Finland

Country Name Finland
Country Region Western Europe

Economic and Political Environment

Finland has a highly industrialized, largely free-market economy with per capita output roughly that of Austria, Belgium, the Netherlands, and Sweden. Trade is important with exports accounting for over one third of GDP in recent years. 

Finland is strongly competitive in manufacturing - principally the wood, metals, engineering, telecommunications, and electronics industries. Finland excels in high-tech exports such as mobile phones. Except for timber and several minerals, Finland depends on imports of raw materials, energy, and some components for manufactured goods. Because of the climate, agricultural development is limited to maintaining self-sufficiency in basic products. Forestry, an important export earner, provides a secondary occupation for the rural population. 

Finland had been one of the best performing economies within the EU in recent years and its banks and financial markets avoided the worst of global financial crisis. However, the world slowdown hit exports and domestic demand hard in 2009, with Finland experiencing one of the deepest contractions in the euro zone. A recovery of exports, domestic trade, and household consumption stimulated economic growth in 2010. The recession left a deep mark on general government finances and the debt ratio, turning previously strong budget surpluses into deficits.

Despite good growth prospects, general government finances will remain in deficit during the next few years. The great challenge of economic policy will be to implement a post-recession exit strategy in which measures supporting growth will be combined with general government adjustment measures. Longer-term, Finland must address a rapidly aging population and decreasing productivity that threaten competitiveness, fiscal sustainability, and economic growth.

Key economic indicators: 

• Population: 5,259,250 (July 2011 est.)
• GDP (purchasing power parity): $187.6 billion (2010 est.)
• Per capita GDP: $35,300 (2010 est.)
• Real GDP growth: 3.2% (2010 est.)
• Unemployment: 8.4% (2010 est.)
• Public debt: 45.4% of GDP (2010 est.)

Currency: 

Euro 

The Banking Environment

There was much consolidation after the banking crisis in the early 1990s. The market is dominated by a small number of large banks, where Nordea Bank Finland (former Merita Bank), Pohjola Bank (former OKO bank) and  Sampo Bank, which is 100% owned by Danish Danske Bank has approx 85% of all banking assets in Finland.

 There are also 23 foreign bank branches as well as one representative office of a foreign bank who’re trying to increase their market share of Finnish banking sector.

The banking industry is very liberal with nearly all types of services offered both to the individual corporate customer and to the individual private consumer. The marketplace also sees cooperation between organisations outside traditional silos. Banking infrastructure for day-to-day operations is either publicly-owned or under strong public supervision.

The central bank is the Suomen Pankki (known in English as the Bank of Finland or BoF). It is a member of the European System of Central Banks.

Financial supervision is vested in the “Financial Supervision Authority”.

There used to be a separation between the postal payments system (in which Postipankki was central) and the banking system. At that time government payments had to be made via Postipankki and the postal giro instrument was separate from the bank giro.

Now the situation has changed. In 2001, The Finnish Government arranged a competition for the services related to its payment traffic.

Nordea has been selected main intermediary of Government payment traffic in Finland. The contract period was five years and again in 2006, The Ministry of Finance decided to decentralise the payment traffic and selected Nordea second time as the main intermediary bank.

Banking in Finland is almost entirely electronic and internet-based, while 90% of all payments are electronic; postal and bank giros in paper form represent the majority of the balance of 10% and these are machine-readable and are converted in the banks’ branches and operations centres. It is aimed to achieve 99% automation by 2010.

There are no lifting fees for cross-border payments. Finland has adopted the EU regulation on cross-border payments.

Current accounts in EUR and foreign currencies are offered. Interest is applied for credit balances depending on the currency and the balance held.

Overdraft facilities are granted. Terms and conditions are negotiated on a case by case basis.

EONIA is the benchmark interest rate in EUR.

Tax Considerations

See also the Tax & Legal template.

All fiscally resident companies are subject to a 26% corporation tax on their profits.

There is no withholding tax on dividends, royalties or interest payable to residents, or on interest paid to non-residents.

However dividends and royalties paid to non-resident companies do suffer it at 28% unless an appropriate double tax treaty is in place between Finland and the receiver’s country. The dividend may also be exempt under the EU Parent/Subsidiary Directive.

