Australia central bank says household balance sheets healthy despite rate rise

The Reserve Bank of Australia said household balance sheets are in reasonable shape despite recent interest rate hikes. In its half year review of the stability of Australia's financial system, the central bank said households have benefited from historically low levels of unemployment and significant gains in the value of financial assets over the past few years. Nevertheless, it said, developments in household balance sheets, both at the aggregate and the disaggregated level, continue to warrant close attention. In the domestic financial system, the RBA said banks remain highly profitable and well capitalized, benefiting from very low levels of bad debts which, in turn, are a by-product of the long-running economic expansion. "Bank balance sheets continue to expand at a relatively fast pace, with business credit growing at around the highest rate since the late 1980s," the central bank said. It said the strong growth is being accompanied by a significant increase in competition for business loans, with margins declining and a number of lenders taking steps to expand their business lending capabilities. The RBA noted competition in the housing loan market also remains very intense, with ongoing margin compression. "The challenge for banks and other lenders is to avoid an undue erosion of credit standards following 15 consecutive years of economic expansion," the central bank said. Meanwhile, it said, the global economy continues to grow at a solid pace. The RBA said one notable development over the recent past has been a strong pick-up in business credit growth in a number of countries. "This pick-up has been underpinned by above-average growth in the world economy and still below-average interest rates," it said.