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    IMF Reports on 2019 Article IV Consultation with Finland and Estonia

    January 22, 2020

    IMF published reports under the 2019 Article IV consultations with Finland and Republic of Estonia. These IMF reports assess, among other areas, the soundness of financial sectors in these countries. The IMF assessment shows that banking systems in both Estonia and Finland remain healthy and well-capitalized.

    Staff and selected issues reports on Finland. The financial system is sound, with the banking system being well-capitalized and profitable. However, extra measures are needed to address vulnerabilities of borrowers. While Finnish banks are highly exposed to real estate, residential and commercial real estate markets are not obviously overvalued. The recent recommendation to limit the ratio of household debt to income (DTI) is in line with the steps taken in many other countries. A government appointed working group has recommended a comprehensive cap on the DTI ratio, limits on the indebtedness of housing companies, and shortening the maximum maturity of mortgages and housing company loans. The assessment concludes that additional steps could be taken to address financial risks, especially those associated with the increase in housing company and consumer loans. Moving forward to establish the planned comprehensive positive credit registry and stepping up data collection on loans from outside credit institutions is important to limit the possibility of cheating by loan applicants and would also help to assess the increase in consumer credit from the increase in “peer-to-peer” and other non-bank loans. Replacing the loan-to-collateral ratio for mortgage loans by a loan to value cap would further strengthen the macro-prudential toolkit.

    Staff and selected issues reports on Estonia. In Estonia, the banking sector is sound, non-performing loans have been low, liquidity coverage ratios are above the regulatory minimum requirements, and banks have ample capital buffers. Macro-prudential policies are appropriate and risks are contained, but continued monitoring is warranted. Directors underscored that macro-prudential policies should contain financial-sector risks that could arise from the low interest rate environment. They encouraged the authorities to continue to monitor broader macro-financial developments, especially real estate and housing related risks, while enhancing the macro-prudential toolkit and standing ready to act, should risks materialize. 


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    Keywords: Europe, Finland, Estonia, Banking, Article IV, Macro-Prudential Policy, Macro-Prudential Tools, Systemic Risk, NPLs, IMF 

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