The International Monetary Fund (IMF) has issued a warning to Australia’s banking system, claiming the ‘systemic’ and ‘highly-concentrated’ power of the big four poses serious risk.
It released the findings in its Financial Sector Assessment Program, undertaken once every five years in Australia.
It also said elevated house prices remain a concern, and could pose a risk to stability.
“Residential mortgages are the banks’ single largest asset but household debt is high and house prices are elevated,” said the IMF.
It said in a slow credit growth environment, there was a risk banks could undertake ‘riskier’ strategies to maintain profitability.
The IMF recommended a stronger regulation of the big four, urging regulators – namely, APRA- to increase capital requirements.
“To further bolster financial system stability against these risks, we recommend that the authorities continue to emphasise intensive bank supervision and introduce higher loss absorbency for systemically important banks.”