The banks will probably need more state support next year on top of the 28bn markka ( pounds 1.8bn) already set aside by the government, a senior bank official said. 'More will be needed, billions (of markka) will be required,' the chairman of the state's bank guarantee fund, Pentti Maki-Hakola, told a news conference.
'Practically, the support will in most cases be granted as capital support which cannot be demanded to be repaid, and on which return can only be expected from the supported bank's profits,' the fund said in a statement. The country's two largest commercial banking groups - Kansallis-Osake-Pankki (KOP) and Unitas Oy - showed pre-tax losses of 2.53bn markka and 1.56bn markka.
'The Finnish banking sector's difficulties have increased substantially during the current year,' Unitas said, adding that it would take many years to sort out the problems. Finland's banks are now paying the price for excessive lending during the boom years of the 1980s when the economy was one of the fastest growing in Europe. Now, the country is in a deep recession and the Gross Domestic Product declined 6.5 per cent in 1991.
Analysts have called for a drastic restructuring of the banking system to ensure its long-term stability. Finland's economic problems stem largely from the collapse of the Soviet Union, its chief trading partner. Earlier this year, the government's decision to let the markka float free of the European Monetary System put pressure on all Europe's currencies.Reuse content