Finland should minimise any potential risk to the stability of its financial systems by taking additional measures to curb household debt, the Bank of Finland said in a statement issued on Wednesday.
While new measures proposed by the government to limit the duration of housing loans were necessary, the bank said, they are inadequate to properly address the issue of growing household indebtedness. It added that the implementation of other reforms, such as a debt ceiling in relation to the borrower's income, would also be required to tackle the issue.
The central bank said the long term issue of household debt had risen to a new record high. Sums of new housing loans are now larger than before, with mortgages often extending beyond traditional terms of 25 years, increasing the potential risks, according to the bank.
Households taking a loan should be sure that their ability to repay it can withstand a rise in interest rates, higher household expenses and any uncertainty in the job market,"said Marja Nykänen, Deputy Governor of the Bank of Finland.
Vulnerabilities of the Finnish banking sector are made worse by its small size and concentration, while the country's financial stability may be threatened by external events - like the war in Ukraine and the Covid pandemic, the bank warned.
Measures taken by the government to curb indebtedness would increase the country's financial resiliency in general, and make it easier to respond to unforeseen circumstances, the bank said.
"Reinforcing banks' capital buffers should be possible in more varied ways than currently," Nykänen said.
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