Australia's banking system remains strong, even though an increasing number of people are having trouble repaying their mortgages, the Reserve Bank says.
The bank's biannual Financial Stability Review, issued yesterday, said Australian banks were performing much better than those in other countries.
''The banks continue to report solid profits, albeit lower than in recent years, are soundly capitalised, and the larger banks have high credit ratings. ... the Australian banking system is considerably better placed to weather the current challenges than many other systems around the world,'' it said.
''Notwithstanding this positive assessment, the banking system is facing a more difficult environment than it has for some years. While the overall level of profitability is high, it has declined recently and problem loans have increased from the very low levels of recent years.''
The level of ''non-performing assets'' or loans whose repayments are not coming in on time rose to 1per cent in December, up from 0.4per cent a year ago.
It was worst for business loans, where the ratio rose from 0.6 to 2.1per cent, and commercial property up from 1.5per cent early last year to 3.3per cent in December.
Non-performing housing loans were 0.48per cent of loans in December, up from 0.32per cent. About 20,000 borrowers were at least 90 days behind on their mortgage repayments a 7000 increase on a year ago.
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