HELSINKI (MNI) – Households should prepare for interest rates to
rise and be sure not to take on debt that exceeds their ability to pay,
the Bank of Finland warned in its financial stability report, published
Thursday.
“The growth in the number of heavily indebted households must be
moderated. Households need to determine the size of their loans
according to their ability to service these loans and prepare for the
possibility of interest rates that are higher than the present rates,”
the central bank said in the introduction to its report, thus
acknowledging the environment of monetary tightening that now prevails
in the Eurozone.
The bank also urged EU banks to “reinforce their balance sheets to
enable them to support a recovery in economic growth.” The new round of
bank stress tests, the results of which are expected to be published
next month, “should be used as the basis for determined action to
strengthen the capital base of weak but viable banks, primarily through
private-sector solutions,” it said.
Banks that are no longer viable should be restructured or wound
down “in a controlled manner,” the Bank of Finland report added.
Should restoration of health to the banking sector be delayed yet
again, or should steps taken be insufficient, that would present a
“significant threat” to financial stability, the bank said.
Another major threat to stability, it said, would be a deepening or
expansion of the sovereign debt crisis in the Eurozone. “This would
significantly hamper Finland’s and other European countries’ recovery
from the crisis and increase the funding costs of economic agents in
Finland,” the bank said.
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