The Australian banking system remains in a relatively strong position despite the Europe crisis continuing to pose risks to global financial stability in the year ahead, said the Reserve Bank of Australia (RBA) in its biannual Financial Stability Review released on Tuesday.
The Australian banking system remains well placed to cope with shocks from abroad as the country has a stable financial system, with robust financial, regulatory, supervisory and crisis management frameworks, according to the RBA.
"The household and business sectors have continued to display a relatively prudent approach towards their finances in recent quarters," the RBA said.
"Many households continue to prefer saving and paying down their existing debt more quickly than required, which has contributed to household credit growth being more in line with income growth in recent years."
The RBA said the Europe crisis were still the major risk to the global economy.
"Many of the underlying problems in the euro area are yet to be effectively resolved," it said.
"Fiscal deficits remain large, many banks need to repair their balance sheets further, and the adverse feedback loop between sovereign and bank finances has yet to be broken."