1822–1840: Savings banks come to Finland
Making deposits and taking out loans first became available to ordinary people when the first Savings Bank, the Savings Bank of Turku, was established on 21 August 1822. It had the honour of being the first Finnish bank to be established after the Bank of Finland (1811). The Savings Bank of Helsinki was established on 8 April 1826. Other cities did not yet have the required population base or interest.
The savings bank ideology was introduced to Finland by John Julin, a pharmacist who went on to earn the Finnish honorary titles of teollisuusneuvos and vuorineuvos. According to Julin, it was necessary to establish savings banks to complement poor relief institutions and support the lower, less enlightened members of the population.
The first account transaction was a deposit of six rubles, made on 4 January 1823 by Hedvig Nyström, merchant Gestrin’s maid.
The savings bank ideology was a European force counteracting the societal upheaval caused by the Industrial Revolution, which had resulted in widespread poverty in urban areas and the possibility of civil unrest. The objective of the movement was to improve the financial status of those members of the working class who had regular incomes.
Operations were launched in Tottenham in 1801, and the first actual savings bank was established in Scotland in 1810 (Ruthwell Savings Bank). In the 1850s, there were already 600 savings banks in the UK. The movement reached Denmark, Sweden, Norway and Finland in the early 1820s.
1840–1860: Expanding across Finland’s cities
Savings Banks expanded across Finland’s cities in two phases. First came the provincial capitals in 1847–1849: Oulu, Viipuri, Hämeenlinna, Vaasa, Mikkeli and Kuopio, as well as Porvoo.
Next came seafaring cities and the most important inland cities: Raahe, Pietarsaari, Loviisa, Hamina, Tampere, Savonlinna and Joensuu.
In the early 1860s, 21 out of Finland’s 32 cities had a Savings Bank. The first non-urban Savings Banks were also established: the first was the Savings Bank of Tenhola in 1847.
Supporting undertakings that serve the public interest was also often highlighted when Savings Banks were established. Donors who supported the savings bank ideology were often the forces that made the establishment of new Savings Banks possible. Funds were donated to purposes that served the public interest, such as supporting the education of people with low incomes.
The deposit stock of the Savings Banks grew tenfold in 1841–1860, but there were problems, too. The Crimean War was a major test. The deposit stock decreased substantially in 1853–1855. In Helsinki, the decline was as steep as 25%.
The Finnish markka was introduced as Finland’s own currency in 1860, but it was not disconnected from the ruble and tied to the silver standard until 1865. Due to this delay, strict monetary policy and the crisis in capital markets outside Finland, the financial environment was difficult.
1860–1918: Savings Banks spread across the entire country
Savings Banks lost their status as the only private deposit institution in Finland in 1862 when Suomen Yhdys-Pankki (the Union Bank of Finland) was established as the country’s first private merchant bank. By 1895, there were six merchant banks.
Originally, their roles were seen to be complementary: Savings Banks would collect small deposits, and these funds could then be invested in the merchant banks. Savings Banks were seen to be at the service of the working class, while merchant banks served the business world. Postisäästöpankki (Postal Savings Bank) was established in 1887.
In the early 1890s, Savings Banks held a market share of 30%, while merchant banks held 69% and the Postal Savings Bank 1%.
The Savings Bank Act entered into force in 1896. In that act, Savings Banks were defined as a monetary institution receiving funds from the general public (i.e. they could no longer be a savings association for a limited clientele, such as the employees of a factory). At the turn of the century, “Finnish” Savings Banks were established for fennophiles, followed, some years later, by the “labour” Savings Banks for the working class.
Osuuskassojen Keskuslainarahasto (Central Lending Fund of the Cooperative Credit Societies) was established in 1902. The cooperative credit societies later became cooperative banks.
The Savings Banks Association was established in 1906 and the Savings Banks central institution SKOPbank (Säästöpankkien Keskus-Osake-Pankki) in 1908. There were 400 Savings Banks in 1913. By 1918, their number had increased to 443.
1918–1938: The golden years
Until the early 20th century, Savings Banks were allowed to receive deposits from private individuals only and not, for example, from municipalities or parishes. This restriction was lifted in 1908 and the Savings Bank Act was amended in 1918.
