Financial Stability Review – March 2024

The Financial Stability Review provides the RBA's assessment of the current resilience of the financial system and potential risks to financial stability. It is issued half-yearly.

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In Brief

Global financial stability risks remain elevated, but the Australian financial system is proving resilient.

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Global environment

The outlook for the global economy has improved following the peak in inflation, but global financial stability risks remain elevated.

Further weaknesses in the Chinese economy could impact Australia through trade channels and an increase in global risk aversion.
Financial asset prices could fall sharply if there was a worse-than-expected economic outcome, such as persistent inflation, or a sudden geopolitical event.
Broader threats to global financial stability continue to build, including risks associated with cyber-attacks, climate change and geopolitical tensions.

Commercial real estate

Global commercial real estate (CRE) markets are experiencing challenging conditions, but there is little evidence of stress among Australian CRE owners.

Direct risks are largest in international economies with banking systems that are highly exposed to CRE lending.
Australia’s CRE market continues to face challenging conditions, though risks to the broader financial system are limited due to domestic banks’ low exposures to the sector and conservative lending practices.
A key risk within the domestic CRE market is the possible withdrawal of foreign lenders and investors due to a further deterioration in international CRE markets.

Households

Most Australian households remain able to pay for essentials and keep up with their debts.

Most households are managing challenging economic conditions due to the strong jobs market and the ability to draw down on savings buffers.
The share of borrowers unable to keep up with their mortgage repayments has increased from low levels but is unlikely to pose a financial stability risk.
The year ahead will remain challenging for many, but the strain on household budgets is expected to gradually ease over the next couple of years.

Businesses

Most businesses are in a strong financial position and can keep up with their loan repayments.

Slowing demand and higher costs are weighing on some businesses, particularly in the retail and hospitality sectors as households spend less on discretionary goods and services.
Most businesses’ profitability is around pre-pandemic levels, but financial stress has increased for some.
Company insolvencies have risen to more typical levels as pandemic-era support measures have unwound and the economy slows.

Banks

Australian banks are well prepared to handle the expected increase in loan losses as the economy slows in the period ahead.

Loan losses are expected to rise, though from a very low base, and risks to the financial system from lending to households and businesses remain contained.
Banks' profitability and sound lending standards position them well to manage the challenging economic conditions.
The strong financial position of banks means they could continue to support the economy if there was a material economic downturn.

Non-banks

Risks to domestic financial stability posed by non-banks are contained, though data gaps can make it hard to fully identify some vulnerabilities.

Disruptions among non-banks in key financial centres can threaten financial stability, with the potential to transmit stress to Australia through financial markets.
Superannuation funds, which make up over half of Australian non-banks, pose limited risks due to their operation and structure.
Members of the Council of Financial Regulators are working on strengthening the visibility and monitoring of non-banks' activities in Australia.