The general rate of VAT is 22%. There are reduced rates at 17% and 8% and some services are exempt. Companies with sales below EUR8,500 do not have to register for VAT.

Various insurance and social security contributions  21-28% of basic pay are paid by the employer; the employees also have social security constibutions 7-8% made from their salaries as well as Government tax, which can maximum be 60% from gross salary. Salaries are high as a result of this and to take account of the high cost of living. Total employer-paid benefits can rise to 50% of basic pay.

Central Bank Reporting

None.

Foreign Exchange Controls

None.

Cash Management Features

Activity is highly automated and it is possible to achieve 100% automatic reconciliation of payables and receivables if “reference giros” are used.

A few nationwide banks exist and it is possible to be monobanked in Finland.

Large corporates will probably take a non-bank specific eb system, which has Finland’s multibank standards built in.

The financial market is liberal and there are no lifting fees or exchange controls.

All Liquidity Management techniques are possible in Finland .

There is also a legal issue as to how Finnish subsidiaries become party to a regional scheme.

Payments and Collections
Payment Instruments

The vast majority of activity clears electronically.

In terms of volume, credit transfers and debit cards are the most used, whilst in terms of value it is credit transfers.

Cheques

Cheques are scarcely used and their usage is also falling, accelerated by the withdrawal of the Eurocheque guarantee scheme in 2001. Retailers are resistant to accepting cheques. However, the average cheque value is EUR46,000 (2005)

Cheques are currently used for two main purposes: large value payments by companies and as small value gift cheques (e.g for graduates).

Cheques are cleared through the POPS system.

Electronic Payments

There are three clearing systems in Finland.

BOF-RTGS

Operated by the bank of Finland. BOF-RTGS is the national TARGET-linked RTGS system.

Including bank of Finland, BOF-RTGS has 24 direct participants (including 5 from Sweden)

BOF-RTGS settles EUR payments in real time with no minimum transaction size.

Banks transfer funds from their own account to other Bank of Finland account holder and all transactions are settled continuously gross basis.

Operating hours reflects TARGET hours and are open 08:00-18:00 EET and until 19:00 for interbank payments

POPS

Operated by its participating banks, POPS is an online interbank large value net settlement system.

POPS has 9 direct participants

POPS clears customer-initiated express transfers, cheques and bank drafts.

Settlement method used by POPS is decided by the transfer value. Gross netting is used if the value of payment exceeds the interbank bilateral limit.

Payments below the limit are bilaterally netted throughout the day by exchanging clearing data.

POPS opening hours are 08:00 – 16:30 EET.

At the close of business, all excesses due from one bank to another have to be settled in BOF-RTGS at 17:00 EET.

ACH – PMJ system

The Interbank Payment system (PMJ) is a retail clearing system operated by the major Finnish banks. PMJ has 11 direct participants.

PMJ clears all customer payments (except POPS transactions) between banks, such as  Credit transfers

Direct debits and Debit card transactions (including EFTPOS)

The system also clears cash withdrawals at ATMs, although payment information on these withdrawals is communicated to the banks via the POLT network (=Banks’ Online Data Communication Network).

The system is open 24 hours a day.

The business day is held to start at 15:45 EET, when the window opens for items that will be included in the following “night clearing”.

PMJ operates by banks submitting files of payments bilaterally through a batch transmission network several times a day and then sending a recapitulation twice a day to Suomen Pankki of the net amounts of all credit and debit transactions presented to other participants.

Suomen Pankki then confirms these calculations either for the night clearing (at 01:00 EET) or the day clearing (at 15:45 EET). The bulk of operations are included in the night clearing.

Settlement amounts are posted to participants’ accounts in BOF-RTGS, so twice a day.

Most ACH transactions, as credit transfers, are debited by the sending bank on D-1, introduced into the night clearing for value D after the day clearing on D-1 has finished. The settlement is made to the beneficiary’s bank on D, and is credited to the beneficiary’s account on D+1.

The alternative for the customer is to ask for an “express transfer” which is done through POPS and is paid same-day.

Transaction count and values across the three clearing systems:

Source: ECB Blue Book 2006