The meeting discussed the risk in the financial system which is still considered moderate and signs that the output gap has started to contract. However, there are indications that risk in the financial system may be on the rise. A little over a year ago, credit growth turned positive and is now growing faster than GDP at nominal values. There are signs of increased willingness to risk-taking in the banking sector as well as other sectors. There is considerable risk associated with high real estate prices, which have been rising in part due to the rapid growth of the tourism industry. However, growth in tourism has been slowing down. According to forecasts, the external balance will support stability in the coming years and financial conditions of households and businesses are still strong. The banks’ capital ratios have declined, in part due to dividend payments, but they are still above their capital requirements. Their resilience is therefore still considerable.
The Council approved recommendations to maintain the systemic risk buffer and a buffer for systemically important financial institutions unchanged. However, it was agreed that those institutions, which are not considered systemically important, would get a longer adjustment period than previously suggested to the systemic risk buffer. They will now need to apply a 3% systemic risk buffer from January 1 2020, as opposed to January 1 2019. The Council also approved a recommendation to the Financial Supervisory Authority to increase the countercyclical capital buffer by 0.5 percentage points to 1.75%. The increase will take effect a year from the Financial Supervisory Authority’s decision on the matter.