With the new law and the removal in 1920 of the interest ceiling that had restricted the Savings Banks’ lending, Savings Banks were for the first time able to compete on equal terms with the interest rates offered by other banks.
The Savings Banks’ Guarantee Fund was established in 1924. Savings Banks made a joint commitment to compensate for any losses depositors might face if a bank went bankrupt.
The International Savings Banks Institute (ISBI) was established in 1924 in Milan. World Savings Day began to be held annually on 31 October, the closing date of the conference. World Savings Day and Savings Week are still celebrated in Finland in late November.
During the interwar period, savings bank ideology revolved around economic education, particularly of children and youth. The law of 1931 stated that Savings Banks are non-profit monetary institutions that seek to promote the common good. The promotion of thrift was significantly identified as the special task of the Savings Banks. References to “low income social classes” and maximum deposit limits were omitted from the law.
In the 1920s, the deregulation of banking operations sparked fast growth, which was not significantly slowed down by the depression of the early 1930s. In 1931, Finland departed from the gold standard. As a result, deposits were withdrawn in large numbers. The largest Savings Banks received short-term loans from the Bank of Finland, and smaller loans from SKOPbank.
In 1939, Savings Banks were the largest bank in Finland. Their combined market share was 40%. In 1936, depositors had more than one million accounts. The number of Savings Banks was 485, more than ever before or after. With 86 branch offices, the total number of offices was 571.
In the postwar period, the number of Savings Banks began to decline due to mergers and forced mergers of the banks that were left on the other side of the new border. The service network, however, continued to expand with more branch offices.
By 1950, the number of offices was 619. Due to territorial concessions, the geographic division established in the 1930s became even more explicit. Savings Banks were prominent in Southern and Western Finland. Cooperatives were more active in Eastern and Northern Finland.
1939–1950: War and rebuilding
The war increased people’s mobility and made it necessary to make withdrawals or pay bills while living in other parts of the country. By the 1950s, a comprehensive bank transfer system had been created, where the bank transfer slips of merchant and savings banks could be used to transfer funds to postal transfer accounts; similarly, postal transfer withdrawal cards were accepted by merchant and savings banks.
The payment services of Savings Banks become more versatile, particularly due to tax prepayments. In 1950, an agreement on the collection of insurance premiums via the Savings Banks was concluded with the Federation of Finnish Insurance Companies. The “wages paid into bank accounts” system started from Savings Banks at the turn of the 1940s–1950s.
The strict regulation of financial operations that was in force during the war remained in place until the 1980s. When granting loans, banks expected a permanent customer relationship and prior savings over a long time period.
The 1960s were a time of great migration. Savings Banks lost customers who moved from the countryside to the cities, as such customers did not necessarily become customers of another Savings Bank. In practice, the only method of competing for customers was increasing the availability of banking services, i.e. improving services and the service network. The number of branch offices doubled between 1950 and 1969, reaching a total of 1,252.
SKOPbank decided to purchase ADP equipment and operations were in full swing in 1967. SKOPbank began to provide computing centre services to the Savings Banks. By 1983, almost all Savings Banks had joined the service.
Prior saving remained a requirement for a loan until 1987, when the Bank of Finland abandoned its last remaining guidelines on housing loans and other loans granted to private individuals. Before the change, a housing loan, for example, could not exceed 60% of the value of the home, so prior savings equal to 40% of the value of the home were required. With other loans granted to private individuals, the loan amount could not exceed 50% of prior savings, and the loan period could not exceed five years. Moreover, the maximum limit of consumer credit was 5,000 markkas, and the maximum loan period was one year. Advertisements for consumer and investment loans were not allowed.
In 1966, there were 356 Savings Banks. As a result of migration and the breakthrough of banking technology, the operating preconditions of the smallest banks were under threat. The situation was often resolved by a merger with a larger and more financially sound Savings Bank in a nearby city.
The structure of the Savings Bank group was perceived as problematic. In the structural adjustment programme, introduced as a guideline in 1968, the division into either city or countryside Savings Banks was discontinued and a new goal was set to divide the country into 38 Savings Bank regions and the same number of Savings Banks.
In a survey conducted in 1970, more than half of all managers supported the plan to switch directly to a one-bank structure and the creation of a Savings Bank of Finland. The structure based on regional Savings Banks was mostly supported by large Savings Banks, with which other banks would have merged if the structural adjustment programme were to be followed.
