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Financial Market Report 2004

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Financial Market Report 2004 SUOMEN PANKKI y BANK OF FINLAND Financial Markets Department Financial Markets Report 2004 - No. 1 • Sound results from Finnish banks last year • Housing loan growth continues to rise briskly • Record dividends from listed Finnish companies • Risk premiums at exceptionally low levels on non-financial corporation loans • Banks seek significant savings through more efficient processing on payments 24 Mar 2004 Contents Project team 1 Financial intermediation 3 Pertti Pylkkönen, chairman 1.1 Housing loans growing fast in some euro area countries 3 Timo Iivarinen 1.2 Record dividends from listed Finnish companies 4 Karlo Kauko 2 Banks and insurance companies 6 Heli Paunonen 2.1 Banks did well in 2003 6 Hanna Putkuri 2.2 Performance of major European and American banks improved Katja Taipalus in 2003 7 Mervi Toivanen 2.3 Broad restructuring in insurance sector 9 Jukka Vauhkonen 3 Securities markets 11 3.1 Continued growth on the share markets 11 Nina Björklund 3.2 Risk premiums at exceptionally low levels on non-financial Kati Salminen corporation loans 12 Petri Uusitalo 3.3 Mutual fund markets showing strong growth 13 Janne Villanen 4 Infrastructure 15 Taina Seitovirta 4.1 EU: Swift introduction of comprehensive legislative framework Korhonen Ilkka for retail payments 15 Lehto Ulla 4.2 Banks seek significant savings through more efficient processing Park-Ahonen Louise of payments 16 Puttonen Eija 5 Major development projects in regulation and supervision 18 Tervonen Eija 5.1 The Committee of European Banking Supervisors commenced operations 18 Coordination 5.2 Regulatory initiatives for securitisation in Europe 19 Financial Markets Management Group 6 Key corporate arrangements and events in the financial sector 21 POSTIOSOITE PL 160, 00101 HELSINKI POSTADRESS PB 160, 00101 HELSINGFORS POSTAL ADDRESS P.O. Box 160, FIN-00101 HELSINKI, FINLAND KÄYNTIOSOITE Snellmaninaukio BESÖKSADRESS Snellmansplatsen STREET ADDRESS Snellmaninaukio, Helsinki PUHELIN (09) 1831 TELEFON (09) 1831 PHONE International + 358 9 1831 FAKSI (Rahoitusmarkkinaosasto) (09) 624 842 FAX (Finansmarknadsavdelningen) (09) 624 842 FAX (Financial Markets Department) + 358 9 624 842 SÄHKÖPOSTI: [email protected] E-POST fö[email protected] EMAIL first [email protected] http://www.bof.fi Suomen Pankki • Bank Of Finland – Financial Markets Department 24 Mar 2004 1 Financial intermediation 1.1 Housing loans growing fast in some euro area countries Pertti Pylkkönen Interest rates on new housing loans in the euro area continued to decline in 2003. Low interest rates have accelerated the growth of the housing loan stock in Finland as well as in eg Ireland and Spain. In Finland, the stock of housing loans is presently growing at an annual rate above 15%. In Spain and Ireland, the growth rate has already climbed to about 25%. Chart 1. Interest rates (%) on new centage points. In a number of other euro housing loans given by finan- area countries, interest rates declined during cial corporations, loans with 2003 more than in Finland. up to one-year initial rate fixa- For a long time, Finnish banks have been tion, year 2003 among the most efficient in the euro area. % 6.0 Besides a tight competitive situation, this 5.5 3 has been reflected in narrow interest rate 5.0 margins on housing loans. At present, the situation in the Spanish housing loan market 4.5 1 4 4.0 is similar to that in Finland. Banks’ effi- 2 ciency has improved notably in recent years, 3.5 which is reflected in a narrowing of interest 3.0 rate margins on new housing loans. Another 2.5 factor in common for these countries is a 2.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec clearly faster growth of housing loan stock 1 Euro area 2 Finland 3 Germany 4 Spain Sources: Bank of Finland, ECB and the national central banks. than the euro area average. In December 2003, the growth rate of the housing loan Average interest rates on new housing loans stock was more than 15% year-on-year in in the euro area declined in 2003. The sharp- Finland and a good 20% in Spain, while in est drop was for housing loans tied to one- Ireland housing loans actually grew slightly year and shorter reference rates. Interest faster. As regards the largest euro area coun- rates on such new housing loans declined on tries, the growth of the housing loan stock average by 0.8 percentage points in the euro has also been relatively rapid in France area. Also longer-term interest rates on new (about 10%). In Germany, the growth of housing loans in the euro area decreased, housing loan stock has been slow for some albeit to a lesser degree than the shorter-term time; at present, growth is slightly positive. rates. In Finland, interest rates on new hous- Interest