Moody’s cuts Finnish banking outlook to ‘negative’ from ‘stable’

Moody's Investors Service has changed the Finnish banking system outlook to ‘negative’ from ‘stable’, reflecting that the severely contracting economy will likely contribute to a cyclical weakening in banks' credit fundamentals, according to a new Moody's Special Comment.
Moody's expects the weakening economic environment in Finland to continue to have an adverse effect on the asset quality and profitability of Finnish banks. "Total problem loans are likely to increase significantly, although from a very low level (0.5% in January 2009) and, in addition to increased credit risk, high funding costs will continue to weigh on banks' profitability. Fee and commission income is also expected to remain under pressure due to weakened asset management and corporate finance activities," said Kimmo Rama, a Moody's senior analyst.
However, Moody's notes that Finnish banks continue to benefit from good overall liquidity management, strong albeit weakening capital ratios and good historical efficiency levels.
"Like other Nordic countries, Finland has introduced state guarantees as a measure to support banks' funding, although, 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," added Rama.