The RBA has warned a flat property market may incentivise lenders to adopt 'risky' lending practices, which it said would “sow the seeds of future problems.”
It made the claims in its twice-yearly Financial Stability Review yesterday.
While banks in Australia were given an overall thumbs-up, it was the risk of lenders softening lending standards to drive profits which had the RBA concerned.
"With demand for credit likely to remain moderate, a challenge for firms in a competitive banking environment will be to resist pressure to ease lending standards to gain market share in the pursuit of unrealistic profit expectations," the RBA said.
"The challenge…will be to avoid taking on unnecessary risk or cutting costs indiscriminately.”
