Australia's financial system faces increased risks due to the spread of the coronavirus, or COVID-19, pandemic but it is well placed to manage them, Reserve Bank of Australia said in its Financial Stability Review on Thursday. The central bank observed that capital levels are high and the banks' liquidity position has improved considerably over recent times.
Moreover, the Australian banks enter the downturn with high profitability and very good asset performance.
However, the central bank noted that there are some pockets of vulnerability in business sectors.
Despite measures taken by the RBA and government, the bank said increases in business failures and loan arrears are likely over the coming months.
The bank noted pockets of vulnerability in households even prior to the pandemic. Surveys indicate that about one in five households only have enough liquid assets to get from one pay period to the next.
It is important that financial institutions remain strong so that they are able to support households and businesses during this difficult period and during the recovery once the health crisis has passed, RBA said.