The Central bank of Australia has remarked that financial system of the country remains in a relatively strong position. It however warned that banks should not take the liberty of relaxing lending standards or taking unnecessary risks in an environment of record-low interest rates.
The Reserve Bank of Australia (RBA) in its 68-page Financial Stability Review report also emphasizes on the increased risk taking by self-managed pension funds as a cause of concern but added the sector presently doesn’t pose “material risks” to financial stability.
Weak credit growth continues to be a major risk for most local banks and major banks are profitable.
“The relatively modest rate of growth in credit, and hence bank balance sheets, poses a strategic challenge for Australian banks,” the report said.
“It is important that they do not respond to pressures to boost revenue by imprudently loosening their lending standards or by making ill-considered moves into new markets or products.”
Self-managed pension funds in the property market were singled out by the central bank as an area of potential concern.
“Although this sector does not currently pose material risks to financial stability, it is important for the financial position of the household sector and has a number of aspects that warrant careful observation in the period ahead,” the report said.
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