Nordea Bank AB (publ)'s plan to move its domicile to Finland from Sweden will add "structural vulnerabilities" in the Finnish economy as it enlarges the country's banking sector, making way for more "Nordic interconnectedness," Finland's central bank said May 16.

Marja Nykänen, a board member at the Bank of Finland, said the move "demonstrates confidence in the [EU's] banking union and will augment the pool of financial expertise in Finland." Nordea is set to transfer its headquarters in October after its shareholders approved the plan in March.

The move would make Finland the smallest country in the world to house a systemically important bank, Reuters noted. It will also come with a balance sheet close to €600 billion, almost three times that of the country's annual economic output, it added.

While Finnish lenders remain financially solid with above average profitability compared to their EU peers, increasing household debts are also threatening Finland's economy, the central bank said, as it "undermines the economy's ability to adapt to negative shocks."

However, the central bank said the EU banking union would mitigate risks for Finland, and added that a proposed common European Union deposits scheme would be additional help, Reuters wrote.

Finland's banking sector remains highly concentrated, with Nordea, OP Financial Group and Denmark-based Danske Bank A/S controlling about 80% of all household lending and deposits, the newswire noted.