The structure changed slowly. In 1968, there were 350 Savings Banks and, in 1984, 263 still remained. The number of offices increased from 1,248 to 1,445 during the same period. Several regional Savings Banks were established. The largest merger took place when the labour savings banks merged to create the Labour Savings Bank of Finland, i.e. the STS Bank, in 1971. The Turku Labour Savings Bank remained outside the merger.
Savings Banks were still the strongest banking group in Southwestern and Western Finland and in the province of Häme. The strong position of Savings Banks in the countryside was a common feature of these regions. In these areas, the Savings Bank was usually the first financial institution in the region, and it played a significant role in the economic development of the region.
The dismantling of regulation began in 1983 and, from the mid-1980s onwards, the financial markets were rapidly deregulated. Competition in the banking sector was in turmoil. Foreign banks entered Finland, financing companies saw growth, investment companies were established and more diverse investment options were introduced. Debit and credit cards quickly became commonplace. Savings Bank was the largest bank in Finland and an aggressive advertiser.
Up until the 1970s, the most important source of finance for SKOPbank was the net interest income obtained from Savings Banks. When, in the early 1980s, the regulation system of the Bank of Finland moved rapidly in a more market-driven direction, the price of central bank financing, used by SKOPbank, went up and there was no further financing available from the Savings Banks.
The tightening monetary policies of the Bank of Finland, and, on the other hand, its average interest rate reduction programme reduced the Savings Banks’ financial result greatly. In 1984, one in four Savings Banks was operating at a loss. SKOPbank had to find additional income. Income from equity trading, dividends and profit from real estate became significant new sources of revenue. As the Savings Banks also wanted additional profits from SKOPbank, they had to focus more and more on investment banking alongside central bank operations. SKOPbank began to actively search for income in the securities and real estate markets.
As market deregulation continued, the Group underwent further structural changes. In early 1985, the Savings Bank Association and SKOPbank merged to create the Savings Bank Centre, which had more power over the Savings Banks. The association took care of matters involving the savings bank ideology, community relations, and tasks related to research and communications, while SKOPbank managed all tasks that were related to business operations.
In the early 1970s and 1980s, the Group’s renewal had taken the form of manifestos.
The goal stated in the structural policy programme revised in 1989 was to merge the Savings Banks into approximately 40 regional banks. In 1984, there were 263 Savings Banks and, as mergers went ahead at a slow pace, there were still 178 in 1989. In 1988, a project was initiated with the objective of quickly merging one hundred of the smallest Savings Banks. Opposition from the field slowed down the project’s progress.
The steering of structural development became stricter in 1989. The Savings Bank Centre did not have any legal means it could use to force the banks to merge, so it used pressure. As a result, in the early 1990s, many Savings Banks perceived the Savings Bank Centre essentially as a threat. The relationship was no longer based on trust. Most of the Savings Banks that opposed the structural policy programme were financially stable. They did not want to commit to a growth-oriented but risky strategy. Two corporate cultures were on collision course.
The number of mergers peaked in 1991 with 65 Savings Banks merged and 86 remaining. In 1992, the number of personnel was 8,544.
The deregulation of the financial market meant radical and sudden upheaval in the operations of banks. Banks that were used to regulation now found themselves in a world where interest rates fluctuated daily to a substantial degree. While assets were obtained on market terms, the majority of the loan stock was still tied to the base rate. Nevertheless, banks considered the opportunities introduced by deregulation to outweigh the threats.
Society was taken over by the money illusion. Annual growth in the banks’ lending was unnaturally high. Towards the end of 1988, growth reached 30%, with no signs of slowing down in the following year. The economy became overheated. As Finland’s international competitiveness declined, the weakening of the current account was not far behind. Finnish GDP began to decline already in 1990 when the international economic recession reached Finland.
The availability of money changed: it could be obtained unbelievably easily. The dismantling of currency regulation led to the belief that there were unlimited resources of money. The chronic excess demand for loans was no longer a problem. Instead, banks began to actively offer loans and look for loan customers.
The risks of banking multiplied. The excessive demand for loans no longer pruned away bad customers, thus eliminating credit losses. On the contrary, there were plenty of loans available for bad customers, too. Moreover, new risks has emerged in the banking environment: rapidly fluctuating interest rates, potential changes in the external value of the markka, and liquidity risk. A growing share of obtained assets was short-term market money, while lending remained essentially long-term.
