RBA FSR: Risks include a pullback in elevated asset prices and stress in sovereign debt markets

In its semi-annual Financial Stability Review (FSR) published on Thursday, the Reserve Bank of Australia (RBA) warned about “risks including a pullback in elevated asset prices and stress in sovereign debt markets.”

Additional takeaways

Domestic financial system resilient, major risks offshore.

Highly leveraged trades and growth of the non-bank sector make markets more vulnerable.

Weakness in China’s property sector has pressured banks there and is likely to persist.

Australian financial system well placed to weather market shocks and a global downturn.

Banks are well capitalised, profitable, and hold significant liquid reserves.

Banks can withstand large losses given the high quantity and quality of capital.

Banks must maintain strong lending standards; non-bank lenders under close watch.

Banks should strengthen operational resilience to cyber and geopolitical risks.

Cash-flow pressures on households have eased with lower rates and inflation.

Most households are keeping up with mortgage payments and have liquidity and equity buffers.

Business insolvencies concentrated in construction, hospitality, and retail.

Supports steady macroprudential policy to contain risks in the housing market.

Superannuation funds’ FX hedging needs will grow and require careful management.