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HomeMoneyBanking and SavingsWhy Is Traditional Banking In Finland Losing Its Vigor

Why Is Traditional Banking In Finland Losing Its Vigor

Traditional banking methods in Finland are gradually losing vigor, and this can be attributed to many reasons. Interestingly, one of the most significant reasons is the rise of personal loan providers in Finland.

The post-pandemic economic scenario in Finland

A recent survey done by the Bank of Lithuania revealed that the consumer loan portfolios for both traditional banks and credit unions decreased by 6.5% in 2020. COVID-19 brought enormous harm to monetary stability, which has led to lesser demand-consumption numbers, and hence Finland’s household borrowings have also decreased significantly. There are numerous non-bank entities and P2P platforms, which provide easy loans to customers.

By the end of 2020, the loan portfolios of consumer credit providers amounted to around 633 million euros. The new consumer flow for lending companies amounted to 391 million euros, whereas it amounted to 227 million euros within the same period for conventional banks.

Several things can be concluded from these points:

  • The loan providers have acquired a lot of market share and have become one of the biggest competitors of the traditional banks.
  • Even during the Covid-19 situation, the non-banking loan providers were more active. They have significantly approved loans to more customers throughout the period.

With the increasing competition from the non-banking entities, the performance of the traditional banks dipped.

Clear competitive advantages

The non-bank lending institutions have got a competitive advantage, which has helped them improve their lending process, the terms and conditions of the product. One of the main reasons behind this is that the non-banking sector has embraced IT tools and techniques with open arms.

Apart from that, the loan approval rate of the non-bank entities is much higher than that of traditional banks. Other terms and conditions that have enhanced the operations of the non-banking institutes will include:

  • Increase in the average maturity period from 37 to 42 months.
  • Increase in the number of customers per contract.
  • Decrease in the pricing.
  • Drop in the average interest rate for the new loans.

Lower Demands

As mentioned earlier, due to economic instability, there has been a decrease in the demand for loans, both from traditional banks and non-banking institutions. Despite the considerable growth of money lending numbers from consumer lending providers, their portfolio is shrinking twice as fast as banks or credit unions. The flow of new loans in both institutions also shows similar results. Looking at the stats, the loan portfolios for the traditional banking sector have reduced by 49 million euros, whereas for non-banking sectors, the reduction is 83 million euros. There has also been a considerable decrease in the number of loan agreements and customers. Also, it is to be noted that the rate of interest levied by non-banking institutions is much higher than traditional banks.

Final words

The bigger picture says, that traditional banking procedures are gradually losing vigor all over the world, and not just in Finland. Hit by the pandemic and the consequential restrictions, innovations in lending and banking mechanisms are rising in popularity, and are here to stay.

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