RBA: Australian banks in good shape

The Reserve Bank of Australia says Australian banks are in a good position to withstand any overseas turmoil – but global risks remain.

In its biannual financial stability report, released today, the central bank says the big Australian banks are continuing to record strong profits.

“The larger banks are in a better position than a few years ago to cope with the tighter funding conditions given the improvements they have made to their funding, liquidity and capital positions over recent years,” the RBA report states.

“Banks’ non-performing asset levels have come down a little recently, but remain higher than they were a few years ago – particularly for business loans.”

The spending and saving habits of Australian households remained cautious, suggesting greater resilience to external factors.

“The household saving rate remains well above the levels recorded in the 1990s and early to mid-2000s. Many households are choosing to repay their debt more quickly than required.”

The bank says European debt turmoil spread to global financial markets in late 2011, leading to higher wholesale funding conditions for banks in many countries – including Australia.

“Even though conditions in financial markets have improved, the ongoing difficulties in Europe as well as the subdued outlook for global growth will continue to pose risks to global financial stability in the period ahead,” it said.