In April and May, the Financial Supervisory Authority (FIN-FSA) and the Bank of Finland performed a stress test on Finnish deposit banks to analyse how banks' capacity to withstand losses would respond to a marked deterioration in the operating environment as compared with the baseline economic forecasts.

Under the stress scenario, the economic decline would be much deeper than forecast over the next two years and there would be no economic growth yet in 2011.

According to the stress calculations, deposit banks' income would fall considerably and loan losses would grow much more than projected in the baseline forecast. As a rule, the performance of deposit banks would show a loss throughout the period under review.

However, existing substantial capital buffers in excess of EUR 8 billion would be sufficient to secure the stability of the banking sector in response to the conditions outlined in the stress test. The capital adequacy of the sector will withstand the stress scenario, says the FSA’s Director General Anneli Tuominen in a press statement.

The authority plans to continue such stress testing as part of its supervisory activity.