Vaccine mess tarnishes RBA's rosy review

·2-min read

KEY FINDINGS OF RBA FINANCIAL STABILITY REVIEW:

*Substantial support from governments, central banks and other regulators has underpinned the resilience of the financial system over the past year.

*But the Reserve Bank warns against over-exuberance and extra risk-taking as asset prices rise.

*Delays in mass vaccination against COVID-19 could stall the economic recovery.

*Progress on vaccines has underpinned expectations for strong economic growth in the next two years.

*Most households remain in a good position to service debts given low interest rates, which look set to remain on hold for several years.

*The additional safety net of large mortgage prepayment buffers is also helping home owners.

*The "wealth effect" of rising housing prices is easing the RBA's fears for distressed sales and mortgage-lending losses.

*But if housing prices continue to rise, affordability problems will intensify, particularly as income support ends for lower-income households.

*Closed international borders and changing buyer preferences bring uncertainty for apartment prices, particularly in inner-city areas.

*The end of loan holidays for households and business will have a "modest" impact on bad loans.

*Australian banks are in a strong financial position coming out of the pandemic.

*Hoarding dividends and raising cheap capital during the pandemic means Australian banks are strong.

*Superannuation funds have substantially increased their liquidity after facing significant challenges in 2020, including early access to retirement savings.

*Super funds most exposed to early release flows of $36 billion had young members who worked in industries hit hard by the pandemic.

*But fears some super funds could lose as much as one-fifth of funds under management did not eventuate.

*Cyber attacks by increasingly sophisticated perpetrators are a growing risk for financial stability.

*Globally, work has resumed by regulators on longer-term risks to the financial system, including climate change.

*Support for corporate disclosure on climate risks and closing data gaps has broadened following the USA's decision to re-join the Paris Agreement.