Savings Banks, too, operated under the impression that you had to grant as many loans as your financing resources allowed. Ultimately, however, the financial position of SKOPbank could not withstand the simultaneous realisation of risks that were too large and too numerous. The Bank of Finland had to take over control of SKOPbank in September 1991. The majority of the Savings Banks merged to establish the Savings Bank of Finland.
The previously mentioned developments led to a banking crisis. It has been assessed that the key factors leading to the crisis were deregulation that was implemented too fast, failed currency policy and the collapse of the Soviet Union. “Bad banking, bad policies, bad luck.”
Amidst the depression and economic turmoil, roughly half (43) of the Savings Banks merged to the Savings Bank of Finland in 1992. Those that chose that option believed that it was the correct measure for ensuring the continuity of Savings Banks operations. Patriotism was high, and the desire to save Finnish Savings Bank operations was expressed. The most active supporters of the merger were the larger Savings Banks, many of which were in deep financial trouble. The Savings Bank of Finland held 84% of the balance sheet value of the existing Savings Banks at the time. It was commonly believed that the venture would be a success, and that mergers were the only way to survive.
The capital of the Savings Bank of Finland was immediately spent to cover the losses of the troubled Savings Banks. The launch of banking operations required considerable support from the state, which soon gained control. Support was provided by the Government Guarantee Fund against compensation. Due to the terms of the support, the Savings Bank of Finland ended up in full Government control.
In 1992, the Savings Bank of Finland became a limited liability company, in which the highest decision-making power was in the hands of shareholders. The Government Guarantee Fund held 99% of the shares. The Savings Bank of Finland investigated various opportunities for a merger, first with Unitas (SYP), then with Kansallis-Osake-Pankki (KOP).
The situation escalated to the point that, in October 1993, the Government announced it would sell the Savings Bank of Finland to its competitors. The bank was broken up and most of the Savings Bank Group disappeared from the map. The OP Group, Postipankki, SYP and KOP each acquired a quarter of the deposits and viable loans of the Savings Bank of Finland. Branch offices were also split between these banks. The banks were left with the task of clearing up bad loans. Non-performing loans worth FIM 40 billion were accumulated in the asset management company Arsenal (a “bad bank”), i.e. on the taxpayers’ shoulders.
The generally held view is that the Savings Bank of Finland was broken down to improve the standing of the other banks and to save the Finnish banking system. All of the major banking groups had drifted into financial crisis. The immediate outlook for the entire banking sector was very gloomy. During the spring and summer of 1992, other banks were able to pull things together. In public, the crisis was dubbed “the Savings Bank crisis”. The unified front of the other banks convinced the Government that the most advantageous solution, also from the Government’s perspective, would be to break up the Savings Bank of Finland. It was estimated that the resources available to the country could save only four banking groups.
1993–2011: Building a new Group
A total of 40 Savings Banks carried on independently outside the Savings Bank of Finland. In the 1980s, some of the local Savings Banks had refrained from operations that sought strong growth and involved high risk. They had distanced themselves from the structural policy programme of the 1980s and continued their operations based on the old savings bank ideology.
The interest group Paikalliset Säästöpankit r.y. (Regional Savings Bank Association) was established at the beginning of 1992. In total, 36 local Savings Banks and three regional Savings Banks remained outside the Savings Bank of Finland.
Aktia Savings Bank also announced immediately that it would remain outside the Savings Bank of Finland. Aktia had been created in 1991, when nine bilingual Savings Banks merged with the Savings Bank of Helsinki. Aktia left the Savings Bank Group in 2003. It became a merchant bank in 2008, ceasing to be a Savings Bank. Today, Aktia Plc is a listed company.
The first concrete shared objective was to ensure that IT services were up and running. These operations were purchased from Sp-palvelut, a subsidiary of the Savings Bank of Finland. The new company was launched in September 1994 under the name Oy Samlink Ab. In 1995, it was decided that the Group’s central financial institution services would be provided by Aktia.
In October 1993, Savings Bank operations continued in 80 municipalities, covering a third of the population. Today, there are Savings Banks branch offices in over 140 municipalities, covering two thirds of the population. Savings Banks have close to 600,000 customers, i.e. more than 10% of Finland’s total population.
