Reserve Bank of Australia Financial Stability Review, October 2025:
Domestic financial system resilient, major risks offshore
Risks include a pullback in elevated asset prices and stress in sovereign debt markets
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
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Australia’s central bank warned in its semi-annual Financial Stability Review that the biggest risks to the global financial system stem from abroad, including elevated asset prices, rising sovereign debt levels, and leverage in markets. The RBA also highlighted the ongoing weakness in China’s property sector as a persistent threat.
Domestically, the RBA said the financial system is resilient, with profitable, well-capitalised banks and households aided by lower rates and easing inflation. Most borrowers are keeping up with mortgage payments and have buffers, though the drop in mortgage rates has pushed home prices to record highs, raising bubble concerns.
The report urged banks to bolster resilience to cyber and geopolitical risks and cautioned against loosening lending standards or easing macroprudential limits, particularly around high debt-to-income and investor lending.
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At the margin the warnings from the RBA on housing credit are a touch hawkish.