rates for up to one year continue ing loans with up to one-year fixed rate de- to be the most frequently used reference clined last year by 0.65 percentage points, to rates in housing finance in Finland. Interest 3.29% in December. rates on 90% of new housing loans drawn in Average interest rates on all new housing 2003 were tied to reference rates for up to loans in Finland have long been the lowest one year. In most euro area countries, hous- in the euro area. However, the differential ing loans are tied to longer-term interest against a number of countries has declined, rates than in Finland. and in Spain in December 2003, the interest In September–December 2003, over 93% rates on new housing loans with up to of housing loans were granted by banks. one-year fixed rate were on the same level as Other financial corporations (eg mortgage in Finland (3.29%). For example, in January banks) and the public sector each accounted 2003, the interest rate differential between for 3%. Finland and Spain was still almost 0.3 per- Financial Markets Report y 2004 - No. 1 3 24 Mar 2004 Financial Markets Department – Suomen Pankki • Bank Of Finland 1.2 Record dividends from listed Finnish companies Hanna Putkuri Based on proposals published earlier this year, listed Finnish companies will pay record dividends this spring. Part of the increase is explained by the anticipated tightening of dividend taxation from the beginning of next year. Dividends paid by the entire corpo- rate sector (incl. unlisted companies) have increased steadily since the mid-1990s. At the same time, households’ annual dividend income has increased manifold from ten years ago. In November 2003, the Government an- the aggregate dividends from listed nounced its statement on the reform of cor- companies will increase by more than 18% porate and capital income taxation. The from last year (see Chart 2). statement entails a proposal to tighten the taxation of dividend income by shifting from Chart 2. Dividends paid by listed the avoir fiscal system to a system of partial Finnish companies, 1996– double taxation of dividends1. According to 2004* rough preliminary estimates by the Govern- EUR billion ment, the dividend taxation reform would 7.0 increase the Government’s tax revenue by 6.0 EUR 130–180 million, in which EUR 100– 5.0 150 million would be accounted for by listed 4.0 companies and the remaining EUR 30 mil- 3.0 lion by other companies. The Government intends to present a bill to Parliament on the 2.0 legislative proposal in spring 2004. 1.0 If the reform is implemented, it will be 0.0 first applied to the taxation of dividends re- 1996 1997 1998 1999 2000 2001 2002 2003 2004* * Preliminary information as of 5 March 2004, calculated on the basis of ceived in 2005. Due to the tightening of proposed dividends and the number of shares listed. taxation, particularly family-owned Source: HEX Integrated Markets. companies with strong balance sheets, as well as other companies mainly owned by According to the proposals published up to domestic private investors, are expected to early March, the increase in dividend distri- run down excess capital by distributing ex- butions is relatively modest compared to the ceptionally large dividends. Finnish tax pro- situation at end of the 1990s, when both the visions do not generally apply to foreign number and market value of listed equity investors. companies were growing rapidly. In 2000, Based on the proposals released by the when growth was at its highest so far, the boards of listed companies earlier this year, aggregate amount of dividends paid by listed companies doubled from the previous year. 1 Under the avoir fiscal tax credit system, which has Since the recession, there have been changes been in place since 1990, the receiving of dividend in Finnish companies’ dividend policies; in incurs no tax-related costs for the recipient, because line with international practice, a larger the recipient’s taxes are credited with taxes paid by the dividend-paying company. After the reform, 70% share of profits than before has been distrib- of dividends paid by listed companies would consti- uted to shareholders. tute taxable capital income, on which the tax rate This year over 40% of listed companies would be lowered from 29% to 28%. Dividends from have announced increased dividends from unlisted companies would remain partially tax ex- last year while a little less than a third will empt; for more details see memorandum of the Minis- try of Finance on the reform of corporate and capital keep dividends unchanged. By sector, divi- income taxation (13 November 2003). dend payout increases were most frequent 4 Financial Markets Report y 2004 - No. 1 Suomen Pankki • Bank Of Finland – Financial Markets Department 24 Mar 2004 within trade, media and publishing.
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