The Finnish Financial Supervisory Authority (FIN-FSA) has completed a comprehensive thematic review of the credit granting and monitoring practices of banks operating under its direct supervision. The review, conducted throughout 2025, focused on compliance with the European Banking Authority (EBA) guidelines (EBA/GL/2020/06). The regulator has reported several deficiencies in how credit institutions manage loan origination, governance, and risk monitoring frameworks.
The assessment aimed to verify whether banks have successfully integrated the EBA’s strict guidelines into their daily operations. The scope included the governance of credit granting, the procedures for issuing loans, and the frameworks used to monitor credit risk over time. According to the findings released on November 27, 2025, many institutions fell short of regulatory expectations, particularly regarding risk diversification, data management, and the valuation of collateral.
Deficiencies in Risk Diversification and Limit Setting
One of the primary concerns raised by the FIN-FSA involves the strategic management of credit risk. The regulator found that several banks lacked adequate mechanisms for diversifying their loan portfolios. Specifically, there were notable absences of defined targets and limits regarding specific business areas, economic sectors, and financial products.
To maintain financial stability, banks are expected to set quantitative boundaries to prevent excessive exposure to a single sector or type of borrower. The review highlighted that quantitative credit risk limits, which are essential for managing concentration risk, were often missing. Furthermore, the definitions used by banks to determine the scope of credit risk and the composition of their credit portfolios were found to be insufficient.
These gaps suggest that the broader landscape of lending in Finland may be operating with less granular risk oversight than required by European standards. Without precise limits, institutions face higher vulnerability if specific market sectors experience a downturn.
Shortcomings in Credit Monitoring Processes
The FIN-FSA’s report indicates that banks have not fully established regular credit assessment processes as mandated by the EBA. A critical part of risk management is the continuous monitoring of a borrower’s financial health after a loan has been issued. The regulator observed that banks were not active enough in tracking borrowers whose credit ratings or asset quality had deteriorated.
Effective monitoring requires a comprehensive view of the client’s financial status. However, the review found that the data used in regular credit assessments was often incomplete. This lack of coverage hampers the ability of banks to identify potential defaults early.
Issues with Commercial Real Estate Valuation
A significant portion of the deficiencies identified relates to commercial real estate (CRE) lending. The FIN-FSA noted that banks were not consistently applying international valuation standards when determining the value of commercial property collateral.
Accurate valuation is critical for securing business loans in Finland, particularly when real estate is the primary security. The regulator found that banks failed to adequately consider specific data points related to CRE lending—such as rental yield sustainability—when assessing a borrower’s repayment capacity.
Additionally, the review highlighted a lack of sensitivity analysis in the CRE sector. Sensitivity analysis involves stress-testing a borrower’s ability to repay under changed economic conditions, such as rising interest rates or vacancy rates. The absence of these stress tests suggests that credit decisions may be based on overly optimistic scenarios.
Corporate Lending and Sensitivity Analysis
The deficiencies extended beyond real estate into general corporate lending. The FIN-FSA found issues regarding the validity periods of credit decisions, meaning some loans may have been finalized based on approvals that were no longer timely. Furthermore, the data collected to assess the creditworthiness of companies was frequently criticized for being insufficiently comprehensive or outdated.
Similar to the findings in the real estate sector, banks were found to be lacking in their performance of sensitivity analyses for corporate borrowers. While a standard loan calculator can determine initial repayment schedules, it does not account for financial shocks. The regulator emphasizes that banks must simulate various negative scenarios to ensure that companies can sustain their debt obligations during economic downturns.
Construction Lending and Operational Risks
In the specific area of construction financing, the FIN-FSA identified practical oversight failures. Banks were found to be neglecting site visits to properties under construction. Physical inspections are a standard risk management tool to verify that development is progressing according to plan.
The review also noted that banks often failed to account for incidental costs when calculating a developer’s ability to pay. In construction projects, unexpected expenses are common, and failing to budget for them can lead to liquidity crises. The regulator has recommended that banks utilize additional data points outlined in the EBA guidelines, such as evidence of planning and building permits and details on the borrower’s other ongoing projects.
These findings are relevant to the stability of the property market, which underpins mortgage loans in Finland as well. If development finance is not managed strictly, it can lead to stalled projects and broader market uncertainty.
Data Integrity and Manual Processes
A structural issue identified across multiple institutions was the reliance on manual processes. The FIN-FSA reported that the production of data for the monitoring framework required a “significant amount” of manual work.
Manual data entry and processing increase the risk of human error and slow down the reporting capability of the bank. The regulator pointed out gaps in the coverage of the monitoring framework data, suggesting that the current IT systems and processes are not capturing all necessary risk indicators automatically.
Regulatory Actions and Next Steps
The FIN-FSA plans to use these observations to target its future supervisory activities. The regulator has stated that it requires the supervised entities to correct the deficiencies identified in the review.
Corrective actions are expected to be proportional to the size and complexity of the institution, in line with the EBA guidelines. The FIN-FSA will send individual supervisory letters to the banks involved, detailing the specific areas that require immediate attention. The focus will be on ensuring that Finnish banks align their internal governance and risk management frameworks with the rigorous standards established by the European Banking Authority.
