HELSINKI (Reuters) - Nordea's (ST:NDA) decision to move its headquarters from Stockholm to Helsinki increases vulnerabilities in the Finnish economy and makes the country more exposed to problems in the Nordic region, Bank of Finland said in a report on Wednesday.
Shareholders of the Nordic region's biggest bank approved the move in March. It is aimed at cutting the costs of complying with Swedish regulations and placing it under the supervision of the European Central Bank.
But while Finns have celebrated Nordea's move, regulators note that it also makes Finland the smallest country in the world to host a bank classed as systemically important.
Nordea's headquarters, due to move by October, will come with a balance sheet of around 600 billion euros ($710 billion) which is close to three times Finland's annual economic output.
"Nordea's relocation demonstrates confidence in the (EU) Banking Union and will augment the pool of financial expertise in Finland," central bank board member Marja Nykanen said.
"However, this comes at the expense of increased structural vulnerabilities as the banking sector becomes larger, more consolidated and with increased Nordic interconnectedness."
The central bank added in its report that biggest external risks for Finland's financial stability come from the turbulence in Swedish housing market.
"Disturbances can spread quickly and be intensified, especially in structurally vulnerable banking systems such as Finland's," the report said.
However, it said that EU's banking union would mitigate risks for Finland, and added that a proposed common European Union deposits scheme would be of further help.
It also said Finnish banks were financially solid with profitability levels that outperform the EU average.
The Finnish banking system is highly concentrated, with the three biggest banks Nordea, OP Financial Group and Denmark's Danske Bank (CO:DANSKE) controlling around 80 percent of all household lending and deposits.
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