Australia’s central bank has warned of heightened financial instability risks in the wake of bank collapses in the US and the regulator-backed takeover of Credit Suisse by UBS.
In its April financial stability report, the Reserve Bank has also expressed its confidence in Australia’s banking sector to weather the challenging period for global financial stability.
“Australian banks are well regulated, well capitalised, profitable and highly liquid; they are in a strong position to continue lending to domestic households and businesses,” the report said.
And while the RBA recognised broader resilience in the global banking system, supported by swift action from authorities and tighter regulations on big banks, the disruptions have triggered greater risk aversion from investors.
“Confidence in some banks remains fragile – particularly those with business models that leave them susceptible to deposit flight – and if further stresses were to affect banks around the world, it would feed through to tighter financial conditions,” the report said.
This could lead to even higher borrowing costs for households and businesses than already inflicted by higher interest rates.
Among borrowers, a small cohort are at risk of falling behind on their loans but the RBA believes most households and businesses are well-placed to withstand higher interest rates and cost of living pressures.
The RBA said the group of borrowers with high levels of debt, low incomes and scant savings were most at risk of falling behind on their loan payments.
While the fact that most people have jobs and many households built up comfortable savings buffers during the pandemic has left most borrowers in a strong position, the “resilience is unevenly spread”.
The central bank expects an uptick in households falling into arrears but from historically very low levels, with banks well-placed to manage an uptick in borrower instability.
The Australian Bureau of Statistics also released its trade figures on Thursday, with Australia’s trade surplus widening from a downwardly-revised $11.3 billion in January to $13.9b in February.
Despite the improvement, Capital Economics economist Abhijit Surya said the wider trade surplus was largely driven by imports of goods and services falling much faster than exports.
“As such, the trade data do not give cause for optimism about the underlying health of the economy,” he said.
Imports fell 9.1 per cent over the month and exports dropped 2.9 per cent.
– AAP
