Finnish SIFIs designated by Finanssivalvonta, Moody’s deems positive

Jul 17th, 2015

A move by the Finnish FSA (Finanssivalvonta) to designate Nordea Bank Finland, OP Financial Group, Danske Bank and Municipality Finance as systemically important credit institutions, and therefore impose upon them additional capital requirements, is credit positive for the affected banks, according to Moody’s.

DanskeOn Monday of last week (6 July) Finanssivalvonta said that, with guidance from the EBA, the institutions were designated SIFIs because of their significant market shares in deposits, lending and payment services and key role in the financial system in Finland.

“The additional capital requirements to be imposed should be calibrated so as to ensure sufficient risk resilience of banks operating in Finland and to help prevent disruptions in the financial markets,” said Pentti Hakkarainen, chairman of the board of Finanssivalvonta.

“After these additional requirements, the total capital requirements approach the level in the other Nordic countries and several other European countries and thus enhance the competitive neutrality of banks.”

Nordea and OP will be subject to a two-percentage point additional SIFI requirement, while Danske and MuniFin face 0.5% increases.

The new requirements must be covered by high quality common equity Tier 1 capital as of 7 January 2016, although none of the affected institutions need to raise additional capital to comply with the new buffers, Finanssivalvonta added.

Moody’s said the new requirements would support the banks’ maintenance of their already-high capital levels, sustaining a layer of protection to debt investors, and are therefore credit positive.

OP reported a CET1 ratio of 16.7% at 31 March 2015, while its new CET1 requirement is 9.0%, Moody’s said. The rating agency noted that Nordea reported a CET1 ratio of 16.7% at year-end 2014 Danske 13.9%, and MuniFin 30%.

“These ratios are unlikely to decrease given these institutions’ dominant role in Finnish financial services and Finland’s operating environment,” the rating agency added.

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