Australian banks are ‘unquestionably strong’, RBA’s Kent says

AUSTRALIAN banks are “unquestionably strong” with solid capital and liquidity buffers, a senior Reserve Bank of Australia (RBA) official said, alleviating fears that stresses in the global financial system could hurt the nation’s big four lenders.

“Volatility in Australian financial markets has picked up but markets are still functioning and, most importantly, Australian banks are unquestionably strong,” RBA assistant governor Chris Kent said in a speech in Sydney on Monday (Mar 20). He added that banks’ capital and liquidity positions are well above regulatory requirements.

“Banks are already well advanced on their bond issuance plans for the year and could defer their bond issuance for a while,” Kent said. “Even if markets remain strained for a time, Australian banks’ issuance will continue to benefit from the strength of their balance sheets.”

Kent’s remarks come as the Federal Reserve and five other central banks announced coordinated action on Sunday to boost liquidity in their standing US dollar swap arrangements and after UBS Group agreed to buy Credit Suisse Group in a government-brokered deal to contain a crisis of confidence.

In Kent’s speech titled “Long and Variable Monetary Policy Lags”, he highlighted that a greater proportion than usual of fixed-rate mortgages and high household savings buffers were among reasons for a likely longer lag in policy transmission in the current cycle.

The RBA is in the midst of its most aggressive tightening cycle in a generation, having hiked the cash rate by 3.5 percentage points since May to 3.6 per cent. Governor Philip Lowe has expressed a desire to engineer a soft landing in the economy in his battle against inflation and most recently signalled a potential pause to assess the economic situation.

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Kent reiterated that there was uncertainty around the behaviour of Australian households and how their spending might change in a rising interest rate environment. The board will “continue to closely monitor” the transmission of monetary policy and its impact on consumer spending, labour market and inflation, he said.

“The board will respond as necessary to bring inflation back to target in a reasonable time,” he said. “This will benefit all Australians, as high inflation imposes a significant burden on all of us.” BLOOMBERG