After the turmoil of the 1990s, the remaining Savings Banks grew to become the fourth-largest bank in Finland in terms of the number of customers. Through mergers within Savings Banks, their number went down to 33 in July 2012.
Savings Banks have a strong foothold in their home regions, and they have also expanded to new areas. As a joint effort, Nooa Savings Bank was established in 2003, signalling the Group’s return to the Helsinki metropolitan area.
Infrastructure was recreated and new service companies were established: Sp-Fund Management Company Ltd (2003), Life Insurance Company Duo in partnership with Lähivakuutus (2007), Sp-Koti Oy (2010) and Central Bank of Savings Banks Finland Plc (2013).
In 2012, the Group acquired Lähivakuutus’ 50% stake in Sp-Life Insurance Company, increasing its holding to 100%.
At the end of January 2013, Aktia Bank notified the Group that it would discontinue the provision of central bank services in 2015. Savings Banks Group acquired Itella Bank to build up the Savings Banks’ Central Bank in November 2013.
2013–2016 Renewal of the Group
In August 2013, the Savings Banks Group announced that the Savings Banks are considering closer alignment and making their group status official, as the changing regulations in the financial industry do not recognise the Group’s networked business model as an official group structure.
A suitable model for the renewal of the Group was found in the Amalgamations Act. The Board of Directors of the Savings Banks’ Union Coop approved the rules and operating principles of the amalgamation at the end of September. In November, 25 Savings Banks decided to join the amalgamation, approve its operating principles and the rules of its central institution and amend their respective rules or articles of association to allow for membership in the amalgamation.
The Savings Banks’ Union Coop became the Group’s central institution. The representatives of the Savings Banks passed a resolution on the central institution at an extraordinary meeting of the union in January 2014. The banking licence was granted in autumn 2014 and the Amalgamation of Savings Banks became operational on 31 December 2014.
The Savings Banks Group drew up its first official IFRS financial statements for the financial year 2014. The restructuring of the Group also made it possible to apply for an international credit rating. The credit rating agency Standard & Poor’s Rating Services (S&P) granted the Savings Banks Group’s central credit institution, the Central Bank of Savings Banks Finland Plc, a long-term investment grade credit rating and a short-term investment grade rating on 7 April 2015.
Sp Mortgage Bank Plc received its operating licence in March 2016. Sp Mortgage Bank was the first Finnish bank to apply for and receive a licence from the European Central Bank. The role of Sp Mortgage Bank is, together with Central Bank of Savings Banks Finland Plc, to be responsible for acquiring funding for the Savings Banks Group from money and capital markets. Sp Mortgage Bank is responsible for the residential mortgage loan funding of the Savings Banks Group by issuing covered bonds.
The new Savings Bank Centre, which combines the Savings Banks’ operational support and business development in a single centre of expertise, began its operations on 1 May 2016. It consists of the Savings Banks Group’s central institution, i.e. Savings Banks’ Union Coop, as well as the centralised expert companies Sp-Fund Management Company, Sp-Life Insurance Company, the Central Bank of Savings Banks, Sp Mortgage Bank and Sp-Koti.
Digitalisation and the change in customer behaviour since 2017 -
Working together as a group and creating uniform operating models became even more important as regulation and digitalisation increased.
Savings Bank Services was established on 31 May 2017 to provide centralised services to Savings Banks. Savings Bank Services is part of the Savings Bank Centre and has offices in several locations. The Savings Bank Centre (excluding part of Savings Bank Services) moved to shared premises in Vallila in 2018.
Technological development and customers switching to digital services had a major impact on banks’ operations in the 2010s. The Savings Banks Group responded to changes in the operating environment and customer behaviour by, for example, launching a project to reform the core banking system in 2019. At the same time, the Savings Banks Group and the other owner banks sold their shares in Samlink Ltd, which provides IT services.
Sp-Koti, which is part of the Savings Banks Group, has grown to become one of the largest real estate agencies in Finland. Sp-Fund Management Company Ltd has become the fourth largest operator in Finland in terms of the number of unit holders in the funds. Sb Life Insurance broke records in 2021, when its insurance savings exceeded the EUR 1 billion threshold.
When the 200th anniversary year of the Savings Banks Group began in 2022, there were 17 Savings Banks.