Finnish banks can cope if economy slumps-watchdog

Capital supports in Finland's banking sector are strong enough to cushion it against crisis even if the economy turns clearly weaker than forecast in 2010-2011, the Finnish Financial Supervisory Authority said.

"According to stress tests, the capital adequacy of banks and insurance companies would be sufficient even in case of avery severe recession over the (next) two years" the financial watchdog said in a report published on Friday.

It said in stress tests, financial sector firms had assessed their own economic development based on a scenario set by the watchdog and the Bank of Finland.

The scenario forecast Finnish gross domestic product to shrink 7.2 percent this year and 3.3 percent in 2010, showing only slight growth in 2011.

The Bank of Finland, due to update its forecasts next week,has estimated 2009 GDP will contract by 5 percent this year and 1.1 percent in 2010, with growth in 2011 seen at 1.5 percent.