term sustainability: challenges related to long-term profitability and hurdle rates.
Stress testing and analytical scope
- The Technical Note focuses on stress testing of the banking system and interconnectedness analysis.
- Topics and technical elements referenced in the content include: balance sheet size, bank capitalization, Commercial banks, contagion risk, CR, Credit, credit risk, Internal Ratings-Based model, ISCR, liquidity position, Liquidity stress testing, parent bank, pillar II requirement, risk parameter, sensitivity analysis, stress test result, Stress testing.
Content in this bundle
- Country Report